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Digitized from Box 8 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library
1976 Budget
Session With The
President
12/11/74
FORD & GERALD LIBRARY
1976 Budget
Session With The
President
12/11/74
MEETING WITH
ROY L. ASH
Wednesday, December 11, 1974
2:00 p.m.
THE WHITE HOUSE
WASHINGTON
December 10, 1974
FORD
MEETING WITH ROY L. ASH
Wednesday, December 11, 1974
2:00 p.m. (60 minutes)
LIBRARY
Oval Office
From: Roy L. Ash
I. PURPOSE
To make final decisions on the issues raised by the FY 76
budgets for the Department of Justice, the Department of
the Treasury and several smaller agencies.
II. BACKGROUND, PARTICIPANTS AND PRESS PLAN
A. Background: The FY 76 budget submissions of the
Departments of Justice, Treasury, and several
smaller agencies have been reviewed by the Office
of Management and Budget and members of the White
House staff. The results of these reviews have
been discussed with the affected departments and
agencies. This meeting will focus on the issues
raised in the FY 76 budgets of the above depart-
ments and agencies that require Presidential con-
sideration and determinations.
B. Participants: Roy L. Ash, Paul O'Neill, Wally Scott,
and Dale McOmber
C. Press Plan: David Kennerly photo
III. TALKING POINTS
A. Wally Scott, will you describe the first issue to be
considered for the Department of Justice?
B. Wally Scott, what issue should we begin with for the
Department of the Treasury?
C. Wally Scott, will you begin our discussion of the
issues raised by the budgets of the several smaller
agencies we are considering today?
Treasury
THE WHITE HOUSE
WASHINGTON
FORD LIBRARY
MEMORANDUM FOR: THE PRESIDENT
FROM:
Roy
Ash
SUBJECT:
1976 Budget decisions: Department of the Treasury
The agency request and my recommendations with respect to 1976 budget
amounts for the Department of the Treasury are presented in the tabula-
tion attached (Tab A). A summary of the principal budget decisions
reflected in my recommendation is provided as background information
(Tab B).
Seven key issues have been identified for your consideration (detail at
Tab c).
I.
IRS Tax Audit
Treasury proposes strengthening tax compliance by raising the level
of audit coverage to 2.6 per cent of tax returns filed, thereby generating
additional revenues and contributing to a balanced budget.
OMB recommends maintaining the 1975 level of 2.5 per cent audit
coverage which will increase the absolute number of tax audits. Tax
compliance will be encouraged by program increases in areas other than
audit.
Decision: Approve agency recommendation
Approve OMB recommendation
See me
II. IRS Information Returns Processing (document matching)
Treasury proposes annually transcribing, correcting, and matching
one-fourth of all information documents and tax returns.
OMB recommends initiating a selective program of document matching
to stimulate voluntary taxpayer compliance by concentrating on documents
with the highest potential yield or greatest likelihood of reporting in-
accuracy.
2
FORD
Decision: Approve agency recommendation
Approve OMB recommendation
LIBRARY
See me
III. IRS Data Processing
Treasury proposes adding 950 man-years in 1976, representing a 3
per cent growth in personnel, to process an estimated increase of 2 per
cent in the number of tax returns filed.
OMB recommends maintaining the 1975 level of manpower, thereby relying
on increased productivity aided by additional automatic data processing equip-
ment to process the larger number of returns.
Decision: Approve agency recommendation
Approve OMB recommendation
See me
IV. IRS Administration of Pension Reform
Treasury proposes a supplemental appropriation of $10.0 million in
1975. For 1976 they request a further increase of $14.1 million. This
would provide funds to handle increased responsibilities under the new
Employee Retirement Security Act of 1974.
OMB recommends $6.6 million of the $10.0 million 1975 request and
a further increase of $4.1 million for the program in 1976. It defers
additional increases in 1976 pending receipt of actual workload data.
This is the same approach being recommended in the Labor Department
request for this program.
Decision: Approve agency recommendation
Approve OMB recommendation
See me
V.
IRS Tax Fraud Investigation
Treasury proposes adding 8 man-years in 1976 to handle increased
case complexity, as part of an overall effort to demonstrate to taxpayers
that those who do not meet their tax obligations are identified and pro-
secuted.
OMB recommends investigating the same number of criminal cases which
IRS projects for 1975 and 1976, using an investigation-to-man-year standard
similar to the ratio achieved in 1973 and 1974 and budgeted for in 1975,
thereby reducing the 1976 budget 329 positions below the 1975 level.
3
Decision: Approve agency recommendation
Approve OMB recommendation
GREATS FORD LIBRARY
See me
VI.
Taxpayer Service
Treasury proposes adding 63 positions on top of the base of 3,956
man-years provided in the OMB alternative (which reflects an increase of
878 man-years over the 1975 base) to conduct a special assistance program
for the elderly and inner city taxpayers.
OMB recommends accomplishing the special emphasis program by redeploy-
ing some of the 3,956 man-years already provided in the 1976 budget for tax-
payer service.
Decision: Approve agency recommendation
Approve OMB recommendation
See me
VII. U. S. Customs Service
Treasury proposes to add 311 man-years and $19 million in 1976 to
handle additional imports and people entering the United States and to
expand enforcement programs to uncover duty fraud and interdict narcotics
and other contraband.
OMB recommends handling the additional imports and people through a
2.5% increase in productivity, thereby reducing 323 positions below the
1975 level.
Decision: Approve agency recommendation
Approve OMB recommendation
See me
Attachments
DEPARTMENT OF THE TREASURY
1976 Budget
Summary Data
(In millions)
Employment, end-of-period
Budget
Full-time
authority
Outlays
Permanent
Total
1974 acutal
36,019
35,888
104,391
113,892
1975 January budget
37,688
37,633
111,431
119,250
enacted
37,683
37,637
; XXX
XXX
supplementals recommended for operating
:
accounts
26
24
XXX
XXX
outlay reduction
-24
-24
-80
-80
OMB recommendation
40,094*
40,061*
108,976
116,795
1976 planning ceiling
39,294*
39,259*
XXX
XXX
agency request (revised)
40,793*
40,680*
123,221
135,227
OMB recommendation
40,507*
40,391*
111,623
121,123
agency recommendation
40,593*
40,481*
118,522
128,722
Transition period
agency request (revised)
10,443*
10,423*
123,221
135,227
OMB recommendation
10,365*
10,344*
111,623
121,123
agency recommendation
10,387*
10,365*
118,522
128,722
1977 OMB estimate
41,881 *
41,894'
113,855
123,545
*Requests and recommendations do not include estimates of the net cost of the October 1974 pay increase:
1975: BA, $54 M; Outlays, $50 M. 1976: BA, $93 M; Outlays, $93 M.
CERALD
.g
Tab A
FORD
DEPARTM
THE TREASURY
2
1976 Budget
Distribution of Budget Authority#
July 1 -
1974
1975
1976
Sept. 30, 1976
1977
Jan.
Agency
OMB
Agency
OMB
Agency
OMB
OMB
Actual
budget
recom.
recom.
recom.
recom.
recom.
recom,
est,
A. Open-ended programs and fixed costs
(relatively uncontrollable under
present law)
1.
Interest on the Public Debt
29,319
30,500
33,000
33,000
33,200
33,200
8,500
8,500
34,400
2.
General Revenue Sharing
6,055
6,205
6,205
6,205
6,355
6,355
1,664
1,664
6,520*
3.
Miscellaneous Permanent and
Trust Funds
557
612
814
814
837
837
177
177
822
4.
Offsetting receipts
-1,838
-1,930
-2,208
-2,208
-2,286
-2,286
-586
-586
-2,344
Total, open-ended and
fixed costs
(34,093)
(35,387)
(37,811)
(37,811)
(38,106)
(38,106)
(9,755)
(9,755)
(39,398)
B. Discretionary programs (relatively
controllable)
1.
Office of the Secretary
20
25
26
26
27
27
7
7
29
2.
Office of Revenue Sharing
--
--
2
2
3
3
1
1
3
3.
Federal Law Enforcement Training
Center
2
22
22
22
17
17
1
1
8
4.
Government Financial Operations
97
103
122
122
121
121
30
29
126
5.
Alcohol, Tobacco and Firearms
81
94
92
92
97
97
26
26
106
6.
U. S. Customs Service
241
286
282
282
301
285
76
73
300
7.
Bureau of the Mint
25
45
34
34
80
80
10
10
51
8.
Bureau of the Public Debt
81
88
96
96
97
97
27
27
102
9.
Interest Revenue Service
1,309
1,558
1,530
1,526
1,651
1,581
426
408
1,661
10.
U. S. Secret Service
70
80
81
81
93
93
28
28
97
Total, discretionary programs
(1,926)
(2,301)
(2,287)
(2,283)
(2,487)
(2,401)
( 632)
( 610)
(2,483)
Total, Budget Authority
36,019
37,688
40,098
40,094
40,593
40,507
10,387
10,365)
41,881
*Assumes enactment of legislation to continue General Revenue Sharing
#Requests and recommendations do not include estimates of the net cost of the October 1974 pay increase: 1975, $54 M; 1976, $93 M.
GERALD
8 TAB
Tab B
1976 Budget
Department of the Treasury
FORD is LIBRARY
Background Information
Treasury requests $40.8 billion in new budget authority for 1976. Of this
amount, $38.1 billion is requested for uncontrollable accounts such as
Interest on the Public Debt, Payments from the General Revenue Sharing
Trust Fund, and other permanent accounts. The remaining $2.7 billion
is requested for discretionary operating programs, which fund the
Department's major activities.
The OMB recommendation provides $40.5 billion, which grants the Department's
full request for uncontrollable programs but reduces the initial request for
operating programs by $217 million. OMB and Treasury have subsequently come
into agreement on most 1976 budget recommendations, and the areas of dispute
have been reduced to $86 million. Items still in dispute, which are confined
to the Internal Revenue Service and the Customs Service, are discussed in
detail at Tab C.
The reductions in the Treasury request recommended by OMB in Treasury's
operating programs stem largely from two major concerns:
- very large staff expansion beyond the requirements of reasonable
workload increases (a requested 13 percent staffing increase
over 1975); and,
- failure by the Department to reflect increased productivity in
some of its major programs.
The requested 13 percent increase in staff comes on top of substantial increases
provided to the Department over the past few years. In both 1974 and 1975
employment increased by 4 percent over the previous year. These increases
were well in excess of population growth (a basic ingredient in several
Treasury programs) or workload.
The major staff expansion proposed by the Department comes in the Internal
Revenue Service and the Customs Service, which historically have accounted
for approximately 80 percent of the total Treasury work force. Over the
years, the Department has been accustomed to requesting and receiving size-
able increases for these bureaus because, as revenue producers, they have
been considered essentially costless. Treasury has maintained and continues
to maintain that rapidly increasing staff in its tax collections and compliance
forcing programs are necessary to avoid revenue losses. In several of these
programs, staffing increases have exceeded actual workload requirements, result-
ing in static or declining employee productivity.
2
In light of the Administration's policy of maximum budget restraint in 1976,
OMB has subjected the Treasury budget request to a more critical review than
in recent years. While OMB agrees with Treasury on the need to maintain and
improve the integrity and capability of the tax collection and enforcement
system, we have attempted to more accurately relate staffing and budget
needs to projected workload requirements and to assume productivity increases
where appropriate. Although the OMB recommendation proposes significant re-
ductions from Treasury's initial budget request for operating programs, it
does provide $118 million and 2,647 additional staff (2.4 percent increase)
over 1975 to cope with workload increases and priority program improvements.
Given the sizeable work force already in place, we believe this recommendation
is adequate to successfully accomplish the 1976 program proposed by the Depart-
ment and to continue progress toward the overall goal of the tax system:
maximum voluntary compliance.
FORD
I
0 TAB
Tab C
Issue Paper
Department of the Treasury
1976 Budget
Issue #1: IRS Tax Audit
FORD
Statement of Issue
What proportion of tax returns should IRS audit in 1976?
LIBRARY
Background
Reliance on a voluntary system of tax payments requires a level of audit
activity which raises the threat that the validity of returns filed will be
checked. Overall audit coverage steadily declined from 5.8 percent in 1963
to a low of 1.9 percent in 1971 and 1972, and then began rising from 2.0
percent in 1973 to 2.4 in 1974 and a projected 2.5 in 1975. There is no
evidence to support the thesis that voluntary compliance changed significantly
as the audit level fluctuated. In fact, voluntary compliance was estimated
to be only 93.0 percent during the peak audit year of 1963, as compared to
92.6 percent when audit coverage was only 3.2 percent in 1969. It is projected
by IRS to be 94.6 percent in 1976 with audits of 2.6 percent of returns.
Audit of certain income classes expected to generate the greatest potential yield
far exceeds the level of overall coverage. For example, during the past four
years audit of businesses with over $30,000 in adjusted gross income has fluctuated
from 8.8 to 13.0 percent, the rate projected for 1975. IRS plans comprehensive
rates of audit coverage in 1975 for estate returns (24.2 percent), individuals with
over $50,000 adjusted gross income (15 percent), corporate returns (9.5 percent),
and reported gifts (4.8 percent).
IRS estimates that the total amount of individual income tax owed to the Federal
Government in 1976 will be $157 billion. $148.6 billion of this amount will be
paid voluntarily, representing a compliance rate of 94.6 percent. Another $1.3
billion will be collected as a result of audit examinations conducted by personnel
requested in the FY 1976 budget. The remaining $7 billion constitutes the projected
tax gap between the estimated individual income tax owed and that actually received.
Alternatives
#1. Raise the level of audit coverage to 2.6 percent in 1976. (Agency request)
#2. Continue the 2.5 percent audit coverage budgeted for 1975. (OMB recommendation)
Analysis
July 1-
Sept 30,
Budget Authority/Outlays
1974
1975
1976
1976
1977
($ Millions)
BA
0
BA
0
BA
0
BA
0
BA
0
Agency request
497
482
595
595
635
623
159
156
656
656
OMB recommendation
497
482
595
595
620
610
155
152
640
660
FORD
LISRARY
2
IRS is requesting $15.0 million and 946 man-years in additional resources to
raise the audit level in 1976 to 2.6 percent of tax filings. Treasury supports
its case for additional audit resources with the claim that the investment of an
additional dollar in audit returns an average of six dollars in net direct tax
revenues. However, IRS does not value the importance of this program to be
great enough to warrant shifting resources from other IRS activities in order
to maximize revenues. An OMB review of this estimate in 1972 concluded that a
ratio closer to 2.5:1 more accurately represented the relationship of yield to
cost, when taking into account IRS overhead and increased costs to the private
sector required by tax audits. There are no data available to measure the
effect of additional audit on potential noncompliers.
Arguments over the exact revenue producing ability of tax audits may be strictly
academic and subject to an indeterminate margin of error. The real objective
of this program is to encourage voluntary compliance, which accounts for over 99
percent of individual income taxes paid. Tax returns are selected for audit either
because of characteristics which indicate underpayment of taxes or as part of a
strategy to review a minimum number of returns in every income category in order
to demonstrate the breadth of IRS audit coverage. The mix of audits expected to
generate the greatest yield and audits intended to encourage voluntary compliance
is decided by the Commissioner of IRS. There is some suspicion that any suggested
reduction in the recommended level of audit coverage is priced from the revenue-
producing cases to present the worst-possible direct revenue loss expected from
such a decision. It is also difficult to accept the IRS contention that a
relatively insignificant fluctuation in audit coverage, for example between
2.6 and 2.5 percent, actually causes individual taxpayers to cheat on their
taxes or can really be measured.
