THE HILL IS TAKING AN AX TO THE TAXMAN
If there was one bureaucracy that could always hold its own in Washington's budget wars, it was the Internal Revenue Service. The tax collectors offered Congress a deal it couldn't refuse: Give us more money, and we'll squeeze $3 out of tax scofflaws for every $1 we spend. Lawmakers, eager to raise cash without hiking taxes, have poured $750 million into tougher enforcement since 1990.
Suddenly, that charmed life is ending. After Labor Day, Congress will take an ax to the agency's 1996 budget. Why the about-face? All those years of stepped-up auditing didn't deliver the promised cash. Instead, they fueled the public's fury with a bureaucracy that symbolizes the intrusiveness of Big Brother. It's not just the antigovernment crowd that's leading the assault. Moderate Republicans--and some Democrats--are fed up with an agency that can't keep its own records straight and doesn't answer the phone for two-thirds of taxpayers who call for help.
CRANKY CUSTOMERS. Budget cuts may be the least of the IRS's worries. GOP tax reformers are intent on gutting the $8 billion, 112,000-employee agency. Flat-tax plans would wipe out the jobs of thousands of auditors and regulation writers. And even before the tax-reform debate that's expected to reach full steam in 1997, Senator Bob Kerrey (D-Neb.) is pushing the radical notion of privatizing tax collections. "We have to come to grips with an agency that does not have the incentives to make its customers happy," Kerrey declares.
For now, the fight is over auditing. On the block is the Compliance Initiative, a five-year effort to collect $9 billion in unpaid personal, corporate, and fuels taxes. The IRS got $405 million extra this year to add 5,000 agents to examine more returns and recover old debts under the program. But the House cut next year's spending by a third, to $266 million--and the Senate voted to kill it altogether.
The agency charges that only tax cheats will come out ahead. "Our compliance efforts are certainly going to suffer," warns IRS Commissioner Margaret M. Richardson. Adds Donald C. Alexander, agency chief under Presidents Nixon and Ford: "In this Congress, any agency that acts is charged with being `intrusive."'
But the IRS's reputation as one of Washington's most mismanaged agencies hasn't helped. On Aug. 4, congressional auditors concluded that the IRS has failed to balance its books for a third straight year. "The IRS has flunked its own audit," complains Senator John Glenn (D-Ohio). Funds that Congress earmarked for enforcement from 1990 to 1994 were diverted, while uncollected tax debts rose by 80%. Worse, a desperately needed overhaul of 1960s-vintage computers has been hung up in the bureaucracy for years. The result: Two-thirds of the $23 billion scheduled for modernization will go for patchwork measures to keep the old systems running.
IRS INC.? A miffed Senate has backed Kerrey's call for a Commission on Restructuring the IRS to consider such novel ideas as spinning off tax collection to a quasi-governmental corporation. But don't call up your broker to buy a piece of IRS Inc. just yet. The Clinton Administration opposes Kerrey's commission, and few in the House are ready to turn the agency over to outside control. "The IRS has plenty of overseers already," says departing Deputy Treasury Secretary Frank N. Newman.
But the mere talk of privatizing tax collection--a core role of government--signals the tough days ahead for the IRS. Sensitive to voters' antitax fever and hungry for deficit reduction, Congress isn't about to heed the agency's pleas for more money. The newly trained IRS auditors may indeed be hitting up business soon--for jobs, not back taxes.EDITED BY OWEN ULLMANN By Mike McNamee