U.S. GOVERNMENT PRINTING OFFICE

58–810 CC WASHINGTON : 1999

CLINTON–GORE V. THE AMERICAN TAXPAYER

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH,

NATURAL RESOURCES, AND REGULATORY AFFAIRS

AND THE

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT,

INFORMATION, AND TECHNOLOGY

OF THE

COMMITTEE ON GOVERNMENT REFORM

HOUSE OF REPRESENTATIVES

ONE HUNDRED SIXTH CONGRESS

FIRST SESSION

APRIL 15, 1999

Serial No. 106–24

Printed for the use of the Committee on Government Reform

(

Available via the World Wide Web: http://www.house.gov/reform

(II)

COMMITTEE ON GOVERNMENT REFORM

DAN BURTON, Indiana, Chairman

BENJAMIN A. GILMAN, New York

CONSTANCE A. MORELLA, Maryland

CHRISTOPHER SHAYS, Connecticut

ILEANA ROS-LEHTINEN, Florida

JOHN M. MCHUGH, New York

STEPHEN HORN, California

JOHN L. MICA, Florida

THOMAS M. DAVIS, Virginia

DAVID M. MCINTOSH, Indiana

MARK E. SOUDER, Indiana

JOE SCARBOROUGH, Florida

STEVEN C. LATOURETTE, Ohio

MARSHALL ‘‘MARK’’ SANFORD, South

Carolina

BOB BARR, Georgia

DAN MILLER, Florida

ASA HUTCHINSON, Arkansas

LEE TERRY, Nebraska

JUDY BIGGERT, Illinois

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JOHN T. DOOLITTLE, California

HELEN CHENOWETH, Idaho

HENRY A. WAXMAN, California

TOM LANTOS, California

ROBERT E. WISE, JR., West Virginia

MAJOR R. OWENS, New York

EDOLPHUS TOWNS, New York

PAUL E. KANJORSKI, Pennsylvania

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

ELEANOR HOLMES NORTON, Washington,

DC

CHAKA FATTAH, Pennsylvania

ELIJAH E. CUMMINGS, Maryland

DENNIS J. KUCINICH, Ohio

ROD R. BLAGOJEVICH, Illinois

DANNY K. DAVIS, Illinois

JOHN F. TIERNEY, Massachusetts

JIM TURNER, Texas

THOMAS H. ALLEN, Maine

HAROLD E. FORD, JR., Tennessee

JANICE D. SCHAKOWSKY, Illinois

———

BERNARD SANDERS, Vermont

(Independent)

KEVIN BINGER, Staff Director

DANIEL R. MOLL, Deputy Staff Director

DAVID A. KASS, Deputy Counsel and Parliamentarian

CARLA J. MARTIN, Chief Clerk

PHIL SCHILIRO, Minority Staff Director

SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH, NATURAL RESOURCES, AND

REGULATORY AFFAIRS

DAVID M. MCINTOSH, Indiana, Chairman

PAUL RYAN, Wisconsin

BOB BARR, Georgia

LEE TERRY, Nebraska

GREG WALDEN, Oregon

HELEN CHENOWETH, Idaho

JOHN T. DOOLITTLE, California

DENNIS J. KUCINICH, Ohio

TOM LANTOS, California

PAUL E. KANJORSKI, Pennsylvania

BERNARD SANDERS, Vermont

HAROLD E. FORD, JR., Tennessee

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

MARLO LEWIS, Staff Director

BARBARA KAHLOW, Professional Staff Member

ANDREW WILDER, Clerk

ELIZABETH MUNDINGER, Minority Counsel

Page

III

SUBCOMMITTEE ON GOVERNMENT MANAGEMENT, INFORMATION, AND TECHNOLOGY

STEPHEN HORN, California, Chairman

JUDY BIGGERT, Illinois

THOMAS M. DAVIS, Virginia

GREG WALDEN, Oregon

DOUG OSE, California

PAUL RYAN, Wisconsin

JIM TURNER, Texas

PAUL E. KANJORSKI, Pennsylvania

MAJOR R. OWENS, New York

PATSY T. MINK, Hawaii

CAROLYN B. MALONEY, New York

EX OFFICIO

DAN BURTON, Indiana HENRY A. WAXMAN, California

J. RUSSELL GEORGE, Staff Director and Chief Counsel

BONNIE HEALD, Professional Staff Member

MASON ALINGER, Clerk

FAITH WEISS, Minority Counsel

(V)

C O N T E N T S

Page

Hearing held on April 15, 1999 .............................................................................. 1

Statement of:

Hoff Hay, Sydney, Phoenix, AZ; Kaye Whitehead, farmer, Muncie, IN;

William N. Lindsay, president, Benefit Management & Design, Inc.,

Denver, CO; John Nicholson, owner, Company Flowers, Arlington, VA .. 131

Reed, Anne F. Thomson, Chief Information Officer, Department of Agriculture, accompanied by Keith Kelly, Administrator, Farm Service

Agency ............................................................................................................ 165

Rossotti, Charles O., Commissioner, Internal Revenue Service ................... 12

Stevens, Nye, Director, Federal Management and Workforce Issues, General Accounting Office; Deidre A. Lee, Acting Deputy Director for Management, Office of Management and Budget; and James R. White,

Director, Tax Policy and Administration Issues, General Accounting

Office .............................................................................................................. 67

Letters, statements, etc., submitted for the record by:

Hoff Hay, Sydney, Phoenix, AZ, prepared statement of ................................ 133

Horn, Hon. Stephen, a Representative in Congress from the State of

California, prepared statement of ................................................................ 4

Kelly, Keith, Administrator, Farm Service Agency, prepared statement

of ..................................................................................................................... 194

Kucinich, Hon. Dennis J., a Representative in Congress from the State

of Ohio, prepared statement of .................................................................... 52

Lee, Deidre A., Acting Deputy Director for Management, Office of Management and Budget:

Information concerning increased staffing .............................................. 125

Information concerning the IRS oversight board .................................... 130

Information concerning recommendations .............................................. 129

Prepared statement of ............................................................................... 97

Lindsay, William N., president, Benefit Management & Design, Inc.,

Denver, CO, prepared statement of ............................................................. 143

McIntosh, Hon. David M., a Representative in Congress from the State

of Indiana:

List of paperwork required for a new hire .............................................. 163

Prepared statement of ............................................................................... 8

Nicholson, John, owner, Company Flowers, Arlington, VA, prepared statement of ........................................................................................................... 152

Reed, Anne F. Thomson, Chief Information Officer, Department of Agriculture:

Information concerning expiration of existing collections ...................... 174

Information concerning management plans ............................................ 206

Prepared statement of ............................................................................... 167

Rossotti, Charles O., Commissioner, Internal Revenue Service:

Information concerning section 482 ......................................................... 55

Information concerning tax filing requirements ..................................... 62

Prepared statement of ............................................................................... 16

Stevens, Nye, Director, Federal Management and Workforce Issues, General Accounting Office, prepared statement of ........................................... 70

Turner, Hon. Jim, a Representative in Congress from the State of Texas,

prepared statement of ................................................................................... 208

White, James R., Director, Tax Policy and Administration Issues, General

Accounting Office, prepared statement of ................................................... 109

Whitehead, Kaye, farmer, Muncie, IN, prepared statement of .................... 137

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CLINTON–GORE V. THE AMERICAN TAXPAYER

THURSDAY, APRIL 15, 1999

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON NATIONAL ECONOMIC GROWTH, NATURAL RESOURCES, AND

REGULATORY AFFAIRS, JOINT WITH THE SUBCOMMITTEE

ON GOVERNMENT MANAGEMENT, INFORMATION, AND

TECHNOLOGY, COMMITTEE ON GOVERNMENT REFORM,

Washington, DC.

The subcommittees met, pursuant to notice, at 2 p.m., in room

2154, Rayburn House Office Building, Hon. David M. McIntosh

(chairman of the subcommittee on National Economic Growth, Natural Resources, and Regulatory Affairs) and Hon. Stephen Horn

(chairman of the Subcommittee on Government Management, Information, and Technology) presiding.

Present: Representatives McIntosh, Horn, Ryan, Terry, Ose, and

Kucinich.

Staff present: Marlo Lewis, staff director; Barbara Kahlow, professional staff member; Jason Hopfer, chief counsel; Luke Messer,

counsel; Andrew Wilder, clerk; J. Russell George, staff director and

chief counsel; Bonnie Heald, director of communications, professional staff member; Mason Alinger, clerk; Elizabeth Mundinger

and Faith Weiss, minority counsels; and Earley Green, minority

staff assistant.

Mr. HORN. The joint meeting of the hearing of the House Subcommittee on Government Management, Information, and Technology and the Subcommittee on National Economic Growth, National Resources, and Regulatory Affairs will come to order. April

15 is tax day for all Americans. It is the day the Internal Revenue

Service holds individuals accountable for the accurate reporting of

their tax liability.

It is fitting that today we hold the IRS accountable as well. In

the past years, the Subcommittee on Government Management, Information, and Technology has held similar hearings and heard reports of management problems at the Internal Revenue Service.

Last year on this date, we heard from the newly appointed Commissioner of the Internal Revenue Service, Mr. Charles Rossotti.

He outlined for us his priorities for restructuring and refocusing

the IRS. Commissioner Rossotti spoke as follows: ‘‘Shifting entire

focus of the agency from one which focuses solely on conducting our

own internal operations to one which puts far more emphasis on

trying to see things from the point of view of the taxpayers and emphasizing service and fairness to taxpayers.’’

A few months after that testimony, on July 22, 1998, the IRS Restructuring and Reform Act of 1998 was signed into law. The unVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 E:\HEARINGS\58810 pfrm04 PsN: 58810
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derlying theme of the act is one of creating a cultural change within the IRS. In the broadest terms, the act shifts the emphasis on

the IRS from its defined role of an enforcement agency, to a role

that resembles more closely a financial service organization.

The initiatives presented by the Commissioner last April 15 and

the broad array of provisions in the IRS Restructuring and Reform

Act seem to go hand and hand. One year has passed since we

heard from the Commissioner, and nearly 9 months has passed

since the enactment of the restructuring act.

Today we hope to learn of the first steps taken by the Commissioner to restructure and refocus the Internal Revenue Service. I

think that’s one of the most difficult jobs that has been ever undertaken in government, and might well be one of the most difficult

ever taken in a human organization.

In addition, we need to have a candid discussion of the challenges that lie ahead for the agency. Great things are expected and

the road will be difficult. The Commissioner knows that, and most

of us know that.

However, the effort is much needed, and we will all be better off

when it has been accomplished. The Government Management, Information, and Technology Subcommittee will focus on these and

other management practice issues within the IRS. I will then yield

the chair to Mr. McIntosh whose subcommittee will examine the

agency’s record in complying with the Paperwork Reduction Act.

That law is intended to reduce the burden of paperwork the Federal Government places on the American people. The National Economic Growth, Natural Resources, and Regulatory Affairs Subcommittee will focus specifically on the paperwork imposed by the

IRS and the Department of Agriculture.

Let us begin today by welcoming our witnesses. Mr. Charles

Rossotti, Commissioner of Internal Revenue Service, has a distinguished career. He’s the type of person that should have long ago

been made Commissioner, and we now have one that has been a

chief executive, knows what it is to be a chief executive. And when

you preside over a complicated organization, such as the IRS, with

102,000 employees, the challenges are obviously great.

He will be panel 1. And the Members on both sides will have the

opportunity to question the Commissioner after his statement has

been made, and we will alternate 5 minutes each, varying between

the majority and the minority.

On panel 2, we will hear from Mr. Nye Stevens, Director of the

Federal Management and Workforce Issues at the General Accounting Office, which is the legislative arm of the government,

and does our program and fiscal accounting; Mrs. Deidre Lee, Acting Deputy Director for Management at the Office of Management

and Budget; and Mr. James R. White, Director of Tax Policy and

Administrative Issues at the General Accounting Office will finish

out panel 2.

Panel 3 will consist of Ms. Sydney Hoff Hay, a taxpayer activist

from Phoenix, AZ; Ms. Kaye Whitehead, a pork farmer in Muncie,

IN; Mr. William N. Lindsay, president of Benefit Management and

Design Inc. in Denver, CO; and Mr. Jack Nicholson, owner of Company Flowers in Arlington, VA.

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On our fourth and final panel, we will hear testimony from Anne

Thompson Reed, Chief Information Officer of the Department of

Agriculture.

I now yield to Mr. McIntosh for his opening statement.

[The prepared statement of Hon. Stephen Horn follows:]

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Mr. MCINTOSH. Thank you, Chairman Horn. I’m delighted to be

able to cochair this hearing with you and welcome Mr. Rossotti

today.

Last year, Congress passed the IRS Restructuring and Reform

Act, because of its concerns about IRS treatment of taxpayers. The

IRS accounts, in addition, for nearly 80 percent of the governmentwide paperwork burden on Americans. This hearing will examine

the IRS’s failure to initiate any specific actions to reduce paperwork burdens during 1999 and 2000 for any of its 671 tax forms

and recordkeeping requirements, which impose approximately 5.8

billion hours of burden on the American public. This equates, by the way, to about $154 billion in costs for paper- work compliance. I think of it, and it nearly equals the total $182

billion of taxes imposed on businesses in this country each year. I

think of it as a hidden tax, an extra tax that goes along with the

tax that Americans are paying today on April 15, because it’s a cost

that is borne by them in order to comply with the laws as Congress

has passed them and the paperwork requirements the IRS uses to

collect those revenues.

In addition, we understand from the IRS staff that IRS has not

analyzed all of the paperwork imposed on individuals to spare

them the burden of providing the same information on multiple tax

forms. Also, IRS has not analyzed all paperwork imposed on small

businesses to identify duplicative form burdens on them. I find the

agency’s lack of effort to be unacceptable and believe the American

people will share my assessment.

Today’s hearing will also examine the Office of Management and

Budget’s mismanagement of the paperwork burden imposed on

Americans. The OMB is supposed to be the Federal Government’s

watchdog agency guarding the public against waste, fraud, and

abuse. Yet OMB has failed to push the IRS or, frankly, many other

Federal agencies to cut existing paperwork burden on taxpayers.

Worst, the GAO confirms today that the OMB has mislead the

American people, providing a falsely inflated picture of the Clinton

administration’s paperwork reduction accomplishments.

First, I want to turn my attention to the IRS. A survey conducted

2 years ago found that most respondents would rather undergo root

canal surgery than be audited by the IRS. A magazine poll found

that the scariest words Americans could imagine hearing when

they pick up the telephone are, ‘‘This is the IRS calling.’’

Indeed, for many persons, today’s hearing falls on the worst day

of the year, April 15, or tax day. Much of their frustration and

anger is directed at the government’s tax collector, an unenviable

duty that has been assigned to the IRS. Although I’m very disappointed with its effort, or lack of effort, to reduce the paperwork

burden, I do not intend at this hearing to take cheap shots at what

has been done by the agency, either for sins of past Congresses or

Presidents.

America should be mad at the unfair and oppressive tax system.

But, the source of most of the unfairness and oppressiveness is the

mind-numbingly complex, economically irrational, special interestdominated Tax Code, in other words, 86 years of bad tax policy.

The IRS can’t be held accountable for that. That’s written here in

Congress and signed into law by the President.

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But, what I would like to focus on today is how the IRS takes

that Tax Code and translates it into the paperwork that is required

by the American people to fill out that message. And, I believe—

right now the staff is putting here the Internal Revenue Code

which includes all of the regulations implementing the code of law

to indicate how that has grown in terms of the complexity just in

the sheer volume of the paperwork that is required to produce that.

If it helps policymakers get the message that more and more

Americans are sending to Washington, it is time to scrap the code

and replace it with something that is economically fair and decent,

then I think the hearing will in itself be a success.

Now, we all know the direct costs of the Tax Code is about $1.7

trillion that Americans pay in taxes to the government. But, there

is this hidden cost which adds an extra 10 percent, or about $154

billion, to that burden. Each American spends an estimate of 5.8

hours in complying with the 671 different tax forms. To me, this

is unconscionable. And, what is even worse is that the IRS projects

this hidden tax burden will go up by 150 million hours in 1999 and

130 million hours in the year 2000.

IRS correctly observes that recent and anticipated statutory

changes in the Tax Code are the driving force behind the growth

in the paperwork. Please note that the huge stack of the Internal

Revenue Code represents not only the statute but also the 12,000-

some pages of tax regulations used to implement that code.

Clearly, the code is too complicated. Nonetheless, that does not

excuse the IRS from failing to provide any significant paperworkreducing initiatives for existing forms. I understand there are

many that were created as a result of recent tax bills, but there

are also many, many that have been in existence for some time

that could easily be examined to determine whether they’re duplicates, whether they need to be filled out in order for the IRS to do

its job in enforcing the Tax Code.

Now, let me turn to the entire government’s paperwork, which

OMB has severely mismanaged. The 1999 Treasury and General

Government Appropriations Act required OMB to issue a report by

March 31 that identified specific paperwork reduction accomplishments expected, constituting 5 percent reduction in the paperwork

expected for 1999 and fiscal year 2000.

The next day, I submitted comments that the draft report is not

responsive to the statutory requirements in several ways. First of

all, OMB estimates that 2.6 percent increase in paperwork requirements for 1999 and 2.3 percent increase in 2000, instead of a 5 percent decrease in each of those years. This expectation follows 3 successive years of increases in paperwork, instead of decreases.

Second, the draft report only identified some specific reductions.

This aspect of the report is not acceptable to us or responsive to

the congressional requirement. In fact, IRS and 5 of the 14 Cabinet

Departments—Energy, Health and Human Services, Housing and

Urban Development, State, and Veterans Affairs—were unable to

identify any specific paperwork reduction initiatives in 1 of 2 years.

Now, why didn’t the administration say no to these proposed

budgets and ask OMB to send them back to the agencies? I believe

the administration’s incredible disregard for the $7 billion of paperVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00012 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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work burden experienced by the American people is insensitive and

unacceptable.

This burden equates to $185 billion in costs each year, and

OMB’s draft report includes 872 violations of law last year alone,

where the agency levied unauthorized paperwork burdens on the

American people, including over 100 each by the Department of Agriculture, Health and Human Services, and Veterans Affairs. In

other words, there were at least 872 times when the Clinton administration required paperwork without the legal authority to do

so.

The GAO says, as disconcerting as these violations are, even

more troubling is the fact that OMB reflects the hours associated

with unauthorized information collections ongoing at the end of the

fiscal year as burden reductions.

We believe that OMB has an obligation to Congress and the

American people to accurately report paperwork burdens imposed

on the public and that OMB must immediately take necessary

steps to stop the violations. I believe the public deserves substantially more paperwork reduction initiatives by the administration,

especially the IRS, the largest component of that hidden tax of paperwork, and an honest accounting to the American people, which

reflects only actual burden reduction accomplishments and not the

total burden.

It’s only fitting that today on tax day we hold this hearing, and

I appreciate Mr. Horn in joining us in a joint hearing on this to

find out exactly how we can best reduce the hidden tax of paperwork.

[The prepared statement of Hon. David M. McIntosh follows:]

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Mr. HORN. I thank the gentleman. That’s quite a list of horrors.

