Restructuring the IRS - No Time for Beltway Politics

By Ernest J. Dronenburg Jr.

Clearly, the level of distrust and lack of confidence in our system of taxation has reached an all-time high. It has spawned proposed solutions that range from scrapping the Internal Revenue Code (Code) and the Internal Revenue Service entirely, in favor of a flat-tax or a national sales tax, to simply increasing taxes and further complicating an already overly complex system.

Compliance costs have never been higher, and those costs threaten the very nature of our voluntary system of taxation. If one thing is certain, major change in tax policy is in the offing and the debate is likely to be of a more fundamental nature than any other reform since the 1913 imposition of the income tax.

Congress, however, has embarked down a path that, in my opinion, holds great promise for restoring Americans' faith in the administration of our system of taxation. By establishing the National Commission on Restructuring the Internal Revenue Service, Congress and President Bill Clinton have acknowledged the necessity of bringing a redefined IRS into the 21st Century in preparation for what is sure to be sweeping policy change and reform of the current Code. The tax policy debate has yet to reach a critical stage but reform of the way we administer our tax system is timely and crying out for leadership.

That is why I accepted Speaker Newt Gingrich's appointment to the commission. That is why I now call on the president and Congress to move swiftly in adopting the commission's report, A Vision For A New IRS, which was delivered to Congress and the president June 25 in Washington, D.C. That report is now embodied in HR 2292, recently introduced by Congressman and (Commission Co-Chair) Rob Portman (R-Ohio) and Congressman Ben Cardin (D-Maryland).

The baseline of the commission's work consciously avoided tinkering in the margins in favor of a thoughtful, comprehensive redesign for a new IRS. The new design was based on the belief that the IRS should not be compared to other national tax systems, but rather a similar type of institution in the private sector. All 17 members of the commission (nine Democrats and eight Republicans) agreed that the job of the IRS should be to operate as an efficient financial services organization. They concur that the days of the old "tax collector" are over. They agree it is a myth that the bulk of federal revenue is generated through heavy enforcement. In fact, it is quality service that drives better compliance.

Our goal was to recommend changes that will develop a revamped, modern organization that can track finances, send out clear notices, and assist taxpayers promptly and efficiently.

The commission split the project into six core elements with a task force assigned to study each element. I served on the Management and Governance and the Administration and Workforce task forces. Each task force made specific recommendations designed to steer the IRS toward the commission's vision for a new IRS. These were the core elements of study: Taxpayer Services and Taxpayer Rights; Management and Governance; Administration and Workforce; Technology Financial Management, and Tax Law Complexity.

Delivered on time and under budget, the commission report included a series of recommendations within each of the core elements. All but one key recommendation enjoyed bipartisan support of all commission members. Eight pages of findings, 55 pages of recommendations, eight separate views of individual commission members and over 11 appendixes join to make up this extraordinary effort, the first report of this type in 40 years. The number of recommendations in each core element are too numerous to specifically outline here, but they all fall within three general categories that I have dubbed the "Three Ps - People, Paper, and Process."

People: Taxpayers should be treated as customers, and IRS employees should be trained and equipped accordingly. This is best expressed in one of the commission's guiding principles, "Taxpayer satisfaction must become paramount at the new IRS that as an agency should never initiate contact with a taxpayer unless prepared to devote the resources necessary for a proper and timely resolution of the matter."

Paper: We must get as much of the manual paper processing out of the system as possible. There are two sides to this issue as part of the key recommendations. One, the IRS must update its technology and treat taxpayer information as a strategic asset to improve its customer service and compliance functions. Second, the IRS must develop a strategic marketing plan to make paperless filing the preferred and most convenient means of filing for the vast majority of filers within the next 10 years.

Process: The current external and internal structures of the IRS make good management almost impossible. Externally, there exist seven (that is right, seven) congressional oversight committees the Service must contend with that often give contradictory direction and invariably require redundant work from the IRS. As a solution, the commission recommends that congressional oversight be restructured, combining into a single entity all current oversight committees.

Internally, the average tenure of both the commissioner of the IRS and the Department of Treasury managers is less than three years. This lack of continuity in IRS top leadership has institutionalized a lack of accountability and provided no opportunity for long-term planning opportunities. The two individuals with administrative oversight and management responsibilities for the IRS, the secretary of the Treasury and his deputy, have management responsibilities for the economy and 14 other active agencies. With that level of macro management responsibility, it is impossible to give the IRS adequate attention, let alone consistent, clear and long-range strategic guidance by this or any other Treasury secretary.

As a solution to the internal management and governance inadequacies, the commission recommends that the IRS administrative policy duties should be turned over to a Board of Directors to provide expertise and continuity to ensure that the IRS achieves its mission. Board members will be appointed by the president and confirmed by the Senate for five-year terms. In addition, the commissioner of the IRS would be selected by the Board, and recommended to the president for appointment to a five-year term. The commissioner would also be given discretion with the selection of the top level of IRS management. The Board would have the ability to set compensation of the top managers and to remove them for cause.

It is this recommendation that has proved the most controversial. And it is this provision of the HR 2292 that will face partisan resistance in Congress. In the waning days of the commission's work when recommendations were being finalized and votes were being taken, Treasury Secretary Robert Rubin and Deputy Secretary Lawrence Sommers began in earnest their criticism of this particular recommendation, using as foils criticisms that have already been settled by the commission. Regrettably, they have advised the president to protect bureaucratic turf rather than show leadership for the American taxpayer. The current Administration seems to see this recommendation as a personal attack. However, in fact, it is a reasonably crafted compromise that addresses directly those problems rooted in antiquated attitudes and structures that pre-date this Administration by decades. If the president follows his staff's distinctly "beltway" advice, he will have chosen their bruised egos over this nation's best interests and may be able to mobilize enough partisan bootlickers in Congress to block this important provision. Already he has fallen prey to some of this bad advice. In an effort to co-op the provision, he issued an executive order creating a "management advisory board" for the IRS. The White House strategy is simple. Create a captive, powerless political body and pass it off as equivalent to the Board of Directors contemplated by the commission. This is the very kind of "superficial attention" the IRS has been getting over the years and is precisely what the vast majority of the commission is dedicated to changing with this provision.

I believe that if Congress and the president show the leadership necessary to step up to and embrace the work of the commission, there will be significant changes at the IRS. Change that can be measured by getting a "yes" answer from the American people if asked the following questions:

• Was filing your tax return easier than the previous year?
• Did IRS personnel treat you respectfully and professionally?
• Were all of your questions and problems handled as smoothly as account inquiries with your bank, credit card company, or utility?

The first step in regaining the American people's trust in the IRS is the passage of HR 2292 in total. The second step would be for all the parties, particularly the president, to rise above the beltway "turf game" and sign the bill. If the commission's total recommendations become law, I believe they will operate to transform the IRS into a world-class service organization that is efficient and accountable.

Please write your Member of Congress to express your support of HR 2292. For a full text of the report visit the commission's website at: www.house.gov/natcommirs/main.htm