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95–483—PDF 2004

S. HRG. 108–642

NOMINATIONS OF J. RUSSELL GEORGE,

PATRICK P. O’CARROLL, JR.,

TIMOTHY BITSBERGER, AND PAUL JONES

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

SECOND SESSION

ON THE

NOMINATIONS OF

J. RUSSELL GEORGE, TO BE INSPECTOR GENERAL FOR TAX ADMINISTRATION, U.S. DEPARTMENT OF THE TREASURY; PATRICK P.

O’CARROLL, JR., TO BE INSPECTOR GENERAL, SOCIAL SECURITY ADMINISTRATION; TIMOTHY BITSBERGER, TO BE ASSISTANT SECRETARY

OF FINANCIAL MARKETS, U.S. DEPARTMENT OF THE TREASURY; AND

PAUL JONES, TO BE A MEMBER OF THE IRS OVERSIGHT BOARD, U.S.

DEPARTMENT OF THE TREASURY

JULY 7, 2004

(

Printed for the use of the Committee on Finance
COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

DON NICKLES, Oklahoma

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

TOM DASCHLE, South Dakota

JOHN BREAUX, Louisiana

KENT CONRAD, North Dakota

BOB GRAHAM, Florida

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)
(III)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

on Finance ............................................................................................................ 1

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 3

Sununu, Hon. John, a U.S. Senator from New Hampshire ................................. 2

ADMINISTRATION NOMINEES

George, J. Russell, to be Inspector General for Tax Administration, U.S.

Department of the Treasury ................................................................................ 6

O’Carroll, Patrick, Jr., to be Inspector General, Social Security Administration, Baltimore, MD ............................................................................................. 7

Bitsberger, Timothy, to be Assistant Secretary of Financial Markets, U.S.

Department of the Treasury ................................................................................ 9

Jones, Paul, to be a Member of the IRS Oversight Board, U.S. Department

of the Treasury ..................................................................................................... 10

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 3

Prepared statement .......................................................................................... 27

Bitsberger, Timothy:

Testimony .......................................................................................................... 9

Prepared statement .......................................................................................... 29

Biographical ...................................................................................................... 31

Responses to questions from Senators Baucus and Lincoln ......................... 36

Dole, Hon. Bob:

Prepared statement .......................................................................................... 48

George, J. Russell:

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 49

Biographical ...................................................................................................... 51

Responses to questions from Senator Baucus ................................................ 60

Grassley, Hon. Charles E.:

Opening statement ........................................................................................... 1

Prepared statement .......................................................................................... 65

Jones, Paul:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 66

Biographical ...................................................................................................... 68

Responses to questions from Senator Bunning .............................................. 74

Lincoln, Hon. Blanche:

Letter to Hon. Van Zeck, Commissioner, Department of the Treasury,

along with Treasury’s response ................................................................... 75

Letter to Hon. John Snow, Secretary, Department of the Treasury, along

with Treasury’s response .............................................................................. 78

‘‘Foreigners Own More of Nation’s Debt,’’ Washington Post article ............. 81

O’Carroll, Patrick Jr.:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 82

Biographical ...................................................................................................... 87

Responses to questions from Senators Grassley and Baucus ....................... 94

(1)

NOMINATIONS OF J. RUSSELL GEORGE, TO

BE INSPECTOR GENERAL FOR TAX ADMINISTRATION, U.S. DEPARTMENT OF THE

TREASURY; PATRICK P. O’CARROLL, JR., TO

BE INSPECTOR GENERAL, SOCIAL SECURITY ADMINISTRATION; TIMOTHY

BITSBERGER, TO BE ASSISTANT SECRETARY OF FINANCIAL MARKETS, U.S. DEPARTMENT OF THE TREASURY; AND PAUL

JONES, TO BE A MEMBER OF THE IRS

OVERSIGHT BOARD, U.S. DEPARTMENT OF

THE TREASURY

WEDNESDAY, JULY 7, 2004

U.S. SENATE,

COMMITTEE ON FINANCE,

Washington, DC.

The hearing was convened, pursuant to notice, at 10:00 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Also present: Senators Baucus and Lincoln.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Good morning, everybody.

We have the opportunity this morning to consider four nominations. First, we will hear from Mr. Russell George, who has been

nominated by the President to serve as Inspector General for Tax

Administration at the Department of Treasury.

Mr. George currently serves as Inspector General at the Corporation for National and Community Service. Throughout his long and

distinguished career in public service, he has served as staff director of the House Governmental Reform Committee’s Subcommittee

on Government Efficiency, Financial Management, Inter-Governmental Relations. He has also served in the White House during

the first Bush administration.

We will then go to Patrick O’Carroll, who has been nominated to

serve as Inspector General of Social Security. Mr. O’Carroll currently serves at the Office of Inspector General at Social Security,

and as Assistant Inspector General in the Office of Investigations.
2

Mr. O’Carroll worked with me both in my capacity as Finance

chair, as well as when I was chair of the Aging Committee.

We will also hear from Timothy Bitsberger, who has been nominated to the position of Assistant Secretary, Financial Markets,

within the Department of Treasury. Since October, 2002, Mr.

Bitsberger has served as Deputy Assistant Secretary, Federal Finance, at the Department of Treasury. He has great experience in

financial markets, both at the Department of Treasury, as well as

the private sector.

Finally, we will hear from Paul Jones, who has been nominated

to be a member of the IRS Oversight Board. Mr. Jones currently

serves as senior vice president of Time Warner Telecom.

I would like to welcome you all to the Finance Committee hearing. We have an opportunity to have a colleague, Senator Sununu

of New Hampshire, introduce one of the nominees.

Mr. Sununu?

STATEMENT OF HON. JOHN SUNUNU, A U.S. SENATOR FROM

NEW HAMPSHIRE

Senator SUNUNU. Thank you very much, Chairman Grassley.

I am very pleased to be here today before the committee to introduce Russell George to be Inspector General to the Internal Revenue Service.

Russell is a good friend, and someone with whom I had the

pleasure of working as a member of the House of Representatives,

serving on the Government Reform and Oversight Committee, and

in particular with him as staff director on the Government Management Information and Technology Subcommittee.

Now, there are not a great deal of people outside the committee

that know or understand the workings of that subcommittee, but

I always enjoyed its work, in particular because the scope of its

work and involvement and the administration and management of

our Federal Government was so broad.

He provided leadership, guidance, and advice as the staff director

on that subcommittee, working under Chairman Steve Horn, during a very, very critical period when Congress was developing and

passing, and seen signed into law, a number of pieces of legislation

that dramatically improved the accountability of the Federal Government, improved our management practices, and improved the

way we deploy technology.

In particular, there was legislation like the Chief Financial Officers Act that improved the way Federal administrations did their

accounting, that improved the selection of personnel, that added a

level of financial accountability that didn’t exist before, legislation

that addressed the way the Internal Revenue Service was utilizing

and deploying technology and the accountability for the procurement of technology, not just in the IRS, but throughout the entire

Federal Government.

All of these pieces of legislation improved the way government

operates today, but equally important will continue to bear dividends for taxpayers for many years to come.

Russell George was an instrumental figure in the crafting, development, and passage of that legislation, as any staff director would

be on such a subcommittee. His experience, however, extends even
3

far beyond his work as staff director for a subcommittee in Congress.

He has worked as a Director of Policy in the White House, so has

a strong understanding of how policy is crafted at the executive

level. He has worked as the inspector general for the Corporation

for National and Community Service, which is as good a training

ground as you could possibly have for this next challenge as Inspector General of the Internal Revenue Service.

He has always approached his work with a dedication that,

frankly, is hard to find anywhere, inside or outside of government,

but is especially valued in this type of a role, that has, of course,

legal and ethical responsibilities, but fiduciary responsibilities

where we are looking for someone that understands how the executive works, how cabinet-level agencies work, and at the same time,

understands how Congress works.

Russell George brings all of these experiences together, which is

why I could not recommend him more strongly for the position. It

is hard to find such a cross-section of experiences anywhere, but for

this role especially, Inspector General of the Internal Revenue

Service.

