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I will be happy to respond to any questions that you may have. If I do not know the answer, which will probably be the case, I will call on Lindy.
[The statement follows:]
PREPARED STATEMENT OF REPRESENTATIVE BILL ARCHER AND SENATOR BILL ROTH
Mr. Chairman, we appreciate the opportunity to submit this written testimony to the Subcommittee on Legislative Branch of the Senate Committee on Appropriations on behalf of the fiscal year 2000 appropriation request for the Joint Committee on Taxation (the "Joint Committee”).
The funding we are requesting for the Joint Committee on Taxation represents the minimum amount necessary to finance the operations of the Joint Committee for fiscal year 2000. The Joint Committee provides essential services to the Congress that are not duplicated by any other Congressional or Executive Branch office. Failure to provide the requested funding will jeopardize the ability of the Joint Committee to provide these necessary services.
We want to thank the Subcommittee for its continued recognition of the important role that the Joint Committee plays in the development of revenue legislation. We are pleased that the Subcommittee has repeatedly acknowledged the needs of the Joint Committee, and we hope that the Subcommittee will continue to support the operations of the Joint Committee for fiscal year 2000.
Key points relating to the fiscal year 2000 appropriation request are as follows: -The Joint Committee is requesting an appropriation for fiscal year 2000 of $6,256,000, an increase over the fiscal year 1999 appropriation of $290,600. This represents a 4.87 percent increase over the fiscal year 1999 appropriation. $223,000 of this amount will be allocated to cost-of-living increases for personnel expenses and the remaining $67,600 will be allocated to proposed increases in nonpersonnel expenses. -The Joint Committee's appropriation for fiscal year 1999 of $5,965,400 is less than the $6,019,000 appropriated to the Joint Committee for fiscal year 1995. Despite this reduction in the Joint Committee's appropriation, increased responsibilities have been assigned to the Joint Committee under the Internal Revenue Service Restructuring and Reform Act of 1998 (the "IRS Reform Act"). The Joint Committee estimated during consideration of the IRS Reform Act that these additional responsibilities would require approximately $290,000 of additional staff resources annually.
-The Joint Committee is requesting an additional 1.5 FTEs for fiscal year 2000 to hire additional staff economists. These economists will assist in the preparation of revenue estimates so that the Joint Committee is able to respond to more Member requests. In addition, the additional FTEs will enable the Joint Committee to devote more staff resources to the effort to develop macroeconomic estimating capability.
-Under section 4002(a) of the IRS Reform Act, subject to amounts being specifically appropriated for this purpose, the Joint Committee is required to report at least once each Congress to the Senate Committee on Finance and the House Committee on Ways and Means on the overall state of the Federal tax system, together with recommendations with respect to possible simplification proposals and other matters relating to the administration of the Federal tax system. We leave to the Subcommittee's discretion whether to appropriate additional amounts to the Joint Committee for this purpose for fiscal year 2000. The Joint Committee estimates that this additional responsibility would require an additional annual appropriation of $200,000 and 3 FTE's.
Additional details relating to this appropriation request are provided below.
SUMMARY OF FISCAL YEAR 2000 APPROPRIATION REQUEST
The following summarizes the Joint Committee's appropriation request for fiscal year 2000:
Total fiscal year 2000 request
DETAILS OF FISCAL YEAR 2000 APPROPRIATION REQUEST
Cost-of-living-A 3.3 percent cost-of-living adjustment for calendar year 1999 and a 4.4 percent cost-of-living adjustment for calendar year 2000 are requested. This request would increase the appropriation for personnel expenses for fiscal year 2000 by $223,000 over the fiscal year 1999 appropriation.
Additional FTEs.-An increase of 1.5 additional FTEs is requested for the Joint Committee for fiscal year 2000. These additional FTEs would be used to hire additional Joint Committee staff economists to assist in the preparation of revenue estimates to respond to Member requests. These additional FTEs would not only enable the Joint Committee to respond to more Member requests, but would also allow the Joint Committee to devote additional resources to the effort to develop the capability to incorporate macroeconomic effects in Joint Committee revenue estimates for major tax legislation.