Agency Request: Raise the level of audit coverage to 2.6 percent, thereby
generating additional revenues which contribute to a balanced Federal budget.
OMB Recommendation: Maintain the 1975 level of audit coverage (2.5 percent)
which should continue to assure a satisfactory level of voluntary compliance.
Issue Paper
GEORLE FORD LIBRARY
Department of the Treasury
1976 Budget
Issue #2: IRS Information Returns Processing (document matching)
Statement of Issue
To what extent should IRS match information documents in 1976?
Background
In 1976 IRS expects to receive 400 million information documents related to
individual income taxes--employer statements of wages earned, reports of
interest and dividend payments, and declarations of profits distributed by
partnerships. While taxpayers may have initially surmised that these data
have been used to verify income reported by filers, the large quantity of
information documents prevented IRS from actually doing so in most cases.
IRS believes that many taxpayers are aware of this and are thereby encouraged
not to report all sources of taxable income.
The 1975 budget provides 1,700 man-years to conduct a limited program to
match information documents submitted on machine-readable tape, follow up on
the non-filers identified by this tape match over the preceding two tax
years, and correct missing or inaccurate spouse social security numbers on
8 million tax returns in preparation for more extensive document matching.
All of these resources may be applied to whatever document matching program
is approved for IRS in 1976. Of the 2.5 million discrepancies uncovered by
the cursory 1975 match, IRS followed up on 250,000 cases in collections and
audit. A large number of questions about unreported or under-reported income
were therefore unanswered.
Alternatives
#1. In addition to the 1,700 man-years included in the 1975 budget, provide
1,430 additional man-years in 1976 to conduct an expanded program to
correct taxpayer identification numbers and match the information documents
and tax returns of one-fourth of the filers, conducting related audit and
collection activities in 1977. (Agency request)
#2. Utilize the 1,700 man-years provided in the 1975 budget to initiate a
selective program (covering 5 percent of the returns) of matching documents
with high potential yield in 1976, and to expand audit and collection follow-
up on discrepancies and non-filers identified. (OMB recommendation)
Analysis
July 1 -
Sept 30,
1974
1975
1976
1976
1977
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA
0
BA
0
($ Millions)
Agency request
2
2
24
24
43
42
11
11
51
51
OMB recommendation
2
2
24
24
25
25
6
6
26
26
FORD
LIBRARY
2
It is important to agree on the objective of document matching and the most
cost-effective way of achieving it before launching a massive program of random
transcribing and matching millions of documents. As in the audit program, the
IRS objective here is to encourage voluntary compliance, in this instance to
cause taxpayers to accurately report all taxable income on their filings.
Moving in this direction need not require a blanket match of every taxpayer
or even every fourth taxpayer, as IRS proposes, but rather can selectively
identify potential violators and use these matches as an example to encourage
compliance from the general public (again similar to the approach used in tax
audit).
The agency request proposes matching tax returns with 100 million information
documents related to one-fourth of the population, selected by surname. Matches
would be made of 60 million paper documents and 40 million machine-readable
documents. The 60 million paper documents would have to be sorted, batched,
edited, transcribed, corrected, and entered into the ADP system. Substantial
personnel are requested in the collection activity to follow up on unresolved
cases where no taxpayer identification number is shown on information documents.
Some attention would be given to addressing discrepancies between reported income
and income reflected on information documents, but investigation into underreported
cases and non-filers would not begin until 1977.
In contrast to the agency request which would compare 100 million documents (25
percent of the total), the OMB recommendation would match 20 million high-potential
documents (constituting 5 percent of the total), chosen according to predetermined
criteria to maximize potential yield. The candidates for selection would be
taken from 172 million documents (43 percent of total documents filed), consisting
of the 160 million tape documents and 12 million paper documents entered into
the ADP system in an initial step to begin some degree of paper sorting and
matching in 1976. Only those documents selected would be corrected to enter
valid taxpayer identification numbers. The OMB recommendation also includes
resources for expanding and improving use of machine-readable tape input. It
provides collection and audit personnel to follow up on a large proportion of cases
developed by matching documents, whereas the agency request would use a larger
number of collection personnel primarily to correct missing or inaccurate taxpayer
identification numbers.
Agency Request: Begin annually transcribing and matching one-fourth of all
information and tax returns.
OMB Recommendation: Initiate a selective program of document matching to stimulate
voluntary taxpayer compliance, while concentrating on documents with the greatest
yield potential, similar to the approach used in tax audit.
FORD CIGRARY
Issue Paper
Department of the Treasury
1976 Budget
Issue #3: IRS Data Processing
Statement of Issue
What consideration should be given to productivity in budgeting for data
processing in IRS?
Background
The data processing operations activity is responsible for receiving and
processing tax returns, issuing refunds and notices, and accounting for
revenues. In 1974 this program processed 121.6 million Federal tax returns.
IRS estimates it will receive 124.0 million returns in 1975 and 126.5 million
returns in 1976.
Alternatives
#1. Add 950 man-years ($11.3 million) to handle the increased workload
projected for 1976. (Agency request)
#2. Maintain the same work force provided in 1975 and expect the larger
number of returns to be processed through increased productivity.
(OMB recommendation)
Analysis
July 1 -
Sept 30,
1974
1975
1976
1976
1977
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA 0
BA
0
($ Millions)
Agency request
316
306
370
370
386
379
97
95
398
398
OMB recommendation
316
306
370
370
375
368
94
92
375
375
IRS supports its case for additional staff by citing the growth in returns
volume and complexity. Timely processing of returns is said to be important
in maintaining public confidence in the efficiency of the tax system.
OMB acknowledges the desirability of prompt returns processing and has provided
for procurement of additional automatic data processing equipment in 1976 to
facilitate this activity. The OMB alternative allows for purchase of 191
new entry terminals, additional capacity for central processing units, and
$400,000 in miscellaneous auxiliary and accessory equipment. In addition to
the workload savings generated by these additions, it is anticipated that
the three new service centers opened by IRS in 1975 will operate more efficiently
in 1976.
2
Data processing operations are particularly well-suited to productivity
increases because of their industrial nature. The OMB alternative assumes
a 2 percent productivity factor, a realistic goal which returns to the output-
per-man-year level achieved in 1974. New ADP equipment should offset any
increase in return complexity.
Man-years
Tax
Returns
in Returns
Returns
per
Processing
Filed
Man-year
1974 Actual Experience
24,817
121,600,000
4,899
1975 Budget
26,610
124,000,000
4,659
1976 IRS Request
27,560
126,500,000
4,589
1976 OMB Recommendation
26,610
126,500,000
4,753
Agency Request: Provide additional resources to process larger numbers of
tax returns in 1976.
OMB Recommendation: Expect increased productivity aided by additional ADP
equipment to offset the projected 2.0 percent increase in tax returns filed
in 1976.
Issue Paper
BENALD FORD
Department of the Treasury
1976 Budget
Issue #4: IRS Administration of Pension Reform
Statement of Issue
What should be the level of resources in 1975 and 1976 to implement IRS respon-
sibilities under the new pension reform law?
Background
The Employee Retirement Income Security Act of 1974 completely changes the
tax provisions relating to employee pension plans. Virtually all existing
plans will have to be amended to comply with the new qualification require-
ments. The Act provides a new right of appeal to the Tax Court for a
declaratory judgment as to plan qualification. To carry out these provisions
the new law specifically requires the establishment of an "Office of Employee
Plans and Exempt Organizations" to be headed by an Assistant Commissioner in
IRS. The responsibilities of the new organization include issuing determina-
tion letters concerning the qualification of employee plans and the tax exempt
status of other organizations, providing taxpayer guidance through the publica-
tion of rulings and procedures relating to the tax aspects of these plans and
organizations, examining required returns and other information documents,
providing administrative remedies to allow taxpayers to resolve differences
with the IRS in cases involving the qualification of employee plans, and
establishing and maintaining employee plans and exempt organizations master
files.
Alternatives
#1. Provide for implementation of the Employee Retirement Income Security
Act by adding 389 man-years and $10.0 million in a 1975 supplemental
appropriation and an additional 637 man-years and $13.4 million in
1976. (Agency request)
#2. Add 221 man-years ($6.6 million) in a 1975 supplemental appropriation
to begin implementation of the pension reform law but defer additional
increases beyond annualization (86 man-years; $1.8 million) in 1976
until better workload data are available and experience is gained in
administering the program; provide 112 man-years ($2.3 million) in
1976 to strengthen tax review of exempt organizations. (OMB recommenda-
tion)
FORD
7
Analysis
July 1 -
1975
Sept 30
1974
1975
Supp.
1976
1976
1977
Budget Authority/Outlays
BA
0
BA
0
BA
0
BA 0
BA
0
BA 0
($ Millions)
Agency request
45
44
49
49
+10
+10
73
72
19
19
75
75
OMB recommendation
45
44
49
49
+7
+7
60
59
15
15
62
62
IRS was appropriated $23.3 million in 1975 for its pension plan program prior
to passage of the 1974 Act and $26.1 million for its ongoing review of exempt
organizations. In implementing the new law, IRS has combined these two programs
under a single organization. Utilizing the impetus provided by the 1974 Act,
IRS seeks to strengthen both facets of the new organization through a supplemental
request in 1975 and an additional increase in 1976.
The OMB recommendation is consistent with the approach already approved for the
companion program in the Department of Labor to implement its responsibilities
under the 1974 law. OMB and Labor agreed that no additional resources beyond
a 1975 supplemental would be recommended for Labor until workload estimates
ecome available next spring to demonstrate whether the 1975 program is adequate
0 carry out the Department's responsibilities. Using a similar approach, the
OMB recommendation adds positions in 1975 for pension reform (and annualization
in 1976), but defers further expansion in 1976 until experience is gained in
administering the new Act. This action will likely result in a request for
a spring supplemental. In addition, the OMB recommendation provides resources
in 1976 to assist in establishing new regional organizations for reviewing
exempt organizations and expanding IRS activities in this area at a slower
rate than proposed by IRS.
Agency Request: Provide for implementation of the Employee Retirement Security
Act and expand tax review of exempt organizations through a 1975 supplemental
of $10.0 million and new budget authority of $13.4 million in 1976.
OMB Recommendation: Consistent with the OMB approach to the Department of Labor,
submit a 1975 supplemental request of $6.6 million and approve $1.8 million in
annualization in 1976 for pension reform, recognizing that additional resources
may be required in 1976 when workload levels generated by the 1974 Act have been
determined; provide $2.3 million in 1976 for tax review of exempt organizations,
but disapprove a 1975 supplemental for this purpose on the grounds that no new
circumstances justify program expansion in the current year.
Issue Paper
Department of the Treasury
1976 Budget
Issue #5: IRS Tax Fraud Investigation
Statement of Issue
What is the appropriate level for tax fraud investigation in 1976?
Background
The objective of tax fraud investigations is "to encourage the highest degree
of compliance with Internal Revenue laws pertaining to income, estate, gift,
employment and certain excise taxes by enforcement of the criminal provisions
in such laws." There are two sides to this program, investigation into suspected
fraud by taxpayers in general and the special enforcement activity targeted
against persons believed to be engaged in organized crime or traffickers in
illicit narcotics.
Alternatives
#1. Add 8 man-years to tax fraud investigations in 1976 to offset increasing
case complexity. (Agency request)
#2. Reduce personnel by 329 man-years, but handle the same number of cases
projected by IRS through more productive employment of special agents
and support personnel. (OMB recommendation)
Analysis
July 1 -
Sept 30,
1974
1975
1976
1976
1977
Budget Authority/Outlays
BA 0
BA
0
BA
0
BA
0
BA 0
($ Millions)
Agency request
85
82
100
100
100
98
25
25
101
101
OMB recommendation
85
82
100
100
95
93
24
24
96
96
As the following data reflect, the estimate of tax fraud investigations to be
conducted in 1975 has declined from 10,100 when the 1975 budget was prepared
last fall to a current figure of 7,700. At the same time, man-years devoted
to the program have increased in non-professional supporting positions. The
resulting trend in declining productivity is projected to continue in 1976.
FORD 2
Change
1975 Program
from
Workload - investiga-
1973
1974
in 1975
in 1976
1976
1975
1976
tions
Actual
Actual
Budget
Budget
Request
budget
Recom.
Taxpayers in general
6,742
5,750
8,200
6,300
6,300
-17%
6,300
Special enforcement
1,859
1,465
1,900
1,400
1,400
-26%
1,400
Total
8,601
7,215
10,100
7,700
7,700
-19%
7,700
Man-years
Special agents
2,342
2,519
2,649
2,645
2,650
+9%
2,587
Other FTP
1,164
1,274
1,312
1,389
1,392
+5%
1,118
Total
3,506
3,793
3,961
4,034
4,042
+8%
3,705
Workload Per Man-year
Special agents
3.7
2.9
3.8
2.9
2.9
-1.0
3.0
Other
7.4
5.7
7.7
5.5
5.5
-1.7
6.9
The IRS request contains a slight increase in personnel in 1976 to handle workload
that will decline 19 percent from the level provided for in 1975 budget. IRS
explains the decrease in productivity as a result of growing case complexity.
The OMB recommendation budgets for the same number of tax fraud investigations
projected by IRS for 1976 but uses a workload standard closer to the investiga-
tions-per-man-year ratio budgeted for in 1975 and achieved in 1973 and 1974.
IRS has offered no convincing justification to explain increased case complexity,
however if this materializes, it would be offset in this alternative by higher
productivity.
Agency Request: Add 8 man-years in 1976 to address caseload complexity in 1976.
OMB Recommendation: Reduce 329 man-years but achieve the same results by relying
on investigative output comparable to the level budgeted for in 1975.
FORD
Issue Paper
Department of the Treasury
1976 Budget
Issue #6: Taxpayer Service
Statement of Issue
What is the appropriate level for taxpayer service in 1976?
Background
The taxpayer service program is responsible for providing taxpayers with the
quality and degree of assistance they need to meet their Federal tax filing
obligations. In 1975, 3,085 man-years will respond to an estimated 10 million
personal inquiries, 25.5 million phone inquiries, and 500,000 letters from
taxpayers. IRS projects a total of 43 million taxpayers inquiries will be
received in 1976, as contrasted to the 36 million estimated for 1975.
Alternatives
#1. Add 279 man-years to taxpayer service in 1976. (Agency request)
#2. Add 216 man-years to taxpayer service in 1976. (OMB recommendation)
Analysis
July 1 -
Sept 30,
1974
1975
1976
1976
1977
Budget Authority/Outlays
BA
0
BA 0
BA
0
BA
0
BA
0
($ Millions)
Agency request
93
80
101
101
119
119
30
30
121
121
OMB recommendation
83
80
101
101
118
118
30
30
120
120
IRS seeks the addition of 279 man-years and $9.2 million to taxpayer service
in 1976 to handle the anticipated growth in workload and to conduct special
assistance programs directed to the elderly and inner city taxpayers. The
request is justified as being responsive to congressional interest in expanding
taxpayer assistance and as part of a general effort to educate the public on its
tax responsibilities.
The OMB alternative allows for an increase of 216 man-years to handle increased
workload projected by IRS, despite the unusually large number of taxpayer
contacts estimated for 1976. The growth of 7 million in 1976 far exceeds the
increase of 1.6 million expected from 1974 to 1975. In the event this workload
does not materialize, IRS would be able to apply additional under-utilized
resources to its special assistance program for the elderly and inner city
residents. Otherwise, IRS would be forced to establish new priorities for
employment of its 3,956 man-years in order to accomplish this 63 man-year
requirement.