We all understand how important that job is, dealing with the

role, the responsibility, integrity, and credibility of the IRS. If you

ask anyone about Russell George’s credibility, integrity, and competence, those are among the very first words that come to mind.

So, I could not be more emphatic in my support for his nomination, and am urging the committee to act quickly to confirm him

so that we will have a stronger and more accountable IRS. I thank

you very much, Mr. Chairman. I am pleased to be here with Russell, and all the nominees today.

The CHAIRMAN. We thank you very much for taking time out of

your busy schedule to come and introduce Mr. George. If Senator

Baucus does not have any questions of you, you can go. Then I will

have Senator Baucus give a statement.

Senator SUNUNU. I am happy to answer any questions. I am sure

you will find more substance and directness in Russell’s responses,

but I am happy to answer questions as well.

The CHAIRMAN. All right.

If you do not have any questions, then you go with your opening

statement. Then we will call the witnesses.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman.

Thank you, nominees, for deciding that you want to help serve

our country.

We consider four nominees this morning: Timothy Bitsberger, to

be Assistant Secretary for Financial Markets; Patrick O’Carroll for

the Social Security Administration, Inspector General; Russell

George for Treasury Inspector General for Tax Administration; and

Paul Jones, for the IRS Oversight Board.

These are important positions. They are responsible for ensuring

the security and efficient management of some of our government’s

most important programs: financial markets, the Social Security

program, and the voluntary tax system that we have.
4

The Assistant Secretary for Financial Markets is responsible for

the development and sale of U.S. Government securities that are

traded in financial markets. The Assistant Secretary also advises

the Treasury Secretary on a broad array of matters regarding federal, State, and local finance.

In addition, the Assistant Secretary leads the Treasury’s participation in the financing of the District of Columbia.

The Assistant Secretary also advises on Federal Government

credit policies and lending and privatizing activities, as well as

serving as a senior member of the Treasury Financing Group and

the President’s Working Group on financial markets. This is a big

job.

Moreover, I am going to ask—and I think that Mr. Bitsberger is

going to tell us—about our need to raise the debt subject to limit

soon. Last year and the year before that, avoiding default by the

U.S. Treasury was extremely stressful for the Treasury Department. Mr. Bitsberger will have quite a task as we try to figure out

how we raise the debt between now and the next several months.

The Social Security Administration plays an essential role in getting Social Security benefits to seniors, widows, widowers, children

who have lost a parent, and people with disabilities.

Making sure that the Social Security program runs properly is

no small task, but it can mean the difference between life and

death for a Social Security recipient.

It could mean the difference between eating or not eating—and

that is literally true—or between taking needed prescription drugs

or not taking them. That is also true. I have witnessed it. It is very

important.

The Social Security Inspector General plays an essential role in

making sure that Social Security gets the job done right. The Social

Security Inspector General protects the Social Security system

against waste, fraud and abuse by conducting independent and objective audits, evaluations, and investigations.

The documents and reports that the Inspector General provides

have been very helpful to me over the years, and I hope to learn

more today about the project that the Inspector General has

planned.

Mr. O’Carroll has a strong record of public service and an extensive background in law enforcement. I am confident that he will do

a fine job as Social Security Inspector General.

The Treasury Inspector General for Tax Administration is also

extremely important. Congress established the position to oversee

the IRS and tax administration functions by others in the executive

branch. The office includes more than 900 employees.

When Congress designated the Treasury Inspector General for

Tax Administration office in 1998, we maintained requirements of

all other inspector generals, that the nominee should be appointed

without regard to political affiliation and solely on the basis of such

appointee’s integrity and ability.

Congress also recognized the enormity of the job of overseeing

tax administration, so we required that the Inspector General for

Tax Administration have experience running a large organization.

The next Inspector General for Tax Administration faces a

daunting task. The IRS tells us that there is an annual tax gap of
5

more than $300 billion each year. That is $300 billion in taxes that

are owed, but not collected, every year.

The Treasury Inspector General for Tax Administration will be

charged with identify where the IRS’s collection efforts have fallen

short and making recommendations as to how to ensure a more efficient and effective IRS.

Needless to say, experience in tax policy and tax administration

is important. I understand that Mr. George does not have this type

of experience. I urge him, therefore, to pay heed to the many capable career employees in the office of the IG.

While I have concerns about Mr. George’s nomination, I have an

open mind, especially about his ability to succeed in this job. I look

forward to hearing from Mr. George about how he plans to take the

hard steps necessary to help reform the IRS, a problem we have

had for a long time.

Mr. George, this may take some biting some heads and it will not

always make you popular with the administration or the political

branches, but it will make you effective. The integrity of our voluntary tax system depends on your diligence.

Finally, we have a nominee to the IRS Oversight Board, Paul

Jones. The IRS Oversight Board performs a useful function. The

board oversees the Services Administration’s execution and application of our tax laws.

Mr. Jones comes to the board with experience in information

technology. Mr. Jones is coming into the position that is critical to

our voluntary tax system. The IRS has spent billions—that is, billions—in trying to modernize the 1960’s technology.

Congress is frustrated with the IRS’s lack of progress, and the

American taxpayer deserves to see improved service. So, I urge Mr.

Jones to take charge. No more excuses. It is time to see us get

some real results. I am eager to hear from him, as well as the other

nominees. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Baucus, you gave a very complete statement. I did not give that long of a statement. I am glad that you

did, because it is important that we point out in our oversight capacity that we are concerned about who holds these positions.

Wherever there is independence, whether it is an inspector general or whether it is a member of an oversight board, all those

things, I want to emphasize that there is a certain amount of independence.

I expect people appointed to those positions to exercise that independence in order to have the integrity of the office and the goals

that Congress wanted to accomplish in setting up the office actually be performed.

Now, what we will do, is starting with Mr. George, then Mr.

O’Carroll, then Mr. Bitsberger, then Mr. Jones, we will ask each

of you to give whatever statement you want to give to us, but a

longer statement would just be automatically put in the record

without your asking and we would ask you to summarize.

Before you speak, each of you should introduce family members

that you want to have recognized. We welcome them here. They

ought to be very proud of you for the acknowledgement of the ability that your appointment represents.

So, we will start with you, Mr. George.
6

Mr. GEORGE. Thank you, Mr. Chairman.

At the outset, I would like to introduce both my mother and father, who traveled from New York to be with me today.

The CHAIRMAN. Thank you for standing.

Mr. GEORGE. I would also like to just say to them, thank you for

instilling in me the values that afforded me this opportunity. I love

them very much.

The CHAIRMAN. Thank you very much. Congratulations to you as

parents.

Mr. O’Carroll?

Mr. O’CARROLL. Thank you, Mr. Chairman. At this time I’d like

to introduce my wife, Elaine O’Carroll, who has been with me for

the last 24 years and has stuck with me through thick and thin.

The CHAIRMAN. Very good.

Mr. Bitsberger?

Mr. BITSBERGER. Thank you, Mr. Chairman.

I would like to introduce my wife, Cheryl, and mother of our 4-

year-old twins. Thank you.

The CHAIRMAN. Thank you.

Senator BAUCUS. How old are your twins?

The CHAIRMAN. Yes.

Mr. BITSBERGER. Four.

The CHAIRMAN. All right.

Now, Mr. Jones?

Mr. JONES. Mr. Chairman, thank you. I would like to introduce

my wife, Ruth, of 6 years. She is behind me, and has stood behind

me faithfully and I thank her for that.

The CHAIRMAN. All right. Thank you.

Senator BAUCUS. That reminds me. This is probably inappropriate. I was at an event not long ago, Mr. Chairman, where a man

was honored. They said, behind every successful man, there is a

surprised wife. [Laughter.] I do not think she is surprised.

The CHAIRMAN. Now, we are going to go through all of the opening statements. So, Mr. George, would you start out?

STATEMENT OF J. RUSSELL GEORGE, NOMINATED TO BE INSPECTOR GENERAL FOR TAX ADMINISTRATION, U.S. DEPARTMENT OF THE TREASURY, WASHINGTON, DC

Mr. GEORGE. All right. Thank you.

