The Great American Tax Dodge is one depressing book for those of us who pay what we owe at tax time. It appears that law-abiding taxpayers are on the way to becoming an endangered species.

"Americans are cheating like never before," Donald L. Barlett and James B. Steele tell us. "One of every three people, perhaps as many as one of every two, is doing it."

They estimate the lost revenue at roughly $300-billion a year and say it threatens to destroy the tax system and undermine Social Security.

How do the tax dodgers get away with it? Mostly they lie -- about their deductions, their dependents and their sources of income. With the help of the Internet, many of them also set up layers of trusts and shuttle money among offshore bank accounts to create a tangled web of transactions. And they count on the fact that the IRS is overwhelmed, understaffed and unlikely to catch them.

Barlett and Steele bolster their thesis with examples taken from court files involving divorce cases and business deals gone bad. Among others, readers meet Stanley and Jean Schulman who stopped paying taxes 30 years ago, claiming they had no income even though they lived in a gated community outside Los Angeles and acquired late-model cars for themselves and their six children.

Barlett and Steele, editors at large for Time Inc., criticize the IRS for ineptitude and for pursuing the powerless while ignoring wealthy cheats whose complex financial affairs and good lawyers make them more difficult targets.

But they reserve their real contempt for Congress for cutting the IRS's budget, undermining enforcement and handing out tax breaks to contributors.

Congress, they say, "has created widespread contempt for the income tax and made it socially acceptable for Americans to cheat on their taxes."

The IRS says it's trying to combat fraud. Last month the agency announced that for the first time in six years, it will be filling vacant positions. It also says it is going after off-shore tax havens and abusive trusts.

"No one should underestimate the IRS's ability to discover cases where people aren't paying their fair share," Commissioner Charles Rossotti warned.

Barlett and Steele, who have won two Pulitzer Prizes for their previous work, favor a revamped tax system with no credits or deductions and no distinction between earned income and investment income. They also want universal withholding.

The Great American Tax Dodge may promptsome honest taxpayers to lobby for changes in the system, but probably will have others joining the cheaters. "Everybody's doing it" has never passed muster with Mom or the IRS, but it can be a difficult argument to ignore.

-- Helen Huntley writes about business and personal finance for the Times.

THE GREAT AMERICAN TAX DODGE:

How Spiraling Fraud and Avoidance are Killing Fairness, Destroying the Income Tax and Costing You

By Donald L. Barlett and James B. Steele

Little, Brown, $22.95

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