AUDITING THE IRS
APRIL 11, 1997
Experts discuss why the GAO is calling the IRS a "high risk" agency, rife with waste, fraud, abuse, and mismanagement. What's more, employees have been caught snooping confidential returns. A background report is followed by a panel discussion.
MARGARET WARNER: Now a debate on what's wrong with the IRS, and what it will take to fix it. Sen. Charles Grassley, Republican of Iowa, sits on a Senate Subcommittee that oversees the IRS. David Keating is executive vice president of the National Taxpayers Union. Robert Tobias is president of the National Treasury Employees Union, which includes IRS workers.
A RealAudio version of this NewsHour segment is available.
April 11, 1997
A background report on the embattled IRS.
October 3, 1996
Kwame Holman reports on two dueling tax plans .
Sept. 29, 1996: On PBS Debate Night, the four Congressional leaders debate tax cuts.
March 7, 1996: Paul Solman reports on the history of taxes--and anti-tax sentiments.
January 17, 1996: A debate on changing and flattening theU.S. tax system.
The NewsHour Economy Page.
The three of them are also members of the National Commission on Restructuring the IRS, which is due to release its recommendations this summer. Joining them tonight is former IRS Commissioner Don Alexander, who headed the agency from 1973 to 1977. He is now a partner at the Washington law firm of Akin, Gump, Strauss, Howard, & Feld. Good evening, gentlemen. Mr. Alexander, that was quite an indictment we just saw of the IRS. Do you think it's a fair charge to say this agency's in crisis?
DON ALEXANDER, Former IRS Commissioner: No. I think that's vastly overstated. I think the IRS has come through the current filing season extremely well. I think Congressman Portman, for whom I have great respect, was talking about last year, not this year. I think the numbers and percentages he gave are up on both counts: access and reliability of information. The IRS is not in crisis. A lot of people I think wish it were because they have a different agenda, they want a different tax system.
MARGARET WARNER: Senator.
SEN. CHARLES GRASSLEY, (R) Iowa: Crisis or not, there's a bipartisan agreement on the commission, and I think it'll extend to a great deal with Congress that the territory needs to be reform, and there will be reform at the IRS, and that's good news for the taxpayers as they sit down around the kitchen table this weekend to put the final touches on their income tax form.
MARGARET WARNER: But if you had to sum up what you think is the problem, what is it?
SEN. CHARLES GRASSLEY: It falls into three or four categories. Organizations needs to be changed. Leadership needs to be changed, particularly business management type leadership as opposed to tax lawyer leadership. Taxpayers bill of rights needs to be passed. We need to make the organization more user-friendly, and customer friendly, and most importantly, and not the fault of the IRS, and that is the tax code needs to be tremendously simplified because Congress has created a terrible situation for the one hundred and some thousand employees at the IRS who are very dedicated employees to doing their job as well as they could; if we simplify the tax code, they'll do it much better.
MARGARET WARNER: Mr. Keating, as head of a group that speaks for taxpayers, how serious do you think the problems are, and what do you think are the main problems?
DAVID KEATING, National Taxpayers Union: Well, I think they are quite serious. I would agree with Don Alexander that there's not a crisis in the agency. Most people probably will not notice anything. They'll send their return in; they'll get their refund; and that'll be the end of it. But I think the number one problem is the tax law, itself. We have a tax law that even Don Alexander, or anyone else for that matter, can't comprehend in its entirety; the IRS can't understand it; and a lot of tax practitioners can't keep up with the constant changes. So I think the number one problem is the tax law, itself.
Another problem, very important problem, is that we're not measuring the right things. And the IRS constantly gets different directions from Congress and from the Treasury Department. In fact, I think that's one of the problems. Over time there's no consistent management or direction for the agency. Commissioners often come and go very quickly, and the Treasury Department, unless there's a real problem, often doesn't get involved to help straighten things out.
MARGARET WARNER: All right. Mr. Tobias, as heads of the group that represents the workers there, how do people who work there see it?
ROBERT TOBIAS, National Treasury Employees Union: Well, clearly, the Internal Revenue Service in some aspects has lost its way. I believe and I think the people who work for the Internal Revenue Service believe that providing service to compliant taxpayers is critically important, and providing service to those who desire to be compliant is important. And yet, the tools are not available to provide that kind of service.