And I assume it will come out in the question period a little more.

Commissioner, and all other witnesses on panels 2 and 3, let me

just say what our procedures are. This is an investigating committee, as are most subcommittees of the Committee on Government Reform. And, we swear all witnesses prior to their testimony.

When we call on the witness, their statement is automatically part

of the record, as well as background information on them and so

forth. So one doesn’t have to ask permission for that. It’s in the

written record.

So, Commissioner, if you would stand, we will administer the

oath. Why don’t we get all panels standing. We can have a mass

baptism right now. It will save a lot of time.

[Witnesses sworn.]

Mr. HORN. The clerk will note that all the witnesses took the

oath.

We will then begin with panel 1. Commissioner Rossotti, it’s always a pleasure to have you here, and you must have been the

most popular guy in town today with probably the other body, as

it is known, also had you over today.

Mr. ROSSOTTI. Actually, I was there yesterday.

Mr. HORN. I see.

STATEMENT OF CHARLES O. ROSSOTTI, COMMISSIONER,

INTERNAL REVENUE SERVICE

Mr. ROSSOTTI. Thank you very much, Mr. Chairman, and Chairman McIntosh as well. We have several subjects here. I would first

like to very briefly cover some topics on managing year 2000 and

filing season and then go on to a discussion concerning paperwork

and taxpayer burden.

And, Chairman Horn, I know that your subcommittee is concerned with management, information, and technology. So I think

it’s actually fitting that you hold a hearing on the IRS at this time,

because as you noted in your opening remarks, the IRS is, in fact,

faced with a massive program of change in all of these dimensions.

And I’ve got a few of the initiatives listed over here in bullet-point

form.

As you noted, last year the Congress passed nearly unanimously

the Restructuring Reform Act. And this act has many specific provisions that are all very important. As important as they are, I

think collectively the bill said something even more important than

any provision, which is that the IRS must fundamentally change

our direction. I think what we were told is that we must not only

collect taxes, which we must do, but we must think about our job

as serving the people who are paying the tax, namely, the American taxpayers.

I believe that we can succeed in this mandate, and as a matter

of fact, I think we now know more clearly than we did before what

we need to do to succeed. But we also know that this involves a

lot of changes, and some very fundamental changes, covering almost all significant aspects of the agency.

Some of these changes are intangible, such as how we communicate and define our mission and our goals and our guiding principles, but many of the changes are very tangible, such as how we

13

measure our performance, train people, organize ourselves, as well

as many very detailed procedures and especially our technology

programs. Collectively, this all affects the skills attitude tools that

constitute the way we serve taxpayers.

In addition, as you have noted, Mr. Chairman, a number of times

the information technology on which the IRS critically depends, is

fragile and inefficient and I believe cannot be fixed short of nearly

a total replacement. In addition to technology, there are other

major areas of change needed to achieve our strategic goals, including reengineering our basic business processes. This includes many

of the aspects that pose burdens on taxpayers such as our forms

and filing procedures, as well as our internal organization, management and performance measures.

And I recently sent, I believe, to you both—to you gentlemen a

copy of a document that we recently wrote called ‘‘Modernizing

America’s Tax Agency,’’ which lays out in some detail, which we

don’t have time for today, this overall program. I do want to note

that this is a massive amount of change; and it has to, of course,

be coupled with continuing ongoing operations. And this all means

that there is a significant risk in what we’re doing, that we may

have unanticipated problems, and that we may have operational

errors as we go along.

In other words, in the current situation the IRS is in, I don’t believe there is any risk-free plan. But, although we know that there

are inherent risks, knowing that they exist, means that we can try

to manage them so that no setback is fatal and we can be reasonably confident of ultimate success.

And in this regard, I would like to mention two important aspects of our management process: one is the need to rigorously set

priorities in light of the fact that we have limited organizational capacity. The other, of course, is to establish effective management

over each of our major change processes.

Like any organization, we have limited capacity to manage

change. And even before the Congress passed the Restructuring Reform Act and we began our modernization program, the IRS organizational capacity was, in fact, stressed to the maximum in an attempt to respond to actually thousands of individual recommendations that were coming from many studies and proposals, as well

as legislative mandates and tax law changes.

And the process of reacting to this many inputs was actually

using up all of the available capacity without, actually, in my view

at least, addressing many of the underlying problems. So what we

have done now is to establish a set of programs to try to manage

these activities and priorities in an orderly way, in an orderly sequence so that we attempt to get the most benefit out of the organizational capacity we have, though also building increased capacity

to make the improvements come even faster into the future.

Now, Chairman McIntosh, I would like to report just a bit on the

one part of our program that is attempting to deal with, specifically, the paperwork burden aspect of our mission. And I would

just like to note that the situation, the reality that we face, is that

the growth of the economy—the growth in the complexity of the

economy and the growth of the Tax Code, all combined to not only

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impose the paperwork burden that you noted in your opening statement but also to inherently increase it each year.

In the filing season that ends today, for example, we expect to

receive about 3 percent more total returns. That’s because of the

growth of the economy. In addition, because of the two recent tax

bills that were passed, we’re actually revising 153 forms to reflect

Tax Code changes and unfortunately adding two more forms. And

it’s estimated that under current estimating methodology that

those changes alone would add 92 million hours of burden.

So when you combine all of those economic growth changes and

tax law changes, we actually increase just by that alone, 41⁄2 percent to the burden of 5.8 billion hours that was already estimated

by OMB. So that’s just handling the reality of economic growth and

Tax Code changes.

My view of what our mission is, and what my mission is in the

agency, is to deal with that reality; we have to note that it’s there.

But our goal is to try to make it as easy as possible for the taxpayers to comply with those obligations and to essentially rethink

our way of doing business, as much as is in our control in order

to make it as easy as possible for taxpayers to file and pay.

Now, as I noted, we do have limited organizational capacity. So

we have to set priorities. In order to reconcile these various demands, we’ve tried to give priority to making those changes that

we think will benefit taxpayers as quickly as possible. And, of

course, we are also making those changes that are mandated by

law, while also working on some longer-term changes that we think

will really improve service and reduce burden even more in the future.

For the near term, we have basically three strategies that we’re

pursuing, all in the near term, to deal with this issue. The first is

to increase the ability of taxpayers to both file and pay electronically, which we think eliminates errors in paperwork. And this filing season we were successful in increasing electronic filing by

about 17 percent of the taxpayers, getting close to 30 million. This

includes the 5 million telefile returns which the taxpayer just handles the transactions by dialing the phone. They don’t have to file

a return at all with telefile.

For small businesses, we also have a similar system for quarterly

employment tax returns where they can file by telephone without

having to actually file a form at all.

And we are taking a number of steps to try to increase this

method of filing. So electronic tax administration is one strategy.

A second one is to eliminate the need for some taxpayers to file at

all, where we can. For example, over the last year we raised the

threshold for small businesses that are required to make monthly

tax deposits; and by doing this we’ve eliminated 500,000 small

businesses from having to make these monthly deposits at all,

which eliminates 6 million pieces of paper.

We also have noted that there are some taxpayers who file who

don’t need to, and we’ve sent letters to 2 million individual taxpayers simply informing them that based on the data that we have

they didn’t need to file returns, we encourage them not to file. So

I mean that’s the ultimate paperwork reduction—just get people

not to file at all.

15

A third thing we’re doing is that we are working with private

contractors to help us redesign certain of the forms and instructions that go with them to make them easier to file and less error

prone. We know that there are some good ideas and expertise out

there in the private sector. And I can give you some examples that

I have with me of working on this.

We’re going to continue to aggressively pursue all three of these

strategies over the next year, within the limits of our capacity.

Another major step that we are taking is to redesign the way we

measure burden. Frankly, the measurements that we have today

that address the question of burden are based on a 15-year-old

methodology that is very seriously flawed. I came into office—I

looked at this, and I said, ‘‘this really does not help us very much

to determine what we should be doing.’’ It doesn’t take into account, for example, anything about the currently very extensive and growing use of tax preparation software.

I think we’ve learned from our private contractors that this methodology actually sometimes points us in the wrong direction by telling us that a certain way of designing a form makes it more burdensome when, in reality, it makes it less burdensome. And finally,

it doesn’t take into account what is some of the, I think, most important kinds of transactions that the taxpayers have—which is

what happens if there’s an error in a form. Then it requires interaction with the IRS after the form is filed, referred to as postfiling.

So we’re working with another private contractor to redesign this

whole method of measuring burden. We hope this will give us better tools enabling us to improve in the future. And, finally, what

I think is really the most important step dealing with increasing

our long-term capacity to improve, is our plan to redesign our

whole organization structure. That will have a number of objectives, but one of the most important objectives is that it will enable

us to put in place a set of management teams that will each have

the responsibility for dealing with a particular group of taxpayers.

For example, you mentioned small business taxpayers, which is

a sector with which I have some familiarity. We know there are

some of the greatest burdens in this sector. Small business needs

are very, very different when compared to a typical wage earner

who simply files a return once a year and gets a refund in most

cases.

In keeping with the Restructuring Reform Act, we’re putting in

place a whole new structure. Part of this is that we will have a

team—this will take a few years—of people whose job it will be to

understand very clearly the needs, for example, of a small business

taxpayer, as differentiated from a wage earner. The team will have

the responsibility for figuring out what we can do to improve the

way we provide service to those taxpayers and reduce, not only

their paperwork burden, but other burdens in dealing with us.

So those are some of the approaches that we’re attempting to

take. Recognizing we have many demands on us, we’re trying to

balance our priorities and address what we think will do the most

good the quickest.

Let me stop there. Both Chairman Horn and Chairman

McIntosh, I would be happy to take your questions.

[The prepared statement of Mr. Rossotti follows:]

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Mr. HORN. Well, thank you very much, Commissioner. We have

been joined by Mr. Terry, the gentleman from Nebraska; and we

have been joined briefly by Mr. Ose, the gentleman from California,

and we now have the ranking Democrat on the National Economic

Growth, Natural Resources, and Regulatory Affairs Subcommittee,

Mr. Kucinich of Ohio.

And I’m going to begin with some questioning, then I will yield

to the cochairman here, Mr. McIntosh. Then we will yield to the

ranking Democrat. Each of us is going to take 5 minutes, so staff

will please monitor the time so we can get through a lot of questioning.

I’m curious, since you spoke of significant risk associated with

the efforts being entertained by—the efforts—you also stated that

there is no low-risk plan. What specific risk-management strategies

are you deploying?

Mr. ROSSOTTI. Well, we have defined a number of major change

areas. For example, the organizational change is one major change

area; the replacement of our basic technology systems is another

major change area; year 2000 is another area. There are about five

of them. And in each one of these, we have a whole management

process. At the top is an executive steering group of which in most

cases I’m a member, and the key executives who are involved in

managing these programs are all part of this process. Then we

have a program management office whose staff has the responsibility for day-to-day management and oversight of all the activities

that are involved in making these changes.

For example, the first one that we established and the example

that is the one that has the most media impact is Y2K. As soon

as I got in office I knew that this was clearly a huge change area,

over $1 billion affected everything, and we put this process in

place. Of course, it’s not over until it’s over.

But one of the most important milestones in this Y2K issue was

the filing season that just ended, because we have almost all of our

mission-critical application software systems renovated, made compliant and put back in. We knew that with that much change there

could be a lot of risks during the filing season.

So one of the risks would have been major failures during the filing season, incorrect notices, delayed refunds, that sort of thing.

Having gotten through that, many of those things didn’t happen.

Mr. HORN. If I might, let’s take many of those examples because

I’m sure there are many other things you want to do also. But one

of the things that’s long concerned me is what happens to the

checks that relate to Social Security and Medicare. An employer

sends them in, the employee has a deduction from income. And my

understanding is it simply goes in the Treasury bank account at

the end of the day and that there’s no separate bank account for

what is a trust fund.

Now, you have about 14 major trust funds, your money from employers, employees, all depending on what the law is. The people

that drive up to the gasoline pump, they’ve got a tax they pay to

the Federal Government to maintain interstate highways and on

and on down the line.

How does that system work, and can you really tell as Commissioner how much money came in that day for the Social Security

47

trust fund, for the Medicare trust fund, for the interstate highway

trust fund, the aviation improvement fund that we pay excise taxes

every time we buy a ticket, and that’s to complete, extend, renovate

runways around the country?

Mr. ROSSOTTI. Well, I think your first point is, does the money

come in and go into different bank accounts. Clearly that’s not the

case. I mean, we receive money from, for example, an employer

that comes in to us; and we process that, get the cash to the Treasury. Most of it comes in electronically—now actually, almost all of

it—and then we get the forms that go with it. And in most cases

those forms designate what the purpose of the money is.

But as you noted and, as GAO has noted, in some cases, the initial transaction that is initiated by the taxpayer does not fully designate exactly which trust fund it is for. So it has to be an estimating process after the fact.

This gets fairly technical, but the net of it is that, although we

think that these estimating processes are reasonably reliable, they

are not; and some improvements noted by GAO have been made.

They are not 100 percent reliable. That’s for two reasons: One is

that some of our systems, our old systems, are not as good as they

need to be in order to do the most accurate accounting.

And in a few cases we don’t actually have the source data from

the taxpayer to be precise about which amount that has been deposited is for a particular trust fund.

Mr. HORN. Isn’t the fact the following—that we really can’t account for the dollars that go ultimately to Social Security. We—and

I don’t understand why not. It seems to me it is very simple. The

employer sends his or her half, the employee’s half is also sent by

the employer, and it clearly is marked or should be, Social Security, Medicare trust fund. It just seems to be when your office and

processing centers around the country get those checks they ought

to be able to identify it, put it into a special account in the Treasury.

And we don’t have that; we have an estimate. Does anybody

know if we’re off $1 million, $1 billion? Here we are trying to use

the surplus to give more integrity to the Social Security fund than

it has had. And what’s your feeling on this? Can’t we solve a simple

problem like that? A business would.

Mr. ROSSOTTI. Well, I think it could be solved. I’ll say there are

very few things I found at the IRS that turn out to be actually simple—but that doesn’t mean they can’t be solved. I think the source

of the issue is the fact that there’s a great deal of cash that comes

in through the deposits which, in order to make it simple for taxpayers, are simply designated as cash come in; and then when the

forms, the actual tax returns, are filed, there’s a need for a reconciliation process; and that’s what creates the complexity and the

need for making estimates. So I guess I will just stop there.

Mr. HORN. Well, do you have any concerns that this is

misestimated and who does the estimation work?

Mr. ROSSOTTI. Well, anytime there’s an estimate, of course, there

could be errors in estimating. But some of it is done by the Office

of Tax Analysis and Treasury, and some of it is done by IRS.

Mr. HORN. And what do they do, compare notes and say, well,

shall we split the difference or what?

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Mr. ROSSOTTI. Well, that gets into—I think that there’s different

parts of the estimate that are the responsibility of different people.

They each have a methodology which has been reviewed which is

being reviewed constantly by GAO. Clearly, there’s room for improvement in those methodologies.

But I think if you want to identify the solution to this problem,

some of the solution has to do with the computer systems. Even in

a business, you have some estimates when you put your financial

statements together, and they’re not always perfect. Some of it gets

to a basic issue of do we want to add more burden for taxpayers

to provide more precision when they make deposits; to identify

what it’s for, which would then give us perfectly accurate data as

to not require estimates.

I think we’ve been a little reluctant to do that because of the

very points that Mr. McIntosh raised. We don’t want to put more

burden on the taxpayers. So the rest of the limitations are based

on what kind of burdens we put on the taxpayers.

Mr. HORN. Well, in the age of computers, I think we would all

agree the one thing that a computer does is do things that you and

I could do, but it does it very fast. And it can handle millions of

things when we might still be trying to figure out what our tax

form is all about. And it just seems to me that it is a crazy system

when some of the many billion dollars, trillions, indeed, down the

line, in these trust funds, that we ought to have a very strict policy

of putting the money where it belongs at the beginning.

Now, I’m going to yield to Mr. McIntosh, and maybe we will

carry on this dialog afterwards. The gentleman from Indiana, 5

minutes.

Mr. MCINTOSH. Thank you, Mr. Chairman. And, Mr. Rossotti, let

me tell you I appreciate hearing those three different areas in

which you are working and reducing the burden.

My first question is essentially why aren’t those reflected in the

OMB report for 1999 or 2000? 2000 is pretty devastating through

the agency where they say you don’t have any plans, specific plans

to reduce the paperwork burden. If in fact, you’re doing those

three, what happened between the agency plans and the report?

Mr. ROSSOTTI. I think, unfortunately, one of the things that is

true is that while we are pursuing those things, they tend—in

terms of the way that OMB measures burden, the numbers tend

to be overwhelmed by the other numbers that represent growth in

the size of the number of forms filed, and also the number of forms

that we have to change, and add elements to, because of the tax

law.

So I don’t want to overstate my case. We have these kinds of

strategies. We are doing them. But they are relatively limited in

their impact as compared with the overwhelming volume of change

that we get as a result of tax law and volume increases. I think

that probably is the honest answer to your statement.

Mr. MCINTOSH. Then I guess my further question would be, and

I had the staff—asked them to print out all the forms. They told

me it would take 6 hours, so they printed out a list, 30-some pages

of all the different forms. Not all of those are changing because of

the economy or are new because of changes in the Tax Code.

49

Why doesn’t the agency take a further step and adopt a strategy

to figure out how we could reduce either the number of the forms

or the complicated nature of the forms?

Mr. ROSSOTTI. Part of our strategy is to do that. Here’s an example of one we’re working on. We’re working with a private contractor that we think is one of the best in the country to work on—

and you can see this. This is one example. This is the child credit

worksheet. And here’s what it was before, and here’s what it is

now. And, you know, clearly by any reasonable estimate, when we

get this done, this is going to be a better form.

On the other hand, here’s another one that they did, which has

to do with form 8812. After all of the analysis that they’ve done,

it looks better, but it still has the same number of lines on it. So

it doesn’t always follow that you can, even under the best review,

make things better.

I think we are going to systematically work on this problem, but

I also want to be honest and raise another aspect of this. If you

look on this chart over here it says ‘‘Process Flow to Change a

Form.’’ That’s the process that is required because of regulation

and other constraints to change even one line on one form.

And I think you can see—right now we’re in the process this year

of having to put 153 forms through that process required by law.

That tends to use up a lot of time in an organizational capacity,

and this is not something that we can just disband or eliminate

based on anything that we do in the IRS. This requires a review

by OMB. There’s legal reviews to ensure that forms conform to the

law. There are also issues related to pure processing considerations. We have to get our information systems, which have major

problems, to be able to process these forms.

So these things are all needed in order to just make sure that

we’re complying with the law and that we can actually mechanically process these forms. This is what I mean by the issue of organizational capacity. There is no possibility that we could take all

of the forms on your list in 1 year or 2 years and even go through

the process we’ve done here, and that’s not to say something we

can promise to do.

Mr. MCINTOSH. You were able to report 130 million increased

hours in 2000 as projected out. And are you telling me essentially

you want to put as your agency priority only having your manpower work on ways of increasing the burden and don’t want to put

anybody to studying and using that process to decrease it?

