Here's a debt reduction plan: Collect billions from tax cheats

One niche industry helps taxpayers avoid paying taxes altogether. Between 1 million and 1.5 million Americans are believed to have undeclared offshore accounts where untaxed income is hidden and accessed through credit and debit cards, said David Callahan, a senior fellow at Demos, a liberal research and advocacy group in New York.

Others hide money in phony offshore companies under the guise of payments for business services.

Callahan said the Taxpayer Bill of Rights made it easier to cheat by requiring the IRS to show evidence of intent to prove tax evasion.

"Sophisticated people know that if you cheat on your taxes and get caught, you're going to have to pay the money back. But if you say 'I lost my receipts,' 'I didn't understand how the deductions work,' you're off the hook," Callahan said, with "a slap on the wrist."