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31–518—PDF 2006

S. HRG. 109–734

NOMINATION OF ERIC SOLOMON

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

ON THE

NOMINATION OF

ERIC SOLOMON, TO BE ASSISTANT SECRETARY OF THE TREASURY FOR

TAX POLICY, U.S. DEPARTMENT OF THE TREASURY, WASHINGTON, DC

JULY 13, 2006

(

Printed for the use of the Committee on Finance

COMMITTEE ON FINANCE

CHARLES E. GRASSLEY, Iowa, Chairman

ORRIN G. HATCH, Utah

TRENT LOTT, Mississippi

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

RICK SANTORUM, Pennsylvania

BILL FRIST, Tennessee

GORDON SMITH, Oregon

JIM BUNNING, Kentucky

MIKE CRAPO, Idaho

MAX BAUCUS, Montana

JOHN D. ROCKEFELLER IV, West Virginia

KENT CONRAD, North Dakota

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

BLANCHE L. LINCOLN, Arkansas

RON WYDEN, Oregon

CHARLES E. SCHUMER, New York

KOLAN DAVIS, Staff Director and Chief Counsel

RUSSELL SULLIVAN, Democratic Staff Director

(II)

C O N T E N T S

OPENING STATEMENTS

Page

Grassley, Hon. Charles E., a U.S. Senator from Iowa, chairman, Committee

on Finance ............................................................................................................ 2

Baucus, Hon. Max, a U.S. Senator from Montana ................................................ 3

ADMINISTRATION NOMINEE

Solomon, Eric, nominated to be Assistant Secretary of the Treasury for Tax

Policy, U.S. Department of the Treasury, Washington, DC ............................. 5

WITNESS

Everson, Hon. Mark, Commissioner, Internal Revenue Service, Washington,

DC .......................................................................................................................... 1

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

Opening statement ........................................................................................... 3

Bunning, Hon. Jim:

Prepared statement .......................................................................................... 31

Everson, Hon. Mark:

Testimony .......................................................................................................... 1

Grassley, Hon. Charles E.:

Opening statement ........................................................................................... 2

Solomon, Eric:

Testimony .......................................................................................................... 5

Prepared statement .......................................................................................... 33

Biographical information ................................................................................. 35

Responses to questions from Committee members ........................................ 42

Smith, Hon. Gordon H.:

Prepared statement .......................................................................................... 32

(III)

(1)

NOMINATION OF ERIC SOLOMON, TO BE ASSISTANT SECRETARY OF THE TREASURY

FOR TAX POLICY, U.S. DEPARTMENT OF

THE TREASURY, WASHINGTON, DC

THURSDAY, JULY 13, 2006

U.S. SENATE, COMMITTEE ON FINANCE, Washington, DC.

The hearing was convened, pursuant to notice, at 10:06 a.m., in

room SD–215, Dirksen Senate Office Building, Hon. Charles E.

Grassley (chairman of the committee) presiding.

Present: Senators Bunning, Baucus, and Wyden.

The CHAIRMAN. Before Senator Baucus and I give our opening

statement, I am going to call on Commissioner Everson, here to

testify in regard to Mr. Solomon. We are glad to have you do that

right now, because you have to appear before the Ways and Means

Committee.

So, would you proceed, please?

STATEMENT OF HON. MARK EVERSON, COMMISSIONER,

INTERNAL REVENUE SERVICE, WASHINGTON, DC

Commissioner EVERSON. Certainly, sir. Thank you. It is always

a pleasure to be before the committee, but I want to emphasize, I

am not asking you to reconfirm me today or anything like that.

But I did want to spend just a second to strongly endorse the

President’s nomination of Eric Solomon to take this important position.

I have worked with Eric for 3 years now. He has absolute integrity. His behaviors are outstanding. He works very collegially with

people from the Service.

Actually, as I think you know, he worked at the Service for a period of time. He has a very keen appreciation of the fact that tax

policy, without sound tax administration, just does not get you

what you need. So, he works very well with the IRS.

We are anxious to have him confirmed and get on with the many

important things that he needs to do. I hope that this endorsement

helps and does not hurt him. [Laughter.] That is really what I

wanted to say, and that is all, Mr. Chairman.

The CHAIRMAN. Well, if you have 15 extra minutes, Senator Baucus would like to talk about the tax gap. [Laughter.]

Commissioner EVERSON. I know. I knew I had a risk in coming

over here.

2

The CHAIRMAN. All right. Well, thank you very much.

Commissioner EVERSON. Thank you, gentlemen.

OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S.

SENATOR FROM IOWA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. Yes. We are here today to consider the nomination of Eric Solomon, and that is to be Assistant Secretary of Treasury for Tax Policy.

