Resources
Congressional Testimony

Statement of Thomas H. Stanton, Vice Chair
Standing Panel on Executive Organization and Management

Accompanied by Herbert N. Jasper
Standing Panel Member

National Academy of Public Administration

Before the Committe on Finance, U.S. Senate

Hearings on Proposals to Restructure the Internal Revenue Service

February 25, 1998

Mr. Chairman and Members of the Committee:

We appreciate your invitation to testify on H.R. 2676, the Internal Revenue Service Restructuring and Reform Act. My name is Thomas H. Stanton. I am Vice Chair of the National Academy of Public Administration's Standing Panel on Executive Organization and Management. Another panel member, Herbert N. Jasper, is accompanying me today.

The Academy was chartered by Congress and has a special obligation to investigate and report on subjects when called upon by Congress or the Executive Branch. We carry out our work both through project panels and standing panels, such as the one on whose behalf I am testifying today. This statement does not necessarily represent the views of the National Academy as an institution.

Standing panel members have extensive experience and knowledge about the relationship of organizational structure to the quality of federal management. The panel or its members have often testified on issues such as those presented by H.R. 2676, including those considered in connection with the governance structure for the Social Security Administration and the Resolution Trust Corporation.

The Congress has a vital stake in assuring that the Internal Revenue Service (IRS) carries out the law in an accountable, effective and humane manner. The country will always need an IRS. Whether we have some form of today's tax system, a flat tax or a consumption tax, issues of implementation and good management will always be important to the American taxpayer.

In our testimony today we would like to make four major points:

• We support the recommendations of the National Commission on Restructuring the Internal Revenue Service and the provisions of H.R. 2676 to strengthen congressional oversight. Greater involvement of the tax committees in oversight can help increase the accountability of the agency and offset some of the problems of an ingrown organizational culture.
  
  More intensive oversight also can help to sensitize policy makers to the difficulty that the IRS faces in trying to administer the many complexities and compromises that find their way, almost annually, into the tax code. (See pages 4 and 7.)
  
  
• The proposed Oversight Board will greatly limit the accountability of the IRS to the Congress, the President and the Treasury Secretary, and will damage the professional independence of the agency.
  
  H.R. 2676 gives the Oversight Board authority to approve strategic plans, reorganizations, and budgets of the IRS. The bill thus allows private parties to determine the deployment of the nation's tax collection apparatus and invites self-serving actions by the private board members, or invites a perception of such actions that could well lead to increased tax evasion. The Commissioner, individual board members, and the Secretary will all be able to point to others who hold partial responsibility for any actions that engender criticism. (See pages 13-19.)
  
  
• These problems can be overcome if this Committee would turn the Oversight Board into an advisory board that counsels the Secretary of the Treasury and the Commissioner, as the Senate wisely did with respect to the Social Security Administration and the Resolution Trust Corporation. An advisory board can help to infuse the IRS with fresh points of view on behalf of the private individuals and companies who must pay taxes, while trying to comply with an immense amount of instructions, paperwork, and arcane rules.
  
  The advisory board could add its voice to those of the Taxpayer Advocate, and perhaps the Chief Inspector, to help inform the process of congressional oversight and raise timely issues of importance to taxpayers and lawmakers. To the extent that an advisory board gives sound advice, and has the ear of the Congress and the Secretary as well, its recommendations will very likely be persuasive to the Commissioner. (See pages 15 and 18.)
  
  
• Management improvements must enhance rather than detract from the professionalism of the IRS. We support the ideas of a fixed term and a performance contract for the Commissioner. Provisions of H.R. 2676 to strengthen prohibitions on executive branch influence over taxpayer audits might be strengthened, we respectfully suggest, by applying similar prohibitions to the legislative branch.

H.R. 2676 makes welcome additions to the flexibility of IRS personnel rules and provides that these shall be exercised in a manner consistent with merit system principles. We think it is not proper, however, to give veto power to the union representatives with respect to use of the personnel flexibilities.

We urge that Congress strengthen the provisions to assure that merit principles are applied to the hiring of all IRS employees below the level of Commissioner. Otherwise, over time, the agency is likely to be offered a remarkable array of politically well-connected but marginally, qualified people for special positions that were intended to be filled by experts. (See pages 8-13.)

