Chairman RANGEL. Thank you. I will ask staff to put together a summary of the bill of rights, including the one offered by the Citizen's Choice, for the subcommittee members' consideration.

This simplified tax collection system, have you drafted it? Is anything reduced to writing?

Mr. BELL. Yes, sir. We will forward that to you. We have commissioned the Hudson Institute and Dr. Herman Kahn of that institute to do an overview study for us of the four principal alternative tax methods that have been suggested by economists and others over the years.

The National Forum will meet again in early July to review these four recommendations, and we will then try to select the best of those that we can. We will have another study on that, and we will, of course, forward all of that information on to the committees.

Chairman RANGEL. Thank you, Mr. Duncan.

Mr. DUNCAN. I want to thank you. Although you were last, you may have been the best. Rather, close to last. We thank you for staying with us. You have been a good witness.

Mr. BELL. Thank you.

Mr. DUNCAN. Your alternatives, does that include your four alternatives?

Mr. BELL. Mr. Duncan, perhaps the most discussed right now is what has been called a flat-rate tax system, which would exempt the very poor, and have low marginal rates of taxation of a single rate for everyone, which is estimated under the Hall and Rabuska plan that has been produced by the Hoover Institute to be about 19 percent across the board and would create a little in excess of the revenues needed for 1982, for the 1982 budget.

The flat-rate tax system has a lot of advantages in that it doesn't penalize savings and investment, and in fact, makes those things more valuable to the individual.

The entire compliance form is about the size of a post card. We have attached a sample of that to our testimony and a news release, which I think is available here in the committee room.

It would encourage people to produce more, because the rate would stay the same. It would eliminate tax deductions almost in their entirety which we understand is a tough political battle to wage, but we think a necessary one.

You both know the billions and billions of dollars that are being diverted from worthwhile business and industry and cause today, in order to go into shelters and to try to avoid paying the high marginal rates that exist.

Other cash flow or consumption taxes, as they have been called, have been recommended, some combined with a value added, some that stand on their own. I don't claim to be a tax expert with regard to exactly how the perfect system should work, but I do have, honestly and seriously, I believe, from going to these 10 cities, from talking to these thousands of witnesses, that the Congress is not yet, though almost, quite aware of how serious the situation has gotten, how blatant people are now becoming about their willingness and in fact their industriousness to discover new ways to avoid paying their taxes, and if there is $125 billion in lost revenues this year, and there was supposedly $85 billion the year

before that, it is easy to start adding those numbers up, and see how serious this problem could become very soon.

Mr. DUNCAN. We have had some research on that in the committee, and it shows that perhaps the middle-income taxpayers would pay a greater burden in the tax system than any other group. Do you find that true?

Mr. BELL. Yes, sir, very definitely, and I think that this middleincome taxpayer that was always the backbone of the system, the good, solid American that went to work every day and who wanted to pay their fair share and do their part, as inflation has pushed them up into the 30- 40-, and 50-percent brackets, they literally have less take-home pay, though they are making substantially more money they can do less for their family, and it has developed a very bad feeling among these taxpayers.

Mr. DUNCAN. Our research shows if they are penalized more, they would pay more than they are paying now.

Mr. BELL. Under a flat rate?

Mr. DUNCAN. Yes.

Mr. BELL. Well, sir, what we have discovered and I want to reemphasize that these are preliminary figures, we have discovered that on 1980 data, which is the last data that we had available to us, that the middle-income taxpayer by and large would be much better off in terms of spendable dollars.

There are marginal rates that might be a little bit higher, but the reason that their marginal rate might be a little higher is that they have brought their marginal rate down under the present system through the various and sundry deductions that are available to them. If it was real dollars we are talking about they would have more money in their pockets, and as we have gone around talking about the system to middle-income taxpayers, steel mill workers and auto plant workers prior to their present problems admittedly, they were very enthusiastic about a system that they knew from the first day what their tax rate would be for that year, and they didn't have to play what they felt were the duck's games that they are playing now.

Mr. DUNCAN. How would you meet the objections of the educational institutions and the charitable institutions that would not receive deductible contributions under that system?

How would you answer the argument of educational institutes that they would not receive as much in donations?

Mr. BELL. You heard the same questions I heard. This year when you reduced the marginal rate from 70 to 50 percent the charitable institutions and universities said, "My goodness, this is going to dry up all of our alumni giving and we will be in big trouble." I saw a study last Thursday that said giving for the last 6 months is up 16 percent over the previous year. I don't think people give money to charitable organizations to avoid taxes. They invest in tree farms, oil and gas leasing, various and sundry other leasing techniques, and tax avoidance charitables that are available, but the charitable giver is a charitable giver. If they have the money, they will give it.

Mr. DUNCAN. Thank you.

Chairman RANGEL. Mr. Klepner, thank you for your patience, and Mr. Connery, national president of the National Treasury Employees Union.

Good to see you again.

STATEMENT OF VINCENT L. CONNERY, NATIONAL PRESIDENT, NATIONAL TREASURY EMPLOYEES UNION, ACCOMPANIED BY JERRY KLEPNER, DIRECTOR OF LEGISLATION, AND PAUL SUPLIZIO, LEGISLATIVE CONSULTANT

Mr. CONNERY. Thank you. It is a pleasure on my part as well. I am accompanied here today, on my far right, by Paul Suplizio, a legislative consultant for NTEU; and on my immediate right by Jerry Klepner, NTEU's director of legislation.

I have a statement which has been submitted, and I would like to simply summarize that statement, Mr. Chairman.