2
The 1976 budget will reflect an increase of an additional 655 man-years
in taxpayer service for 1976 attributable to shifting into the taxpayer
service activity accountability for audit and collection personnel actually
attached to this program. Consequently, under the OMB alternative a total
increase of 878 man-years will be shown for the taxpayer service activity in
1976, representing a 28 percent increase
Agency Request: Add 63 man-years on top of the 216 man-year increase provided
in the OMB alternative for taxpayer service.
OMB Recommendation: Provide 216 additional man-years for taxpayer service
in 1976 and rely on the 3,956 man-years budgeted for this activity in 1976
to accomplish the expanded special assistance program requested by IRS.
FORD & LIBRARY
Issue Paper
Department of the Treasury
1976 Budget
Issue #7: U.S. Customs Service
FORD 3 LIBRARY 076839
Statement of Issue
What is the appropriate level of resources for the U.S. Customs Service in
1976?
Background
The U.S. Customs Service collects duties and other taxes on imports and enforces
customs and related laws. The Customs Service has grown rapidly over the last
several years. Since 1969, Customs manpower has increased by 57% to 12,918
man-years in 1975 while the two main indicators of workload, formal entries of
imports and the number of persons arriving from foreign countries, have increased
by 32% and 18% respectively. Customs manpower increases were achieved even though
the drug investigation function and associated resources (735 positions) were
transferred from Customs to the Drug Enforcement Administration in the beginning
of 1974.
The past increases in manpower occurred because of the emphases placed upon
the interdiction and investigation of drugs and increasing workload. Overall
productivity has declined over the past few years. In 1974, an absolute
decrease in formal entries of imports, the primary work indicator, further
aggravated the productivity decline. The requested Customs' budget shows
that productivity will continue declining in 1975 and 1976 from the 1974 level.
The Treasury Department is requesting an additional 311 man-years and $19 M
for Customs in 1976 to expand its enforcement program ($5.8 M), to process
additional workload ($3.4 M), to maintain current staff levels ($8.5 M) and
to expand other programs ($1.4 M).
Alternatives
#1. Add manpower (311 man-years and $19 M) to process imports and passenger
arrivals and to increase the enforcement of laws against smuggling and
fraud. (Agency request)
#2. Reduce manpower (-323 man-years) to force a 2.5% productivitiy increase
above the last actual year (1974), but add net increase in funds (+$3 M)
for cost increases and for additional staff for priority items which
contribute to increased productivity such as marihuana detector dogs
and the computer processing system for cargo. (OMB recommendation)
Analysis
July 1-
Sept 30,
Budget Authority/Outlays
1974
1975
1976
1976
1977
($ Millions)
BA
0
BA
0
BA
0
BA
0
BA
0
Agency Request
241
225
282
297
301
312
76.4
75.8
322
322
OMB Recommendation
241
225
282
297
285
290
72.6
71.8
300
300
FORD
LIBRAR
2
From 1969 to 1973 Customs productivity in processing persons entering the U.S.
declined by approximately 50% while productivity in processing imports rose by
4%, although it varied from year to year. In 1974, productivity declined by
10% in processing persons and by 3% in processing cargo. The 1976 request
would decrease productivity below 1974.
In order to reverse this trend of declining productivity, OMB recommends a
reduction of 307 man-years in 1976 which is equivalent to a 2.5% increase
in productivity over 1974.
This increase will not recoup the productivity decreases which have occurred
over the last five years. However, it will reverse the declining trend and
provide a reasonable base for future year budget projections. Further reductions
in 1976 are not considered feasible because of potential disruptive effects upon
Customs' programs. Productivity increases should allow Customs to achieve its
work program as projected.
OMB also recommends a 40 man-year decrease in the law enforcement activity.
Productivity in law enforcement is difficult to measure but we believe that
the rise in Customs agents from 350 in 1969 to 548 in 1975 is excessive when
their major investigative function, drugs, has been transferred to DEA.
The Department of Treasury recommends additional manpower to maintain the
current program level and maintain that the workload indicators do not
capture the significant amounts of manpower devoted to searching for illegal
drugs, preventing and uncovering smuggling and other fraudulent activities.
The Department also points out that the OMB recommendation would reduce the
expected revenue by "many millions of dollars." The Department emphasizes
that these enforcement programs result in greater revenue collected, or value
of drugs seized, than the costs of the program.
OMB believes that the marginal benefit of minor decreases or increases in
personnel within Customs do not materially affect the availability of heroin
or other drugs in the U.S. or the amount of duties collected.
Even though the OMB recommendation reduces the Customs program, it does provide
24 positions for essential increases for the opening of new ports of entry,
additional detector dogs and expansion of the computer system to process cargo.
These increases should result in long-term productivity gains and more effective
enforcement.
Agency Request: Treasury wishes to maintain current programs and expand priority
enforcement programs by adding 311 man-years and $19 million in the Customs Service.
OMB Recommendation: Reducing Customs (-323 man-years and +$3 million) in order
to achieve a 2.5% productivity gain should not significantly affect revenues
collected or drug seizures.
Justice
THE WHITE HOUSE
WASHINGTON
GERALD R. FORD LIBRARY
MEMORANDUM FOR: THE PRESIDENT
FROM:
ROL LA ASH
SUBJECT:
1976 Budget decisions: Department of Justice
The agency request and my recommendations with respect to 1976 budget
amounts for the Department of Justice are presented in the tabulation
attached (Tab A). A summary of the principal budget decisions on which
agreement has been reached between OMB and the Justice Department is
provided as background information (Tab B).
Three key issues on which disagreement still exists are identified below
and discussed in detail at Tab C.
I.
Immigration and Naturalization Service
750
Justice proposes adding 1,435 positions and $45 million for a
major program expansion to detect, apprehend and expel illegal aliens
from within this country.
OMB recommends 320 positions and $18 million for additional deporta-
tion of aliens and some systems changes which should enhance enforcement
effectiveness in the future. Further expansion of the program is deferred
until INS analyzes the illegal alien problem and develops an enforcement
strategy with demonstrated cost effectiveness.
Decision: Approve agency recommendation
Approve OMB recommendation
See me
II.
Federal Bureau of Investigation
250
The FBI proposes (a) to expand its counterintelligence force by 310
persons ($5.7 million) to counter the increasing number of communist-bloç
officials in this country and (b) to cover increased costs of operations
15
including the purchase of new equipment ($22.3 million).
The OMB recommendation assumes that the present workforce devoted
to counterintelligence (over 1,800) is sufficient to accommodate present
workload requirements in that area and that the OMB allowance of $12
million is adequate to cover priority needs of on-going programs.
GEBALO FORD LIBRARY
2
Decision: Approve agency recommendation
Approve OMB recommendation
See me
III. Law Enforcement Assistance
The Justice Department and OMB recommendations for 1976 propose
a reduction in LEAA's basic grant programs of $110 million from 1975
program levels. The Justice Department proposed this reduction as a
means of staying within its 1976 budget ceiling. Apart from the basic
LEAA program, the Justice Department request includes $17 million (and
25 new positions) to implement the new Juvenile Justice and Delinquency
Prevention Act of 1974, which you signed on September 7, 1974. This
proposal reflects the Department's concern for avoiding an adverse
public or Congressional reaction because of the high degree of support
indicated in the passage of the Act.
The OMB recommendation includes no new funding and no additional
positions for implementation of the new Juvenile Delinquency Act. The
Federal Government currently provides over $155 million annually to
States and local governments for juvenile delinquency, primarily
through on-going LEAA and HEW programs. In the signing statement
for the new Juvenile Delinquency Act, you stated that the Administration
would seek no new appropriations "for the new programs authorized in the
bill in excess of amounts included in the 1975 budget until the general
need for restricting Federal spending has abated."
Decision: Approve agency recommendation
Approve OMB recommendation
See me
Attachments
THE WHITE HOUSE
WASHINGTON
GERALD FORD VIBRARY
MEMORANDUM FOR: THE PRESIDENT
FROM:
ROY L. ASH
SUBJECT:
1976 Budget decisions: Department of Justice
The agency request and my recommendations with respect to 1976 budget
amounts for the Department of Justice are presented in the tabulation
attached (Tab A). A summary of the principal budget decisions on which
agreement has been reached between OMB and the Justice Department is
provided as background information (Tab B).
Three key issues on which disagreement still exists are identified below
and discussed in detail at Tab C.
I.
Immigration and Naturalization Service
Justice proposes adding 1,435 positions and $45 million for a
major program expansion to detect, apprehend and expel illegal aliens
from within this country.
OMB recommends 320 positions and $18 million for additional deporta-
tion of aliens and some systems changes which should enhance enforcement
effectiveness in the future. Further expansion of the program is deferred
until INS analyzes the illegal alien problem and develops an enforcement
strategy with demonstrated cost effectiveness.
Decision: Approve agency recommendation
Approve OMB recommendation
See me
II.
Federal Bureau of Investigation
The FBI proposes (a) to expand its counterintelligence force by 310
persons ($5.7 million) to counter the increasing number of communist-bloc
officials in this country and (b) to cover increased costs of operations
including the purchase of new equipment ($22.3 million).
The OMB recommendation assumes that the present workforce devoted
to counterintelligence (over 1,800) is sufficient to accommodate present
workload requirements in that area and that the OMB allowance of $12
million is adequate to cover priority needs of on-going programs.
2
Decision: Approve agency recommendation
Approve OMB recommendation
FORD CLERARY
See me
III. Law Enforcement Assistance
The Justice Department and OMB recommendations for 1976 propose
a reduction in LEAA's basic grant programs of $110 million from 1975
program levels. The Justice Department proposed this reduction as a
means of staying within its 1976 budget ceiling. Apart from the basic
LEAA program, the Justice Department request includes $17 million (and
25 new positions) to implement the new Juvenile Justice and Delinquency
Prevention Act of 1974, which you signed on September 7, 1974. This
proposal reflects the Department's concern for avoiding an adverse
public or Congressional reaction because of the high degree of support
indicated in the passage of the Act.
The OMB recommendation includes no new funding and no additional
positions for implementation of the new Juvenile Delinquency Act. The
Federal Government currently provides over $155 million annually to
States and local governments for juvenile delinquency, primarily
through on-going LEAA and HEW programs. In the signing statement
for the new Juvenile Delinquency Act, you stated that the Administration
would seek no new appropriations "for the new programs authorized in the
bill in excess of amounts included in the 1975 budget until the general
need for restricting Federal spending has abated."
Decision: Approve agency recommendation
Approve OMB recommendation
See me
Attachments
TAB A
Department of Justice
1976 Budget
Summary Data
($ in Millions)
Employment
Budget Authority
Outlays
Full-time Permanent
Total
1974 actual
1,920
1,797
48,188
49,892
1975 January budget
2,138
2,106
50,997
52,621
enacted
2,082
2,078
XXX
XXX
outlay reduction
-16
-16
-309
-309
supplemental recommended
XXX
XXX
XXX
XXX
OMB recommendation
2,066*
2,031*
49,718
51,342
1976 planning ceiling
2,031*
2,170*
XXX
XXX
agency recommendation (Appeal)
2,109*
2,202*
51,978
53,524
OMB recommendation
2,048*
2,157*
50,528
52,074
Transition period
agency recommendation
547*
604*
51,978
53,524
OMB recommendation
535*
592*
50,528
52,074
1977 OMB estimate
2,090*
2,205*
50,528
52,074
*Requests and recommendations do not include estimates of the net costs of the 1974 pay increase: 1975 BA, $33 M;
Outlays $32 M. 1976: BA, $48 M; Outlays $47 M.
GERALO
Tab A
ayos
LIBRARY
DEPARTMENT OF JUSTICE
1976 Budget
Distribution of Budget Authority
(in millions of dollars)
July 1-
1974
1975
1976
Sept. 30, 1976
1977
Jan.
Agency
OMB
Agency
OMB
Agency
OMB
OMB
Actual
budget
request
recom.
appeal
recom.
appeal
recom.
est.
Organizations
General Administration
17
22
22
22
20
20
5
5
20
Legal Activities
161
190
185
185
199
199
54
54
208
Antitrust
15
17
17
17
18
18
5
5
19
Fees and Expenses of Witnesses
13
14
14
14
16
16
4
4
17
Community Relations Service
4
4
4
4
4
4
1
1
4
Federal Bureau of Investigation
395
438
428
428
456
440
124
119
454
Immigration and Naturalization
Service
155
180
175
175
221
193
54
47
203
Federal Prison System
180
250
215
215
248
248
61
61
252
Law Enforcement Assistance
Administration
871
886
880
880
785
768
198
198
768
Drug Enforcement Administration
112
141
133
133
146
146
42
42
150
Offsetting receipts
-3
-4
-7
-7
-4
-4
-1
-1
-5
TOTAL, Department of Justice
1,920
2,138
2,066
2,066
2,109
2,048
547
535
2,090
?
FORD
TAB B
TAB B
1976 Budget
FORD
Department of Justice
Background Information
078839
OMB and Justice have reached agreement on budget and program recommendations
for over 95% of the recommended budget. The major program areas where
agreement has been reached are indicated below:
1. General Administration and Legal Activities. The recommendation
provides for 852 positions and related support requirements in
1976 for administration and oversight of Departmental programs
(the same level as 1975). For legal activities, the recommendation
provides 8,670 positions, an increase of 333 over 1975. This
recommendation will provide for maintenance of the current caseload-
to-attorney ratio and will permit necessary manpower increases to
litigate priority cases.
2. Drug Enforcement Administration. The recommendation provides a
program level of $146 million and 4,263 positions for DEA in 1976,
an increase of $12 million and 57 positions over 1975. Emphasis
will be given to continuing the attack on illicit drugs entering
the U.S. from Mexico and implementation of the new tri-agency
El Paso intelligence center. The recommendation defers a decision
on the need for new staffing resources to establish controls to
avoid diversion of opium from Turkey to the U.S., pending further
clarification of the problem and the need for action by the U.S.
3. Federal Prison System. The recommendation provides a program
level of $248 million and 8,135 positions for the Bureau of
Prisons in 1976, an increase of $32 million and 102 positions
over 1975. The recommendation includes staff increases for
activation of one new prison facility in 1976, operation of
seven additional community treatment centers, planning and site
acquisition for a Southeast Adult correctional facility and
construction of a Northeast Adult facility.
0 TAB
TAB C
Issue Paper
GERALD FORD (18KAHT)
Department of Justice
1976 Budget
Issue #1:
Immigration and Naturalization Service
(Dollars in Millions)
1975
1976
1977
1974
Current
Justice
Justice
OMB
Justice
OMB
Actual
Est.
Request
Allow.
Appeal
Recom.
Request
Rec.
BA
155
175
221
193
221
193
243
203
O
149
170
219
192
218
192
243
203
Statement of Issue
What is the appropriate level of resources for the Immigration and
Naturalization Service (INS) in 1976?
Background
Feeling overwhelmed by the increasing number of illegal aliens, the INS
is again this year requesting an 18% increase in personnel. This year's
request is based on essentially the same strategy as last year: apply a
larger amount of resources across the board for an expanded enforcement
effort. OMB rejected that strategy last year, questioning the payoff
achieved by merely adding enforcement personnel to apprehend and expel
illegal aliens who often reenter the country and perpetuate the cycle, OMB
also believes that a real solution of the alien problem requires reduction
in the economic incentive to enter the country illegally; however, the Congress
continues to postpone enactment of the Rodino bill which would help accomplish
this through prohibitions and sanctions against employment of illegal aliens.
