A Taxing Problem

hen it comes to diplomacy, you've got to take your hat off to Charles Rossotti, who has assumed the daunting task of trying to convince Americans that the tax collector is their friend. Perhaps even more delicate for the Internal Revenue Service commissioner is maintaining cordial relations with a Congress that constantly complicates his agency's mission by meddling with the tax code.

In recent testimony before the Joint Committee on Taxation, Rossotti tactfully contrasted the formidable improvements being demanded of his agency with the static budgetary support being provided to achieve them. "I have been very, very pleased at the support we have received to date from all quarters," the IRS chief assured his congressional overseers while pointedly reminding them of the "enormity" of the challenge still to be met.

The details of Rossotti's testimony, however, suggest just how treacherous the path ahead is. Over the past six years, the agency's workforce has shrunk nearly 14 percent while the economy has grown by 20 percent and tax collections have increased by even more. Addressing the future, he noted the workload will continue to grow while "the total workforce size will remain relatively constant."

It's not just that there will be more returns to check and more money to be collected. The biggest changes, as the IRS undergoes a massive reorganization, are steps designed to transform the agency's "culture" to one that places higher priority on good communications with taxpayers and affords more personal service and consideration to those who have tax problems.

Legislation enacted in 1998-the IRS Restructuring and Reform Act-has diverted significant portions of the IRS budget to retraining programs for agency personnel and to upgrading the agency's former ombudsman post, which has a staff of 2,500 scattered around the country, into a new and more independent Taxpayer Advocate's office. In the current year, $200 million is being spent to implement mandated reforms, an agency spokesman said.

Although Rossotti is spearheading technological innovations to improve productivity, he told Congress that the combination of a reduced staff and new customer service activities has resulted in "less activity" in some of the most basic IRS functions, including examinations, criminal investigations and collections. Over the past five years, he points out, the number of individual returns reporting income of more than $100,000 has increased 56 percent, but audits of such returns have declined 21 percent.

Rossotti also noted in passing that since he took over as IRS commissioner last year, "Congress has given us the responsibility of implementing 1,260 changes to the Tax Code" in addition to "a mandate to restructure the whole way we do business with taxpayers."

Other critics have been more blunt in commenting on Congress' penchant for constantly meddling with the tax laws. When the Senate Finance Committee held hearings in September 1997 to upbraid the IRS for heavy-handed tax collecting tactics, Sen. Daniel Patrick Moynihan, D-N.Y., reminded colleagues that "a great deal of the problems of the IRS have come about because of legislation we ourselves have passed." He noted that Congress had just finished adding 820 pages to the 9,451-page U.S. Tax Code. "That is a pattern we do not seem able to break out of," he said.

Moynihan, of course, was speaking of tax changes that actually are enacted. What's really scary, according to Tom McClusky, a policy analyst for the gadfly National Taxpayers Union, is the plethora of tax relief proposals attempted each year that are carefully tailored to please various interest groups. By McClusky's count, a total of 856 separate amendments to the tax code were introduced in the 105th Congress and at least 50 more have been thrown into the hopper thus far in the current Congress.

"All but a handful provided narrow, 'targeted' relief that would guarantee more tax complexity headaches in years to come," McClusky reported in a recent analysis. His review, he said in an interview, demonstrates "the absurdity of all these people saying what a bad thing an across-the-board tax cut would be," while they clamor to give special tax breaks to all manner of narrowly defined interests.

Lawrence B. Gibbs, who was IRS commissioner during the Reagan administration, is even more blunt on the subject of congressional hypocrisy in the area of taxation. "The blame is squarely on the shoulders of Congress for our complex law and our rising effective tax rate," he bristled in a recent interview. "But to keep the heat away from them, our Teflon Congress has focused the attention of taxpayers on the revenue side of the budget, rather than expenditures, and blamed the IRS for failing to make taxpaying simple."

That's fine for a former commissioner. Rossotti's job is to keep Congress on his side as he tries to improve both the image and the efficiency of the much-maligned IRS.

Dick Kirschten is a contributing editor for National Journal.