At the end of the statement (pp. 20-21) we summarize the nine principal changes that we believe need to be made in order to assure that the purposes of the legislation can be accomplished.

THE DILEMMA OF A TAX COLLECTION AGENCY

People do not like to pay taxes. Oliver Wendell Holmes said that taxes are the price we pay for a civilized society. Americans want much of what taxes fund--such as national defense, aviation safety, clean air and water, and national parks. At the same time, most would prefer to pay no taxes or to pay less taxes. Former Senator Russell Long described that sentiment as, "Don't tax me; don't tax thee; tax that fellow behind the tree." He went on to say, "but there is only you and me behind the tree."

This view of taxes--as a necessary but disliked part of reality--means that the IRS operates with conflicting goals. We ask our tax collection agency to be sure that people pay what they owe. After all, the more taxes that are evaded, the greater the burden on everyone else. At the same time, we ask our tax collection agency to be polite and treat taxpayers and tax evaders as "customers." Meeting both demands is hard; some people do cheat and there are estimated to be tens of billions of dollars in unreported income.

Lack of enforcement does lead to an increase in tax evasion. There are already concerns that the reduced incidence of audits in recent years may have led to an increase in noncompliance. We must remember that fairness in tax collection has two dimensions. Everyone wants to be treated decently, but no one wants to see others evade their taxes with impunity.

Treating taxpayers as customers has become an IRS objective, and the new Commissioner has strongly endorsed it. But calling taxpayers "customers" does raise some issues. The private sector customer model does not quite fit because taxpayers tend to be either reluctant or even unwilling customers. Unfortunately, some taxpayers may believe that their status as "customers" entitles them to lax enforcement. What both Congress and the Administration are searching for is a way to achieve effective collection of taxes owed while treating taxpayers fairly and decently.

The tension between these goals makes it easy to understand how the IRS may go too far in one direction or the other, depending on transitory congressional and executive priorities. For example, if the IRS feels heat about "uncollected taxes" or "the tax gap," it may pursue collection in a way that can be overzealous and unfair. If, however, "friendly customer service" becomes the primary performance goal, some citizens likely will be encouraged to believe that they can evade the taxes due to the government.

A leading challenge for managing IRS effectively--and certainly for setting performance standards--must be to strike the right balance between the two goals. We believe that Congress has actually been a significant factor in setting IRS' priorities and, thus, promoting its recent emphasis on collection and enforcement. Care must be taken not to overreact by pushing IRS toward lax enforcement and consequent evasion by taxpayers. As you know well, the American system is the envy of the world because of its successful reliance on voluntary compliance. But we must remember that voluntary compliance depends in large measure on the expectation or fear of being caught if one cheats.

The complexity of the tax code. Academy panels have many times noted situations in which the complexity or instability of the laws establishing federal programs has made it extremely difficult to assure their efficient or consistent administration. For this reason, we suggest that many of the management shortcomings ascribed to the IRS in recent years are generated or, at a minimum, exacerbated by both the complexity of our tax laws and their frequent amendment.

We urge that this Committee and the Congress as a whole give special and urgent attention to the excellent comments and suggestions with respect to simplifying tax administration contained in the report of the National Commission, co-chaired by Senator Bob Kerrey and Representative Rob Portman. It is encouraging that a group led by members of Congress observed that, "While Congress often laments the complexity of tax forms and instructions, this complexity is a product of the laws written by the Congress."

UNDUE EMPHASIS ON COLLECTION AND ENFORCEMENT

In recent hearings, this Committee revealed several examples of overzealous and unfair tax collection by some IRS officials. Needed are (1) a means of reducing the incidence of such actions; and (2) an avenue of prompt redress for taxpayers who may find themselves caught in an unfair situation.

The problem of IRS incentives relates to the need to set performance goals for the agency that relate to the quality of IRS taxpayer service, and not merely to the amount of tax revenue that the IRS collects. In enacting the Government Performance and Results Act of 1993 (GPRA), the Congress warned agencies about the problem of distorted performance goals. The Senate Governmental Affairs Committee stated in its report on the act that, "It is very important that annual performance plans include goals, not just for the quantity of effort, but also for the quality of that effort."