Mr. ROSSOTTI. No, I’m actually——

Mr. MCINTOSH. I find that somewhat unconscionable.

Mr. ROSSOTTI. That would be unconscionable. But I don’t think

that’s what I’m intending to say. I’m saying that the first thing we

have to do is we have to comply with the law. That uses up a tremendous amount of capacity when you have the tax law change.

I mean there’s just no alternative to that.

What we’re attempting to do is, within the available capacity

that we have, we’re attempting to do projects like that, as many

as we can, to improve and simplify forms that are on the books.

The other thing we’re attempting to do, as I mentioned in my testimony, the other strategy is to eliminate the forms, which is actuVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00055 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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ally better than redesigning them, because if you can eliminate the

need to file, of course, that’s 100 percent reduction.

I just want to be honest and say that with the volume of data

that we have, the volume of changes and the capacity that we

have, I would not want to commit that we could review every form

on the books over the next year or 2 years, over the next several

years. As we make the other changes that we’re proposing, I think

that we can make a dent at least in this. And we’re certainly going

to try.

Mr. MCINTOSH. OK. Well, my recommendation, and I want to see

if you think it’s reasonable, is to go back and review the submission

under the OMB project for reduction and say we can do better than

zero, because you’ve laid out that you have some plans to do some.

Mr. ROSSOTTI. OK, we will take note of that.

Mr. MCINTOSH. And come up with a timetable.

Mr. ROSSOTTI. That’s a fair request. We will take a look at that

and see if there’s some things that are not reflected in there that

we can do, because we definitely have this as part of our strategy;

and we will attempt to see if we can do better than what’s in there.

I will take that under advisement.

Mr. MCINTOSH. If we have extra time, I would also like to talk

with you on the methodology, because I think that’s a good project,

too, on making sure you measure it accurately.

Mr. ROSSOTTI. Sure. Certainly. Incidentally, we would be happy

to come in and talk with you about that methodology, because I

think that might be something of interest to you.

Mr. MCINTOSH. Exactly.

Mr. ROSSOTTI. Without that, frankly, we’re shooting in the dark.

We don’t know where we’re going.

Mr. HORN. The gentleman from Ohio, the ranking member, Mr.

Kucinich.

Mr. KUCINICH. Thank you very much, Mr. Horn, Mr. McIntosh,

members of the committee. Being tax day, I think it’s also an appropriate day to thank the people of the United States for their

support of this government and the many important functions

which this government has on their behalf, our Social Security programs, our health, our education, all the many functions of government are funded by the taxpayers of this country.

And while we’re scrutinizing the collection system and talking

about what we can do to make it work better, we certainly on this

day owe the thanks of this government to the American people for

their support.

Before I get started with my question, Mr. Chairman, I would

like to express concern about the unfortunate partisan title of these

proceedings—and I’m going to quote—‘‘Clinton-Gore versus the

American taxpayer.’’

Now, the subject of this hearing is very important. People want

to know what we’re doing with their tax dollars and what can be

done to make the system better. But I don’t believe that it adds

dignity to these proceedings to cast them in the light of some partisan conflict when the fact is that we work long and hard on many

of these issues together to try to find a way to make this system

work a little bit better.

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And in that line, I would like to say that there is strong evidence

that the taxpayer has significantly benefited under Clinton and

Gore, President Clinton and Vice President Gore, the following

ways: the Federal budget has gone from a record deficit of $290 billion in 1992 to an expected surplus of $79 billion in fiscal year

1999, which is the largest budget surplus in history; 18 million new

jobs have been created and real wages have risen 6.1 percent after

declining 4.3 percent during the previous two administrations, and

the unemployment rate has dropped from 7.5 percent in 1992 to 4.2

percent.

[The prepared statement of Hon. Dennis J. Kucinich follows:]

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Mr. KUCINICH. Now, I’ve got a long list of the benefits that have

accrued to the American taxpayers that I would submit for the

record. I will ask Mr. Rossotti—welcome, Commissioner. The American taxpayers paperwork burden is nearly 80 percent of the total

paperwork burden imposed by the Federal Government. Unfortunately, over the last 3 years, the IRS paperwork burden has increased by about 6.9 percent.

I’m wondering, did legislation pass in 1997 that cut the capital

gains, the estate and gift taxes increase the paperwork burden

placed on the American taxpayers, or did it decrease the paperwork

burden?

Mr. ROSSOTTI. Well, I know that I have the data here on each

one of those changes, and I would have to look up precisely. I do

believe—I’m not sure about the estate and gift tax—I believe that

the schedule D changes which are the ones that dealt with capital

gains did have the effect of increasing the complexity—and while

I don’t have the precise data, I believe that they did. I can get that

for you, but I believe—— Mr. KUCINICH. It’s possible that there might be some changes

which the taxpayers find to be beneficial for them which simultaneously may increase the paperwork burden. Is that possible?

Mr. ROSSOTTI. Well, I believe that Congress passes certain provisions which are designed in some cases to provide benefits to the

taxpayers; but in order to administer them, it does require some

additional forms, that’s true.

Mr. KUCINICH. Thank you, Commissioner. Now, I read a GAO report that was released yesterday showing that large foreign-controlled corporations which are doing business in the United States

pay considerable less in U.S. corporate taxes than similarly sized

American companies.

For example, I think it was Robert McIntyre, who is the director

of the citizens for tax justice, I think he said that paying too much

or charging too little on paper transactions with their foreign affiliates is a typical way that multinational companies shift income out

of the United States for tax purposes.

My question, Commissioner, is the IRS committing adequate resources to ensure that multinational companies are not inappropriately avoiding paying their fair share of the taxes to this country?

Mr. ROSSOTTI. Well, what you’re addressing there is the issue of

transfer pricing which is one of the complex areas of the Tax Code.

It actually applies to both domestically controlled and foreign-controlled corporations, and we do have—there have been actually

some additional regulations issued on that subject by the Treasury

Department within the last, I think, it was 2 years, that are specifically aimed at addressing that issue.

So it is an important area on which to focus. By the way, in our

new organizational structure, we will have a special group that will

be focusing on those kinds of things.

Mr. KUCINICH. Commissioner, I’m glad you’re acknowledging it is

important. My question is, do we have corporations in this country

who are basically shifting income out of the United States for tax

purposes?

Mr. ROSSOTTI. Well, if they are, it would only be because we

haven’t been able to find out about it, because that is something

55

that our audit program is designed to detect. And if we do find out

about it, they would certainly be given additional assessments to

reflect what the tax should have been. The program is not perfect,

but it is designed to address that kind of an issue.

Mr. KUCINICH. So can you report to this committee as to the

prevalence of that?

Mr. ROSSOTTI. We will report back what data we have. I’m not

sure that we have an exact report on that particular subject. But

we will be glad to get back to you and report what information we

have.

[The information referred to follows:]

In response to a similar Congressional directive contained in our FY 1999 appropriation legislation, we recently completed a through study of the application and

administration of Section 482 - transfer pricing. The resulting report contains estimates on the gross income tax gap related to transfer pricing, and describes some

legal and administrative developments undertaken by the Service to promote compliance with section 482. Attached is a copy of the report which answers several

questions related to transfer pricing that are ongoing concers of the Committee.

Mr. KUCINICH. Thank you very much, Commissioner.

Mr. HORN. I thank the gentleman and now yield 5 minutes to the

gentleman from Nebraska, Mr. Terry.

Mr. TERRY. Thank you. I appreciate that. If reducing taxes creates such a paperwork burden, perhaps we should just eliminate

them. Mr. Kucinich, I’m glad you’re going in the right direction

with us. I appreciate that, Dennis.

Today, some of my good friends back in Nebraska are filing their

taxes with the help of tax preparers, and they fall into the classic

group that you wouldn’t think would use a tax preparer. And I

keep hearing the argument and tax application that so few actually

itemize and need it; but yet, at least in our local paper, in the last

week showed that almost 60 percent now are using tax preparers.

First of all, my background is small business; and there’s no way

I can run a small business without having both a bookkeeper and

a CPA to keep track of all what I need to do to prepare for our

taxes.

But I’m focusing my questions on the individuals, the hard-working people that shouldn’t have to hire H&R Block; and if you’ve

seen some of the commercials from some of the tax preparer companies, they feed off of this now, the complication in the forms and

the paperwork and put the fear into the average citizen that the

code—and I think that fear is real—is just too complex.

So first of all; what paperwork reductions and simplification is

the IRS pursuing for fiscal year 1999, 2000 that will benefit specifically the individuals and the individual preparers?

Mr. ROSSOTTI. The individual taxpayer. One of the areas that has

the characteristic of being designed to be a benefit for individuals

are things like, the child-care credit and the earned-income tax

credit. They are precisely the kind of thing that affects many individuals; but they also have the characteristic that they require

sometimes an additional form to fill out, or in some cases, a complicated definition of a complicated form.

So one of the areas that we have, as I mentioned in my remarks

to Mr. McIntosh, as part of our strategy, is to try to make some

selected forms and some selected areas that affect a large number

of people. And with the aid of some outside contractors, to redesign

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these to make them easier for people to fill out. And this is actually

an example of two that we’re working on exactly in that area. One

is the child credit, which is the $500 per-child child credit, which

is very important—and it’s one of the reasons refunds are up 15

percent this year. In our earlier version it had, you know, this particular form, which admittedly is not a real user-friendly kind of

a form. But it has the information on it that you needed.

What we’ve done, with the aid of our contractor—and we haven’t

gotten this out yet; I’m giving you a little bit of information—we

got this form—and I know you can’t see it, but it’s got the information you need. It’s a lot simpler and it reduces the number of lines.

Now there’s another form that some people need which is called the

additional child tax credit. And, you know, this is even a more complicated one.

Unfortunately, they’re not as successful as in eliminating that,

because it still—it is a little bit easier but it still has nine lines on

it. That’s because with all the research that has been done, the

lowest that you can get down do. Nevertheless by doing this kind

of a process, we can really affect a significant number of people

who want to take the child credit but who have to fill out this form

to get through it.

Another area that’s basically the same kind of a process is the

earned-income tax credit which similarly affects, by definition,

lower income people. It also has significant complexities. So those

are some of the steps that we’re taking in order to deal with this

issue.

Another relavant area is our phone service. When people do fill

out tax forms themselves, they sometimes need to ask questions.

It’s not the form itself. We tried to improve our phone service, and

we have improved it. We added 24-hour-a-day, 7-day-a-week phone

service. I personally sat in over this filing season in a number of

different locations and listened to these calls.

And, of course, a significant number of them do come in, precisely from the kind of taxpayer that you’re referring to, a person

that might be low to middle income. They might be trying to get

one of these credits. They know that there is such a thing, but

they’re not quite sure how to do it. And so in addition to simplifying the forms, we try to provide phone service as well, and Internet service, by the way, to help those kind of taxpayers. So that’s

the kind of strategy that we’re attempting to pursue to deal with

the kind of situation you’re talking about.

Mr. TERRY. I appreciate that.

Mr. HORN. Is the gentleman yielding back his time?

Mr. TERRY. I will yield back my time.

Mr. HORN. I will take 6 minutes then if he’s yielding back 1

minute, just to round this out as far as the management side is

concerned. At our March 1, 1999, hearing the General Accounting

Office discussed the weaknesses in computer security at the Internal Revenue Service. Both internal and external weaknesses were

listed.

I wonder to what degree you’ve had an opportunity as Commissioner to review that matter, and what is happening to assure the

security privacy laws, all the rest.

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Mr. ROSSOTTI. I’m going to ask Mr. Cosgrave to join me up here.

He’s been already sworn in, so we don’t have to ask him to do it

again.

Mr. HORN. It isn’t Charlie McCarthy and Edgar Bergen?

Mr. ROSSOTTI. As I think you know, you met him. He came in

also from the outside to help me with this. And I think that before

either of us got there, I do want to say this was a matter that was

very seriously—you know, it was acknowledged there were serious

problems, physical security and computer security. And there was

an important step taken to set up a high-level security office that

reports to the Chief Information Officer. We have two senior individuals that actually happen to come both from GAO, and we

think, are world class in the security area. They have put together

a multiyear plan. This is not a 1-year plan. I think—it’s I forget

how many specific line items that deal with both, with all dimensions of security.

I think we’ve got about three-fourths of those implemented. Now,

I would like to ask Paul to elaborate just a minute.

Mr. HORN. Try to do it in a minute, because I’ve got a lot of questions.

Mr. COSGRAVE. Very quickly, this program identifies risks from

the most serious and works down. So we start where we have the

most potential with our main computer sites, then we go to our

service center computer sites, then our district field offices, and

then our, what we call POD locations throughout the country.

There’s some almost 800 locations, so it’s quite an extensive number of facilities that we have to track security on.

The program that is run by Mr. Baptiste, who is actually here

at the end, is a very extensive program. It’s over 60 people in his

employ overseeing that program, and we’ve been working down the

risks. We’ve, in the computer area, already corrected over 80 percent of the risks that were identified in that GAO report over 2

years ago. And we’re continually managing the risk.

Mr. HORN. You have equipment to trace who is interfering, or do

you not in terms of high school students, and saying, gee, let’s see

what’s in the IRS files today?

Mr. COSGRAVE. Yes, we have most of the standard technology in

place. In fact, we work with NAS and other folks in terms of making sure we’re up to date on all of that.

We employ firewalls and things of that sort, which essentially

keep the parts of the IRS such as the Web site—whose use has increased about 153 percent this year, over 600 million hits this year

in people accessing it for legitimate purposes—isolated through

firewalls so that they can’t get into any of the taxpayers’——

Mr. HORN. How many accessed that were not legitimate taxpayer

purposes? Do we know that?

Mr. COSGRAVE. I don’t have specific data for you on that.

Mr. HORN. The answer is no.

Commissioner, are you optimistic that that can get under control,

at least in the next 6 months?

Mr. ROSSOTTI. Excuse me?

Mr. HORN. Are you optimistic that you will have the security situation solved in the next 6 months, as GAO, General Accounting

Office, noted?

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Mr. ROSSOTTI. I do not believe that we will have everything

solved in the next 6 months, no. I think we have already addressed

the top two levels.

Mr. HORN. This is a high priority?

Mr. COSGRAVE. Chairman Horn, as I indicated, over 80 percent

of the GAO problems have been identified. It is very difficult for

us in open session here to give you any specifics just because of the

nature of the topic. So in closed session we would be glad to give

you a lot more detail.

Mr. ROSSOTTI. But in answer to your question, it is absolutely a

priority, and I think we have already addressed the more high risk

issues, frankly.

Mr. HORN. Let me ask briefly, this is before your time, Commissioner, but the IRS blew $4 billion on a computer system that

didn’t work. Isn’t there a chance that some major businesses,

maybe mail order businesses or something, have computers that

you can get them off the shelf that would solve some of your problems? You are an expert in this area. How do you feel about that?

Mr. ROSSOTTI. Actually, the two of us both came from the same

kind of background. We were competitors with each other, but we

are on the same team now. We both went through 25 years in the

business of doing those same kinds of systems; and I think here,

because we are determined to not let that kind of problem happen

again, I think on the specific issue of using off-the-shelf software,

our strategy is to use outside expertise. That is why we have Computer Sciences Corp. to help us do this and to use off-the-shelf

products as much as we can.

Now, we can use a lot of off-the-shelf products. Certainly all of

the basic technology can be off the shelf, all of the operating systems, the hardware and telecommunications and those things; and

in some cases there is application software that we can use. It does

have to be integrated because we are in a tax processing environment, so it isn’t like we can take the whole thing off the shelf.

Mr. HORN. My penultimate question here is how much has IRS

written off that they cannot collect? When I got my debt collection

bill with Mrs. Maloney on the books in 1996, that situation was at

about $110 billion, and she had—the then commissioner had another pool of $60 billion and thought she could collect more out of

that, but there was no organization. So what is happening on that

front?

Mr. ROSSOTTI. Well, this is a topic of longer discussion, but I

think that—you know, the IRS, the way it is done now in terms

of tracking accounts receivable, is very confusing, frankly, very confusing and not a very management-oriented approach. But part of

it is because of the losses. We have to keep everything that is on

it for 10 years, and that adds up to a number that is $222 billion,

which is the number that is published. But as GAO has noted, that

is not comparable to what anybody in the real world would consider. There is about $103 billion that is potentially realizeable receivables, that is, about half that have some potential for collecting.

But when you really get down to what GAO considers to be, you

know, the normal receivable, the actual financial receivables, that

gets down to about $23 billion, which is a more realistic estimate

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of what the total receivables are, that we are in the collection business to go after.

Mr. HORN. So you are organizing a systematic collection business

to go after it?

Mr. ROSSOTTI. We are, but I again want to be very frank and realistic about this topic, OK? I mean we have massive room for improvement in the way the IRS goes about our whole collections

process. Collection is one of our main businesses, but we have some

very archaic computer systems. They, in turn, constrain what we

can do. We have some organizational structures that are not very

conducive to a modern approach. So a major part of our whole reorganization, our new technology, those two pieces are going to address the issue of really positioning us to do what I consider to be

a far more modern kind of approach to doing collections. There is

very significant room for improvement over time, but it is not going

to be fast.

Mr. HORN. Before you arrived, I suggested that they use regular

bill collectors, and I was given this argument: oh, no, the privacy

laws. The privacy laws I don’t think pertain here. Just give them

the address, give them the amount, have them knock on the door.

If they can’t get it and there is something that the IRS, the client,

customer thinks about and says, gee, you know, that is where my

fight is, fine, bring IRS into it. But in the meantime, if you don’t

go after debts, people think it is a grant within a few months. Gee,

you know. Of course, I regarded the $110 billion back in 1995—it started

mostly in 1991, but really accelerated. I regard that as a national

scandal that we can’t lower that amount. And I don’t know—you

know, people listening today say, gee, why should I file my tax

form when somebody is in that pile of $110 billion or whatever. So

that bothers me.

I will save my final question for the next round, and I will yield

to Chairman McIntosh now.

Mr. MCINTOSH. I notice that our colleague, Mr. Ryan, came in,

so I will yield my time to him if he has a question; and then I will

take mine on the next round.

Mr. HORN. Fine.

Mr. RYAN. Commissioner, I would like to ask you a couple of

questions about the complication of the duplication required in our

various tax forms. Have you made a crosscutting analysis on how

we can weed out the type of duplicative information required on

different tax forms? Specifically, I just went through the experience

of going through my schedule D, looking at schedule E, a lot of the

same information is required on those things. Have you identified

a solution toward routing out that type of duplication? If not, what

is the status?

Mr. ROSSOTTI. Well, could I ask my colleague here to come up

and answer that specific question? This is Lynda Willis who has

joined us. She was formerly with GAO and is working with me on

this particular initiative.

Ms. WILLIS. Congressman, we have not put in place a program

that would look at every single item on a form or a set of forms

for redundancy. One of the things that we hope to do under the

new burden methodology we are developing is that after we idenVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00065 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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tify sources and causes of burden, we will then go in and look at

the entire inventory of forms used by a particular set of taxpayers

and do exactly what you are talking about. Specifically, is there a

way that we can take the whole inventory and streamline it in

such a fashion that we reduce redundancy; and make it less burdensome and easier for the taxpayer to comply.