Further, increased responsibilities have been assigned to the Joint Committee as a result of the Internal Revenue Service Restructuring and Reform Act of 1998 (the "IRS Reform Act"). Under the IRS Reform Act, the Joint Committee is required to prepare a complexity analysis of all revenue provisions of widespread applicability to individuals and small businesses. In addition, the IRS Reform Act requires the Joint Committee to provide staffing and an annual report in connection with annual joint hearings of six Congressional committees on the operations of the Internal Revenue Service. These hearings will occur during calendar years 1999 through 2003. Finally, the IRS Reform Act mandated that the Joint Committee conduct a study of the present-law protections relating to disclosure of tax returns and tax return information. This study is due January 22, 2000, which will require the Joint Committee to expend personnel resources on this effort during a portion of fiscal year 2000. These additional responsibilities will place a significant drain on the personnel resources of the Joint Committee. During consideration of the IRS Reform Act, the Joint Committee estimated that these added responsibilities would require approximately $290,000 of personnel resources per year.
No additional appropriation is requested to fund these additional FTEs. The FTEs can be funded out of the requested personnel appropriation through reclassification of certain Joint Committee positions and the replacement of departing higher paid employees with entry level professional staff.
If the Subcommittee approves these additional FTE's, the Joint Committee's staffing level of 65 FTEs would be less than the level of FTE's authorized for the Joint Committee in any fiscal year between 1980 and 1996.
In general.-An increase of $67,600 is requested for fiscal year 2000 relative to the fiscal year 1999 appropriation. In addition, the Joint Committee's expenses in various categories have been reallocated to reflect more accurately the actual expenses that are anticipated in these categories.
Rent, communications, and utilities.-The Joint Committee request proposes to reallocate $55,000 from this category to other categories for fiscal year 2000. The amount requested in this category for fiscal year 2000 represents an accurate estimate of the actual expenses that the Joint Committee will incur.
Other services. It is requested that $29,000 be reallocated to this category from other categories for fiscal year 2000. The increase in this category is attributable to projected increased needs of the Joint Committee to secure consulting services in connection with the efforts to develop macroeconomic estimating capabilities. This project requires substantial resources. In addition to the work of Joint Committee staff, it is necessary for the Joint Committee to contract with macroeconomic forecasting firms to assist in the development of economic models that will permit the calculation of such macroeconomic effects.
Further, the needs of the Members for immediate responses to requests for revenue estimates and the substantial volume of requests that the Joint Committee staff receives each year places limitations on the ability of the Joint Committee staff to perform certain work necessary for the preparation of revenue estimates. To perform efficiently, the Joint Committee staff has found it necessary to contract from 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.
Finally, the Joint Committee may find it necessary during fiscal year 2000 to contract for consultant services in connection with Joint Committee plans to update its document tracking system software and hardware; this project is discussed more fully in the equipment category below.
Supplies and materials. It is requested that $24,000 be reallocated to this category from other categories for fiscal year 2000. The requested increase in this category is attributable to the cost of purchasing new on-line information resources for the use of the Joint Committee professional staff. It is essential that the Joint Committee staff have available the most sophisticated research tools available for tax professionals. This expense ensures that the Joint Committee staff has access to the same resources that private sector tax lawyers and economists utilize on a daily basis. The amount requested for fiscal year 2000 in this category reflects a relatively modest increase over the actual expenses for fiscal year 1998; the amount allocated to this category for fiscal year 1999 is below anticipated actual expenses.
Equipment. An increase of $69,600 is requested for fiscal year 2000 over fiscal year 1999 for the purchases of new equipment. Anticipated expenses in this category include $60,000 for hardware and software maintenance; $50,000 for Xerox maintenance and usage costs; and $150,000 for the purchase of document scanners, CDROM writers, and other storage for expansions of the Joint Committee's document tracking system.
In 1994, the Joint Committee implemented a computerized data base to track Member requests. The Joint Committee hopes to begin upgrades to this data base system during fiscal 1999 that will lead to the purchase of computer hardware (such as scanners) and software during fiscal year 2000 to implement these upgrades. Once the upgrades are complete, the Joint Committee will have the capability of maintaining a complete electronic record of each request received from a Member of Congress and to determine at any time the status of such request.
The purchase of equipment represents the single largest item of nonpersonnel expenses for the Joint Committee. The large volume of documents that the Joint Committee is required to produce during the legislative process requires the use of sophisticated and technologically advanced computer and reproduction equipment. The Joint Committee staff finds it necessary to upgrade computer software, hardware, and reproduction machines frequently to ensure that Members receive adequate service.