In the face of congressional pressures to strengthen tax collection efforts, this warning was apparently disregarded. IRS provides a striking example of the importance of effectively balancing conflicting objectives. In congressional hearings, a report of the General Accounting Office, and appropriations for the 1995 compliance initiative, IRS was pushed to become more effective at raising significantly increased revenues, both from additional audits and through collections from delinquent taxpayers. This was seen to be an important part of the nation's efforts at deficit reduction.

Lost in this emphasis upon the performance goal of revenue-raising was the need to assure fair treatment of taxpayers. We recommend, therefore, that Congress and this Committee in particular take an interest in the balanced implementation of GPRA by IRS and the application of an even-handed set of performance goals. IRS must still be directed to collect the maximum amount of taxes owed, but consistent with the development and use of safeguards to protect innocent taxpayers from abuse, and to deal reasonably and equitably with those who do owe money to the government. GPRA, properly applied, can help to set a balanced agenda for IRS.

With a clear set of balanced goals from Congress, IRS should then carefully review its internal rules and procedures. It must assure that any guidance to staff, as well as performance standards, and evaluation and reward systems and practices are consistent with the desired combination of effective tax collection and fair treatment of taxpayers. Perhaps a new code of conduct should be developed to embody this balanced approach.

Congress could also strengthen a number of possible taxpayer safeguards. For example:

1. It is not clear that either taxpayers or IRS staff are sufficiently aware of the Problem Resolution process for removing cases subject to legitimate complaints from the ordinary flow of IRS action and providing for a prompt independent review of the case. Therefore, there ought to be more information and training about the process.

2. A system of performance goals could be established for IRS units and for individual officials that reflect the balanced GPRA goals, i.e., that reward fair treatment of taxpayers and not just effective collection and enforcement.

3. A system should be developed for identifying, retraining or otherwise dealing effectively with IRS officials whose actions result in unfair treatment of taxpayers.

There are models for this kind of process and incentive structure. For example, the Department of Education, concerned about fair treatment of those delinquent in paying off student loans, has adopted such safeguards and applied them in its contracts with collection agencies.

Provisions in the bill to strengthen the Taxpayer Advocate function might also be helpful in gaining fair treatment for taxpayers. The Taxpayer Advocate has already undertaken to inform IRS personnel more fully about the Problem Resolution process. Consideration might also be given to broadening the focus of the inspections division so that it is concerned with such issues as the way taxpayers are treated, along with looking for violations of rules and procedures.

PROVISIONS THAT THE PANEL SUPPORTS, AND SUGGESTED MODIFICATIONS

Next, we will explain how many provisions of the bill would help set the tone for addressing current priorities. At the same time, however, we will point out how some of those provisions might be improved. Later, we will address some major features of the bill that we believe would be counter-productive.

This bill is based largely on a lengthy and comprehensive study by the National Commission. We believe that the study and its report provide an excellent example of how Congress can bring public attention to significant problems and pave the way for constructive action with a comprehensive and bipartisan approach.

We believe that the nine "key recommendations" summarized in the report constitute a well thought out and internally consistent set of objectives. However, as explained later, we strongly disagree with some of the implementing measures. We want to express our strong support for the following concepts in the House bill:

Strengthened congressional oversight of IRS. Like many large agencies, the IRS receives oversight from a large number of committees and subcommittees. Most of these tend to focus on particular aspects of internal revenue policies, and the managerial implications are often neglected. The Joint Committee on Internal Revenue Taxation has played a useful and continuing role in coordinating tax policies, but it has not taken a similar role in considering tax system operations and IRS management.

Title IV of the House bill requires that a twice-yearly joint hearing be conducted by representatives from three House and three Senate committees to review the strategic plans and budget of IRS. Further, the Joint Committee is directed to report annually to the six committees upon those matters, as well as on the state of our tax system, taxpayer service and compliance, and technology modernization, among other things. We believe those provisions would offer an opportunity for constructive oversight of IRS management, as well as for review of tax policies.

Prohibiting political influence in tax enforcement. This Committee is well aware that the nation's tax system must be administered by an impartial, non-political, and competent workforce. This has not always been the case. In the early 1950s, the American public was shocked by numerous reports of IRS employee embezzlement and bribery. To halt this corruption, the Finance Committee played a major role in enacting the 1952 congressional requirement that all of the IRS employees under the Commissioner be hired, trained, evaluated, and promoted under the merit system.

