FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, distinguished members of this Committee, it is a pleasure to speak with you today. Soon after becoming Secretary of the Treasury, I began to see that the IRS was greatly in need of change. Just as many of you in this committee have been strongly focused on IRS reform, I became involved out of my concern that there were deep problems at the IRS, problems that developed over years, even decades, and problems that will take years to fully solve. The phones weren't being answered, the computers didn't work, and American taxpayers were too often being treated improperly and too seldom getting appropriate service. As a consequence, we started a highly intensified process of reform and change about two years ago. Though we have begun to make progress in some areas, there is an enormous challenge ahead including internalizing the commitment to change and reform. We must all work together constructively to meet this challenge.

Many have already contributed to the irreversible process of change under way at the IRS. We at Treasury are committed to continuing to provide our full assistance and support. The Vice-President's National Performance Review, in conjunction with Treasury and the IRS, produced an important set of recommendations on customer service. The Commission on IRS Restructuring, co-chaired by Senator Kerrey of this Committee and Congressman Portman, has been an important forum for analysis and an effective catalyst for IRS reform. And this Committee, in its hearings last fall, brought to light serious and intolerable abuses at the IRS -- abuses that have now been vigorously explored in the IRS' two recent reports, and will be further explored in one report not yet completed.

I am deeply troubled by the reports' conclusion that the inappropriate use of enforcement statistics has put taxpayer rights in jeopardy in districts around the nation. This is an unacceptable situation and strong steps have been taken by the IRS to end this practice. We at Treasury and Commissioner Rossotti are committed to fundamentally changing the agency to one that respects taxpayer rights while collecting the taxes due. And in recent months, significant steps have been taken to address these problems, including stopping the use of revenue goals in field offices, beginning to develop a new set of performance measures that address customer service and taxpayer rights, establishing more independent reviews of each district's compliance with the taxpayer bill of rights, and initiating monthly Problem Solving Days.

Despite the many, far-reaching problems, and fully recognizing the immensity of the challenge, I think there is good reason to expect substantial progress in the years ahead. The IRS is now guided by the firm hand of its new Commissioner, Charles Rossotti -- an individual quite unlike any previous Commissioner -- who brings with him 28 years of private sector management experience in the area of information technology and who has already begun to bring changes at the IRS. Our reform efforts over the past two years -- in addition to producing Commissioner Rossotti -- have resulted in setting technology on a new course, increased electronic filing and telefiling, and improved telephone service. The GAO recently released a report that praised the IRS' performance during the 1997 filing season, citing "substantial improvement" in two critical areas: telephone accessibility and the use of alternative filing methods. And the legislation passed with bipartisan support in the House last November promises to help bring the IRS into a new era.

Congress can continue to contribute vitally to reforming the IRS through adequate funding, effective oversight, and, most immediately, through passing the bill passed by the House as soon as possible.

This bill contains important measures that will help build the IRS we all want to see:

• it provides for increased continuity and leadership at the IRS, by providing that the Commissioner serve a fixed five-year term, and it provides a range of personnel management reforms, although we would like to go further in improving managerial flexibility in selecting and managing personnel;
• it contains additional steps to strengthen taxpayer rights, including many of the President's taxpayers' rights proposals announced last year;
• it has important measures to expand electronic filing, which will decrease paperwork, increase efficiency, and save money;
• finally, the bill contains new governance arrangements providing for valuable input from the private sector and effective outside oversight, while maintaining the authority and accountability with respect to the IRS within the existing structure of the federal government, with the on-going oversight and synergies that that can provide. We would also recommend semi-annual testimony be required of the Secretary and Deputy Secretary of the Treasury, on the IRS, to use public accountability to see to it that future Secretaries and Deputy Secretaries take their responsibilities with respect to the IRS with the greatest seriousness.

In short, Mr. Chairman, this bill will help continue the process of change at the IRS in the months and years ahead, including an intense focus on eliminating the abuse of taxpayers that has been brought to light in recent months. It is clear that the IRS must focus more on taxpayer rights and quality customer service, while at the same time collecting the revenue due. In that regard, we must remember that those who cheat on their taxes increase the burden on all the rest of us.

Mr. Chairman, IRS reform is an issue of immense national importance, and one which we take with the utmost seriousness. We can debate whether to continue with the current progressive income tax system, or change to some other system, but we should not let that debate affect our support for the absolutely vital task of serving the American taxpayer and collecting the revenue due. Our society depends on effective tax collection to fund 95 percent of the services of the Federal Government, from defense to Social Security, and there are large numbers of hard-working employees at the IRS who are committed to doing the job properly -- as was demonstrated to me when I visited one regional office on the first nationwide Problem Solving Day last November.

The new IRS will need to be the work of many hands. As we go forward we must all work together in a constructive spirit in helping the IRS meet the many serious challenges it faces, including each years tax collection, the fundamental transformation now underway, and dealing with the year 2000 conversion, a subject which I know is of particular interest to members of the Committee.

I believe that in Charles Rossotti we have a Commissioner who both symbolizes the transformation under way and is exceedingly well-suited to provide transforming leadership. He needs your constructive engagement to get the required tools -- and I believe an important step would be to adopt IRS reform legislation that will shortly be before you. I look forward to working with you, Mr. Chairman, the members of this Committee, the men and women of the IRS, the National Treasury Employees' Union, and all other interested parties as we take the steps necessary to transform the IRS into and institution that meets the needs of the American people. I would now welcome any questions.