Skip to main content

tv   Key Capitol Hill Hearings  CSPAN  April 8, 2015 2:00pm-4:01pm EDT

2:00 pm
jackie: we're going to take two more people from the side and two more from this site. you will get a chance to talk in the audience discussion. >> my name is evan. i'm a member of ux. my question is this. we have been infiltrated, our government, by outside forces who are actually messing the government -- the country up. how do we get rid of those people who are inside the white house with their policies and their lobby and they are actually causing wars and taking money out of the american public that we need here for education and the kids, how do we stop these maniacs? [applause] >> one way you stop it is to vote more independent candidates. that is it. that is reality right there.
2:01 pm
>> the comment made earlier about how to that people come i you let every -- two vet people, you let everybody run command you take the top two vote getters. >> you can watch the remainder of this event online at breaking news out of boston, a jury has reached a verdict in the federal death penalty trial of boston marathon bomber dzhokhar tsarnaev. the verdict is an mad -- is expected to be announced momentarily. lawyers are gathering in court. we expect to hear comments from the lawyers later on and we will hear comments from you, your reaction to the verdict in just a bit on c-span. meanwhile, we will take you over to the brookings institution in washington. it is one week until tax deadline day.
2:02 pm
there in your screen is john koskinen. he will be talking about how his agency is dealing with budget cuts. they are just getting started. commissioner koskinen: half of the book is dedicated to tax codes. there is a quotation from the book that we pulled. it says, "the power to tax is the one great power upon which the whole national fabric is based. it is no airy to the existence -- as necessary to the existence and prosperity of a nation as is the air he breathes to natural man, and it has the power to destroy, but also to keep alive." i thought it was a good quotation to kick off today's event. clearly, the rs continues to be an essential part of our government, responsible for collecting taxes on about 18% of our economy. the commissioner is the 48
2:03 pm
commissioner and manages a budget of approximately $11 billion. and it's a budget, i'm sure you will allude today that is shrinking in the past four or five years, or more. prior to coming to the irs, he served as the nominate of -- nominal chairman of fannie mae and freddie mac and chief executive officer in 2009. prior to that, he was the president of the u.s. soccer foundation. we have a lot to talk with you about on that one. he is the officer of deputy mayor and city administrator of washington d.c., assistant to the president's chair on the council dealing with the erosion and deputy manager of the office of management and budget. he has also had 21 years of experience in various private sector positions hoping to turn around troubled organizations. i'm detecting a pattern.
2:04 pm
the idea is for the commissioner to give a keynote page, and then we will follow up with a panel discussion moderated by howard gluckman. on that panel, we will hear from rosemary marcus and nina olson both from the irs, eric toter of the tax policy center, and david williams of intuit. all of their bios you should have received the packet when you came in this afternoon. with that, i will ask you to please join me in welcoming the commissioner to the podium. thank you. [applause] commissioner koskinen: i have to be careful not to do something with the computer this year. i'm delighted to be here. over a course of years, i have a number of good friends, both at the urban institute -- the irving institute and the brookings institute. it's fun to be here. it's particularly good, because
2:05 pm
really do i get a group that actually commemorates tax they every year. -- cap day every year. where else could you find that is kept in washington? -- except in washington? and as a public service announcement, i would remind everybody to file their taxes by april 15, but you party taking care of that for me. we still have a lot of [indiscernible] it should be superfluous to make that reminder, because nobody here would file their taxes at the last minute, i'm sure right? [laughter] including me, with any luck. a special thank you to rosemary marcus, the head of our research division, who helped put together today's event and will be on the next panel. rosemary is retiring soon after more than three decades of wonderful public service at ars, the -- at the irs, the
2:06 pm
congressional budget office and more. she has done a terrific job there. i also want to recognize someone else who will be on the next panel, nina olson, tax repairing advocate. i have found nina's advice and recommendations for improvement a great help to me in charting a path forward for the agency. turning now to why we are here i need to thank the tax policy center for selecting my subject for today's event. while this affects a lot of the taxpayers and tax system, it certainly something that keeps me up late at night budget cuts. and it's a bit at all politicians in washington should be losing sleep over. and i'm grateful for you fostering discussion that should continue until we achieve the right result. my view is simple. i believe the underfunding of the agency is the most critical challenge facing the irs today. and the serious ramifications of five years of budget cuts are becoming increasingly visible
2:07 pm
and will worsen if action is not taken soon. this is not just about the agency. it's about the entire tax system. we are coming to the place where a significant reduction has already taken place in the irs budget, the grading the agency's ability to continue to deliver both on its mission during the filing season and beyond. i'm sure most of the people in this room know how critical our situation is. in case you are just back from a few months on sabbatical, or miss the post-release this afternoon, or the story from bloomberg, i will recap it for you. the irs budget for fiscal year 2015 $10.9 billion, one point -- $1.2 billion less than it was five years ago. the irs is at its lowest level of funding since 2008. if you adjust for inflation, our
2:08 pm
budget is comparable to where we were in 1998. while our budget has been shrinking, the taxpayer base has grown by millions. we've also taken on many new responsibilities, such as implementation of the foreign account tax compliance act and the provisions of the affordable care act. since 75% of the budget is more or less personal, the agency has been absorbing the budget reductions mainly by shrinking the workforce. as a result, we entered fiscal 2014 with more than 13,000 fewer permanent full-time employees compared to 2010. we expect to lose another 3000 more or less, through attrition by the end of this year. you might think that shrinking agency will force it to do more with less. that may have been true for us in the early going. we have heard the comments on the hill and elsewhere that our funding was deliberately lowered to make sure we spend -- think twice about spending. the rs does need to be as efficient -- the irs does need to be efficient as possible and
2:09 pm
be careful stewards of the taxpayer money. after five years of budget cuts and a hiring freeze that has lasted for four years people need to understand that the irs is going to have to do less with less. it means that both enforcement and taxpayer service will suffer. the problem is that our levels of staffing are insufficient to deliver on our mission. consider that a 13,000 employees we've lost since 2010 include 5000 key enforcement personnel. these are the people who audit returns, conduct election activities -- collection activities and investigate refund fraud and other cases. we estimate the drop in audit and collection case closures this year will translate into a lost for the government of at least $2 billion in revenue that otherwise would have been collected. essentially, the government is forgoing billions of dollars to
2:10 pm
achieve budget savings of a few hundred million dollars. since we estimate that everyone dollar invested in the irs budget produces at least four dollars in additional revenue. the cumulative effect of the irs -- the cuts in the irs budget in enforcement personnel alone since fiscal 2010 results in an estimated $7 billion to $8 billion every year in lost revenue for the government. this amount as a -- some have said it it mounts to a tax cut, or tax cheats. we have enforced to reduce substantially the hiring of seasonal help the we usually have during the filing season. as a result, our phone level service at the start of the season was just 54% and as we've gotten close to the end of the filing season, it dipped below 40%. that means more than six out of 10 people who called could not reach a live assistant. that is simply an acceptable especially when you consider our goal for a phone level service
2:11 pm
in a given year is 80%. the negative impacts of funding -- of underfunding affects the business side as well. it might sound good that we are conducting fewer audits, but the ones that we do are likely to be more burdensome because we have fewer specialized trainings that understand complex businesses. we are having to target our resources more to retail issues involving individuals and their 1040 filing forms. that means guidance software more highly specialized issues in the corporate area will likely suffer -- guidance sought in the more highly specialized issues in the corporate area will likely suffer. service and enforcement need to be viewed as two sides of the same compliance coin, because our system is held on the notion of voluntary compliance. if people think they will not
2:12 pm
get caught if they cheat, or they are just fed up because they cannot get the help they need from us to file their taxes, the system will be put at risk. consider that a 1% decline in the compliance rate translates into $30 billion in lost revenue for the government every year. as edward turks and would have said, you are into real money. it is important not only to point out what the irs cannot do, but also what we can do and are still doing. while the agency is cutting in discretionary areas over which we have control we continue to deliver on core functions. a great example is the current tax filing season, which has gone smoothly in terms of the tax return processing and the technical issues around it, and the operations of our i.d. systems. through april 3, the irs received more than 99 million individual tax returns and on the way to an expected 150 million. we have issued moments any 7 million refunds for more than
2:13 pm
$217 billion. one thing i have been trying to get people to understand is that delivering the filing season does not happen automatically and it doesn't happen by accident. it happens because of the talents, expertise, and dedication of our workforce. to get ready for this filing season, irs employees into this is as that we use the back end of the affordable care act, the front end of fatca and tax extension season all without missing a beat. i told them years ago that if we could pull this off, it would be an amazing testimonial to the skill and testament -- to the skill of the irs employees and that is exactly what it is. in the public sector, if things go well, they often passed unnoticed will stop so i view part of my -- go unnoticed. so i view part of my job is to make sure that the press and the
2:14 pm