The OMB approach over the past two years has been to grant some small increases
to INS to meet immediate and urgent needs but to insist that no substantial
resources be added until a comprehensive strategy with a demonstrated cost-
effectiveness is developed. To accomplish this, OMB requested studies of the
magnitude and characteristics of the illegal alien problem and its impact on
the economy as well as studies of the effectiveness of INS various enforcement
programs. INS supported a major study of the illegal alien problem but when
funds were not provided by the Congress, INS was unwilling to divert other
funds to the study.
Alternatives
#1.
Provide 1,435 positions and $45 million for a major expansion of the
enforcement effort against illegal aliens. (Agency Request)
#2. Provide 320 positions and $18 million for additional deportation of aliens
and system improvements which will enhance the various enforcement programs.
Defer additional increases until INS analyzes the illegal alien problem
and constructs a strategy with demonstrated cost effectiveness.
(OMB Recommendation)
2
The agency request, (Alternative #1) reflects the Commissioner's strategy to
deal with the illegal alien problem as solely one of enforcement: i.e.,
apprehension and expulsion. This is not, he admits, based on any analyses
of the economic or social impact of illegal aliens upon the U. S. or of the
best methods of deterrence to discourage illegal entry. The strategy rests
on the fact that Mexico's rising population and poor economy is driving
increasing numbers of Mexican nationals to the U. S. and something must
be done to halt this increasing illegal immigration. The Commissioner's
judgment is that a balanced enforcement strategy is needed which emphasizes
deterrence at the border. He believes that increasing the likelihood of
interdiction at the border will substantially reduce the number of potential
illegal immigrants.
OMB does not recommend a major resource increase for this strategy because
of the uncertainty of the benefits and the similarities to previous strategies
which have had limited impact.
If the Rodino bill passes, OMB anticipates a request from the agency for a
major augmentation of resources to implement its provisions. This bill will
lead to a change in enforcement tactics and additional resources will be
given serious consideration in light of the agency's enforcement strategy
at that time.
Agency Request: INS believes 1,435 positions and $45 million are needed to
apprehend and expe1 illegal aliens.
OMB Recommendation: Provides 320 positions and $18 million for additional
deportation of aliens and system improvements for alien control to meet the
immediate needs until an effective approach is developed.
GESALO FORD LIBRARY
Issue Paper
Department of Justice
1976 Budget
Issue #2:
Federal Bureau of Investigation
(Dollars in Millions)
1975
1976
1977
1974
Current
Justice
Justice
OMB
Justice
OMB
Actual
Est.
Request
Allow.
Appeal
Recom.
Request
Rec.
BA
395
428
466
437
456
440
486
454
0
381
420
462
430
447
433
483
456
Statement of Issue
What is the appropriate level of resources for the FBI in 1976?
Alternatives
#1.
Add 310 positions and $5.7 M for expanded counterintelligence activities
and $22.3 M for increased costs of operations, including the purchase
of new equipment. (Agency Request)
2.
Deny additional resources for counterintelligence and provide $12 M to
meet justified cost increases and essential equipment needs for on-going
programs.
(OMB Recommendation)
Analysis
Counterintelligence
The request to expand counterintelligence (CI) activities is based on the
Department's contention that the increasing number of communist-bloc officials
admitted to this country should be countered by a proportionate increase in
FBI CI personnel. The FBI maintains that 1/3 of all communist-bloc officials
who come to the U.S. are likely to be foreign intelligence officers and,
as such, require constant surveillance by the Bureau.
The Bureau's method of projecting manpower needs and determining resource
requirement assumes a fixed relationship between the potential number of foreign
intelligence operatives in this country and the number of FBI agents required
to surveil them. This approach does not assume any significant degree of
selectivity in identifying for surveillance foreign officials that do pose a
serious threat to the U.S. If the Bureau does not begin to apply selectivity
in the determination of workload requirements in this area, we can expect an
increasing number of FBI personnel assigned to CI in the future even as
detente expands.
2
OMB recommendation rejects the Department's position that the CI program
requires new resources each time the number of foreign officials admitted
to the U.S. increases. It assumes that the 1,800 persons already assigned
to CI are sufficient to meet new requirements if selectivity is employed.
The FBI would be asked to develop better workload indicators and a more
refined approach for CI activities.
Increased operational costs
The Department requests $22.3 M in 1976 to maintain existing programs at
the 1975 level and to provide for necessary equipment purchases. The OMB
review concluded that some of the requirements are overstated or are not
defensible in a tight budget year. Furthermore, the FBI's budget request
assumed no productivity increase in 1976.
The OMB recommendation would provide $12 M to cover the highest priority
operating and equipment needs and assumes a 1% productivity increase.
Agency Request: Increase the counterintelligence staff by 310 positions and
$5.7 M to improve the ratio between FBI personnel and known or suspected
foreign intelligence officers; moreover, provide $22.3 M to maintain and
improve the capabilities of current program operations.
OMB Recommendation: Maintain current level in the CI area, develop better
workload indicators and provide $12 M to meet essential needs of existing
programs.
Issue Paper
Department of Justice
1976 Budget
Issue #3: Law Enforcement Assistance Administration - Funding Level
(Dollars in Millions)
1975
1976
1977
1974
Current
Justice
Justice
OMB
Justice
OMB
Actual
Est.
Request
Allow.
Appeal
Recom.
Request
Rec.
BA
871
880
810
768
785
768
785
768
0
770
865
910
886
890
886
850
845
Statement of Issue
Should LEAA be provided funding to implement the Juvenile Justice and
Delinquency Prevention Act of 1974?
Background
There are two features of the 1976 LEAA budget request which warrant attention:
first, the 1976 base program estimate from the Department is $110 million
lower than the 1975 level, and; second, the recently enacted Juvenile Justice
and Delinquency Prevention Act of 1974 authorized a sizeable (up to $150 million
in 1977) increase in funding in LEAA for assistance for juvenile delinquency
programs. The Department has requested $17 million to fund this program in
1976 and OMB recommends no new funding for implementation of the Act.
The Department of Justice submitted a budget request for LEAA for 1976 for
$770 million. This is a reduction of about $110 million from the 1975 and
1974 budget levels. The Department reduced the LEAA budget because of the
need for fiscal constraint in 1976. Although OMB concurs in the Department's
reductions, the decrease comes at a time when crime (at the State and local
levels) increased by 16% last year. In addition, the LEAA program has been
and continues to be popular with the Congress.
The second consideration is the recently enacted Juvenile Justice and
Delinquency Prevention Act of 1974. This Act establishes a categorical
Federal grant program in LEAA to provide assistance to State and local
governments for juvenile delinquency activities. The Congress intends
that LEAA expand its current juvenile delinquency program with the addition
of this new grant program and the creation of additional organizational
entities to conduct research, provide demonstration and action grants,
coordinate Federal policy and give training and technical assistance.
The Congress authorized appropriations of $75 million in 1975, $125 million
in 1976 and $150 million in 1977. The Department is requesting $17 million
to fund this program in 1976 because of the strong sentiment in the Congress
that this area receive significant new amounts of Federal assistance. The
Act assigns Federal policy leadership for juvenile delinquency to Justice
and terminates HEW programs in this area -- except runaway youth -- after 1975.
FORD
2
Alternatives
1. Provide the funding requested ($17 million) for the implementation of
the Juvenile Justice and Delinquency Prevention Act. (Agency Request)
2. Deny funding for implementation because the current level of assistance
for juvenile delinquency is already adequate and a new categorical grant
program will not contribute to remedying the juvenile delinquency
problem. (OMB Recommendation)
The agency request provides for the establishment of an Office of Juvenile
Justice and a National Institute of Juvenile Justice, as required by the
statute and asks $16 million for grant funding and $1 million for
administration. This is in addition to the $140 million annually which
the Act requires LEAA to continue spending from its current program. The
Justice Department's principal justification for the requested increase for
the new juvenile delinquency program is that it was mandated by the Congress
and inaction on the part of LEAA may encourage the Congress to fund the
program in excess of the amount the Administration would want to spend.
OMB recommends no funding for implementation of this Act. This is based on
the belief that an additional categorical grant program would be redundant and
duplicative of the current activities. The new program further limits the
ability of State and local governments to establish their own criminal justice
priorities by mandating that a significant proportion of the LEAA funds be
committed to juvenile justice. Neither OMB nor the Department can identify
any additional contribution or improvement to State and local juvenile justice
efforts that will result from the incremental funding requested in the
Department's appeal. Finally, the OMB recommendation is consistent with
the intention reflected in the signing statement that current economic
conditions require budgetary restraint.
Agency Request: Provide $17 million to implement the Juvenile Justice and
Delinquency Prevention Act of 1974.
OMB Recommendation: Do not fund the Juvenile Justice Act because it is
unnecessarily duplicative of existing LEAA programs, wasteful of budgetary
resources and establishes an undesirable new categorical grant program. It
may be difficult to resist expansion because of Congressional interest in
this program.
Smaller Agencies
ADMINISTRATIVE CONFERENCE OF
THE UNITED STATES
FORD & LIBRARY PERALD
Comments
No change from agency request.
Full-time
Budget
permanent
authority
Outlays
employment
(in thousands of dollars)
1974 actual
600
507
13
1975 current estimate
750
779
14
1976 agency request
790
780
16
1976 OMB recommendation
790
780
16
Effect of OMB recom-
mendation on agency
request
Transition period
198
190
16
1977 estimate
790
780
16
FORT
COUNCIL OF ECONOMIC ADVISERS
Comments
No change from agency request.
Full-time
Budget
permanent
authority
Outlays
employment
(in thousands of dollars)
1974 actual
1,414
1,343
37
1975 current estimate
1,600
1,554
46
1976 agency request
1,575
1,562
46
1976 OMB recommendation
1,575
1,562
46
Effect of OMB recom-
mendation on agency
request
Transition period
393
413
46
1977 estimate
1,575
1,524
46
THE RENEGOTIATION BOARD
Comments
GERALD FORD LIBRART
OMB recommendation accepts request
to continue the program at essen-
tially the same level as 1975.
Agency will not appeal.
Full-time
Budget
permanent
authority
Outlays
employment
(in thousands of dollars)
1974 actual
4,805
4,709
183
1975 current estimate
5,163
4,995
200
1976 agency request
5,395
5,335
200
1976 OMB recommendation
5,395
5,300
200
Effect of OMB recom-
mendation on agency
request
-35
Transition period
1,346
1,334
200
1977 estimate
5,395
5,400
200
COMMISSION ON THE REVIEW OF THE
NATIONAL POLICY TOWARD GAMBLING
GERAID R. FORD LIBRARY
Comments
OMB recommendation would deny
personnel increases and reduce
contract research program and
support services. No signifi-
cant program effect is expected.
Full-time
Budget
permanent
authority
Outlays
employment
(in thousands of dollars)
1974 actual
250
248
8
1975 current estimate
1,000
951
20
1976 agency request
880
892
24
1976 OMB recommendation
750
762
20
Effect of OMB recom-
mendation on agency
request
-130
-130
-4
Transition period
135
175
20
1977 estimate
100
69
NATIONAL COMMISSION FOR THE REVIEW OF
FEDERAL AND STATE LAWS RELATING TO
WIRETAPPING AND ELECTRONIC SURVEILLANCE
Comments
No change from agency request.
