TREASURY SECRETARY JOHN SNOW TESTIMONY BEFORE THE SENATE APPROPRIATIONS COMMITTEE SUBCOMMITTEE ON TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT
Chairman Shelby, Senator Murray, and Members of the Committee, I appreciate the opportunity to appear before you today to discuss President Bush’s FY 2005 proposed budget for the Department of the Treasury.
The President’s request for FY 2005 of $11.7 billion for Treasury provides funding we need to support the core missions as identified in our new strategic plan – in promoting national prosperity through economic growth and job creation; maintaining public trust and confidence in our economic and financial systems; and ensuring the Treasury organization has the workforce, technology, and business practices to meet the nation’s needs effectively and efficiently. Two key strategic objectives are to collect federal tax revenue when due through a fair and uniform application of the law and to disrupt and dismantle the financial infrastructure of terrorists, drug traffickers, and other criminals and isolate their support networks.
One historic change at Treasury in the past year has been the movement of most of the Department’s law enforcement divisions – affecting some 30,000 employees – to the Department of Homeland Security and the Department of Justice. This change has provided an opportunity for Treasury to refocus on its core missions as the Federal Government’s economic policymaker, financial manager, and revenue collector. This puts us in a better position to fulfill our critical role in fighting the war on terrorist financing. In addition, the Department revised and completed a new strategic plan in September 2003. To complement this strategic planning initiative, the Department and many of the bureaus underwent a restructuring of their budget activities and programs – discontinuing enforcement programs which no longer fit into the Treasury strategic vision and developing new performance goals and measures focused on getting value for taxpayers. As a result of these efforts, our FY 2005 request reflects significant reengineering and reprogramming to ensure efficient and effective use of our resources.
Mr. Chairman, we provided the Committee with a detailed breakdown and justification for President’s FY 2005 budget request for Treasury. I would like to take the opportunity today to point out some highlights of our request and then I’d be happy to take whatever questions you may have.
Promoting Prosperous and Stable U.S. and World Economies
The aim of these strategic goals is to ensure that the United States and world economies perform at full economic potential. In order to perform at its full potential, the U.S. economy must increase its rate of growth and create new, high quality jobs for all Americans. Additionally, the legal and regulatory framework must support this growth by providing an environment where businesses and individuals can grow and prosper without being limited by unnecessary or obsolete rules and regulations. The Treasury Department and three of its bureaus, the Community Development Financial Institutions Fund, the Office of the Comptroller of Currency and the Office of Thrift Supervision play diverse roles in the domestic economy. From serving as the President’s principal economic advisor to issuing tax refunds to millions of Americans, the Treasury has a significant influence on creating the conditions for economic prosperity in the U.S. A prosperous world economy serves the United States in many ways. It creates markets for U.S. goods and services, and it promotes stability and cooperation among nations. For these reasons, the Department of the Treasury will work with other federal agencies and offices to promote international economic growth and raise international standards of living through interaction with foreign governments and international financial institutions. Our budget requests $158.9 million to support these strategic goals.
Maintaining Public Trust and Confidence in our Economic and Financial Systems Treasury’s mission of managing the U.S. Government’s finances effectively is the bulk of the President’s FY 2005 request for the Department. The budget request of $11 billion – the majority of which is for the Internal Revenue Service -- will provide funds to ensure that the tax system is fair for all while maintaining high quality service to our taxpayers and ensuring compliance with the tax laws.
In past years, IRS’s focus has been on improving customer service. We believe that we have been successful in that effort and are committed to further enhancing customer service for the vast majority of American taxpayers who do their best to pay their fair share. For those who do not, fundamental fairness requires that our enforcement efforts in FY 2005 continue moving us towards a tax system in which everyone is complying with the tax laws. Our FY 2005 request, which includes a net increase of $300 million, will focus our resources toward enforcement initiatives designed to curb abusive tax practices, end the proliferation of abusive tax shelters, improve methods of identifying tax fraud, identify and stop promoters of illegal tax schemes and scams, and increase the number and effectiveness of audits to ensure compliance with the tax laws. This request will allow the IRS to apply resources to areas where non-compliance proliferates: promotions of tax schemes, misuse of offshore accounts and trusts to hide income, abusive tax shelters, underreporting of income, and failure to file and pay large amounts of employment taxes.
