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time to time with certain private sector organizations to do work that the Joint Committee staff does not have the time or the resources to do otherwise. In addition, the Joint Committee has contracted with a number of firms to help investigate issues involved in incorporating macroeconomic effects in the revenue estimates of certain major proposed tax law changes.
The purchase of equipment represents the single largest item of nonpersonnel expenses. The large volume of documents that the Joint Committee is required to produce during the legislative process requires that the Joint Committee staff have computer equipment necessary to produce documents quickly. In addition, the Joint Committee devotes significant resources to the preparation of revenue estimates, distribution analyses, and other economic analyses relating to proposed legislation. The nature of this work and the speed with which the staff is normally asked to complete its analyses requires that the Joint Committee staff utilize the most sophisticated and technologically advanced equipment. Thus, the staff finds it necessary to upgrade computer software and hardware frequently to enable the staff to provide the service required and expected by the Members of Congress. REVIEW OF JOINT COMMITTEE ON TAXATION OPERATIONS DURING CALENDAR YEAR 1997
Attachments A through D provide a summary of the activity of the Joint Committee for calendar year 1997. During 1997, the Joint Committee staff drafted fourteen Committee and Conference Reports (Statements of Managers) for the House Ways and Means Committee and the Senate Finance Committee. In addition, the staff drafted eight tax treaty Executive Reports for the Senate Foreign Relations Committee. A list of these committee reports and treaty Executive Reports is contained in Attachment A.
In 1997, the Joint Committee staff was actively involved in preparing materials for numerous tax committee hearing and markup documents, as well as committee and conference report explanations on tax-related legislation and tax treaties.
Tax legislative reports worked on by the Joint Committee staff relating to legislation enacted in 1997 included:
-Temporary extension of Airport and Airway Trust Fund excise taxes (H.R. 668).
and college education expenses, other education tax incentives, expansion of IRA's, capital gains and alternative minimum tax provisions, estate and gift tax revisions, extensions of certain expiring tax provisions, D.C. tax incentives, a welfare-to-work tax credit, expansion of empowerment zones, extension and modifications to the Airport and Airway Trust Fund excise taxes, certain corporate and other tax reforms, numerous tax simplification provisions, pension and employee benefit changes, extensive Line Item Veto Act analysis, and technical corrections for 1996 tax legislation. Balanced Budget Act of 1997 (H.R. 2015), which included revenue provisions relating to Medicare Medical Savings Accounts, tax treatment of certain hospitals, unemployment tax provisions, and increased tobacco excise tax rates. - Temporary extension of Highway Trust Fund (sec. 9 of S. 1519). In addition, the Joint Committee staff worked on several other tax committee reports on legislation that were considered by the tax-writing committees in 1997 but not enacted as of the end of the First Session of the 105th Congress. These included the following areas of tax legislation (also listed in Attachment A): -H.R. 2513 (restore and modify two revenue provisions canceled under the Line
Item Veto Act in H.R. 2014), which was passed by the House. -H.R. 2621 (revenue offset provision to the Reciprocal Trade Agreement Authori
ties Act of 1997). -H.R. 2644 (revenue offset provision to the United States-Caribbean Trade Part
nership Act). -H.R. 2645 (Tax Technical Corrections Act of 1997), which was included as an
amendment to H.R. 2676 as passed by the House. -H.R. 2646 (Savings Act for Public and Private Schools Education), which was
passed by the House. -H.R. 2676 (Internal Revenue Service Restructuring and Reform Act of 1997),
which was passed by the House. -S. 1173 (Intermodal Surface Transportation Revenue Act of 1997), which was
approved by the Senate Finance Committee. Further, the Joint Committee staff prepared hearing pamphlets and executive reports on 8 tax treaties for the Senate Foreign Relations Committee. On a less formal basis, the Joint Committee staff assisted various nontax-writing Committees of the House and Senate during 1997. Specifically, the Joint Committee staff prepared certain written materials for the House Subcommittee on Housing and Community Opportunity of the House Committee on Banking and Financial Services with respect to certain HUD programs (and Joint Committee Chief of Staff Kenneth J. Kies testified before that Subcommittee). In addition, the Joint Committee staff prepared a study on utility restructuring for the Senate Committee on Energy and Natural Resources, and provided extensive support to the House and Senate Committees with jurisdiction over the District of Columbia in connection with the work of the Congress relating to the District, in addition to testifying before the House Subcommittee on the District of Columbia.