Full-time
Budget
permanent
authority
Outlays
employment
(in thousands of dollars)
1974 actual
332
36
7
1975 current estimate
332
513
12
1976 agency request
400
450
9
1976 OMB recommendation
400
450
9
Effect of OMB recom-
mendation on agency
request
Transition period
100
90
9
1977 estimate
100
110
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"ocrText": "The original documents are located in Box 8, folder \"FY 1976 - 12/11/74, Justice, Treasury,\nSmall Agencies\" of the White House Special Files Unit Files at the Gerald R. Ford\nPresidential Library.\nCopyright Notice\nThe copyright law of the United States (Title 17, United States Code) governs the making of\nphotocopies or other reproductions of copyrighted material. Gerald Ford donated to the United\nStates of America his copyrights in all of his unpublished writings in National Archives collections.\nWorks prepared by U.S. Government employees as part of their official duties are in the public\ndomain. The copyrights to materials written by other individuals or organizations are presumed to\nremain with them. If you think any of the information displayed in the PDF is subject to a valid\ncopyright claim, please contact the Gerald R. Ford Presidential Library.\nDigitized from Box 8 of the White House Special Files Unit Files at the Gerald R. Ford Presidential Library\n1976 Budget\nSession With The\nPresident\n12/11/74\nFORD & GERALD LIBRARY\n1976 Budget\nSession With The\nPresident\n12/11/74\nMEETING WITH\nROY L. ASH\nWednesday, December 11, 1974\n2:00 p.m.\nTHE WHITE HOUSE\nWASHINGTON\nDecember 10, 1974\nFORD\nMEETING WITH ROY L. ASH\nWednesday, December 11, 1974\n2:00 p.m. (60 minutes)\nLIBRARY\nOval Office\nFrom: Roy L. Ash\nI. PURPOSE\nTo make final decisions on the issues raised by the FY 76\nbudgets for the Department of Justice, the Department of\nthe Treasury and several smaller agencies.\nII. BACKGROUND, PARTICIPANTS AND PRESS PLAN\nA. Background: The FY 76 budget submissions of the\nDepartments of Justice, Treasury, and several\nsmaller agencies have been reviewed by the Office\nof Management and Budget and members of the White\nHouse staff. The results of these reviews have\nbeen discussed with the affected departments and\nagencies. This meeting will focus on the issues\nraised in the FY 76 budgets of the above depart-\nments and agencies that require Presidential con-\nsideration and determinations.\nB. Participants: Roy L. Ash, Paul O'Neill, Wally Scott,\nand Dale McOmber\nC. Press Plan: David Kennerly photo\nIII. TALKING POINTS\nA. Wally Scott, will you describe the first issue to be\nconsidered for the Department of Justice?\nB. Wally Scott, what issue should we begin with for the\nDepartment of the Treasury?\nC. Wally Scott, will you begin our discussion of the\nissues raised by the budgets of the several smaller\nagencies we are considering today?\nTreasury\nTHE WHITE HOUSE\nWASHINGTON\nFORD LIBRARY\nMEMORANDUM FOR: THE PRESIDENT\nFROM:\nRoy\nAsh\nSUBJECT:\n1976 Budget decisions: Department of the Treasury\nThe agency request and my recommendations with respect to 1976 budget\namounts for the Department of the Treasury are presented in the tabula-\ntion attached (Tab A). A summary of the principal budget decisions\nreflected in my recommendation is provided as background information\n(Tab B).\nSeven key issues have been identified for your consideration (detail at\nTab c).\nI.\nIRS Tax Audit\nTreasury proposes strengthening tax compliance by raising the level\nof audit coverage to 2.6 per cent of tax returns filed, thereby generating\nadditional revenues and contributing to a balanced budget.\nOMB recommends maintaining the 1975 level of 2.5 per cent audit\ncoverage which will increase the absolute number of tax audits. Tax\ncompliance will be encouraged by program increases in areas other than\naudit.\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nII. IRS Information Returns Processing (document matching)\nTreasury proposes annually transcribing, correcting, and matching\none-fourth of all information documents and tax returns.\nOMB recommends initiating a selective program of document matching\nto stimulate voluntary taxpayer compliance by concentrating on documents\nwith the highest potential yield or greatest likelihood of reporting in-\naccuracy.\n2\nFORD\nDecision: Approve agency recommendation\nApprove OMB recommendation\nLIBRARY\nSee me\nIII. IRS Data Processing\nTreasury proposes adding 950 man-years in 1976, representing a 3\nper cent growth in personnel, to process an estimated increase of 2 per\ncent in the number of tax returns filed.\nOMB recommends maintaining the 1975 level of manpower, thereby relying\non increased productivity aided by additional automatic data processing equip-\nment to process the larger number of returns.\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nIV. IRS Administration of Pension Reform\nTreasury proposes a supplemental appropriation of $10.0 million in\n1975. For 1976 they request a further increase of $14.1 million. This\nwould provide funds to handle increased responsibilities under the new\nEmployee Retirement Security Act of 1974.\nOMB recommends $6.6 million of the $10.0 million 1975 request and\na further increase of $4.1 million for the program in 1976. It defers\nadditional increases in 1976 pending receipt of actual workload data.\nThis is the same approach being recommended in the Labor Department\nrequest for this program.\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nV.\nIRS Tax Fraud Investigation\nTreasury proposes adding 8 man-years in 1976 to handle increased\ncase complexity, as part of an overall effort to demonstrate to taxpayers\nthat those who do not meet their tax obligations are identified and pro-\nsecuted.\nOMB recommends investigating the same number of criminal cases which\nIRS projects for 1975 and 1976, using an investigation-to-man-year standard\nsimilar to the ratio achieved in 1973 and 1974 and budgeted for in 1975,\nthereby reducing the 1976 budget 329 positions below the 1975 level.\n3\nDecision: Approve agency recommendation\nApprove OMB recommendation\nGREATS FORD LIBRARY\nSee me\nVI.\nTaxpayer Service\nTreasury proposes adding 63 positions on top of the base of 3,956\nman-years provided in the OMB alternative (which reflects an increase of\n878 man-years over the 1975 base) to conduct a special assistance program\nfor the elderly and inner city taxpayers.\nOMB recommends accomplishing the special emphasis program by redeploy-\ning some of the 3,956 man-years already provided in the 1976 budget for tax-\npayer service.\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nVII. U. S. Customs Service\nTreasury proposes to add 311 man-years and $19 million in 1976 to\nhandle additional imports and people entering the United States and to\nexpand enforcement programs to uncover duty fraud and interdict narcotics\nand other contraband.\nOMB recommends handling the additional imports and people through a\n2.5% increase in productivity, thereby reducing 323 positions below the\n1975 level.\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nAttachments\nDEPARTMENT OF THE TREASURY\n1976 Budget\nSummary Data\n(In millions)\nEmployment, end-of-period\nBudget\nFull-time\nauthority\nOutlays\nPermanent\nTotal\n1974 acutal\n36,019\n35,888\n104,391\n113,892\n1975 January budget\n37,688\n37,633\n111,431\n119,250\nenacted\n37,683\n37,637\n; XXX\nXXX\nsupplementals recommended for operating\n:\naccounts\n26\n24\nXXX\nXXX\noutlay reduction\n-24\n-24\n-80\n-80\nOMB recommendation\n40,094*\n40,061*\n108,976\n116,795\n1976 planning ceiling\n39,294*\n39,259*\nXXX\nXXX\nagency request (revised)\n40,793*\n40,680*\n123,221\n135,227\nOMB recommendation\n40,507*\n40,391*\n111,623\n121,123\nagency recommendation\n40,593*\n40,481*\n118,522\n128,722\nTransition period\nagency request (revised)\n10,443*\n10,423*\n123,221\n135,227\nOMB recommendation\n10,365*\n10,344*\n111,623\n121,123\nagency recommendation\n10,387*\n10,365*\n118,522\n128,722\n1977 OMB estimate\n41,881 *\n41,894'\n113,855\n123,545\n*Requests and recommendations do not include estimates of the net cost of the October 1974 pay increase:\n1975: BA, $54 M; Outlays, $50 M. 1976: BA, $93 M; Outlays, $93 M.\nCERALD\n.g\nTab A\nFORD\nDEPARTM\nTHE TREASURY\n2\n1976 Budget\nDistribution of Budget Authority#\nJuly 1 -\n1974\n1975\n1976\nSept. 30, 1976\n1977\nJan.\nAgency\nOMB\nAgency\nOMB\nAgency\nOMB\nOMB\nActual\nbudget\nrecom.\nrecom.\nrecom.\nrecom.\nrecom.\nrecom,\nest,\nA. Open-ended programs and fixed costs\n(relatively uncontrollable under\npresent law)\n1.\nInterest on the Public Debt\n29,319\n30,500\n33,000\n33,000\n33,200\n33,200\n8,500\n8,500\n34,400\n2.\nGeneral Revenue Sharing\n6,055\n6,205\n6,205\n6,205\n6,355\n6,355\n1,664\n1,664\n6,520*\n3.\nMiscellaneous Permanent and\nTrust Funds\n557\n612\n814\n814\n837\n837\n177\n177\n822\n4.\nOffsetting receipts\n-1,838\n-1,930\n-2,208\n-2,208\n-2,286\n-2,286\n-586\n-586\n-2,344\nTotal, open-ended and\nfixed costs\n(34,093)\n(35,387)\n(37,811)\n(37,811)\n(38,106)\n(38,106)\n(9,755)\n(9,755)\n(39,398)\nB. Discretionary programs (relatively\ncontrollable)\n1.\nOffice of the Secretary\n20\n25\n26\n26\n27\n27\n7\n7\n29\n2.\nOffice of Revenue Sharing\n--\n--\n2\n2\n3\n3\n1\n1\n3\n3.\nFederal Law Enforcement Training\nCenter\n2\n22\n22\n22\n17\n17\n1\n1\n8\n4.\nGovernment Financial Operations\n97\n103\n122\n122\n121\n121\n30\n29\n126\n5.\nAlcohol, Tobacco and Firearms\n81\n94\n92\n92\n97\n97\n26\n26\n106\n6.\nU. S. Customs Service\n241\n286\n282\n282\n301\n285\n76\n73\n300\n7.\nBureau of the Mint\n25\n45\n34\n34\n80\n80\n10\n10\n51\n8.\nBureau of the Public Debt\n81\n88\n96\n96\n97\n97\n27\n27\n102\n9.\nInterest Revenue Service\n1,309\n1,558\n1,530\n1,526\n1,651\n1,581\n426\n408\n1,661\n10.\nU. S. Secret Service\n70\n80\n81\n81\n93\n93\n28\n28\n97\nTotal, discretionary programs\n(1,926)\n(2,301)\n(2,287)\n(2,283)\n(2,487)\n(2,401)\n( 632)\n( 610)\n(2,483)\nTotal, Budget Authority\n36,019\n37,688\n40,098\n40,094\n40,593\n40,507\n10,387\n10,365)\n41,881\n*Assumes enactment of legislation to continue General Revenue Sharing\n#Requests and recommendations do not include estimates of the net cost of the October 1974 pay increase: 1975, $54 M; 1976, $93 M.\nGERALD\n8 TAB\nTab B\n1976 Budget\nDepartment of the Treasury\nFORD is LIBRARY\nBackground Information\nTreasury requests $40.8 billion in new budget authority for 1976. Of this\namount, $38.1 billion is requested for uncontrollable accounts such as\nInterest on the Public Debt, Payments from the General Revenue Sharing\nTrust Fund, and other permanent accounts. The remaining $2.7 billion\nis requested for discretionary operating programs, which fund the\nDepartment's major activities.\nThe OMB recommendation provides $40.5 billion, which grants the Department's\nfull request for uncontrollable programs but reduces the initial request for\noperating programs by $217 million. OMB and Treasury have subsequently come\ninto agreement on most 1976 budget recommendations, and the areas of dispute\nhave been reduced to $86 million. Items still in dispute, which are confined\nto the Internal Revenue Service and the Customs Service, are discussed in\ndetail at Tab C.\nThe reductions in the Treasury request recommended by OMB in Treasury's\noperating programs stem largely from two major concerns:\n- very large staff expansion beyond the requirements of reasonable\nworkload increases (a requested 13 percent staffing increase\nover 1975); and,\n- failure by the Department to reflect increased productivity in\nsome of its major programs.\nThe requested 13 percent increase in staff comes on top of substantial increases\nprovided to the Department over the past few years. In both 1974 and 1975\nemployment increased by 4 percent over the previous year. These increases\nwere well in excess of population growth (a basic ingredient in several\nTreasury programs) or workload.\nThe major staff expansion proposed by the Department comes in the Internal\nRevenue Service and the Customs Service, which historically have accounted\nfor approximately 80 percent of the total Treasury work force. Over the\nyears, the Department has been accustomed to requesting and receiving size-\nable increases for these bureaus because, as revenue producers, they have\nbeen considered essentially costless. Treasury has maintained and continues\nto maintain that rapidly increasing staff in its tax collections and compliance\nforcing programs are necessary to avoid revenue losses. In several of these\nprograms, staffing increases have exceeded actual workload requirements, result-\ning in static or declining employee productivity.\n2\nIn light of the Administration's policy of maximum budget restraint in 1976,\nOMB has subjected the Treasury budget request to a more critical review than\nin recent years. While OMB agrees with Treasury on the need to maintain and\nimprove the integrity and capability of the tax collection and enforcement\nsystem, we have attempted to more accurately relate staffing and budget\nneeds to projected workload requirements and to assume productivity increases\nwhere appropriate. Although the OMB recommendation proposes significant re-\nductions from Treasury's initial budget request for operating programs, it\ndoes provide $118 million and 2,647 additional staff (2.4 percent increase)\nover 1975 to cope with workload increases and priority program improvements.\nGiven the sizeable work force already in place, we believe this recommendation\nis adequate to successfully accomplish the 1976 program proposed by the Depart-\nment and to continue progress toward the overall goal of the tax system:\nmaximum voluntary compliance.\nFORD\nI\n0 TAB\nTab C\nIssue Paper\nDepartment of the Treasury\n1976 Budget\nIssue #1: IRS Tax Audit\nFORD\nStatement of Issue\nWhat proportion of tax returns should IRS audit in 1976?\nLIBRARY\nBackground\nReliance on a voluntary system of tax payments requires a level of audit\nactivity which raises the threat that the validity of returns filed will be\nchecked. Overall audit coverage steadily declined from 5.8 percent in 1963\nto a low of 1.9 percent in 1971 and 1972, and then began rising from 2.0\npercent in 1973 to 2.4 in 1974 and a projected 2.5 in 1975. There is no\nevidence to support the thesis that voluntary compliance changed significantly\nas the audit level fluctuated. In fact, voluntary compliance was estimated\nto be only 93.0 percent during the peak audit year of 1963, as compared to\n92.6 percent when audit coverage was only 3.2 percent in 1969. It is projected\nby IRS to be 94.6 percent in 1976 with audits of 2.6 percent of returns.\nAudit of certain income classes expected to generate the greatest potential yield\nfar exceeds the level of overall coverage. For example, during the past four\nyears audit of businesses with over $30,000 in adjusted gross income has fluctuated\nfrom 8.8 to 13.0 percent, the rate projected for 1975. IRS plans comprehensive\nrates of audit coverage in 1975 for estate returns (24.2 percent), individuals with\nover $50,000 adjusted gross income (15 percent), corporate returns (9.5 percent),\nand reported gifts (4.8 percent).\nIRS estimates that the total amount of individual income tax owed to the Federal\nGovernment in 1976 will be $157 billion. $148.6 billion of this amount will be\npaid voluntarily, representing a compliance rate of 94.6 percent. Another $1.3\nbillion will be collected as a result of audit examinations conducted by personnel\nrequested in the FY 1976 budget. The remaining $7 billion constitutes the projected\ntax gap between the estimated individual income tax owed and that actually received.\nAlternatives\n#1. Raise the level of audit coverage to 2.6 percent in 1976. (Agency request)\n#2. Continue the 2.5 percent audit coverage budgeted for 1975. (OMB recommendation)\nAnalysis\nJuly 1-\nSept 30,\nBudget Authority/Outlays\n1974\n1975\n1976\n1976\n1977\n($ Millions)\nBA\n0\nBA\n0\nBA\n0\nBA\n0\nBA\n0\nAgency request\n497\n482\n595\n595\n635\n623\n159\n156\n656\n656\nOMB recommendation\n497\n482\n595\n595\n620\n610\n155\n152\n640\n660\nFORD\nLISRARY\n2\nIRS is requesting $15.0 million and 946 man-years in additional resources to\nraise the audit level in 1976 to 2.6 percent of tax filings. Treasury supports\nits case for additional audit resources with the claim that the investment of an\nadditional dollar in audit returns an average of six dollars in net direct tax\nrevenues. However, IRS does not value the importance of this program to be\ngreat enough to warrant shifting resources from other IRS activities in order\nto maximize revenues. An OMB review of this estimate in 1972 concluded that a\nratio closer to 2.5:1 more accurately represented the relationship of yield to\ncost, when taking into account IRS overhead and increased costs to the private\nsector required by tax audits. There are no data available to measure the\neffect of additional audit on potential noncompliers.