MARGARET WARNER: All right. Let me ask you about that right now. Explain to me why--I mean a lot of taxpayer say, you know, I can call, if I have a problem on my Visa bill, I can call up, I can get someone on the phone, I can give them my number, they can call up the record, and it's there. And we can solve the problem. What does someone working at the IRS have to go through? Why can't they operate that way?
ROBERT TOBIAS: Well, there are two problems. First, there's not enough equipment, nor enough people to answer the phones. Right now the level of access is 52 percent. Congress seven years ago decided to do away with customer service, and we're only now restoring customer service in the IRS, so I think Congress takes some responsibility for that.
But second, a person who's answering the phone from the taxpayer does not have the information available. If you work for American Express, the bill comes up in front of you, adjustments can be made, and the customer can go away happy. With the IRS, there are nine different databases that have to be searched, each individually often, to provide an answer to a taxpayer, and that's no good.
MARGARET WARNER: Mr. Alexander, give us a little history here. When you were head of the IRS, you all, back in the 70's, you wanted to completely change the computer system, is that right?
DON ALEXANDER: Absolutely. We wanted to have an efficient computer system that could deliver the type of service that all of us at this table want IRS to deliver. Did we get it? No. The reason we didn't get it was not because we didn't know how with the aid of some smart consultants, how to design a system. The reason we didn't get it then was because people did not want the IRS to be super efficient. When I testified before Congress at that time, and told Congress that we could call up on a screen the taxpayer's account just as Bob Tobias mentioned, and correct the taxpayer's account with one telephone call online, they were worried about Big Brother. They didn't want Big Brother watching them.
MARGARET WARNER: And this was right after Watergate, was it not?
DON ALEXANDER: This was right after Watergate at a time when IRS was perhaps in crisis, if it's ever been in crisis, and at a time that people were deeply concerned about taxpayer privacy and about overly intrusive government.
ROBERT TOBIAS: It's also important, I guess, to keep in mind when we talk about the IRS in crisis the fact of the matter is, is that the IRS is processing more returns, paying out more refunds, at less cost every single year. The cost per hundred dollars collected has declined by 18 percent in the last four years. If we were a private sector corporation, there would be at least mild applause with revenues going up and costs going down.
MARGARET WARNER: Would you agree that Congress both before you were there and you've been today does deserve quite a bit of the blame for not giving it sufficient resources?
SEN. CHARLES GRASSLEY: Absolutely not from this standpoint. Last year was the first time after 20 long years in a row that the IRS didn't get more money every year than the previous year. Too long we thought that more money was the answer, but better management is the answer. You can do more with less. The other thing is we had lots of people from the IRS testify before us that if Congress had not made that change last time, not giving them the additional money they wanted, there never would have been a signal got through the IRS that things were bad and they needed to change it, and it has changed the nature of things in the IRS to looking at the necessity for reform.
MARGARET WARNER: Okay. Let's now update the history from the mid 70's to the mid 80's. There was a point in the late 80's, was there not, when Congress did appropriate quite a bit of money to revamp this computer system? $4 billion has been spent, and it's failed. Why?
SEN. CHARLES GRASSLEY: And the IRS report that you've had on your program here already is that it--that it was a waste of money. It wasn't spent wisely. Now, the testimony that we've gotten before our commission would be this simple; that the IRS has been reluctant to go outside to get advice. There--not only in the area of computers but so many areas there's so much in-breeding within the administration. And that's why there's a bipartisan agreement that the administrative setup needs to be changed, and that we ought to be looking wider than just a tax lawyer to be head of the IRS.
MARGARET WARNER: Do you agree with that, that one of the problems was that IRS did not call in essentially an outside contractor to install a whole new system?
DAVID KEATING: Of course. They didn't try to build their own computers on the spot. But this is a problem we see throughout the government, not just the IRS. If you look at the Federal Aviation Administration, they're still using vacuum tubes in many of their computer equipments and such. So this is a government-wide problem, but certainly the IRS has had a huge amount of money spent with very little to show it for in the way of modernization, and I think it gets back to the way the agency is managed. Consider there are only two people that come in from the outside through the political process. That has its advantages because you don't have any political control of the agency, itself, and the problems might come from that.
On the other hand, you have very little outside input into the agency, itself. The top 200 senior managers, I think there are only six that have been less--in there for less than 15 years. Art Gross is the new chief information officer. By all accounts he's doing a great job. He's one of a handful of people that have been brought in from the outside. And he's helped shape things up, so I think the IRS needs to look more to outside talent to bring in new ideas to help reinvigorate the agency, and take different approaches to solving problems.