In addition to its work on committee and conference reports, the Joint Committee staff published 92 documents during 1997, including pamphlets and other documents prepared for committee hearings and markups and conference action (see Attachment B). Included in these documents was the General Explanation of Tax Leg. islation Enacted in 1997, a 549-page comprehensive explanation of all tax legislation enacted in 1997.
The 1997 publications included the Joint Committee staff's annual report on estimates of Federal tax expenditures for fiscal years 1998–2002. Other publications included an analysis of the provision of the Line Item Veto Act relating to limited tax benefits, a staff study of entity classification and partnership tax issues, and a staff review of Federal income tax issues arising in connection with proposals to restructure the electric power industry. Also included in 1997 publications was a document regarding the Joint Committee staff's Tax Modeling Project and Tax Symposium Papers, which discussed the feasibility of incorporating macroeconomic effects into Joint Committee staff revenue estimates.
During 1997, Joint Committee staff members spent extensive time conducting an investigation of whether the Internal Revenue Service's (“IRS”) selection of tax-exempt organizations described in Internal Revenue Code sections 501(c/3) and 501(cX4) (and individuals associated with such organization) for audit has been politically motivated, including an analysis of the selection of such tax-exempt organizations for audit for reasons related to their alleged political or lobbying activities. We, along with Senator Moynihan and Congressman Rangel, directed the Joint Committee to conduct this investigation in March 1997; this investigation represents an important exercise of the Joint Committee on Taxation's statutorily prescribed duty of oversight of the administration of the Federal tax system. The Joint Committee staff spent extensive time during the spring and fall of 1997 on this investigation. The investigation involves the review and inspection of several hundred boxes of IRS case files, as well as the interview of IRS personnel, taxpayers, and taxpayer representatives. While much of the work can be performed in Washington, D.C., travel to other parts of the country to interview witnesses and review files is also required.
The Unfunded Mandates Reform Act of 1995 imposed certain procedural requirements in the House and Senate with respect to mandates imposed on either the private sector or on State and local governments. Under procedures developed in coordination with CBO, the Joint Committee staff is required to provide an estimate to the CBO of the direct costs of complying with any such mandates contained in revenue legislation considered by the Congress.
During 1997, the Joint Committee received over 2,000 requests for revenue estimates (see Attachment C). Many of the requests received in 1997 involved complex proposals relating to alternative tax structures and proposals under consideration as part of the Taxpayer Relief Act, the Balanced Budget Act, and restructuring of the IRS, all of which required significant time on the part of the Joint Committee's legal and economics staff. In the course of considering the Joint Committee's fiscal year 1998 appropriation request, questions were raised as to whether the Joint Committee staff was providing adequate assistance to all Members of Congress requesting it. We are attaching (Attachment D) to this letter a summary of Joint Committee responses to revenue estimate requests broken down by Ways and Means Committee, Senate Finance Committee, Non Ways and Means Committee, and Non Senate Finance Committee and subdivided further into Democrats and Republicans. Current staffing and funding levels for the Joint Committee on Taxation enable the Joint Committee staff to respond to approximately 66 percent of revenue estimate requests; Attachment D demonstrates that the Joint Committee staff responds to requests received from all Members of Congress. Although the Joint Committee staff response rate is slightly higher for tax-writing committee members, we believe this is principally attributable to the large number of amendments that are considered when either of the tax-writing committees marks up revenue legislation.