\nArguments over the exact revenue producing ability of tax audits may be strictly\nacademic and subject to an indeterminate margin of error. The real objective\nof this program is to encourage voluntary compliance, which accounts for over 99\npercent of individual income taxes paid. Tax returns are selected for audit either\nbecause of characteristics which indicate underpayment of taxes or as part of a\nstrategy to review a minimum number of returns in every income category in order\nto demonstrate the breadth of IRS audit coverage. The mix of audits expected to\ngenerate the greatest yield and audits intended to encourage voluntary compliance\nis decided by the Commissioner of IRS. There is some suspicion that any suggested\nreduction in the recommended level of audit coverage is priced from the revenue-\nproducing cases to present the worst-possible direct revenue loss expected from\nsuch a decision. It is also difficult to accept the IRS contention that a\nrelatively insignificant fluctuation in audit coverage, for example between\n2.6 and 2.5 percent, actually causes individual taxpayers to cheat on their\ntaxes or can really be measured.\nAgency Request: Raise the level of audit coverage to 2.6 percent, thereby\ngenerating additional revenues which contribute to a balanced Federal budget.\nOMB Recommendation: Maintain the 1975 level of audit coverage (2.5 percent)\nwhich should continue to assure a satisfactory level of voluntary compliance.\nIssue Paper\nGEORLE FORD LIBRARY\nDepartment of the Treasury\n1976 Budget\nIssue #2: IRS Information Returns Processing (document matching)\nStatement of Issue\nTo what extent should IRS match information documents in 1976?\nBackground\nIn 1976 IRS expects to receive 400 million information documents related to\nindividual income taxes--employer statements of wages earned, reports of\ninterest and dividend payments, and declarations of profits distributed by\npartnerships. While taxpayers may have initially surmised that these data\nhave been used to verify income reported by filers, the large quantity of\ninformation documents prevented IRS from actually doing so in most cases.\nIRS believes that many taxpayers are aware of this and are thereby encouraged\nnot to report all sources of taxable income.\nThe 1975 budget provides 1,700 man-years to conduct a limited program to\nmatch information documents submitted on machine-readable tape, follow up on\nthe non-filers identified by this tape match over the preceding two tax\nyears, and correct missing or inaccurate spouse social security numbers on\n8 million tax returns in preparation for more extensive document matching.\nAll of these resources may be applied to whatever document matching program\nis approved for IRS in 1976. Of the 2.5 million discrepancies uncovered by\nthe cursory 1975 match, IRS followed up on 250,000 cases in collections and\naudit. A large number of questions about unreported or under-reported income\nwere therefore unanswered.\nAlternatives\n#1. In addition to the 1,700 man-years included in the 1975 budget, provide\n1,430 additional man-years in 1976 to conduct an expanded program to\ncorrect taxpayer identification numbers and match the information documents\nand tax returns of one-fourth of the filers, conducting related audit and\ncollection activities in 1977. (Agency request)\n#2. Utilize the 1,700 man-years provided in the 1975 budget to initiate a\nselective program (covering 5 percent of the returns) of matching documents\nwith high potential yield in 1976, and to expand audit and collection follow-\nup on discrepancies and non-filers identified. (OMB recommendation)\nAnalysis\nJuly 1 -\nSept 30,\n1974\n1975\n1976\n1976\n1977\nBudget Authority/Outlays\nBA\n0\nBA\n0\nBA\n0\nBA\n0\nBA\n0\n($ Millions)\nAgency request\n2\n2\n24\n24\n43\n42\n11\n11\n51\n51\nOMB recommendation\n2\n2\n24\n24\n25\n25\n6\n6\n26\n26\nFORD\nLIBRARY\n2\nIt is important to agree on the objective of document matching and the most\ncost-effective way of achieving it before launching a massive program of random\ntranscribing and matching millions of documents. As in the audit program, the\nIRS objective here is to encourage voluntary compliance, in this instance to\ncause taxpayers to accurately report all taxable income on their filings.\nMoving in this direction need not require a blanket match of every taxpayer\nor even every fourth taxpayer, as IRS proposes, but rather can selectively\nidentify potential violators and use these matches as an example to encourage\ncompliance from the general public (again similar to the approach used in tax\naudit).\nThe agency request proposes matching tax returns with 100 million information\ndocuments related to one-fourth of the population, selected by surname. Matches\nwould be made of 60 million paper documents and 40 million machine-readable\ndocuments. The 60 million paper documents would have to be sorted, batched,\nedited, transcribed, corrected, and entered into the ADP system. Substantial\npersonnel are requested in the collection activity to follow up on unresolved\ncases where no taxpayer identification number is shown on information documents.\nSome attention would be given to addressing discrepancies between reported income\nand income reflected on information documents, but investigation into underreported\ncases and non-filers would not begin until 1977.\nIn contrast to the agency request which would compare 100 million documents (25\npercent of the total), the OMB recommendation would match 20 million high-potential\ndocuments (constituting 5 percent of the total), chosen according to predetermined\ncriteria to maximize potential yield. The candidates for selection would be\ntaken from 172 million documents (43 percent of total documents filed), consisting\nof the 160 million tape documents and 12 million paper documents entered into\nthe ADP system in an initial step to begin some degree of paper sorting and\nmatching in 1976. Only those documents selected would be corrected to enter\nvalid taxpayer identification numbers. The OMB recommendation also includes\nresources for expanding and improving use of machine-readable tape input. It\nprovides collection and audit personnel to follow up on a large proportion of cases\ndeveloped by matching documents, whereas the agency request would use a larger\nnumber of collection personnel primarily to correct missing or inaccurate taxpayer\nidentification numbers.\nAgency Request: Begin annually transcribing and matching one-fourth of all\ninformation and tax returns.\nOMB Recommendation: Initiate a selective program of document matching to stimulate\nvoluntary taxpayer compliance, while concentrating on documents with the greatest\nyield potential, similar to the approach used in tax audit.\nFORD CIGRARY\nIssue Paper\nDepartment of the Treasury\n1976 Budget\nIssue #3: IRS Data Processing\nStatement of Issue\nWhat consideration should be given to productivity in budgeting for data\nprocessing in IRS?\nBackground\nThe data processing operations activity is responsible for receiving and\nprocessing tax returns, issuing refunds and notices, and accounting for\nrevenues. In 1974 this program processed 121.6 million Federal tax returns.\nIRS estimates it will receive 124.0 million returns in 1975 and 126.5 million\nreturns in 1976.\nAlternatives\n#1. Add 950 man-years ($11.3 million) to handle the increased workload\nprojected for 1976. (Agency request)\n#2. Maintain the same work force provided in 1975 and expect the larger\nnumber of returns to be processed through increased productivity.\n(OMB recommendation)\nAnalysis\nJuly 1 -\nSept 30,\n1974\n1975\n1976\n1976\n1977\nBudget Authority/Outlays\nBA\n0\nBA\n0\nBA\n0\nBA 0\nBA\n0\n($ Millions)\nAgency request\n316\n306\n370\n370\n386\n379\n97\n95\n398\n398\nOMB recommendation\n316\n306\n370\n370\n375\n368\n94\n92\n375\n375\nIRS supports its case for additional staff by citing the growth in returns\nvolume and complexity. Timely processing of returns is said to be important\nin maintaining public confidence in the efficiency of the tax system.\nOMB acknowledges the desirability of prompt returns processing and has provided\nfor procurement of additional automatic data processing equipment in 1976 to\nfacilitate this activity. The OMB alternative allows for purchase of 191\nnew entry terminals, additional capacity for central processing units, and\n$400,000 in miscellaneous auxiliary and accessory equipment. In addition to\nthe workload savings generated by these additions, it is anticipated that\nthe three new service centers opened by IRS in 1975 will operate more efficiently\nin 1976.\n2\nData processing operations are particularly well-suited to productivity\nincreases because of their industrial nature. The OMB alternative assumes\na 2 percent productivity factor, a realistic goal which returns to the output-\nper-man-year level achieved in 1974. New ADP equipment should offset any\nincrease in return complexity.\nMan-years\nTax\nReturns\nin Returns\nReturns\nper\nProcessing\nFiled\nMan-year\n1974 Actual Experience\n24,817\n121,600,000\n4,899\n1975 Budget\n26,610\n124,000,000\n4,659\n1976 IRS Request\n27,560\n126,500,000\n4,589\n1976 OMB Recommendation\n26,610\n126,500,000\n4,753\nAgency Request: Provide additional resources to process larger numbers of\ntax returns in 1976.\nOMB Recommendation: Expect increased productivity aided by additional ADP\nequipment to offset the projected 2.0 percent increase in tax returns filed\nin 1976.\nIssue Paper\nBENALD FORD\nDepartment of the Treasury\n1976 Budget\nIssue #4: IRS Administration of Pension Reform\nStatement of Issue\nWhat should be the level of resources in 1975 and 1976 to implement IRS respon-\nsibilities under the new pension reform law?\nBackground\nThe Employee Retirement Income Security Act of 1974 completely changes the\ntax provisions relating to employee pension plans. Virtually all existing\nplans will have to be amended to comply with the new qualification require-\nments. The Act provides a new right of appeal to the Tax Court for a\ndeclaratory judgment as to plan qualification. To carry out these provisions\nthe new law specifically requires the establishment of an \"Office of Employee\nPlans and Exempt Organizations\" to be headed by an Assistant Commissioner in\nIRS. The responsibilities of the new organization include issuing determina-\ntion letters concerning the qualification of employee plans and the tax exempt\nstatus of other organizations, providing taxpayer guidance through the publica-\ntion of rulings and procedures relating to the tax aspects of these plans and\norganizations, examining required returns and other information documents,\nproviding administrative remedies to allow taxpayers to resolve differences\nwith the IRS in cases involving the qualification of employee plans, and\nestablishing and maintaining employee plans and exempt organizations master\nfiles.\nAlternatives\n#1. Provide for implementation of the Employee Retirement Income Security\nAct by adding 389 man-years and $10.0 million in a 1975 supplemental\nappropriation and an additional 637 man-years and $13.4 million in\n1976. (Agency request)\n#2. Add 221 man-years ($6.6 million) in a 1975 supplemental appropriation\nto begin implementation of the pension reform law but defer additional\nincreases beyond annualization (86 man-years; $1.8 million) in 1976\nuntil better workload data are available and experience is gained in\nadministering the program; provide 112 man-years ($2.3 million) in\n1976 to strengthen tax review of exempt organizations. (OMB recommenda-\ntion)\nFORD\n7\nAnalysis\nJuly 1 -\n1975\nSept 30\n1974\n1975\nSupp.\n1976\n1976\n1977\nBudget Authority/Outlays\nBA\n0\nBA\n0\nBA\n0\nBA 0\nBA\n0\nBA 0\n($ Millions)\nAgency request\n45\n44\n49\n49\n+10\n+10\n73\n72\n19\n19\n75\n75\nOMB recommendation\n45\n44\n49\n49\n+7\n+7\n60\n59\n15\n15\n62\n62\nIRS was appropriated $23.3 million in 1975 for its pension plan program prior\nto passage of the 1974 Act and $26.1 million for its ongoing review of exempt\norganizations. In implementing the new law, IRS has combined these two programs\nunder a single organization. Utilizing the impetus provided by the 1974 Act,\nIRS seeks to strengthen both facets of the new organization through a supplemental\nrequest in 1975 and an additional increase in 1976.\nThe OMB recommendation is consistent with the approach already approved for the\ncompanion program in the Department of Labor to implement its responsibilities\nunder the 1974 law. OMB and Labor agreed that no additional resources beyond\na 1975 supplemental would be recommended for Labor until workload estimates\necome available next spring to demonstrate whether the 1975 program is adequate\n0 carry out the Department's responsibilities. Using a similar approach, the\nOMB recommendation adds positions in 1975 for pension reform (and annualization\nin 1976), but defers further expansion in 1976 until experience is gained in\nadministering the new Act. This action will likely result in a request for\na spring supplemental. In addition, the OMB recommendation provides resources\nin 1976 to assist in establishing new regional organizations for reviewing\nexempt organizations and expanding IRS activities in this area at a slower\nrate than proposed by IRS.\nAgency Request: Provide for implementation of the Employee Retirement Security\nAct and expand tax review of exempt organizations through a 1975 supplemental\nof $10.0 million and new budget authority of $13.4 million in 1976.\nOMB Recommendation: Consistent with the OMB approach to the Department of Labor,\nsubmit a 1975 supplemental request of $6.6 million and approve $1.8 million in\nannualization in 1976 for pension reform, recognizing that additional resources\nmay be required in 1976 when workload levels generated by the 1974 Act have been\ndetermined; provide $2.3 million in 1976 for tax review of exempt organizations,\nbut disapprove a 1975 supplemental for this purpose on the grounds that no new\ncircumstances justify program expansion in the current year.\nIssue Paper\nDepartment of the Treasury\n1976 Budget\nIssue #5: IRS Tax Fraud Investigation\nStatement of Issue\nWhat is the appropriate level for tax fraud investigation in 1976?\nBackground\nThe objective of tax fraud investigations is \"to encourage the highest degree\nof compliance with Internal Revenue laws pertaining to income, estate, gift,\nemployment and certain excise taxes by enforcement of the criminal provisions\nin such laws.\" There are two sides to this program, investigation into suspected\nfraud by taxpayers in general and the special enforcement activity targeted\nagainst persons believed to be engaged in organized crime or traffickers in\nillicit narcotics.\nAlternatives\n#1. Add 8 man-years to tax fraud investigations in 1976 to offset increasing\ncase complexity. (Agency request)\n#2. Reduce personnel by 329 man-years, but handle the same number of cases\nprojected by IRS through more productive employment of special agents\nand support personnel. (OMB recommendation)\nAnalysis\nJuly 1 -\nSept 30,\n1974\n1975\n1976\n1976\n1977\nBudget Authority/Outlays\nBA 0\nBA\n0\nBA\n0\nBA\n0\nBA 0\n($ Millions)\nAgency request\n85\n82\n100\n100\n100\n98\n25\n25\n101\n101\nOMB recommendation\n85\n82\n100\n100\n95\n93\n24\n24\n96\n96\nAs the following data reflect, the estimate of tax fraud investigations to be\nconducted in 1975 has declined from 10,100 when the 1975 budget was prepared\nlast fall to a current figure of 7,700. At the same time, man-years devoted\nto the program have increased in non-professional supporting positions. The\nresulting trend in declining productivity is projected to continue in 1976.\nFORD 2\nChange\n1975 Program\nfrom\nWorkload - investiga-\n1973\n1974\nin 1975\nin 1976\n1976\n1975\n1976\ntions\nActual\nActual\nBudget\nBudget\nRequest\nbudget\nRecom.\nTaxpayers in general\n6,742\n5,750\n8,200\n6,300\n6,300\n-17%\n6,300\nSpecial enforcement\n1,859\n1,465\n1,900\n1,400\n1,400\n-26%\n1,400\nTotal\n8,601\n7,215\n10,100\n7,700\n7,700\n-19%\n7,700\nMan-years\nSpecial agents\n2,342\n2,519\n2,649\n2,645\n2,650\n+9%\n2,587\nOther FTP\n1,164\n1,274\n1,312\n1,389\n1,392\n+5%\n1,118\nTotal\n3,506\n3,793\n3,961\n4,034\n4,042\n+8%\n3,705\nWorkload Per Man-year\nSpecial agents\n3.7\n2.9\n3.8\n2.9\n2.9\n-1.0\n3.0\nOther\n7.4\n5.7\n7.7\n5.5\n5.5\n-1.7\n6.9\nThe IRS request contains a slight increase in personnel in 1976 to handle workload\nthat will decline 19 percent from the level provided for in 1975 budget. IRS\nexplains the decrease in productivity as a result of growing case complexity.\nThe OMB recommendation budgets for the same number of tax fraud investigations\nprojected by IRS for 1976 but uses a workload standard closer to the investiga-\ntions-per-man-year ratio budgeted for in 1975 and achieved in 1973 and 1974.