IRS's appropriation for tax systems modernization.

On June 14, 1994, Tax Executives Institute submitted the following comments to the Senate Appropri on the Clinton Administration's appropriation request for the Internal Revenue Service's tax systems initiatives. The comments, which took the form of a letter from TEI President Ralph J. Weiland to Se chairman of the Appropriations Committee, were filed after the House Appropriations Committee reduce approximately half a billion dollars.

On behalf of Tax Executives Institute, I am writing to urge the Senate Appropriations Committee, and Congress as a whole, to restore critical funding at the Internal Revenue Service for its tax system modernization (TSM) program. Adequate funding of TSM is essential to the IRS's efforts to "reinvent itself" and otherwise operate in a manner that imposes fewer burdens on American tax-payers.

Tax Executives Institute is the principal association of business tax officials in North America. The Institute's nearly 5,000 members work for the 3,000 largest companies in the United States and Canada. TEI is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. The Institute is committed to maintaining a tax system that works ae one that builds upon the principle of voluntary compliance, is consistent with sound tax policy, one that taxpayers can comply with, and one in which the IRS can effectively perform its audit function without unduly burdening taxpayers.

TSM is the government's long-term strategy to modernize the IRS computer and telecommunications systems, which support both the administration of the tax laws and the operation of the IRS itself. The IRS's current information systems are based in large measure on 1960s technology and resemble nothing so much as a patchwork that cannot be expected to carry the tax system into the next century.

The last three Administrations (two Republican and one Democratic) have supported TSM as essential to reducing unnecessary costs, inefficiencies, and burdens on the tax collection process and on taxpayers generally. Thus, while there may be disagreements over specific facets of TSM, we believe there is a strong bipartisan consensus that the initiatives as a whole are necessary to foster voluntary compliance, reduce burden, and give taxpayers a tax system in which they have confidence.

TSM is an integrated, multi-year initiative, and the failure to adequately fund TSM programs in any one year could have long-term repercussions. For this reason, TEI is disappointed by the recent decision of the House Appropriations Committee to cut more than $500 million from the Administration's fiscal year 1995 budget request. This reduction could delay the benefits of TSM indefinitely and potentially undermine the overall success of the IRS's technology initiatives. We are doubly disappointed because the reduction in the funding was prompted not by any determination that the funds would be ill-spent, but by the bogey man of the 1990s "budget reality."

TEI sincerely believes that reducing the TSM appropriation to offset money spent on other initiatives is the equivalent of robbing Peter to pay Paul or, worse yet, robbing Peter's children to pay Peter. If the proposed reduction of the TSM budget stands, it will be only the latest manifestation of legislative myopia. Too frequently in the last decade the Internal Revenue Code has been amended seemingly only to satisfy the short-term need for "revenue offsets," and the result has been tremendously complicated provisions that frustrate the twin goals of enhanced compliance and sound tax policy. TEI regrets the extension of that unfortunate condition to the TSM budget. The Institute does not mean to deprecate the need for the government to control its budget deficit, but we do suggest that blindly slashing the TSM budget would be short-sighted. Like substantive provisions of the tax laws, funding requests (or proposals to cut funding) should be judged on their merits. Thus, TEI joins Representative Steny Hoyer, the chair of the House Appropriations Subcommittee on the Treasury, Postal Service, and General Government, in believing the reduction "is not good policy."

For the foregoing reasons, Tax Executives Institute recommends that Congress restore the Administration's budget request for tax systems modernization.

If you should have any questions about this matter, please do not hesitate to call either Michael J. Murphy, TEI's Executive Director, at [phone] or me at [phone].