Experience since 1952 has demonstrated the wisdom of that congressional decision. The subsequent change in IRS' image was striking. For decades, IRS was viewed as one of the better-managed and professional agencies. The recent hearings of your Committee and the yearlong investigation of IRS by the National Commission have not shown--or even alleged--the kinds of employee embezzlements and bribery that precipitated the 1952 reforms. The abuses that your hearings revealed were related to overzealous efforts to collect money for the Treasury, not to put money in the employees' own pockets. So we urge that this bill continue to stress the importance of a non-political, highly qualified workforce.

We strongly support the prohibition in Section 104 of any attempt by some future President or other Executive Branch official to influence tax audits or investigations. Some of the recently released "Nixon tapes" reveal his anger and frustration over the fact that he had been unable to get the Internal Revenue Service career personnel to audit taxpayers whom he regarded as his political enemies, and that he wanted to get a new Commissioner who would bend the career people to his wishes. There have been reports suggesting that similar efforts were made by other presidents or White House staff as well.

We believe that the prohibition on influencing tax audits is so significant that you ought to extend it to cover all political appointees in the Executive Branch. In addition, we suggest that it be applied to all Members of Congress.

Merit principles and personnel flexibilities. H.R. 2676 provides an excellent opportunity to take further steps toward fulfilling the congressional intent of the Civil Service Reform Act of 1978, as we discuss below. As you know, the legislation was designed, on the one hand, to encourage development of a far simpler civil service system which provided agencies and managers with the flexibility to modernize federal human resource management so the federal workforce could be more responsive to contemporary challenges.

On the other hand, the Congress also included among the 1978 reforms a series of provisions designed to prevent the new flexibilities from being manipulated in ways that undermine the principles of a professional workforce chosen on merit and protected from politicization. Such protection is of the utmost importance in administering our tax laws and, as we have noted, this has been successful in IRS since the 1952 reforms.

A set of merit principles was included in the 1978 law, together with a Merit Systems Protection Board (MSPB) and Special Counsel, to guard against violation of these safeguards as well as to prohibit discrimination. These provisions were included because of earlier experiences when the lack of safeguards permitted the positive steps of streamlining federal operations to be manipulated in ways that brought political intervention, resulting in scandal and lowered confidence of citizens in their government.

We note that the effort to shield IRS from politically-motivated actions would be strengthened by assuring that its personnel are not hired because of their own political connections. Since it is clear that the 1952 requirement that all employees below the Commissioner be hired on merit has worked well, we recommend that it be retained in this bill. We, therefore, urge that Section 7804(a) of the bill be amended to require that all such employees: (1) be selected on a non-political and non-partisan basis; and (2) be selected strictly on the basis of merit and qualifications.

In a number of panel reports, the Academy has urged that federal personnel rules be made more flexible, as contemplated in the civil service reform law. Therefore, we were very glad to see that the House bill provides such flexibilities. And we strongly support the provision that these authorities must be exercised in a manner consistent with merit system principles.

We recognize that IRS needs, from time to time, to hire experts from the private sector in such fields of expertise as information technology and customer service. But many federal agencies, including IRS, itself, as well as NASA, FAA and the Defense Department have already demonstrated that such experts can and should be selected and hired on a merit basis. Indeed, some agencies have found that political pressures to hire marginally qualified or even unqualified people sometimes can be avoided only by requiring merit hiring. Since tax policy responsibilities will remain with Treasury Department officials, we think such new hires should, like all other IRS employees, be selected on a merit basis.

To be sure a proper balance is maintained between using the new flexibilities and observing merit principles, we urge that Section 9301(a) be revised. It must make clear that the organizations with responsibility for dealing with violations of merit principles through appellate and oversight processes under the 1978 civil service reform and earlier legislation (MSPB and its Special Counsel, as well as the Office of Personnel Management (OPM)) still retain this responsibility with respect to IRS.

Union veto. We were surprised to see that the House bill would give union officials veto power over the use of the personnel flexibilities in the organizational units that they represent. We believe that the unions should have full consultation rights, and perhaps bargaining rights, with respect to the use of these flexibilities. But veto power would make these union officials at least the equal of the Commissioner with regard to such matters. And it would give the union representative on the Oversight Board the ability to countermand decisions of the other ten members of the board.

Inevitably, there will be cases in which the public interest requires that an agency take actions that its employees dislike. Examples are downsizing, office relocations, and use of labor-saving equipment or processes, any of which might be facilitated by the use of the personnel flexibilities authorized in the bill.