Chairman RANGEL. Without objection, Mr. Connery.

Mr. CONNERY. I have sat here all afternoon and during much of the day heard IRS upbraided by various and sundry people. I have been, for 15 years, the national president of the National Treasury Employees Union, which represents virtually all IRS employees nationwide as well as about 97 percent of the other Treasury bureaus. Today, as in most days, you wait a long time to hear someone say anything complimentary about an IRS worker. And we don't get much in the way of support. I have been coming

Chairman RANGEL. Except from this committee?

Mr. CONNERY. That is right, Mr. Chairman. That is right. I have been testifying on behalf of our union for many years. I have been making much of the same recommendations year after year. And much of what is in our statement this year was in my statement back in 1968. The fact of the matter is that the most pressing need that IRS has at the present time is additional money. They simply do not have enough money to make that system work.

I know that the Commissioner is under great constraints and has to come up here, as did his predecessors. I have now been through, I think, seven Commissioners of Internal Revenue during my term of office. And they have to come up and say that whatever OPM or OMB says this is what they can do and that they can do a great job with this money.

Years later when you run into them on the street, they say, "you know how the system works, Vince. You have to say that." But the fact is this system is badly in need of funding. This administration, as well as prior administrations, have not been providing for the growth in the taxpayer population. They have not been taking any cognizance of the growing resistance of the taxpayer population to which we made reference.

I have clear reference to that in my 1970 testimony, because you could see it coming. You could see this coming in the 1960's when I was a revenue agent on active duty. And as several people, like Mr. Anderson, and Mr. Bell perhaps mentioned, that many people do not want to pay taxes no matter what the tax rate is.

And speaking of tax rates, and so forth, I can well recall as a younger IRS agent hearing Coleman Andrews, the IRS Commissioner, circa 1954, say that he was going to simplify the taxpaying

system. The fact of the matter is, and I wish anybody the best of luck, but this country has an incredibly complex economy. What is one man's deduction is another man's money.

You can't simplify, in my judgment, a system this complex and make it any more understandable to citizens or any fairer to its citizens. This system has been workable over the years, although it has had its fits and starts, of course. It has some problems. But the fact of the matter is that they deal, as witnesses have remarked, with millions of people every year. There are a number of problems-I know your committee, every time they have a meeting like this, you get all of the looneybins in the country. But the fact of the matter is that this system works well when you consider they are working so short handed down there. And I might mention, the last 6 years, I believe, starting with 1976, has had different major revenue acts.

Now just imagine yourself as a revenue agent out there in the field or maybe giving a businessman a call on the phone to tell him I have his 1979 and 1980 returns assigned to me for examination. For heaven's sake, I am dealing with a couple of different Revenue Acts, all in the same audit. On top of that, there is a host of legislation that has been legislated into the Tax Code. This presents incredible complexities.

And more, when you close a case, take the agreement, if you get an agreement for the taxpayer and close a case for the IBM setup, it takes as much to fill out the various blanks as it did years ago to work the case. This is a very, very complex age we live in.

And we are dealng with an increasingly mean streak populace. There are a lot of people out there. I said that last year when I was here, I remember. And some of my good friends here confirmed that today.

I would ask anybody how would you like to be working at IRS and have 22 million of them out there? You know it is very, very difficult. And the IRS agent, Professor Storer, for example, said that the IRS agent is well taken care of. He compares IRS with all of the accounting firms and so forth.

I say to you, absolute nonsense. Nonsense. The average of the CPA firms, the public accounting firms in Professor Storer's own area in Los Angeles, start at $16,000, $18,000 a year. IRS starts from grade 5 and grade 7, $10,000, $12,000 a year. There is no comparison.

And on top of that you consider where that 5 or 7 gets to go. To grade 13. You are talking about a $30,000 a year job, grade 13, handling the biggest complex audits in the United States. You are auditing Texaco, Ford Motor Co., United States Steel. Grade 13, big deal. Then have everybody throwing darts at you and everything else. So it is a very, very tough job and no one is waxing right on it.

It is amazing. It is amazing that the quit rate is only 12 percent or thereabouts. And that would break most public accounting firms if they had that kind of a quit rate. IRS is running one of the biggest schools in the United States for the public accounting firms and the law firms. These guys go in there, get all of this tax knowledge, and anybody with smarts could get to be handling some pretty responsible stuff very quickly. And before long, bang; they

are just snapped up by these public accounting firms and by these law firms just as quickly as you can bat an eye.

Friends of mine on the outside who are executives with big 8 public accounting firms have told me that they will make an offer to anybody with IRS that is worth anything. Because the firms are all in big, big trouble. They are worried sick about all of the legal decisions regarding their liabilities on audits.

These big 8 accounting firms are worried sick. Their shortage is where the work is being done, at the audit level, not in the big suite, executive office's of the firms, but where the work is being churned out.

The shortage is really tough, and anybody that shows any smarts at all, they are grabbed up. IRS is losing them right and left; their best men are being made big, big offers and they are going for it right and left.

I didn't hear that touched on today and I wanted to mention it, because they are really hurting on that. And so, our organization does appreciate the understanding and cooperation that this committee has always given. So, in closing, Mr. Chairman, let me say that until the IRS is granted resources equal to its responsibilities, it is fruitless to rail against the policy of the Service.

The problems associated with the IRS cannot be resolved until the agency is funded at an adequate level. We ask this subcommittee to do all in its power to assure that the tax system of this country can be allowed to function in an efficient and just fashion. We thank you very much for this opportunity.

[The prepared statement follows:]