One of the statutorily mandated functions of the staff of the Joint Committee is the review of IRS refunds or credits of income tax, estate and gift tax, or any tax on public charities, foundations, pension plans, or real estate investment trusts in excess of $1,000,000. The Joint Committee staff reports on each such refund case and makes comments or recommendations with respect to the proposed refund case to the IRS. During 1997, the Joint Committee refund staff reviewed 602 cases involving $6.1 billion in proposed refunds. The Joint Committee staff raised concerns in 88 cases (or approximately 15 percent of the cases). Errors identified by the Joint Committee staff produced a net reduction in refunds of $14.3 million in 1997; the average annual reduction in refunds for the last 7 years is $9.8 million. One IRS region reported to the Joint Committee refund review staff that savings in excess of $20 million had been achieved from corrections made before cases were submitted to the Joint Committee as a result of memoranda that had been written in earlier cases. A copy of the Joint Committee staff's 1996 Refund Review Operations Report (other than sections containing confidential taxpayer information) is included as Attachment E. SUMMARY OF ANTICIPATED WORKLOAD OF THE JOINT COMMITTEE ON TAXATION FOR
CALENDAR YEAR 1998 During 1998, it is expected that the Congress will return to consideration of various alternatives to the present income tax laws (such as flat taxes and different types of consumption taxes) that have been or will be introduced. Some background work on such tax restructuring proposals has been done in recent years, but we expect that this work will be intensified in 1998, as new proposals are introduced and existing proposals are refined and modified. Because these proposals involve a complete restructuring or replacement of the current Federal tax system, the economic and legal analysis of such proposals can be extraordinarily complex, requiring substantial staff time. We expect that Congressional consideration of these initiatives will place critical and unique demands on the staff of the Joint Committee to provide revenue estimates and legal and economic analyses.
It is also expected that legislation to reform and restructure the IRS, which was passed by the House in 1997, will be considered by the Senate and enacted in 1998. This is a major piece of legislation, involving the complete restructuring of the way in which the IRS is managed by the Executive Branch and Congress, and contains, as well, an array of taxpayer rights and protections and the modification of presentlaw IRS procedures relating to collection and enforcement of taxes. Not only will the Joint Committee staff be responsible for the development of this legislation, but, if enacted with provisions similar to those in the House bill, the legislation will place new burdens on the Joint Committee staff. The Joint Committee has estimated that the version of the legislation passed by the House will initially require the resources of a minimum of 3.5 FTE's. Over the long term, we estimate that this legislation would require on an ongoing basis a minimum of 2.5 FTE's. The new burdens that would be placed on the Joint Committee staff include the requirement to prepare new studies and reports, oversee joint hearings of Congressional committees with jurisdiction over IRS matters, and prepare a tax complexity analysis with respect to every piece of tax legislation.
As mentioned above, along with Senator Moynihan and Congressman Rangel, we have directed the staff of the Joint Committee to investigate whether the IRS's selection of tax-exempt organizations described in Internal Revenue Code sections 501(cX3) and 501(cX4) (and individuals associated with such organization) for audit has been politically motivated, including an analysis of the selection of such tax-exempt organizations for audit for reasons related to their alleged political or lobbying activities. This investigation was initially begun in 1997, and it was initially ex pected that the investigation, as well as the written findings, would be completed during 1997. However, work on the investigation had to be suspended during the summer of 1997 because of the work of the Congress on the Taxpayer Relief Act of 1997. Work on the investigation is again continuing, and will be completed in
1998. The investigation involves the review and inspection of several hundred boxes of IRS case files, as well as the interview of IRS personnel, taxpayers, and taxpayer representatives. While much of the work can be performed in Washington, D.C., travel to other parts of the country to interview witnesses and review files is also required. The investigation and preparation of the written report involves the work of approximately 5.0 FTE's.