congress understand the magnitude of this achievement and see it for the great compliment it is. let me give you an illustration of the disconnect between our funding levels and responsibilities. last december, just three days after cutting our budget by nearly 350 million dollars congress passed legislation requiring the irs to design and implement two new programs by july 1 of this year. the punchline of those programs, the able act, and the certification requirement for employer -- professional employer organizations did not come with any additional funding. but we are going to play the hand we are dealt and will do the best we can. and that is because we have no statutory mandates, even if those are often underfunded, implementation often comes at the expense of taxpayer service and enforcement. it's a strange position to be in. the irs is such a capable agency that congress keeps giving us new responsibilities. we deliver on those
2:15 pm
responsibilities and we deliver a smooth filing season year after year. and then they tell us, well, we will give you less money and see how you do next year. up until now, we have been able to manage. but i'm extremely concerned that the crocs are beginning to show. i said it before, but i think it bears repeating. i have never found an organization in my 20 years of private sector experience that said, i think i will take my revenue producing arm, set it off to the side, started for funds meant he what happens. that is happening to the irs. -- starve it for funds and see what happens. that is what is happening to the rs. people need to know what is at take will stop the problem goes beyond not having enough employees to adequately run copper -- current operations. continuing to cut the rs threatens our by -- the irs threatens our viable workforce five to 10 years down the road.
2:16 pm
the high water mark of the agency's workforce in terms of size was in 1992, and since then we've lost more than 30,000 full-time employees and are at our lowest level since the 1980's. the current composition of the irs workforce also present a challenge. the problem is simple. our workforce is ensuring -- maturing at a rapid rate. in fact, the workforce over 50 years of age has been growing steadily in the last several years. today, over half of our employees are in the age group. and by next year, we estimate over 20% of the irs workforce will be eligible to retire. by 319 that number will be over 40%. meanwhile, the irs employees under 30 has been steadily declining. essentially, the irs is facing its own version of a baby bust. our future workforce is generally overlooked in our funding discussions, but this
2:17 pm
issue is critical to the future of the agency and will only grow in importance in the months and years ahead. as i've noted along the way, my term will end before the full magnitude of the problem is visible to outsiders. but it would be irresponsible to slide along without addressing the situation. i'm talking about issues posed in underfunded agencies, and one of my biggest concerns is to fully improve and modernize our technology systems. because of inadequate resources the irs is operating with antiquated systems that are increasingly at risk and will fall behind despite more than a decorate -- that date of upgrades to the core business systems. we still have very old technology running alongside our more modern systems. it's like a model t that has a gps and rebuilt engine, but is still a model t.
2:18 pm
we have many applications that were running when john f. kennedy was president. about the only good thing you could say about them is that i determined in a cyber security meeting last week that the code they use has been out of date for so long it has the unintended effect of creating problems for hackers who may be hacking in and trying to figure out how the system works. i think we need to broaden the discussion. i'm increasingly convinced the irs needs to do more and take a different approach, and when it doesn't just rely on resources. our goal is not nearly enough to get enough funding to hire back 13,000 people and go backwards in time and perform the way we used to. we are not going to build the irs back to the year 2010. we need to be looking forward to a new and improved way of doing business. this involves looking at the future in a more comprehensive way. and can bring how we can take advantage of the latest technology to move the taxpayer experience to a new level and do
2:19 pm
it in a way that is cost-effective for the government. in particular, we are focused on how best to use our limited resources. our goal is for the taxpayer to have a more complete online experience for all of their transactions with the irs. the online experience should give everyone confidence in knowing that they can take care of their tax obligations in a fast, secure, and consistent manner. the goal is not overly optimistic. we are not trying to go to the moon or mars. we are simply saying that people should have the same excitations of the irs in the future as they have now from a mortgage company or brokerage company. the idea is to have an account at the irs were they or their preparers can login securely and get all of the information about their count and interact with the irs as needed. most things taxpayers need to do to fulfill their obligations could be done virtually and there would be less need for in person help, either by waiting
2:20 pm
in line and irs assistance center, or calling him by phone. improving the experience to taxpayers in this way can also help us on the compliance front. we need to be faster and smarter in that area. with a more modern system, the irs can identify problems and tax returns when it is filed rather than coming back years after the fact while the meter is running on potential penalties and interest. we want to interact with the taxpayers as soon as possible so the issues can be corrected without costly follow-up contact, or labor-intensive audits. and it's not as if all of this would be new. to the extent that we have been able to win with our budget constrained, we have already moved into knowledge with our taxpayers. one of the most popular elements of is the tracking the refund option. taxpayers have already used in more than 70 million times this tax season and it is very close
2:21 pm
to surpassing the total last year. that does not mean we have 187 million taxpayers. there are just some people who cannot resist punching a button to see where it is. another is to get a transcript. it's a secure online system that allows taxpayers to view and print the record of their account. so far this year, taxpayers have used it to obtain with a 15 million copies of previously filed tax information. in both cases without the online applications, all of those people would have had to either try to call us on the phone or had to walk into one of our assistance centers. we have been able to provide better service than we would have, even though it is hard to imagine how it could have been worse. it would have been if all of those people had to be on the phone or in line. we still need to engage in a full-court press. i went to duke, so i'm using terms like "full court press"
2:22 pm
today. in moving toward this future state, i should mention that the irs will continue the extremely valued partnerships we have with the private sector. these partners run the gamut between the tech industry to professional return preparers to developers of software and other products. they are critical to our ability to run a system that helps millions each year fulfill their tax obligations and we will look to our partners for their assistance as we continue on this road. i will also point out that as we improve the online filing experience, we recognize the responsibility we have to serve all taxpayers, whatever their age, income, or station in life. in proving service to taxpayers must include special consideration for those were not comfortable in the digital environment, or cannot afford to or do not have access to online transactions. and in our ability to improve online and both traditional
2:23 pm
taxpayer service, that will depend on agency funding. but even with budget constraints, we will continue to find some funds to support his efforts to build for the future, even at the expense of other areas and activities. otherwise, if we just wage a guerrilla style fight every year, focusing only on the present, we will wake up in five years and be no further down the road than where we are today. and in fact, we will be five years farther behind. that is our story. the challenges of the irs today lead policymakers with a choice. a decision to adequately fund the irs will give us the tools we need to fulfill the funding needs for the future post of a decision to underfund will reduce the money needed to run the government and inject risk into the system of voluntary tax compliance. i will continue to urge you to make the right decision. i took this job 16 months ago if
2:24 pm
i understand the critical role that the iris plays in the latter taxpayers and in the funding of the government. -- that the irs plays in the assisting taxpayers and in the funding of the government. we look into you to build for the future in the american taxpayer. thank you and i will you happy to answer any questions you have. [applause]
2:25 pm
>> thank you for that very met -- very interesting talk. we will chat here for about 10 minutes and then you will all be able to asking questions. i'm asking you to make them questions and not speeches, since there is a limited amount of time. commissioner koskinen: you can send me the speeches afterwards. >> absolutely. and then the panel, and discuss. i did not think you could makers of less popular, but then you had to talk about going to duke. -- make your self less popular but then you had to talk about going to duke. [laughter] i could not help in the last few days that two candidates announced for president. one said that the code is to take and we should scrap it. and the other said, i think we ought to abolish the irs. to try to put this incorporate
2:26 pm
terms -- i know it's not an exact analogy, but if people want to run for chairman of the board that really want to eliminate the enterprise, how does the rs respond? commissioner koskinen: as i said in the past, i understand there are different ways of framing the issues as you go. in both cases what people are basically saying and i think resonates with most people in the public is that the tax code is too complicated. some people are talking about abolishing the rs and have said, everybody ought to be able to file on a simple a small card. but the only way you could do that is if you had a very simple tax code. and i've made it clear from the start that while tax policy is the domain and providence of the treasury department and we are just in administration, once i said that, i've also told members of the congress that anything they want to do to signify the tax code, we will do any -- we will do our best to
2:27 pm
try to support it. i don't know how anybody understands the full sweep of the impact of the code. chairman camp of the ways and means committee before he retired, he introduced a very comprehensive proposal for tax reform and had a way of framing it that the tax code was longer than the bible without any of the good news. i told him that my rule of life is that i will give him credit for that statement for here, and then i'm just feeling it as my own. -- dealing it as my own. unless you think that people have no money someone has to be there to collect the money and some has to make sure the numbers are right. someone has to make sure they are reporting the right amount of income. i view it as a cry against the complexity of the tax code and a desire to make it simpler.