REVIEW OF JOINT COMMITTEE ON TAXATION OPERATIONS DURING CALENDAR YEAR 1998
Attachments A through E provide a summary of the activity of the Joint Committee staff for calendar year 1998. This included work on Committee and Conference Reports (Statements of Managers) for the revenue-related legislation considered by the House Committee on Ways and Means and/or the Senate Committee on Finance and conference action on revenue-related legislation. A list of these committee and conference reports is contained in Attachment A.
Tax legislative reports
Tax legislative reports worked on by the Joint Committee staff relating to legislation enacted in 1998 included:
-Extension and modification of Highway Trust Fund tax provisions (revenue title in H.R. 2400, Transportation Equity Act for the 21st Century).
-Internal Revenue Service Restructuring and Reform Act of 1998 (H.R. 2676), which included major revisions of numerous IRS administration, taxpayer compliance and taxpayer rights provisions, revenue offsets, and technical corrections to recent tax legislation.
-Tax and Trade Relief Extension Act of 1998 (revenue provisions of H.R. 4328, the Omnibus Consolidated and Emergency Supplemental Appropriations Act, 1999).
-Internet Tax Freedom Act (S. 442 as reported by the Finance Committee, included in the conference report for H.R. 4328).
The Joint Committee staff also worked on several other reports on tax legislation considered by the tax-writing committees in 1998 but not enacted. These included the following areas of tax legislation (also listed in Attachment A):
-H.R. 1432 (revenue-offset provision relating to the employer deduction for severance pay in the African Growth and Opportunity Act), which was passed by the House.
-H.R. 3249 (Federal Retirement Coverage Corrections Act), which was passed by the House.
-H.R. 4250 (revenue-offset provisions in the Patient Protection Act of 1998), which was passed by the House.
-H.R. 4579 (Tax Relief Act of 1998), which was passed by the House.
-H.R. 4738 (Extension of Expiring Provisions and Other Tax Relief), which was passed by the House.
-S. 1133 (Parent and Student Savings Account Plus Act), which was reported by the Finance Committee and passed by the Senate as an amendment to H.R. 2646 (see below).
-H.R. 2646 (Education Savings and School Excellence Act of 1998), the conference report for which was passed by the House and the Senate in 1998 but vetoed by the President.
-S. 1415 (Tobacco Settlement), which was reported by the Finance Committee and considered by the Senate.
JCT staff publications
In addition to its work on committee and conference reports, the Joint Committee staff published 82 documents during 1998, 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 Legislation Enacted in 1998, a 320-page comprehensive explanation of tax legislation enacted in 1998, and also a Summary of Revenue Provisions Contained in Legislation Enacted During the 105th Congress.
The 1998 staff publications included the Joint Committee staff's annual report on estimates of Federal tax expenditures (for fiscal years 1999-2003). Other publications included a staff study on tax amnesty proposals, analysis of proposals for restructuring of the Internal Revenue Service, analysis of individual effective marginal tax rates, proposals to reduce the marriage tax penalty, revenue provisions contained in the President's fiscal year 1999 budget, and issues relating to estate and gift taxes, the individual alternative minimum tax, capital gains, tax incentives for savings, tax provisions relating to health care and qualified pension plans, and tax complexity for small business.
JCT staff investigations and refund review
During 1998, the Joint Committee staff continued its investigation (started in 1997) of whether the Internal Revenue Service's ("IRS") selection of tax-exempt organizations (Code secs. 501(c)(3) and 501(c)(4)) and individuals associated with such organizations 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 represents an important exercise of the Joint Committee's statutorily prescribed duty of oversight of the administration of the Federal tax system.
An on-going, statutorily mandated function 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 reviews and reports on such refund cases and makes comments or recommendations with respect to the proposal refund case to the IRS. The Joint Committee is moving from a calendar year to fiscal year reporting of refund activity. Therefore, statistics for 1998 contained in Attachment E are presented for the period January through September. During this period of 1998, the Joint Committee refund staff reviewed 439 cases involving $4.8 billion in proposed refunds. The Joint Committee staff raised concerns in 55 cases (or approximately 12.9 percent of the cases). Errors identified by the Joint Committee staff produced a net reduction in refunds of $20.4 million in 1998, as compared to $14.3 million in 1997. The average annual reduction in refunds for the last 8 years is $11.1 million.
Revenue estimates and related analysis
Attachments C and D show data relating to the Joint Committee's revenue estimating activity for calendar year 1998. The Joint Committee received 2,729 requests for revenue estimates during 1998, the largest number of requests ever received in a single year. These requests represent a 32 percent increase in the number of requests over 1997. The Joint Committee staff disposed of 85 percent of the requests received.