\nIRS has offered no convincing justification to explain increased case complexity,\nhowever if this materializes, it would be offset in this alternative by higher\nproductivity.\nAgency Request: Add 8 man-years in 1976 to address caseload complexity in 1976.\nOMB Recommendation: Reduce 329 man-years but achieve the same results by relying\non investigative output comparable to the level budgeted for in 1975.\nFORD\nIssue Paper\nDepartment of the Treasury\n1976 Budget\nIssue #6: Taxpayer Service\nStatement of Issue\nWhat is the appropriate level for taxpayer service in 1976?\nBackground\nThe taxpayer service program is responsible for providing taxpayers with the\nquality and degree of assistance they need to meet their Federal tax filing\nobligations. In 1975, 3,085 man-years will respond to an estimated 10 million\npersonal inquiries, 25.5 million phone inquiries, and 500,000 letters from\ntaxpayers. IRS projects a total of 43 million taxpayers inquiries will be\nreceived in 1976, as contrasted to the 36 million estimated for 1975.\nAlternatives\n#1. Add 279 man-years to taxpayer service in 1976. (Agency request)\n#2. Add 216 man-years to taxpayer service in 1976. (OMB recommendation)\nAnalysis\nJuly 1 -\nSept 30,\n1974\n1975\n1976\n1976\n1977\nBudget Authority/Outlays\nBA\n0\nBA 0\nBA\n0\nBA\n0\nBA\n0\n($ Millions)\nAgency request\n93\n80\n101\n101\n119\n119\n30\n30\n121\n121\nOMB recommendation\n83\n80\n101\n101\n118\n118\n30\n30\n120\n120\nIRS seeks the addition of 279 man-years and $9.2 million to taxpayer service\nin 1976 to handle the anticipated growth in workload and to conduct special\nassistance programs directed to the elderly and inner city taxpayers. The\nrequest is justified as being responsive to congressional interest in expanding\ntaxpayer assistance and as part of a general effort to educate the public on its\ntax responsibilities.\nThe OMB alternative allows for an increase of 216 man-years to handle increased\nworkload projected by IRS, despite the unusually large number of taxpayer\ncontacts estimated for 1976. The growth of 7 million in 1976 far exceeds the\nincrease of 1.6 million expected from 1974 to 1975. In the event this workload\ndoes not materialize, IRS would be able to apply additional under-utilized\nresources to its special assistance program for the elderly and inner city\nresidents. Otherwise, IRS would be forced to establish new priorities for\nemployment of its 3,956 man-years in order to accomplish this 63 man-year\nrequirement.\n2\nThe 1976 budget will reflect an increase of an additional 655 man-years\nin taxpayer service for 1976 attributable to shifting into the taxpayer\nservice activity accountability for audit and collection personnel actually\nattached to this program. Consequently, under the OMB alternative a total\nincrease of 878 man-years will be shown for the taxpayer service activity in\n1976, representing a 28 percent increase\nAgency Request: Add 63 man-years on top of the 216 man-year increase provided\nin the OMB alternative for taxpayer service.\nOMB Recommendation: Provide 216 additional man-years for taxpayer service\nin 1976 and rely on the 3,956 man-years budgeted for this activity in 1976\nto accomplish the expanded special assistance program requested by IRS.\nFORD & LIBRARY\nIssue Paper\nDepartment of the Treasury\n1976 Budget\nIssue #7: U.S. Customs Service\nFORD 3 LIBRARY 076839\nStatement of Issue\nWhat is the appropriate level of resources for the U.S. Customs Service in\n1976?\nBackground\nThe U.S. Customs Service collects duties and other taxes on imports and enforces\ncustoms and related laws. The Customs Service has grown rapidly over the last\nseveral years. Since 1969, Customs manpower has increased by 57% to 12,918\nman-years in 1975 while the two main indicators of workload, formal entries of\nimports and the number of persons arriving from foreign countries, have increased\nby 32% and 18% respectively. Customs manpower increases were achieved even though\nthe drug investigation function and associated resources (735 positions) were\ntransferred from Customs to the Drug Enforcement Administration in the beginning\nof 1974.\nThe past increases in manpower occurred because of the emphases placed upon\nthe interdiction and investigation of drugs and increasing workload. Overall\nproductivity has declined over the past few years. In 1974, an absolute\ndecrease in formal entries of imports, the primary work indicator, further\naggravated the productivity decline. The requested Customs' budget shows\nthat productivity will continue declining in 1975 and 1976 from the 1974 level.\nThe Treasury Department is requesting an additional 311 man-years and $19 M\nfor Customs in 1976 to expand its enforcement program ($5.8 M), to process\nadditional workload ($3.4 M), to maintain current staff levels ($8.5 M) and\nto expand other programs ($1.4 M).\nAlternatives\n#1. Add manpower (311 man-years and $19 M) to process imports and passenger\narrivals and to increase the enforcement of laws against smuggling and\nfraud. (Agency request)\n#2. Reduce manpower (-323 man-years) to force a 2.5% productivitiy increase\nabove the last actual year (1974), but add net increase in funds (+$3 M)\nfor cost increases and for additional staff for priority items which\ncontribute to increased productivity such as marihuana detector dogs\nand the computer processing system for cargo. (OMB recommendation)\nAnalysis\nJuly 1-\nSept 30,\nBudget Authority/Outlays\n1974\n1975\n1976\n1976\n1977\n($ Millions)\nBA\n0\nBA\n0\nBA\n0\nBA\n0\nBA\n0\nAgency Request\n241\n225\n282\n297\n301\n312\n76.4\n75.8\n322\n322\nOMB Recommendation\n241\n225\n282\n297\n285\n290\n72.6\n71.8\n300\n300\nFORD\nLIBRAR\n2\nFrom 1969 to 1973 Customs productivity in processing persons entering the U.S.\ndeclined by approximately 50% while productivity in processing imports rose by\n4%, although it varied from year to year. In 1974, productivity declined by\n10% in processing persons and by 3% in processing cargo. The 1976 request\nwould decrease productivity below 1974.\nIn order to reverse this trend of declining productivity, OMB recommends a\nreduction of 307 man-years in 1976 which is equivalent to a 2.5% increase\nin productivity over 1974.\nThis increase will not recoup the productivity decreases which have occurred\nover the last five years. However, it will reverse the declining trend and\nprovide a reasonable base for future year budget projections. Further reductions\nin 1976 are not considered feasible because of potential disruptive effects upon\nCustoms' programs. Productivity increases should allow Customs to achieve its\nwork program as projected.\nOMB also recommends a 40 man-year decrease in the law enforcement activity.\nProductivity in law enforcement is difficult to measure but we believe that\nthe rise in Customs agents from 350 in 1969 to 548 in 1975 is excessive when\ntheir major investigative function, drugs, has been transferred to DEA.\nThe Department of Treasury recommends additional manpower to maintain the\ncurrent program level and maintain that the workload indicators do not\ncapture the significant amounts of manpower devoted to searching for illegal\ndrugs, preventing and uncovering smuggling and other fraudulent activities.\nThe Department also points out that the OMB recommendation would reduce the\nexpected revenue by \"many millions of dollars.\" The Department emphasizes\nthat these enforcement programs result in greater revenue collected, or value\nof drugs seized, than the costs of the program.\nOMB believes that the marginal benefit of minor decreases or increases in\npersonnel within Customs do not materially affect the availability of heroin\nor other drugs in the U.S. or the amount of duties collected.\nEven though the OMB recommendation reduces the Customs program, it does provide\n24 positions for essential increases for the opening of new ports of entry,\nadditional detector dogs and expansion of the computer system to process cargo.\nThese increases should result in long-term productivity gains and more effective\nenforcement.\nAgency Request: Treasury wishes to maintain current programs and expand priority\nenforcement programs by adding 311 man-years and $19 million in the Customs Service.\nOMB Recommendation: Reducing Customs (-323 man-years and +$3 million) in order\nto achieve a 2.5% productivity gain should not significantly affect revenues\ncollected or drug seizures.\nJustice\nTHE WHITE HOUSE\nWASHINGTON\nGERALD R. FORD LIBRARY\nMEMORANDUM FOR: THE PRESIDENT\nFROM:\nROL LA ASH\nSUBJECT:\n1976 Budget decisions: Department of Justice\nThe agency request and my recommendations with respect to 1976 budget\namounts for the Department of Justice are presented in the tabulation\nattached (Tab A). A summary of the principal budget decisions on which\nagreement has been reached between OMB and the Justice Department is\nprovided as background information (Tab B).\nThree key issues on which disagreement still exists are identified below\nand discussed in detail at Tab C.\nI.\nImmigration and Naturalization Service\n750\nJustice proposes adding 1,435 positions and $45 million for a\nmajor program expansion to detect, apprehend and expel illegal aliens\nfrom within this country.\nOMB recommends 320 positions and $18 million for additional deporta-\ntion of aliens and some systems changes which should enhance enforcement\neffectiveness in the future. Further expansion of the program is deferred\nuntil INS analyzes the illegal alien problem and develops an enforcement\nstrategy with demonstrated cost effectiveness.\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nII.\nFederal Bureau of Investigation\n250\nThe FBI proposes (a) to expand its counterintelligence force by 310\npersons ($5.7 million) to counter the increasing number of communist-bloç\nofficials in this country and (b) to cover increased costs of operations\n15\nincluding the purchase of new equipment ($22.3 million).\nThe OMB recommendation assumes that the present workforce devoted\nto counterintelligence (over 1,800) is sufficient to accommodate present\nworkload requirements in that area and that the OMB allowance of $12\nmillion is adequate to cover priority needs of on-going programs.\nGEBALO FORD LIBRARY\n2\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nIII. Law Enforcement Assistance\nThe Justice Department and OMB recommendations for 1976 propose\na reduction in LEAA's basic grant programs of $110 million from 1975\nprogram levels. The Justice Department proposed this reduction as a\nmeans of staying within its 1976 budget ceiling. Apart from the basic\nLEAA program, the Justice Department request includes $17 million (and\n25 new positions) to implement the new Juvenile Justice and Delinquency\nPrevention Act of 1974, which you signed on September 7, 1974. This\nproposal reflects the Department's concern for avoiding an adverse\npublic or Congressional reaction because of the high degree of support\nindicated in the passage of the Act.\nThe OMB recommendation includes no new funding and no additional\npositions for implementation of the new Juvenile Delinquency Act. The\nFederal Government currently provides over $155 million annually to\nStates and local governments for juvenile delinquency, primarily\nthrough on-going LEAA and HEW programs. In the signing statement\nfor the new Juvenile Delinquency Act, you stated that the Administration\nwould seek no new appropriations \"for the new programs authorized in the\nbill in excess of amounts included in the 1975 budget until the general\nneed for restricting Federal spending has abated.\"\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nAttachments\nTHE WHITE HOUSE\nWASHINGTON\nGERALD FORD VIBRARY\nMEMORANDUM FOR: THE PRESIDENT\nFROM:\nROY L. ASH\nSUBJECT:\n1976 Budget decisions: Department of Justice\nThe agency request and my recommendations with respect to 1976 budget\namounts for the Department of Justice are presented in the tabulation\nattached (Tab A). A summary of the principal budget decisions on which\nagreement has been reached between OMB and the Justice Department is\nprovided as background information (Tab B).\nThree key issues on which disagreement still exists are identified below\nand discussed in detail at Tab C.\nI.\nImmigration and Naturalization Service\nJustice proposes adding 1,435 positions and $45 million for a\nmajor program expansion to detect, apprehend and expel illegal aliens\nfrom within this country.\nOMB recommends 320 positions and $18 million for additional deporta-\ntion of aliens and some systems changes which should enhance enforcement\neffectiveness in the future. Further expansion of the program is deferred\nuntil INS analyzes the illegal alien problem and develops an enforcement\nstrategy with demonstrated cost effectiveness.\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nII.\nFederal Bureau of Investigation\nThe FBI proposes (a) to expand its counterintelligence force by 310\npersons ($5.7 million) to counter the increasing number of communist-bloc\nofficials in this country and (b) to cover increased costs of operations\nincluding the purchase of new equipment ($22.3 million).\nThe OMB recommendation assumes that the present workforce devoted\nto counterintelligence (over 1,800) is sufficient to accommodate present\nworkload requirements in that area and that the OMB allowance of $12\nmillion is adequate to cover priority needs of on-going programs.\n2\nDecision: Approve agency recommendation\nApprove OMB recommendation\nFORD CLERARY\nSee me\nIII. Law Enforcement Assistance\nThe Justice Department and OMB recommendations for 1976 propose\na reduction in LEAA's basic grant programs of $110 million from 1975\nprogram levels. The Justice Department proposed this reduction as a\nmeans of staying within its 1976 budget ceiling. Apart from the basic\nLEAA program, the Justice Department request includes $17 million (and\n25 new positions) to implement the new Juvenile Justice and Delinquency\nPrevention Act of 1974, which you signed on September 7, 1974. This\nproposal reflects the Department's concern for avoiding an adverse\npublic or Congressional reaction because of the high degree of support\nindicated in the passage of the Act.\nThe OMB recommendation includes no new funding and no additional\npositions for implementation of the new Juvenile Delinquency Act. The\nFederal Government currently provides over $155 million annually to\nStates and local governments for juvenile delinquency, primarily\nthrough on-going LEAA and HEW programs. In the signing statement\nfor the new Juvenile Delinquency Act, you stated that the Administration\nwould seek no new appropriations \"for the new programs authorized in the\nbill in excess of amounts included in the 1975 budget until the general\nneed for restricting Federal spending has abated.\"\nDecision: Approve agency recommendation\nApprove OMB recommendation\nSee me\nAttachments\nTAB A\nDepartment of Justice\n1976 Budget\nSummary Data\n($ in Millions)\nEmployment\nBudget Authority\nOutlays\nFull-time Permanent\nTotal\n1974 actual\n1,920\n1,797\n48,188\n49,892\n1975 January budget\n2,138\n2,106\n50,997\n52,621\nenacted\n2,082\n2,078\nXXX\nXXX\noutlay reduction\n-16\n-16\n-309\n-309\nsupplemental recommended\nXXX\nXXX\nXXX\nXXX\nOMB recommendation\n2,066*\n2,031*\n49,718\n51,342\n1976 planning ceiling\n2,031*\n2,170*\nXXX\nXXX\nagency recommendation (Appeal)\n2,109*\n2,202*\n51,978\n53,524\nOMB recommendation\n2,048*\n2,157*\n50,528\n52,074\nTransition period\nagency recommendation\n547*\n604*\n51,978\n53,524\nOMB recommendation\n535*\n592*\n50,528\n52,074\n1977 OMB estimate\n2,090*\n2,205*\n50,528\n52,074\n*Requests and recommendations do not include estimates of the net costs of the 1974 pay increase: 1975 BA, $33 M;\nOutlays $32 M. 1976: BA, $48 M; Outlays $47 M.\nGERALO\nTab A\nayos\nLIBRARY\nDEPARTMENT OF JUSTICE\n1976 Budget\nDistribution of Budget Authority\n(in millions of dollars)\nJuly 1-\n1974\n1975\n1976\nSept. 30, 1976\n1977\nJan.\nAgency\nOMB\nAgency\nOMB\nAgency\nOMB\nOMB\nActual\nbudget\nrequest\nrecom.\nappeal\nrecom.\nappeal\nrecom.\nest.\nOrganizations\nGeneral Administration\n17\n22\n22\n22\n20\n20\n5\n5\n20\nLegal Activities\n161\n190\n185\n185\n199\n199\n54\n54\n208\nAntitrust\n15\n17\n17\n17\n18\n18\n5\n5\n19\nFees and Expenses of Witnesses\n13\n14\n14\n14\n16\n16\n4\n4\n17\nCommunity Relations Service\n4\n4\n4\n4\n4\n4\n1\n1\n4\nFederal Bureau of Investigation\n395\n438\n428\n428\n456\n440\n124\n119\n454\nImmigration and Naturalization\nService\n155\n180\n175\n175\n221\n193\n54\n47\n203\nFederal Prison System\n180\n250\n215\n215\n248\n248\n61\n61\n252\nLaw Enforcement Assistance\nAdministration\n871\n886\n880\n880\n785\n768\n198\n198\n768\nDrug Enforcement Administration\n112\n141\n133\n133\n146\n146\n42\n42\n150\nOffsetting receipts\n-3\n-4\n-7\n-7\n-4\n-4\n-1\n-1\n-5\nTOTAL, Department of Justice\n1,920\n2,138\n2,066\n2,066\n2,109\n2,048\n547\n535\n2,090\n?