The House bill would also prohibit the use in IRS of the Federal Impasses Panel to provide assistance in resolving labor-management disputes. We can see no reason to deprive the agency of this proven means for settling disputes. In order to equip IRS with the full range of methods for resolving disputes, while preserving the necessary prerogatives of management, we strongly urge two changes in Section 9301: (1) remove the union veto and include provisions to assure consultation or bargaining rights; and (2) preserve the role of the impasses panel.

A performance contract for the Commissioner. We were asked to comment on the utility of a performance contract for the Commissioner. Another Academy panel has reviewed the use of such contracts in connection with a study of the National Ocean Service in NOAA. That panel concluded that a performance contract for the head of the new organizational unit that it recommended was both feasible and desirable. It appears to us that the IRS Commissioner, likewise, is a good candidate for a performance contract.

Bringing In a New Team. When a new presidential appointee takes over a large agency, it is natural to want to put his or her own choices in some of the key jobs. In 1978, the designers of the Senior Executive Service were familiar with this tendency. Congress subsequently required that new appointees observe a 120-day get acquainted period before transferring career executives. The House bill would revoke this safeguard for IRS and revert to the older system in which new appointees unwittingly deprived themselves and the public of the value of many highly-experienced managers.

We are concerned about the bill's weakening of the Senior Executive Service (SES) goal of providing an executive personnel system able to meet the government's need for career leaders and managers. It can be damaged by piecemeal changes without any conscious decision or intent. For example, if a career executive who has earned advancement to SES rank by years of effective service can be suddenly moved to another city, or to a position with few or no responsibilities, by a new appointee who knows nothing about the incumbent's ability, and merely wants to bring in "his own team," that will damage morale and performance. Also, it could discourage many other outstanding people from accepting or remaining in SES jobs.

The congressional decision to require a get acquainted period seemed to be a practical compromise and we think it has worked well. However, if Congress now concludes that the Commissioner needs a little more leeway, we think that the Deputy Commissioner position, alone, might be excepted from the 120-day rule. We do believe, however, that the outright elimination of the rule, as provided in the House bill, would be a serious mistake.

Fixed term for the Commissioner. Historically, most executive officials have been appointed without fixed terms. A number of exceptions have existed for a sufficient time that we can assess the results. They include the Director of the National Science Foundation, the Director of the Office of Personnel Management, the Chairman of the Federal Reserve Board, the Administrator of the St. Lawrence Seaway Development Corporation, and the Comptroller General. The tenure of these officials was reviewed in connection with a 1991 study of the Federal Aviation Administration's (FAA) management problems.

Experience showed that such officials generally served most of their statutory terms. This contrasted sharply with the average tenure of presidential appointees, which has approximated only two years. The 103rd Congress established a four-year term for the Commissioner of Social Security, and the last Congress established a five-year term for the head of the FAA. It should be noted that the Constitution generally assures that such appointees with fixed terms are removable by the President, as H.R. 2676 recognizes. In light of the favorable experience with fixed terms, we are pleased to endorse this provision in the House bill.

Multi-year funding. Agencies such as IRS, the National Weather Service, and FAA, that require significant capital investments to carry out their missions, would be best served by the availability of stable and predictable funding. Other agencies, such as NOAA, have long enjoyed multiyear funding. The Defense Department and NASA have had the benefit of full funding for multiyear projects. We believe that multiyear funding would greatly improve planning and management in IRS.

Updating the agency's technology. The need to modernize the agency's technology is closely related to the proposal for multi-year funding. While the agency's track record for managing its procurement of information technology may not have been exemplary, there is room for Congress, the Treasury Department, the Office of Management and Budget, and the General Services Administration to share the blame for a technology lag that resulted in part from inadequate and sporadic funding. We are hopeful that the consensus emerging on the agency's need for modern technology will make it possible for the new Commissioner, himself a management expert, to make rapid strides in effectively introducing such technology. A part of that should be the acceleration of plans and actions to facilitate paperless filing for most taxpayers, as recommended by the National Commission.

THE OVERSIGHT BOARD

The report of the National Commission strongly influenced the content of the bills now being considered by the Congress. Several Fellows of the Academy were consulted by commission members or staff because of their knowledge of either the IRS or the organization and management of large subcabinet agencies. Since its release in June 1997, the report and the ensuing legislation have been discussed at length by Academy members.

