[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]




                 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

                                 ______

                    U.S. GOVERNMENT PRINTING OFFICE
58-810 CC                   WASHINGTON : 1999




                     COMMITTEE ON GOVERNMENT REFORM

                     DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York         HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland       TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut       ROBERT E. WISE, Jr., West Virginia
ILEANA ROS-LEHTINEN, Florida         MAJOR R. OWENS, New York
JOHN M. McHUGH, New York             EDOLPHUS TOWNS, New York
STEPHEN HORN, California             PAUL E. KANJORSKI, Pennsylvania
JOHN L. MICA, Florida                PATSY T. MINK, Hawaii
THOMAS M. DAVIS, Virginia            CAROLYN B. MALONEY, New York
DAVID M. McINTOSH, Indiana           ELEANOR HOLMES NORTON, Washington, 
MARK E. SOUDER, Indiana                  DC
JOE SCARBOROUGH, Florida             CHAKA FATTAH, Pennsylvania
STEVEN C. LaTOURETTE, Ohio           ELIJAH E. CUMMINGS, Maryland
MARSHALL ``MARK'' SANFORD, South     DENNIS J. KUCINICH, Ohio
    Carolina                         ROD R. BLAGOJEVICH, Illinois
BOB BARR, Georgia                    DANNY K. DAVIS, Illinois
DAN MILLER, Florida                  JOHN F. TIERNEY, Massachusetts
ASA HUTCHINSON, Arkansas             JIM TURNER, Texas
LEE TERRY, Nebraska                  THOMAS H. ALLEN, Maine
JUDY BIGGERT, Illinois               HAROLD E. FORD, Jr., Tennessee
GREG WALDEN, Oregon                  JANICE D. SCHAKOWSKY, Illinois
DOUG OSE, California                             ------
PAUL RYAN, Wisconsin                 BERNARD SANDERS, Vermont 
JOHN T. DOOLITTLE, California            (Independent)
HELEN CHENOWETH, Idaho


                      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                 DENNIS J. KUCINICH, Ohio
BOB BARR, Georgia                    TOM LANTOS, California
LEE TERRY, Nebraska                  PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  BERNARD SANDERS, Vermont
HELEN CHENOWETH, Idaho               HAROLD E. FORD, Jr., Tennessee
JOHN T. DOOLITTLE, California

                               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

   Subcommittee on Government Management, Information, and Technology

                   STEPHEN HORN, California, Chairman
JUDY BIGGERT, Illinois               JIM TURNER, Texas
THOMAS M. DAVIS, Virginia            PAUL E. KANJORSKI, Pennsylvania
GREG WALDEN, Oregon                  MAJOR R. OWENS, New York
DOUG OSE, California                 PATSY T. MINK, Hawaii
PAUL RYAN, Wisconsin                 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




                            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

 
                 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 underlying 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.
    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:]
    [GRAPHIC] [TIFF OMITTED] T8810.001
    
    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 paperwork 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 interest-dominated 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.
    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 
paperwork-reducing 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 paperwork 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:]
    [GRAPHIC] [TIFF OMITTED] T8810.002
    
    [GRAPHIC] [TIFF OMITTED] T8810.003
    
    [GRAPHIC] [TIFF OMITTED] T8810.004
    
    [GRAPHIC] [TIFF OMITTED] T8810.005
    
    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 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 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, 
4\1/2\ 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.
    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 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?
    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.
    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 actually 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.
    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 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 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.
    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?
    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 
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 identify 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 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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    [GRAPHIC] [TIFF OMITTED] T8810.040
    
    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.
    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.
    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 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 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 reduction 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 frequency 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
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 need to stay in business, makes the restructuring 
initiative a high-risk 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 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 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.
    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 between 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 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:]
    [GRAPHIC] [TIFF OMITTED] T8810.089
    
    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.
    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 two-thirds 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 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, date-stamped 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 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-preferred 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 nationwide 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 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 producers 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----
    Mr. McIntosh. So 25 hours out of essentially a 7-person 
full-time 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.
    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.
    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?
    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.
    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 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
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.
    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.
    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.
    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:]
    [GRAPHIC] [TIFF OMITTED] T8810.141
    
    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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