Chairman Grassley, Senator Baucus, thank you for the opportunity to provide some testimony today. It is an honor to be here

as the President’s nominee for the position of Treasury Inspector

General for Tax Administration. I am truly grateful to the President for the trust placed in me by his nomination.

I would also like to thank Senator Sununu for his gracious introduction and for his assistance with my nomination.

Mr. Chairman, Senator Baucus, I have served as an inspector

general for nearly 2 years. Prior to that time, I had the opportunity

to assist the chairman of the subcommittee in the House of Representatives with responsibility for overseeing the implementation

of the Inspectors General Act.

For over 7 years in that position, I worked with inspectors general as they performed their roles. I have worked with inspectors
7

general. I observed first-hand how the activities of inspectors general can benefit agencies, Congress, and the Nation.

From that experience, as well as my current position, I have

come to the following conclusion: an inspector general is not another general counsel of an organization.

The IG function is to identify waste, fraud and abuse and advise

both the agency head, as well as Congress, on his or her findings

with the goal of stemming inappropriate activity and helping to

avoid its recurrence.

Given the very important role the Internal Revenue Service provides to the Nation, I am very much aware of the sensitive nature

of the position for which I am being considered. I assure you that,

if confirmed, the Office of Inspector General will be zealous in its

oversight of the agency.

In 1995, when I joined then-chairman Steven Horn as a Staff Director of the House of Representatives’ Subcommittee on Government Management, one of the first charges I received from him

was to examine issues pertaining to the Internal Revenue Service,

especially those identified as being at high risk of waste and abuse.

Among the first issues we reviewed were what was then referred

to as the Tax Systems Modernization Initiative, and is currently referred to as Business Systems Modernization, what is now referred

to as the tax gap that Senator Baucus referred to, and other compliance issues, and the issue of erroneous and improper payments.

As you note, these very same issues which we reviewed nearly

a decade ago still persist, and in some cases have been exacerbated.

They will be among the first areas that I will focus on, if confirmed.

In addition, I had the opportunity to assist with the House of

Representatives’ consideration of the Internal Revenue Service Restructuring and Reform Act, which, as you know, established the

position of Treasury Inspector General for Tax Administration.

Working with Representative Portman and his staff on this legislation enhanced my understanding of the significant role of the Inspector General for Tax Administration.

Mr. Chairman, once again, thank you for the opportunity to appear here today. I have devoted most of my life to public service.

If afforded the opportunity to assume the position to which I have

been nominated, I will do my level best to ensure that the Office

of Treasury Inspector General for Tax Administration continues to

assist the Assistant Secretary of the Treasury and the Commissioner of the Internal Revenue Service in their efforts to ensure

that the IRS serves the Nation in a more efficient, effective, and

responsive manner. Thank you.

The CHAIRMAN. Thank you, Mr. George.

[The prepared statement of Mr. George appears in the appendix.]

The CHAIRMAN. Now, Mr. O’Carroll?

STATEMENT OF PATRICK P. O’CARROLL, JR., NOMINATED TO

BE INSPECTOR GENERAL, SOCIAL SECURITY ADMINISTRATION, BALTIMORE, MD

Mr. O’CARROLL. Good morning, Mr. Chairman, Ranking Member

Baucus, and members of the committee.

I appreciate the opportunity to appear before this distinguished

panel to discuss my vision for ensuring the integrity of Social Secu-
8

rity’s programs, should I be confirmed. I am honored that President

Bush has nominated me for the position of Inspector General for

the Social Security Administration.

Henry Clay observed, ‘‘Government is a trust and the officers of

government are trustees, and both the trust and the trustees are

created for the benefit of the people.’’

Although Americans face new challenges at home and abroad,

there is no better time to be their trustee. In my 34 years of public

service, I have received extensive law enforcement experience and

management training, including a master of forensic sciences degree from George Washington University. Additionally, my 26

years with the U.S. Secret Service have provided me with valuable

experience as an investigator and a leader.

At SSA’s Office of the Inspector General, I have held various positions of increasing responsibility, including Special Agent in

Charge of Congressional Affairs, Strategic Enforcement, and Assistant Inspector General for External Affairs.

Most significantly, over the past 4 years I served as the Assistant

Inspector General for Investigations, where I led investigators and

employees in 64 offices throughout the Nation.

In this position, I undertook a number of initiatives to reduce

fraud, waste and abuse in SSA’s programs and operations. This includes my leadership of OIG’s efforts in the Cooperative Disability

Investigative Program, the Fugitive Felon Program, Identify Theft

Task Forces, and, most importantly, Homeland Security.

No program touches more lives than Social Security. As stewards

of the sacred trust, we work continuously to maintain the efficiency

and effectiveness of SSA and its programs and to eradicate waste,

fraud and abuse.

An important part of our mandate is to provide timely, useful,

and reliable information and advice to administration officials,

Congress, and the public.

To meet this mandate, in 1997 I established an Office of External

Affairs, focusing on quality assurance, Congressional liaison, and

vitally important, to foster a strong, open relationship with Congress while providing timely and accurate information.

Ultimately, our relationship depends on our performance. We

must continue to conduct our audits and investigations with the

strictest adherence to legal and professional standards and make

the most efficient use of our resources to prevent fraud on the front

end of SSA’s business processes.

Today, we are focused on the threat of terrorism and the impact

it can have on our everyday lives. Social Security programs face additional challenges, and we must take them seriously.

We learned after the September 11 terrorist attacks that government departments and agencies at every level must be able to communicate and share information in a timely fashion. At the same

time, it is our duty to protect the privacy of every citizen.

If confirmed, I will make it a top priority to continue developing

collaborative relationships with fellow Federal, State, and local departments and agencies to foster greater communication.

Another priority of mine is to continue developing OIG through

better recruitment programs to attract highly capable candidates,

representing the mosaic that is America.
9

Should I be confirmed, our organization will continue to function

as a critical law enforcement arm and key management tool for

SSA. We will continue to vigorously pursue those who try to take

advantage of SSA’s programs, operations, or beneficiaries, while

safeguarding the precious resources allotted to us.

We will also continue to work with the agency to identify opportunities to improve efficiency and effectiveness. I look forward to

working with Congress and Commissioner Barnhart to help SSA

meet these, and other, challenges.

Because Social Security plays such an important role in the lives

of Americans, I would consider it an honor to serve as the next Inspector General of Social Security.

Thank you for this opportunity. I will be pleased to answer any

questions.

The CHAIRMAN. Thank you.

[The prepared statement of Mr. O’Carroll appears in the appendix.]

The CHAIRMAN. Mr. Bitsberger?

STATEMENT OF TIMOTHY BITSBERGER, NOMINATED TO BE

ASSISTANT SECRETARY OF FINANCIAL MARKETS, U.S. DEPARTMENT OF THE TREASURY

Mr. BITSBERGER. Chairman Grassley, Ranking Member Baucus,

and members of the Committee on Finance, thank you for the opportunity to appear before you and your committee today.

I am honored to be President Bush’s nominee to be Assistant

Secretary of the Treasury for Financial Markets, and am grateful

for Secretary Snow’s confidence in me.

If confirmed, I look forward to the opportunity to work in this

role with Secretary Snow, the Treasury staff, others in the administration, and the Congress on the variety of issues pertinent of the

Office of Financial Markets.

For the past two and a half years, I have had the privilege of

serving as the Deputy Assistant Secretary of Federal Finance for

Treasury, where my primary responsibility has been managing the

Federal debt.

We have made great strides in our objective of achieving the lowest cost of financing over time for the American taxpayer. By improving the transparency of our decision making, we have reduced

investor uncertainty. But expanding our offering of securities beyond the traditional mix, we have taken significant steps to expand

and broaden our investor base.

By improving our computer systems, we have created a more efficient and accessible electronic marketplace, allowing any investor

the opportunity to readily participate in our auctions. Though difficult to precisely quantify, these efforts have helped us to reduce

and lower the cost of financing the debt.

The past 2 years have been an especially demanding time for

public service, and there is no reason to think that this will change

in the future. If confirmed, I look forward to the opportunity to

work with this committee on formulating policy and legislation in

the areas of public debt management, financial markets, government financial management services, and Federal lending.
10

I have now worked for approximately 20 years in the capital

markets, primarily in the credit markets. I first started trading

U.S. Treasuries in 1986, and have witnessed profound changes not

only in the U.S. Treasury market, but also in all the financial markets.

