FROM THE OFFICE OF PUBLIC AFFAIRS

Remarks by Lawrence H. Summers

Deputy Secretary of the Treasury

Council for Electronic Revenue Communication Advancement

Washington, DC

Thank you. I am glad to have the opportunity to talk you today about our vision of a 21st century IRS. There could be no better symbol of the kind of improvements we all want to see in taxpayers’ experience of the IRS than the rapid growth of electronic filing. And there has been no stronger voice pushing that development forward than CERCA. More and more Americans are enjoying the benefits of paying their bills and doing their shopping electronically -- and a growing number are now filing their taxes the same way.

These past couple of years have been a period of tremendous ferment -- ferment inside the IRS, and, need I say, ferment about the IRS. In the spring of 1996 we pledged to make a "sharp turn" in the troubled systems modernization program, in what has since become a very intensive effort to reform the entire IRS.

The problems at the IRS have developed over many decades -- they will not be solved overnight, or even a couple of filing seasons. But with the work of the National Commission on Restructuring the IRS and many others inside and outside the Administration, a clear consensus has formed on the changes that are needed. With the executive actions we have taken and will take, and the legislative progress that has been made, those changes are now firmly on the way to being achieved.

The IRS reforms we are putting in place are vitally important. They are a proper response to well-intentioned criticism. Americans are disturbed at the performance of the IRS, and rightly disturbed. So are the people who work at the IRS, the vast majority of whom have a distinguished record of dedicated public service.

We have tried to address, and will continue to address, the concerns about the IRS in three ways:

with more effective management and leadership

with better protections for taxpayers, to ensure their rights are respected and their problems are addressed

and, above all, through concrete measures for better customer service.

 

No matter how laudable the goals, all the good intentions, the wise plans, and fancy flipcharts will achieve nothing in an organization if the capacity to manage it effectively is lacking. In the past two years we have taken important steps to give the IRS the leadership, expertise and oversight it will need to give the American people the first-rate service they demand.

Leadership

Charles Rossotti, our nominee for IRS commissioner, will already be familiar to many of you. As he said last week in his hearings on the Senate, he would never have imagined, as 1997 began, that he might now end the year running the IRS. His background, as a former Chief Executive Officer of a large, highly successful private sector organization, with a long record of dealing with systems modernization and other technology issues, makes him utterly distinct from previous holders of the position -- and, I am confident, absolutely right to lead the IRS through this momentous period. I hope and expect he will receive a ringing endorsement from the entire Senate in the coming days.

To provide much needed continuity at the top, the new Commissioner will be serving a fixed five-year term. To support new leadership, it will be vital to provide for the managerial flexibility to translate it into practice. Getting the right people in the right jobs is one of the most important elements of effective management. And in our recent discussions in Congress we have made important progress toward allowing for greater flexibility in selecting and managing personnel. But we have long believed that more substantial changes are needed. In particular:

to attract high quality private sector personnel, the Commissioner should be able to appoint a limited number of technical and management experts to critical positions outside the usual pay limits.

to meet short term senior staffing needs more effectively, he should be free to make limited term or emergency appointments to any senior executive position.

and, workforce-wide, there should be a greater capacity to hold on to high quality people and to link pay more closely to performance, with improved flexibility in payment of recruitment, retention and relocation incentives, and the ability to make use of broad-banded pay and classification systems within existing government ceilings.

Senior managers in the private sector would take these freedoms for granted. If we wish to see major changes in the style and substance of IRS management, we need to give these same tools to the IRS. Achieving this will be a high priority in our discussions with Congress in the weeks to come.

The matter of oversight has generated considerable discussion in recent months. But there was never been any disagreement about the importance of outside input as a source of expertise, continuity and accountability. We in the Department have considered it important also to ensure executive responsibility for executive functions such as law enforcement, and to ensure effective coordination of tax policy and administration. After several weeks of intense discussion on these issues, a satisfactory compromise has been reached, that we believe has the potential to strengthen oversight in a prudent and effective manner at the same time as offering an important new avenue for private sector input.

Leadership and oversight are both vitally important. But we should remember that, in the end, improved IRS service will come not only from the top down but from the bottom up. Most employees want to provide good service, and they more satisfaction out of their jobs when they do. But we have to provide them the tools and the support to do it. Without an adequate emphasis on employees -- on what is good for them -- the changes we want to see in the quality of customer service will not take place. IRS employees need to work in an environment that motivates them to take pride in delivering excellent customer service -- and empowers them to share their ideas about how service could be improved. When employees become partners -- taxpayers will become customers.

