FROM THE OFFICE OF PUBLIC AFFAIRS

Lawrence H. Summers, Deputy Treasury Secretary

American Institute of Certified Public Accountants, Washington, DC

Good morning and thank you for that introduction. It is an honor to be here today among a group of tax professionals such as yourselves to discuss the vital question of improving the way in which the IRS collects our nation's taxes.

Over the last year, our country has entered a period of intense discussion of the way we collect taxes. This discussion is the result, in part, of a political effort to undermine our capacity to enforce tax law, raise revenue and sustain government institutions. And some attacks on the IRS represent an effort to drive a wedge into the consensus that underlies our system of progressive taxation.

But that is far from the whole story. Another factor underlying this debate is that taxpayers have witnessed a significant erosion in the IRS' comparative performance, particularly in customer service. As the AICPA has observed, the IRS has a long way to go to bring customer service into line with what Americans have come to expect in the private sector. To address this problem, last month, Vice President Gore announced the formation of a new task force, as part of the National Performance Review, to address these problems. Comprised of front line IRS employees, this task force has a mandate to eliminate waste, improve efficiency and raise productivity to help give the American people the customer service they deserve.

A third factor behind the intense debate over the IRS is the highly publicized failure of the Tax Systems Modernization project. During the same period when private firms were improving customer service using information technology, the IRS proved unable to modernize its systems. Recognizing the extent to which this program had gone off track, last year, we at Treasury announced a sharp turn in our approach to modernization. Since then, we have hired a new Chief Information Officer, eliminated wasteful programs and published a comprehensive plan to modernize the IRS' information technology system.

This plan calls for a centralized, flexible system that permits easier access to data. Today, for example, IRS employees may need from five to nine computer terminals to access data. Our new plan calls for all data to be accessible from a single terminal. Our goal is clear: to build an IRS that is more responsive to taxpayers, that uses technology more effectively, and that is more efficient. While we have further to go, this blueprint represents an important milestone in redirecting our modernization effort.

We are making progress on electronic filing as well. For example, in the most recent filing season:

• The length of time to receive an electronic refund was cut to 14.3 days from 15.5 days last year.

• Telefiling was up 65 percent as of April 15.

• Standard electronic filing via computer modem increased by 19 percent to 14.2 million returns.

And while still woefully inadequate, we are improving our ability to answer customers' questions. This year, the IRS helped nearly 67 million taxpayers who called or walked in asking for help.

We have begun a process of change at the IRS that is yielding results. But we must do more. The environment today and the possibility of new technology to increase efficiency have created new opportunities and new expectations. The IRS of the future cannot be the IRS of a decade ago or even the IRS of today.

Our Five Point Strategy

To effect deeper change in the IRS, a broader framework is needed in which the IRS can operate. We have developed a framework for reform directed at five key areas:

The first of these is to continue to strengthen and make proactive the oversight role of the Treasury Department while bringing the expertise of the private sector to bear on IRS management issues.

To institutionalize Treasury's oversight role, Secretary Rubin has announced that we will seek an Executive Order to create an IRS Oversight Board of government officials. This board will serve as a board of directors to provide ongoing oversight of all major IRS decisions and will expand the scope of the board that we created to deal with technical problems.

This Order will also contain the requirement that the Secretary and Deputy Secretary appear twice yearly before Congress to report on the IRS.

In addition, Secretary Rubin has announced that he will issue an order establishing an IRS Advisory Board to provide advice from outside government. As this group has observed, the use of private sector experts has been used successfully by other agencies. Comprised of experts with private sector or consumer expertise, this board will function much like public trustees and will issue an annual report to the American people.

The second element of our framework is the leadership that is crucial to performance. We will soon appoint a new Commissioner with experience in organizational change, customer service improvement, and information technology management.

To ensure the continuity needed to exercise leadership, Secretary Rubin will propose legislation that would grant the IRS commissioner a fixed five-year term. This model, similar to the one used at the FBI, will provide for greater continuity of leadership and improve the Commissioner's ability to focus on ongoing management issues.