The President’s request also provides $285 million to continue our effort in modernizing the nation’s tax system through investments in technology. During the fall of 2003, the IRS performed comprehensive studies to review its modernization efforts. From these studies, the IRS has resized its modernization efforts to allow greater management focus and capacity on the most critical projects and initiatives. The IRS is also responding to these studies by increasing the business unit ownership of the projects and revising its relationships with the contractor and ensuring joint accountability. While the IRS has thus far failed to deliver several important projects with which taxpayers are not directly involved, it is important to note they have had some notable successes. The IRS has made progress on applications such as improved telephone service and a suite of e-services to tax practitioners. For the first time, large businesses and corporations can electronically file. In addition, taxpayers can access refund and Advance Child Tax Credit information from the irs.gov website. The IRS’s business systems modernization expenditure plan provides more detail on this request.
In addition, IRS will work to improve customer service by making filing easier; providing top quality service to taxpayers needing help with their return or account; and providing prompt, professional, improved taxpayer access and helpful treatment to taxpayers in cases where additional taxes may be due.
The provisions of the Trade Act of 2002 (P.L. 107-210) chartered the Treasury Department (through the IRS) with establishing and implementing a new health coverage tax credit program in 2003. This program provides a refundable tax credit to eligible individuals for the cost of qualified health insurance for both the individual and qualifying family members. The request provides $35 million to continue implementation and operation of the Health Insurance Tax Credit Program.
The Alcohol and Tobacco Tax and Trade Bureau (TTB) was created when the Homeland Security Act of 2002 divided the Bureau of Alcohol, Tobacco and Firearms into two agencies. Our FY 2005 request includes $81.9 million for TTB: $58.3 million to support the Collect the Revenue function, and $23.5 million to Protect the Public, both of which will facilitate their efforts in collecting $14.6 billion in revenue from the alcohol and tobacco industries and monitor alcohol beverages in the marketplace to detect contamination and adulterated products. Their focus this coming fiscal year is to promote voluntary compliance of existing regulations and to protect the consumer through efficient and effective service.
Key to the U.S. Government’s management of financial systems is the Financial Management Service (FMS), whose mission is to provide central payment services to Federal program agencies, operate the Federal government’s collection and deposit systems, provide Government-wide accounting and reporting services, and manage the collection of delinquent debt. The FY 2005 request of $231 million for FMS includes legislative proposals to improve and enhance opportunities to collect delinquent debt through FMS’ debt collection program. The proposals would: eliminate the 10-year limitations period applicable to the offset of federal non-tax payments to collect debt owed to federal agencies; increase amounts levied from vendor payments (from 15 percent to 100 percent) to collect outstanding tax obligations; allow the Secretary of the Treasury to match information about persons owing delinquent debt to the federal government with information contained in the Department of Health and Human Service's National Directory of New Hires; and allow the offset of federal tax refunds to collect delinquent state unemployment compensation overpayments.
The Bureau of the Public Debt (BPD) continues its management and improvement of federal borrowing and debt accounting processes. BPD will provide vital support to the processing of applications and the operation of systems used for re-enforcing its mission of providing quality debt management services to financial institutions, individuals, foreign governments, and over 200 government trust funds.
The activities of the United States Mint and the Bureau of Engraving and Printing (BEP) are vital to the health of our Nation’s economy. These agencies share the responsibility for ensuring that sufficient volumes of coin and currency are consistently available to carry out financial transactions in our economy. Treasury, Mint and BEP will deliver a study to Congress regarding options to merge and/or streamline operations by consolidating certain functions and sharing costs between the Mint and the BEP.
Fighting the War on Terror and Safeguarding our Financial Systems
Our goals in preserving the integrity of U.S. financial systems include ensuring that the U.S. financial system and access to U.S. goods and services are closed to individuals, groups and nations that threaten U.S. vital interests, ensuring that these systems are kept free and open to legitimate users while excluding those who wish to use the system for illegal purposes, and ensuring that the financial systems will continue to operate without disruption from either natural disaster or manmade attacks. To support such efforts, the President has requested $250.9 million for FY 2005.
The Administration announced the creation of the Office of Terrorism and Financial Intelligence (TFI) within the Department of the Treasury on March 8, 2004. TFI will lead Treasury’s efforts to sever the lines of financial support to international terrorists and will serve as a critical component of the Administration’s overall effort to keep America safe from terrorist plots.