2:28 pm
my standpoint, if we could do that, that would be a great step forward and i think the irs employees would agree. >> that said, it has been a longtime since congress at the irs -- asked the irs to only collect money. you run a large welfare organization and you manage the child tax credit. you are responsible for a huge health insurance program. is it realistic for congress to continue to ask a tax collecting agency to do all of these things that really have nothing to do with collecting taxes? commissioner koskinen: it's a reminder of what i should have set as well, that if you are going to have a simple card that you fill out for your adjusted gross income, you have to have a program for what we will do with all of these tax credit programs that we run. or you will have to have a more complicated form for people who are eligible for the education tax credit, the child tax credit, the earned income tax credit. it is ironic, as shown in
2:29 pm
december, that at the same time people attack the rs, they keep giving us more things to do. and particularly -- the irs they keep giving us more things to do. and particularly in the social welfare area. and it is because we are efficient and will get the job done. in terms of efficiency, and some members on the hill have talked about that we have purposely cut your budget to make you more efficient. on the update of tax efficiency around the world, the irs spent half the amount of collected dollar revenue than the tax administrations for germany, france, england, canada, and australia. we are spending hike -- half as much. that will give you some indication of what we are. -- where we are. i have met with tax administrators around the world and a number of them have had programs of one kind or another. and again, because people have
2:30 pm
figured out it's a simple way to reach out to constituencies. we have 50 million individual tax returns, so they cover the gamut of people at cross -- across income strata, unless you and if they are working at all they can file and eligible for the tax credit. but it is true that the earned income tax credit is an interesting duality. we have an obligation to make sure everybody who is eligible knows about the program and applies. we reach about 80% of the people eligible. 30% turnover every year. they get a better job and they are no longer eligible. on the other hand, we have to make sure that the right people get the right amount. because i was looking at the educational tax credit.
2:31 pm
and getting us the third-party information after the credits have already been done. we do educational tax credits and we are not required to get the information from colleges or universities until the end of march. the people expect their credits in january, february, and into march. most people thinking about the irs and paying their taxes have no idea the amount of money and the amount of time and effort we spend. i would be happy to give some of these programs over to somebody else whether it is hhs or the labor department. ted gayer: you have been pushing very hard for congress to give you more money. i'm not sure if you think it's likely you will get much more money. let me ask you to get out your crystal ball for a minute.
2:32 pm
if you don't get additional funding, what will the irs look like in five years? john koskinen: that is our concern. when i got there, the deputy and i had been talking about what the vision of the future ought to be. that is when i talked about what the future ought to be for the individual taxpayer. i started looking at the demographics. it became clear to me that we have a significant problem. if we don't do something about this and we keep being constrained, and we look at the aging workforce, we will go out of business one day.
2:33 pm
we are going to have this significant challenge. let's assume flat funding which hasn't been the case. even modest investments in information technology to try to move to get better services quickly and to try to move them out of the channels of calling us. no additional responsibilities.
2:34 pm
not just what do we collect with our own efforts. and as i said, it's not an on-off switch. you can wake up one day and say, i did not know that was going to happen. here is more money. this is a real problem, a serious problem. i know what we will do and will
2:35 pm
have technology that doesn't respond effectively. if that makes somebody comfortable that we are now paying more attention to what we are doing, it does seem to me a fairly strange way to run. ted gayer: one last question and i will turn it over to the audience. have you seen any evidence that this has affected compliance? john koskinen: compliance is a difficult thing to measure. rosemary is good. the research and statistic organization does tax staff analyses. we audit 13,000 returns a year. 40,000 returns in three years and we see what is going on with
2:36 pm
compliance. it's how we know what our improper payment rate is. we expect to issue the next updated tax gap report. it will give us some indication of where we are with compliance. my concern is that whenever it gets to be visible and noticeable, it will be a lot harder to fix. ted gayer: a few questions from the audience. please wait for the microphone and introduce yourself. >> [inaudible] -- to replace the older people as they retire to help solve the budget problem? john koskinen: it would if we
2:37 pm
were not in a position where the only way we could deal with the budget cut was to say we were not owing to hire anybody. you are exactly right. the other side of the coin is that the people that are retiring have wonderful years of experience, great knowledge, and in tight. how do we engage in what we call the knowledge management program that we started over the last year? had we capture as much of that experience and the insights and the way they do that experience before they go. particularly, my concern is that when you say you are not hiring, you have the biggest need. in some places, we don't have enough support people. secretaries, administrators, and in some places, we don't have enough to run the i.t. helpdesk.
2:38 pm
the ability to fill visions appropriately. over time, it's important for an organization to bring young, bright people in. which is why even in the worst of days, this year and next year, we continue to train people. but it goes back to the baby bus problem. not only doing needy need younger experience and energetic people, in five to 10 years when we look at the need for frontline managers and supervisors, if we keep going where we are going, we will look at a group and there will not be anybody there. if we balance out the work force overtime i think if we could get enough money to move forward with our information technology, the volume of calls would go down. if we get more money, we are not
2:39 pm
hiring 13,000 more people. because we have such an antiquated system, we shouldn't be at the cutting edge but we should be fast followers. i would love to be in the 21st century with the i.t. rather than the 20th century. it is that kind of single package. >> you mentioned that you lost 5000 enforcement employees. i was wondering when making those cuts to the enforcement divisions, to what degree does return on investment of the various enforcement activities inform those cuts? john koskinen: we have to do statutory mandates. we don't have choices about the
2:40 pm
affordable care act or what other bills congress has passed. and the three chilean dollars we correct -- collect, it leaves us with enforcement, taxpayer services, and i.t.. we have done the best we can to try to balance that. but in terms of the trade-off we have 3000 fewer people answering phone calls right now. the 3000 people we put in to identity theft. you're making a balancing decision to figure out, how do i minimize the negative impact. every revenue agent criminal officer and criminal investigator. we know that you can talk to any
2:41 pm
revenue agent. when we look at returns, we start with the returns that have the biggest most egregious problems. there are people out there that have made mistakes. as i said in my confirmation hearing, i never dealt with the company where across the board, there are not enough people.