Though the bulk of my private career was spent trading and investing, I have had exposure to most financial market issues. I believe this gives me a unique perspective of the give and take required between the public and private sectors.

Thank you again, Mr. Chairman, for the privilege to appear before this committee. If confirmed, I can promise you I will work

closely and with an open mind with you, members of this committee, and committee staff.

Thank you.

The CHAIRMAN. Mr. Bitsberger, thank you.

[The prepared statement of Mr. Bitsberger appears in the appendix.]

The CHAIRMAN. Now, Mr. Jones?

STATEMENT OF PAUL JONES, TO BE MEMBER OF THE INTERNAL REVENUE SERVICE OVERSIGHT BOARD, U.S. DEPARTMENT OF THE TREASURY

Mr. JONES. Thank you. Thank you, Chairman Grassley and

Ranking Member Baucus. Thank you for holding this hearing

today.

I am honored, as echoed by the other nominees, to appear before

this committee as you consider my nomination to become a member

of the IRS Oversight Board. I thank the President for nominating

me, and the Secretary of the Treasury for choosing me as a candidate.

As I have said, my wife Ruth is seated behind me, and she joins

me in thanking you for conducting this hearing today.

I am a graduate of both Yale College and Yale Law School. In

private law practice early in my career, I joined the Coudert international law firm in Paris, representing large, multinational clients

and transactions, including corporate and tax structuring. Moving

back to New York in 1973, I remained with the Coudert firm and

developed skills as a trial lawyer, representing the three major

broadcast networks.

During that period, the CBS ‘‘60 Minutes’’ program became my

principal client under their relationship with Lloyds of London.

Press coverage of issues raised in one of my ‘‘60 Minutes’’ cases

brought my name to the attention of the Federal Communications

Commission in 1976, when I was invited to serve as a co-director

of an FCC task force charged with exploring the economics of video

program production and distribution.

The ultimate goal of that task force was to recommend regulatory change that would increase program choice for the American

public beyond the three commercial broadcast networks. I accepted

that position, and also served as Assistant General Counsel for the

FCC.

That was my first foray into public service. Based on that experience, I hoped that, again, later in my career, I would have the opportunity to serve the public, sharing experience gained in the pri-
11

vate sector. Happily, I am before you today, seeking confirmation

so that I may serve on the IRS Oversight Board.

In the years following that FCC experience, I have served as vice

president for Strategy and Business Development for CBS, as general counsel for Warner Communications’ cable business, as senior

vice president of Corporate Development for Time Warner Cable

Ventures.

Serving as senior vice president, general counsel, and regulatory

policy for Time Warner Telecom, I am part of the senior management team that has grown Time Warner Telecom from an idea to

a successful publicly traded company. That company is 41 percent

owned by Time Warner, Incorporated, but traded separately on the

Nasdaq stock exchange.

Creating and executing on the strategy or vision for the company

is the principal responsibility for our senior management team and

our board of directors, which, as secretary of the company, I also

serve.

I now find myself in the position where the knowledge and experience I have gained through my corporate experience can be put

to good use in the service of the public.

I am honored and privileged to be nominated to give something

back to my country, and I believe that by serving as a member of

the IRS Oversight Board, I can apply the good governance principals I have learned in the private sector to a public sector institution that affects virtually every American.

In recommending the creation of the IRS Oversight Board, the

National Commission on Restructuring the Internal Revenue Service issued its report in 1997, stating, as Chairman Grassley well

knows, that the IRS Oversight Board should be focused on providing strategic direction to the IRS.

If confirmed, I will embrace that mission, steeled in the conviction that the interests of the American taxpayers are served where

improved and modernized business processes and systems support

both service and enforcement by improved and simplified processes

both for filing and administration, and by awareness programs that

help both taxpayers and tax professionals understand that, as a

country, we are far better off with core values that support, rather

than avoid, the payment of our taxes.

Thank you again, Chairman Grassley, Ranking Member Baucus,

and members of the Senate Finance Committee, for the honor of

appearing before you today.

The CHAIRMAN. Thank you.

[The prepared statement of Mr. Jones appears in the appendix.]

The CHAIRMAN. Now we have three routine questions that we

will ask each one of you to respond to.

First, is there anything you are aware of in your background that

might present a conflict of interest with the duties of the office to

which you have been nominated?

Mr. George?

Mr. GEORGE. No, Mr. Chairman.

The CHAIRMAN. Mr. O’Carroll?

Mr. O’CARROLL. No, Mr. Chairman.

The CHAIRMAN. Mr. Bitsberger?

Mr. BITSBERGER. No, Mr. Chairman.
12

The CHAIRMAN. And Mr. Jones?

Mr. JONES. No, Mr. Chairman.

The CHAIRMAN. Thank you.

Second, do you know of any reason, personal or otherwise, that

would in any way prevent you from fully and honorably discharging the responsibilities of the office to which you have been

nominated?

Mr. GEORGE. No, sir.

The CHAIRMAN. Mr. O’Carroll?

Mr. O’CARROLL. No, Mr. Chairman.

Mr. BITSBERGER. No, Mr. Chairman.

Mr. JONES. No, Mr. Chairman.

The CHAIRMAN. Thank you.

Third, do you agree without reservation to respond to any reasonable summons to appear and testify before any duly-constituted

committee of Congress, if you are confirmed?

Mr. GEORGE. I do, Mr. Chairman.

Mr. O’CARROLL. Yes, Mr. Chairman.

Mr. BITSBERGER. Yes, Mr. Chairman.

Mr. JONES. Yes, Mr. Chairman.

The CHAIRMAN. And before I forget, before I ask questions and

Senator Baucus asks questions, one of the things that is very important for Senator Baucus and I moving your nominations, is if

other members of the committee primarily, but even any member

of the Senate, that has asked you for answers to questions and

they have not been responded to, we do not like to go ahead—only

under unusual circumstances—until those are responded to. So, it

would help you and the Senate’s consideration of your nomination

if you would give answers to those questions.

Mr. George, you have been nominated for an extremely important position, as I and Senator Baucus have already indicated, a

position that I was personally involved in creating. The statute creating the office required ‘‘demonstrated ability to lead large and

complex organizations.’’

In reviewing your background, you certainly have some fine accomplishments, but I am concerned about your ability to lead a

large organization. So, I would ask you to respond as to your capabilities of doing that.

Mr. GEORGE. Thank you, Mr. Chairman, for the opportunity to

respond to that issue.

While my current office consists of approximately 25 individuals,

I do run an organization that oversees the management, the activities of programs that have hundreds of grantees and thousands of

subgrantees all over the country.

In my capacity as staff director of the Subcommittee on Government Management, Information and Technology, we had oversight

responsibility for the entire executive branch of the Federal Government, which consists of, as you well know, over 2 million individuals.

I have learned over the last 10 years or more that, regardless of

the size of an organization, a capable leader has to delegate to

trusted individuals and set the tone, set the direction, but allow for

these individuals to perform their functions well and faithfully.
13

Whether you have 10 individuals in an organization or 10,000 individuals in an organization, an effective leader cannot be by each

and every one of them. That individual has to rely on trusted aides.

Fortunately, the Treasury Inspector General for Tax Administration has a very capable staff. The Acting Inspector General, Pam

Gartner, whom I know well, is very capable. Her deputies, both on

the investigative side and audit side, are tremendously capable.

There is no question in my mind that I would be able to put faith

in them to have them give me direction at times. I have to admit,

Mr. Chairman, and Senator Baucus pointed out, that I am not a

tax expert. He is exactly right.

When I was approached by the administration to be considered

for this position, I readily acknowledged that. They indicated to me,

however, that it is not tax law experts that they thought were

needed for this position.

