the searching questions you have given me, and I know you will meet him with the same fine questions.

The CHAIRMAN. I have promised Congressman King that we would call Mr. Dunlap in the forenoon and give him an opportunity to be with that committee in the afternoon. If there are any other arrangements made, which are different than that, that can be taken up with Mr. King and will suit us fine. As we stand here now, however, and as a result of the conversations we have had, that is the situation that presents itself at this date. We leave it in your charge to arrange with Mr. King any other way you may wish.

Mr. SNYDER. Let me get it clear in my mind. You are going to ask Mr. Dunlap for Monday morning and Monday afternoon and Tuesday morning?

The CHAIRMAN. No. We will conclude his testimony at 2 o'clock at the latest, because that is the hour they set for him under the circumstances.

Mr. BOLLING. No lunch?

The CHAIRMAN. The two committees have to have two men before them. We have had you.

Mr. SNYDER. Yes; it is a matter of logistics.

The CHAIRMAN. If you make any logistics different than that, we will be happy to go along with that.

Shall we meet earlier Monday morning? How about 9:30?

Is 9:30 in the morning too early for Mr. Dunlap? Mr. Dunlap, can you make it at 9:30?

Mr. DUNLAP. Yes, sir.

The CHAIRMAN. Then we will adjourn to reconvene at 9:30 Monday morning in this room.

(Whereupon, at 3:35 p. m., the committee adjourned to reconvene at 9:30 a. m. Monday, January 21, 1952.)

REORGANIZATION PLAN NO. 1 OF 1952

(Bureau of Internal Revenue)

MONDAY, JANUARY 21, 1952

HOUSE OF REPRESENTATIVES,

COMMITTEE ON EXPENDITURES IN THE

EXECUTIVE DEPARTMENTS,
Washington, D. C.

The committee met, pursuant to call, at 9:40 a. m., in room 1310, New House Office Building, Hon. William L. Dawson (chairman) presiding.

Present: Representatives Dawson (chairman), Holifield, Lanham, Hardy, Karsten, McCormack, Bonner, Blatnik, Burnside, Bolling, Dorn, Lantaff, Hoffman, Riehlman, Mrs. Harden, Brownson, Curtis, Mrs. Church, Meader, McVey, and Bush.

Also present: Christine Ray Davis, clerk; Annabelle Zue, minority clerk; Thomas A. Kennedy, general counsel, William A. Young, staff director, and Herbert Roback, staff member.

The CHAIRMAN. Will the hearing come to order.

On last Friday the hearing on the President's plan No. 1 for 1952 was adjourned and is reconvened this morning.

We will call our first witness, Frederick J. Lawton, Director of the Budget. Mr. Lawton.

STATEMENT OF FREDERICK J. LAWTON, DIRECTOR, BUREAU OF THE BUDGET; ACCOMPANIED BY WILLIAM F. FINAN, ASSISTANT DIRECTOR FOR ADMINISTRATIVE MANAGEMENT; FRED E. LEVI AND EDWARD STRAIT, STAFF MEMBERS, BUREAU OF THE BUDGET

The CHAIRMAN. Will you identify yourself for the reporter.

Mr. LAWTON. Frederick J. Lawton, Director of the Bureau of the Budget.

The CHAIRMAN. Mr. Lawton.

Mr. LAWTON. Mr. Chairman, I have a short statement that I would like to read.

The CHAIRMAN. You may proceed.

Mr. LAWTON. Mr. Chairman and members of the committee, I welcome the opportunity extended to me by your committee to speak in support of the President's Reorganization Plan No. 1 of 1952.

As the Secretary of the Treasury has testified, Reorganization Plan No. 1 of 1952 paves the way for a comprehensive reorganization of the Bureau of Internal Revenue of the Department of the Treasury. The Secretary has laid before the committee an outline of the new

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pattern of organization which he expects to institute in the Bureau of Internal Revenue. He has made clear that Reorganization Plan No. 1 is a necessary and key step toward the comprehensive reorganization of that Bureau. The Commissioner of Internal Revenue will later testify on further details of the comprehensive reorganization. The purpose of my statement is to discuss with the committee the purposes and provisions of Reorganization Plan No. 1.

Reorganization Plan No. 1 is a very simple plan which removes the major barrier to the general reorganization of the Bureau of Internal Revenue by abolishing the office of collector of internal revenue. It thus places the Secretary of the Treasury in position to utilize fully in the reorganization of the Bureau the authority given him by Reorganization Plan No. 26 of 1950. Plan No. 1 also has the important purpose of making it possible to develop a completely professional career service in the Bureau of Internal Revenue below the Commissioner.

In this connection let me quote two reports. A recent congressional report contained the following statement:

The most serious defect in the organization and operations of the Bureau is the fact that the men who are charged with the actual collection of revenue are political appointees. The Commissioner, who administers the entire Bureau, does not have effective control over the collectors throughout the country. Whether the collectors of internal revenue actively attend to the affairs of their offices or merely bask in their own patronage appears to be largely a matter of their own volition. The report of the Commission on Organization of the Executive Branch of the Treasury Department, page 17, emphasized the same point in these words:

One of the chief handicaps to effective organization of the Department is the political appointment of collectors of internal revenue and of customs, and certain other officials. These appointments are regarded by some as sinecures. In any event, they form a bar to orderly development of an experienced staff.

The principal weakness of the present arrangement regarding collectors is that it is not designed to provide professional career administrators in key field posts in the revenue service. The increase in complexity and technicality of revenue administration requires that personnel in top field offices be well versed in the intricacies of the internal revenue laws and regulations and experienced in coping with problems of modern administration.

