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THE FEDERAL PAPERWORK JUNGLE
MONDAY, JUNE 1, 1964
HOUSE OF REPRESENTATIVES,
Washington, D.C. The subcommittee met, pursuant to adjournment, at 10 a.m.,. in room 215, Cannon Office Building, Hon. August E. Johansen (ranking minority member) presiding.
Mr. JOHANSEN.' The committee will come to order.
We will need a maximum amount of time for our witnesses this morning and, therefore, I shall be as brief as possible with my opening statement.
Let me limit my remarks to where our hearings stand, the future schedule, and some insertions I want to make in the record.
Our subject, of course, is reducing the reports and paperwork the Federal Government requires of businesses, manufacturers, and the public. We have heard from Members of Congress and from public witnesses at hearings in Albany, N.Y., May 1; Chicago, Ill., May 8; and in Washington on May 19 and 20 of this year. Our schedule from this point forward is in two parts: today, tomorrow, and Wednesday, June 1, 2, and 3, when we will complete the testimony of public witnesses and start hearing Federal departments and agencies.
We will then resume with the agencies on June 19 and continue June 22, 23, and 24. We are hopeful that we can conclude at that time and get on with the preparation of our subcommittee report.
Should changes occur or should additional hearings be scheduled in Washington or out of town, we will notify the press.
Our witnesses this morning are Mr. John Marshall, executive vice president, National Association of Dairy Equipment Manufacturers, Washington, D.C.; Mr. Walter F. Ryan, Deputy Chief, Office of Statistical Standards, Bureau of the Budget, accompanied by Mr. Paul F. Krueger, Assistant Chief, Economic Statistics, Office of Statistical Standards, and Mr. David E. Cohn, Assistant Chief and Clearance Officer, Office of Statistical Standards, and Mr. Bertrand M. Harding, Deputy Commissioner, Internal Revenue Service.
Before calling the first witness and without objection, I should like to insert in the record a number of letters and enclosures the subcommittee has received, including statements from Congressman Marsh of Virginia and Congressman Nelsen of Minnesota. I will also insert at this point an exchange of correspondence between Chairman Olsen and Hon. Mortimer M. Caplin, Commissioner, Internal Revenue Service, on the subject of paperwork in the IRS.
(The material referred to follows:)
PREPARED STATEMENT OF HON. JOHN O. MARSH, JR., A REPRESENTATIVE IN
CONGRESS FROM VIRGINIA
I am most appreciative, Mr. Chairman, of this opportunity to submit a short statement in connection with the highly important effort of this distinguished subcommittee to slash away some of the underbrush in the “paperwork jungle” in the interest of businessmen and citizens generally.
The recordkeeping and report-filing demands of the Federal Government have given rise to one of the most persistent complaints coming to me as a Member of the Congress. It is unnecessary for me to recite to this subcommittee the specifics of these complaints, for it is well known that these paperwork demands have so proliferated through the years as to create a substantial cost factor in the operations of business. This is particularly serious in the case of the small, independent business having a minimum of office staff.
Having followed the hearing testimony to date with great interest, I merely want to assure you at this time, Mr. Chairman, of my most earnest support of the subcommittee in its efforts, and of my desire to cooperate in any way which might be appropriate.
As of possible interest, I take the liberty of quoting an exchange of correspondence I had on this subject earlier this year:
FEBRUARY 20, 1964. The PRESIDENT, The White House, Washington, D.C.
DEAR MR. PRESIDENT: As you have recognized in public statements, and in directives to Federal departments and agencies, Federal paperwork require ments have become a significant cost factor in business. The burden has become particularly oppressive to small business, because of the necessity of investing an increasing proportion of a small office force in responding to official requests for information received from the Federal Government.
Based on the contacts I have had with business people during travels in my congressional district, I find that there is particular objection to the growing complexity of forms distributed by (1) the Bureau of the Census; (2) the Internal Revenue Service; and (3) the Federal Trade Commission.
To a lesser extent I received complaints from business people placed under demand for data by the Interstate Commerce Commission and other agencies.
It is recognized, of course, that these inquiries have been based on law. On the other hand, some involve extension of discretionary authority which might seem to go beyond that intended by the Congress in prescribing guidelines for the collection of information.
In years past, the two Hoover Commissions made some worthwhile recommendations toward the reduction of paperwork, and I write at this time to make respectful suggestion that it might be worth while to consider the establishment of an interagency committee to examine the entire list of Federal recommendations, perhaps including modification of existing statutes, leading toward an overall reduction in the number and complexity of forms required to be filled out and submitted by the small businesses of the Nation.
It occurs to me that some of the information being gathered, particularly by the Bureau of the Census, is of value to limited segments of the economy, and well might be collected under the private auspices of such segments as required the information, without cost to the general taxpayer.
I want to assure you of my support in your efforts to reduce Federal paperwork and advance the efficiency and economy of the Federal Establishment. With every good wish, I am, Respectfully yours,
JOHN O. MARSH, Jr.