That evoked immediately something that occurred when I was

Staff Director of the Subcommittee on Government Management,

when Chairman Horn said to me, draft a letter to the President,

when Margaret Richardson stepped down from the position as

Commissioner of IRS, and indicate to them, President Clinton, that

he should not appoint a tax lawyer or a tax expert, but rather

someone who had expertise in management issues and who understood how information technology is key in the 21st century. Chairman Horn took great pride in the fact that the President indicated,

in both a response to him as well as in his appointment subsequently of Mr. Rossotti, someone who did not have tax expertise as

his background.

So the bottom line, sir, is, yes, while I acknowledge this would

be the largest organization that I have ever headed, I am smart

enough to know what I do not know, and smart enough to realize

that there are more capable individuals that I will be able to rely

on to help me in this responsibility, if confirmed.

The CHAIRMAN. All right.

Mr. George, I am concerned about voices within the administration—and these are not a whole lot different than in the previous

administration—that would like to have IGs generally, not just the

position you are being appointed to, in the business of assisting

management, and putting on the back burner the role of looking

for waste, fraud and abuse.

I am troubled by such an approach in any administration, for

several reasons. First, if the IG is not looking for waste, fraud and

abuse, no one else will be. Second, if you do not know what the

problems are in terms of waste, fraud and abuse, it is hard to know

what management reforms are needed.

So, I would ask for your views on this. I am comforted by the fact

that you did work for a person by the name of Congressman Horn,

now retired, who I had a chance to work with on several things

that were wrong in the Defense Department. So, I think that his

attitude is good.

If you worked with him and you have that same attitude towards

seeking out waste, fraud and abuse within your agency, you have

a good background for that. But I would still like to have your response.
14

Mr. GEORGE. Again, thank you for the opportunity to respond,

Mr. Chairman.

Yes. I disagree with the position that you stated that some in the

administration hold. I believe that the role of the Inspector General

is one of the most key responsibilities in a department or agency.

Again, if confirmed, when I put my hand up, I will have taken

an oath to uphold the constitution, but also to adhere to the requirements of the Inspector General Act.

If, in any instance, an allegation of waste, fraud and abuse comes

to my attention and I present that information to the Commissioner of the Internal Revenue Service or to the Secretary of the

Treasury, pursuant to the time constraints provided within the Inspector General Act, adequate information or responses are not

forthcoming, I will then, of course, use the mechanisms available

to me under that act to report, first of all to the Congress, and to

take any other action that I deem appropriate to ensure that the

allegations are addressed.

There is no question that we are watchdogs, that Members of

Congress have limited staff and limited resources and are not within the organization, and that the Inspector General would have a

perspective, an advantage, that is something that, in all candor, I

wish when I was the staff director of a House subcommittee I had

had access to.

I realize, Mr. Chairman, again, as a person who worked very

closely with IGs, how important the IG role is. I do not believe that

one can wait for a semi-annual report to be issued before approaching Congress about issues that arise.

I can assure you that I will be very diligent, if confirmed, in

terms of reporting to Congress, reporting to the agency head, allegations of wrongdoing and making recommendations to address

those.

The CHAIRMAN. Mr. Jones, I would like to make one point to you

and ask one question. My point—and this is equally appropriate for

the two Inspector General nominees that we have before us—is

that I expect you to be independent.

Senator Baucus has made that point, and I have made it two or

three times. You are not to be a cheerleader or an echo for management. The role of oversight is exactly that, oversight. It is not

called the advocacy board.

That said, what do you see as your top priorities in your work

on the IRS Oversight Board?

Mr. JONES. Mr. Chairman, I appreciate the comments on independence and fully understand the role of the board to be exactly

that, independent, and to dig into the information that is provided

to it, and try to understand it and evaluate it objectively.

In regard to priority, the gap that Senator Baucus referred to is

troublesome. It appears to me that there may be opportunity to

help the agency provide the tools and implement the tools that will

increase voluntary compliance and increase compliance overall, always being mindful of taxpayer rights in the process, but improving the performance of the agency through voluntary compliance

seems to me to be a key objective.

The CHAIRMAN. I am going to go to Senator Baucus now.

Senator BAUCUS. Thank you. Thank you, Mr. Chairman.
15

Mr. Jones, what is the role of the Oversight Board? What is it

supposed to do?

Mr. JONES. As I understand it, given the report of the commission that preceded the Restructuring Act, it is to assure that the

operating decisions of the Internal Revenue Service are consistent

with a long range strategy that will assure ultimately that those

operating decisions are consistent with improvement in closing the

gap, improving enforcement and collection.

Senator BAUCUS. Who does the board report to?

Mr. JONES. It reports to the Senate Finance Committee.

Senator BAUCUS. Only?

Mr. JONES. And to the President.

Senator BAUCUS. Only?

Mr. JONES. To the people.

Senator BAUCUS. I do not mean to be cute here. The board reports to both the President, as you understand it, and to the Finance Committee and Ways and Means, or is it to the Congress,

or whom?

Mr. JONES. Well, it is to the Senate and to the Congress. It is

my understanding that it is to serve as an oversight watchdog, to

assure that reporting back to the Congress is consistent.

Senator BAUCUS. How often does the board report? First of all,

how often does it meet?

Mr. JONES. It meets six times each year, as I understand it, 2

days at each session. Then I am assuming that in addition there

would be time that I would spend, independent of those face-toface, two-day meetings, being involved in committee work. With respect to reporting, there is an annual report. I have read the 2002

and 2003 reports.

Senator BAUCUS. What power does the board have, besides reporting?

Mr. JONES. It has power to recommend to the President and to

the Congress the Commissioner, the director position of the IRS. It

has power to review the budget submitted to Congress by the agency. There were other powers that were recommended, but those are

the ones that jump to me as key.

Senator BAUCUS. To be honest, I am a little skeptical of the usefulness of the board. I hope you can change that around. The board

is not known for doing anything earthshaking around here in the

last 20-some years since I have been in the Congress. I hope you

can change that.

If so, it would be because of the power of your own personal persuasion to make something out of this board. In the past, my view

is that it is just basically a rubber stamp, an honorary title. They

do not do much. They make recommendations that fall on deaf

ears. I would, again, suggest that you do your utmost to change

that perception of the board.

Mr. George, as you well know, the administration, in its budget

proposal, suggests the consolidation of the Treasury Inspector General’s office with the Treasury Inspector General for Tax Administration’s office.

As you well know, this proposal by the President reverses the

law that was just passed in 1998, after a year-long commission

study and a year of congressional debate and hearings on the IRS.
16

Do you support that recommendation?

Mr. GEORGE. Mr. Chairman, I understand the administration’s

position in terms of wanting to ensure economy and efficiency in

terms of, with the creation of the Department of Homeland Security and its Office of Inspector General, which siphoned off almost

80 percent of the staff of the Department of Treasury’s Office of Inspector General.

So, while there was a very good reason for establishing a separate Office of Inspector General for Tax Administration, given the

fact that there are very few, or relatively few, staffers remaining

with in the Department of Treasury’s Office of Inspector General,

I do understand why the administration would propose that. In all

candor, I will do whatever it is that the Congress directs me to do,

and what the President ultimately signs into law or not.

Do I think that a combined office would be feasible and would

function well? If I were able to head it, yes, I do. If the status quo

were maintained, obviously it has worked. But again, given the fact

that you had quite a few staffers and functions taken away from

it, it might make sense economically to combine the functions. But,

again, I would do whatever the Congress instructs through legislation, and the President.

Senator BAUCUS. But do you have a personal view? Privately,

would you favor it or oppose it? Is it a good idea or not a good idea?

Mr. GEORGE. Well, Senator, there is no question that the administration of tax laws is difficult. My druthers would be to focus on

that. But, again, I am doing whatever I am required to do, if confirmed. My druthers would be to focus on tax administration.

Senator BAUCUS. Why do we have a tax gap as large as it is?

Mr. GEORGE. Well, that is a very good question, Senator. I mean,

you have, of course, an underground economy where people who

owe taxes are not paying them.

You have the dichotomy of policies that want the tax offices to

be responsive and, in effect, friendlier to the taxpayer, and yet at

the same time the tools, the resources that are needed to ensure

that audits are conducted and that investigations are conducted,

they are not matching the growing demand.

