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Irs Reform May Get Lost In The Dust Of Battle

Washington Outlook


When it comes to the Internal Revenue Service, the Clinton Administration and Congress agree on one thing: The agency is in desperate need of an overhaul to become more efficient and customer-friendly. But that's where the consensus ends. The Treasury Dept. and Capitol Hill are heading for a furious struggle over whether the Treasury or an independent board should run the agency.

The IRS is now semi-independent. But last March, Deputy Treasury Secretary Lawrence H. Summers proposed that Treasury take complete control of the agency by installing its own management experts, replacing top officials, and restructuring personnel policies. But the idea has fallen flat on the Hill. By June, the co-chairmen of a bipartisan commission on IRS reform are expected to recommend that the agency be turned over to an independent board of directors and that Treasury's authority be sharply limited.

The co-chairmen, Representative Rob Portman (R-Ohio) and Senator Bob Kerrey (D-Neb.), say that the Treasury has never managed the IRS well, and they have little confidence that strengthening Treasury's hand would improve matters. Since Treasury's commitment to reform shifts with the political winds, Portman argues, "there needs to be much more consistent direction from the top."

KNIVES OUT. In recent years, the IRS has been blasted for wasting more than $400 million on a flawed computer-system upgrade and frequently antagonizing taxpayers while--at the same time--failing to collect more than $100 billion in back taxes. The IRS has also become a juicy target for tax-wary conservatives, who want to cut the agency's budget, further eroding its ability to collect taxes.

Under the Kerrey-Portman plan, the nine directors--three Administration appointees and six outsiders chosen by Congress--would have vast powers. They would control the IRS budget, set management goals, and review the agency's performance. They also would hire and fire top managers, including the commissioner, who would be appointed to a fixed term that is not concurrent with the President's. The Treasury would retain responsibility only for rulemaking and other tax policy decisions. It would surrender management of day-to-day operations to the new board.

GOP PUSH. Horrified Administration officials are lobbying hard to sink the plan. Says a senior Clintonite: "The Secretary of the Treasury is in a better position to oversee the agency than any part-timers appointed to a board."

The Treasury is also trying to fend off a push by commission Republicans to endorse a laundry list of complex laws targeted for change or elimination. Among them: the earned income tax credit, which benefits the working poor, and the alternative minimum tax, which prevents wealthy taxpayers from using loopholes to escape paying any taxes. "If we do not address simplification, we will have not done our job," says House Ways & Means Committee Chairman Bill Archer (R-Tex.), whose panel must act on the proposals. The Administration, backed by some Democrats, wants the commission to make only a vague commitment to a simplified code.

But the real battle will be over control. It's a Washington turf fight--but with major impact outside the Beltway. The IRS affects more Americans than any other federal agency, and who runs it will determine how it goes about doing its business. Kerrey and Portman hope their plan will get the IRS out of the line of political fire and give it the tools it needs to become more effective and less intrusive. Treasury's plan has the same goal. But unless the two sides compromise, their clash will delay reforms that are already long overdue.EDITED BY OWEN ULLMANN By Howard GleckmanReturn to top


Investors and companies anticipating juicy tax cuts under the balanced-budget deal should lower their expectations. The White House and GOP congressional leaders agreed to cut taxes on capital gains and estates, expand IRAs, and give credits to families with young children and college students. That could cost up to $221 billion over five years and $560 billion over 10, according to a Democratic analysis of estimates by Congress' nonpartisan Joint Committee on Taxation. Trouble is, the budget pact allocates only $135 billion in tax cuts through 2002 and $250 billion through 2007. "There's no way to achieve all these things" and comply with the budget deal, warns Representative Robert T. Matsui (D-Calif.).

The upshot: a lobbying free-for-all as interest groups jockey to preserve their cherished tax cuts. A Big Business/Wall Street coalition is pressing for a broad-based cut in cap-gains taxes. "Our big concern is that they don't just ease cap gains for individuals and not for corporations," says Paul R. Huard, senior vice-president at the National Association of Manufacturers. The Holy Grail for small business, repealing estate taxes, is too expensive. Instead, the exemption could rise gradually from $600,000 to $1.2 million. The $500 child credit would survive, but may be limited to kids under 13 in middle- and lower-income families.

While scrambling for tax cuts, Gucci Gulchers will also have to fend off new hikes: The budgeteers agreed to close $100 billion in corporate loopholes over the next decade.EDITED BY OWEN ULLMANN By Amy Borrus and Howard GleckmanReturn to top

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