by John Brooks
Unquestionably, the “swarm of officials” feared by the Pennsylvania congressman in 1894 has come into being—and there are those who would add that the officials have the “inquisitorial powers” he also feared. As of the beginning of 1965, the Internal Revenue Service had approximately sixty thousand employees, including more than six thousand revenue officers and more than twelve thousand revenue agents, and these eighteen thousand men, possessing the right to inquire into every penny of everyone’s income and into matters like exactly what was discussed at an expense-account meal, and armed with the threat of heavy punishments, have powers that might reasonably be called inquisitorial. But the I.R.S. engages in many activities besides actual tax collecting, and some of these suggest that it exercises its despotic powers in an equitable way, if not actually in a benevolent one. Notable among the additional activities is a taxpayer-education program on a scale that occasionally inspires an official to boast that the I.R.S. runs the largest university in the world. As part of this program, it puts out dozens of publications explicating various aspects of the law, and it is proud of the fact that the most general of these—a blue-covered pamphlet entitled “Your Federal Income Tax,” which is issued annually and in 1965 could be bought for forty cents at any District Director’s office—is so popular that it is often reprinted by private publishers, who sell it to the unwary for a dollar or more, pointing out, with triumphant accuracy, that it is an official government publication. (Since government publications are not copyrighted, this is perfectly legal.) The I.R.S. also conducts “institutes” on technical questions every December for the enlightenment of the vast corps of “tax practitioners”—accountants and lawyers—who will shortly be preparing the returns of individuals and corporations. It puts out elementary tax manuals designed specially for free distribution to any high schools that ask for them—and, according to one I.R.S. official, some eighty-five per cent of American high schools did ask for them in one recent year. (The question of whether schoolchildren ought to be spending their time boning up on the tax laws is one that the I.R.S. considers to be outside its scope.) Furthermore, just before the tax deadline each year, the I.R.S. customarily goes on television with spot advertisements offering tax pointers and reminders. It is proud to say that, of the various spots, a clear majority have been in the interests of protecting taxpayers from overpaying.
In the fall of 1963, the I.R.S. took a big step toward increasing the efficiency of its collections still further, and, by a feat worthy of the wolf in “Little Red Riding Hood,” it managed to present the step to the public as a grandmotherly move to help everybody out. The step was the establishment of a so-called national-identity file, involving the assignment to every taxpayer of an account number (usually his Social Security number), and its intention was to practically eliminate the problem created by people who fail to declare their income from corporate dividends or from interest on bank accounts or bonds—a form of evasion that was thought to have been costing the Treasury hundreds of millions a year. But that is not all. When the number is entered in the proper place on a return, “this will make certain that you are given immediate credit for taxes reported and paid by you, and that any refund will be promptly recorded in your favor”—so Commissioner Caplin commented brightly on the front cover of the 1964 tax-return forms. The I.R.S. then began taking another giant step—the adoption of a system for automating a large part of the tax-checking process, in which seven regional computers would collect and collate data that would be fed into a master data-processing center at Martinsburg, West Virginia. This installation, designed to make a quarter of a million number comparisons per second, began to be called the Martinsburg Monster even before it was in full operation. In 1965, between four and five million returns a year were given a complete audit, and all returns were checked for mathematical errors. Some of this mathematical work was being done by computers and some by people, but by 1967, when the computer system was going full blast, all the mathematical work was done by machine, thus freeing many I.R.S. employees to subject even more returns to detailed audits. According to a publication authorized by the I.R.S. back in 1963, though, “the capacity and memory of the [computer] system will help taxpayers who forget prior year credits or who do not take full advantage of their rights under the laws.” In short, it was going to be a friendly monster.
