FROM THE OFFICE OF PUBLIC AFFAIRS

It's April 15, do you know where your tax return is?

Hopefully, for your sake, it's in the mail, and the headaches are behind you. But if you haven't filed yet, no need to rush from lunch -- the main post office here on Michigan Street is open until midnight tonight.

I do have some good news today. Because of the President's tax relief plan enacted last summer, working Americans are keeping more of what they earned last year, and will keep even more of it this year. And small business owners will find it less difficult to invest and create new jobs.

But clearly, we have more work to do. Even after the President's tax relief, total tax receipts in 2002 are expected to be over 19 percent of GDP, compared to an average of 18 percent over the last fifty years. Not only is the government's tax take at a record high, but taxpayers pay the additional burden of complying with a tax code so complex that it is an abomination.

As Treasury Secretary, I have to oversee the administration of this tax code and the IRS employees who face the impossible task of sorting through the paperwork and the complexities of 9,500 pages of tax law. We have got to simplify the system, for the sake of every taxpayer and for the sanity of these IRS employees who are just trying to do their jobs.

I'd like to talk about what this Administration has done to bring the tax system under control, including the President's historic tax relief program, and our goals for further reforms. I'd also like to talk about Treasury's plans for tax code simplification, and improved enforcement measures, to ensure that all taxpayers get fair treatment. Finally, I will make some remarks on the state of our economy - the source of all our tax revenue.

TAX RELIEF

Last year's tax relief plan was a great achievement for the President and, I believe, for our economy.

Consider what we achieved. The refund checks last summer and fall distributed $36 billion to American consumers when we needed it the most, at the nadir of the slowdown. We immediately cut the 15 percent income tax bracket to 10 percent, benefiting every worker who pays income taxes. As the full package phases in over the next few years, all the tax rates will fall.  Over the next 10 years, the child credit will double, up to $1,000 per child and the marriage penalty will be dramatically reduced.  The death tax will be completely abolished.

All told, 104 million individuals and families will get an average tax cut of about $1,040.

We didn't stop there. Last month the President signed into law new tax incentives for companies to invest in new plants and equipment, to speed the economy's return to strong growth. I think business investment will be a key reinforcement for continuing economic recovery. The Job Creation Act was designed specifically to encourage investments, especially from smaller businesses.

I know all this sounds good on tax day. It is good. But there's a catch -- a money-back guarantee for the government. Last year's tax relief provisions expire in 2011. We need your support in urging Congress to eliminate the "sunset" provision on tax relief. Uncertainty stemming from the sunset clause will undermine investment, so the earlier we act on this, the better. We would like to see Congress make the tax relief permanent this year.

TAX SIMPLIFICATION

High tax rates aren't the only burden on investment and job creation in our economy. The compliance burden also is a drain on our economy and undermines public faith in government. Taxpayers spend as much as $125 billion each year, or about 1% of GDP, just trying to comply with the tax code. That doesn't include the $9.4 billion they spend to pay for the IRS to administer the code. The complexities in the tax code divert resources into unproductive compliance costs - employing lawyers and accountants instead of productive engineers and innovators. My apologies to lawyers and accountants in the audience - I'm sure you're all very nice people. But our economy would be better off if we could simplify the tax code and retrain you all as engineers!

Simplification is easier said than done. Somebody had a reason for each word that's been inserted into the 9,500 pages of the tax code. The tax code wasn't born from immaculate conception.

At Treasury, we are conducting a comprehensive review of the tax laws and their complexities, trying to find fixes for some of the biggest headaches.

We are releasing the first of these reports today - focusing on the confusing definitions of child in the tax code. Did you know there are five different definitions of child in the tax code? You'd think it would be easy to know if you have a child living in your household or not. But don't be so sure. That youngster at your dinner table has to fit into one definition to be counted as a dependent, and has to meet a whole different definition for you to take the child tax credit. Try to claim the child and dependent care tax credit, and you have to first make sure that youngster fits yet another definition of child in the tax code.

In tax year 2003, there will be over 52 million taxpayers with children. The child credit, the child care credit, the Earned Income Tax Credit and other provisions are there to help these taxpayers by reducing their tax burden. Why should we make it so difficult for taxpayers with children to receive these benefits that clearly the Congress intended?

Today we are proposing to harmonize the definition of child - to save parents the headaches of wading through technical definitions and to reduce the number of mistakes that taxpayers and the IRS then have to sort through and correct.

In the coming weeks, we'll be releasing additional proposals to simplify the tax code, both for individuals and for businesses. Businesses spend countless hours battling the IRS over timing of deductions -- not whether or not a cost is deductible, just whether the deduction should be taken this year or next. As with most regulations, the burden falls disproportionately on smaller business owners, who can't afford a whole tax department to muddle through these questions.

The American people deserve a better system. I hope that by publishing detailed descriptions of these complexities, we can begin a cooperative effort with the Congress to undo some of these knots.

TAX ENFORCEMENT

I should also add that as we reduce the tax burden on our economy, and simplify the code, we are taking new steps to make sure that all taxpayers are paying their fair share. There is no excuse for cheating your fellow citizens. Unfortunately, there are unscrupulous promoters out there who take advantage of tax complexities and loopholes, marketing questionable transactions to taxpayers.

We have already started introducing proposals to combat this kind of abusive tax avoidance, strategies that deliberately violate the spirit of our laws. These transactions are unfair to the vast majority of taxpayers, who do their best to comply with the code, even with its difficulties.

THE ECONOMY

I want to switch gears now and talk about how our economy is doing.

I have always been an optimist about the U.S. economy. Sometimes, like last fall, optimism seems like an act of faith. Other times, like today, optimism seems to be the obvious choice.

I hardly have to tell this crowd that our economy slowed sharply in 2000, with GDP growth rate and job growth rate declines beginning mid-year, business capital spending plummeting in late 2000, and accelerating declines in most indicators through mid-2001. By August 2001, however, I believed that we were already on track for a fourth quarter rebound.

Then September 11^th happened. Financial markets were shut down for almost a week. Air transportation came to a standstill. Consumer activities froze as families stayed home in front of their televisions, uncertain about the future. As a result, GDP fell an annualized 1.3 percent in the third quarter of 2001.

Even then, I remained optimistic, and that hope now appears justified. In spite of the terrorist attacks, our economy still grew in the fourth quarter, confounding doomsayers. The latest indicators show that our slow period last year was one of the shortest, shallowest downturns on record.

Based on my own reading of the numbers and conversations with business people spread around the economy, I believe we are going to see continued improvement throughout 2002. Productivity growth will stay strong, if not always at the 2001 fourth quarter's record-setting rate. Business spending will revive, as companies gradually restock the inventory pipeline and invest in those high return projects that have been on hold. Consumers will continue to play their key role and by year-end, I expect we will approach the 3 to 3.5% annual growth rate that the U.S. economy can sustain.

Why was the slowdown so short? Several reasons. The most important is that the United States has the most advanced and flexible economy in the world. Employers took immediate steps to turn things around, and the result was an eye-popping 5.2% productivity growth in the fourth quarter of last year. Add in the effects of the President's well-timed tax cut, and my friend Alan Greenspan's actions at the Federal Reserve, and you see why our economy is poised to return to robust growth.

Thank you.