I have made a lot of comments recently in my speeches on the

floor about the movie ‘‘Groundhog Day.’’ That was a movie about

a day that kept repeating itself, just like tax reconciliation does.

Today is a very different day than ‘‘Groundhog Day,’’ in that

many people thought today was a day that we would never see, a

day, as I just mentioned to the nominee, that he would finally get

a hearing on the nomination before us. It has been a long time, but

I am glad that we are here, able to hold this hearing, and that we

have before us a very strong nominee.

Mr. Solomon is a dedicated public servant, as I think you just

heard the Commissioner speak about, and he is a person who

served the Nation well for many years at the Treasury Department. It happened to be under both Republican and Democrat administrations that he has done this, so he has the deserved respect

of the tax community.

It is natural to look at the hourglass and think that the shadows

are growing long for this administration and that this job is a caretaker’s job, but nothing could be further from the truth on that

point. I think the next 21⁄2 years have enormous possibility and opportunity for this administration and the Congress in the area of

tax.

We have just had a very able Secretary of Treasury take his oath

of office, and I am confident that he wants, as the new Secretary,

to do more than just what he loves to do as a sideline, bird watching. My discussions with the new Secretary suggest that the great

deal of energy that he has will bring real change and reform to the

tax code in the operation of Treasury.

I think that this committee has a real interest in tax reform,

and, if the administration will show leadership, we can make real

and significant changes, particularly changes that will make our

economy more competitive in the global market that we are in.

We will be having hearings on tax reform with former Senator

Breaux, and hopefully former Senator Mack will be able to attend.

These were the people that, you will remember, co-chaired the

President’s Tax Reform Commission.

As I promised, that hearing will take place in the last week of

this work period and will be a kick-off for the Finance Committee’s

look at tax reform. I expect more hearings down the road.

Hand in hand with tax reform is something I just was teasing

Senator Baucus about, and that is the tax gap. It is nothing to

tease about, because it is a very serious problem.

The tax gap has been something that I have heard about since

I first came to the Senate, and it has bedeviled both Republican

and Democrat administrations. Senator Baucus is to be commended

for focusing on that issue.

3

We have made some progress in this area with legislation that

this committee has passed, but more, obviously—with more than

$350 billion of that gap—needs to be done.

Senator Baucus and I have asked for a plan this fall from Treasury and the IRS on this subject. While the focus on solving the tax

gap is traditionally on the IRS, I am more and more convinced that

Treasury tax policy has a very significant role to provide in the

guidance and regulation that can help with that gap.

The issues of reform and the issues of gap are very real, and we

need to face them today, instead of hoping for some perfect opportunity way down the road.

Mr. Solomon, then, you have great possibilities before you, and

I expect you to be active and engage in bringing real change. The

administration must show initiative on tax reform, something I

thought maybe would happen in January of this year and did not

happen, and also on the tax gap, which is something that maybe

the President does not talk about, but his people surely have heard

Senator Baucus and I speak about. These are things that you are

critical to making happen.

So with that, Senator Baucus?

OPENING STATEMENT OF HON. MAX BAUCUS,

A U.S. SENATOR FROM MONTANA

Senator BAUCUS. Thank you, Mr. Chairman. Thank you very

much.

Unlike many nominees, Eric Solomon is not a newcomer. For 7

years, he has worked in the Tax Policy office, and for two long

years the administration has conducted a nationwide search for the

right person to run the office. They finally looked down the hall,

and there was Mr. Solomon, where they found an excellent nominee.

St. Augustine said, ‘‘Patience is the companion of wisdom.’’ So I

figure, Mr. Solomon, after this long wait, you are going to be a very

wise, wise man. [Laughter.]

There are two issues that I would like to raise with you today.

One is a passion of mine, already referred to, and that is finding

a way to close the tax gap. The other is apparently a passion of

yours, that is, fundamental tax reform.

The tax gap is the difference between what taxpayers legally owe

and what they actually pay. The IRS estimates the gap is about

$345 billion a year, and that figure is increasing. My guess is, it

is probably even higher.

Earlier this year, I asked your former boss, Secretary Snow, to

provide me a plan for addressing that gap. To date, unfortunately,

I have not received any plan.

So earlier this month, as referred to just a few minutes ago, I

asked the IRS Commissioner for the same thing. I asked for a plan,

a plan to give benchmarks, to give data points, reference points,

how we are going to close this tax gap, and he promised to do so

by October 1.

Last month, I asked your new boss, Secretary Paulson, to make

sure that he made that happen so we can get the plan by October

1. I might say, he is very sympathetic and understood the problem,

4

but he said, since he was not yet confirmed, he really could not

make any promises.