Third, in order to maximize the benefits of new leadership, we will give the new Commissioner the tools needed to make management changes. To do this, we will enhance and strengthen the IRS’s ability to manage its operations by improving management flexibility in personnel and procurement. Employees of the IRS, as in any well-managed business, will be held accountable for results.

Fourth, we will work with Congress to help the IRS get the stable and predictable funding it needs to operate more effectively.

Finally, we will continue working to simplify our 9,451-page tax code. Last month, the Administration introduced a revenue-neutral package of more than 60 simplification measures and we will continue to build on this base. As Secretary Rubin said, these measures will save individuals and businesses millions of hours now spent filling out tax forms.

These five points provide a framework for continued action. Everyone involved in this process recognizes that the problems at the IRS have developed over decades and will not be solved overnight or even over a couple of filing seasons. But we have made progress. Let there be no doubt that improving the IRS is a responsibility we take seriously.

The Importance of Responsible Oversight

In coming weeks and months and particularly following the release of the report of the IRS Commission on Restructuring, chaired by Senator Kerrey and Congressman Portmann, there will be a lot of discussion and argument about how best to reform the IRS. One proposal under discussion would remove the IRS from executive branch oversight and place it largely under the control of a board of private citizens.

I would like to address this idea because, in my view, it is dangerously flawed. Proposals to shift responsibility for the collection of taxes and enforcement of tax laws raise five serious concerns.

First, separating the IRS from direct executive branch control would undermine accountability. The ability to collect taxes lies at the heart of the notion of sovereignty and the legitimacy of government. In our democratic system, accountability rests with the President and his appointees who are accountable to voters. Our arrangement recognizes and codifies the accountability of the Secretary of the Treasury and his Deputy for IRS performance. It focuses accountability squarely on two line managers, the Secretary and Deputy Secretary of the Treasury. In contrast, a board would spread accountability across an unelected committee. Giving unelected citizens who may earn private salaries ultimate power over enforcement issues and administration of tax policy would move the IRS further away from the control of the American people.

Second, separating the IRS from the Treasury would undermine tax policy effectiveness. Tax policy and administration go hand in hand. Through our supervisory relationship, we reflect tax policy concerns of the executive branch to the IRS. In turn, we regularly raise questions about the administrability of proposed tax changes in White House meetings. Policy and administration cannot be separated.

Third, having a board of private citizens run the IRS will, in my opinion, not work. Certainly there is value to private sector input and that is reflected in our proposal. But the IRS cannot be run like a private company. The IRS, unlike a corporation, does not have shareholders or a share price. Practical difficulties include possible conflicts of interest between board members's governmental and private interests.

Fourth, board management would present grave law enforcement issues that might lead to constitutional challenges. The very notion of private citizens charged with enforcing the nation's laws would undoubtedly be unacceptable to the public.

Finally, these proposals pose an unacceptable risk to our nation's revenue stream. Ninety-five percent of the government's revenue flows through the IRS. We cannot afford to experiment with responsibility, nor place it under the jurisdiction of part-time managers. Moreover, as I suggested a few minutes a go, a sharp turn is now underway at the IRS. And it is occurring at a time when collections are up. To conduct a public debate on how the IRS should be governed risks paralysis at the very moment when we have begun to make progress. The approach that I have outlined can achieve the principal goals of continuity, outside input and accountability without putting at risk the progress underway--or the vital functions of government.

Conclusion

In conclusion, the different voices involved in the IRS debate have no differences about ends: improved customer service, efficiency, cost effectiveness and major change. I am convinced that the plan we have proposed offers the best prospect for building an IRS that is more responsive to taxpayers, that uses technology more effectively, and that is more efficient. I look forward to continuing this dialog and to working with you to develop the best possible system of taxation. While no one likes to pay taxes, as Justice Oliver Wendell Holmes said in words that are now inscribed in the IRS building, they are what we pay for civilized society.