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Over 1.6 million businesses owe more than $58 billion to Uncle Sam, according to Senator Carl Levin (D-Mich.) at a hearing before the Committee on Homeland Security and Governmental Affairs on unpaid payroll tax abuse. A study by the Government Accountability Office (GAO) concluded that more than half this debt is now uncollectible.

According to Levin, delinquent businesses not only stash away taxes they owe the government but also steal funds withheld from employee paychecks. Levin pointed out that this widespread failure to remit payroll taxes is a felony and a disgrace. Levin said that in 1998, the GAO found unpaid payroll taxes totalled $49 billion but now it has increased to $58 billion. Levin attributed the cause for this increased tax debt partyly to ineffective Internal Revenue Service (IRS) payroll collection efforts.

Levin focused on three of the hosts of problems identified by the GAO. Levin said that GAO’s report disclosed that 70% of all unpaid payroll taxes owed by businesses are due to repeat offenders. Levin also cited the IRS’ failure to make effective use of available enforcement tools and “deadtime in the queue” where cases are left unproductive until a revenue officer is assigned to them and enforcement action is taken.

Senator Norm Coleman (R-Minn.), ranking member of the Permanent Subcommittee on Investigations, referred to those who fail to pay payroll taxes as “deadbeats” and said they are not only breaching their employees’ trust but shortchanging honest American taxpayers. Coleman said that the IRS estimated $44 billion has been transferred from general tax revenues to Social Security and Medicare. Coleman pointed out that the billions of dollars could have been invested in crucial areas such as healthcare, homeland security and education. Coleman also said that tax-cheats are shifting the tax burden onto honest Americans and are gaining an unfair advantage over honest businesses.