TREASURY, POSTAL SERVICE, AND GENERAL GOVERNMENT APPROPRIATIONS FOR FISCAL YEAR 1974 MONDAY, MARCH 5, 1973. DEPARTMENT OF THE TREASURY TESTIMONY OF THE SECRETARY WITNESSES HON. GEORGE P. SHULTZ, SECRETARY OF THE TREASURY HON. EDWARD L. MORGAN, ASSISTANT SECRETARY FOR ENFORCE- HON. WARREN F. BRECHT, ASSISTANT SECRETARY FOR ADMINISTRATION EDWARD J. WIDMAYER, DIRECTOR, OFFICE OF BUDGET AND FINANCE Mr. STEED. The committee will be in order. The committee is in session today to begin the hearings on the 1974 fiscal year budget request for the Treasury Department, Postal Service, and general government. Today we take up the request for the Department of the Treasury. We are very pleased to have the Secretary of the Treasury, Mr. Shultz, with us today, and his top associates On behalf of the committee, Mr. Secretary, I want to extend you a warm and cordial welcome, and tell you we are happy that we have a little bit more breathing space today in which to hold our hearing than has been true in the past. Hopefully we can keep the area a little fresher than we have been able to previously. We will have some questions as we go along, but I understand you have a prepared statement. It would be my suggestion that you identify your associates for the record. Then you may proceed with your general statement. Then we will have questions. Mr. ROBISON. Before he does that, if you will yield, Mr. Chairman, I would like to join with you in welcoming Mr. Shultz before our subcommittee again. He has become an old friend of ours, although we never quite know what "hat" he is going to wear the next time he appears before us. I hope the hat he now wears will be the one he wears for some time. Mr. STEED. Mr. Secretary. Secretary SHULTZ. Thank you, Mr. Chairman and Mr. Robison. I appreciate your comments and I am very pleased to have a chance to appear again before this distinguished committee. As Mr. Robison noted, as I have moved around, at least recently, I have always taken care to stay within the jurisdiction of this committee. (1) I would like to identify my associates. This is Mr. William Simon, the Deputy Secretary of the Treasury, Mr. Warren Brecht, Assistant Secretary for Administration, Mr. Edward Morgan, the Assistant Secretary for Enforcement and Mr. Edward Widmayer, the Budget Officer of the Department. We have all worked hard on this budget and various aspects of it, as have many others in the Treasury, and I am privileged to have them associated with me, not only here, but in our continuing work. This budget reflects our comprehensive efforts to screen and hold down budget expenditures while at the same time recognizing that the growth of the Nation-both in population and in the economypresents almost irresistible requirements for additional Treasury services. Each year the Nation's growth adds greater numbers of taxpayers and a greater number of higher income and more complex returns, increased numbers of travelers cross our borders, and we experience new volumes and varieties of imports. All of these must be dealt with promptly and equitably in accordance with the laws. In addition, there is more business activity requiring more currency, coins, and stamps. Unfortunately, too, there are more counterfeiters, forgers, smugglers, tax evaders, and other law violators. The Social Security Amendments of 1972, which provide for additional Federal assistance to the aged, blind, and disabled, place correspondingly greater requirements on the Treasury for significant increased volumes of check issues, check payments, and securities transactions. This budget has been carefully designed and balanced to meet these increasing mandatory workloads and at the same time to provide much needed strengthening to the revenue operations of both the Internal Revenue Service and Cus toms. Since you will examine bureau witnesses in detail at a later date, I will only present brief general remarks and provide as an addendum to my statement more detailed comments on each bureau's request. GENERAL STATEMENT FISCAL YEAR 1974 The appropriation request for the regular annual operating appropriations of the Department is $1.776 billion $79.2 million above the authorized level for 1973. I have for the record our usual table showing in detail the derivation of the "proposed authorization level for 1973" [table 1]. I also have a table comparing the fiscal year 1974 request for each appropriation with the 1973 authorized level [table 2], and a table showing "manyear" or average position requirements [table 3]. FISCAL YEAR 1974 INCREASES Most of the budget year increases are for the Internal Revenue Service, the Bureau of Customs, the Fiscal Service Bureaus, and construction of the Federal Law Enforcement Training Center. INTERNAL REVENUE SERVICE The budget