2:42 pm
getting ready, it was clear across the board. they describe how we dealt with not enough people i was just stunned that there was no place that had enough people. ted gayer: one or two more questions. yes, ma'am? john koskinen: two quick comments and a question. i have almost uniformly found fine people and helpful people. i did not answer the phone, but somebody pretending to be an irs person. you are in trouble, calmly back and the person called me a second time. i called the irs and they told me it was phishing once again. john koskinen: those of the worst. --a re are the worst.
2:43 pm
>> we have heard of multimillion dollar payments by corporations and banks that have not paid their appropriate taxes. where does that money go? is there any way the irs can get hold of some of that. john koskinen: we collect $60 billion to $70 billion a year in enforcement activities. it does not go to us. it goes to the general treasury fund. in a lot of ways, it probably shouldn't come to us. it is clear that the way we run the organization is nobody gets measured by or paper or ms. award by how much they collect. the agent they are dealing with is not going to get more or less paid depending on how much you end up owing. one of my recent hearings,
2:44 pm
someone suggested that we are doing this and we could give a little of that money to the irs. ultimately, we need to be funded directly and people ought to be comfortable that we are being more aggressive. i would note that i have been to 37 offices and held frontline meetings and employees. i've had lunch every place with plenty of employees. when i go to call centers, it's not that they are underpaid. the issue is there not enough people to answer the phone and provide the service that taxpayers have a right to guess. i had a manager on the call center that went back and i think it reflects what everybody have talked to in a call center says.
2:45 pm
they feel a sense of satisfaction. if you've got a question, they can answer it and feel that they helped you. one of the objections i got from call-center people is it was the year that we said, because of the concern about the lines, we would answer simple tax questions. and the employees kept saying but we know the answers. by definition, it takes longer to answer. we had no choice but to say these are the questions you can answer. it's not good for taxpayers. we are to reverse it and be answering the complicated questions. the simple ones you can go to the website four. the bottom line is the people that care most about that are the people in the call center that feel they could help
2:46 pm
taxpayers more if they just had more resources. ted gayer: thank you very much. [applause] [captioning performed by the national captioning institute, which is responsible for its caption content and accuracy. visit] [captions copyright national cable satellite corp. 2015]
2:47 pm
>> good afternoon. i was not sure of the choreography. of the tax policy center, the urban institute, and brookings for inviting us here and featuring the irs budgetary dilemma on tax day this year. perhaps you are doing that in this era that those of us associated with taxes are definitely in a challenging and ever. april is as good a time as any to commemorate that. i am also delighted to be turned to skating -- to be participating in this panel. and eric and david, at the service where they are still fondly remembered.
2:48 pm
and simply our most important trusted advisor and commentator. and a black belt at keeping the experience for the taxpayer in the forefront. and i will talk about that today, too. nina will be much more dynamic. this is the issue of the day. thank you so much for coming here. you came to hear us talk about the irs budget. that is what the irs is focused on now. i will take a moment to explain what it is we are doing.
2:49 pm
infrastructure for telephone and tax assistance. so that they can fix things the first time around. there are service deliveries through all channels. and taxpayers and representatives would be more in the drivers seat for issue resolution. three out of five taxpayers use paid preparers. they can arrange payments online and pay online. this would allow us to deploy people to work with taxpayers who want or need personal contact. many do and many will. those people need to be trained to better and they need to be given information technology to do the job. the point i want to emphasize this afternoon it is it will also reduce the cost of an tour smit -- the cost of enforcement.
2:50 pm
and the cost borne by the taxpayers themselves. pretty much everything is new about that image. we are taking a comprehensive view and figuring out what investment is needed and in what order, they have translated that to budget initiative. so we can go forward and describe what it is to go forward in the tax administration. and we can put that forward to the congress and we can show how we will be responsible and accountable for the funding and the investment that will be needed for that. it will benefit savvy taxpayers and others as john koskinen: mentioned. the cost of coming into compliance, it will provide more
2:51 pm
cost-effective enforcement's. it should raise net revenue for dollars spent. it also builds more bridges and more cooperation with our partners. it tax preparers and software companies. we appreciate the title today how budget cuts affect taxpayers. i want to broaden the picture of who bears the cost of a low-tech tax system. the total cost of compliance has two parts. the cost to the irs, the administrative cost, and the cost borne by the taxpayers. and the cost borne by the taxpayers are unevenly distributed. and borne by the taxpayers overall. it far exceeds the administrative cost of running an irs. it is a story of taxpayers bearing the cost of low-tech irs. you can go online and you can
2:52 pm
change your address for ranger rick magazine in a minute. and that gentleman reported in the post today that one change of address did not get in. that's not going to mars, that's like information technology number one. they are determined to move through this path towards better information technology. i will give you two examples of how we think this will make a big difference in my few minutes remaining. we want to move and we will be able to move issue identification resolution forward in time. for example, for many taxpayers during the filing season. keep in mind that four out of five taxpayers are anticipating a refund. any delay is a delay in a payment that is the largest single payment many of them will
2:53 pm
get during the year. if you communicate what they will say by e-mail -- like the gentleman in the post story today, a very big refund. could you provide some documentation for why that refund is so big? he had it in his pocket for the two days he was waiting to talk to someone. and keeping in mind that traditional enforcement in our world is expensive. we can effectively lower the cost. for preemption, they have one error. it's not really cost-effective to seek to evaluate all or even a majority of those. the cost of addressing that.
2:54 pm
where the cost of the approaches we have at hand is very high. the cost of the taxpayers. it is more than a year after the filing that the taxpayer hears about that. we will have many returns that actually never move into exam. another aspect here again, i want to emphasize that we look at the total cost of administration in these are not
2:55 pm
so apparent. the irs is struggling for budget. much of them are being borne by the taxpayers. if we invest to improve the taxpayer experience, it will lower the administrative taxpayer burden cost per dollar of enforcement revenue. here is a way to think about it. voluntary compliance revenue has a higher total rate of return after you subtract the cost of the irs and the burden to the taxpayer. taxpayers filed each year and incur $60 billion in costs. our estimates show that taxpayers that end up in exam bear another 10%. another $6 billion in costs. and many fewer people, in
2:56 pm
various stages of accounts receivable they're all that cost. it rests with the people standing in line and it rests also with taxpayers who are trying to come into compliance. in a very low tech world. we are at the first steps. there are online payment agreements, but they have to be handed off to the irs. we know we have a long way to go. we know it requires investment. it will involve quite a bit of investment. we are developing comprehensive plans of how we will deploy that investment and how we will get there.
2:57 pm
we translate that into budget initiative so we can be accountable for that. we are taking positions now as we must demonstrate an investment from the irs is not just going to reduce these long line's from four hours to two hours. an organization like any other -- there are a lot of things you can't do because of our information technology. so i will turn the podium over to the others on the panel. i am interested in hearing what they have to say and we look forward to taking your questions. [applause]
2:58 pm
>> i am with the tax policy center. we make sure i know how to work this. -- let me make sure i know how to work this. i am glad to be here and i want to thank commissioner john koskinen: for talking to us rosemary, and others at the irs for hoping -- helping to organize this. i am probably an outlier on this panel. it might organization deals with tax policy and not administration. the division of labor in the u.s. government, elected officials in the white house and the treasury and congress make the tax laws. the irs administers the tax laws. it's very important for us to remember that distinction. also understand the vision is not as clean as we would like to think it is.
