Testimony by Senator Bob Kerrey (D-NE)
Before the Ways and Means Committee, U.S. House of Representatives
"The IRS Restructuring and Reform Act of 1997"
September 16, 1997

Mr. Chairman and members of the Committee, it is a distinct honor to testify before you today. Let me begin by explaining why I think this legislation is so important.

There are twice as many people who pay taxes as vote. Citizens' faith that their government can be fair and efficient is dependent on a well functioning IRS.

The core of this legislation is based on a vision for establishing a new IRS and to eliminate the culture and climate that currently exists. A culture and climate that assumes a taxpayer is guilty of wrongdoing no matter the reason for contact.

American taxpayers do not believe the IRS works for them. We believe, in today's world, the job of the IRS is to operate as an efficient financial management organization, working for the American taxpayer. We want a citizen who calls the IRS to get a helpful voice, not a busy signal. We want it to be easy to file a tax return. And we want the IRS to be as eager to save taxpayer dollars as it is to collect them.

It is a myth that the bulk of the federal revenue is generated through heavy enforcement. While the IRS must maintain a strong enforcement presence, its core and the core of the federal revenue stream lie in a revamped, modern organization that can assist taxpayers promptly and efficiently, track account information, and send out clear notices.

There is a breathtaking gap between the service levels of the IRS and those of the private sector. The IRS has a 20 percent error rate for processing paper returns and expends an incredible amount of resources and focus to correct these errors. It captures only 40 percent of the data from returns and is still drowning in a sea of paper. It is typically 18 months before a return can be matched against 1099s. Can you imagine your bank waiting 18 months to send you your VISA statement? They probably wouldn't stay in business very long.

Today, I will focus on our proposals for Executive branch governance and consolidated congressional oversight.

Commission Recommendations Congressman Portman has outlined the Commission's recommendations. They were developed to address systemic problems which we identified. We found that we in Congress often send conflicting signals to the agency. We found that Treasury has basically left the IRS to its own devices, leaving a vacuum in the Executive Branch oversight of the agency. And, for a number of reasons, we saw how institutionally difficult it is for the IRS and Congress to effectively work together on IRS strategy.

In short, at the top levels of the IRS and at Treasury there are murky lines of accountability, a lack of necessary expertise to operate in the new information age, and no people of authority with significant tenure to get the job done. The officials at the Treasury Department have expertise in tax law, but do not have the expertise in areas of customer service, technology, and management to oversee the IRS. Worse, they are not around long enough to ensure focus on multi-year projects like the Tax System Modernization (TSM) or changing the culture of the agency to be more responsive to taxpayers. Aware of these glaring problems, the Restructuring Commission began developing ideas for a new governance structure. Our criteria for success were: (1) clear accountability, (2) expertise in running a modern customer-oriented organization, and (3) continuity.

To provide for accountability, expertise and continuity the legislation creates an IRS oversight board. Members of the board will include the Treasury Secretary, Union President, and private citizens with expertise to assist the Treasury Department in overseeing the IRS.

At this point I would like to address directly the recent criticism of this proposal, that part-time CEO's will take control of the IRS. This allegation is absurd. In fact, our proposal is about getting the IRS to work for the American people -- who think the IRS is out of control and working against them.

There is a long tradition in our country of citizens participating in their government from citizen review boards of police departments, to independent counsels investigating political corruption, to the Postal Service where part time, private sector board members have responsibilities for operations, and the postal inspection service. To suggest that there is no place for citizens to help government run better is to fly in the face of our democratic (small "d") traditions. Under our proposal, the President will appoint whoever he sees as most qualified to do the job -- and they will have to be confirmed by the Senate. The Secretary of the Treasury will probably, in practice, make the appointments, and will sit on the board to make sure they are doing their job. This model of government using the expertise of citizens will ensure that the IRS is accountable and ensure that it works for the people.

I was pleased to see a copy of the joint letter of support for our proposal sent by former Treasury Secretaries James A. Baker and Nicholas Brady. Both are distinguished public servants who have a firsthand knowledge of the IRS and its operations and a key interest in making government work for the American people. Their letter spoke to the heart of the matter in stating that they saw the IRS oversight board as "an effective mechanism to assist the Secretary of the Treasury in IRS oversight." That is precisely our intention -- to create an entity that will assist the Treasury Secretary with the mammoth task of overseeing our tax system.

Congressional Oversight Our legislation also ensures that congressional oversight will be coordinated among the authorizing committees, the appropriating committees, and the government oversight committees. Our legislation codifies coordinated oversight, stating that committee leaders, majority and minority, meet regularly to ensure that the IRS receives clear guidance from Congress, and that Congress is given the proper information to oversee the IRS.

With clear direction from Congress together with an oversight board, the IRS will finally truly be accountable to the people.

The Administration has come up with their own proposal which you will hear more about from Secretary Rubin today. They would like to create two advisory type boards which attempt to strengthen Treasury's governance of the IRS. The first would consist of over a dozen political appointees from the Administration and the second would be composed of 14 advisors with no real responsibility. While we are encouraged by the Administrations agreeance that the IRS must change, we believe our proposal is much more comprehensive and will provide a more thorough guide to creating a more efficient, effective, customer service oriented IRS.

Conclusion Mr. Chairman and Members of the Committee, Congress, the Administration and the American people know that the status quo is no longer tolerable and that the IRS needs fixing. $3.4 billion was wasted on a failed modernization project for its computer systems. Its operations are antiquated and outdated, and taxpayer (close to 90% of whom voluntarily pay their taxes) are generally, and unfairly, treated as if they are guilty of something when they contact the IRS.

The IRS's problems are rooted in the lack of strategic vision and focus, measures that do not encourage employees to treat taxpayers well, operational units that do not communicate with each other, and a systemic lack of expertise and continuity in management and governance. The Commission worked in a bipartisan, bicameral manner to come up with a reasoned, comprehensive approach to fixing these problems. We hope you will work with us to strengthen our legislation and implement it into law so that the American people have the IRS they expect and deserve.

Indeed, this legislation -- if enacted -- will go a long way toward restoring taxpayer faith not only in our tax system but in the faith that ours is a government truly "of, by and for the people."