As you well know, the number of tax returns, the revenue that

is brought into the treasury, has increased tremendously over the

last few years. Yet, the number of employees, both at the Internal

Revenue Service as well as at TIGTA, has fallen.

Of course, with the passage of the RRA 98, more protections have

been provided to taxpayers, and I think those are appropriate protections. But more rights have been given that some would argue

would hinder the more efficient recovery of past due debts.

Senator BAUCUS. As you probably know, it is not so much the underground economy that causes the tax gap, it is just the failure

to report.

What would you do about that?

Mr. GEORGE. Well, again, my job, of course, would be to investigate where the agency is not doing its job in terms of collecting

taxes.

Senator BAUCUS. Where, specifically, do you think the agency

needs a little help?
17

Mr. GEORGE. Well, it is in a proposal that Chairman Horn and

I first worked on back in 1996 under the Debt Collection Improvement Act, which, at that time, Senator, received quite a bit of resistance.

But I am glad to see that both the President and the Congress

have since changed their points of view on it. That is, allowing for

the use of private debt collectors with proper constraints on their

activities, but allowing them to go into collect amounts of money

that are outstanding. I mean, that is one of a number of tools that

I think could be utilized better.

Senator BAUCUS. Why has nothing been done about the tax gap?

Why is it getting worse? This is not the first time there has been

a discussion about the tax gap. It is not the first time that Treasury and IRS personnel have not been before this committee and

discussed it. It is not the first time that we have asked this question. What is your view as to why it is not solved?

Mr. GEORGE. Well, unfortunately—or fortunately, depending

upon your point of view—you have some smart tax lawyers out

there who have found creative ways to assist people who do not

want to pay everything they are required to.

Senator BAUCUS. Well, we are not talking about the smart lawyers who are creating illegal shelter transactions. We are talking

about people who are just not reporting. You do not need a smart

lawyer there, in most cases.

Mr. GEORGE. No. That is true, sir. I would also point out again,

since the focus has been, at least at one point, taken away from

audits, especially of certain organizations and individuals who

might have provided a deterrent effect, people seem to think that

they can get away with it.

So, I know that Commissioner Everson has announced that he

would like, and has begun, an effort to change that focus to enhance the responsiveness of taxpayers. I think it is a must, sir. It

is just quite unfair. It is the wrong message to send.

Senator BAUCUS. Do you think the IG statute, or any statute

that you would be operating under, is sufficient for you to address

the responsibilities that you will be undertaking? Is the statute sufficient? Does it give you enough power?

Mr. GEORGE. I think so. I believe it does, sir.

Senator BAUCUS. Could you point out where in the statute you

think it gives you enough power?

Mr. GEORGE. In terms of initiating audits and investigations.

Senator BAUCUS. Initiating and so forth.

Mr. GEORGE. Correct.

Senator BAUCUS. You would not ask us to amend the statute to

give you more power?

Mr. GEORGE. Well, in all honesty, there is a proposal that the inspectors general now are working on that is not focused solely on

TIGTA that would enhance the role and the ability of inspectors

general to perform their jobs well, and that is forthcoming. The

Congress should be receiving something shortly. But at this stage,

I believe that TIGTA has the tools and the wherewithal to do its

job well.

Senator BAUCUS. And whom do you report to?
18

Mr. GEORGE. Well, directly, it is the Secretary of the Treasury,

as the agency head.

Senator BAUCUS. What reporting requirement or obligation do

you have to the Congress?

Mr. GEORGE. Well, under the IG Act, the semi-annual report, as

well as, if there is an investigation that I engage in and there is

a failure on the part of the Secretary of the Treasury to take appropriation action as required under the Inspector General Act, I have

a tool, the seven-day letter, that allows me to go directly to the

Congress and report to you directly. But there are other independent reporting requirements that I can supply for the record

later, Senator, if you would like.

Senator BAUCUS. I am just curious. I do not mean to give you a

hard time. But you are saying, if the Treasury Secretary fails to

do what, then you can go to Congress? I misunderstood.

Mr. GEORGE. Well, there are a number. If I engage in an audit

or an investigation that provides recommendations to the agency

head, they have 30 days in which to respond to recommendations,

in some certain circumstances.

Then they have up to a year in which to complete recommendations. There are various time limits set in the Inspector General

Act, Senator, so it would depend on the circumstance.

In one instance, if there are allegations of criminal wrongdoing,

unlike other inspectors general, the Treasury Inspector General for

Tax Administration has the ability to go directly to the Attorney

General with allegations of wrongdoing.

Senator BAUCUS. What obligations do you have to respond to

Congress, to inform Congress, keep Congress fully informed about

investigations?

Mr. GEORGE. I believe in most circumstances, Senator, that the

Inspector General has an obligation to report to Congress, one, if

it is in response to a Congressional request for information, and

most importantly, again, if there is a failure on the part of the

agency head to respond to an allegation of wrongdoing that has

been brought to his or her attention.

Senator BAUCUS. In what instances might there not be responsibility to inform Congress? You said ‘‘most instances.’’

Mr. GEORGE. Yes. Well, on a routine audit of a program.

Senator BAUCUS. No obligation to inform Congress if Congress

wants it?

Mr. GEORGE. Well, if Congress wants it, no, I have an obligation

to provide it.

Senator BAUCUS. What do you see as the scope of your authority?

That is, if you are investigating potential fraud and abuse in the

IRS and so forth and there are some allegations of, say, political

influence from the White House, would you regard investigations

into whether there was improper political influence as within the

scope of your authority or not within the scope of your authority?

Mr. GEORGE. I believe it would be within the scope of my authority.

Senator BAUCUS. And might I ask why you think that?

Mr. GEORGE. The question indicated that that it was improper

influence.

Senator BAUCUS. Right.
19

Mr. GEORGE. So anything improper, I would bunch in with allegations of waste, fraud, but abuse in this instance. It really would

depend on the circumstances, Senator.

Senator BAUCUS. I am just suggesting that if, say you were conducting an investigation and it is quite apparent. I am not pointing

fingers at any administration. I am speaking generally, now.

If, say, Congress is not given information that we all think Congress should receive because someone in the White House, Republican or Democratic administration, whatever, indicates to somebody, say in the IRS or Treasury, do not give that information,

even though Congress should have it, that is, there is some improper influence, do you think it is appropriate for you as Inspector

General, in trying to determine what happened, to try to determine

whether there was improper outside influence that prevented information from going to Congress?

Mr. GEORGE. The direct answer, Senator, is if you or any other

member of the Senate or House were to indicate to me, ask the Inspector General to investigate this allegation, yes, it is completely

within my scope to do so. Whether or not this is something that

would be self-initiated, I just, at this stage, could not guess.

Senator BAUCUS. All right.

Now, what happens if the Congress asks for such investigation

and it is in good faith, totally legitimate, but say the Secretary

says, no, do not do that, Mr. George?

Mr. GEORGE. Under the Inspector General Act, as amended, he

would not have the ability to stop me.

Senator BAUCUS. I appreciate that. Thank you very much.

I have a couple of more questions, but I have taken a lot of time,

too.

The CHAIRMAN. We have another Senator who has come, the

Senator from Arkansas.

Before I call on her, Mr. Bitsberger, I hope that you will not feel

less important if I do not ask you any questions.

I am going to submit three questions to Mr. O’Carroll for response in writing.

[The questions appear in the appendix.]

The CHAIRMAN. Senator Lincoln?

Senator LINCOLN. Thank you, Mr. Chairman.

The CHAIRMAN. And then be mindful of the fact that Senator

Baucus has a couple of more questions.

Senator LINCOLN. A couple more. I will try to be brief.

Senator BAUCUS. Senator, it is all yours.

Senator LINCOLN. Thank you, gentlemen, for being here and giving us the opportunity to get to know you better. You introduced

yourselves.

I guess a lot of it has to do with my background. I am very proud

that my heritage is very similar to the two gentlemen here, the

Chairman and the Ranking Member. We come from farming and

ranching families. We have a tendency to be a little bit conservative on the fiscal side of things and very concerned about how

they are dealt with.

I have to say, we have heard a lot of talk about dependence on

foreign oil. I guess I am really here today because of my incredible
20

concern about our Nation’s increasing dependence on foreign capital.