But I expect, frankly, him, the Treasury Department, and the administration generally to live up to the promise made by Mr.

Everson to get that plan to us by October 1. It is very much in the

country’s best interests, obviously.

In the years that you have been at the Treasury, the Department, I might say, has responded very quickly and skillfully to a

lot of crises. One that comes to mind is the Asian financial crisis.

The Department did a good job in tamping that down; it could have

been a lot worse.

The bursting of the dot-com bubble. That also could have been

a problem, and Treasury certainly played a role in ameliorating

some of the down sides of that event. Also, the tragic events of

9/11. Treasury basically has been a stellar Department, and we

have high regard for it. When the Treasury Department faces challenges, it basically delivers.

I also hope that you can deliver on the promise to develop concrete ways to close that tax gap. All of us here in the Congress,

along with millions of compliant taxpayers, are counting on it. But

like you, Mr. Solomon, I can be a patient man, but I, too, have my

limits.

Second, the Treasury Department has been considering the recommendations of the President’s Tax Reform Panel. Your office

performed a dynamic analysis of the two recommended plans, and

a third, that is, a consumption tax plan. Officials from your division have been publicly touting the benefits of the consumption tax.

It sounds like Treasury is endorsing this plan, and I would like to

hear your thoughts on that.

Franc ̧ois Rabelais wrote, ‘‘All is well in the end, if only the patience to wait.’’ So, Mr. Solomon, it is your turn. You have been patient, and now you are rewarded with the fruits of that patience.

You may not like it now that you have the job, but we look forward

to working with you.

The CHAIRMAN. We welcome you. Your statement, if you have a

long statement, will be put in the record.

We also give you an opportunity, and I think right now would be

the best time to do that, for you to introduce family, friends, anybody who has come to support you. That is kind of a tradition of

this committee. So if you want to do that, do that now.

Mr. SOLOMON. Thank you, Mr. Chairman. I would like to introduce my wife, Amy Solomon, and my daughter, Sarah Solomon,

with me here today.

The CHAIRMAN. All right. Welcome. I know they are very proud

of you.

Senator BAUCUS. Why don’t you all stand up so we can give you

a round of applause for all you are doing?

[Applause.]

The CHAIRMAN. Now, you proceed.

5

STATEMENT OF ERIC SOLOMON, NOMINATED TO BE ASSISTANT SECRETARY OF THE TREASURY FOR TAX POLICY, U.S.

DEPARTMENT OF THE TREASURY, WASHINGTON, DC

Mr. SOLOMON. Thank you, Mr. Chairman. Thank you, Senator

Baucus. Mr. Chairman, Senator Baucus, Senator Bunning, I am

honored to appear before the committee as President Bush’s nominee to serve as Assistant Secretary of the Treasury for Tax Policy.

It is truly an honor for me to have the opportunity to serve our

country in this role.

The collegial and cooperative manner in which the Chairman,

Senator Baucus, and other members of the committee work is well

known. If confirmed, I hope to work with the committee and your

staff in the same way on the important and difficult issues that

face our tax system.

I am pleased to come before this committee at a time of sustained economic growth. The President’s tax relief, including lower

rates on individual income and lower tax rates on capital gains and

dividends, among other provisions, has contributed to the strong

performance of our Nation’s economy.

Nevertheless, as we all know, there are great challenges before

us. The foremost challenge is our tax code itself. It is complex, hard

to understand, and difficult to administer. It imposes enormous

compliance costs on taxpayers and on the government. Its numerous intricate provisions often distort economic decisions.

The tax code contains many provisions that were enacted decades

ago and have not been updated to reflect changes in our dynamic

and increasingly global economy. Its complexity breeds perceptions

of unfairness and creates opportunities for avoidance.

A primary example of the difficulties caused by our tax code is

the Alternative Minimum Tax. The reach of the AMT has expanded

far beyond its original purpose. We need a tax system that is simple, fair, and promotes economic growth.

The report of the President’s Advisory Panel has provided a

strong foundation for consideration of ways to ensure that our tax

system better meets the needs of our society and economy.

If confirmed, I look forward to working together with Secretary

Paulson, the administration, this committee, and the Congress to

address the challenging issue of tax reform.

Another critical challenge before us is tax compliance. We are

fortunate that the vast majority of Americans fulfill their tax obligations. However, some do not, either because they do not understand their obligations or because they choose to disregard their obligations.

A critical role of the Office of Tax Policy at the Treasury Department is to work together with the IRS to provide timely and appropriate guidance so that taxpayers trying to satisfy their tax obligations know how to do so.

For these taxpayers, published guidance reduces uncertainty and

prevents the burden on taxpayers and the IRS caused by audits

and litigation. In the years that I have served at the Treasury Department, I have spent an enormous amount of time participating

in the effort to combat abusive tax shelters.