There is an enormous amount we can do to improve customer service and to ensure the IRS works more effectively for taxpayers. I will be describing in a few moments some of the steps we have taken, and intend to take, to achieve this. But inevitably, there were will be controversies. And it is essential at all times that there be appropriate legal safeguards for taxpayers.

This has been an area of intense focus in both Congress and the Administration for several years. With the enactment of the first Taxpayer Bill of Rights in 1988, through the Second Bill of Rights which was enacted last year -- which set up the Taxpayer Advocate that has already helped more than 300,000 Americans solve their tax complaints -- through to the third set of Taxpayer Rights provisions that were enacted this year by Congress, we have made important progress toward ensuring that taxpayers can count on fair treatment by the IRS, and fair recourse when the circumstances require it.

Going forward, we have proposed several more steps toward this end, including

expanding the power of the new Taxpayer Advocate, to clarify the Advocate’s authority to issue immediate relief to taxpayers in a broad range of circumstances, through tax assistance orders.

giving much greater publicity to the Taxpayer Advocate and other avenues for solving problems. The IRS is embarking on a major public awareness program so that taxpayers know about -- and know how to access -- the services open to them. Acting Commissioner Dolan launched this campaign last week with a letter to Dear Abby; who published the number of the Taxpayer Advocate Office.

creating new, independent local Citizen Advocacy Panels. These would work with Taxpayer Advocates to help resolve taxpayer problems, independently audit the performance of local IRS offices in solving problems, and refer complaints to the national Taxpayer Advocate when problems cannot be resolved locally.

working with Congress to implement a range of further Taxpayer Bill of Rights provisions, including measures to help make it easier for "innocent spouses" to get relief, and to permit equitable tolling of refund claims. This would mean that the statutes of limitations could be "", or extended, in particularly equitable cases. tolled

To underscore all these changes, Charles Rossotti mentioned last week that he would like to see the next Taxpayer Advocate appointed from outside the IRS. Yet he well captured the spirit of the end goal when he spoke of wanting to see every single employee at the IRS think of themselves as a Taxpayer Advocate. Working together, we are taking important steps down that road.

3. Improved customer service

What all these changes can really do -- what they must do -- is improve customer service. Fundamentally, service is an issue of capacity, and culture. I don’t think any of our objective indicators could be used to support the conclusion that service at the IRS is now less satisfactory than it was ten years ago, when the concerns about the IRS were less prominent. What we have seen in recent years is an erosion in the relative performance of the IRS at a time of rising standards of customer service in the private sector.

Americans do not receive from the IRS the kind of efficiency, courtesy and flexibility they have come to expect from their credit card company, bank, or travel agent. The key to achieving first class service at the IRS will be moving from the way things were typically done in large private sector organizations 15-20 years ago, to the way the best companies do them today.

Private sector companies have achieved that kind of shift in large part through effective marshaling of technology. This issue has been at the forefront of many taxpayers’ bad experiences with the IRS -- and it has been at the forefront of our search for solutions.

As you know, we have made that sharp turn in systems modernization. Under the guidance of our new and well received Chief Information Officer, Art Gross, twenty-six systems contracts were canceled, or collapsed, into nine. He has since led the development of a comprehensive new technology proposal for a strategic public-private partnership -- the first of its kind. Unveiled in May, this blueprint has been warmly received in both Congress and the private sector. That support was underlined last month, when Congress granted $325 million in advance funding for the implementation of the program.

Improved use of technology is already palpable. Around 14 million people filed their taxes electronically this year, an increase of 19 percent. Filing over the telephone through the IRS Telefile program was up by nearly two-thirds in 1997, to 4.7 million returns. The Telefile system won the Ford Foundation’s "Innovations in American Government" award for 1997. All told, more than half a trillion dollars has been deposited electronically using the Electronic Federal Tax Payments System and the older TAXLINK system rather than using paper coupons. This represents nearly one half -- 46 per cent -- of the total dollars collected. The error rate for returns filed electronically was less than 1 percent.

And yet, we still have a long way to go. In the months ahead the IRS will working to achieve major improvements in telephone access, with expanded 16 hours a day, 6 days a week phone service next year, moving to access round the clock in following years. And it will be working toward utilizing new call-routing technology to provide service that is geared to specific customer needs.