I am particularly concerned about China’s voracious appetite for

the U.S. debt, and would like to ask a few questions concerning

some of the questions I have actually already proposed to the

Treasury.

In June of last year, I wrote the Treasury Department a letter

where I asked very specific questions, looking for trends that were

emerging in the U.S. debt market. I am truly my grandfather’s

child. He always told me that debt was a dangerous thing and you

should never let it get too much in control of you.

Specifically, in my letter I said I was particularly interested to

review any data that the Treasury Department has gathered concerning trends in debt purchases by foreign governments.

After I was bounced around the Treasury Department for several

months, I eventually was sent a chart, which I really could have

gotten off the Web in the first place. It was a chart of just static

information.

The response, to say the least, was not very helpful, and certainly a little bit disappointing to me in terms of what I feel like

the Treasury Department should be doing in its investigation.

I wrote another letter, and this time it went to Secretary Snow,

in October, where I again asked specific questions about who was

buying up our debt. Again, I received a very weak response from

the Treasury Department.

At this time, Mr. Chairman, I would like to submit the correspondence for the record, if I may.

The CHAIRMAN. Yes, you may do that.

Senator LINCOLN. Thank you.

[The correspondence appears in the appendix.]

Senator LINCOLN. Yesterday, more than a year after my very

first letter, there was an article in the Washington Post that some

of you all may have read which states, ‘‘The statistics show that

the foreign and international investors account for the entire increase in privately owned treasury securities since President Bush

has taken office,’’ the alarming amount of debt that we are seeing

that the Treasury is now holding. So, I would like to submit that

article for the record as well, Mr. Chairman, if I might.

The CHAIRMAN. It will be included.

[The article appears in the appendix.]

Senator LINCOLN. Great. Thank you.

I guess, really, one of my comments and questions, as well, Mr.

Bitsberger, is my hope is that when a member of the Senate Finance Committee writes a letter, that we will get an answer, with

hopefully the full effort of the Treasury trying to give us information that is useful, not static information or something I can pull

off the Web.

My hope is that we will have a working relationship where you

can provide us the kind of information, investigative information,

that can really be helpful in bringing up the issues that we feel like

perhaps could be dangerous to our country, and things that we

need to be working on.
21

So, I guess that is my first question. Can you comfortably tell me

today that I am going to get a good response out of your department over there?

Mr. BITSBERGER. Senator, if confirmed, I will do everything in

my power to give you the information that you request.

Senator LINCOLN. Well, I hope so, because avoiding the responsibility to share that information with people who are making policy

decisions for our country, I think, is a very dangerous thing. We

have experienced some of that. My hope is that you can certainly

provide us that information.

The CHAIRMAN. Let me back up what the Senator just said.

There is an institutional problem, not just in your department, but

throughout all of government, not to give any more information

than needs to be given, and never give all of the information you

know in the first letter, hoping you never get a second letter back.

You have just got to realize, some of us are not going to give up

until we get the answers we want, unless there is no answer to be

given. But we find ourselves by most people in your position, and

probably people below you that you do not even know about, that

really do not want to give Congress the information that the constitutional responsibility of oversight requires us to ask for if we

are going to earn our money, and that we receive.

Go ahead.

Senator LINCOLN. Thank you, Mr. Chairman. I agree. The Chairman and I are pretty persistent, so you can bet your bottom dollar,

that second and third letter are going to come. So, we hope that

you will provide us the information that is certainly necessary in

the decisions we have to make.

So at this time, I am going to submit to you the same request

that I have, yet to really get an answer from the Treasury Department, and hope that I will get a response. I think that is certainly,

to me, one of the most positive things you can do, and indicating

to me that your confirmation is something that should happen, and

that would be that I can get an answer from you on those very important issues.

I also would like to ask you, if you could, to provide my office

with a detailed account of the amounts and percentages of the

United States’ debt held by other nations, both nations and individuals, and any other domestic and foreign entities.

I hope that you will also provide me with the information collected by the Treasury Department which shows the trends in U.S.

debt purchases by foreign governments.

The trends, I think, are going to be very important to us in being

able to deal with some of the more tricky issues that we deal with

in this committee, whether it is trade or what have you, but a better understanding of where we are going as a Nation and building

the strength of this country that we feel like is necessary, and certainly deserved of the people that we represent. So, I am hoping

that you can provide my office with that additional information.

I would also like to ask you a question at this time just to confirm with the administration that the U.S. has not assumed the

debt owed by Iraq to other nations. Can you confirm that for me?

Mr. BITSBERGER. Senator, I cannot, but I will check on that for

you.
22

Senator LINCOLN. All right. Well, I would definitely like to have

confirmation of whether or not the United States has assumed the

debt that is owed by Iraq to other nations. I would like that question answered.

I guess, lastly, I thought there was a study that existed, Mr.

Chairman, but we get conflicting reports, an official estimate of the

net present value of the future entitlement obligations of the U.S.

Government. To my understanding there was a study that was

done, and Treasury had a study, but I get conflicting responses

there. So, if you could please, on the record, let me know whether

or not there is a study that exists that gives an official estimate

of the net value of the future entitlement obligations, and if there

is not, I would make a strong suggestion that we move in that direction.

I may be one of the younger members of the U.S. Senate, but I

must tell you that the volume of individuals in this country that

are going to begin to put a tremendous pressure on our government

programs like Medicare, Social Security, and others, if the Treasury Department does not, indeed, have that study, again, I would

really encourage you all to take a look at that matter because I

think it is going to be a very critically important matter, not only

to the quality of life to the people that we represent, but more importantly to the solvency of our Nation and making sure that we

can continue a strong Treasury and a strong livelihood in this

country.

So, if you could let me know whether or not that study exists,

and if not, what the intentions of the Treasury are to study those

issues.

Mr. BITSBERGER. Yes, Senator. I will do so.

Senator LINCOLN. Great. Thank you so much.

Thank you, Mr. Chairman. I appreciate it.

The CHAIRMAN. Senator Baucus is going to have some questions,

so we will wait for him to come back. Thank you, Senator Lincoln.

One of the questions I was going to ask you, Mr. O’Carroll, that

I was going to submit in writing, is to have you comment on the

several issues that you have identified, significant management

issues facing the Social Security Administration, like improper payments, management of the disability process, integrity protection,

critical infrastructure protection, and others.

In terms of solutions, I would like to have you identify the single

most critical step that can be taken by the Social Security Administration to improve each of the management problems identified by

your office, assuming that there is one common to all of them.

Mr. O’CARROLL. Well, Mr. Chairman, the Social Security Administration touches about 50 million Americans and pays out $500

billion in benefits every year.

What we feel is that probably the most significant problem facing

Social Security is making sure that the correct people get the benefits, and those people that are receiving the benefits get them as

long as needed and no longer.

So in touching on each of those different ones, we are looking at

the improper payment issue and making sure that the proper payments are made to the proper people. We have been working with
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your staff and have been trying to determine the size of the improper payments that affect Social Security.

We are also taking a hard look in terms of the management of

the disability process, which ties directly with that. One of the solutions that Social Security is looking for is the accelerated electronic disability process, which will be going electronic in the processing of disability claims.

We feel that it could have a lot of benefit to helping Social Security. But, as with anything, when we are going into an electronic

age there are going to be different problems in terms of evidence

that will be used in courts in the future, and that is a big issue.

Tied into that also is going into the critical infrastructure in the

computer portion of it, and that touches all Americans in terms of,

one, giving access to the proper information to SSA and employees,

but at the same time trying to keep our information private so only

the amount of information necessary about people is available out

there.

Lastly, a major management issue that again ties into everything, and I have touched on it in my testimony, is the integrity

of the Social Security number. We feel that it is very important,

that it has an effect on homeland security, and is also a major privacy issue that affects all citizens of the United States.

The CHAIRMAN. All right. I will still send you a couple more

questions for answer in writing.

[The questions appear in the appendix.]

The CHAIRMAN. Now I will turn to Senator Baucus.