MARGARET WARNER: Let me let Mr. Alexander in this.
DON ALEXANDER: Two things. No. 1, that $4 billion has been thrown around--not tonight--everybody's discussed it very carefully and sensibly. But in certain fund-raising letters that I've seen it's said it's a total waste. That is absolutely not the case. In the first place, the number is less than $4 billion.
Secondly, the part that isn't in use of the $4 billion spent part, is about $750 million. That's a lot of money. About $250 million out of that is going to be salvaged, so the government is going to lose $500 million. Now, that's a lot of money, I agree, in eight years, but there's a lot less than Quaker Oats' loss on Snapple in less than three years. So the private sector isn't perfect either. We expect a lot out of the government. We got a lot out of the government.
We ought to get more. I'm not going to say that the IRS is perfectly managed. I think it's well managed by the current commissioner. And I'm sorry she's leaving. But IRS is somewhat insular--David Keating is absolutely right, but David Keating pointed out that the IRS needs to stay non-political, and I hate to see anything happen to IRS that would politicize it again. It was politicized before I got there.
DAVID KEATING: I don't think anybody--I think everyone agrees that you don't want to politically control IRS as far as the dangers and the potential for abuse, but I think there needs to be a consistent accountability for the agency to meet certain customer service goals, to meet other modernization goals. And fact is commissioners have come and gone very quickly over time. Now Peggy Richardson, the current commissioner, has been there for about four years, and that's almost a longevity record. The fact is you can't manage an agency if you come there and if you've gone in eighteen to thirty months. And that's the kind of management we've had for quite a while. We need some continuity.
ROBERT TOBIAS: There's no question that the tax system's modernization effort has very serious problems. But the fact of the matter is that much of the IRS runs well. For example, in 1995, Congress allocated a compliance initiative. IRS promised to collect 300 million dollars in the first year and collected $800 million, hired 5,000 people, trained them, geared up, and then Congress killed it in 1996, so what we have is mixed messages from Congress, mixed messages from the Treasury Department to the people who are doing the work.
MARGARET WARNER: All right. Let me ask you, for the people who are doing the work, how do they and you feel about Mr. Keating's point that you do need to bring in some outside talent?
ROBERT TOBIAS: I agree. I agree that the Internal Revenue Service over time has become insular and has not integrated new ideas about how to do it, and how to, more importantly, how to improve word process and word procedures.
SEN. CHARLES GRASSLEY: Let me speak why Congress killed the compliance effort. We were going to put $750 million more into that compliance effort. We had an agreement with the IRS that we were going to pass a taxpayers bill of rights because there's got to be a balance between compliance and taxpayers' rights. We got all of that through the Senate, and they pulled out their support for the taxpayers' bill of rights when it went to the House, and we aren't going to give them the money unless it's balanced with taxpayers' rights.
MARGARET WARNER: Let me ask you a question.
DAVID KEATING: It passed. The taxpayers' bill of rights did pass.
MARGARET WARNER: Let me ask--gentlemen, it's pretty complicated to explain. Let me ask one other question here because we're just about out of time. Mr. Alexander, what do you think--there must have been a lot of critiques that the computer problems lead to a lot of non-compliance and non-filing. How much do you think is being lost every year by people who just don't comply?
DON ALEXANDER: Don't comply? I think well more than enough to balance our budget. Our budget would be in balance now if our tax system really worked 100 percent. Now, no tax system can work 100 percent, but we have a growing, not a decreasing, problem of non-compliance, and all the IRS bashing that some have given vent to, not at this table, are doing are part in increasing non-compliance for the future. That doesn't help. Constructive criticism is highly necessary. And I think that the restructuring commission is doing a very good job, but some irresponsible statements have been made about turning over 60,000 agents to the border patrol for example.
MARGARET WARNER: What do you think, very briefly, are the chances of actually--I mean, this is sort of a hearty perennial--at tax time we talk about the IRS--and then the year goes by. Do you think we'll really see changes?
DAVID KEATING: I think our commission is going to have a very hard hitting report, and I think Congress--this is a Republican Congress now--if they don't make some changes soon, it's going to be their problem.
MARGARET WARNER: Your prediction.
SEN. CHARLES GRASSLEY: We're going to make changes but it's going to be bipartisan. This is not something the Republicans are going to have to fight by themselves. We will have the support of Democrat leadership in this process.
MARGARET WARNER: All right. Well thank you four gentlemen very much.