STATEMENT OF CONGRESSMAN ROB PORTMAN
COMMITTEE ON WAYS AND MEANS
September 16, 1997

I. INTRODUCTION

Thank you, Mr. Chairman, and my colleagues on the Committee for giving me the opportunity to testify today. And, special thanks to you, Mr. Chairman, for making H.R. 2292, the IRS Restructuring and Reform Act, a top priority of this committee; in fact, notwithstanding some differences in approach that will emerge this afternoon, I think it's safe to say that I join every member of this Committee in commending you for undertaking this challenge to transform the Internal Revenue Service and vastly improve its services to American taxpayers.

My focus today will be on H.R. 2292, the bill Ben Cardin and I introduced and many of you have co-sponsored. It implements the recommendations of the National Commission on Restructuring the IRS, and includes the first comprehensive reforms of that agency since 1952. I'll briefly discuss the Commission's process and outline our major proposals in the areas of governance and oversight.

II. COMMISSION'S WORK

The 17-member IRS Restructuring Commission, which I co-chaired with Senator Bob Kerrey, was established by Congress and included Senator Grassley and our colleague Bill Coyne, as well as a diverse group of professionals with real expertise in IRS problem areas. Eight Commissioners were appointed by the Republican Congressional Leadership; nine were chosen by the Democratic Congressional Leadership and the Clinton Administration; the Commissioner of the IRS was an ex-officio member.

During its year-long existence, the Commission conducted 12 days of public hearings, three town hall meetings around the country, and hundreds of hours with experts inside and outside the IRS. After this extensive year-long process, 12 of the 17 Commissioners -- on a bipartisan basis -- voted in favor of the recommendations. And, just last month, the one ex officio member, then IRS Commissioner and now private citizen, Margaret Richardson, said that had she had the opportunity, she too would have voted for the report.

By taking an objective, nonpartisan, but tough-minded approach, I believe the Commission came up with a realistic, balanced and credible plan for achieving the goal of truly transforming the IRS into a responsive, taxpayer friendly service organization.

III. FUNDAMENTAL PROBLEMS AT THE IRS

The problems at the IRS are well documented. The attempted, computer modernization--including the $3 - $4 billion misspent -- has been nothing short of a disaster. Only half of those calling are getting through on the IRS help lines. The organization is dominated with an enforcement mentality, even though close to 90% of taxpayers comply voluntarily.

Most efforts to reform the IRS have focused on these and other specific problems, usually after the fact and in response to a crisis. The Commission took a different approach: we focused on the fundamental structural flaws, which, if fixed, we believe can solve the problems and sustain quality management and service over time. Three fundamental flaws were identified: a lack of expertise, a lack of continuity and a lack of accountability.

First, expertise. While the "service revolution" has swept the private sector and some other government agencies, the IRS has lagged far behind. Why? Because the IRS and Treasury have lacked people with expertise to guide a modernization effort -- to competently address the huge organizational challenges involved with over 100,000 employees handling over 200 million tax returns a year.

As you review competing oversight proposals, ask yourself: do you believe the necessary expertise is there to ensure the tough questions get asked and the IRS turns itself around?

Second, continuity. In our view, the IRS's core problems will take three to six years to solve. They must retrain the workforce, build a new computer system, and put in place new measurement systems to ensure employees have more respectful interactions with taxpayers. This will require sustained leadership. Historically, the leaders at IRS and Treasury have had very short tenures of two to three years, not long enough to get the job done.

Third, accountability. We must hold people's feet to the fire. Our proposals ensure that someone is there to support the Commissioner and the agency when they are doing a good job and to hold them accountable for results when they are not. The bottom line is that we found an IRS that has been largely independent of consistent, expert oversight.

IV. COMMISSION RECOMMENDATIONS

The Commission's recommendations and our legislation address each of these three fundamental flaws. And I want to remind the Committee that even though the Oversight Board has drawn the most attention because of Treasury's opposition, it is only part of a much broader, comprehensive package that taken together, will lead to a more accountable and responsive IRS. Among other things, our bill includes taxpayer rights, electronic filing, tax simplification and workplace flexibilities. Oversight at this end of Pennsylvania Avenue is also streamlined and improved by consolidating Congressional committee oversight to ensure that Congress provides much clearer guidance to the IRS.

But, let's go to the core of Treasury's concern: the IRS Oversight Board -- its members are appointed and removable at will by the President and confirmed by the Senate for five year staggered terms. They are special government employees while serving and thus subject to disclosure and conflict of interest rules, and they will be barred from any involvement whatsoever in individual tax cases, specific law enforcement activities, procurement or tax policy.

The Board's functions are very clear: to approve the long-range mission and annual strategic and operational plans of the IRS; to support and oversee IRS top management; and to review and approve the IRS budget and to submit it to the Secretary of the Treasury, who has final approval. The nine-member Board includes the Secretary, a representative of IRS employees, and seven individuals who, collectively, would bring needed expertise in information technology, compliance, customer service, taxpayer needs, and management of large service organizations.

Without such a body, the structural flaws won't be addressed and the problems will continue to fester.

I know current Secretary Rubin disagrees with the need to establish a new oversight structure with real authority claiming that the decades-old vacuum can be filled by Treasury. But neither the record nor common sense support this.

Let me be clear. This is not about the Clinton Administration and certainly not about this Secretary of the Treasury -- for whom I have great personal respect -- and who has in the past year focused considerable attention on the IRS and our recommendations. This is about a fundamental flaw in the system. Yes, on paper Treasury cedes some authority over the IRS, which is 64% of Treasury's workforce and 70% of its budget. But I truly believe and, much more importantly, former Treasury Secretaries Nicholas Brady and James Baker believe, that this structure should not be viewed as a threat to Treasury's turf, but, and I quote from their letter, "as an effective mechanism to assist the Secretary...in IRS oversight."

V. CONCLUSION

I thank my colleagues for their attention and look forward to working together with you to transform the IRS for the taxpayer -- they deserve it. Thank you, Mr. Chairman.