To give independent advice on issues such as the role of an oversight board for IRS is precisely the reason that the National Academy was formed, and later chartered by Congress. The Executive Branch no longer has a staff of experts on such matters. The governance structure of agencies and the role of such boards are subjects upon which the advice of Academy Fellows has often been sought by Congress. For example, the proposed legislation to place a full-time board in charge of the Social Security Administration was revised in favor of a single administrator in 1994, as proposed in an Academy study. And the board was converted to an advisory board, as was stressed in the report on the bill by the Senate Finance Committee. Similarly, the powers of the oversight board for the Resolution Trust Corporation were revised by the Senate in 1992 to make it strictly advisory, after testimony by two Academy Fellows, among others. We offer the following comments, recognizing that the National Commission proposed to vest IRS' functions in a Board of Directors with even stronger powers than those provided in H.R. 2676.

We are pleased that the House substituted an oversight board for a board of directors. But we do not think that the House went far enough. Experience shows that, except for independent regulatory agencies with quasi-legislative and quasi-judicial functions, programs are most effectively managed when a single head is responsible and, of utmost significance, held accountable for performance. We believe that the provisions regarding the board would seriously jeopardize accomplishing of some of the principal objectives of the legislation. Most important, the Oversight Board's powers would make it impossible to hold anyone accountable for IRS' performance.

There are, however, many potential benefits to establishing some sort of advisory board as a means to combat the natural insularity of a large government agency with a huge and recurrent workload, and difficult deadlines. As already noted, the frequent and extensive changes made by Congress in an already too complex tax code make it difficult for IRS to perform in a way that would engender widespread approval. There is a real danger that subjecting the IRS Commissioner to additional demands and disagreements generated by an oversight board may further compromise his ability to concentrate on effectively implementing the Taxpayer Relief Act of 1997 and to assure that the year 2000 problem will be resolved satisfactorily.

Much has been said about the difficulty of changing the "culture" of government agencies, especially that of a highly decentralized agency like IRS. But it should be noted that a well-established agency culture is a strength as well as a weakness. It conveys a sense of identity and professional pride in agency performance; it makes employees care about agency goals, about what they do and how well they do it; it orients and socializes new employees; and it helps present a coherent face to the customers.

But a strong culture also has disadvantages. It discourages hiring from outside for positions above the entry level; it leads managers and workers, alike, to cling to outdated ways of doing business and to view skeptically proposals for change, even when they are needed. It narrows the range of options surfaced and restricts the kinds of innovations that might get even fair consideration. It discourages questions about existing policies, procedures and values.

The challenge in changing an organization's culture is, first, especially with an inbred agency like IRS, to figure out how to change it at all. Second, one needs to preserve the benefits of a strong culture and commitment to the agency's mission, while opening the agency to new ideas.

We do think the basic concept of having a group of very well qualified persons to review IRS strategic planning, management and operations, and to provide informed advice, is sound and helpful. A board of advisors to the Commissioner and the Secretary of the Treasury could:

• assist them to assess how the agency is perceived by its customers
• help them to think outside of the box, by assuring that genuine innovations receive full and fair evaluation and are not rejected out of hand by the bureaucracy
• suggest new management, organizational or administrative ideas or approaches
• provide a sounding board for innovations or changes that the Commissioner is considering

All of these functions could be performed by an advisory board. Although the bill uses the term oversight to describe the board that it would establish, make no mistake about it: under H.R. 2676, the board would, in fact, be a governing board. Notwithstanding the Administration's endorsement of the House bill, the Commissioner has read it incisively. In his January 28, 1998 testimony before this committee (p. 15), he said " ... the Commissioner ... will be able to be accountable to the Board ...." We think it would be a serious mistake to make the Commissioner accountable to a part-time board dominated by eight private citizens.

A number of the bill's provisions would assure that the board will keep very busy in carrying out its functions. Specifically:

• Members of the board would receive substantial compensation, and the board would meet monthly.
• The chair's compensation would be two-thirds greater than that of the other private sector members, thus implying that the chair will spend a lot more time overseeing the Commissioner.
• The board chair could demand the detail of IRS personnel to the board.
• The board chair could procure temporary and intermittent services, apparently limited only by appropriations to IRS.
• Presumably, all or most of the board's staff would be full-time, with the result that they would no doubt be interacting with the Commissioner and other senior personnel on a regular basis between meetings of the board.