request for the Internal Revenue Service is $1,189 billion. Requested increases of $104 million are substantially offset by nonrecurring costs-chiefly the economic stabilization program-leaving a net proposed increase of $41.8 million over the 1973 level. New funds are needed for IRS's frontline programs which will provide taxpayer assistance in the preparation and filing of their returns and strive to achieve greater compliance with tax laws by strengthening the audit activity. The increased workload for the processing of 211⁄2 million additional tax returns, 117 million in all, is expected to be met solely through increased productivity. As part of the effort to increase the availability and responsiveness of IRS to taxpayers' needs, we plan for the extension nationwide of Centiphone (a system providing taxpayers toll-free telephone access to the nearest IRS offices staffed to help them). That is in place in a good part of the country, but not completely. We hope to complete it. We plan to keep many IRS offices around the country open evenings and Saturdays during the filing season. Taxpayer service is not being expanded to the point where it represents competition with the returns preparation industry, but to a point where the IRS can effectively meet legitimate taxpayer requests for information and assistance. Most of the additional manpower requested for IRS will be devoted to increasing the audit of tax returns, the number of fraud investigations, and to more intensive efforts to collect delinquent taxes. For several years now audit coverage has decreased to the point where literally billions of tax dollars are going unreported and unrecovered. As a result our voluntary tax system has deteriorated. I am sure Mr. Walters will want to present detailed information on that. That worries us a great deal. This estimate represents an important step toward reversing the current trend. Moreover, it would result in additional tax recommendations, aggregating about $250 million. More important, though, is its potential influence toward fostering higher voluntary compliance. BUREAU OF CUSTOMS The budget request for Customs is $236.4 million, up $24.7 million over the 1973 level. Most of Customs increase will be needed to meet the unprecedented expansion in international travel and trade. During fiscal year 1972, for example, commercial aircraft passengers arriving from foreign ports increased over 18 percent. Customs processed over 236 million persons through our ports of entry last yearan increase that represents almost 5 million people. And during this same period, invoices of foreign importations increased by 14 percent, resulting in increased collections of more than $725 million-from nearly $3.5 billion in 1971 to almost $4.2 billion in 1972. We are continually improving our collection and enforcement procedures to cope with this annual growth. This budget also provides for the staffing for a permanent antifraud program. This will be a new enforcement effort, oriented toward team examination of cargo to determine if an invoice is fraudulent as to quantity, identity, or value, and to search for smuggled or undeclared items. While the vast majority of importers comply with tariff laws, the increase in trade has brought about a sharp increase in the incidence of attempted frauds. Present examination and in vestigative methods are restricted by limited manpower. Commissioner Acree will go into the details of the intensified reviews made in 1972 and the revisions that were made in the Customs entry retrieval system that now makes this a practical enforcement and revenue-producing program. We have also included funds to continue expansion of our air and sea intrusion program to strengthen Customs efforts at detecting and apprehending smuggler aircraft and vessels. As you recall from our presentations in previous years, this program includes the use of sensor equipped aircraft and boats, ground radar, sonobuoys, and sensors. The proposed expansion of this program, which is still only partially implemented, will further control access across the southern border. Customs is also asking for modest increases to expand the detector dog program. The Bureau has been highly successful in its use of trained dogs for screening mail parcels, vehicles, and cargo. From the beginning of the program in April 1970 through December of last year, the seizures of 34,000 pounds of marijuana, 4,000 pounds of hashhish, and 16 pounds of heroin at a street price of a quarter of a million. dollars a pound, can be directly attributed to the dog program. The training of dogs to detect hard drugs has been a breakthrough. About 50 percent of our dogs presently being trained have the capability of sniffing out heroin and cocaine. FISCAL SERVICE BUREAU