We are a nation of tax cheats. In 2001, the difference between what Americans and businesses owed in taxes and what they actually paid voluntarily was $345 billion.

The enormous amount, known as the “tax gap” has been vexing politicians and IRS bureaucrats ever since it was quantified in 2005. Of course, one way to increase U.S. tax revenue is to raise taxes; another way is to better collect taxes already due.

The most effective tool in the government’s quiver to do the latter is not an IRS agent – it’s information dissemination. Creating paper trails and telling people and businesses that the government has a copy of those paper trails is amazingly effective in curbing cheating. Sen. Max Baucus, chairman of the Senate Finance Committee, which has jurisdiction over tax policy, said in a floor speech on Tuesday, “research demonstrates that voluntary compliance doubles when information reporting is in place. The rate rises from 46 percent compliance to 95 percent compliance.”

And this is what the current fight over small businesses, health reform and 1099 forms is all about.