MARCH 31, 1964. Hon JOHN O. MARSH, Jr., House of Representatives, Washington, D.C.
DEAR MR. MARSH: This is in further reply to your letter to the President dated February 20, dealing with the reporting burden placed on industry, particularly small business, by requests for data from Federal agencies.
In your letter you noted the impact of a growing number and complexity of forms used by the Government and suggested the establishment of an interagency committee to study this situation and to make recommendations leading to elimination or simplification of report forms, thereby reducing the amount of information obtained by the Government.
You will be glad to know that on March 10, 1964, the President called upon the heads of executive departments and agencies to undertake a special review of all current reporting requirements with the objective of simplifying or, where possible, of eliminating reports. Copies of the President's memorandum on this subject and the bulletin issued by the Bureau of the Budget providing guidelines for the conduct of the review are enclosed for convenient referenc.
The Federal Reports Act of 1942 requires that every executive agency of the Government (with a few specified exemptions; e.g., the Internal Revenue Service) obtain approval from the Bureau of the Budget for any request for information to be sent to 10 or more respondents. In carrying out its review responsibilities under the act, the Bureau has had access to business experience and knowledge of industry recordkeeping practices through its Advisory Council on Federal Reports which is sponsored by the American Retail Federation, the American Society of Association Executives, the Chamber of Commerce of the United States, the Financial Executives Institute, and the National Association of Manufacturers. The Advisory Council, through its many committees representing manufacturing, transportation, retail, wholesale, and the service trades, is regularly consulted by the Budget Bureau on important survey proposals.
The President in his memorandum of March 10, noting that the machinery set up by the Federal Reports Act has been helpful in controlling reports required by Federal agencies, stated : “Nonetheless, I consider it timely and constructive to launch a special review of all current reporting requirements at this time." I believe that this special review effort by all agencies will achieve the objective that you had in mind in suggesting the establishment of an interagency committee.
Your support of the President's efforts to reduce paperwork and to achieve efficiency and economy in Government operations is very much appreciated. Sincerely yours,
KERMIT GORDON, Director, Bureau of the Budget.
CONGRESS OF THE UNITED STATES,
HOUSE OF REPRESENTATIVES,
Washington, D.C., May 20, 1964. Hon. ARNOLD OLSEN, Chairman, Subcommittee on Census and Government Statistics, Post Office and
Civil Service Committee, House of Representatives, Washington, D.C. DEAR MR. CHAIRMAN: I am enclosing a letter which I have received from Mr. H. C. Simmons, president of Gopher Grinders, Inc., of Anoka, Minn., commenting adversely on the reporting requirements of the Department of Commerce and other agencies of the Federal Government.
I would appreciate your making Mr. Simmons' letter a part of the hearings record of your subcommittee in connection with your current hearings. Sincerely yours,
Member of Congress. GOPHER GRINDERS, INC.,
Anoka, Minn., May 15, 1964. Hon. ANCHER NELSEN, House of Representatives, Washington, D.C.
DEAR CONGRESSMAN NELSEN : We are again "burnt to a crisp" after receiving a form from the U.S. Department of Commerce, Bureau of Census, which is a voluminous report of manufacturers. This report demands the most confidential information which should be of no interest to anybody in Washington and could be used for very sinister purposes and we resent making out such a stupid, involved, lengthy report.
I wish that you would get one of these from the Department of Commerce, Bureau of Census, and have a look at it and then realize the hours and hours
of time that it takes to dig into our records in an honest effort to comply with the request to fill out this report form. It has taken our bookkeeper 4 solid days now and the work is not completed and we think that this is an imposition on us that should be knocked in the head and killed deader than a doornail, because we see no reason in a free economy why any snooping Bureau should have the type of information which they demand and I assure you when you see this report you will realize that it is nothing short of a nightmare and it comes to us annually and I know that anyone in our Congress who will lead the fight to get this Bureau knocked out of existence will enjoy the blessing of every manufacturer in the Nation.
Coupling this with the many necessary reports to the Department of Internal Revenue and the various Government agencies and State agencies just about brings us to the breaking point, and we are sure that many others feel exactly the same way. In the upper left hand corner to start this form out are the pleasant few words, and I quote, “Penalties for Failure To Report."
Any action that you feel free to take in behalf of getting this sort of thing knocked out of existence will earn the undying gratitude of thousands of people, and you can be sure of that. Respectfully yours,
H. C. SIMMONS.
FEBRUARY 28, 1964. Hon. ARNOLD OLSEN, House of Representatives, Washington, D.C.
DEAR MR. OLSEN: I have noted with both interest and concern your extended remarks which appeared in the Congressional Record of February 8, 1964, with respect to the ADP program of the Internal Revenue Service, and in particular our efforts to implement the 1962 congressional mandate for comprehensive use of information documents to enforce dividend and interest reporting. As your committee observed in its report of October 1963, the paperwork problem in the Government is enormous, and I agree fully with your view that automatic data processing offers extensive possibilities of coping with this problem. My concern stems from the absence of any recognition in your statement of recent progress made by the Service toward bringing under control one of the largest paperwork operations in existence. In view of this, I believe that you might like to receive firsthand information that bears importantly on the more salient aspects of the matter.