The TFI, which will include Treasury’s newly established Executive Office for Terrorist Financing and Financial Crime (EOTF/FC), will have policy oversight over the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the Treasury Executive Office for Asset Forfeiture (TEOAF). This will create a single lead office in Treasury for fighting the financial war on terror and combating financial crime, enforcing economic sanctions against rogue nations, and assisting in the ongoing hunt for Iraqi assets.
The Office of Foreign Assets Control (OFAC) is central to our efforts to disrupt financing of terrorist activities. Only days after September 11, 2001, OFAC drafted and implemented Executive Order 13224, which invoked Presidential authority contained in the International Emergency Economic Powers Act and froze the assets of 29 entities and individuals linked to Osama bin Laden and his al Qaeda network. Since then, OFAC research and investigation helped identify between 200 and 300 additional entities and individuals as Specially Designated Global Terrorists under the Order. Since September 2001, OFAC and our allies have frozen over $136 million in terrorist assets and vested $1.9 billion of frozen Iraqi assets.
The President’s FY 2005 request also includes $64.5 million for the Financial Crimes Enforcement Network (FinCEN) to enhance its ability to fight the war on terror and combat financial crimes such as money laundering. Its mission to safeguard the U.S. financial systems from the abuses imposed by criminals and terrorists and to assist law enforcement in the detection, investigation, disruption and prosecution of such illicit activity is accomplished through its statutory role as the administrator of the Bank Secrecy Act (31 C.F.R.) FinCEN issues and enforces regulations that require a wide gamut of financial institutions to implement anti-money laundering programs and report transactions that are indicative of money laundering, terrorist financing and other financial crimes, thus providing a wealth of information to assist law enforcement, both domestic and international, in pursuing such crimes. FinCEN also ensures that the information collected under these regulations is made fully accessible to law enforcement and the regulatory community in a secure manner and provides both tactical and strategic analysis to a variety of customers. In addition, FinCEN is the Financial Intelligence Unit (FIU) for the United States and has been central in the development of a consortium of FIUs around the globe that permits fast and effective sharing of financial intelligence on an international scale.
The IRS’s Criminal Investigative Division (IRS-CI) also plays a key role in investigating financial crimes. The request supports the unique skills and expertise of IRS-CI agents in investigating tax fraud and financial crimes not only support tax compliance, but also benefit the war on terror and our efforts to root out financial crimes.
In addition, the Office of Critical Infrastructure Protection and Compliance Policy leads our efforts to safeguard the financial infrastructure. This Office works closely with the Department of Homeland Security, other federal agencies, and the private sector to safeguard our infrastructure. That is essential, given that the majority of the critical financial infrastructure of the United States is owned and operated by the private sector. The financial system is the lifeblood of our economy and this Office leads our efforts to keep it safe.
Ensuring Professionalism, Excellence, Integrity and Accountability in Management of Treasury
The President has requested $229.6 million for ensuring proper stewardship of the Department. Included in this request is $14.2 million for the Department’s Office of Inspector General (OIG) and $129.1 million for the Inspector General for Tax Administration (TIGTA).
The 1988 amendments to the Inspector General Act of 1978 created the OIG to conduct audits and investigations relating to Treasury programs and operations; to promote economy and efficiency, and detect and prevent fraud and abuse, in such programs and operations; and to notify the Secretary and Congress of problems and deficiencies in such programs and operations.
The Internal Revenue Service Restructuring and Reform Act of 1998 created the Inspector General for Tax Administration (TIGTA) to oversee operations at the Internal Revenue Service (IRS). TIGTA promotes the public's confidence in the tax system by assisting the IRS in achieving its strategic goals, identifying and addressing its material weaknesses, and implementing the President's Management Agenda. Further, TIGTA undertakes investigative initiatives to protect the IRS against threats to systems and/or employees.
To maximize efficiencies and effectiveness, the Administration has proposed to merge the Treasury Inspector General and the Treasury Inspector General for Tax Administration into a new Inspector General office, called the Inspector General for Treasury. The new organization will have all of the same powers and authorities as its predecessors have under current law. We will work with the Congress to move this legislation forward.
Also included in this request is an increase of $10.8 million for a host of modernization activities of our systems including IT Governance, E-Government, operational security, and Treasury enterprise architecture.