With those characteristics of the board in mind, we can now enumerate the provisions of the bill that would effectively give it power, rather than mere influence, over the Commissioner, as well as the Secretary of the Treasury:

• The board would not only review, but would approve, both strategic plans and the Commissioner's budget request. The Commissioner could well ascribe blame for failure to reach performance targets to the board because of its ill advised budget decisions.
• The board, and not the Commissioner, would submit the budget request to the Secretary, and both the Secretary and the President would be required to submit that budget to Congress.
• Any major reorganization of IRS would require the board's approval.
• The board could recommend removal of the Commissioner (although it could, of course, do so even without a statutory invitation).

A number of other functions of the board also seem inappropriate, such as ensuring that the budget request supports the strategic plans; approving the Commissioner's appointment of the Taxpayer Advocate, and selecting its own chair from among the nongovernment employees. The President could not hold the board accountable because he would not appoint the chair, and his power to remove board members would be eroded because of the sharing of authority and responsibility by the whole board.

The provisions stating that the Oversight Board shall have no responsibilities or authority with respect to tax policy and law enforcement activities would be compromised by the powers just described. That is because approving strategic plans, reorganizations and, especially, budgets for IRS is, in fact, setting tax policy and law enforcement policy.

Suppose, for example, the board adopted a budget that drastically restricts resources for collection and enforcement of corporate taxes, individual taxes, or excise taxes. That would send a strong signal to the affected sector that obstruction or evasion would become less risky. Similarly, suppose the board disapproved a proposed reorganization because it would likely lead to more effective enforcement and collection affecting the interests of board members.

To give a board with the preponderance of membership and the chair coming from the private sector such power over a federal agency is virtually unprecedented. To do so with respect to such a sensitive function as tax collection would be unfortunate. Among other things, we believe that new directions from the Congress could be frustrated by the board if it did not agree with those directions. We strongly believe that the bill's provisions relating to the Oversight Board would actually impede the attainment of the objectives of both the National Commission and Members of Congress for the following reasons:

• Neither the Congress nor the President could hold anyone accountable for IRS performance--not the Secretary of the Treasury, not the Oversight Board, and certainly not the Commissioner. All of them could pass the buck for whatever problems arise.
• Giving the board management functions would get it committed to agreed-upon courses of action with the result that it would lose its capacity to provide the fresh, outsider's perspective that we think you are seeking.
• The breadth of the board's powers would be an open invitation to employees and their union representatives, whether disgruntled or well-intentioned, to end-run the chain of command and take their problems or ideas directly to board members, or to their staff. The potentially large staff supporting the board would have a substantial incentive to develop and advance its own agenda.
• Members of the board from the private sector would have an extremely serious conflict of interest. Since they would be exempted from certain conflict of interest laws and from the Federal Advisory Committee Act, any actions promoting self interest could go undetected.
• The union representative would have an equally serious conflict of interest when the public's and employees' interests clash. Giving such a representative the power to vote for a recommendation to remove the Commissioner is fraught with possibilities for misguided actions. Unless the board is made advisory, as we strongly recommend, we believe that the provision for a union representative as a full-fledged, voting member must be deleted from the bill.
• Monthly meetings of a board supported by its own staff would likely intrude unduly on the time available to the Commissioner and his senior staff to manage the agency. There would also be preparations for the meetings, carrying out assignments from the meetings, and the need to meet many additional demands of the chair.

We believe that other features of the board's functions indicate a need for further consideration by Congress. For example, the board would add a new layer of supervision when we have been seeking to flatten our hierarchies; its supervisory duties might generate an adversarial and debilitating relationship with the Commissioner; the board's responsibilities would overlap with those of the financial management advisory group that the Commissioner is directed to establish by Section 412; and actions of the board that are perceived to favor one class of taxpayers might seriously erode the confidence of taxpayers at large in the fairness of the tax system.

We strongly believe that the board's powers should be revised so that it is clearly advisory, and not supervisory. Its reports to Congress could reflect any significant differences it might have with IRS or the Treasury Department.

