FROM THE OFFICE OF PUBLIC AFFAIRS

Thank you, Mr. Vice President. The Treasury Department and the IRS look forward to working with the National Performance Review as we continue the process of creating an effective, efficient and taxpayer-friendly Internal Revenue Service.

There are real problems at the IRS that have developed over many, many years and that will take time to correct. Though there is an enormous amount of work to do, the IRS and Treasury have been intensely focused on this, and there has been real progress.

The IRS just completed a very successful filing season. Electronic filing was up 19%, telefiling was up 65%, there were more than 140 million hits on the IRS WEB site, and we have issued over 65 million refunds.

This is a great tribute to the commitment and ability of the 110,000 employees of the IRS. They perform the absolutely vital function of collecting roughly 95% of the revenue for the Federal government under difficult circumstances. This allows the Federal government to fund everything from our national defense to social security, to Pell grants and to all else that our government does. That is why politically motivated attacks on the IRS -- as distinguished from constructive focus on problems -- are so detrimental to our national interest. These employees deserve our support and all that we can do to help them fulfill their mission. Again, Mr. Vice President, that is why we all welcome the contributions of the NPR to help the IRS continue to move forward to improve customer service.

I’d also like to acknowledge the work of the National Commission on Restructuring the IRS, co-chaired by Senator Kerrey and Congressman Portman, which is fruitfully engaged in a number of areas.

Let me now turn to an area where Treasury and the IRS have already begun making real changes. One central area of difficulty at the IRS has been the computer system. A little over a year ago, the IRS and Treasury pledged to make a sharp turn on systems. Subsequently, we hired a new Chief Information Officer with a strong record on tax systems, eliminated 26 wasteful contracts and collapsed the remaining into 9, and began to draft a Modernization Blueprint to guide the overhaul of the IRS technology. These steps were taken under the direction of a new Modernization Management Board, which includes representatives from Treasury, OMB, and the NPR and is chaired by Deputy Secretary Larry Summers.

Last week, after months of extensive consultations with private and public sector experts, the IRS released the blueprint for technology systems to replace today’s patchwork with a coherent system. That plan, which breaks dramatically with the past by establishing a strategic partnership with the private sector, will be implemented incrementally, so that it can be tested as it goes along. Initial reactions to the plan have been very positive.

This new technology blueprint was a product of the IRS working with effective Treasury oversight, which is one element of a five point program that, two months ago, Deputy Secretary Summers set forth for Treasury with respect to improving the IRS. In brief summary, those five points were:

1. Institutionalizing intense and pro-active Treasury oversight.

2. Multi-year capital budgeting.

3. Tax simplification within the existing Code -- we have since set forth 60 proposed simplification changes.

4. Increased flexibility with respect to personnel management and compensation, and appropriate use of outside services.

5. A new Commissioner with extensive management experience.

Today I’m announcing three measures to implement the first of these points: institutionalizing oversight.

First, we will seek an Executive Order and, subsequently, legislation to create an IRS Oversight Board of administration officials that builds upon, expands the scope of, and makes permanent the success of the Board of officials that Deputy Secretary Summers has led in overseeing technology modernization. This Board will meet regularly to review major strategic, personnel and procurement decisions.

Second, we will seek to include in this Executive Order a requirement that the Secretary and Deputy Secretary appear twice yearly before an appropriate Congressional committee to report on the conduct of their oversight responsibilities. One purpose of such a step is to assure that all future occupants of these positions energetically fulfill these responsibilities because of highly public accountability.

Third, I will issue an order establishing an IRS Advisory Board, reporting to the Secretary and consisting of individuals from outside government to bring private sector and consumer expertise to bear on IRS management issues. This Board will be uniquely empowered to issue an Annual Report to the Taxpayers for transmittal to Congress.

In addition, we will propose legislation that would grant the IRS Commissioner a fixed five-year term for greater continuity of leadership and an improved focus on ongoing management, similar to the model provided by the Director of the F.B.I.

This Board will draw on the expertise of the private sector, but I strongly believe, after spending 26 years in the private sector and now 4-1/2 years in government, that there are important differences between the two. For example, with respect to the IRS, there are important law enforcement and privacy issues that are not appropriate for private sector control. These special characteristics of law enforcement and privacy underscore the importance of the IRS remaining accountable through the normal government system.

Let me add on a personal note that the easiest path for Deputy Secretary Summers and me would have been to walk away from the hard issues facing the IRS, and focus our attentions on all of the traditional economic and law enforcement functions of Treasury. But, in our view, that would have been an abdication of our responsibility. Instead, we decided to take full and explicit responsibility for the effective conduct of Treasury’s oversight role. Moreover, in considering all ideas and proposals with respect to the IRS, we have had only one criterion: What is most likely to get the IRS where it needs to be, while avoiding risk to its essential function, real or apparent conflicts with respect to law enforcement or other matters, and privacy concerns.

As in all matters, there are no perfect answers to getting the IRS back on track, but I believe this plan, with the exceedingly important addition of the National Performance Review announced today, will best continue the process of putting the IRS on the road to improved customer service, more efficient operations and increased ability to further compliance with the Nation’s tax laws.