May 18, 2000

The Honorable Stephen Horn

Chairman

Subcommittee on Government Management, Information

and Technology

Committee on Government Reform and Oversight

U.S. House of Representatives

Washington, D.C. 20515

Dear Mr. Chairman:

Thank you for the opportunity to present the views of the Department of the Treasury on H.R. 220, the "Freedom and Privacy Restoration Act of 1999," which would prohibit any Federal, State or local government agency or instrumentality from using a Social Security number (SSN) or any derivative as the means of identifying any individual, except for certain limited Social Security and tax purposes. We agree with the bill's goal of protecting privacy and we appreciate the great risks to individuals when SSNs are handled irresponsibly. We note that Treasury was a key participant in this year's National Summit on Identity Theft at which government and the private sector worked together on solutions to the growing and serious problem of identity theft.

We have serious concerns, however, about the detrimental effect that enactment of the bill would have on certain critical Treasury programs and activities, including properly crediting individuals' Social Security and other benefit payments, collecting non-tax delinquent debt such as child support payments, and collecting taxes and administering the tax system. The bill's express prohibition against more than one Federal agency using the same identifying number with respect to any individual will significantly impair Treasury's ability to communicate and work with other agencies on a wide range of Federal programs.

While the bill recognizes that there are legitimate reasons to retain use of SSNs for specified purposes, we believe that these exceptions are far too limited. The following examples illustrate the reasons for our serious concerns.

The use of SSNs is necessary for Treasury's Financial Management Service (FMS) adequately to perform its critical functions. FMS issues over 880 million payments annually to Social Security recipients, veterans, and Federal employees, as well as income tax refund payments. As currently drafted, H.R. 220 would impair FMS' ability to make Social Security and other benefit payments because such payments are tracked by SSN (or a SSN derivative) and using names, the only practicable alternative, would result in an unacceptably high risk of error. For the same reason, the bill would also adversely affect FMS' ability to re-issue lost, stolen or forged checks.

We recognize the legitimate concerns related to the current practice under which SSNs are visible in the envelope window of Social Security and other benefit payments. FMS is working to change this practice as soon as possible.

The Department is also greatly concerned that enactment of this legislation would seriously undermine its ability to collect non-tax delinquent debt such as child support. H.R. 220 would not allow the use of SSNs for any debt collection purpose whatsoever, including collection through the Treasury Offset Program (TOP) (which applies to Federal and State tax and non-tax debt) and reporting to credit bureaus. Annually FMS collects $2 billion in delinquent debt through TOP, $1 billion of which is delinquent child support payments. By using the SSN, rather than a name, to identify a debtor, the Federal government ensures that adverse debt collection action is not taken against the wrong individual. H.R. 220 would render TOP unworkable, because the risk of collecting from the wrong individual would be too high when offset is based solely on identification of individuals by name.

The bill would create significant problems for tax administration insofar as it prohibits the use of the SSN as a taxpayer's identifying number for most purposes. Identifying numbers are necessary to accurately keep track of taxpayer records and to perform other critical tax administration functions.

The bill would allow the Internal Revenue Service (IRS) to use an individual's SSN as a taxpayer identifying number only for the limited purposes of section 86 of the Internal Revenue Code (IRC) (relating to certain Social Security and Railroad Retirement benefits) and subtitle C of the IRC (relating to employment taxes). This would preclude the use of a taxpayer's SSN for purposes of (1) identifying the taxpayer in the IRS' data base, (2) information reporting, and (3) substantiating the existence of claimed dependents. The IRS also uses the SSN to compare income and other information reported to the IRS with information reported for State income tax purposes and unemployment insurance purposes. Because the IRS currently uses an individual's SSN for these purposes, H.R. 220 would have a significant adverse impact on the IRS' ability to verify compliance with the tax laws and to determine and collect the proper amount of tax liability. The impact on compliance and tax receipts would be similar for States. The bill would also force the IRS to incur substantial costs to create a new system to assign taxpayer identifying numbers for individuals and to use this new number for the same purposes for which the SSN is currently used. Similar burdens would be imposed on the private sector and on State governments.

Because H.R. 220 would restrict the use of SSNs to certain limited tax purposes, it would hamper IRS criminal investigations into title 18 and 31 offenses within the IRS' investigative jurisdiction. For example, the IRS' Criminal Investigation Division utilizes a database for criminal enforcement purposes that can be queried by SSN to identify a particular individual. This database helps to avoid the potential for misidentification of taxpayers and/or duplicate investigations of the same taxpayer but is not limited to tax investigations; the database contains information on all criminal matters (tax, forfeiture, money laundering and currency crimes) within the IRS' investigative jurisdiction. Because H.R. 220 would prohibit the use of this database to investigate non-tax crimes, IRS criminal investigations of such offenses would be adversely affected.

Treasury's Financial Crimes Enforcement Network (FinCEN) provides financial and other information to law enforcement and regulatory authorities to advance critical law enforcement priorities such as combating money laundering. FinCEN uses SSNs and other alpha-numeric identifiers to compile and transmit this information. In addition, FinCEN uses SSNs and other identifiers to ensure that it disseminates information only with respect to the individuals about whom information has been requested. If FinCEN could not make use of alpha-numeric identifiers such as SSNs or bank account numbers, its mission would be seriously compromised.

Treasury's Bureau of the Public Debt (BPD) conducts Treasury's debt finance and accounting operations by issuing and maintaining records on savings bonds and marketable securities. BPD serves millions of retail customers in the savings bond and TreasuryDirect programs. If enacted, H.R. 220 would have a severe impact on BPD's ability to perform its mission.

SSNs are used in the savings bond computer master file to enable BPD to search its records in response to customer inquiries about their holdings. Enactment of H.R. 220 would require the BPD to replace significant portions of its recordkeeping systems for savings bonds. Purchasers of Treasury securities need to be confident that their investments will be reliably identified only with them.

As the foregoing examples illustrate, enactment of H.R. 220 would seriously impair the Treasury's ability to implement a number of its critical missions including revenue collection, tax administration, processing Social Security and other Federal payments, collecting child support and other delinquent non-tax debt, enforcing anti-money laundering laws, and protecting investors in Treasury securities.

The Office of Management and Budget has advised that enactment of H.R. 220 would not be in accord with the program of the President.

Thank you for the opportunity to comment on this legislation.

Sincerely,

/s/

Neal S. Wolin

General Counsel

cc: The Honorable Jim Turner, Ranking Minority Member