In my view, we have made significant progress. A combination of

IRS enforcement efforts against taxpayers and promoters, listing

6

notices, disclosure regulations, press disclosure, and other events

have contributed to the decline in improper mass-marketed products.

In this regard, I particularly want to express my appreciation for

the actions of Chairman Grassley, Senator Baucus, and other members of this committee, both in your public statements and the

leadership that you have provided in Congress to give the Treasury

Department and the IRS additional tools needed to address this

problem.

An area in which we need to make more progress is the tax gap.

The tax gap undermines confidence in the fairness of our tax system and fosters non-compliance. The tax gap also results in a de

facto tax increase for compliant taxpayers, who pay more because

others fail to pay their share.

The IRS has made headway in its efforts to improve compliance.

However, we need to do more to increase the level of compliance.

At the same time, we need to maintain the proper balance between

enforcement efforts on the one hand, and compliance burdens and

protection of taxpayer rights on the other hand.

The President’s 2007 budget includes several proposals to reduce

the tax gap. These proposals are an important first step in the

right direction.

If confirmed, I look forward to working with Secretary Paulson,

the IRS, this committee, and the Congress to consider regulatory,

administrative, and legislative methods to reduce the tax gap.

In closing, I would like to thank a number of people. First, I

want to recognize all of the economists and lawyers in the Office

of Tax Policy. I have never worked with such a talented group of

people who give so much as part of a team dedicated to public

service.

I would also like to recognize Bob Carroll, our Deputy Assistant

Secretary for Tax Analysis, with whom I have worked as a partner

in heading the Office of Tax Policy for the last year and a half.

Finally, I would like to recognize my parents, Bob and Elaine

Solomon, who could not be here today, and my brothers, Neal and

Mark, to whom I owe so much.

Most importantly, I want to thank my wife, Amy, and my daughter, Sarah, for their support, patience and love during all these

years that I have committed myself to public service.

Thank you again for the opportunity to appear before the committee this morning. I would be pleased to answer any questions.

The CHAIRMAN. We appreciate your thoughtful statement.

[The prepared statement of Mr. Solomon appears in the appendix.]

The CHAIRMAN. Before I ask questions and our 5-minute rounds

start, I will take time to ask three questions that we ask every

nominee.

Is there anything that you are aware of in your background that

might present a conflict of interest with the duties of the office to

which you have been nominated?

Mr. SOLOMON. No.

The CHAIRMAN. Do you know of any reason, personal or otherwise, that would in any way prevent you from fully and honorably

7

discharging the responsibilities of the office to which you have been

nominated?

Mr. SOLOMON. NO. The CHAIRMAN. Third, do you agree, without reservation, to respond to any reasonable summons to appear and testify before any

duly constituted committee of Congress, if you are confirmed?

Mr. SOLOMON. Yes.

The CHAIRMAN. Thank you.

Now we will have 5-minute rounds. Since there are three of us

here, it will be Grassley, Baucus, and Bunning, then anybody else

who comes in afterwards.

Your testimony dealt with the issue of tax reform. Obviously, we

commend you on that approach. I appreciate your statement that

you want to work with Secretary Paulson and those of us in Congress. You heard me, in my opening statement, speak about a real

opportunity to move things forward on tax reform.

I would like to be clear, though, with you. There is a reason our

founding father of the Treasury, Mr. Hamilton, wrote that the need

for energy in the executive branch is vital to our Nation. We need

that energy on this issue of tax reform. It helps very much if the

administration leads. It is not absolutely important to get things

done, we can do it on our own, but it is a lot better if we have the

President out in front.

So, we have the President’s Advisory Committee. When that was

made public, it was our understanding that the administration was

going to review the findings and come forward with recommendations. I suppose I thought that would happen in January, maybe

in the State of the Union message. We have not received that, so

I am waiting.

I would like your commitment that we are going to see Treasury

come forward with its recommendations on tax reform. I would particularly like to have you give me a date-certain. Now, maybe you

cannot do it right here in two seconds of hearing me ask for it, but

maybe before the Senate votes on your nomination, some sort of

reasonable date that that is going to happen.

So right now, in addition to that very short request and admonition, I would like your general views on tax reform and what

should be our priorities.

Mr. SOLOMON. Thank you, Mr. Chairman. Tax reform is very important. My first order of priority is to brief Secretary Paulson on

tax reform. Of course, he just joined us, was sworn in on Monday.

We have already met with him to begin that process.

In terms of my priorities for tax reform, there are, in essence,

seven elements. The first is to simplify the tax code. Our tax code

is enormously complex. It is hard for taxpayers to comply with it.