2:59 pm
tax administrators operating with scarce resources inevitably influenced policy outcomes by their choice. and how to audit particular issues. the outcomes of policies do depend on what the irs does. and from the other side, the policies that the president and congress enact are not going to work unless the irs can effectively enforce them. there is much more of a link between the two then we commonly think. i will comment on three areas. a little bit on irs resources. i will be a bit repetitive on what the commissioner said and what rosemary said. a few comments, slightly repetitive, on changes on irs workload that has accompanied the non-growth in resources.
3:00 pm
it is coming from demographic changes that changes the economy. none of us knew very much about. the other from policy changes. finally, i want to make a few comments on whether tax reform would help matters. let's start with the data here. the upper left-hand quadrant shows real irs operating costs in millions of 2014 dollars. that has gone up slowly over time and dropped sharply after 2010. all these pictures look the same after 2010. operating costs from the top right as a percentage of gdp i could have shown operating costs relative to labor costs are wage index, and that would look similar. that has been declining gradually over time. there is a more precipitous drop
3:01 pm
after 2010. the bottom left shows average irs employment, again dropping but really plummeting over the last few years. there are also these in the graphic issues at the irs with the aging workforce and the increasing number of experienced people that are eligible for retirement. finally, the last one actually does not show the same picture operating costs per dollar of collection. that bounced around but has not really work -- not moved up and down much, but that is driven more by collections than by operating costs. the fluctuations are revenues going down during recessions, going up when tax increases and when there are economic rooms. the important thing about this picture is the level, not the trend. about .4 of a cent, it costs the
3:02 pm
irs when it comes to revenue which is very low when it comes to the international comparison. a little bit of data -- while irs funding has leveled or is declining, individual tax returns filed have grown between 1998 and 2005 the number of atomizers grew. the characteristics of returns have also changed. you have more returns with business income, which are more complicated to examine. you have more returns for partnership. more returns filing amt although that is a low number and is more or less stabilized and more people filing the earned income tax credit. those are from the individual area. on the business side, there have also been changes. there has been the growth in
3:03 pm
internationalization and the increased tax avoidance, both by individuals and corporations, which the irs has to deal with, deal with transfer pricing and it with complex international corporations. on the business side, there has been the very large growth over the past 20 to 30 years in the share of businesses organized as corporations and partnerships, and that creates the additional issue that you not only have to audit the individual taxpayer with that form of income and see whether they are reporting directly with the entity has reported to them, but you have to make sure the entity is reporting correctly and reporting correctly to the right taxpayers. that makes the job very obligated. these are entities that do not pay any taxes themselves, but what they report fx individual tax revenues a lot. finally, i will get to the policy issue on tax expenditures.
3:04 pm
i always resent it when people try to add up the number of individual tax expenditures but here i am doing it. it is pretty arbitrary, because it depends on how you group different provisions. the treasury does things differently. in defense of myself, i will say that i used treasury figures emma which i adjusted to make them consistent to changes to the way the reported things differently during the bush administration. this is all coming from the treasury. it is a consistent measure. every year, the number of tax expenditures grows. so this is something that is growing. the dollar value volume, of gdp -- by the way, back to the last part. at the bottom, i have refundable credits, which have multiplied by a factor of 500, growing from one to five. that may seem like a pretty small number them a but these are -- this may seem like a
3:05 pm
pretty small number, but these can be a major headache. this is from individual tax expenditures including focusing on individual taxes and that is individual tax expenditures that are including those that individuals claim on business income. those numbers have been gradually rising over time. the bottom of that chart, the top black box, dark blue, shows the revenue losses. the bottom shows the portion of the tax expenditures which come from the refundable worship of refundable credits -- the refundable portion of refundable credits. that has gone up, again, a small never, 2.6% to 2.58% of gdp.
3:06 pm
in the next part, it is scheduled to soar because of the premium assistance credit under the afford will care act. also, the earned income credit even though this chart from treasury assumes the limitation or expiration of the expansion enacted in 2009, income credit -- earned income credit continues to grow over time or dwight is this matter? tax expenditures great boundary problems. it multiplies the compliance issues for taxpayers and issues for the irs, things and need to be checked. refundable credit creates additional opportunities for refund fraud and that is a serious threat to the system. i would make one more comment about this -- when you look at the revenue per dollar collected
3:07 pm
., the4 cents per dollar, it should be more like /3 cents if you would count the tactics miniatures, at that back to revenue, saying the irs is not collecting 18% of gdp -- it is collecting 24% of gdp and then giving 6% of it that in terms of -- of it back in terms of programmatic policy. the job is a lot bigger than it seems. that may make a few, the tax reform to some people say the solution is tax reform. clearly, if you want to a flat tax, which was discussed with the commissioner, or a v.a.t. replacing the income tax, you would reduce compliance cost, but you would have a very different kind of tax system and very different kind of economic policy. you cannot just evaluate that in terms of solutions to the irs.
3:08 pm
that is a very big change in social and economic policy for this country. the more modest tax reform, such as 1986, would you disseminate or reduce tax expenditures and lower rates. when you think about them, tax reform is trying to reduce the cost of the tax system. but what are the costs of the tax system? if you talk to economist, they would said the biggest cost of the tax system is what is called the excess burden. because taxes are not neutral it causes people to behave differently than it would in the absence of a tax system and reduces economic efficiency and reduces output. everybody says reducing those costs are the biggest reason for reforming the tax system. those are the biggest cost to operating the tax system to the second is the compliance cost
3:09 pm
for individuals and businesses. that turns out to be 10% to 15% of the cost of revenue raised, which is maybe less than the excess burden but still a substantial cost. then you get to the cost of the administration which is less than that .4 cents per dollar. it is the last thing that matters in tax reform . tax reform is about other things. so i am doubtful to expect that tax reform, when the get through all the other goals of tax reform they will really care about that my bottom line is -- no matter what you do with tax reform, you really have to adequately fund the irs. i will turn this over to nina. [applause]
3:10 pm
john koskinen: ted gayer: our next speaker is nina olson. nina: the microphone is more complicated than i can handle. i am technologically challenged on powerpoint. i have never used powerpoint slides, but this is a special occasion. to make my point, today i'm going to talk about trust and power and how that relates to the funding cuts of the irs and how that relates to the funding cuts of taxpayers service. as i think we talked about in the beginning, the irs is the most powerful creditor in the united states today. it has awesome powers to assess tax and collect tax, in many
3:11 pm
instances without giving the taxpayers the right to go to the u.s. tax court before they pay the tax. certainly, we do not have to go to any court of law to do most of our collection actions. we do not have to ask a judge to grab money from a checking account, from your wages, or anything like that. we do not need to get a court's opinion to file a federal notice of tax lien. we cannot think about the budget cuts until -- unless we keep in mind this power of the irs. so if you -- that sort of triggers some of the visceral reactions that people have to the irs and that you hear in some of the presidential statements. you know the irs connection to take your hard-earned dollars so if you have a power like that, you want that power to be very very regulated and careful
3:12 pm
. you want it to be used legitimately. so you want the employees in the irs to be trained and you want the irs to be accessible by you or do you want to be able to get through to that power and say "don't do this to me" or "you got it wrong irs, and i am entitled to that earned income tax credit." "listen to me. fix them. let me get that $3000." you want due process in that tax system, the ability to come in, the right to challenge the irs and be heard. let's look at how the irs is doing is the taxpayers attempt to reach the irs and be heard. i have been practicing now for four decades. i thought about whether i would say 40 years or four decades. there is no good way to say --
3:13 pm
two score i have been practicing and involved in the tax system. [laughter] and i have never, ever seen anything like this filing season on the phones. this is just the roll up -- customer account services really all of our taxpayer help lines. a year ago, we were able to answer seven out of every 10 calls. and this is the filing season. it starts january 1. and today, we cannot even answer four out of 10 calls. you have to wait, on average 24 minutes. now let's look at some of the lines. the top line is the 1040 number, the number that taxpayers call to 25% of the calls that want to get through to a live a sister -- a live person for assistance or getting through. i want to note to you all that the rich ages and policies up front this year.