Mr. RYAN. When is this going to be ready?

Ms. WILLIS. We are into the design phase of the new burden-estimating methodology. By that I mean we are identifying the survey

instruments that we need to collect the data. We are in the process

of getting feedback from focus groups of taxpayers.

One of the things that we want very much to know from taxpayers is an issue that came up earlier, around what are the circumstances under which you decide to use a preparer, or preparation software. We hope to be out and have the structure of the

model finished with this summer, but my best guess is it probably

will not be up and operating until fiscal year 2001.

Mr. RYAN. Do you have a time line that you have prepared as

an objective? And what are the final results that you hope to

achieve with this?

Ms. WILLIS. We hope to achieve a burden model that will not

only estimate the amount of time that taxpayers spend complying

with the Tax Code from start to finish, prefiling, filing and

postfiling, but also to be able to develop a model in such a fashion

that we can look at segments of taxpayers, as well as types of activities, and essentially disaggregate the data to a point where we

can identify specific types of initiatives that IRS can undertake

that will reduce burden across the board.

For example, in some cases when we are looking at postfiling

burden, we are better off looking earlier in the process and preventing the problem in the first place. This model is designed to

allow us to look at that and also to look at where our resources can

best be spent in assisting taxpayers to comply and understand the

Tax Code.

Mr. ROSSOTTI. Could I just make one additional comment. One

of the reasons that we really need to rethink this whole thing is

because of technology. I mean, with tax preparation software and

with things like including some that is now available for free on

the Internet, it really changes the whole way that you do things,

because, for example, you can enter something once and it picks it

up on the other form. So it is not just the forms design; we need

to look at the technology that people use.

Mr. RYAN. I understand that we need to do a new model, but we

have a lot of duplication that exists right now; and in the interim,

with the fiscal year 2000, with the fiscal year 1999 tax work we

are doing in preparation of the new codes for next year, aren’t

there interim things you could do to weed out this problem of duplication we have?

Mr. ROSSOTTI. Just before you came in I made a commitment to

Mr. McIntosh that we would take another look at the 2000 program. Because of a number of things we discussed, our organizational capacity, the Tax Code changes, that chart would show what

we have to do to change one line on the form. We can’t, frankly,

commit to say we will review every form for duplication, although

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I don’t want to imply that there is nothing we can do. I think it

is certainly a very good request and a fair request that we take a

look at the plan that we have for 2000 and see if—there are some

things under way, but perhaps there is more that we can do, and

we will take a look at that. As a matter of fact, we will report back

to you.

[The information referred to follows:]

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Mr. RYAN. Yes, because when we have a goal 2 years out, it always seems to be pushed back every 2 years.

Mr. ROSSOTTI. We are trying to do basically everything on two

paths. One path is what we can do now in the next year; and we

can only do a few things, but we have quite a few under way. We

have to prioritize those. And then we are developing a whole new

methodology in order to get us in better shape for the future. Naturally, there is a lot of pressure to put more things into the current

year, and we can’t always accommodate them; but we will take a

look at the suggestion. I think it is a good one, and we will see

what we can come up with for 2000.

Mr. RYAN. Thank you. I yield back to the chairman.

Mr. MCINTOSH. Mr. Chairman, I have a whole different question—this is a different subject matter—but while I have you, it is

an area I have been working on. Jerry Weller and I have introduced a bill to eliminate the marriage penalty and there are several ways of doing that. But I wanted to ask you if you have focused at all on that, and if you would agree with us that the marriage penalty undermines or causes harm to the family structure

when you place that additional financial burden on them.

Mr. ROSSOTTI. Well, I don’t want to appear to be ducking your

question, but I think in this case I have to say that we have a pretty clear delineation between what the Treasury’s responsibility is,

and what IRS’s is; and a question like that is really one that is not

within my scope. I have a big scope at the IRS, but there are some

limits on it. I think that that really is a tax policy question, and

I am afraid I will have to defer to the Treasury on it.

Mr. MCINTOSH. OK. I might ask your help in getting someone

over there to focus on that as well, but I thought I would check

while you were here. Thank you.

Mr. HORN. Well, I am sure the Commissioner is in favor of marriage.

Mr. ROSSOTTI. Yes. I don’t think that is outside my scope to say

that I am in favor of marriage, yes.

Mr. HORN. I yield 5 minutes to the gentleman from Ohio, the

ranking Democrat.

Mr. KUCINICH. Thank you very much, Mr. Chairman.

Commissioner, when Congress acted in the last term out of concern for how the American taxpayers were being treated by IRS

personnel, the intention was to make the IRS more taxpayer

friendly.

Can you give us an accounting as to how the work which Congress had asked for was done inside the IRS to communicate to the

employees the importance of being gentle with those taxpayers who

may have some conflicts with the IRS or may have some questions

that they need help in answering?

Mr. ROSSOTTI. I think that you are right. That basic direction is

the direction we have been given. I think it goes even a little bit

more than just being friendly. I think what we are trying to do is

go beyond that and actually understand what the taxpayer’s problem is, and we are trying to be as helpful as we can in trying to

solve problems. There are many things we have done, but let me

just summarize a few.

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For sort of a typical average taxpayer we have tried to be more

accessible this filing season by opening the phones 24 hours a day,

7 days a week and opening on Saturdays for people to come in in

person and get information and help. That has been very important

for the filing season.

A second thing is for the people who have more difficult kinds

of problems that have been lingering—and we unfortunately have

some of those. For those, we have set up what we call problem-solving days, where each month, in every area of the country, we have

special days where people can come in and make appointments. We

have quite a few people there from different parts of the IRS, so

they can solve problems quickly. We have also reorganized the

whole national taxpayer advocate organization which is there to basically assist any taxpayer that doesn’t get the service that they

need.

More broadly than that, we have developed a whole new system

of measurements, and this really goes to the heart of your question

about how do we get across to people what they should be doing,

whereas previously the focus was very heavily on only how much

‘‘enforcement dollars’’ were brought in. We have eliminated that

system and we are rolling out a whole new system of the way we

measure performance for our organization. We are also rewriting

all of the job descriptions for every one of our frontline contact employees. I could go on and on. I don’t know how much longer you

want me to say it, but there is an entire program of training that

goes beyond—goes with this. Millions of person-hours of training,

are being invested this calendar year and this fiscal year to basically deal with these kinds of subjects.

So it is a very broad comprehensive program, but even with all

of that, it is a multiyear program. It is not something that we are

going to claim is going to be successful or completed this fiscal

year.

Mr. KUCINICH. Well, as painful as the experience of having to

meet the tax man happens to be, I am sure the American people

want to know that you are taking steps to make sure that such an

encounter is done with less intimidation, which the American taxpayers feel they have experienced in the past.

Mr. ROSSOTTI. I couldn’t agree more.

Mr. KUCINICH. So is there a way that you can communicate to

the Congress the kinds of success that you have experienced in this

new attempt by the IRS to be more responsive and even more service oriented?

Mr. ROSSOTTI. I think that there are a number of things that we

could communicate. I would be glad to give you additional information about some of the activities we are getting. Of course, the feedback from the taxpayers is something that is going to take time,

but one of the key things that I think will be a measurement, is

that we are actually surveying. Every time we have a transaction

with a taxpayer, whether it be audit, collection actions, phone call,

we now have an outside market survey firm that is doing a statistical sample of the people we interact with and getting ratings by

the taxpayer of how they feel about this. Now, this is going to take

some time to accumulate the data, but by the end of this fiscal year

we will have some of that data to report.

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Mr. KUCINICH. I think that is good. Congress obviously would be

interested in getting some feedback about how our constituents are

being treated and we would also welcome hearing from constituents on the issues and how the IRS’s new approach is working. I

am confident that under you, Mr. Rossotti, that the IRS is going

to respond to the challenge; and I know that you have a lot—you

know, you have a lot of really good, competent employees who I

think are easily adaptable to a call for more responsiveness, more

service oriented, and more congenial approach to this very difficult

job of collecting taxes.

Mr. ROSSOTTI. Actually, I appreciate that comment, and I am

sure our employees do. Because I have to tell you that I haven’t

met very many employees who like to make taxpayers unhappy.

Sometimes they have to give them an answer that they don’t like,

but I think with this training and additional support we are already finding that there can be a far better relationship. In the

vast majority of cases there does not need to be an adversarial relationship between an individual one-on-one and an IRS employee.

Mr. KUCINICH. Please let the employees know that we appreciate

their efforts to be more responsive.

Mr. ROSSOTTI. I will. I appreciate that very much.

Mr. HORN. I agree with the gentleman from Ohio, and what has

been lacking in IRS, very frankly, is good management. And I

would hope—and I think you will provide that good management—

and I would hope that extensive training goes on from supervisors

up to management.

Mr. ROSSOTTI. I really want to stress that I know it is not the

subject of this hearing, but in the appropriations hearing and in

the other hearings, I want to stress that in terms of short-term and

the most immediate need, rectifying what I call the training deficit

or the training gap is absolutely critical. I mean every employee

that I have talked to virtually identifies that as the No. 1 constraint they have in terms of providing good service to taxpayers,

and we are investing a very significant amount of time and training in this fiscal year.

Mr. HORN. My last question—and we will go into recess for a few

minutes, Mr. McIntosh will be back—the IRS Restructuring Act of

1999 required the creation of an Internal Revenue Service oversight board. Under that law, the President was required to submit

nominations within 6 months of enactment. It has now been almost

10 months and the President has not yet sent one name even for

consideration by the Senate. I want to read to you into the record

a letter which went today to the President from the Majority Leader of the House, Mr. Armey, the distinguished Ph.D. economist,

and also one who is vitally interested in good management in the

executive branch and works very closely with our subcommittee.

He said,

Dear Mr. President: Last summer after extensive review of the abusive practices

of the IRS, this Congress passed, and you signed, the Internal Revenue Service Restructuring and Reform Act of 1999. This historic piece of legislation forces the IRS

to be more honest, open and fair to the American taxpayer. A major part of that

law was the creation of the IRS Oversight Board for which you were required to

submit nominations within 6 months of enactment. It has now been almost 10

months, and I am deeply disappointed that you have yet to submit even one name

for consideration by the Senate. In passing and signing this law, you joined us in

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not only reforming the IRS, but in promising to vigilantly oversee its future actions.

Your failure to submit nominations for the oversight board breaks that promise.

Today, on the day when so many Americans are struggling with the intrusive complicated Tax Code, I urge you to meet your legal obligation to IRS oversight. Ignoring this duty demonstrates to the American people that IRS abuses are not a major

concern for this administration, and American taxpayers deserve better. Respectfully, Dick Armey, Member of Congress, Majority Leader.

Now, do you have any idea, Commissioner, why the President is

not meeting his legal obligation to IRS oversight?

Mr. ROSSOTTI. Well, the only information I have is that the nominee—there has been a set of nominees that are going through the

vetting process which takes some time, but beyond that, I really

don’t know. I have no idea.

Mr. HORN. So some have been submitted to the White House

from various sources?

Mr. ROSSOTTI. I really think it is better to talk to the White

House. I really am not part of that process except very indirectly,

so I can’t really comment.

Mr. HORN. Well, obviously the Secretary of the Treasury is the

one that should be submitting them, and I am sure that either the

letter will be sent to him by the White House, but somebody ought

to conform with the law, and I think that is what this gets down

to. I realize you aren’t in it. That is above your pay grade, as the

saying goes.

Mr. ROSSOTTI. That is correct.

Mr. HORN. But we thank you for coming here, and we thank you

for your excellent testimony, and as I have told you for years, you

are the guy that can get the job done. So thanks very much.

Mr. HORN. Panel two can be seated now, and Mr. McIntosh will

preside in a few minutes. We are in recess until he returns.

[Recess.]

Mr. MCINTOSH [presiding]. The subcommittee will come to order.

I now call forward the second panel. Let the record reflect that

Chairman Horn asked each of the witnesses to take the appropriate oath and they are duly sworn in.

Our first witness on the second panel is Mr. Nye Stevens, who

is the Director of the Federal Management and Workforce Issues

of the General Accounting Office. Mr. Stevens, as Mr. Horn pointed

out, your written testimony will appear in the record. Feel free to

share with us a summary of that testimony.

STATEMENTS OF NYE STEVENS, DIRECTOR, FEDERAL MANAGEMENT AND WORKFORCE ISSUES, GENERAL ACCOUNTING OFFICE; DEIDRE A. LEE, ACTING DEPUTY DIRECTOR

FOR MANAGEMENT, OFFICE OF MANAGEMENT AND BUDGET;

AND JAMES R. WHITE, DIRECTOR, TAX POLICY AND ADMINISTRATION ISSUES, GENERAL ACCOUNTING OFFICE

Mr. STEVENS. I will be very brief in describing the work that we

have recently done on the Paperwork Reduction Act, which required OMB to establish goals for the executive branch to reduce

the paperwork burden that it imposes on the American public by

25 percent, from the approximately 7 billion hours that it imposed

in 1995.

The bottom line is that there has barely been any reduction, less

than one-half of 1 percent over that 3-year period, and projections

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in OMB’s latest Information Collection Budget that are just released show that the burden, rather than going down in the next

2 years, is actually going to be going up, and up by hundreds of

millions of hours.

There is no question that IRS, from whom you just heard, accounts for the vast majority of this burden, more than 80 percent

of it. And it was an increase in the IRS burden that offset a 23 percent reduction among the other agencies of government and resulted in the fact that the overall government burden on the American people was kept about even for that 3-year period. If it were

not for a 7 percent increase in the IRS burden, the rest of the government would have come close to meeting that 25 percent goal for

the past 3 years. IRS also accounts for about 85 percent of the 468

million hours of increased paperwork that is projected for the next

2 years.

It is the Office of Information and Regulatory Affairs at OMB

that is meant to monitor and control the paperwork load. Our reviews of their actions have shown that in many ways they have

fallen short. For each of the past 3 years, for example, they did not

set agency goals for paperwork reduction until the year was almost

over, and it was far too late to serve as a goal in the sense of affecting agency behavior during the year. OMB also sees no necessary

connection between the governmentwide goal which is set in law

and the goals of individual agencies. So even though OMB can

show you in writing that it has a goal of reducing paperwork by

5 percent this year, in fact the Information Collection Budget will

show that the individual goals add up to an increase, not to a decrease, and of course that is led by IRS.

The second general issue you asked us to address was the matter

of expired OMB authorizations to collect data. The Paperwork Reduction Act prohibits agencies from collecting information from the

public unless OMB has approved the data collection and given it

a control number so that the public will know that it is authorized.

OMB may not approve a collection for more than 3 years at a time.

Now, our review of information that OMB provided to you, Mr.

Chairman, shows that there is a troubling disregard by the agencies for this control mechanism. First of all, the current information budget contains a 59-page listing of more than 800 violations

of the act, including continuing collections whose authorizations

have expired, and collections that were never authorized in the

first place. The information that OMB provided focused on the largest of these collections, those that involved more than 500,000 burden-hours. Seventeen were being carried out after OMB’s approval

had expired, and we added to that another 11 that had continued

for a period of time, a limited period of time because they were reauthorized; but they were operating without an authorization for

some period of time. These added up to more than 111 million

hours of unauthorized burden. And I would point out that this is

a real cost for the American people. Using an OMB figure of $26.50

an hour of time that is devoted to tax paperwork, we estimated

that those 111 million hours cost the American public more than

$3 billion.

As disconcerting as these violations are, it is even more troubling

that OMB treats the expirations of authorized collections as a reVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00074 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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duction in burden. So if the authorization for a collection has expired, when OMB totals up the burden at the end of the fiscal year,

OMB counts it as a reduction. Even though in many cases the information continues to be collected, and the public notices no difference.

I can use the Department of Agriculture as an example of this,

Mr. Chairman, because you are about to hear from them. USDA

can be seen as one of the success stories. It reduced its reported

burden by 59 million hours since the end of fiscal year 1995 to a

total of 72 million hours. However, this total ignored five large data

collections where the authorizations had expired and they were not

in effect at the end of the year, even though the information was

still being collected. This totaled about 15 million hours. We found

another 3 million hours that were associated with 57 other collections in the list of violations of a somewhat smaller scale. So the

real agriculture burden we calculate at about 90 million hours instead of the 72 that are shown in OMB’s current report.

OMB is certainly on record as taking the compliance problem seriously, but it claims it does not have the power to do much about

it other than publish the violations as they have indeed done in the

list that we just referred to. We think that OMB could do more

than that, including bringing to bear the influence of the budget

examiners, the resource management officers and even the Vice

President who is charged under Executive Order 12866 with a

coordinative role over regulatory review and policy. I would be glad

to respond to any questions you have.

Mr. MCINTOSH. Let me ask you to repeat that to make sure I understood it fully. What was that that you said at the end of your

testimony?

Mr. STEVENS. I said that OMB is not really powerless in its ability to police violations of the act which are substantial, that it can

certainly use the budget powers of the agency, but it could also—

I believe our statement calls for using the influence of the Vice

President, who is charged under Executive Order 12866 with a

coordinative role over regulatory policy and review.

Mr. MCINTOSH. Thank you, Mr. Stevens.

[The prepared statement of Mr. Stevens follows:]

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Mr. MCINTOSH. Our next witness on this panel is the Acting Deputy Director for Management of the Office of Management and

Budget, Ms. Deidre Lee. She is also a full-time position of administrator in the Office of Federal Procurement Policy [OFPP]. I appreciate the difficulty of coming in as an acting in that position, but

thank you for coming and testifying today, Ms. Lee. Again, your

full testimony will be put in the record and feel free to summarize

and respond to anything Mr. Stevens has said.

Ms. LEE. Thank you, Mr. McIntosh. Good afternoon. You invited

me here to discuss the paperwork reduction in fiscal years 1999

and 2000. I am pleased to have the opportunity to appear.

We have recently presented to you the Information Collection

Budget of the United States for Fiscal Year 1999, and I know you

are familiar with that rather thick document; and there are also

copies available on the table in the back, and we will be discussing

that today. This extensive report provides a detailed accounting of

agency paperwork activities, accomplishments, and planned initiatives. However, we also recognize that we need to continue working

to minimize paperwork burden to the public. We look forward to

working with the Congress, the agencies, and the public to build

on these successes and to address the challenges which are described in this year’s budget.

The enactment of the Paperwork Reduction Act of 1995 was an

important step in improving the way the Federal Government functions. In providing a framework for managing information, the Paperwork Reduction Act sets out a number of purposes that include

reducing information collection burdens imposed on the public; increasing the productivity, efficiency, and effectiveness of Federal

programs; and balancing the practical utility of information collection against the burden it imposes.

Under the Paperwork Reduction Act, the agencies and the OMB

have specific roles intended to help achieve the purposes of the act.

The Paperwork Reduction Act requires the head of each agency,

supported by his or her Chief Information Officer, to be responsible

for the agency’s information collection activities, including the reduction of paperwork burden. Through the development of the Information Collection Budget, OIRA, Office of Information and Regulatory Affairs located in OMB, oversees agency paperwork management. OIRA, through the ICB process, reports on significant improvements in agency information collection during the previous

fiscal year, identifies burden decreases or increases, and indicates

areas where further improvement is needed.

