FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, Senator Grassley, and Members of the Senate Finance Committee:

I am honored to appear before this Committee as President Bush’s nominee to serve as Assistant Secretary of the Treasury for Tax Policy. I am humbled by the confidence that the President and Secretary O’Neill have placed in me by giving me the opportunity to serve my country in this capacity. I am especially grateful for the courtesy extended to me by this Committee.

The Committee holds a special place for me because of my husband Grant Aldonas’ service as Chief Trade Counsel for the Committee prior to his appointment as Undersecretary of Commerce. His admiration and respect for the Members of this Committee only increased as he observed first hand the difficult issues you face, the tough decisions you make, and the grace with which you discuss your differences and serve the country.

Eighteen months ago, I accepted Secretary O’Neill’s offer to return to government service as Deputy Assistant Secretary of the Treasury for Tax Policy. During the past 18 months, I have had the opportunity to work with Committee Members and staff. I want to compliment you on the talented staff you have assembled to assist and advise you. The cooperative and bipartisan manner in which the Members and the staff work benefits the country. I pledge to work with the Committee in the same cooperative spirit if confirmed by the Senate.

Difficult issues are routine for this Committee, but I believe the tax system faces several critical issues in the coming years. I hope to have the opportunity to assist the Committee in addressing them. I want to mention just two of these important issues – two that I believe are closely linked: tax complexity and tax compliance.

Emperor Joseph II once said of Mozart’s composition, it has "too many notes, my dear Mozart." A similar observation may be fairly made of our tax laws. Unfortunately, while we may reserve Mozart’s compositions for talented and trained musicians, being a virtuoso is not a prerequisite for complying with the tax law. Rather ordinary folks must deal with it, and those ordinary folks can no longer handle the complexity. Of course, much complexity may be attributed to the complicated world in which we live and the difficulties inherent in properly defining and measuring income. But that is not the sole source of complexity, and we have not always done all we could to minimize it. Complexity burdens the economy, hinders tax administration, leads to unintended results, feeds the proliferation of tax shelters, and weakens our self-assessment system. I know complexity is a concern of this Committee, and if I am confirmed, I pledge to make it a high priority during my tenure.

This Committee has shown particular leadership in addressing tax compliance concerns. In 1998, the Committee’s work resulted in a significant restructuring of the Internal Revenue Service. While the restructuring was painful even to the outside observer of the organization, fundamental change was necessary, and I believe we will see the fruits of that change in the years ahead in the form of increased taxpayer service and better-focused compliance programs.

At the same time, there is much to be done on the compliance front. This Committee has shown thoughtful leadership by keeping compliance front and center. Chairman Baucus and Senator Grassley were among the first to shine the light on the problem of tax shelters. During my 18 months at Treasury, I have been pleased to work with Committee staff in considering many difficult compliance questions, particularly issues related to abusive tax avoidance transactions, and the most effective ways of addressing them. Working together with former Assistant Secretary Mark Weinberger, Commissioner Rossotti, and Chief Counsel B. John Williams, we have endeavored to resolve and remove from contention other issues – issues more appropriately resolved with published guidance – that absorb too many Internal Revenue Service enforcement resources and distract from far more significant compliance issues.

I believe our self-assessment system is strong, but keeping it strong requires the confidence of the citizenry. Complexity is an important component of compliance. The belief that the tax laws bestow on certain taxpayers opportunities to minimize their taxes has a corrosive effect on our tax system. It leads taxpayers to question its fairness. The complexity in our tax laws and the many targeted provisions contribute to taxpayers’ concerns that somebody got something they didn’t but should have. It also creates crevices and shadows where those who would cut corners can hide. This should concern us all. Research by social scientists suggests that, when it comes to complying with the law, the belief that the laws are legitimate and ought to be complied with has a stronger motivating effect than the fear of being caught.

I hope to have the opportunity to continue to work with the Committee on both of these important issues and the many others that confront the tax system.

I look forward to continuing to serve in the Office of Tax Policy. The staff in the Office of Tax Policy is an extraordinarily talented and dedicated team. Like the staff of this Committee, they have chosen the long hours of public service over the more lucrative opportunities of the private sector.

Finally, I want to recognize the most important people in the world to me, my family. My husband, Grant needs no introduction to this Committee. He has been my mentor, my coach, my compass, my best friend, and my partner in all for nearly 25 years. There is no one whose judgment I would rather have on any difficult issue. My daughters Nicole and Kirsten and son Noah have put up with my long hours, interrupted vacations, and missed dinners. I am so very grateful for their support and the rarity of complaints. I also want to recognize my mother, Inga Olson, who is here today and taught me life’s most important lesson – the difference between right and wrong and the importance of doing what’s right.

I would be pleased to answer any questions.