Clinton, GOP at Odds Over 15% IRS Cutback

Championing the Internal Revenue Service may not be at the top of President Clinton’s agenda as he campaigns for reelection while his opponents regularly vilify the impact of “big government” on tax-weary voters.

Yet today, as the House debates a Republican-sponsored spending bill that cuts back the maligned agency, the White House finds itself precisely in that spot.

On one level, the debate will center on proposed cuts in a controversial program to modernize the IRS’ creaky old computers that critics have blasted as a multibillion-dollar fiasco.

Yet on another level, this is a fiercely ideological dispute over the future of a powerful agency that embodies the federal reach into the lives of Americans. Republican critics of the IRS are trying to slash the president’s request for the agency by 15%, eliminate thousands of jobs and, in the process, strike a blow against what they see as wasteful government.

“It is a no-brainer vote,” said a GOP staffer in Congress. “You can’t find one American to stand up and say the IRS is doing a great job.”

Arrayed on the other side are those who argue that ravaging the agency would have the perverse effect of making it less effective and more unfair.

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“Deep cuts to the IRS may do grave damage to our ability to collect revenue, enforce the tax laws and continue to provide the services that taxpayers have a right to expect,” Treasury Secretary Robert E. Rubin cautioned recently.

The House bill represents an embarrassment to an agency that until last year had expanded constantly since the 1930s. Among other things, it would require the IRS to turn over the contracting responsibility for its computer modernization program to the Defense Department, which has greater experience in managing complex contracts, though not without its own history of controversy.

The bill, part of the annual appropriation for the Treasury Department, would provide $6.75 billion to the IRS for fiscal 1997, a 15% cut from Clinton’s request of $7.99 billion and a sharp reduction even from last year’s $7.35 billion. But by some estimates, the IRS would lose as many as 7,000 of its 106,000 employees.

In resisting the proposals, the Clinton administration has hinted at a possible veto and warned that the budget cuts would have serious consequences, including the sacrifice of up to “$4 of lost revenue for every dollar of reduced funding.”

The administration, however, acknowledges that not everyone shares the goal of collecting more tax revenue as a way of cutting the budget deficit. “It’s awkward, all right,” said a Treasury aide.

For true-believer conservatives, the issue of IRS funding whets their appetite to overhaul the tax code. Proponents of sweeping tax overhaul--replacing the system with either a flat tax or a tax on consumption rather than income--have advanced the vision of a smaller, tamer IRS as a selling point.

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“If we can’t have major tax reform legislation this year or maybe even next year, perhaps we can make some major attacks on the bureaucracy itself as a nice first step,” said Scott Hodge, a senior budget analyst for the Heritage Foundation, a conservative Washington research group. “By attacking the IRS, they are attacking the symbol of Big Brother, big government, bloated bureaucracy.”

Some House Republicans believe the IRS is in league with federal labor unions to protect IRS jobs. Indeed, labor leaders have expressed strong opposition to the cutbacks.

“This is an effort to cripple the IRS,” said Robert M. Tobias, president of the National Treasury Employees Union, one of the largest federal unions, with 67,000 IRS members alone. “They want to provide a justification at a later time for a flat-tax system because of the IRS’ inability to run the current system.”

Tobias said he expects the House to approve the Republican-sponsored budget cuts but is banking on the Senate to reverse the House action.

Few experts dispute that the IRS has serious problems. When the congressional General Accounting Office audited the IRS, for example, it found the tax agency’s books did not balance.

Rep. Jim Ross Lightfoot (R-Iowa), chairman of the House subcommittee that controls IRS funding, has said that the IRS has already squandered about $4 billion out of its ambitious $20-billion computer modernization program, with little to show for it.

In one embarrassing episode in April, the IRS was forced to pull the plug on a new electronic filing system that had let taxpayers file returns over the Internet after it was discovered the system was riddled with security risks. Rubin admitted to Congress earlier this year that the program was mired in “very serious problems.”

“The IRS’ budget has increased every year since the 1930s, and they never thought it could get cut,” a congressional expert said. “If Lightfoot succeeds, it will wake up the IRS like nothing ever has.”