This year’s Information Collection Budget highlights a large

number of paperwork accomplishments and improvements. The

ICB details these efforts and plans agency by agency. My written

testimony describes them in detail and gives some specific examples; but in the interest of time here, I would like to just summarize the initiatives.

Agencies are reducing information collection burden by revising

existing regulations to eliminate unnecessary requirements. And I

think we saw some examples there from the IRS. They are also

raising thresholds to reduce the number of reports; making their

forms simpler to read and easier to fill out and thus improving programs for the general public’s application process; cutting freVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00100 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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quency of periodic reporting requirements, and trying to reduce duplicative information from one report to the next, one of the other

concerns expressed by a subcommittee member; putting in place

electronic systems that can speed the exchange of information between the government and the public and allow respondents to use

their own information technology to ease reporting burdens. They

are consolidating information collections both to simplify the collections and to avoid collecting similar information several times from

the same people, and working together across agencies to share information so that people need only respond to a single collection

from an agency, rather than multiple collections from multiple

agencies.

The Information Collection Budget is also the management oversight mechanism through which agency CIOs and OIRA establish

agency paperwork reduction targets. They establish these for the

coming year; and they take into account the agency’s anticipated

program and statutory initiatives. And again, this was discussed in

detail in the IRS presentation.

The targets for fiscal year 1999 and 2000 do not meet the cumulative government 5 percent reduction goal. The aggregate goal for

1999 is plus 2.6 percent, and for fiscal year 2000 it is plus 2.3 percent. However, some agencies have done extremely well. For example, FEMA, Veterans Affairs, Federal Energy Regulatory Commission, Energy, and Education, all have planned reductions for 1999

exceeding 10 percent; but this is offset by increases in other agencies, specifically, the IRS, as we discussed earlier, which accounts

for 80 percent of the burden, and they have the new tax measures.

Also, HHS has several important health programs that have upped

the burden and Commerce has patents and census, which will increase the burden. I know you are going to hear from Agriculture

and some of the other activities they have today.

So while the Paperwork Reduction Act acknowledges Federal

agencies’ legitimate need for information to perform their missions,

it also requires agencies to obtain OMB approval of this information collection. In the 1999 Information Collection Budget, we list

agency violations. These occur primarily when agencies continue to

use collections for which OMB approval has expired. And the lists

are long. They are too long, and they indicate a substantial problem that we must address and resolve; and we are taking agency

violations very seriously and will be working with the agencies to

improve compliance with the act.

Information is vital to the government and provides its citizens

with necessary services, and although the government has always

depended on accurate and timely information, in today’s complex,

rapid-paced, globalized world, the ability to collect information and

use the information to benefit citizens and improve service delivery

is more critical than ever before. The 1999 ICB, the GAO report,

the GAO testimony, and communications with your committee and

your staff have pointed out some of the positive steps that have

been taken and also some steps that we need to be taking in order

to reduce burden and ensure agency reporting accuracy. We look

forward to working a partnership among OMB, the agencies, the

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Congress, and the public to achieve this important goal.

I would be happy to take any questions.

Mr. MCINTOSH. Thank you. We will have questions for you along

with the rest of the panel.

[The prepared statement of Ms. Lee follows:]

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Mr. MCINTOSH. Our final panelist will be Mr. James White, who

is the Director of Tax Policy and Administration Issues at the General Accounting Office.

Mr. White, again, your full testimony will be put in the record.

Feel free to summarize it for us today.

Mr. WHITE. Mr. Chairman, thank you. I am pleased to be here

today to discuss management challenges facing the IRS. As you

know, over recent years IRS has faced criticism and increased congressional scrutiny over its inability to serve taxpayers and replace

its antiquated information systems. Several key IRS program areas

such as accounts receivable have been on our high-risk list of government programs susceptible to waste, fraud, abuse, and mismanagement. The increased congressional scrutiny culminated in

the passage of the IRS Restructuring and Reform Act of 1998.

In response, the Commissioner is leading a massive restructuring

of the whole agency that focuses on business and information systems modernization. My statement makes three points, summarized in bullets beginning on page two, that illustrate the management challenges posed by this kind of modernization effort.

First, one challenge for successful business modernization, that

is, modernization that results in significant improvements in the

service provided to taxpayers, will be developing a balanced performance measurement system and then aligning those performance measures from the top of the organization down to the frontline staff. IRS’s history shows the dangers of imbalanced performance measures that rely too heavily on enforcement statistics. IRS

is seeking to develop more appropriate measures of business results, customer satisfaction, and employee satisfaction.

An example of a business results measure is voluntary compliance, but developing such a measure will be a challenge. At this

time only limited data exists on voluntary compliance. Developing

a reliable measure of voluntary compliance will require addressing

concerns about the burden doing so places on some taxpayers. The

new performance measures must also be aligned throughout IRS.

This will require new employee evaluation systems and training,

including orientation training for all 100,000 employees and managers, leadership courses for managers and executives, and technical training.

Second, successful systems modernization is essential to successful business modernization. IRS’s systems modernization is essential because it is intended to implement IRS’s modernized business

practices. For example, modern systems would provide employees

and taxpayers with current information about taxpayer accounts.

IRS has developed a blueprint for systems modernization, but did

so before the current restructuring initiative. IRS intends to validate the blueprint in light of restructuring, working as a partner,

in its words, with a systems integration contractor. However, we

have said in the past that using contractors for systems development is no panacea. Succeeding at systems modernization will be

a challenge because it depends on whether IRS can effectively partner with, and manage, its contractors.

Third, the sheer magnitude of undertaking both business modernization and systems modernization will strain IRS’s management and staff. Such an ambitious undertaking, along with the

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need to stay in business, makes the restructuring initiative a highrisk venture and one that will take years to implement. While undertaking both is ambitious and risky, there is no alternative. As

I said above, successful systems modernization is essential to business modernization.

In conclusion, IRS has equipped itself with a new mission statement that focuses on customer service. Business modernization

holds promise for achieving this goal of improving service to taxpayers, but successful modernization will need to be sustained beyond the term of the current commissioner. That means dealing

with challenges such as those that I have discussed; developing a

balanced set of performance measures; aligning the organizational

measures with the employee evaluation system; training 100,000

staff; validating the information systems modernization blueprint

in light of restructuring; and effectively managing information systems contractors.

Mr. Chairman, that concludes my statement. I would be happy

to answer any questions.

Mr. MCINTOSH. Thank you, Mr. White.

[The prepared statement of Mr. White follows:]

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Mr. MCINTOSH. Let me ask unanimous consent to keep the

record open for 10 days, because I think Mr. Horn, who is not able

to be with us for the conclusion, may have some specific questions

for you. But if any of the other members of the two committees do,

we will get those to you in writing as well as the other panels.

Let me ask very quickly, Mr. Stevens, you estimated, I think,

that for 28 of the 872 violations of law on failing to get the paperwork approved before it was required of American citizens, that it

cost about $3 billion.

Were you able to get information from OMB on the cost of the

others, either in the man-hours that are associated with them, or

otherwise make an estimate of the costs for all of those violations?

Mr. STEVENS. The Information Collection Budget does not include the hours that are associated with each of the violations, so

it is not readily apparent from their publication. We did go back

to OMB and ask for the hours of burden that were associated with

the Department of Agriculture’s information collection violations,

and they provided that readily. We made some extrapolations from

that.

In general, the ones that the 28 were drawn from were the largest collections of government. If you make some assumptions that

the Department of Agriculture is similar to other agencies, and

that the volume that we had there would be similar across government, we figure there are about 50,000 hours for each of those collections. It would add about another $1 billion if we extrapolated

that to the rest of the government. It was something of a stretch— it wasn’t easy to do—but it would make it about $4 billion instead

of $3 billion.

Mr. MCINTOSH. Additional to the—so three to four, not an additional four on top of the three?

Mr. STEVENS. Yes, because the additional ones were from smaller

collections than the ones we looked at first.

Mr. MCINTOSH. So we are looking at $4 billion of additional

costs.

Mr. STEVENS. That would be a reasonable assumption, based on

our calculations.

Mr. MCINTOSH. Let me ask you, Ms. Lee, to respond to some of

the comments that Mr. Stevens had made. Actually, just to start

it off, has Vice President Gore been involved in the paperwork reduction activities of OMB in a supervisory role?

Ms. LEE. In a day-to-day role, no.

Mr. MCINTOSH. But in terms of reviewing the final outcomes and

the general supervision?

Ms. LEE. To the best of my knowledge he is not familiar with this

level of detail.

Mr. MCINTOSH. OK. So that—well, we can come back to the recommendation.

How do you respond and how does OMB respond to the criticism

that they counted the hours for the illegal forms as reductions

when, in fact, the forms were continuing to be used by the agencies

and $4 billion of cost was imposed?

Ms. LEE. With great concern. We don’t want that to happen. The

Information Collection Budget is a good planning tool, and what we

have realized by collecting this rather detailed report is that it has

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made agencies more aware of their commitments and more aware

of the process; but it is not perfect, and we recognize we have a

long way to go.

What we do want to do is accomplish the goals and—— Mr. MCINTOSH. So does OMB have any plan to change its own

operations so that those aren’t double-counted? I mean it appears

as if they reduce more paperwork than actually is reduced, if the

form is no longer valid and OMB says that is not a valid form any

more, so we are going to count it as a savings, but the agencies

continue to use it.

Ms. LEE. We did make corrections in the Information Collection

Budget. We tried to correct for the collections that had expired.

And I know this is a discussion of programs and adjustments, but

there is corrected information in the budget. We have tried to capture those violations, and we are looking for ways in the future to

prevent that from happening and then to act quickly should it happen and consider all of these recommendations.

Mr. MCINTOSH. Good. Because I think it would be important to

have the bottom line number be accurate there.

How about in response to what Mr. Stevens said was perhaps

even more troubling, the failure to be proactive in getting the agencies to implement the paperwork reduction initiatives?

Ms. LEE. Certainly we have desk officers who are each involved

with agencies, and they do review the activities on a regular basis.

We have even discussed how we can improve that and are looking

at some of the recommendations that are before us here to see

which ones of those are readily implementable.

Mr. MCINTOSH. Well, let’s look at some of the specifics that were

in the written testimony. Do you think it is a good idea that OIRA

would, in advance of the expiration, notify the agency it is about

to expire and seek their action to correct that?

Ms. LEE. They currently send out on a quarterly basis, a list of

regulations that are about to expire, and I think what we are talking about here is a little bit more aggressive followup.

Mr. MCINTOSH. OK. And then some of the others, when they find

that one has expired, will they—do they list publicly, announce the

agency is out of compliance, notify the budget side of OMB, notify

the Vice President and notify the Federal Register? Are those four

good suggestions?

Ms. LEE. Those are suggestions that we are looking at: how do

we put these into the system? How and when and at what phase?

Mr. MCINTOSH. Let me ask you today, is that something that will

be done?

Ms. LEE. I expect it will be.

Mr. MCINTOSH. Because they seem like very good common sense

suggestions to me.

How about the comment that perhaps OIRA needs more employees, that there has been a reduction in the work force not only

under President Clinton’s watch but prior to that, and perhaps we

actually need to give you some additional staffing and resources to

do all of these things?

Ms. LEE. I was not at OIRA previously with the higher head

count; and I know that the office is relatively small—it is about 40

people—and they do turn out a tremendous amount of regulatory

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review, et cetera and I know there is an ongoing discussion with

other committees as to what is the appropriate staffing.

Mr. MCINTOSH. Well, just for our record today, is that a good

suggestion for GAO that Congress should look at?

Ms. LEE. I am in kind of the same boat as Mr. Rossotti. I don’t

specifically have an individual comment on that. I think we need

to look at the agency as a whole and see if we can do some of this

reduction. We can look at other ways to simplify our processes and

then align the appropriate personnel to that approach.

Mr. MCINTOSH. The other thing that this committee has recommended, and when the agency hasn’t wanted to increase personnel, is to fence off some of the budget and say, unless these

things get done, you can’t spend it in other places.

So let me ask you to go back—and we are holding the record

open for 10 days—and see if there is an official response from OMB

on that question of whether we should increase the staffing.

Ms. LEE. I would be happy to.

[The information referred to follows:]

The President’s FY 2000 Budget request for the Office of Management and Budget

maintains the OIRA staffing level at the FY 1999 level. OMB is committed to maintaining budgetary restraint, even though recent Congressional action has created

numerous additional responsibilities and significantly added to the organization’s workload.

Mr. MCINTOSH. Thank you.

The final question—and then I am going to go and vote and Mr.

Ryan will come and continue this part of the hearing—what about

this idea of encouraging the Vice President to take a more active

day-to-day or at least supervisory role under his authority under

the Executive order? I will share with you, I did work for a former

Vice President who was very active in that, and so it seems to me

like a good idea. I think you can have different views coming from

the Vice President’s office, but the institutional structure struck me

as a good one where you had someone close to the President paying

attention to these questions on paperwork and regulation.

Ms. LEE. Mr. McIntosh, that is certainly a possibility, but I think

as you pointed out at this hearing, we have some more staff work

to do and I think we need to do some of that and ensure that we

have done the best we can before we present this issue to the Vice

President for his action.

Mr. MCINTOSH. OK. And certainly anybody who is as busy as the

Vice President—and there are many things on his plate—we need

to make sure he is well staffed in doing that, and OIRA did that

for us when we were in the Office of the Vice President.

Let me ask one other quick question: should Congress consider

sanctions for even the agency or policy officials in an agency who,

once they had gotten the notice that the paperwork is about to expire, knowingly violate the act and let it expire and then continue

to collect those paperwork requirements from the public, so that

there is some teeth behind the requirement there?

Ms. LEE. The sanction activity, again I am going to leave that

to the Congress for their decision. I think as the administrative

side of the house, we need to do a better job of aggressively following up on those activities and then present you with accurate

results so you can properly make that decision.

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Mr. MCINTOSH. Mr. Stevens, let me ask you that question. Would

GAO feel that that would be one way to strengthen the provisions

of the act?

Mr. STEVENS. Well, it is certainly true there is no consequence

of a violation now. You just get your collection published in a book;

your name is not attached to it. There are really no adverse consequences at all. And I would think it would be reasonable to have

that be a performance element in the SES contract of the Chief Information Officer, for example. But I also think that it is too early

to give up on OIRA and its role and its policing, its ability to use

the pressures of the budget and the overall controls they have over

agencies. We do have a mechanism in place; I think we should try

to make that work before we impose a new one on top of it.

Mr. MCINTOSH. Or maybe strengthen it that way and provide the

incentive at the agency to cooperate with OIRA.

Let me now have the committee stand in recess. Mr. Ryan told

me he would be coming right back after the vote, so he is, as the

vice chairman, will continue. He may have some questions for you

all on this panel. If not, he will move on to the next panel.

Thank you very much. I do appreciate you coming today.

[Recess.]

Mr. RYAN [presiding]. We will reconvene the hearing.

I would like to start by asking Mr. Stevens a couple of questions.

Mr. Stevens, can you tell me what OMB’s or—excuse me, what

GAO’s recommendations are for improvements in OMB’s management of the paperwork burden imposed on the public?

Mr. STEVENS. One perhaps, Mr. Ryan, would be to take a larger,

more systemic view of the problem of information collection. Typically right now, within the Office of Information and Regulatory Affairs, the individual desk officers are inundated with individual information collections. One of them we talked to said she had 20 or

30 of them on her desk at the time we spoke to her. And it is not

hard to understand that they deal with these serially, one by one,

and that it is hard to take an overview of the impact of that on

the clientele of the agency, on the government, on the overall burden. It seems to us that somehow, taking a larger view of that

problem, dealing with these in larger aggregates could be a step

forward.

Mr. McIntosh also recounted some of the specifics in our statement, but those have to do with dealing with individual violations

of the act, and we do make those suggestions there. Part of the

problem is that it is just not very prominent, no real penalty or adverse consequences flow from violating the act, and some higher

level of attention to that could presumably be effective.

Mr. RYAN. If you had to rewrite the system, how would you bring

a higher level of attention to that?

Mr. STEVENS. One of the basic reasons the Office of Information

and Regulatory Affairs is in the Office of Management and Budget

is because that is where the clout resides. The perception and the

argument is that OMB can bring pressure to bear on agencies

through its control of the budget process, through its control of legislative clearance, and to our knowledge, that is not used very systematically within OMB. We think that closer relationships beVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00132 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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tween OIRA and those budget examiners can make a difference,

particularly for agencies that are endemically in violation.

Mr. RYAN. Have you looked at OIRA in prior administrations and

witnessed that OIRA had had a strengthened role, say, in past administrations in the 1980’s versus the role OIRA plays now? Does

OIRA seem to be playing second fiddle versus its role in prior administrations? Are there models that we have employed within

OMB that have strengthened OIRA that you think we ought to go

back and take a look at, or what are some structural things we

should do with OIRA to elevate their importance, their involvement

within OMB? Have you taken a look at that in the past?

Mr. STEVENS. Well, we have looked at OIRA since it was first put

together, and we have done many studies over the years. It used

to be a larger organization than it is now in terms of staff. And we

have not recommended directly, but pointed out in our testimonies

the effects of the attrition that they have suffered there.

It is also true that OIRA has been more dictatorial with regard

to agencies in the past. It controlled more. And they took some negative press—they got some negative reaction to that. I think Congress at one point has had the point of view that OIRA should not

be so active as it has been before.

So they have a balancing role. I think it is not as strong as it

used to be, but perhaps——

Mr. RYAN. Was that more style or structure? I mean the old

OIRA was one that was just how you described. Was that because

of the style of the leadership within OIRA, or was that a difference

in structure within the agency; and was the attrition that we have

seen within OMB with respect to OIRA much more significant than

the rest of the attrition within the agency? Was OIRA singled out,

do you believe, in the last 6 years over other cutbacks within the

agency?

Mr. STEVENS. Well, actually, since OIRA is a statutory-based

agency, I think it was protected somewhat from the restructuring

that the rest of the management functions in OMB have gone

through. So I don’t think it has been differentially affected, but it

certainly is smaller. It is certainly our perception there that people

are not sitting around with spare time on their hands. They are extremely busy, they work very hard, and we respect that.

Mr. RYAN. Well, thank you, Mr. Stevens.

Ms. Lee, I would like to ask you a couple of questions. Given that

the IRS accounts for nearly 80 percent of the total governmentwide

paperwork burden on the American public, given that fact, what

change did OMB make in IRS’s proposed Information Collection

Budget?

Ms. LEE. Mr. Ryan, I don’t have the specifics on IRS, but I would

be glad to get them for you for the record.

Mr. RYAN. That would be great. If you would do that, I would appreciate it.

It is my understanding the IRS did not identify any specific paperwork reduction accomplishments in fiscal year 2000. Can you

comment on that? Can you comment on why OMB accepted that?

Ms. LEE. Well, I think Mr. Rossotti discussed it in detail and

committed to look at whether they make additional reductions and

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try to balance the burden and the benefit for the changes in the

Tax Code.