It is hard to administer. It is full of very complicated provisions

that give taxpayers the opportunity to not carry out their obligations. So, the first of my principles is to simplify.

Second, it is important to keep tax rates low. It is important to

keep tax rates low because, when taxpayers earn money and they

have more after-tax income, they can reinvest that money for the

future. That is good for short-term benefits and long-term benefits

for the economy. It also allows our businesses to compete in the

world economy.

8

My third principle is that we need to deal with the Alternative

Minimum Tax. The Alternative Minimum Tax, as you know, is a

separate tax system. Taxpayers have to make a completely separate computation under the Alternative Minimum Tax. It is not indexed for inflation, and there are many deductions that are not allowed.

The amount of revenue collected from the Alternative Minimum

Tax, as you well know, is going to increase every single year, so

we need to deal with the Alternative Minimum Tax.

Fourth, our tax code needs to encourage savings and investment.

Savings and investment are very important, again, so that people

can reinvest their money for the future. Again, that has long-term

benefits for our economy.

Fifth, we have to recognize various other priorities, for example,

the priorities of home-ownership and charities. So, those need to be

taken into account.

Sixth, moving to the bigger picture, we need to focus on tax reform as a whole. Much of the discussion so far with respect to some

of the proposals of the Tax Reform Panel has focused on particular

provisions, a particular provision regarding one particular area, or

another particular provision regarding another area.

There has been a lot of focus on the details, but not on the big

picture. I think it is important, in dealing with tax reform, that we

look at the entire package and try to reach a consensus on an entire package rather than looking at the details.

Finally, we need to be practical. We need to come up with a tax

reform plan that is practical, that will be simple, fair, and progrowth, and that the Congress will find acceptable, and, most importantly, will help the American people.

The CHAIRMAN. Yes. I did not hear a date; I did not expect to.

But would you have such a date for me before your nomination

comes up on the floor?

Mr. SOLOMON. What I need to do, of course, Mr. Chairman, is to

speak to Secretary Paulson first.

The CHAIRMAN. All right.

Mr. SOLOMON. So I am somewhat reluctant to give you a date

without speaking to him.

The CHAIRMAN. Of course. Of course.

Mr. SOLOMON. But I do appreciate your question.

The CHAIRMAN. Of course. That is why I am giving you time.

Mr. SOLOMON. Thank you.

The CHAIRMAN. Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

As you might expect, Mr. Solomon, I am going to ask a little bit

about the tax gap here. Do I have your commitment that you will

work with IRS to get that report in by October 1?

Mr. SOLOMON. You have my commitment to work with the IRS

and with Secretary Paulson to work as quickly as possible—as

quickly as possible—to come up with a plan.

Senator BAUCUS. We are asking for something, the Chairman

and I, both. We are asking for a specific date, and we are asking

for something I think is very reasonable, that is, a date that is a

couple of months away.

9

We are not asking for a total solution to the tax gap. We are asking for a plan on how to close the tax gap. The plan will include

various elements. That might include recommendations for statutory changes, it might indicate resource needs, but it might indicate other actions that the Treasury would take.

But like any good business, you have to have data and dates. We

are just asking for a plan. We will work with the administration,

once the administration gives us a plan. We will work with the administration to make sure that it works.

We are not going to be hard, mean, and nasty about this. We are

going to be fair, but we are going to be firm, because I think that

is what the American taxpayers want. The American public wants

us to be firm about this, too.

All the taxpayers who are paying their taxes, I am sure, are a

bit upset that Treasury—more specifically, IRS—is not working as

hard as it could to close this gap, that is, letting a lot of these other

folks off the hook who are not paying their taxes who should be

paying their taxes, particularly when it comes down to close to

$350 billion a year. Three hundred and fifty billion dollars each

year of taxes legally owed, uncollected.

So, can you commit to that plan, to provide a date? I am just

talking about a plan now, not a total fix.

Mr. SOLOMON. I understand. I completely share your concern

about the tax gap. You can see the priority that I have for it in

my initial remarks. I also agree that we need to be thorough and

thoughtful about strategies to reduce the tax gap, because we have

to balance enforcement and other strategies with attention to taxpayer rights and minimizing burden.

We are already moving forward on addressing the issue of the

tax gap. We have a working group, both at the Treasury Department and at the Internal Revenue Service, already engaged on this

very important issue.

Senator BAUCUS. All right. Let us just cut through some of this

stuff here.

What do you think the two or three main reasons are why we

are not collecting this revenue that is legally owed? You have been

around a while. You have some ideas. Why is it not being collected?

Two or three main reasons, in your best, personal judgment.

Mr. SOLOMON. In my personal judgment——

Senator BAUCUS. Yes. Just personal. You, Eric Solomon. What do

you think?