Even if the board is made advisory, we would support the objective of Section 7802 which states that board members must be well qualified, and appointed solely on the basis of their professional experience and expertise. Certainly, the nation would be better served if we could find ways of ensuring that appointees to important positions of this kind do have appropriate experience and expertise for their positions. But, we should note that the executive branch has not been fully responsive to similar provisions calling for appointments based on specific expertise.

Based on experience with such bodies in the past, we can foresee that, sometime after the initial board has been appointed, a number of subsequent appointments will likely be based more on political expediency than expertise. This development could, of course, be overcome if the confirmation process focused more on enforcing provisions regarding qualifications.

We note that the bill recognizes that the President's appointment power under the Constitution cannot be restricted. So we can fully endorse the provision of Section 7802 that the board shall recommend to the President candidates for appointment as Commissioner. We all know that it has been difficult for the President to find well-qualified people for several hundred key federal appointments. Several Academy studies have dealt with that problem. In order to strengthen the board's capacity to find the best candidates, we suggest that language be added to make it clear that the board be allowed use of federal funds to hire an executive search firm to aid them with this task.

EVALUATION

The changes being contemplated by the Committee would fundamentally change the IRS, and--it is hoped--the agency's performance. Therefore, an organized independent evaluation of these changes and their effectiveness should be planned. The evaluation should be conducted once the changes are in place, and sufficient time has elapsed to measure their effects, for two reasons.

First, it will be important to see whether the changes are achieving the objectives sought by the Congress--and if not, why not. The good intentions of the legislation may be thwarted by the unintended consequences that so often bedevil public administration. An evaluation would allow the Executive Branch and the Congress to take corrective action.

Second, several of the changes may provide lessons for other agencies. A thoughtful evaluation will allow the Executive Branch and the Congress to determine which lessons are specific to IRS and which could be generalized.

If a comprehensive evaluation is desired, it will be important to authorize it in the bill that you are considering. The evaluation needs to measure agency performance both now and after changes have been adopted, using a common set of metrics. Equally important, it must start with the objectives sought by the Congress, understood not in the imperfect mirror of hindsight but with the freshness and accuracy that only contemporary involvement can provide.

Finally, we urge that the provisions respecting the oversight board, be made subject to a sunset provision. Perhaps a five-year trial period would be appropriate since that is the term proposed for the Commissioner. Such a provision would enable the results of any evaluations to be more seriously considered in decisions related to the continued use of an oversight board.

CONCLUSION

We applaud the efforts of the National Commission, the House of Representatives and this Committee to reform the IRS. We note that the IRS is already undergoing substantial change, accelerated by this Committee's 1997 hearings. This Committee and the appropriations committee have recently heard testimony on what IRS has already changed, what changes it is working on, and the major reorganization that it is considering. We believe that you should give the agency and its new leader an opportunity to show what they can do. Creating a governing board at this time (regardless of what it is called) can only delay the pace of progress and confuse responsibility and accountability.

As we have noted, the Senate decided wisely to create advisory boards for the Social Security Administration and the Resolution Trust Corporation, instead of governing boards. We strongly believe that your reform efforts will be seriously compromised unless you make the same arrangement for IRS.

Following is a summary of the nine principal changes that we think need to be made in the bill in order to assure that the purposes of the legislation can be accomplished:

• Convert the Oversight Board to an advisory board by deleting each of the approval powers that we have noted, as well as the power to transmit IRS' budget.
• Eliminate the board's explicit power to recommend the Commissioner's removal.
• Vest in the President the power to name the board's chair.
• Require board meetings once a quarter rather than monthly.
• Make detailing personnel to the board subject to the Commissioner's discretion, and delete the board's authority to procure temporary and intermittent services.
• Restate the continued authority of today's oversight and appellate agencies to assure the preservation of merit principles for all personnel actions, not just those taken pursuant to the new flexibilities granted.
• Preserve the "120-day" rule for the Senior Executive Service, with an exception allowed for only the Deputy Commissioner.
• Provide that the board shall be terminated after five years unless extended by statute.
• Commission an independent evaluation of the functioning of the board and the other innovative features of the bill.

Only with such changes do we believe that IRS, even under a strong Commissioner with life-long experience as a manager, will be able to measure up to your expectations. We will be pleased to work with your staff in any further consideration of revisions in the bill.

This concludes our statement. We will be glad to answer any questions.