Mr. RYAN. OK. In your role, though, wouldn’t it—what I am trying to get at is, we heard Mr. Rossotti’s testimony with respect to

paperwork reduction. OMB—it is OMB’s role to find other recommendations, maybe to check on the work. Why hadn’t OMB

come up with a separate recommendation for the IRS, or is there

a history there that you can shed some light on to this, why there

was no recommendation?

Ms. LEE. I don’t believe there is a specific history, but I would

be glad to get the details for you.

[The information referred to follows:]

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Mr. RYAN. OK. One thing I did want to quickly ask you, since

the HHS is expected to levy the third largest paperwork burden on

the American public, why did OMB accept the Department of

Health and Human Services, the act of not identifying any specific

paperwork reduction accomplishments in 1999?

Ms. LEE. We are working with HHS. They have some increases.

In many cases, that is because they have some key legislative initiatives: they have the Prescription Drug Marketing Act; they have

the Health Insurance Portability and Accountability Act; they have

the Personal Responsibility and Work Opportunity Reconciliation

Act; and the Medicare reform initiatives. So those added burden,

and now we are trying to again balance that burden and responsibility and find out what reductions can be made to offset the increased burden.

Mr. RYAN. So we shouldn’t pass so many laws, you are saying.

Ms. LEE. I will leave that up to you to decide.

Mr. RYAN. Ms. Lee, I have a question from Chairman Horn.

Chairman Horn asked Commissioner Rossotti about the President’s

failure to submit nominations for the IRS oversight board. Mr.

Rossotti did not know why no names had been submitted. Do you?

Ms. LEE. No, sir, I don’t; but I, again, would be glad to look into

that and tell you if we have any knowledge.

Mr. RYAN. If you could, and if you could give that to Chairman

Horn, I sure would appreciate that.

Ms. LEE. I will do that.

[The information referred to follows:]

The President is firmly committed to making the strongest possible appointments

to the Internal Revenue Service Oversight Board. The individuals who serve on this

Board will have access to sensitive tax information and play an important role with

respect to the Internal Revenue Service. The background review, which includes a

review of financial information and tax history, is thorough and takes time. The Administration is moving as expeditiously as possible and intends to make these appointments soon.

Mr. RYAN. I would like to ask Mr. White another question from

Chairman Horn. Could you touch on why the IRS has failed in its

efforts in the past, and if you feel this effort is proceeding in a way

that is different?

Mr. WHITE. In terms of its efforts to modernize?

Mr. RYAN. Yes, I am sorry, in terms of modernization.

Mr. WHITE. I think that what IRS is doing right now is a much

larger effort than it has attempted in the past. One of the points

that we made repeatedly in our past work is that, systems modernization, which is an area in which IRS has had a number of

problems over the past years and wasted a lot of money, needs to

be done in an integrated fashion with business process modernization; and the current commissioner is operating that way. They are

in a planning phase right now where they are trying to do both.

It is ambitious and it increases the risks, but I am not sure that

there is an alternative to it.

Mr. RYAN. You do think it does increase the risk for failure?

Mr. WHITE. It is a huge undertaking; and therefore, it is risky.

But I don’t think there is an alternative. If you are going to change

IRS and the way they do business, the way they operate with the

American taxpayer, you have to modernize both their business

processes and their information systems.

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Mr. RYAN. OK. Well, thank you very much. I appreciate the

panel attending.

We will now call our next panel. We will begin with Sydney Hoff

Hay from Phoenix, AZ; Kay Whitehead from Muncie, IN; William

Lindsay, who is the president of the Benefit Management and Design, Inc. of Denver, CO; and John Nicholson, owner of Company

Flowers in Arlington, VA.

Ms. Hoff Hay, we would love to hear from you first.

STATEMENTS OF SYDNEY HOFF HAY, PHOENIX, AZ; KAYE

WHITEHEAD, FARMER, MUNCIE, IN; WILLIAM N. LINDSAY,

PRESIDENT, BENEFIT MANAGEMENT & DESIGN, INC., DENVER, CO; JOHN NICHOLSON, OWNER, COMPANY FLOWERS,

ARLINGTON, VA

Ms. HOFF HAY. Mr. Chairman, thank you for asking me to testify

before this subcommittee. I am here because I am a patriotic American. I don’t really want to be here, but when a staff Member of

the U.S. Congress calls and asks you to appear in these august

halls and participate in this process, you feel it is your duty as an

American to respond. So I am here to tell you my story.

May I first express to you that I am not a tax protester, not by

any stretch of the imagination. This is not even about paying taxes.

Now, I have been a tax activist at the State level. I have a history

of that. I organized an initiative at the State level to require a twothirds majority for tax increases in Arizona. I worked on that with

Congressman John Shadegg. It was successful. I have other of

those types of successes to my credit. But this is not even about

that. This is about the fact that I am a taxpayer.

I am self-employed. Now, I have two assets which enable me to

make a living as a self-employed consultant. No. 1 is my knowledge

and my abilities. No. 2 is time. The IRS has zapped a whole lot of

my time over the recent past. There is a third thing: it is my creative energies and my enthusiasm for what I do, and that may be

an even greater loss to the IRS.

Now, this past weekend, upon returning home from a grueling

business trip, a very difficult trip indeed, the latest communication

appeared in our mailbox from the Internal Revenue Service. Now,

when you see that envelope, you immediately panic, your blood

pressure goes up. You go, oh, my gosh, what now, you have this

heavy sigh, and then the ‘‘what now’’ was an unexpected bill from

the IRS. It was a bill when I opened it for 16 cents.

Now, can you imagine that? They sent this bill with a 33 cent

stamp at a cost of how much time and computer time and staff

time, and I don’t even know how you write a 16 cent check; and

I have to respond and take my time and my 33 cent stamp in order

to comply. This is just another invasion of my valuable time. But

more than that, what is so annoying is this invasion of my precious

few moments in my home with my family to deal with this after

a long and grueling business trip.

Now, how did this come to happen? Well, a few weeks ago I received a bill, an unexpected bill from the IRS for about $54 which

they said I owed from an underpayment of my daughter’s 1996

taxes when she was 18 years old and still living at home. Now,

when you get a bill for $54 from the IRS, you do what any normal

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person would do. You pay it, because you don’t have time to take

out of your life to even look into why you are getting the $54 bill.

I still don’t know why, but I paid it. Now, you know, it would have

cost me hundreds of dollars in time, let alone my enthusiasm and

energies in order to even look into it, so I just paid it. Now, that

latest example, the $54 and the 16 cents may seem very trivial.

But it came to me at a time that came after a very grueling experience that I had over the last year with the IRS. Here is what happened.

After an examination of my husband’s and my 1996 tax return,

which took about 4 months, an amount we owed as a result was

agreed upon. It was settled upon. A large portion of that amount

was agreed that it was deductible. It is just that I paid those expenses in December 1996, and the IRS said they really belonged

deducted in 1997, so they were deductible; but what I needed to do

was write a very large check to the IRS and then get my accountant to refile 1997 and a large portion of that check would come

back to me. So December 3 of that last year I wrote a large check

to the IRS for the precise amount. We hand-delivered it, datestamped it in at the IRS Phoenix office. Then our accountant redid

the 1997 return, as had been suggested; and it requested a refund.

Now, a month or so later we received a bill from the IRS. It was

for the amount of the check that we had written in December. Now,

it said in there, if you have already paid your tax, you can ignore

this notice. Well, we had already paid it, date-stamped it in. We

had the proof. We ignored the notice. A couple of weeks later comes

a certified letter from the IRS with the words, we may seize your

paycheck, bank account, auto, other property. We can file a notice

of Federal tax lien, plus there was $200 in penalty and interest for

a check we had written. We proved it. We showed them the date

stamp. Uh-uh. The burden was on us. We had to prove it to them

by going to our bank, getting a copy of both sides of the check, and

then, so that they could find out where they had applied our

money, to whose account. More time lost, more creative energy

spent. Eventually they were satisfied, I think up to this point, I understand, but then came the next blow. That certified letter, another one, came in the mail, denying the refund for 1997.

So now I realize I am just about out of time, but I would like

to go into—I had one employee up until about a month ago. I had

one employee. I don’t have any employees right now, so I hope that

you will give me an opportunity to talk a little bit about the payroll

tax burden for one employee. Thank you.

Mr. MCINTOSH. Thank you, Ms. Hoff Hay. Certainly in the questioning I will make sure that we get that into the record.

[The prepared statement of Ms. Hoff Hay follows:]

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Mr. MCINTOSH. Our second witness for this panel is Ms. Kaye

Whitehead. Ms. Whitehead, who is familiar to this committee, she

has testified before this committee before in a field hearing and

here in Washington. I appreciate your coming from Indiana. It is

a pleasure to have you here once again. Your entire testimony will

be submitted for the record. Feel free to summarize it today before

us.

Ms. WHITEHEAD. Thank you. I am a farmer from Delaware County, IN, and on our third-generation family farm we grow corn, soybeans, wheat, hay, and hogs. I would like to thank the subcommittee for this opportunity, but let me say that I am very concerned that our family will have the opportunity to be a fourth-generation farm.

There is no question that American agriculture will enter the

next millennium as the world’s leader in food production, but will

we occupy this same position in another 10 years? If we don’t want

American agriculture to slip—and I really don’t think that is the

intent—we need to change thinking in government. We have got to

quit tying farmers in knots with ill-conceived, costly regulation. We

have got to stop imposing sanctions on U.S. agricultural trade. We

can’t give developing nations a pass on restrictions that would be

imposed by a global climate treaty.

I bring all of this to your attention in order that you may better

understand the frustration of producers out there in rural America

as we attempt to abide by the law, but it keeps changing and growing before the ink is dry on the paper. Between EPA and IDEM,

which is Indiana’s version of EPA—and every State has one—agriculture is being driven from this country at an alarming pace. Is

this the true intent of Congress and this administration?

Just as an example, Indiana has had, since 1971, statutes for

confined-feeding operations. In the 1998 inspections completed by

IDEM, still utilizing that old guideline process of 1991, the results

show that only 2.4 percent of the inspections conducted revealed

significant and/or repeated problems. These results prove that Indiana producers are doing a very good job of protection of water resource and, thus, public health. In Indiana we have a zero-discharge requirement. It is a strong performance standard, but it is

working. But recent actions show me that agencies and government

are more worried about developing regulatory procedures and paperwork than accomplishing results.

On March 9, 1999, EPA and USDA presented their unified national strategy for animal feeding operations. I was present at the

meeting in March 1999 in which an official from EPA presented

this document to an IDEM rulemaking meeting. This official stated

that this program was 95 percent voluntary and only 5 percent

mandatory. However, after listening to what he actually said, the

fact is, if a producer does not develop a CNMP, which is a comprehensive nutrient management plan, and obtain an NPDES, non

point discharge elimination system, which is a permit to discharge,

but agriculture would not be allowed to do so, the storm water exemption currently provided for in the Clean Water Act would not

be honored.

Indiana producers, as do producers in many other States, currently must provide by-law documentation to obtain an approval

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before they can build a confined-feeding facility. Part of that documentation is a manure management plan, which is an MMP. The

question was specifically asked by this rulemaking meeting of that

official of whether the current approval process that producers

must go through in Indiana, and the current MMPs that we must

provide would meet EPA’s needs. The answer was an emphatic no.

So producers will now be required to complete another level of bureaucratic paperwork, and this will not only be applied to new facilities, but existing ones as well. Existing operations that already

have approvals will now have to meet the new improved government regulations at two levels.

Then, to add more fuel to the fire, I as a producer cannot provide

my own CNMP. The EPA/USDA document specifically states that

it must be completed by a public official or a certified private party,

another cost that makes no sense. I will be the user, I will implement the plan, and yet I will have no ownership of that plan; and

it will cost me to obtain this plan, which is probably a standard

prescribed document that will not consider any of the assets of my

current practices on our farm. My current manure management

plan was developed by me and is flexible to allow our farm to incorporate new technology into our management procedure. The new

plans are very prescriptive and imprisons our management into today’s technology. It is an enforceable, immovable plan.

USDA will require me to do additional recordkeeping, records to

indicate the quantity of manure produced, how the manure is utilized, including where, when, and so forth of the amount supplied.

We have no way to pass this cost along. Farmers are price takers,

not price makers. Although not a solution to the additional cost of

this requirement, the first things that farmers are going to be

forced to do is to increase in size, and that is to spread the cost

out over more units. I am not opposed to recordkeeping. I think

records make good sense. We do that on our farm. It is part of good

business practice. But mandates by the government to regulate

management is unacceptable.

In the essence of time, I am going to come to a conclusion here.

There is just one thing I want to know from this committee and

from Congress, and its administration. As a farmer, I want to

know—I would like an answer as to the intent and the direction

of this administration. If everyone’s intent on providing more jobs

in the regulatory arena by continuing to create more costly regulatory burdens for agriculture, I need to know that. My family

needs to know that. So that we can get out of this business while

there is still some equity left in our farm, and before the fourth

generation becomes too involved. Perhaps we could all get jobs in

the regulatory arena. It does seem that is quickly becoming the future of this country. Thank you.

Mr. MCINTOSH. Thank you, Ms. Whitehead. Let me say it will be

the intention of this committee to make sure we hold back the regulators so that you all can continue farming. The same thing for

small businesses such as Ms. Hay’s. We are up against a large regulatory entity here in Washington. EPA is only one of many, but

we are doing the best here in Congress to hold them in check.

[The prepared statement of Ms. Whitehead follows:]

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Mr. MCINTOSH. Let me now turn to our third witness, Mr. William Lindsay, who is the president of Benefit Management and Design, Inc. of Denver, CO. Mr. Lindsay.

Mr. LINDSAY. Thank you, Mr. Chairman and members of the

Subcommittee on National Economic Growth, Natural Resources,

and Regulatory Affairs and the Government Management, Information, and Technology Subcommittee. Thank you for allowing me to

appear before you.

My firm is an insurance broker and an employee benefit consultant. I am also a board member of the National Small Business Association, the Nation’s oldest small business advocacy organization.

Foremost I want to thank Representative McIntosh and Representative Horn as well as others for their leadership and understanding of the serious dilemma that paperwork represents for

America’s 23.3 million-plus small businesses. I applaud you and

support you in this effort to bring sanity to the paperwork requirements we face.

By their very nature, unnecessary Federal regulation and paperwork burden discriminates against small businesses. Without large

staffs of accountants, benefits coordinators, attorneys, personnel

administrators, et cetera, small businesses are often at a loss to implement or even keep up with the overwhelming paperwork demands of the Federal Government.

Big corporations have already built these staffs into their operations and can absorb new requirements that could be very costly

and expensive for a small business owner. If you ask any small

business owner anywhere their opinion of their required paperwork, the responses overwhelmingly will indicate that there’s redundancy and excessiveness in the filing process; duplication is

also a serious concern.

Agencies must seek ways to eliminate the duplication of paperwork. We have two national public policy issues that are very important to this Congress; and that is, first, to provide more insured

workers in the work force, and second of all, to increase retirement

savings among America’s workers.

My experience with paperwork dealing with pensions and health

care is, as you might expect, extensive. And I will share with you

a couple of personal examples of how Federal paperwork impedes

these two national priorities.

At the top of my list is the unnecessary paperwork and burdensome requirements critical to health insurance requirements. In

small businesses, virtually every health plan requires some degree

of employee contribution toward premium costs. The law allows

employers to establish so-called flexible benefit plan or section 125

plan so that employees can make their contribution on a pretax

basis.

This tax saving feature reduces the net cost to the employee and

enables the employer to increase employee enrollment as a result.

It’s an obvious positive, on both sides. In my experience, virtually

all small businesses structure their plans to operate on this basis.

There’s no reason not to.

The IRS requires that employers have a plan document and a

summary plan description, along with filing IRS Form 5500 at year

end in order for such premium payments to qualify on a tax-preVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00147 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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ferred status. Failure to file form 5500 can result in a penalty of

up to $1,000 a day, without a limit. The form 5500 was designed

for pension tax reporting. It is over 6 pages long with 10 schedules

and, according to the IRS, takes 11 hours to complete. I don’t think

I even have to comment on how shortsighted their time estimates

are.

Yet the form is not intended for this purpose, and the IRS does

virtually nothing with the forms that are filed. As a result, this

may be the single greatest abuse by small businesses in America.

They simply don’t file the form, but by so doing, expose themselves

to significant penalties by the IRS.

Another example is the very complicated area of IRS Notice

9852. And this is a brand new requirement recently published by

the IRS. It requires that all 401(k) plans and other forms of retirement plans with employee contributions provide employees with an

annual notice of their rights under the plan. This notice duplicates

virtually every point in the summary plan description that the Department of Labor requires plan trustees to provide eligible participants.

Employers who fail to provide this annual notification stand the

risk of being fined and possibly having their plan disqualified. If

the summary plan description is a valid summary of employee

rights, then I would ask: Why is another notice, which is completely duplicative, required to repeat what employees have already

been given?

This poses a real threat for small businesses attempting to establish retirement plans. It is more work and also lays a trap to catch

them if they fail to provide this annual notice. As Congress and the

administration work toward increasing the abysmal savings rate in

this country and making it easier for small businesses to provide

retirement plans to their employees, doesn’t this paperwork requirement run completely counter to that?

I would suggest that IRS Notice 9852, only adds another layer

of ‘‘gotcha’’ in the process and serves as a barrier and a disincentive for small business owners. There are two very important pieces

of legislation that the House passed earlier this year: H.R. 439, the

Paperwork Elimination Act of 1999, and H.R. 391, the Paperwork

Reduction Amendments, sponsored by Chairman McIntosh, that

would be significant in our efforts to improve compliance and reduce the requirements that are fostered on small businesses.

Another critical step is to increase the dialog among the agencies, to get them to be more understanding and more responsive to

the concerns of small businesses. And if we have time during the

questions, Mr. Chairman, I have an idea in that area. And the

message I finally want to leave with you is that paperwork burdens

are excessive, and they are dragging our small businesses down.

It is imperative that the Federal Government reduces in a tangible fashion the paperwork that requires of America’s 23.3 million

small businesses—legislation and agency initiatives are good

starts, but a real, credible, governmentwide drive to make this

process more workable is needed and needed now. Thank you for

your time.

[The prepared statement of Mr. Lindsay follows:]

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Mr. MCINTOSH. Thank you very much, Mr. Lindsay, and certainly I couldn’t agree with you more about the needed reforms and

legislation. I look forward to talking with you about those other

costs and disincentives that are included in there.

Our final witness on this panel is Mr. John Nicholson who is the

owner of Company Flowers, from Arlington, VA. Thank you Mr.

Nicholson for coming today.

Mr. NICHOLSON. My pleasure, and thank you for inviting us.

You’re pursuing a very important but a rather dry or a drab topic

of paperwork and procedures and taxes, and so I brought along

some flowers to try to brighten up the scene a bit.

Mr. MCINTOSH. Thank you.