When these posts were established by law in 1862, the duties were quite elementary. Originally the duties were to interpret one relatively simple excise tax law, to collect that tax, and to forward the collections to the Treasury. Today tax laws are numerous and are much more complicated. The magnitude and complexity of the total revenue work now requires increased decentralization of policy issues from Washington to the field. The collectors are now authorized to make complex tax settlements within certain policy guides from Washington. Continuing the method of appointing collectors first instituted 90 years ago is no longer appropriate.

Reorganization Plan No. 1 of 1952 abolishes the offices of collector and deputy collector of internal revenue, the offices of Assistant Commissioner, Special Deputy Commissioner, Deputy Commissioner, and Assistant General Counsel for the Bureau of Internal Revenue. abolitions of offices will become effective at such time as the Secretary

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of the Treasury may specify, but in no event later than December 1,

1952.

To provide a flexible framework of offices around which the Bureau of Internal Revenue may be reorganized, plan No. 1 establishes three new offices with the title of Assistant Commissioner of Internal Revenue, one additional office of Assistant General Counsel, not to exceed 25 new offices with the title of district commissioner of internal revenue, and not to exceed 70 offices with titles to be determined by the Secretary of the Treasury.

To assure professional career personnel for the entire revenue service below the Commissioner, Reorganization Plan No. 1 provides that all new offices will be filled by appointment under the classified civil service. Reorganization Plan No. 1 provides that compensation of these new offices shall be fixed under the classification laws, and without regard to the numerical limitations on positions set forth in section 505 of the Classification Act of 1949, as amended. The effect of this compensation provision is to permit payment to these offices at the levels of grades GS-16, 17, and 18, when the responsibilities of the positions so warrant in the judgment of the Chairman of the Civil Service Commission or the President.

Underlying the need for Reorganization Plan No. 1 is the enormously increased burden which the Bureau of Internal Revenue has had to assume in the last 12 years. Since 1940, for example, the number of income tax returns has increased fourfold to 82 million, and the total revenue collections by the Bureau have increased tenfold to $501⁄2 billion.

This vast increase in workload has placed many severe strains on the Bureau. Within the limits of the same basic organization as it had in 1940, numerous and significant improvements have been made in the operations of the Bureau. Many of these improvements have been cited by the Secretary of the Treasury, and others will be described by the Commissioner of Internal Revenue.

It has become increasingly apparent, however, that no amount of procedural improvement is an effective substitute for a completely modernized organization. Hence, beginning with plan No. 26 of 1950, which equipped the Secretary of the Treasury with the authority to undertake such a fundamental reorganization, he has been developing a plan for thoroughly modernizing the structure of the Bureau.

This plan has solid objectives which cannot be fully implemented without Reorganization Plan No. 1. For this reason, I urge that the Congress permit plan No. 1 to become effective.

I would like to recall what the President said in his transmittal message:

All of us have a right to insist that the Bureau of Internal Revenue be provided with the finest organization that can be devised.

The CHAIRMAN. Mr. Riehlman.

Mr. RIEHLMAN. Mr. Lawton, in formulating these plans for the reorganization under Reorganization Plan No. 1, sometime ago after the Hoover Commission had made its report, there were two bills, introduced by Mr. Hoffman and Mr. Dawson, a member of and the chairman of the committee, respectively, those bills being practically identical, to reorganize the whole Treasury Department.

As Director of the Bureau of the Budget-I know you have a definite interest in the operations of these departments-was there any consideration given to the matter of reorganization of the whole Department instead of taking it piece by piece?

Mr. LAWTON. I think your major question there relates to the recommendation for the establishment of the revenue service in the Treasury, a combination of the Bureau of Customs and Bureau of Internal Revenue, under a revenue service.

The studies that have been made so far have dealt largely with the Bureau of Internal Revenue, although the Secretary has begun studies on the Bureau of Customs.

The real answer to the question of organization was the action of Congress in granting authority to the Secretary and the Reorganization Plan No. 26, which permitted him to make those reorganizations, to study them carefully and to develop them as time permitted. That authority is an authority that rests permanently in the Secretary, and he has the opportunity to carefully study each of them.

He studied this one first because the problem was perhaps greater, and is prepared to begin the reorganization of the Bureau of Internal Revenue.

The Customs is one that I understand, from the Secretary, he has under study. It will come along when the major steps have been taken in regard to the Internal Revenue Service.

Mr. RIEHLMAN. Of course, this action was aggravated because of information that has been coming out from time to time with respect. to the activities within the Department; is that correct?

Mr. LAWTON. I don't know whether "aggravated" is quite the right word, or not, although the development you refer to may have had something to do with the decisions. But it was mainly for the reason that the Secretary established a committee under the chairmanship of Mr. Wiggins, which made some very careful studies in the Bureau. They brought in some outside management engineering firms to make studies, and, as a result of those studies, the Secretary is ready to move ahead with the reorganization of the Bureau.

Mr. RIEHLMAN. Unfortunately, I was not able to be here to hear the Secretary of the Treasury give his testimony the other day, but I am particularly interested as to the attitude of the Department, for we are hearing a tremendous amount about irregularities in the Department, difficulties relating to dishonesty and fraud, and so forth. The great question comes to my mind whether through Civil Service or any other act we can bring complete honesty in these departments. Maybe it is a step in that direction, but I do not think you can legislate honesty and integrity in people in office.

Mr. LAWTON. You can provide a climate in which the chances are greater, but I agree with you that you cannot legislate honesty or morality in any single individual.

Mr. RIEHLMAN. Cutting down the numbers of internal revenue offices throughout the country to possibly 25-and then putting the District Commissioner of Internal Revenue under civil service-he would be the only appointee by the President; is that correct? With confirmation by the Senate.

Mr. LAWTON. The Commissioner of Internal Revenue in Washington.