3:14 pm
as bad as these neighbors are these numbers mask with the taxpayer experience is. the irs, i think, rest know he made the decision that if you are looking at, on average, 22 minutes of sitting on a line, we know it volume we're getting. there is no way that a human being is going to be able to pick up an answer you in a reasonable amount of time. we do what we call -- i love this term -- the courtesy disconnect. that is at the very beginning of the call to this year, two does in the filing system, through fiscal year 2015, 6 .8 million calls at the beginning of the process, and that is seven times more this year to date as it was last year to date. that is extraordinary and shows you how much the limited access that the taxpayers have is. to keep going a little bit further, i want to talk about
3:15 pm
what people are actually supposed to be doing when they reach us on the phone. they can ask about math error corrections. there was the example of the switched digits of the social security number. they asked for penalty abatement's i was sick, i relied on my return preparer which we are pushing people to rely on more and more, even though they are not regulated and there are minimum standards to prepare tax returns. they can ask to enter into installment agreements so we do not grab that money from their account. if they cannot get through, guess what we are going to do. it is all automated, folks. if we do not hear from you scheduling that, touching your account or your wages, and then you are going to have to ask us to return the proceeds because you cannot pay for your funeral your medicine. this is happening every thing obey. -- because you cannot pay for your medicine will stop this is
3:16 pm
happening every single day. they can put you into currently not collectible status, saying i cannot afford to pay my basic living expenses if you take my money. you cannot get through the phone, then we are taking your basic -- not extraordinary or extravagant -- basic living expenses. no food, no housing. that is what we can do. that is the exercise, the power that the irs has, and it is not legitimate. it looks to the taxpayer like an illegitimate way of using power. if you're waiting on the phone anywhere from, on average, 25 minutes, and you are a low income person and you have a lunch break that my behalf in our, you know, you cannot wait for 25 minutes. in my be that you have a 45 minute wait. you will have to hang up and then bad things will happen to you. again, that drives even down to
3:17 pm
the more expensive use of resources on the collection site or the enforcement side or the taxpayer advocate side. any time we get a case and, we have two employees working that case it my employee and the irs employee that we are making do the right thing. ok? how cost-efficient -- someone was asking about return of investment and you can see the downstream consequences of failing to fund the phones. and there is no answer to the phones except more human beings. it is just a math problem. no matter how much we drive to the online process, there is an unmet demand research shows that there is an unmet demand for people who have problems and cannot get through to the irs and it cannot be solved online they need to talk to a person, and they cannot get to that person. the phones have not dropped. we had more hits on the refund online product.
3:18 pm
yet, our phones are still getting the calls with a different group of taxpayers with a different group of issues, excluding the 6.8 million that cannot even get through. when we come back to power for a minute. you cannot -- taxpayer trust in the irs and the legitimate use of power, i am more and more believing this is what drives of voluntary compliance. and as we walk away from the ability for taxpayers to talk to us and the ability of us to hear what taxpayers are saying, our options look increasingly arbitrary and capricious and the eligibility -- illegitimate use of power. and the absence of, decrease of auditors and collection personnel, that is what i believe is going to drive the compliance rate down.
3:19 pm
because they will take every opportunity they can to not report income, to not engage in us with us, to not feel like they are part of a greater civic whohole and that texas play a legitimate role in government or the government is sending a message that we cannot talk to you right now -- we are busy. you know, we're busy answering other calls. your call does not get through. how that feels to the individual taxpayer and how that translates into their actions going forward is, to me, the crisis in our tax administration system today. one last thing about this point about power -- as the irs moves to online and as it moves to automated enforcement activity and activity where there is no personal engagement between the irs employee and as the irs moves away from a physical
3:20 pm
presence in the state, there are today 13 states where there is no one located in that state to conduct outreach and education to small businesses. ok? no one person in that state, all right? that is a quarter of our states. as we become more and more remote then it is likely that the only interaction that taxpayers will have with an irs employee is when it is their time to do something bad to you they are trying to take your property. there is no one answering the phone to talk to you about why they should not be taking your property, that there are people that will come knocking on your door to take your property. what does that mean for the taxpayer's relationship and trust in the most powerful creditor that we have in the united states? just some things to think about. [applause]
3:21 pm
ted gayer: thank you. i am dave williams. i have worked at the irs the longest, actually, of the folks on the panel. i had a crew working in the u.s. senate and then working and tax administration at the irs. when i talk about some of this stuff, the very first tax bill on which i worked was the 1986 tax reform act. i had just come out of grad school and i worked on those revisions are that act lives in legend is the holy grail of tax reform them at least in myth. i do not think in fact that is the case, and it is certainly not an achievable goal today. when i worked at irs, i had the privilege of running the earned income tax credit program which
3:22 pm
for me, to this day is a really high on her because of what the program does for people. it is run through the tax code and has challenges, but the ability to say i was able to run one of the largest means tested anti-poverty programs in the world is a pretty cool thing. something about working at the irs, you have to think about it as the amazing things you can do for and with people, not just as a job. with that frame emma i left the irs a couple years ago and went back to capitol hill briefly and then went back to work for intuit. a comment about the company before make a few comments -- most companies think of it as the turbotax company, so the diy world. you might find it interesting to know we also sell tax software to more than 100,000 tax companies, professionals, very small companies but we also
3:23 pm
think about ourselves and are beginning to articulate it more as a full service company. some of the comments you will hear me make are intended -- still getting into that frame intended to think about the industry as a whole. a couple comments, one of the challenge at the rs -- at the irs speared the technology enablement is where i want to focus. i am hardened to hear some of the things about what is coming to the irs. i was also director of electronic tax administration. i think the commissioner may have used part of my speech from 10 years ago when we made some of this very same predictions. that is not a criticism. it is one of the things i always found challenging at the irs. there were things that were the program of the future and they always would be. [laughter] it is my hope that we have crossed that rubicon and we are at a point where we can begin to move forward.
3:24 pm
with that frame, the reality that you have heard from the others i think i have experienced and we need to recognize it as we look at a discussion about resources fear that is, the irs' abig and growing mission. it is complexity and our entire lives spirit complexity and things that, this year, have been particularly noticeable like the growth in tax projects. there is a threat that is a fabric of the tax administration ecosystem. it does not affect one company or one actor. it affects everybody and will affect our ability to administer the tax code going forward. more on that later, but i think the recognition of all that leads me to believe that there is not a solution i can be effectuated just by the irs. many of the problems or challenges i just mentioned, or by industry.
3:25 pm
there is an actor that is not here today that is becoming more and more apparent, which is all of the state the pilots of revenue. they'll have an incredibly important role in what i like to call the tax ecosystem. we talk about impacting the irs or we need to recognize there is a whole ecosystem out there of actors who are affected by changes in the environment in which we all have to cope and the environment specifically here in washington. i would note that the commissioner -- this is not the first on the commissioner has talked about using technology to help the irs be subjective. i am going to talk about technology, because i actually believe it will make an enormous difference in the ability of the irs and the entire tax ecosystem to meet customer needs, whether that is on the service side or the compliance side or a little bit on both. those are incredibly important. how many people in the audience have a flip phone? do not be shy. you can put your hands up.