Mr. NICHOLSON. Our shop, called Company Flowers, which is

known around here as the best little flower shop in Washington— to do a little advertisement—is like many other mom-and-pop

shops, family run. My wife is the chief designer and flower purchaser who goes down to the wholesale markets at 5 a.m., to hand

pick the very finest blossoms. My daughter runs our shop and is

constantly arranging our giftware, and the finest in customer service. And I handle the books, the promotion, and other tasks that

most of our people in our shop care not to do, such as testifying

before Congress.

The task before us today is to explain how the burdens of tax collection, which is of course never a happy process, have multiplied

and become especially burdensome. And let me point out three general areas that I wanted to bring to your attention: No. 1 is the

attitude of the enforcers. No. 2 is the difference among the different

business filers, between small and large corporations. And, No. 3,

the congressional responsiveness to special pleaders, which I think

has been mentioned earlier.

Regarding the attitude of the enforcers, our business grosses less than $1 million a year, but we spend close to $9,000 on CPA costs

alone. That doesn’t include the major costs of collecting the accounting data that leads to the numbers that the CPA uses. But

if I make a mistake or I decide not to pounce on each and every

little detail during any one month, it can affect my pocketbook or

it can affect my bank’s pocketbook.

But the greatest fear I have is that the IRS is going to come after

me for some simple mistake. That’s why I’ve interposed my CPA

between me and the IRS filings. I respect his interpretation of the

IRS rules, which I have difficulty understanding; and while there

are times that I’m less than thrilled by what he asks or says must

be done, at least I’m able to deal with someone who doesn’t possess

that police mentality. The presumption of guilt until proven otherwise is not the case, except with the IRS.

The second topic, difference among business filers, arises because

I compile my own employee income tax reports each month. If the

business were larger, I would ask for people more skilled than I to

do so, but the reality is I can’t afford it. Bigger businesses can afford their own bean counters, and they can plead their cases before

Congress more readily as well.

Because the big company managers are comfortable with procedures necessary for nationwide operations, they are at peace generally with IRS objectives or activities reflecting its large-scale naVerDate 11-MAY-2000 08:11 Jul 31, 2001 Jkt 010199 PO 00000 Frm 00156 Fmt 6633 Sfmt 6602 E:\HEARINGS\58810 pfrm04 PsN: 58810
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tionwide activities. But what’s sensible for the big guys doesn’t

often make sense for us little ‘‘do it at home’’ types.

The third major topic I wanted to bring to you is the congressional responsiveness to special pleaders. It may be not a very popular topic up here, but the reality is that our Tax Code is riddled

with loopholes. While we may laugh at the Tax Lawyers Relief Act

that often arises whenever there’s a change in the code, the fact is

those tax lawyer fees create business costs that must be passed

along to consumers.

Small business owners like myself can’t afford those special

pleadings, and I’m not sure that I would be comfortable asking for

any anyway. But what’s the solution? Well, while some changes in

law might result from some beneficial tinkering here and there, I

think what’s ultimately required is a major change, if not indeed

scrapping the Tax Code.

I’m a member of the National Federation of Independent Business, and NFIB has taken the lead, calling for an end to the Tax

Code as we know it today. I’m also a member of my florist association, FTD, and it’s a leading group of florists who provide your $8

billion in flowers from neighborhood flower shops. They too have

suggested let’s scrap the code and get on with something better,

more equitable and, most importantly, most simple.

We need to dump the Tax Code and find a better way. Exemptions aren’t the answer; revision is. Thank you and good luck.

[The prepared statement of Mr. Nicholson follows:]

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Mr. MCINTOSH. Thank you. And the momentum for that sentiment, I think, builds every year as the code becomes more and

more complex. Certainly I share it with you.

Let me ask each of you some basic questions for the record. What

are your estimates for the total number of hours and dollars you

spend annually, either as individuals or in your small businesses

to comply with government paperwork requirements? If you’ve got

a ballpark estimate of how many days out of your year it takes or

how many hours a week, that’s helpful for us to get an idea of the

magnitude.

Mr. Nicholson, I will just start with you and go down the line.

Mr. NICHOLSON. I was just thinking it probably is at least a day

and a half a month, so figure that out. You know, maybe some

more, but that’s about right.

Mr. MCINTOSH. Then on top, you mentioned an accountant’s bill

for about?

Mr. NICHOLSON. An accountant’s bill, right.

Mr. MCINTOSH. Mr. Lindsay.

Mr. LINDSAY. Mr. Chairman, I would estimate—I was just doing

the same calculation in my head—our bill for our CPA and our tax

attorney is going to be about $9,500 this year. And the amount of

time, I would say, we have a bookkeeper who spends time doing

this, but I would guess that it’s probably closer to 2 days a month

just in terms of paperwork and filing and other related requirements.

But I forget a payroll service that we also hire to be able to do

the tax reporting and all of the tax filing from employees in the deductions on their wages.

Mr. MCINTOSH. So that would be 2 days of your time and then

a full-time employee?

Mr. LINDSAY. A full-time employee and an outside service in addition to the accountant and the attorney. And we’re only a firm

of 9 people.

Mr. MCINTOSH. Ms. Hoff Hay. And, in fact, share with us your

story about the employee you had also.

Ms. HOFF HAY. OK. Mr. Chairman, I couldn’t even estimate, but

I would like to make the point of one of the aspects of time that

isn’t even reflected when you’re talking about how much time to do

the paperwork, is the time spent worrying about the paperwork,

that wakes you up at 3 a.m., and makes you lie there for 2 hours

worrying about it.

That’s a part of the time that’s not reflected in any government

report, and it’s real. And it’s a burden on our whole way of life, our

whole economy.

But anyway, I will just give you a thumbnail sketch about the

payroll tax burden to have one employee, which I had up until a

couple of months ago; and believe me, I’m rethinking if I ever want

to do that again. The filing of a payroll tax on a monthly basis— now I used to have to do it on a quarterly basis, and I was very

interested to see—to hear the Commissioner of the IRS say that

now for many small businesses, it’s back to filing on a quarterly

basis.

This I did not know. Of course, when I used to file it on a quarterly basis and they changed the rules and made me change over

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to a monthly basis, they informed me of this fact. So I don’t know

that I’m going to be—I will ask, do I get to switch over to quarterly

now or not? But I will just give you an example of the notices, because of my monthly reports, that I’ve received in the last month.

On March 15th, I got an IRS notice saying I had a credit balance in this one employee payroll account of $571, asking me, ‘‘How do

you want us to handle it?’’ On March 22, about a week later, I got

a notice saying, ‘‘Actually, you owe us $28.25 in this employee account.’’ Same day, March 22, another notice, same mail, ‘‘Actually you owe us $548.56 on this same employee’s payroll account.’’ On

April 5th, I got a notice saying, ‘‘No, you owe us $431.60.’’ None of these notices seem to match up with one another in any

way. I have to take the time to sort it out. Another time loss is totally on the horizon for me as I try to figure out are these my mistakes, are these the IRS mistakes? Perhaps they’re just a result of

the fact that the Tax Code is such a mess even they can’t figure

it out; I don’t know. But that’s the result for a person that has had

one employee.

Mr. MCINTOSH. Did you get those notices after you no longer had

the employee, or was the employee still with you?

Ms. HOFF HAY. Yes, afterwards.

Mr. MCINTOSH. Afterwards. So you weren’t obligated to make

any payments at that point?

Ms. HOFF HAY. These were for, you know, a month or two—when

you mess something up, it takes them several months to go back

to it, and then you get the notice about something that maybe is

not 90 days or 100 days old. So the paperwork from them takes a

long time to get to you.

Mr. MCINTOSH. Back to you.

Ms. HOFF HAY. To respond quickly though—— Mr. MCINTOSH. Mrs. Whitehead.

Ms. WHITEHEAD. Yes. I estimated—I had an economist from Purdue work with me, and we estimated the additional costs to our operation just for the regulatory paperwork—this doesn’t include any bookkeeping or IRS, and that would be as high as $2 a head—that

doesn’t mean anything to you—$2 a head per animal we produce.

Let me give it to you in these terms. In a normal year, pork pro- ducers receive anywhere from $2 to $8 per head profit on that animal. So if you took an average of $6 a head, I’m looking at spending up to 30 percent of my profits just for the regulatory burdens

that are implemented to me by both the State government and national government.

When you look—when you ask specifically for time committed— and I tried to do a little bit of background on this—in our operation, we spend anywhere from 20 to 25 hours a week on the total

burden of paperwork. Now that does include both IRS and—I’ve

tried to include everything. Now some weeks it’s much higher than

that. It almost doubles, but—— Mr. MCINTOSH. How many are there in your family working on

the farming operation?

Ms. WHITEHEAD. We have a farming operation. There’s my husband and myself right now. My son is a junior at Purdue, hoping

to come back to the farm, but he’s involved in part of that. And

then we do have 5 employees besides. So we——

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Mr. MCINTOSH. So 25 hours out of essentially a 7-person fulltime operation goes toward filling out paperwork each week——

Ms. WHITEHEAD. That’s right.

Mr. MCINTOSH [continuing]. Almost more than a half time of employee?

Ms. WHITEHEAD. On the farm we work——

Mr. MCINTOSH. More than 40 hours a week.

Ms. WHITEHEAD [continuing]. Longer than 40, yes. But I hope

that answers your question.

Mr. MCINTOSH. It does. It’s especially striking on the $2 a head

when you think about current prices or prices the way they have

been in the last 6 months, where you’re much below the cost of production. I think it reached as low as $16, $17 a head, wasn’t it?

Ms. WHITEHEAD. Some were down to $8. Some markets were recorded at $8.

Mr. MCINTOSH. If $2 cost goes just to the government paperwork

for environmental and other social regulation, it tells you exactly

how much burden there is for the farmer.

Ms. WHITEHEAD. What’s so frustrating is when they do inspections, they find there’s very little problem, and yet the burden increases.

Mr. MCINTOSH. Right. Let me turn now to my colleague, Mr.

Ryan, who is the vice chairman of the subcommittee, and ask him

if he has any questions for this panel.

Mr. RYAN. Yes. Mrs. Whitehead, I would like to ask you a couple

of questions. You said you do hogs, corn, soybeans, and what else?

Ms. WHITEHEAD. Wheat.

Mr. RYAN. I’m sorry. I’m sure you’re having a tough year. Commodity prices are at an all-time low. So your hog prices, you’re saying on your hogs, $2 a head. Are those contract hogs?

Ms. WHITEHEAD. No, sir. We’re an independent producer.

Mr. RYAN. You must be well below break-even with that. That’s

$2 of an additional cost that is probably not taken out of your profit

from this past year; is that correct?

Ms. WHITEHEAD. There was no profit this last year in hogs.

Mr. RYAN. That was $2 of additional costs on the losses you incurred on your hogs today from the paperwork burden?

Ms. WHITEHEAD. That’s correct. Just the regulatory arena, yes.

Mr. RYAN. Some of the things—and I will digress just for a second. I have a strong concern about rural America. I hope one day

your son who is a junior at Purdue can come back to the family

farm. But it’s my concern that what we’re doing here at the Federal Government is pushing the next generation of farmers into the

cities to work at banks, to work at businesses—great, wonderful

traits, wonderful professions—but we are pushing the next generation of farmers out of farming. And I think specifically you can

point at the regulatory burden and the tax burden.

We’ve talked about the regulatory burden in your testimony. I

would like to ask you a couple of questions about the tax burden

that is pushing the family farmer out of business, that is consolidating farms, and that is pushing the next generation of children

who grow up on farms away from being able to run their family

farms.

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What specifically are the tax provisions in the Federal Tax Code

that you think are the most onerous ones facing your farm?

Ms. WHITEHEAD. The first one that is going to jump to my

mind—and I don’t profess to be an expert about all the provisions,

because we spend about $10,000 a year on an accountant like most

of the others mentioned here—that is the inheritance tax burden.

It is very difficult for farmers to pass along anything to the next

generation because they have to sell it to pay the taxes. And like

I say, we are price takers, not price makers.

So the cost of our production has nothing to do with what we receive for our product. But that would be the No. 1 tax that stands

out for me as far as attempting to provide for the next generation.

Mr. RYAN. So when you hear people say that we have to keep the

estate tax in place, it must exist in law because it gets after rich

people, you just reject that notion?

Ms. WHITEHEAD. Absolutely.

Mr. RYAN. One thing that we did do in the Congress here is to

try and get income averaging back on a permanent basis. Is income

averaging something that is helping you with this burden a little

bit? Especially when you had such a bad year in the hogs, looking

at a bad year in soybeans, does income averaging help you?

Ms. WHITEHEAD. Yes, that was a vital tool. And I’m sure that

you’ve seen or will get the results of having implemented a great

deal of those this year. One thing I was surprised about, though,

because we were going to utilize that tool this year, is that it

doesn’t automatically happen with the filing. You have to utilize

your accountant for more procedures so that you can attain the

form to income average. It’s a whole new procedure, it——

Mr. RYAN. That’s exactly what I was getting at. So income averaging which allows you to write your losses off over a longer period

of time, how is that compliance? Are you saying that you have to

get more paperwork burdens involved, you have to get more fees

to your accountant to try and get income averaging on your books

so you can try and release the pressure that you’re hitting this

year? Is this adding a tremendous amount of costs? Do you know

quantitatively how much more you have to pay for an accountant

to help you get your income averaging lined up?

Ms. WHITEHEAD. Well, don’t misunderstand me, I appreciate the

tool. It’s good for agriculture, because we have to deal with the

weather and a lot of other factors that many other businesses do

not have to deal with. However, I was very surprised when my filing was completed—and in agriculture, March 1 is our filing date

instead of April 15th—when there was no attachment about income

averaging.

And I specifically asked my accountant and he said, ‘‘Oh, well,

that has to be done totally separately. It’s a whole new document.

I will get that done when April 15th passes.’’ So that’s a—that will

be another set of costs to go about providing or applying for a tool

that I thought should have come with the—been provided for in the

original filing.

Why does it have to be so complicated? It’s a good tool. But why

does it have to be so complicated?

Mr. RYAN. Thank you, Mrs. Whitehead.

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Mr. Nicholson, I wanted to ask you, you touched a little bit on

scrapping the code. And I think—Mr. McIntosh and I are both cosponsors of legislation to have a date certain in law, whereby we

would sunset the Tax Code, so Congress and the administration

would know when the Tax Code expires, and we would have to replace it or extend the existing Tax Code of that date certain.

Let’s suppose we do pass this bill that does set a date certain in

the future. What are some ideas that you have? What do you think

would be the best way to replace the current existing Tax Code?

Mr. NICHOLSON. Well, there are several proposals that have been

kicked around, and you’re more familiar with them than I am. I

can say one principle that I think is overriding and more important

than anything else is simplicity. You’re not going to get general

public support for—whether it’s a flat tax or a value-added tax or

whatever variations come down the pike, you’re not going to get

public support unless it’s simple. And that is, you know, the cardinal rule, No. 1. Whatever one is best, you know a lot better than

I do.

Mr. RYAN. But simplicity ought to be a guiding doctrine, no matter what.

Mr. NICHOLSON. Absolutely.

Mr. RYAN. Going on that point, Ms. Hoff Hay, I would like to ask

you an additional question. Were you here when Mr. Rossotti gave

his testimony—— Ms. HOFF HAY. Yes, sir.

Mr. RYAN [continuing]. Commenting on the issues of simplicity.

It sounds like your dealings with the IRS are anything but simplicity. What were your impressions of his testimony? Did you feel

as a taxpayer adequately assured that the IRS is doing everything

within their means to make sure that we have a simpler tax collection system; that the IRS is responding to the problems that we

have out here, problems such as yours? What was your reaction to

his testimony? Were your concerns allayed and could you just comment on that?

Ms. HOFF HAY. Mr. Ryan, I think my concerns could best be expressed by his comment about the fact that he sends out a survey

to a representative sample of people who have encountered the IRS

over the past year. I was the recipient of one of those independent

surveys from an independent survey research company.

Mr. RYAN. More paperwork.

Ms. HOFF HAY. I was pleased to get it. I filled it out. I vented

on that paperwork. I told the paperwork exactly—you know, it says

information—you know, put your comments here after you filled in

all the little boxes?

Mr. RYAN. Did they give you enough space on the comment form?

Ms. HOFF HAY. About this big. Boy, I wrote big and then extended it on another piece of paper. Then, when I was finished, Mr.

Ryan, I looked at it and I tore it up and I threw it in the trash.

I did not mail it back in, because for me, Mr. Ryan, the Internal

Revenue Service seems to be such a police force. It makes us feel

that they’re the Secret Service and they’re all out to get us. I

thought, I don’t want to send this in and make myself a target, and

that’s what I felt.

Mr. RYAN. You were concerned about retribution?

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Ms. HOFF HAY. That’s what I feel about being here today. I don’t

know if the other panelists feel the same, but I certainly do. That’s

why I said I’m here because it’s my American duty to be here, not

because I want to be here. So I did not even fill in that survey. I

threw it away.

Mr. RYAN. I hope that you won’t have any problems associated

with your testimony today. If you do, you’ll make an excellent witness another time around.

Mr. MCINTOSH. Rest assured it is the policy of this committee—

and we have had witnesses who appeared before us that feel as if

they have been harassed by an agency—and let me put it to the

record that this committee then is very vigorous in pursuing that,

and I will take it to the highest levels of this administration, if it

is your feeling that there’s been any retribution, any of you, for

coming forward today, because Congress needs this information in

order to do our job.

So we will definitely take steps, and have in the past, and gotten

the problems corrected. So thank you.

Let me mention one other thing, if I may, Mr. Ryan. Beside you

there is the stack of paper with the beautiful red ribbon around it.

It is a stack of paper that the committee put together when we

took forward the bill that Mr. Lindsay mentioned, the amendments

to the Small Business Paperwork Reduction Act. That is the compilation of all the forms that we were aware of that the small business has to fill out when they hire a new employee over the first

year of employment.

And, I will put into the record the list of the 22 different forms

that are there. They were provided to me by a small businessman

in Muncie, who asked his human resources person to just compile

all of the different forms that she has to fill out every time they

hire somebody. It is not—not incredible to me, sadly, that people

like you, Ms. Hoff Hay, make the decision every day not to hire

people because of that burden.

[The information referred to follows:]

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Mr. MCINTOSH. And, so it is one of the goals of this subcommittee to figure out which of those are duplicative, which we

can get rid of, which are not providing any benefit for the costs associated with it.

And, then a second point that you addressed, which is also in

that bill, is to relieve some of that worry factor by saying to a small

businessman or a small businesswoman, if you happen to make a

mistake in filling out all of that paperwork, we’re going to allow

you a chance to go back and correct it, rather than come in and

slap you with a fine.

You mentioned, Ms. Hoff Hay, that there was a penalty for one

of the filings that the IRS had received or claimed they didn’t receive when you had made the payment. Similarly, many of the

agencies also have penalties that they associate with not filling out

the paperwork correctly or not keeping the logs correctly on your

place of employment. Very simple, and it seemed to me straightforward, that we would allow small businessmen an opportunity to

correct it. So you put the government on the side of the business

coming in and pointing out errors and then giving them a chance

to correct it.

My experience is that the vast majority of small businessmen

and farmers in this country want to comply with all of these rules

and regulations. They find them to be a headache, but in the same

way you expressed, Ms. Hoff Hay, they view it as a duty essentially, and they’re law-abiding citizens.