Mr. SOLOMON. In my personal judgment, the most effective ways

to collect——

Senator BAUCUS. No, no. I am asking a different question. What

are the three main causes why about $350 billion is not being collected?

Mr. SOLOMON. I think there are at least two causes. One cause

is that the tax code is so complex and taxpayers do not completely

understand their responsibilities. That is one cause. We have a

very complex tax code, very hard to understand, very hard to deal

with. Some taxpayers do not understand their obligations. That is

one reason.

10

A second reason why people do not pay their taxes is that they

are frustrated with our system and they choose, voluntarily, not to

pay their taxes.

Senator BAUCUS. Why are they frustrated?

Mr. SOLOMON. Frustrated by the complexity of the system, by the

burdens that are imposed by the system.

Senator BAUCUS. Come on. Give me a break. Give me a break.

You have to admit, most of it probably is taxpayers who are somewhat sophisticated. They know that they should report more. They

know that they should probably expense more than they are, but

they are not. They know what they are doing.

A lot of this is a cash-based economy. A lot of people are paying

cash, independent contractors, and this and that. They know what

they are doing. The IRS is just too timid to go out. They are afraid

of losing in Tax Court. They are afraid of losing a case. They are

afraid. They are timid. They do not have the resources. The computer systems of the IRS are a joke. They are worse than a joke,

they are a travesty. You know that.

Now, come on. Give me the real reasons why you think that

there is this tax gap.

Mr. SOLOMON. Senator Baucus, I must say, I do not think that

the IRS is timid.

Senator BAUCUS. Oh, they are.

Mr. SOLOMON. I think the IRS has increased its enforcement capability and made strides forward in enforcement.

Senator BAUCUS. Why have they not pursued any of the disclosures that have been revealed to them of shelters? There are at

least 30-some on a list that has been available to the IRS for over

2 years, and they have not pursued it. I talk to people that work

at the IRS. Basically, they tell me they think the IRS is just too

timid. They are afraid.

Mr. SOLOMON. In the area of tax shelters, I think the IRS has

made great progress. I think there has been a substantial decrease

of the sale of mass-marketed products. In my view, the IRS made

a great insight in fighting tax shelters by identifying an important

source of the problem as being promoters, and dealing with the

promoters.

Senator BAUCUS. Well, my time is up. Mr. Solomon, I have just

got to tell you, I am very disappointed. In just listening to you,

reading between the lines of what you are saying, listening to the

music as well as the words.

I do not get the sense, from what you have said, that you really

care that much about this. I do not get the sense that you are outraged about this tax gap. I hear no outrage. I hear no passion. I

hear, virtually, not much concern. I hear basically bureaucratic

stuff, we are working on it, we are doing this and that. You have

not.

I mean, it is getting worse every year. I can give you statistics

that show that. But basically, what I am most concerned about is,

I do not hear from you the passion that you care about this, that

you are fighting for American taxpayers to solve this thing. I do not

hear that in the tone of your voice.

11

Mr. SOLOMON. Senator, I left private practice, in part, to combat

tax shelters. I have spent 6 years in the government, helping to

combat tax shelters.

My concern about the voluntary tax system is the same as yours.

I share your concerns. Just as I have those concerns about tax shelters and have spent 6 years fighting them, I have the same concerns about the tax gap in this country.

Senator BAUCUS. Well then, if that is the case, come September

30, October 1, you are going to have a cracker-jack report, you are

going to have a terrific plan for how we are going to solve this, if

what you say is true.

The CHAIRMAN. Senator Bunning?

Senator BUNNING. Yes, Mr. Chairman. I would like an opening

statement put into the record.

[The prepared statement of Senator Bunning appears in the appendix.]

Senator BUNNING. Mr. Solomon, you may know that Senator

Conrad and I have introduced life and non-life consolidated tax return legislation in the last two Congresses, picking up on the work

of former Senator Thompson. I would like to work with you on this

matter going forward.

Specifically, our bill deals with the fact that a group of affiliated

companies, that include a life insurance company, cannot fully consolidate their taxable income. Instead, they are subject to outdated

limitations that are targeted only at life insurance companies. No

other business sector is faced with such issues when consolidating

tax returns.

Putting revenue concerns aside for the moment, are there any

sound tax policy reasons why these restrictions exist and should

not be repealed?

Mr. SOLOMON. Thank you for your question, Senator Bunning.

What this relates to is certain consolidated return regulations that

deal with a combination on one tax return of life insurance companies and non-life insurance companies, for example, property and

casualty companies.