Foundation for Success – The President’s Management Agenda
As mentioned earlier, following the movement of the law enforcement bureaus to the Departments of Homeland Security and Justice, Treasury restructured and refocused its strategic goals and objectives based on the five initiatives of the President’s Management Agenda (PMA). Treasury developed and issued its new Strategic Plan, which linked intricately with each of the five initiatives of the PMA. This new strategic vision, coupled with the efforts underway in the PMA, provides the mechanism and focus for continuous improvement throughout Treasury and its bureaus.
In FY 2003, Treasury achieved many significant milestones in implementing the President’s Management Agenda. Specific accomplishments included:
• In the past 18 months, Treasury has drafted the first-ever Department-wide Human Capital Strategic Plan, which addresses the Standards for Success as issued by the Office of Personnel Management (OPM) and the Office of Management and Budget (OMB). Treasury incorporated human capital into its strategic planning and budget formulation and execution processes, and the plan will guide future efforts in areas such as workforce and succession planning, diversity, performance management, and managerial accountability.
• In competitive sourcing, Treasury completed 3 full competitions, over 20 streamlined competitions, and currently has studies involving approximately 4,500 positions in various phases of completion.
• In budget and performance integration, Treasury revised the performance reporting requirement to facilitate review and assessment of bureaus’ key performance data. Treasury also restructured some of the bureaus’ budget activities to reflect alignment with the new strategic plan and the full cost of achieving results.
• Treasury also maintained its government-wide lead in accelerated financial reporting. The Department implemented a three-day monthly close and successfully issued its FY 2003 Performance and Accountability Report on November 14, 2003, two and one-half months ahead of the official deadline.
Treasury will continue to work closely with OMB and other stakeholders to make improvements in implementing the initiatives set forth in the President’s Management Agenda.
The President’s Six Point Economic Growth Plan
At the beginning of my testimony I talked about what the Treasury Department does to support our strategic goal of encouraging a prosperous and stable U.S. economy. I would also like to talk about our efforts across the Administration to promote economic growth as embodied by President’s six-point plan for growth.
That includes making health care more affordable with costs more predictable.
We can do this by passing Association Health Plan legislation that would allow small businesses to pool together to purchase health coverage for workers at lower rates.
We also need to promote and expand the advantages of using health savings accounts … how they can give workers more control over their health insurance and costs.
And we’ve got to reduce frivolous and excessive lawsuits against doctors and hospitals. Baseless lawsuits, driven by lottery-minded attorneys, drive up health insurance costs for workers and businesses.
The need to reduce the lawsuit burden on our economy stretches beyond the area of health care. That’s why President Bush has proposed, and the House has approved, measures that would allow more class action and mass tort lawsuits to be moved into Federal court -- so that trial lawyers will have a harder time shopping for a favorable court.
These steps are the second key part of the President’s pro-jobs, pro-growth plan.
Ensuring an affordable, reliable energy supply is a third part.
We must enact comprehensive national energy legislation to upgrade the Nation's electrical grid, promote energy efficiency, increase domestic energy production, and provide enhanced conservation efforts, all while protecting the environment.
Again, we need Congressional action: we ask that Congress pass legislation based on the President's energy plan.
Streamlining regulations and reporting requirements are another critical reform element that benefits small businesses, which represent the majority of new job creation: three out of every four net new jobs come from the small-business sector! Let’s give them a break wherever we can so they’re free to do what they do best: create those jobs.
Opening new markets for American products is another necessary step toward job creation. That’s why President Bush recently signed into law new free trade agreements with Chile and Singapore that will enable U.S. companies to compete on a level playing field in these markets for the first time -- and he will continue to work to open new markets for American products and services.
Finally, we’ve got to enable families and businesses to plan for the future with confidence.
That means making the President’s tax relief permanent.
Rate reductions, the increase in the child tax credit and the new incentives for small-business investment – these will all expire in a few years. The accelerated rate reductions that took effect in 2003 will expire at the end of this year. Expiration dates are not acceptable – we want permanent relief.
The ability of American families and businesses to make financial decisions with confidence determines the future of our economy. And without permanent relief, incentives upon which they can count, we risk losing the momentum of the recovery and growth that we have experienced in recent months.
The tax relief is the key stimulus for increased capital formation, entrepreneurship and investment that cause true economic growth.
Conclusion Mr. Chairman, I look forward to working with you, members of the Committee, and your staff to maximize Treasury’s resources in the best interest of the American people and our country as we move into FY 2005. I am hopeful that together we can work to make this Department a model for management and service to the American people.
Thank you again for the opportunity to present the Department’s budget today. I would be pleased to answer your questions.