The Joint Committee devotes substantial resources to the preparation of revenue estimates, distribution analyses, and other economic analyses relating to proposed revenue legislation. During 1997, Members of Congress were increasingly interested in the revenue estimation process, particularly the possibility of incorporating macroeconomic effects in revenue estimates, and we expect that this interest will continue in 1998. Determining whether this can be done and, if so, how to do it, will require substantial resources. Currently accepted estimation processes do not account for macroeconomic effects, and there is no consensus in the economic community about how, and whether to, account for such effects. The Joint Committee staff has already taken steps to improve the estimating process and determine the feasibility of incorporating macroeconomic effects. These steps include providing more disclosure regarding the estimation process to Members of Congress, determining whether proposals are likely to have significant macroeconomic effects, consultation with the Joint Committee on Taxation revenue estimating advisory board as to the feasibility of incorporating macroeconomic effects in revenue estimates, and contracting with macroeconomic forecasting firms for the purpose of developing estimating models that might be used to estimate the macroeconomic effects of certain proposed major changes in the Federal tax laws. The Joint Committee staff held a conference of economic advisors in 1997 to review the results of the macroeconomic forecasting firms. It is anticipated that this review will help determine the feasibility of using such forecasting models and aid in the development of models that may be used by the Joint Committee staff. The ability of the Joint Committee staff to continue these efforts in 1998 will be impaired if funding at the requested level is not provided.
The Line Item Veto Act of 1996 imposed a new statutory responsibility on the Joint Committee staff to identify limited tax benefits contained in any Conference Report considered by the House or Senate and to prepare a statement for inclusion in every Statement of Managers to identify any limited tax benefit. The Joint Committee was required to exercise this statutory responsibility for the first time in 1997. While the amount of time the Joint Committee is required to devote to complying with the requirements of the Line Item Veto Act will vary depending on the nature of tax legislation considered and adopted by the Congress, the experience of the Joint Committee staff in 1997 demonstrates that the Act imposes substantial burdens on the Joint Committee. Identifying the list of limited tax benefits for inclusion in the Statement of Managers involves complicated analyses by almost every member of both the legal and economics staff of a nature not generally otherwise required in the consideration of revenue legislation. In addition to preparation of the this statement, Members of Congress have begun to request determinations of whether proposals under consideration would be identified as limited tax benefits. Providing this information to Members involves the same analysis required in preparation of the formal list of limited tax benefits. Finally, in the event items identified as limited tax benefits are vetoed by the President, the Joint Committee staff is involved in the reconsideration and modification of the vetoed provisions.
After the publication of the President's fiscal year 1999 budget, the Joint Committee will be required to provide its own analysis and revenue estimates of the revenue provisions of the budget.
During 1998, the requirements imposed under the Unfunded Mandates Reform Act of 1995 will give rise to a continuing responsibility of the Joint Committee staff to provide an estimate to the Congressional Budget Office of the direct costs of complying with mandates on the private sector or on State and local governments that are contained in revenue legislation considered by the Congress.
Under the regulatory reform bill recently enacted, a process of Congressional disapproval applies to certain executive branch regulations, rulings, and other pronouncements. The House Ways and Means Committee and the Senate Finance Committee have asked the Joint Committee staff to review all tax regulations and similar guidance submitted to the Congress under the regulatory reform legislation and to report to the Committees on any issues that might be appropriate for Congressional disapproval.
To fulfill the goals of the House and the Senate to make Congressional information more accessible, the Joint Committee recently set up its own internet web site. This enables individuals not only to obtain information about the Joint Committee and certain Joint Committee publications and activities, it also provides links to the sites of Members of the Committee. It is expected that work perfecting this web site will continue in 1998, and that regular updates will be provided in order to make current information available. Although this is not a significant component of the Joint Committee staff work, maintaining this web site in order to provide current information about the work of the Joint Committee for the benefit of Members of Congress, their staffs, and the general public will require some additional staff time.
As always, the Joint Committee staff will continue to have an integral role in tax aspects of Federal budget deliberations and in any tax legislation considered by the Congress. It is anticipated that the Joint Committee staff will assist in the development and analysis of legislative proposals, and prepare markup documents, Committee reports and conference reports (Statements of Managers) with respect to any tax legislation.