IF the mask that the I.R.S. had presented to the country in recent years has worn a rather ghastly expression of benignity, part of the explanation is probably nothing more sinister than the fact that Caplin, the man who dominated it in those years, is a cheerful extrovert and a natural politician, and that his influence continued to be felt under the man who was appointed to succeed him as Commissioner in December 1964—a young Washington lawyer named Sheldon S. Cohen, who took over the job after a six-month interim during which an I.R.S. career man named Bertrand M. Harding served as Acting Commissioner. (When Caplin resigned as Commissioner, he stepped out of politics, at least temporarily, returning to his Washington law practice as a specialist in, among other things, the tax problems of businessmen.) Caplin is widely considered to have been one of the best Commissioners of Internal Revenue in history, and, at the very least, he was certainly an improvement on two fairly recent occupants of the post, one of whom, some time after leaving it, was convicted and sentenced to two years in prison for evading his own income taxes, and the other of whom subsequently ran for public office on a platform of opposition to any federal income tax—as a former umpire might stump the country against baseball. Among the accomplishments that Mortimer Caplin, a small, quick-spoken, dynamic man who grew up in New York City and used to be a University of Virginia law professor, is credited with as Commissioner is the abolition of the practice that had previously been alleged to exist of assigning collection quotas to I.R.S. agents. He gave the top echelons of I.R.S. an air of integrity beyond cavil, and, what was perhaps most striking, managed the strange feat of projecting to the nation a sort of enthusiasm for taxes, considered abstractly. Thus he managed to collect them with a certain style—a sort of subsidiary New Frontier, which he called the New Direction. The chief thrust of the New Direction was to put increased emphasis on education leading toward increased voluntary compliance with the tax law, instead of concentrating on the search for and prosecution of conscious offenders. In a manifesto that Caplin issued to his swarm of officials in the spring of 1961, he wrote, “We all should understand that the Service is not simply running a direct enforcement business aimed at making $2 billion in additional assessments, collecting another billion from delinquent accounts, and prosecuting a few hundred evaders. Rather, it is charged with administering an enormous self-assessment tax system which raises over $90 billion from what people themselves put down on their tax returns and voluntarily pay, with another $2 or $3 billion coming from direct enforcement activities. In short, we cannot forget that 97 per cent of our total revenue comes from self-assessment or voluntary compliance, with only three per cent coming directly from enforcement. Our chief mission is to encourage and achieve more effective voluntary compliance.… The New Direction is really a shift in emphasis. But it is a very important shift.” It may be, though, that the true spirit of the New Direction is better epitomized on the jacket of a book entitled “The American Way in Taxation,” edited by Lillian Doris, which was published in 1963 with the blessing of Caplin, who wrote the foreword. “Here is the exciting story of the largest and most efficient tax collecting organization the world has ever known—the United States Internal Revenue Service!” the jacket announced, in part. “Here are the stirring events, the bitterly-fought legislative battles, the dedicated civil servants that have marched through the past century and left an indelible imprint on our nation. You’ll thrill to the epic legal battle to kill the income tax … and you’ll be astonished at the future plans of the I.R.S. You’ll see how giant computers, now on the drawing boards, are going to affect the tax collection system and influence the lives of many American men and w
omen in new and unusual ways!” It sounded a bit like a circus barker hawking a public execution.
It is debatable whether the New Direction watchword of “voluntary compliance” could properly be used to describe a system of tax collection under which some three-quarters of all collections from individuals are obtained through withholding at the source, under which the I.R.S. and its Martinsburg Monster lurk to catch the unwary evader, and under which the punishment for evasion runs up to five years in prison per offense in addition to extremely heavy financial penalties. Caplin, however, did not seem to feel a bit of concern over this point. With tireless good humor, he made the rounds of the nation’s organizations of businessmen, accountants, and lawyers, giving luncheon talks in which he praised them for their voluntary compliance in the past, exhorted them to greater efforts in the future, and assured them that it was all in a good cause. “We’re still striving for the human touch in our tax administration,” declared the essay on the cover of the 1964 tax-return forms, which Caplin signed, and which he says he composed in collaboration with his wife. “I see a lot of humor in this job,” he told a caller a few hours after remarking to a luncheon meeting of the Kiwanis Club of Washington at the Mayflower Hotel, “Last year was the fiftieth anniversary of the income-tax amendment to the Constitution, but the Internal Revenue Service somehow or other didn’t seem to get any birthday cakes.” This might perhaps be considered a form of gallows humor, except that the hangman is not supposed to be the one who makes the jokes.
Cohen, the Commissioner who succeeded Caplin and was still in office in mid-1968, is a born-and-bred Washingtonian who, in 1952, graduated from George Washington University Law School at the top of his class; served in a junior capacity with the I.R.S. for the next four years; practiced law in Washington for seven years after that, eventually becoming a partner in the celebrated firm of Arnold, Fortas & Porter; at the beginning of 1964 returned to the I.R.S., as its chief counsel; and a year later, at the age of thirty-seven, became the youngest Commissioner of Internal Revenue in history. A man with close-cropped brown hair, candid eyes, and a guileless manner that makes him seem even younger than he is, Cohen came from the chief counsel’s office with the reputation of having uplifted it both practically and philosophically; he was responsible for an administrative reorganization that has been widely praised as making faster decisions possible, and for a demand that the I.R.S. be consistent in its legal stand in cases against taxpayers (that it refrain from taking one position on a fine point of Code interpretation in Philadelphia, say, and the opposite position on the same point in Omaha), which is considered a triumph of high principle over governmental greed. In general, Cohen said upon assuming office, he intended to continue Caplin’s policies—to emphasize “voluntary compliance,” to strive for agreeable, or at least not disagreeable, relations with the taxpaying public, and so on. He is a less gregarious and a more reflective man than Caplin, however, and this difference has had its effect on the I.R.S. as a whole. He has stuck relatively close to his desk, leaving the luncheon-circuit pep talks to subordinates. “Mort was wonderful at that sort of thing,” Cohen said in 1965. “Public opinion of the Service is high now as a result of his big push in that direction. We want to keep it high without more pushing on my part. Anyhow, I couldn’t do it well—I’m not made that way.”