Turning now to the fiscal service, the Bureau of Accounts is requesting $71.1 million, an increase of $7.8 million over the 1973 level. This increase is entirely for uncontrollable rises in workloads. The central disbursing activity of the Bureau will issue 581 million checks in 1974-61 million more than in 1973. Over 60 percent of the total increase in cost for this work is for the postage that will be paid to the U.S. Postal Service. The largest part of the increased volume is for the 45 million checks to be mailed to the aged, blind, and disabled as provided by the Social Security Amendments of 1972. Sixteen million items are for the normal annual increments in check issues to be made for social security, veterans, tax refunds, and for salaries and vendors' vouchers for the various agencies. As you know, we have to process this kind of workload twice. After the Bureau of Accounts issues the checks, the Office of the Treasurer must pay and reconcile check payments with the check issue registers as they return from the public. The office will also process an estimated 770,000 claims for lost, stolen, and forged checks. An increase of $1.4 million, from $11.3 to $12.7 million, is requested for this Bureau in this budget. Since the Government must provide a proper cash flow for these check payments, our third fiscal service bureau is brought into playthe Bureau of Public Debt. The request for "Administering the Public Debt" is $79.4 million, an increase of $5.4 million above the authorized level for 1973. The growth in the size of the public debt and in the number and complexity of transactions in Treasury securities keeps the workload of this Bureau at a high level. There are now about 585 million individual Treasury securities outstanding. Issues and retirements in fiscal year 1975 will involve about 283.4 million of these securities a rise of 10.3 million over the anticipated volume for fiscal year 1973. Our major items of additional expense involve reimbursements to the Federal Reserve Banks for their services as fiscal agents and to reimbursing paying agents for redeeming savings bonds. FEDERAL LAW ENFORCEMENT TRAINING CENTER The appropriation request for construction of the Federal Law Enforcement Training Center is $6 million. This increment would bring total funds appropriated to the center of $33 million. The remaining requirements to complete funding-$17.9 million-will be requested in subsequent fiscal years. The outdoor firing ranges, the motorcade training area, and the special training building are now complete and in operation. The construction manager for the project is now developing the entire project design and construction schedule. It is our plan and hope that the center will be totally operational early in 1976. REDUCTIONS There are some major dollar reductions below the 1973 level that I have not mentioned. I refer specifically to funds for design and engineering for mint construction and funds for additional capitalization of the Bureau of Engraving and Printing Fund for equipment modernization. Amounts for these purposes were provided în 1973 but are not requested again in 1974. Also, the Bureau of Alcohol, Tobacco, and Firearms shows a reduction of $2.5 million. This reduction is not an indication of our lack of interest in the highly essential functions performed by this new bureau, but it reflects our intention to study its activities and responsibilities carefully during 1974. The Bureau was established July 1, 1972, from activities formerly conducted by the Internal Revenue Service. It is responsible for the enforcement of the laws designed to regulate and curtail illicit activities relating to distilled spirits, beer, wine, manufactured tobacco products, firearms, and explosives. ENVIRONMENTAL FINANCING AUTHORITY In addition to the funding of our operating appropriations we are also requesting $100 million to advance funds, repayable with interest, for initial capital of the Environmental Financing Authority. This new fund was created by Public Law 92-500, The Federal Water Pollution Control Act Amendments of 1972. The $100 million-plus $200 million requested for borrowing authority-will be used to purchase obligations issued by States or local public bodies to finance the non-Federal share of the cost of any project for the construction of waste treatment works. The purpose of the Authority is to assure that no public body is unable to carry out an approved project because of inability to borrow the necessary funds on reasonable terms. Their obligations will be purchased only after the Administrator of the Environmental Protection Agency has certified that the public body is unable to obtain sufficient credit on reasonable terms, that the project is eligible under the Federal Water |