This statutory rule dates back to 1976. It was enacted in 1976

when insurance companies were taxed very differently than the

way they are taxed today. In addition, this was enacted when there

was a concern about using the losses of casualty companies against

the income of life insurance companies. It reflected concerns that

were prevalent in the 1970s.

The world has changed a lot since the 1970s. In fact, this is an

illustration of how our economy changes over the years, but we do

not go back and revisit old statutory provisions.

In addition, not only is there a statutory provision, but the Internal Revenue Service and the Treasury Department promulgated

regulations, extensive and complex regulations, to carry out the

statutory provisions placing limitations on the consolidation of nonlife companies with life companies.

This is one of those areas that perhaps we should revisit. As I

said, the world has changed. Life insurance is not taxed the way

it used to be, and the regulations are enormously complicated.

This is an area worthy of consideration, both for statutory

change or for change of the complex regulations about consolidated

12

returns, life insurance companies, and non-life insurance companies.

Senator BUNNING. I had a follow-up, but you already answered

the follow-up because you have admitted that there is a real problem there and it should be investigated. Maybe we can get it updated.

As you are aware, the government won a major victory yesterday

with the Coltec decision by the Federal Circuit Court. In that decision, the Appellate Court upheld the application of the Economic

Substance Doctrine by overturning a ruling by the court of Federal

claims.

One tax expert said that this case has ‘‘given new vitality to the

Economic Substance Doctrine.’’ Do you believe that yesterday’s decision sheds any light on the need, or lack of need, for codification

of the Economic Substance Doctrine, as it has been proposed by

this committee?

Mr. SOLOMON. Thank you, Senator Bunning. The Economic Substance Doctrine is a judicial doctrine. It is a doctrine formulated by

the courts in particular cases. It is not in the Internal Revenue

Code. Even though the Internal Revenue Code has lots of technical

provisions, the courts, in various cases, to do justice, have created

judicial doctrines to reach the appropriate answer.

The Economic Substance Doctrine is one of those doctrines.

There are various other doctrines, such as the Sham Doctrine, the

Business Purpose Doctrine, and the Step Transaction Doctrine.

There have been proposals to codify the Economic Substance Doctrine. My view has been that it is not necessary to codify the Economic Substance Doctrine. That is a doctrine created by the courts

to deal with the factual situations and the legal issues directly presented. It is a very case-sensitive doctrine.

I believe that the courts have applied it in such a flexible manner

in the particular cases that are before it, and have done a good job.

I think the Coltec decision, as well as the Black & Decker decision,

which was decided just a few months ago, show that the courts are

properly applying the Economic Substance Doctrine.

Senator BUNNING. I have more questions, but my time has expired, Mr. Chairman.

The CHAIRMAN. I am not sure how many courts I can mention.

You said it was court doctrine, which obviously it is, but some

courts have said Congress ought to define it, economic substance.

Right? Some courts have said that. My only point is, you have not

said anything wrong, but I wanted to follow up.

Mr. SOLOMON. Sure.

The CHAIRMAN. Because you said you did not think we should define it. But have some of those courts not said Congress should define it?

Mr. SOLOMON. In general, the courts have applied the doctrine

by themselves. There was one court—and I would have to go back

and look—that in one case said it is not in the code, and therefore

we should not apply it. But that may have been the lower court in

this very case. That may have been the lower court in Coltec or the

lower court in Black & Decker. I would have to go back and look

at the lower court case.

13

The CHAIRMAN. Mr. Solomon, Senator Baucus and I recently sent

a letter to Commissioner Everson in regard to the tax gap. In that

letter, we noted that the IRS has been unsuccessful in implementing the new web-based version of an electronic fraud detection

system database for the past two filing seasons.

The IRS, from the beginning of that project, did not appreciate

the risk of the new system and failed to properly fund the project.

This resulted in a lack of proper IT oversight throughout the life

of the project.

The IRS also failed to learn from mistakes in terms of inaccurate

reporting by the contractor throughout the entire process. Despite

knowing of inaccurate reporting, it is our understanding that the

IRS is still working with the same contractor today.

The result of this project is that the EFDS has been greatly compromised, with substantial taxpayer loss. So, I would like your

commitment to look into the situation and to demand accountability from the IRS.

The IRS has had a multitude of problems with IT contracts in

the past and has wasted a huge amount of money on projects that

have not lived up to expectations. It is my understanding that approximately $20 million was spent on developing the new webbased EFDS, and that the web-based system never materialized.

The IRS needs to be more effective in monitoring contractor performance.

Could you commit, that is, as Assistant Secretary for Tax Policy,

that you would look into improving IRS oversight of IT contractors

so that the government’s interests are better protected from waste?

Mr. SOLOMON. Chairman Grassley, you have my commitment to

work with the Commissioner to see that this happens. This relates

to refund freezes.