CONCLUSION Mr. Chairman, we will continue to rely on the staff of the Joint Committee to provide us with their technical support. This superb staff has a demonstrated track record of service to the Congress. The appropriation request for fiscal year 1999 is intended merely to provide the necessary resources for the Joint Committee staff to respond promptly and adequately to the requests for assistance that it receives from the Members of Congress and to maintain its current level of services.
We respectfully urge the Members of your Subcommittee to respond favorably to the Joint Committee's request for funding for fiscal year 1999.
ATTACHMENT A.-1997 Tax-RELATED LEGISLATIVE REPORTS WORKED ON BY THE
STAFF OF THE JOINT COMMITTEE ON TAXATION
TAX COMMITTEE AND CONFERENCE REPORT EXPLANATIONS H.R. 668 (Airport and Airway Trust Fund Reinstatement Act of 1997). H. Rept. 105-5 (House Ways and Means Committee report on bill to provide temporary extension of Airport and Airway Trust Fund excise taxes).
H.R. 1226 (Taxpayer Browsing Protection Act of 1997). H. Rept. 105–51 (House Ways and Means Committee report on bill to prevent unauthorized inspection of tax returns or tax return information).
H.R. 2014 (Taxpayer Relief Act of 1997). H. Rept. 105–148 (House Budget Committee report on revenue reconciliation provisions as approved by the House Ways and Means Committee).
H.R. 2014 (Taxpayer Relief Act of 1997). H. Rept. 105–220 (Conference report on the Taxpayer Relief Act).
H.R. 2015 (Balanced Budget Act of 1997). H. Rept. 105–149 (House Budget Committee report on revenue provisions of budget reconciliation provisions as approved by the House Committee on Ways and Means).
H.R. 2015 (Balanced Budget Act of 1997). H. Rept. 105–217 (Revenue provisions of conference report on the Balanced Budget Act).
H.R. 2513 (Restore and modify revenue provisions canceled under the Line Item Veto Act). H. Rept. 105–318, Part I (House Ways and Means Committee report on restoring two revenue provisions canceled under the Line Item Veto Act).
H.R. 2621 (Reciprocal Trade Agreement Authorities Act of 1997). H. Rept. 105– 341, Part I (House Ways and Means Committee report on revenue offset provision in trade "fast track” bill).
H.R. 2644 (United States-Caribbean Trade Partnership Act). H. Rept. 105–365 (House Ways and Means Committee report on revenue offset provision of Carbbean trade bill).
H.R. 2645 (Tax Technical Corrections Act of 1997). H. Rept. 105–356 (House Ways and Means Committee report on tax technical corrections).
H.R. 2646 (Savings Act for Public and Private Schools Education). H. Rept. 105– 332 (House Ways and Means Committee report on bill to allow tax-free expenditures from education accounts for elementary and secondary school expenses).
H.R. 2676 (Internal Revenue Service Restructuring and Reform Act of 1997). H. Rept. 105–364, Part I (House Ways and Means Committee report on bill to restructure the IRS and reform IRS procedures).
S. 949 (Revenue Reconciliation Act of 1997). S. Rept. 105–33 (Senate Finance Committee report on revenue reconciliation provisions).
S. 1173 (Intermodal Surface Transportation Revenue Act of 1997). Explanation for the Congressional Record of Senate Finance Committee amendment to S. 1173, providing a revenue title to extend the Highway Trust Fund and Trust Fund taxes.
TAX TREATY EXECUTIVE REPORTS
Taxation Agreement With Turkey. Exec. Rept. 105–6 (Executive report for the Senate Foreign Relations Committee).
Taxation Convention With Austria. Exec. Rept. 105–7 (Executive report for the Senate Foreign Relations Committee).
Taxation Convention With Luxembourg. Exec. Rept. 105–8 (Executive report for the Senate Foreign Relations Committee).
Taxation Convention With Thailand. Exec. Rept. 105–9 (Executive report for the Senate Foreign Relations Committee).
Tax Convention With Switzerland. Exec. Rept. 105–10 (Executive report for the Senate Foreign Relations Committee).