I was shocked when some of my colleagues on the House floor

came in and said, but if you do that, you allow people, criminals,

to get off the hook. Their view of America’s small businessman and

small businesswoman is that they’re potential criminals. Our view

is that they’re decent people, trying to get a job done, trying to hire

people and putting up with an enormous burden of paperwork put

out by the Federal Government to do that.

So we are now working with the Senate to try to move that legislation forward, but I wanted to give you an update, and show for

those of us here exactly the magnitude of the paperwork that goes

with each new employee that a small business hires in America.

So I appreciate all of you coming today and sharing your testimony with us. I have no further questions for this panel. Mr. Ryan,

do you?

Mr. RYAN. No, Mr. Chairman.

Mr. MCINTOSH. And I truly do appreciate your willingness to

come here. Some of the things that you pointed out will lead to

questions directly to the IRS Commissioner that the committee will

be sending forward. I want to find out exactly what their policy is

on some of the examples that you’ve brought forward and to some

of the other agencies. And, we will keep you informed on the further information that we gather in that process. Thank you.

Ms. HOFF HAY. Thank you.

Ms. WHITEHEAD. Thank you.

Mr. MCINTOSH. We have one more panel today. And I would ask

Ms. Anne Thomson Reed to come forward. She is representing the

U.S. Department of Agriculture and is the Chief of the Office of the

Chief Information Officer. So I guess you are the Chief Information

Officer.

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And let the record show that Ms. Reed was sworn in along with

the other witnesses at the beginning of the session. Share with us

your testimony. The entire written testimony will be put into the

record, so feel free to summarize key points for us today.

STATEMENT OF ANNE F. THOMSON REED, CHIEF INFORMATION OFFICER, DEPARTMENT OF AGRICULTURE, ACCOMPANIED BY KEITH KELLY, ADMINISTRATOR, FARM SERVICE

AGENCY

Ms. REED. Thank you. Chairman McIntosh, Mr. Ryan, I want to

thank you for inviting me here to share with you actions that are

underway at the U.S. Department of Agriculture to reduce the paperwork burden on America’s citizens and particularly on farmers.

With me today is Mr. Keith Kelly who is the Administrator of the

Farm Service Agency. And with your permission, in addition to my

formal statement, I would like to submit for the record a statement

by Mr. Kelly as well.

Mr. MCINTOSH. Seeing no objection, that statement will also be

included in the record.

Ms. REED. Thank you. USDA’s diverse programs include food

safety and inspection, food nutrition programs, programs to create

jobs and support the infrastructure of rural America, natural resources and conservation, research and education, and of course

programs to support America’s farmers.

We are committed to streamlining program delivery while preserving fiscal integrity and preventing fraud, waste, and abuse. In

fiscal year 1998, citizens spent approximately 84 million hours—

and that does include the hours associated with the expired collections—providing information to USDA and fulfilling recordkeeping

requirements.

By the close of fiscal year 2000, we estimate that we will reduce

the actual paperwork burden to the public by approximately 6.2

million hours, which should bring the total to about 77.8 million

hours. A key aspect of USDA’s mission is to provide financial and

technical assistance to farmers.

This year with the supplemental passed by Congress, USDA will

provide about $31 billion in farm assistance. While we are deeply

committed to helping farmers through this farm crisis, as with any

financial institution, there are necessary requirements for assuring

eligibility and for meeting our fiduciary responsibilities to prevent

fraud, waste, and abuse.

In short, we want to be sure that the money goes where it’s supposed to, to help farmers in need. The agencies which deliver programs through USDA’s county-based Service Centers, the Farm

Service Agency, the Natural Resource Conservation Service and the

three Rural Development Agencies have a number of initiatives underway to reduce the paperwork burden on farmers and rural citizens.

Projects underway include developing common geospatial maps

and data that will allow greater sharing of land and crop information between partner agencies as well as external entities; an initiative to eliminate the need for customers to provide the same information more than one time by sharing it among agencies; and

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providing electronic on-line information services to customers, employees, and partners of USDA.

In fiscal year 1998, the Farm Service Administration’s Farm

Loan Program area initiated a comprehensive regulatory and program reengineering effort which will conclude in September 2002.

FSA’s loan making and servicing processes as well as documents

associated with both the direct and guaranteed loan programs are

being reviewed to eliminate redundant and unnecessary processes.

This year the application form for the Guaranteed Loan Program

was cut from 12 pages to 6, and the amount of supporting documentation was reduced. Before the change, applicants spent an estimated 2 hours on the form; today it should take about 30 minutes. Recently implemented programs such as the Small Hog Operation Payment Program, the Dairy Market Loss Assistance Program, which began this week, and the Crop Loss Disaster Assistance Program have been deliberately structured to minimize paperwork requirements.

In each of these recent programs, the forms should take about 15

minutes to complete and are available over the Internet as well as

through the county office.

In fiscal year 1997, the Rural Housing Service streamlined the

regulations for the Single Family Housing Program. By developing

one consolidated regulation and revising the associated information

collected, the agency collectively reduced participants’ paperwork

burden by over a million hours. To obtain the full benefit from any

of these projects, USDA must continue to invest in new technology.

The current computer systems used by the agencies and the

Service Centers are not interoperable, and therefore present a real

barrier to information sharing. The President’s fiscal year 2000

budget proposal contains funds for accelerating the acquisition of

the needed technology and continuing support for developing common business operations.

Other significant accomplishments have been made in the food

stamp program and programs administered by the Grain Inspection, Packers and Stockyards Administration and the by the Rural

Housing Service.

In conclusion, the Department will continue to work toward full

compliance under the Paperwork Reduction Act and toward achieving the goals set by the act and by the Office of Management and

Budget. With your assistance, we will continue to move forward in

delivering better customer service with minimal paperwork burden.

Thank you, Mr. Chairman.

Mr. MCINTOSH. Thank you, Ms. Reed. And, we will include the

full testimony into the record.

Ms. REED. Thank you.

[The prepared statement of Ms. Reed follows:]

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Mr. MCINTOSH. Let me ask you about these unauthorized paperwork information collections. And, I take it there are 110 from the

Department of Agriculture that have been revealed. You mentioned

the 84 million hours reduced down to 77.8 million. Are any of those

reductions accounted for in collections that have expired but continue to be used by the agencies?

Ms. REED. The numbers that I gave you in my testimony reflect

the full amount of the burden, which includes both the approved

and the expired collections. So what I’ve reflected in terms of a decrease is the true decrease in burden. We anticipate making good

on those expired collections. I think we ought to focus on the real

burden. We will commit to taking care of the administrative problem that we have, but what you see is the real burden reduction.

Mr. MCINTOSH. Is it the agency’s intention to have those expired

ones reapproved? I mean, are there forms the agency wants to continue using?

Ms. REED. Absolutely. And in the case——

Mr. MCINTOSH. Is that in all cases or in most cases?

Ms. REED. No. It is our intention to move forward. Now, there

have been some forms that we have made a determination that we

do not require. The number, by the way, that I have is I’m not sure

where the 110 number comes from is, I will have to go back and

understand the GAO’s figures. In fact, there are several things in

there that aren’t consistent with the information that I have.

I will say that as of April 15th, we have 5 actions that are at

OMB now pending their review. We have about 18 that are within

my office, in various stages of review and discussion with the agencies. And 28 that are yet to be filed with my office by the agencies.

I have required every agency within USDA to submit a remediation plan for their expired collections. It is our intention to do everything we can to make good on those by the end of this fiscal

year.

Mr. MCINTOSH. OK, good. I think the 110 are listed in the OMB

report. But if you could go back and get ahold of that annex and

the staff will provide what we’ve got.

Ms. REED. I will do what I can to reconcile those numbers.

Mr. MCINTOSH. Talk to OMB and talk to GAO. We’re holding the

record open for 10 days, so if you could get us back something in

writing on the reconciliation of that, that would be helpful.

Ms. REED. Surely.

[The information referred to follows:]

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Mr. MCINTOSH. Let me ask you one other question. Then I’m

going to turn it over to Mr. Ryan to finish chairing the hearing.

We talked briefly in one of the previous panels about perhaps

putting in some teeth to the bill. And, I guess I’ve got a two-part

question. Do you see some of the problems that have occurred arising essentially from the subunits at the Department not being responsive, or would you attribute some of the problems being the

interaction between you and OMB? I guess, where in the link do

you—because it strikes me you’re in the middle there.

Ms. REED. Let me just share with you some of my experience

with OMB. I will not forget one of the very first meetings when I

came to the Department. This was well before I was the Chief Information Officer. But I was summoned into the office of Sally

Katzen, who at the time was the head of OIRA, and she absolutely

read the Department the riot act. I mean, this was a good many

years ago.

We came back and we thought we had taken sufficient action to

correct that problem. I will tell you in the subcabinet meetings that

I’ve attended with the Secretary of Agriculture, the subject of paperwork reduction and the importance of this to the administration

came up time and again. And it was my understanding that, in

fact, it has been the subject of discussion in the President’s Management Council, which is chaired by the Vice President.

I don’t have personal knowledge of that in having attended those

meetings, but I will tell you that those things rolled downhill, and

they rolled right into our subcabinet meetings. So I know there has

been administration attention to this.

Looking at it from the perspective of our agencies, it is a challenge to get them to focus on paperwork reduction. There are so

many things on their plate right now. The Department has gone

through extensive downsizing over the last 5, 6 years, really extraordinary downsizing. And we are faced with delivering increasing numbers of programs. The legislative mandates just keep coming.

Right now we’re in the midst of a very serious farm crisis. I

think that Keith Kelly can share with you, if he has to choose between getting a paperwork requirement in and serving the customer, he’s going to serve the farmer. But I will let him speak

about his commitment to paperwork reduction even in the face of

that.

Mr. KELLY. Mr. Chairman, Keith Kelly, Administrator, Farm

Service Agency. And to the example that the lady that was here

testifying, the hog operator that had hogs here, we implemented almost overnight a $50 million hog program. And we’re doing all of

these emergency programs, the Dairy Assistance Program, a Livestock Assistance Program, a Major Disaster Program, and we’re

doing it with the same staff resources as in fiscal year 1998. At

headquarters its about a 33 percent cut of staff resources in the

last several years and about a 28 percent cut in the field.

But the dollar outlays have increased significantly. The decision

comes down to making sure she gets her payment, as was intended

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by Congress when you passed the disaster legislation at the end of

Congress last year, or to get to these other things. And, regrettably,

the Paperwork Reduction Act, that went down the priority scale,

that’s the logical place we went.

[The prepared statement of Mr. Kelly follows:]

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Mr. MCINTOSH. I appreciate your candor there. And, I understand the bind that puts you in. So perhaps we need to then look

at whether to make that a more important priority is including

that in some of the performance standards, not only for Ms. Reed

but others throughout the Department. And, recognize—frankly,

I’m a big believer in using incentives—so you can recognize in the

bonus that’s paid at the end, rather than necessarily on a punishment side. If you’re taking on extra jobs, maybe people are staying

extra hours and making sure they get the paper done, have that

reflected there.

Mr. KELLY. Mr. Chairman, I would like to raise another issue

along this line as well. You know, sometimes in some of these Paperwork Reduction Act projects, we’ve got a major one I know we’re

at odds with OMB and it’s that’s been out for quite some time. We

should be following their rules and we should be taking it seriously, which we are trying to do. However, while we have been

working with the Office of Management and Budget in this process,

and there’s been good people in these different agencies with different approaches, sometimes it’s just differences of opinions.

And part of the thing is that sometimes—what I think I would

raise a question with is if you don’t get it in in time and you are

in violation of the law, that there’s another law that is to be violated if you don’t collect some of this information somehow, and

that leads to a dilemma: Which law do I break today? And that

needs to be put into consideration of any incentive program.

Otherwise——

Mr. MCINTOSH. Is there an appeals process if the agency and

OMB are at loggerheads on a paperwork collection item? Does the

administration have a mechanism where they bump it up into the

Cabinet? We used to have the Competitiveness Council when I was

in the administration, I know they don’t anymore, but is there a

process there where you can do that?

Ms. REED. I would have to say that it is very much the exception

and not the rule that we have this kind of discussion. We work it

at the staff level, and we work it at the senior policy level. In this

particular instance, the Secretary himself is prepared to get engaged. So you do move through a process of ratcheting up and trying to get closer.

Mr. MCINTOSH. And, the Director of OMB, if they can’t work it

out, then I guess you go to the President at that point?

Ms. REED. Hopefully it will not get there.

Mr. MCINTOSH. Hopefully you don’t have to take those things to

him. I know what you mean. You want to try to solve what appear

to be smaller questions. Sometimes there are larger questions reflected in there. So I appreciate that.

And let me now turn it over to Mr. Ryan to finish out this hearing. Thank you both for coming and thank you for your candor and

sort of getting a feel for the dynamics of how this is working. And

I appreciate it.

Mr. RYAN [presiding]. Thank you for coming by, Mrs. Reed. I appreciate both of—and thank you for your candor. That’s refreshing

sometimes. It wasn’t what you want to hear, but at least it’s an

honest answer. I really appreciate that.

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I wanted to ask you a quick question. Since OMB’s standard

form for agencies to request Paperwork Reduction Act approval includes the question, Are farmers going to be burdened? Have you

done a cross-cutting analysis with other agencies that affect farmers with respect to paperwork burdens?

We just heard testimony from Miss Whitfield, hog farmer from

Indiana, I think she was from Muncie, where she had a paperwork

burden placed upon her from other agencies.

Have you taken a look at it from the farmer end and taken a

look at some of the paperwork burdens imposed on them, and have

you coordinated with these agencies to try and reduce that burden?

Ms. REED. Let me answer that in several ways. First, with respect to the issue that she addressed: The Department of Agriculture did engage in discussions with EPA in developing the strategy for animal feeding operations. We did what we could, I think,

to try and represent, to get a balance in that strategy.

Mr. RYAN. At the other agencies?

Ms. REED. With, in this case, EPA. I believe that we will, in fact,

be able—the final strategy does, in fact, address some of the issues

that she raised. We can go into that later for the record. In other

respects, I have looked—well, I will not say I spent a lot of time

at this, I will be very honest about that, but I have looked at the

information that OMB provides on other agencies and how they affect farms.

Quite frankly, from the data that is there, it’s really very difficult

to get a handle on what the actual extent of that is. To do that,

we would need to do further study, and it really may be something

that we should do. But when I look at that, the other major players

are: Internal Revenue Service, very clear; EPA, we’ve talked about

that; the Department of Transportation, that was one that I sort

of scratched my head a little bit over, and when I looked at that

in more detail, there are things like aircraft operations that many

of the farms have. So there are things that are in that arena.

But given the data that is available to me today, it’s very difficult to parse out exactly what the level of burden is on a farmer,

because the way in which OMB collects it—those forms are filled

out by anybody. They say it affects some farmers but I don’t know

how many, so——

Mr. RYAN. As the USDA, as the ombudsman for the farmer, I understand it’s a fairly complicated burden, what I’m hearing. What

you’re essentially saying, it’s just not as high on the priority list,

given the fact that you’re structuring and you’re trying to do other

things. It doesn’t sound like it’s very high on the priority list, I understand. I appreciate your candor.

Do you see the eventuality of this getting knocked up on the priority list of doing sort of an assessment of the nature that we were

just talking about here?

Ms. REED. Let me say that reducing paperwork and doing what

we can to support the farmers is a priority for us. We juggle the

priorities in how best we can support farmers, but it is very much

a Department priority to do what we can and get it engaged when

we see that there’s a regulation that’s going—whatever department

it is—that is going to affect farmers.

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Have we done a specific study on paperwork reduction across the

board for farmers? No. Are we engaged with other agencies in efforts for paperwork reduction? Yes. In the geospatial area, we see

so much potential advantage in shared information. We are active

participants, not just across the agencies within USDA, but across

the Federal Government. There’s a group that’s working to assure

that we have common standards for how we collect that information so that we can use it jointly, not even just within the Federal

Government, but also working very closely in tandem with the

States and the counties and the other levels of government, so that

we can collectively reduce the burden. So we do have a commitment in this arena.

Mr. RYAN. Acknowledging your commitment, when will that commitment be honored, in your opinion? It’s my understanding that

OMB’s draft report identifies no planned USDA paperwork reduction initiatives to benefit farmers in fiscal year 2000. Since that—

I understand your commitment is there. When should we expect

that commitment?

Ms. REED. Well, there are several sections to the OMB report.

There is a section that from which I believe you note 5 initiatives

where we show the burden of reduction. But in a second section of

the report, we do address a series of initiatives that are underway

at the Farm Service Agency. We have not yet pieced out exactly

what the burden reduction will be. But there are some very serious

initiatives.

Mr. RYAN. That’s what comes to the farmers, I think.

Ms. REED. But they will result in a burden reduction. We just

haven’t quantified it. So, Keith, if you could share something.

Mr. KELLY. Yes, Mr. Chairman. Our agency is sponsoring a companion initiative with the other primary agencies that deliver services in the field: the Natural Resources, the Rural Development

and ourselves. And that whole effort is just to get to a common reduced paperwork process—I don’t want to be misunderstood, because it is a priority—it is to let farmers farm, not fill out papers.

That is a goal at the agency.

And I would like just to reference the statement that Secretary

Glickman gave to us on this whole initiative, which is being shared

by our agency, but shared by all of the agencies, that information

is collected once and shared many times by USDA Service Center

employees and, where appropriate, with other public and private

entities.

Part of the things we feel are going on out there, is that we’re

going out and collecting information, they’re going out and collecting it, somebody else is collecting it, and a third of the information is all overlapping each other. We are given the appropriate

computer technology resources to go with the initiative, we have

great confidence that the one Ms. Reed referred to in there,

geospatial and that whole technology, that we can make significant

savings to ourselves as well as to the farmers.

With our employment situation we have now, very selfishly,

we’re trying to get what we can off our plates for ourselves as well

as to our customers. I think that’s our goal. It is a priority here.

I don’t want to downplay it wasn’t.

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It’s when you get in a crunch, you set priorities on a day-to-day

basis, or sometimes week to week because of the crisis.

Mr. RYAN. I am sure we can see some additional actions soon. I

want to ask you one more quick question. You briefly talked about

the hog situation, the comprehensive nutrient management plans.

Could you give us some more details on that, how that paperwork

burden will be alleviated? I hear from hog farmers throughout Wisconsin—we have a lot of independent producers—this is going to

cost them about $300 to $1,500 to comply.

It sounds like you’re in the midst of fulfilling the national strategy. I understand you may not have the answer right now, but

could you please provide us with the answer or with the efforts to

reduce the paperwork burden with the new management plans?

Ms. REED. I would be happy to provide that for the record.

[The information referred to follows:]

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Mr. RYAN. All right. Thank you very much. Since there are no

more questions, this hearing is adjourned. Thank you for coming.

Ms. REED. Thank you.

[Whereupon, at 5:22 p.m., the subcommittee was adjourned.]

[The prepared statement of Hon. Jim Turner and additional information submitted for the hearing record follow:]

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