3:26 pm
wait no one? both of you back there in the corner. when i think about a flip phone someone is checking -- is that a flip phone you have? i do not remember because i do not use it that much. when you think about technology, i want you to think about how quickly it moves. think about the word "innovation ." one of the challenges the irs and many places face is the speed with which technology evolves. it was a challenge when i was there. what has happened since that time is that technology has sped up. when i think about how we can help the irs and what the challenges are facing the irs and i think about technology, obviously, there is an incredibly important role industry can play in helping the irs and the entire text ecosystem meet the challenges
3:27 pm
that it faces. you have heard about the challenges. i fundamentally believe that there are ways the challenges can be met, whether it is the constrained budget environment we find today or an expansive budget environment that was probably in existence about the time i worked at the irs. i do not believe that irs can go without industry, partnership, and cooperation. a note folks have concerns about how one involves industry. i want to talk about that. i think it is very important that when we talk about partnership, we also understand that there are limits and there should be constraints or principles, which i will articulate about how the irs the states, and the ecosystem should work, and specifically, expectations of industry. when i asked about yourself cell phone, that was not just a joke. it brings to mind the fact that this device, which most of you
3:28 pm
probably have seen or even have an iphone 6 this thing is already out of date. it has been surpassed in the past to jerome at salon by several other devices, and this is the hottest thing in the market. this was the biggest thing around. i think the commissioner had it right -- the expectations people form in their daily lives are the ones they bring to their interactions with government. if you're used to the iphone 6 and using that as new and you are still looking at a flip phone, it is a challenge to break that barrier and actually communicate with people. industry can help irs leapfrog deliver benefits and experiences that the irs wants to deliver to its customers and taxpayers in ways that meet their expectations. i have one area -- before i articulate the principles, there is one thing i want to mention. i have actually come to believe this more and more. it is probably one of the areas
3:29 pm
where nina and i will somewhat disagree to it we disagree on a lot of things, but we're still quite good friends. i think, in general, people do not want to interact with the irs. i do not think that is a hard concept to grasp. i think it is pretty obvious. it is why virtually everyone either employees tax software or a preparer with the exception of nina olson and i expect other people in this room that take pleasure in doing their returns themselves. as you recognize that reality, you need to think about how we bridge our relationships with taxpayers to enable tax agencies to do what they need to do and provide the services. in that context, i think industry can they get huge difference but with guiding principles. allergic you articulate some of the proposals for you to think about as you think number one, clarity of goal. what are you trying question the
3:30 pm
more specific can be, the more effect you can be. we can all nod and smile, but how does one take service better? is it reduced time on the phones or average speed of answer? the more clear you can be, the better industry can help you with it. clear roles and responsibilities -- it's absolutely important when you think about tax fraud. the irs is a law enforcement agency. the industry cannot be a law enforcement agency. understanding what the role and responsibility is has to be caught -- has to be defined by the irs and state department of revenue. it also should the as you think about what you might require, it
3:31 pm
should be standards waste. if you are delivering a service through tax practitioners, it should be specific about what they should do. you should be looking at the outcome of the objective you are trying to achieve. what specifically are you trying to achieve and lastly, this is one i think is a principle that raises concerns when one talks about first -- talks about participation in the industry and that is taxpayers should be recognized to be the owner and controller of their own data. it is not industry and it is not government. it is there. -- it is there's. through industry or any other way, you should be thinking about the irs -- you should be thinking of the control and data and i have actually had my 10 minutes.
3:32 pm
i think we are moving to a panel discussion at this point. [applause]
3:33 pm
>> let me ask you to respond to dave on this question about technology. were you saying this is a bad idea or we have to be careful in how we do it and how should the service think about this new technology without getting into any kind of trouble? >> there's one thing the commissioner referenced and i've sort of been a broken record about this. my office did some research to look at who the taxpayers were and what the taxpayers were eligible called the low income tax credit program. congress has said you are eligible to get assistance from federal programs without
3:34 pm
dispute. 250% -- the taxpayer bases at or below 250% at the poverty level. that is our eta -- that is extraordinary. we did a profile of what are the characteristics of these taxpayers? this is the population we are saying give their prepares the ability to go online. these are the preparers who are on regulated, often unaffiliated with large chains, so there's no training, and we are opening up our account. our concern is the rush to go online that we are not thinking about the characteristics of these taxpayers and we are not coming up with a migration strategy so they are not dropped on the floor without any services provided to them.
3:35 pm
we were taking things that were previously freed because the irs provided them and should them to generally preparers because a lot of them don't have access to online themselves. nobody is going to do that for free. there's a cost involved. don't view it as a bad thing. technology is a great enabler. this is one of the consequences of the budget -- it drives us to draw services before we have a strategy to replace it and what happens to strategy in the meantime? trust lost is almost impossible to regain. how do you get them back into the system after that? you have to use data and
3:36 pm
psychology and sociology and all of those skills to understand the consequences of what the actions are and this shift to the future. we are not a bank. we are not an airline. we are the internal revenue service. we can do a lot worse things to you then you missing your plane. we have to keep that in mind when we talk about eliminating services for taxpayers. >> you talked about putting this together in a budget. can you talk about how much would cost to create this new system? >> i want to respond to a couple of points -- the last thing we have to worry about is rushing. it's a very long process. we have been forced to drop services before.
3:37 pm
i have been brought up short in how many times this has been said but it will be a fairly major investment and it will take a long time. one of nina possible points come a really critical one is that it really does involve a lot of work to figure out who are these taxpayers. we have no impression everyone will gain from technology. what we are trying to do is get ahead of such a low-tech response that we are inefficiently using people -- like the article were trained divisors were giving out deli line tickets for people trying to get into a tax assistance. we really do have to figure out
3:38 pm
a migration strategy and the idea is to bring up the people who are really needed. the hope is we can then get people on the things that do matter. it would be a major long-term investment. >> this is what worries me -- i hear talking to people in the service about technology and the process is so slow -- a design is built on rfp is put out and before it is even completed, the technology is obsolete. how can the service make this transition and a careful way? without getting caught in this trap of holding a system that's
3:39 pm
already out of date. >> a couple of things -- i think the irs has done a remarkable job on technology. speed matters. i believe we don't have a long time to wait. the irs has demonstrated its ability to manage technology. the addictions of cataclysms that were accompanying every discussion right up until the filing season vanished when you realize the irs had figured out most of the major problems and had dealt with them again. that said, i think speed matters a lot. ordering between business and government can make a difference both on the service side and i agree with nina and rosemary that not everyone is going to move.
3:40 pm
you need to think more carefully. i never let go of wanting to resolve some of the challenges -- i convinced the treasury and irs late last year to work on an experiment where we can use behavioral economics to prompt taxpayers who might be willing to fudge a little bit to make a choice. to actually run a real time experiment to determine whether we could help the irs with a small piece of a very specific goals. i think there are lots of those opportunities out there -- and this can be done on the tax practitioners side as well. there are many ways to think of interesting ways of innovating using technology. that's one example.
3:41 pm
>> let me switch gears a little bit and ask about this compliance issue. i talk to people out there who say taxpayers are getting more aggressive because they know -- are they be getting to see compliance problems? >> when you see what's happening in response to taxpayers, you have to worry. it's -- you can't really see it. there's enough measure, but we are very worried about that. that is the engine of the revenue projections to the u.s. government. it is high, it is effective and you don't come back after that. we really are worried.