A charge that has often been made, and continues to be made, is that the office of Commissioner carries with it far too much power. The Commissioner has no authority to propose changes in rates or initiate other new tax legislation—the authority to propose rate changes belongs to the Secretary of the Treasury, who may or may not seek the Commissioner’s advice in the matter, and the enactment of new tax laws is, of course, the job of Congress and the President—but tax laws, since they must cover so many different situations, are necessarily written in rather general terms, and the Commissioner is solely responsible (subject to reversal in the courts) for writing the regulations that are supposed to explain the laws in detail. And sometimes the regulations are a bit cloudy themselves, and in such cases who is better qualified to explain them than their author, the Commissioner? Thus it comes about that almost every word that drops from the Commissioner’s mouth, whether at his desk or at luncheon meetings, is immediately distributed by the various tax publishing services to tax accountants and lawyers all over the country and is gobbled up by them with an avidity not always accorded the remarks of an appointed official. Because of this, some people see the Commissioner as a virtual tyrant. Others, including both theoretical and practical tax experts, disagree. Jerome Hellerstein, who is a law professor at New York University Law School as well as a tax adviser, says, “The latitude of action given the Commissioner is great, and it’s true that he can do things that may affect the economic development of the country as well as the fortunes of individuals and corporations. But if he had small freedom of action, it would result in rigidity and certainty of interpretation, and would make it much easier for tax practitioners like me to manipulate the law to their clients’ advantage. The Commissioner’s latitude gives him a healthy unpredictability.”
CERTAINLY Caplin did not knowingly abuse his power, nor has Cohen done so. Upon visiting first one man and then the other in the Commissioner’s office, I found that both conveyed the impression of being men of high intelligence who were living—as Arthur M. Schlesinger, Jr., has said that Thoreau lived—at a high degree of moral tension. And the cause of the moral tension is not hard to find; it almost surely stemmed from the difficulty of presiding over compliance, voluntary or involuntary, with a law of which one does not very heartily approve. In 1958, when Caplin appeared—as a witness versed in tax matters, rather than as Commissioner of Internal Revenue—before the House Ways and Means Committee, he proposed an across-the-board program of reforms, including, among other things, either the total elimination or a drastic curbing of favored treatment for capital gains; the lowering of percentage depletion rates on petroleum and other minerals; the withholding of taxes on dividends and interest; and the eventual drafting of an entirely new income-tax law to replace the 1954 Code, which he declared had led to “hardships, complexities, and opportunities for tax avoidance.” Shortly after Caplin left office, he explained in detail what his ideal tax law would be like. Compared to the present tax law, it would be heroically simple, with loopholes eliminated, and most personal deductions and exemptions eliminated, too, and with a rate scale ranging from 10 to 50 per cent.
In Caplin’s case, the resolution of moral tension, insofar as he achieved it, was not entirely the result of rational analysis. “Some critics take a completely cynical view of the income tax,” he mused one day during his stint as Commissioner. “They say, in effect, ‘It’s a mess, and nothing can be done about it.’ I can’t go along with that. True, many compromises are necessary, and will continue to be. But I refuse to accept a defeatist attitude. There’s a mystic quality about our tax system. No matter how bad it may be from the technical standpoint, it has a vitality because of the very high level of compliance.” He paused for quite a long time, perhaps finding a flaw in his own argument; in the past, after all, universal compliance with a law has not always been a sign that it was either intelligent or just. Then he went on, “Looking over the sweep of years, I think we’ll come out well. Probably a point of crisis of some kind will make us begin to see beyond selfish interests. I’m optimistic that fifty years from now we’ll have a pretty good tax.”
As for Cohen, he was working in the legislation-drafting section of the I.R.S. at the time the present Code was written, and he had a hand in its composition. One might suppose that this fact would cause him to have a certain proprietary feeling toward it, but apparently that is not so. “Remember that we had a Republican administration then, and I’m a Democrat,” he said one day in 1965. “When you are drafting a statute, you operate as a technician. Any pride you may feel afterward is pride in technical competence.” So Cohen can reread his old prose, now enshrined as law, with n
either elation nor remorse, and he has not the slightest hesitation about endorsing Caplin’s opinion that the Code leads to “hardships, complexities, and opportunities for tax avoidance.” He is more pessimistic than Caplin about finding the answer in simplification. “Perhaps we can move the rates down and get rid of some deductions,” he says, “but then we may find we need new deductions, in the interests of fairness. I suspect that a complex society requires a complex tax law. If we put in a simpler code, it would probably be complex again in a few years.”