As you now, for all the progress we have seen, at present only 10 percent of the 2000 million individual and business returns filed each year are filed electronically. I have no doubt that continued growth of electronic filing will be of critical strategic importance to the future of the IRS -- and the IRS feels the same way. Next year we will see it start to roll out its major 3 part electronic tax administration strategy under the leadership of Robert Barr, the recently appointed Assistant Commissioner for this area, and former vice-president of Intuit.

first, increase the availability of existing electronic filing programs, with eligibility for Telefile being increased by 3 million, or 10 percent in 1998 alone. The IRS is in the process of completing a through analysis of the extent to which it can broaden the range of 1040 returns accepted through Telefile without at the same time making the telephone interaction too complicated for taxpayers.

the second component of the strategy, which will start to be implemented in 1999, aims to take the remaining paper out of the current ways of filing electronically by eliminating the need to mail in W-2s and other forms and eliminating the need for paper signatures. Plans are already under way to lead IRS to an alternative electronic signature by that year. The IRS also hopes to make it possible for taxpayers filing electronically to pay by direct withdrawal from their bank account.

the third, and last part of the strategy is to provide extra incentives to increase electronic filing even further. The goal is that in ten years time, four out five taxpayers will file their taxes without ever putting pen to paper -- or licking a stamp.

I don’t need to tell this audience the benefits that would result from achieving that goal -- lower costs for the public, lower costs for government, fewer errors, and a freeing of IRS resources for other areas -- such as improved customer service.

An essential complement to increased capacity an is IRS team that is motivated around the central objective of treating taxpayers right. The Administration’s program of reform would put customer service at the heart of performance measurement at the IRS, shifting performance measures to include customer satisfaction and business results for all managers, including the use of direct customer feedback surveys for all parts of the IRS. The IRS has hired a consulting firm to design customer satisfaction surveys for each IRS business lines, including examination and collection.

A critical first step in this process has been to ban all performance measures that undermine fair treatment of taxpayers -- such as the ranking of districts by enforcement activities, assigning dollar goals to individual employees and including penalty amounts in statistics of revenue collected. Building on those reforms, the IRS is now pledged to:

expand office hours, beginning in 1998 with Saturday opening at district offices around the country on the busiest weekends of the filing season;

open more convenient locations, starting 1999 in peak filing season taxpayers will be able to go to additional temporary community-based locations for IRS publications and forms, such as banks, libraries and shopping malls. There will also be an expanded telephone information service so people can find out when and where they can get help.

and work to make the IRS work for taxpayers. For example, it will rewrite all its most frequently used notices in language people can understand, testing the new forms on real people -- not tax lawyers. It will also eliminate, by the end of next year, 30 percent of all notices as part of the effort to crack down on unnecessary mailings.

To underscore its commitment in this area, on November 15 the IRS will be holding its first, nationwide Problem Solving Days. On that day and each month thereafter, all of the 33 IRS district offices around the country will open their doors to give taxpayers an opportunity to meet face-to-face with district Directors and other IRS personnel to resolve their ongoing tax problems.

4. The Need for Change -- and the Need for Continuity

As Winston Churchill once said of very different time: we are not at the end, or even the beginning of the end, but we are, perhaps, at the end of the beginning of the effort to create the kind of IRS the American people expect; one that may not win their affection, but can win their respect.

There will no doubt be a vigorous debate about tax policy in this country -- a debate which I do not propose to enter today. Properly, we will all be concerned with identifying the tax structure that can best keep the budget balanced, promote growth, and be fair -- and as simple as possible -- to all Americans. These issues should and will be vigorously debated. But I would hope as we go forward that we can all agree that we want to have the best tax administration system we possibly can in the United States -- a system that is as effective as possible, not in collecting the most tax it can, but in collecting the right amount of tax from each taxpayer.

As Oliver Wendell Holmes said, taxes are the price we pay for civilization. The idea that we need a fairly administered and enforced tax system should not be in dispute. Difficult as these issues are, it is vital that we maintain a constructive course. I know all of those concerned with the future of the American tax administration system will join me in condemning the 366 documented threats against IRS personnel, and 44 violent assaults that have occurred in the past two years alone.

For all the difficult discussions we have had about the best way to reform the IRS, we have all been agreed on the goal: a modern, efficient accountable IRS to serve the American taxpayer well into the next century. Working together -- with Congress, with IRS frontline employees and managers, with the National Treasury Employees’ Union, working with all those, inside and outside, of government who care about tax administration -- I am confident we can bring that objective ever closer in the months ahead.