3:42 pm
we will be doing another estimate now. as the commissioner said, if we pick up a change, it will be a noticeable change. this is the heart of the taxpayer effect. >> only 2% of the trillions of dollars the irs rings in is directly attributable to enforcement acts. 2%. all the other dollars are coming any do because of taxpayers services or the indirect effect of the enforcement action, the perception the irs is going to come out and get you. or that they might find you. it is hard to suss out exactly what the ratio of that is, but we have pulled the numbers over
3:43 pm
-- before 1998 through today we were talking about how many collections people they have and how many levees. it does not matter -- when they went down like this and stop issuing liens and levees -- it doesn't matter recession the collection activity regardless of your staffing regardless of your enforcement, it is stable. i have no explanation for that and that is one of my holy grail, how can i figured out finally? i don't know what the impact is going to be. i do know the conversations
3:44 pm
about the irs being a toothless tiger might have some risk-taking, particularly the population that does the greatest risk-taking. that's the hardest to find. we are going to go after the poor little people who are dear in the headlights because we can find them but we don't go after the people doing the most aggressive stuff because we can't find them. we don't have the training. enforcement revenue is $50 billion out of $3 trillion. on the case of tax fraud all the time, one of the things you learn is the breathtaking amount of attempts -- just breathtaking. the perception the service is not holding out against fraud
3:45 pm
where fraudsters are using the technology is a very big issue. we have sliced those numbers of thousand ways. it also takes five and six years to resolve a lot of cases. there's an enormous inertia in that data. that's not where the action is. but the perception and the reality that you are actually protecting them from a breathtaking level a growing list of fraudulent activity -- eventually you realize how important it is. it is not going after that person's exam. we would like to deal with those
3:46 pm
taxpayers we are not a punishment agency, we are the tax administration and those tax payers are paying high compliance. many are related to our technology. >> let me ask the policy question you discussed in your presentation. we were talking about all of these expensive and complicated ways to make the system work. is this chewing gum and rubber bands, as long as the tax code is so complicated and as long as the services being asked to do things with nothing having to do with tax collection? x i don't think so. obviously it costs a lot more to administer a complicated tax code.
3:47 pm
but the tax code is complicated because we want to do certain things. given that level of complication we are spending four cents on enforcement for every hundred dollars of revenue that comes in. we can afford to spend more we want to have a tax system that is a social welfare agency and accomplishes those goals. it is just a misdirection of resources. how much the irs is capable of doing a better job with more money, that is something my colleagues on the panel can probably address better than me. certainly with the cuts, they cannot do an adequate job.
3:48 pm
>> let's give everyone an opportunity to ask a few questions. >> i want to get back to the flip phone. my mother works with the irs. they were doing a major overhaul of the i.t. system and 10 years later, they were done. then they had a state-of-the-art computer system. for ever since then, that has been the case -- they are always behind in this. when i was at treasury, there was a tax expert with a proven ability to get this kind of stuff done. it seems like they need to do something fundamentally different than -- and maybe you were getting at that. how can i solve this technology problem?
3:49 pm
>> are you asking me? >> i guess i'm asking all of you. >> he's not trying to be the leader but we would like to get into the 21st century and we would certainly like to get out of cobol. i have been privy to some a conversations over the years that i do feel like the irs is making progress in this area. i think part of the problem is getting people to understand you are going to have to invest some dollars and you will see the immediate return on it. you have to show there is no cost to you investing those dollars will stop that's just not going to happen. it is a challenge for the irs. i have been privy to all the
3:50 pm
planning on the aca and one thing i saw that was really different is we had three years to get our act together and deliver something. it is amazing what it can do when it is given that time and is able to put a structure around the planning and having the oversight of contractors etc.. it has gone off relatively without glitch. when you get into the middle of the filing season, how do you do that to mark programming as people are filing their return will stop that is part of the thing -- you have to have the lead time. three years is a short lead time -- but you pick it up from there. >> particularly in government,
3:51 pm
we get involved in this reality that this is our government works. that is true. the irs has google pay authority and to which one can bring things into the public sector and those who were ready to run things because they knew how it worked. the ones who cannot see the constraint failed nine times out of nine times. what i'm about to say is not meant to be criticism of the agency, and this is based on my two years of experience in the private sector, so take it is -- so take it for what it is worth. i work in an industry where innovation happens in the pace of ours, where one can test in an environment a change certainly in the diy space. literally, trying to change
3:52 pm
things in a ways that -- in a way you can see and control the experiment. the mindset of having to move and innovate quickly is not something that's going to be grafted onto government has an immediate thing. however, bringing people in who understand the limited objective function and who also see problems differently, who are trying to think about solutions i think it is absolutely critical, and i would propose taking some of the executives from the irs and exposing them to a different world. that cross pollination would help at the margins. at the margins, that adds up to significant change. >> i'm wondering what we can learn from other countries --
3:53 pm
the united kingdom for example just announced they are going to file free system, everything online. approximately two dozen countries do pre-populated returns. do the tax administration systems in europe use computer systems from the 1960's? if not, why can they do it and we can't? >> i will take a stab at that one. the irs has had many opportunities in the past to decide whether they were going to do an online account, so we are behind the rest of the country. in the u k and other countries that have repopulated returns they have a pay-as-you-go system, so they are getting in real time throughout the year all of the data about withholding and wages and how
3:54 pm
many hours you are working because they at mr. the credits based on how many hours you are working and you are dealing with it will stop they have an amount of information that is coming. one of the ways the uk's going into this return and australia is looking at it is creating these huge, multi agency databases. i don't know that there was an appetite to have the government have all that information in one repository. that is a little terrifying. i don't think the employers of this country are willing to take on more responsibility other than the withholding, so you convert to a pay-as-you-go which is essential to being able to do this kind of administration. we don't know what the family makes. we did a little research to see
3:55 pm
how many taxpayers could do a plane, vanilla return that don't have a credit involved in it, it's actually not a lot of taxpayers. everyone is going to have to tell us something more. if you have accelerated information so you can get your wages and maybe you can move back return filing time at the start of the season, people could download the information into their software, give it to the preparer, downloaded or be archaic like me and printed out and look at the plane tax returns. you can do that and that would be a big advance. >> i chaired the taxpayer services group for three and a half years. the tax systems and cultural
3:56 pm
systems in the country that have either return free versions of it are extraordinarily different from us. nina touched on it -- it still tickles me every time i think about it -- i was visited by members of the korean administration who were interested in setting up an earned income tax credit for korea. i spent a lot of time extolling the virtues, talking about how it lifted so many people out of poverty and i also said there's a downside, which is 35% of the money goes out the door erroneously in one form or another over claims and they said why? there are two major elements that determine most of the value and that is who you live with, where, and for how long and how you are related to them. the guy looked at me and said that's not a problem for us.
3:57 pm
that was south korea, by the way. in all seriousness we have a system that is borne out which says the more third-party information reporting, the more compliant the taxpayer. when you build a system in which the critical elements of determining eligibility are unknown to the government, there's not a high comfort level with it will stop then you set up opportunities for problems where the system has to be in control of his or her tax situation. there is something very important about citizen engagement and it should not be lost. i fundamentally believe it's one of the few times people can actually look at how much they are making and what it means.
3:58 pm
i think we should be leveraging it which is why we partner with treasury where we are trying to use prop folks to look at the refunds and save some of it stop can we get them to do it? now they are working with the tax industry to try to do the same day. >> in sweden, the tax agency is the most respected government agency they have. it is a completely different culture and there's a sense of what you are getting back from the government. the government is giving you benefits by complying with taxes. that's why i started with my conversation about trust and legitimate power. it really relates to how much a tax them can do.
3:59 pm
>> the tax system we have is so opaque how can anybody trust something they don't understand? >> that is one of the reasons you do want tax reform. trust, transparency, trust is linked to compliance. i'm trying to get the hard data that shows it but i think it just stands to reason. >> we had systems like universal health care and health care credits. it is a lot of work for the taxpayer. if we had individuals filing instead of families violence -- family filing, it's a big determinant of making things
4:00 pm
printable in how much an individual owes. for constitutional region -- constitutional reasons and state reasons, we got into this with the community property where we had to move away from individual filing will stop you had in new zealand to rates and individual filing. it got you to the right answer and you don't have to worry about what your spouses making. if you did not have all these benefits going through the tax code, yes. i don't see us having that kind of reform because we are not going to eliminate these benefits. it's just not going to get to that level. >> i do want to come back and make some basic points about


info Stream Only

Uploaded by TV Archive on