\nFORD\nTAB B\nTAB B\n1976 Budget\nFORD\nDepartment of Justice\nBackground Information\n078839\nOMB and Justice have reached agreement on budget and program recommendations\nfor over 95% of the recommended budget. The major program areas where\nagreement has been reached are indicated below:\n1. General Administration and Legal Activities. The recommendation\nprovides for 852 positions and related support requirements in\n1976 for administration and oversight of Departmental programs\n(the same level as 1975). For legal activities, the recommendation\nprovides 8,670 positions, an increase of 333 over 1975. This\nrecommendation will provide for maintenance of the current caseload-\nto-attorney ratio and will permit necessary manpower increases to\nlitigate priority cases.\n2. Drug Enforcement Administration. The recommendation provides a\nprogram level of $146 million and 4,263 positions for DEA in 1976,\nan increase of $12 million and 57 positions over 1975. Emphasis\nwill be given to continuing the attack on illicit drugs entering\nthe U.S. from Mexico and implementation of the new tri-agency\nEl Paso intelligence center. The recommendation defers a decision\non the need for new staffing resources to establish controls to\navoid diversion of opium from Turkey to the U.S., pending further\nclarification of the problem and the need for action by the U.S.\n3. Federal Prison System. The recommendation provides a program\nlevel of $248 million and 8,135 positions for the Bureau of\nPrisons in 1976, an increase of $32 million and 102 positions\nover 1975. The recommendation includes staff increases for\nactivation of one new prison facility in 1976, operation of\nseven additional community treatment centers, planning and site\nacquisition for a Southeast Adult correctional facility and\nconstruction of a Northeast Adult facility.\n0 TAB\nTAB C\nIssue Paper\nGERALD FORD (18KAHT)\nDepartment of Justice\n1976 Budget\nIssue #1:\nImmigration and Naturalization Service\n(Dollars in Millions)\n1975\n1976\n1977\n1974\nCurrent\nJustice\nJustice\nOMB\nJustice\nOMB\nActual\nEst.\nRequest\nAllow.\nAppeal\nRecom.\nRequest\nRec.\nBA\n155\n175\n221\n193\n221\n193\n243\n203\nO\n149\n170\n219\n192\n218\n192\n243\n203\nStatement of Issue\nWhat is the appropriate level of resources for the Immigration and\nNaturalization Service (INS) in 1976?\nBackground\nFeeling overwhelmed by the increasing number of illegal aliens, the INS\nis again this year requesting an 18% increase in personnel. This year's\nrequest is based on essentially the same strategy as last year: apply a\nlarger amount of resources across the board for an expanded enforcement\neffort. OMB rejected that strategy last year, questioning the payoff\nachieved by merely adding enforcement personnel to apprehend and expel\nillegal aliens who often reenter the country and perpetuate the cycle, OMB\nalso believes that a real solution of the alien problem requires reduction\nin the economic incentive to enter the country illegally; however, the Congress\ncontinues to postpone enactment of the Rodino bill which would help accomplish\nthis through prohibitions and sanctions against employment of illegal aliens.\nThe OMB approach over the past two years has been to grant some small increases\nto INS to meet immediate and urgent needs but to insist that no substantial\nresources be added until a comprehensive strategy with a demonstrated cost-\neffectiveness is developed. To accomplish this, OMB requested studies of the\nmagnitude and characteristics of the illegal alien problem and its impact on\nthe economy as well as studies of the effectiveness of INS various enforcement\nprograms. INS supported a major study of the illegal alien problem but when\nfunds were not provided by the Congress, INS was unwilling to divert other\nfunds to the study.\nAlternatives\n#1.\nProvide 1,435 positions and $45 million for a major expansion of the\nenforcement effort against illegal aliens. (Agency Request)\n#2. Provide 320 positions and $18 million for additional deportation of aliens\nand system improvements which will enhance the various enforcement programs.\nDefer additional increases until INS analyzes the illegal alien problem\nand constructs a strategy with demonstrated cost effectiveness.\n(OMB Recommendation)\n2\nThe agency request, (Alternative #1) reflects the Commissioner's strategy to\ndeal with the illegal alien problem as solely one of enforcement: i.e.,\napprehension and expulsion. This is not, he admits, based on any analyses\nof the economic or social impact of illegal aliens upon the U. S. or of the\nbest methods of deterrence to discourage illegal entry. The strategy rests\non the fact that Mexico's rising population and poor economy is driving\nincreasing numbers of Mexican nationals to the U. S. and something must\nbe done to halt this increasing illegal immigration. The Commissioner's\njudgment is that a balanced enforcement strategy is needed which emphasizes\ndeterrence at the border. He believes that increasing the likelihood of\ninterdiction at the border will substantially reduce the number of potential\nillegal immigrants.\nOMB does not recommend a major resource increase for this strategy because\nof the uncertainty of the benefits and the similarities to previous strategies\nwhich have had limited impact.\nIf the Rodino bill passes, OMB anticipates a request from the agency for a\nmajor augmentation of resources to implement its provisions. This bill will\nlead to a change in enforcement tactics and additional resources will be\ngiven serious consideration in light of the agency's enforcement strategy\nat that time.\nAgency Request: INS believes 1,435 positions and $45 million are needed to\napprehend and expe1 illegal aliens.\nOMB Recommendation: Provides 320 positions and $18 million for additional\ndeportation of aliens and system improvements for alien control to meet the\nimmediate needs until an effective approach is developed.\nGESALO FORD LIBRARY\nIssue Paper\nDepartment of Justice\n1976 Budget\nIssue #2:\nFederal Bureau of Investigation\n(Dollars in Millions)\n1975\n1976\n1977\n1974\nCurrent\nJustice\nJustice\nOMB\nJustice\nOMB\nActual\nEst.\nRequest\nAllow.\nAppeal\nRecom.\nRequest\nRec.\nBA\n395\n428\n466\n437\n456\n440\n486\n454\n0\n381\n420\n462\n430\n447\n433\n483\n456\nStatement of Issue\nWhat is the appropriate level of resources for the FBI in 1976?\nAlternatives\n#1.\nAdd 310 positions and $5.7 M for expanded counterintelligence activities\nand $22.3 M for increased costs of operations, including the purchase\nof new equipment. (Agency Request)\n2.\nDeny additional resources for counterintelligence and provide $12 M to\nmeet justified cost increases and essential equipment needs for on-going\nprograms.\n(OMB Recommendation)\nAnalysis\nCounterintelligence\nThe request to expand counterintelligence (CI) activities is based on the\nDepartment's contention that the increasing number of communist-bloc officials\nadmitted to this country should be countered by a proportionate increase in\nFBI CI personnel. The FBI maintains that 1/3 of all communist-bloc officials\nwho come to the U.S. are likely to be foreign intelligence officers and,\nas such, require constant surveillance by the Bureau.\nThe Bureau's method of projecting manpower needs and determining resource\nrequirement assumes a fixed relationship between the potential number of foreign\nintelligence operatives in this country and the number of FBI agents required\nto surveil them. This approach does not assume any significant degree of\nselectivity in identifying for surveillance foreign officials that do pose a\nserious threat to the U.S. If the Bureau does not begin to apply selectivity\nin the determination of workload requirements in this area, we can expect an\nincreasing number of FBI personnel assigned to CI in the future even as\ndetente expands.\n2\nOMB recommendation rejects the Department's position that the CI program\nrequires new resources each time the number of foreign officials admitted\nto the U.S. increases. It assumes that the 1,800 persons already assigned\nto CI are sufficient to meet new requirements if selectivity is employed.\nThe FBI would be asked to develop better workload indicators and a more\nrefined approach for CI activities.\nIncreased operational costs\nThe Department requests $22.3 M in 1976 to maintain existing programs at\nthe 1975 level and to provide for necessary equipment purchases. The OMB\nreview concluded that some of the requirements are overstated or are not\ndefensible in a tight budget year. Furthermore, the FBI's budget request\nassumed no productivity increase in 1976.\nThe OMB recommendation would provide $12 M to cover the highest priority\noperating and equipment needs and assumes a 1% productivity increase.\nAgency Request: Increase the counterintelligence staff by 310 positions and\n$5.7 M to improve the ratio between FBI personnel and known or suspected\nforeign intelligence officers; moreover, provide $22.3 M to maintain and\nimprove the capabilities of current program operations.\nOMB Recommendation: Maintain current level in the CI area, develop better\nworkload indicators and provide $12 M to meet essential needs of existing\nprograms.\nIssue Paper\nDepartment of Justice\n1976 Budget\nIssue #3: Law Enforcement Assistance Administration - Funding Level\n(Dollars in Millions)\n1975\n1976\n1977\n1974\nCurrent\nJustice\nJustice\nOMB\nJustice\nOMB\nActual\nEst.\nRequest\nAllow.\nAppeal\nRecom.\nRequest\nRec.\nBA\n871\n880\n810\n768\n785\n768\n785\n768\n0\n770\n865\n910\n886\n890\n886\n850\n845\nStatement of Issue\nShould LEAA be provided funding to implement the Juvenile Justice and\nDelinquency Prevention Act of 1974?\nBackground\nThere are two features of the 1976 LEAA budget request which warrant attention:\nfirst, the 1976 base program estimate from the Department is $110 million\nlower than the 1975 level, and; second, the recently enacted Juvenile Justice\nand Delinquency Prevention Act of 1974 authorized a sizeable (up to $150 million\nin 1977) increase in funding in LEAA for assistance for juvenile delinquency\nprograms. The Department has requested $17 million to fund this program in\n1976 and OMB recommends no new funding for implementation of the Act.\nThe Department of Justice submitted a budget request for LEAA for 1976 for\n$770 million. This is a reduction of about $110 million from the 1975 and\n1974 budget levels. The Department reduced the LEAA budget because of the\nneed for fiscal constraint in 1976. Although OMB concurs in the Department's\nreductions, the decrease comes at a time when crime (at the State and local\nlevels) increased by 16% last year. In addition, the LEAA program has been\nand continues to be popular with the Congress.\nThe second consideration is the recently enacted Juvenile Justice and\nDelinquency Prevention Act of 1974. This Act establishes a categorical\nFederal grant program in LEAA to provide assistance to State and local\ngovernments for juvenile delinquency activities. The Congress intends\nthat LEAA expand its current juvenile delinquency program with the addition\nof this new grant program and the creation of additional organizational\nentities to conduct research, provide demonstration and action grants,\ncoordinate Federal policy and give training and technical assistance.\nThe Congress authorized appropriations of $75 million in 1975, $125 million\nin 1976 and $150 million in 1977. The Department is requesting $17 million\nto fund this program in 1976 because of the strong sentiment in the Congress\nthat this area receive significant new amounts of Federal assistance. The\nAct assigns Federal policy leadership for juvenile delinquency to Justice\nand terminates HEW programs in this area -- except runaway youth -- after 1975.\nFORD\n2\nAlternatives\n1. Provide the funding requested ($17 million) for the implementation of\nthe Juvenile Justice and Delinquency Prevention Act. (Agency Request)\n2. Deny funding for implementation because the current level of assistance\nfor juvenile delinquency is already adequate and a new categorical grant\nprogram will not contribute to remedying the juvenile delinquency\nproblem. (OMB Recommendation)\nThe agency request provides for the establishment of an Office of Juvenile\nJustice and a National Institute of Juvenile Justice, as required by the\nstatute and asks $16 million for grant funding and $1 million for\nadministration. This is in addition to the $140 million annually which\nthe Act requires LEAA to continue spending from its current program. The\nJustice Department's principal justification for the requested increase for\nthe new juvenile delinquency program is that it was mandated by the Congress\nand inaction on the part of LEAA may encourage the Congress to fund the\nprogram in excess of the amount the Administration would want to spend.\nOMB recommends no funding for implementation of this Act. This is based on\nthe belief that an additional categorical grant program would be redundant and\nduplicative of the current activities. The new program further limits the\nability of State and local governments to establish their own criminal justice\npriorities by mandating that a significant proportion of the LEAA funds be\ncommitted to juvenile justice. Neither OMB nor the Department can identify\nany additional contribution or improvement to State and local juvenile justice\nefforts that will result from the incremental funding requested in the\nDepartment's appeal. Finally, the OMB recommendation is consistent with\nthe intention reflected in the signing statement that current economic\nconditions require budgetary restraint.\nAgency Request: Provide $17 million to implement the Juvenile Justice and\nDelinquency Prevention Act of 1974.\nOMB Recommendation: Do not fund the Juvenile Justice Act because it is\nunnecessarily duplicative of existing LEAA programs, wasteful of budgetary\nresources and establishes an undesirable new categorical grant program. It\nmay be difficult to resist expansion because of Congressional interest in\nthis program.\nSmaller Agencies\nADMINISTRATIVE CONFERENCE OF\nTHE UNITED STATES\nFORD & LIBRARY PERALD\nComments\nNo change from agency request.\nFull-time\nBudget\npermanent\nauthority\nOutlays\nemployment\n(in thousands of dollars)\n1974 actual\n600\n507\n13\n1975 current estimate\n750\n779\n14\n1976 agency request\n790\n780\n16\n1976 OMB recommendation\n790\n780\n16\nEffect of OMB recom-\nmendation on agency\nrequest\nTransition period\n198\n190\n16\n1977 estimate\n790\n780\n16\nFORT\nCOUNCIL OF ECONOMIC ADVISERS\nComments\nNo change from agency request.\nFull-time\nBudget\npermanent\nauthority\nOutlays\nemployment\n(in thousands of dollars)\n1974 actual\n1,414\n1,343\n37\n1975 current estimate\n1,600\n1,554\n46\n1976 agency request\n1,575\n1,562\n46\n1976 OMB recommendation\n1,575\n1,562\n46\nEffect of OMB recom-\nmendation on agency\nrequest\nTransition period\n393\n413\n46\n1977 estimate\n1,575\n1,524\n46\nTHE RENEGOTIATION BOARD\nComments\nGERALD FORD LIBRART\nOMB recommendation accepts request\nto continue the program at essen-\ntially the same level as 1975.\nAgency will not appeal.\nFull-time\nBudget\npermanent\nauthority\nOutlays\nemployment\n(in thousands of dollars)\n1974 actual\n4,805\n4,709\n183\n1975 current estimate\n5,163\n4,995\n200\n1976 agency request\n5,395\n5,335\n200\n1976 OMB recommendation\n5,395\n5,300\n200\nEffect of OMB recom-\nmendation on agency\nrequest\n-35\nTransition period\n1,346\n1,334\n200\n1977 estimate\n5,395\n5,400\n200\nCOMMISSION ON THE REVIEW OF THE\nNATIONAL POLICY TOWARD GAMBLING\nGERAID R. FORD LIBRARY\nComments\nOMB recommendation would deny\npersonnel increases and reduce\ncontract research program and\nsupport services. No signifi-\ncant program effect is expected.\nFull-time\nBudget\npermanent\nauthority\nOutlays\nemployment\n(in thousands of dollars)\n1974 actual\n250\n248\n8\n1975 current estimate\n1,000\n951\n20\n1976 agency request\n880\n892\n24\n1976 OMB recommendation\n750\n762\n20\nEffect of OMB recom-\nmendation on agency\nrequest\n-130\n-130\n-4\nTransition period\n135\n175\n20\n1977 estimate\n100\n69\nNATIONAL COMMISSION FOR THE REVIEW OF\nFEDERAL AND STATE LAWS RELATING TO\nWIRETAPPING AND ELECTRONIC SURVEILLANCE\nComments\nNo change from agency request.\nFull-time\nBudget\npermanent\nauthority\nOutlays\nemployment\n(in thousands of dollars)\n1974 actual\n332\n36\n7\n1975 current estimate\n332\n513\n12\n1976 agency request\n400\n450\n9\n1976 OMB recommendation\n400\n450\n9\nEffect of OMB recom-\nmendation on agency\nrequest\nTransition period\n100\n90\n9\n1977 estimate\n100\n110"
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