If I am interpreting your remarks correctly, you seem to have misgivings as to the capability of the Service to cope effectively with the large volume of paperwork involved in the process of collecting over $100 billion in revenue. As is well known, the volume of paper involved in these operations did not originate with the adoption of the ADP system. Indeed, it was the growing avalanche of paper which prompted the Service, in common with other large organizations both governmental and private, to seek an answer through resort to electronic machines and techniques. With the tools available before the adoption of ADP, the Service
1. Was unable to verify more than a small portion of the mathematical computations appearing on tax returns.
2. Attempted to match only a small sample of information documents with tax returns, and even this could not be carried out successfully because of the difficulty of making correct indentification of taxpayers on a name and address basis.
3. Had no national master file against which to check systematically whether taxpayers were delinquent in filing returns or payment of taxes. It was within this context, and after consulting and advising with the congressional committees that handle internal revenue matters, that the Service developed the framework of an ADP system tailored to the unique demands of tax administration. There was early awareness of the need for positive identification of taxpayers and Public Law 87–397 authorizing taxpayer account numbers was enacted by the Congress in recognition of this need. Concurrentlyin the 1962 session—the Congress adopted the expanded information reporting measures as an alternative to the withholding on dividend and interest payments requested by the administration. The Congress, after careful consideration and with full understanding of the structure and capability of the Service's
ADP system, adopted section 19 of the Revenue Act of 1962 providing for expanded use of information returns as a means of closing the underreporting gap for interest and dividends. This legislation envisaged the eventual fullscale matching of information documents with tax returns, and the report of the Finance Committee recognized that the expanded use of information returns might involve an increase in the Service's personnel.
It is against this background that the present posture and the future course of ADP must be viewed. I consider these historical circumstances as essential for appraising the Service's program, both present and prospective, and the results obtained to date. Despite the added dimension given to our overall job by the need to tool up for the expanded use of information documents before the ADP program was completely installed, the Service has continued with its schedule of activating ADP operations while simultaneously preparing for the effective utilization of the flow of information documents.
In your statement you make extensive reference to the Atlanta (now the southeast) region, but in such a manner that the effectiveness of its operations is left in serious doubt. It is with respect to the factual aspects of that region's operations that I particularly wish to provide you with clarifying information.
The ADP system made possible a detailed mathematical verification of all tax returns filed in the seven Southeastern States composing this region. This activity in 1963 produced approximately $4.6 million additional revenue attributable to the expanded ADP type verification.
In 1962 the system identified an apparent 112,000 cases of failure to file business tax returns. Upon subsequent investigation these were narrowed down to 22,000 cases involving actual delinquencies, with a dollar value of $3.6 million. Followup on a similar check conducted in 1963 is now in process and there are indications that this will produce significant additional revenue.
Of necessity, because of its pilot character, a great deal of debugging work has been required in the southeast region's operations. I believe that the successful establishment of master files for business and for individual taxpayers is an accomplishment of incalculable value. These master files are already being used for many service operations and will become a part of the national identity file to be established this year. I am sure you will recognize that these significant achievements are but indications of the results to be expected as the program is extended to cover the entire Nation.
Other benefits reaped through the use of ADP include the prevention of duplicate refunds and the creation of a consolidated tax account for each taxpayer, which will enable us to apply refunds due to the taxpayer with respect to one return against unpaid taxes owed by him on other returns. Also, ADP has streamlined the process of selecting tax returns for examination by identifying those returns which, according to past experience, tend to show the greatest incidence of error. Finally, ADP has contributed to the accelerated deposit of revenue collections, and made it possible to derive, as a byproduct of the other functions, vital information needed for management and statistical purposes.
I am also disturbed by the impression given in your statement that tax account numbers had to be assigned to all wage earners, business enterprises, and recipients of dividends and interest. Actually, at the time of the enactment of the numbering legislation it was estimated there were approximately 100 million "active" social security numbers outstanding, plus about 5 million employer identification numbers. Since that time about 8 million additional social security and employer identification numbers have been issued. Many of these, however, were reissuances of original numbers to individuals who had lost or misplaced their original cards. The issuance of social security numbers solely for tax purposes is a transitional operation which will virtually disappear in succeeding years. Similarly the job of getting taxpayer numbers reported by recipients of dividends, interest, etc., has already been completed to a substantial degree and will not be a recurring problem.
Also requiring clarification is the matter of growth in the manpower of the Service. According to our records, employment in the Service from 1960 to 1964 increased by 9,695. Of this number, 2,074 man-years were allocated to revenue accounting and returns processing, representing an increase of only 12.5 percent in these functions. The remaining 7,621 man-years, or nearly 80 percent of the increase, was allocated to securing and maintaining compliance with the tax laws (primarily audit of tax returns, collection of unpaid taxes, and the investigation of tax evaders).