Since 1985, when data on revenue estimate requests was first compiled, the number of requests received annually has increased by 684 percent.
ANTICIPATED WORKLOAD OF THE JOINT COMMITTEE ON TAXATION FOR CALENDAR YEAR 1999
During 1999, the Joint Committee's workload will be at least equivalent to what it has been in the past several years. The Joint Committee will be extensively involved in legislative proposals to provide broad-based tax relief to the American tax
payers, expiring tax provisions, and social security reform. The Joint Committee staff will (1) develop legislative proposals, (2) assist in the drafting of such proposals, (3) provide revenue estimates for numerous legislative options and amendments, (4) prepare markup documents and committee reports, and (5) provide additional economic analysis to the Members.
In addition to this anticipated legislative activity, beginning in 1999, the Joint Committee will assume new responsibilities under the IRS Reform Act. The Joint Committee staff is now required to prepare a complexity analysis for inclusion in Committee and Conference reports for all revenue legislation. In addition, the Joint Committee staff is required under the IRS Reform Act to conduct two studies during 1999. The first study relates to the present-law system of penalties and interest and is required to be completed by July 22, 1999. The second study relates to the rules governing disclosure of tax return information and is due by January 22, 2000. Finally, the Joint Committee is required to prepare materials for the use of the Congress in connection with joint hearings relating to the operations of the Internal Revenue Service that will occur during calendar years 1999-2003. These additional responsibilities will require significant staff resources.
Mr. Chairman, we hope that you will approve the appropriation request of the Joint Committee on Taxation. We believe that this request is the minimum amount necessary to fund the operations of the Joint Committee during fiscal year 2000. These resources will not only fund the day-to-day operations of the Joint Committee staff, but will also be used to continue our efforts to develop macroeconomic estimating capabilities and to perform the additional responsibilities of the Joint Committee mandated by the IRS Reform Act. If the requested funding is not provided, then difficult decisions will be required concerning what staff activities can and should be funded. We hope that this Subcommittee will not force the Joint Committee to make these decisions.
Mr. Chairman, we recognize fully the budgetary constraints that make your work so difficult. At the same time, we hope that you will appreciate the important role the Joint Committee on Taxation plays in the analysis and development of tax legislation. We firmly believe that the nonpartisan technical tax experts on the Joint Committee staff provide a service to the Congress that is not and cannot be duplicated by any other Congressional office. Their work every year proves this.
We respectfully urge the Members of the Subcommittee to respond favorably to the Joint Committee's funding request for fiscal year 2000.
ATTACHMENT A.-1998 TAX-RELATED LEGISLATIVE REPORTS WORKED ON BY THE STAFF OF THE JOINT COMMITTEE ON TAXATION
A. TAX COMMITTEE REPORT EXPLANATIONS
H.R. 1432 (African Growth and Opportunity Act). H. Rept. 105-423, Part 2. (House Ways and Means Committee report on revenue provision for the bill relating to employer deduction for severance pay).
H.R. 2400 (Surface Transportation Revenue Act of 1998). H. Rept. 105-467, Part 3. (House Ways and Means Committee report on extension and modification of Highway Trust Fund tax provisions).
H.R. 2676 (Internal Revenue Service Restructuring and Reform Act of 1998). S. Rept 105-174. (Senate Finance Committee report on IRS restructuring provisions and tax technical corrections).
H.R. 3249 (Federal Retirement Coverage Corrections Act). H. Rept. 105-625, Part 2. (House Ways and Means Committee report on the bill).
H.R. 4250 (Patient Protection Act of 1998). Technical explanation of tax provisions for House Floor consideration of the bill (see JCX-56–98).
H.R. 4579 (Tax Relief Act of 1998). H. Rept. 105-739. (House Ways and Means Committee report on tax reduction and tax technical corrections provisions).
H.R. 4738 (Extension of Expiring Provisions and Other Tax Relief). H. Rept. 105– 817. (House Ways and Means Committee report on extension of expiring tax provisions, revenue offsets, and tax technical corrections).
S. 442 (Internet Tax Freedom Act). S. Rept. 105-276. (Finance Committee report on amendment to the bill).
S. 1133 (Parent and Student Savings Account Plus Act). S. Rept. 105-164. (Senate Finance Committee report on education savings accounts, other education-related tax provisions, and revenue offsets).
S. 1415 (Tobacco Settlement). No official report. (Technical explanation of Finance Committee amendment to the bill).