Senator BAUCUS. Thank you, Mr. Chairman. Just a couple of

more points about the tax gap, because it is getting worse, not better. You, Mr. Jones, will have a role there, too, clearly, along with

Mr. George.

Just a couple of points here. Currently, the IRS estimates that

the amount of taxes owed and not collected is at least $311 billion,

and it has attributed $249 billion worth of under-reporting, $32 billion under-payment, and non-filing, about $30 billion.

Now, former IRS Commissioner Rossotti pointed out that the IRS

really does not have enough resources to pursue identified tax debtors and cheats. Those were identified as tax debtors and cheats.

There were not enough resources to pursue them.

The numbers provided in his report to the Oversight Board are

as follows: 60 percent of identified tax debts are not pursued. Sixty

percent of identified tax debts are not pursued. Seventy-five percent of taxpayers who did not file a return are not pursued. Again,

75 percent of taxpayers who do not file a return are not pursued.

About 80 percent of identified taxpayers that use abusive devices, that is, offshore accounts, to evade taxes, are not pursued.

Many of them are identified. You know about the credit card scam

that was run for a while. It is down to the number of taxpayers

who used offshore credit card accounts to avoid paying taxes. I

have forgotten the number, but it is astounding.

Fifty percent of identified taxpayers with incomes of $100,000 or

more and under-report taxes are not pursued. Seventy-eight percent of partnerships and similar document matching are not pursued.
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It is just incredible, frankly, the number of cases not pursued, although we know that the taxpayer is not paying, for whatever reason. We can identify the taxpayers, but those cases are not being

pursued. I think it is primarily because of lack of resources.

Commissioner Rossotti proposed a steady growth of staff levels,

about 2 percent per year, and increased funding for modernization

for several years. I cannot speak to this directly, but I think the

computers are not what you saw in private business. They are behind what you saw significantly.

There are huge problems over there at the IRS. Huge. A lot of

it is morale. A lot of it is the inability to transfer people, make

changes. It is huge. It is a crisis. I have mentioned all this because

I want you to know, if you do not already—you probably do—what

an immense problem you have ahead of you, both you and Mr.

George.

It has been around for a while, which indicates, clearly, how difficult it will be to solve or to make a dent in, do something about.

It is particularly bothersome when we have this huge budget deficit

that we are faced with. We could virtually pay off a large portion

of the annual budget deficit if we could collect those dollars.

So, I just hope there is a sufficient sense of urgency in all of you

to really do your job, because it ain’t easy. There are so many hurdles in this town that you will be going up against with your good

intentions. I do not know how to debate it any more clearly, at

least in my opinion, what you have to do, and should be doing, and

how much I hope you rise above the inertia that is in these agencies in this town and crack it, make a difference, for the right reasons.

Mr. Bitsberger, when will the administration have to come to

Congress to ask for an increase in the debt ceiling?

Mr. BITSBERGER. Senator, publicly, the most I can professionally,

with any degree of accuracy, say right now, it will be late summer,

early fall.

Senator BAUCUS. And is it true that most of the reason for the

increased debt ceiling is because of the increase in publicly held

debt, not the trust fund debt?

Mr. BITSBERGER. They both add to the debt.

Senator BAUCUS. I know they both add, but in this case, this

year it is primarily the publicly held debt that increased, not the

trust fund debt increase, which is the cause for it.

Mr. BITSBERGER. Yes.

Senator BAUCUS. All right.

That is true?

Mr. BITSBERGER. I believe so. I will check the exact numbers on

that. But the fiscal deficit this year was projected to be about $520

billion.

Senator BAUCUS. All right.

So when will we hit the debt ceiling, again?

Mr. BITSBERGER. Again, Senator, with any degree of professional

accuracy, the best I can say would be late summer, early fall. To

expand on that a little bit, between now and the end of this calendar year we are going to have roughly $1.2 trillion in expenditures, $1 trillion in tax receipts. To try to get the timing of when
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that hits on any day, much less week, is very difficult to publicly

say.

Senator BAUCUS. Can you tell me—and I know you are not totally in charge here—can we avoid the extraordinary kinds of actions that have been taken in previous years to stretch out time by

which the debt ceiling must, by statute, be increased?

Sometimes in past years, Secretaries and Treasury Secretaries

and the administration have taken extraordinary procedures which

stretch credibility, robbing Peter to pay Paul, and various things.

Can you just, today, pledge, as much as you possibly can, that

we will not have to go through all those this time around?

Mr. BITSBERGER. Yes, Senator. If confirmed, I look forward to

working with you and the committee and giving you the information when we get it.

Senator BAUCUS. When will you hit the debt ceiling if Treasury

uses its extraordinary powers?

Mr. BITSBERGER. It would probably be sometime in the fall.

Senator BAUCUS. After the election?

Mr. BITSBERGER. I cannot publicly say yes or no to that, sir.

Senator BAUCUS. I know you cannot publicly. But you can just

tell me. [Laughter.]

Mr. BITSBERGER. Senator, again, if confirmed, I will work with

you and your staff on this issue to give you the information when

we get it. The mid-session review comes out hopefully in a few

weeks, and that should give us some insights into this question.

Senator BAUCUS. All right.

Again, I hope we do not have to go through this charade and we

will have a more orderly process, because we are going to increase

the debt. It is going to happen.

Mr. BITSBERGER. Yes, Senator.

Senator BAUCUS. So let us just do it. Come up early and get the

job done properly. That is my view. That is my advice.

Mr. BITSBERGER. I agree with you, sir.

Senator BAUCUS. All right. Good. That is progress.

Before we conclude, how do each of you want to be remembered?

Mr. George, when you leave this job, how do you want to be remembered?

Mr. GEORGE. As a man who had great integrity, who had complete appreciation of the immense challenge and responsibility of

the organization, and who hopefully left the organization in a better position than he found it when he first arrived.

Senator BAUCUS. Mr. O’Carroll?

Mr. O’CARROLL. Senator, I think that the Social Security Administration is one that touches everyone from birth until death, and

it takes care of those of us who are the most needy at times when

it is most needed. What I am hoping to do is to make sure that

those benefits and assurances of government are there for all

Americans into the future and that we make this a better place.

Senator BAUCUS. Yes. I think Social Security is one of the few

major government programs in which there is a lot of trust. The

American people understand it. They know it is there, and there

is deep trust in the Social Security system. Anything that shakes

that is certainly not very good all the way around. I appreciate

that.
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Mr. Bitsberger?

Mr. BITSBERGER. I guess, first, to be a great father and husband.

Also, I would like to be known as really to do the most I can to

serve the American taxpayer and just lowering the cost of financing

the deficits.

Senator BAUCUS. All right.

Mr. Jones?

Mr. JONES. Senator Baucus, I would like to be known as an individual who has really made a contribution to identifying the root

causes of some of the phenomena that you have described, knowing

that there are tax dollars out there that are not being collected,

and to understanding what the solutions are, and as a person who

has had an active role in implementing changes that will close that

gap. I take this seriously and hope to be able to make a difference.

Senator BAUCUS. I appreciate that.

Mr. Chairman, we have nomination hearings, and these are really good. It just occurred to me, we ought to have departure hearings to get an assessment of how things worked out. [Laughter.]

The CHAIRMAN. Yes. Compared to the original record.

Senator BAUCUS. Exactly.

The CHAIRMAN. Well, listen, we congratulate each of you and

hope that all the requirements that the Senate needs to get you

confirmed can be done very quickly, and that you do a very good

job in the position you have been appointed to. That is how we approach your nomination.

Thank you all very much.

Senator BAUCUS. Thank you, Mr. Chairman.

The CHAIRMAN. The hearing is adjourned.

[Whereupon, at 11:24 a.m., the hearing was concluded.]
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A P P E N D I X

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
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RESPONSES TO QUESTIONS FROM SENATOR LINCOLN

Questions 1 & 2. Please provide my office with a detailed account of the amounts

and percentages of United States debt held by other nations, individuals, and any

other domestic and foreign entities. Please also provide me with information collected by the Treasury Department which shows trends in United States debt purchases by foreign governments.

I would also at this time like to confirm with the Administration that the United

States has not assumed the debt owed by Iraq to other nations.
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