The CHAIRMAN. Yes.

Mr. SOLOMON. The IRS is doing several things in the area of refund freezes. First, they are putting in place an improved process

to prevent improper refund claims. Second, they are going to do

better to notify taxpayers whose refunds have been frozen, and

they are going to do better to resolve claims that have been previously frozen. The IRS is working with the Taxpayer Advocate on

this issue.

As to the specific issue that you mentioned, yes, I commit to

working with the Commissioner to get that result.

The CHAIRMAN. Thank you very much.

I am going to refer to the Mack-Breaux Commission on its comments bearing on who pays the corporate tax. The bipartisan panel

noted that, in the long run, the burden of corporate tax is shifted

to workers and consumers.

As we think about tax reform, and especially corporate tax reform, and do that in regard to our Nation’s competitiveness, it is

important that we understand better who actually shoulders a burden of that tax.

The Tax Reform Panel notes that Treasury and CBO still view

the burden of corporate income tax being entirely on shareholders.

I am concerned that this is a very old-school view, and does not reflect modern economic thinking.

14

So, these three points. How do you view who bears the burden

of corporate income tax? Then your views on the impact of our Nation’s high corporate tax rate on our ability to compete globally.

You may have answered some of that in your opening statement;

I am cognizant of those comments you made. I would like your

commitment to have Treasury review their current position on who

bears the burden of corporate income tax and to report back at the

end of the year.

Mr. SOLOMON. Mr. Chairman, I am not an economist, but I do

know that there are different possible views on who bears the burden of the corporate income tax. Treasury has, in the past, viewed

the burden as being borne by the owners of capital.

Working with the Tax Reform Panel, our Office of Tax Analysis,

which is a part of our Office of Tax Policy, considered other possibilities. For example, perhaps some of that burden is borne by

workers and consumers.

This is under continuing analysis. We are considering our position with respect to who bears the burden of the corporate tax. This

is an ongoing topic that we are reevaluating.

In addition, with respect to your comments about competitiveness, high corporate tax rates do affect competitiveness. I discussed

that in my opening remarks. Lower tax rates help companies reinvest and help them compete in the global marketplace.

In addition, as you know, our corporate tax system imposes a

second level of tax. That is, there is a tax when a company earns

money and a second tax when the money is paid out as dividends,

so there is a basic distortion in our system that is imposed by the

corporate-level tax.

There have been many discussions over the years, as part of the

discussion of the integration of the tax system and as part of tax

reform, about the extra burden that the corporate income tax imposes because of the double layer of tax.

The CHAIRMAN. Do you have any problem with my request about

reporting by the end of the year, which is December 31, in regard

to the Treasury’s reviewing the current position on who bears the

burden of the corporate income tax?

Mr. SOLOMON. We will reconsider it, and I will speak with our

economists on that issue. As to what particular date, of course, I

need to speak to our economists first. But we are already reconsidering that issue, and there are many different views.

The CHAIRMAN. All right.

Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Solomon, I would like to ask you a little bit about tax shelters and the degree to which the IRS and the Treasury are closing

down these shelters.

As you know, the IRS and Treasury worked with this committee

to develop tough disclosure rules with penalties, the basic theory

being that if advisors, promoters, and taxpayers are required to tell

the IRS about all these shelters, that they would be less inclined

to engage in abusive transactions.

The Congress passed, in October of 2004, legislation that provided for new shelter penalties and stronger disclosure laws. But

it has been almost 2 years now, and the IRS has failed to impose

15

a single disclosure penalty, in my judgment, from a lax systematic

process to administer these rules.

So my first question is, to what extent has IRS used these new

tools?

Mr. SOLOMON. I do not have specific statistics, and perhaps you

have better statistics than I have on this. One thing that I am

going to do, as a result of your question, which I have done before,

is to sit down with the IRS, particularly with the Office of Tax

Shelter Analysis, and ask them these questions.

Senator BAUCUS. Do you know how many disclosure penalties

have been asserted to date?

Mr. SOLOMON. No, I do not know.

Senator BAUCUS. The answer is zero.

Mr. SOLOMON. But let me add, Senator, that this was enacted at

the end of 2004.

Senator BAUCUS. Two years ago. Almost 2 years ago.

Mr. SOLOMON. Then taxpayers filed their returns. If corporations

filed their returns, for example, for 2004, they were filed toward

the end of 2005. If the returns are for 2005, those corporate returns

have not come in yet. Taxpayers are still filing their returns.

The second point is that, in my view, a penalty’s first goal is deterrence. That is, the assertion of the penalty is important, but

what is even more important is deterrence. The presence of these

penalties has deterred taxpayers.

Senator BAUCUS. But none have been imposed.

Mr. SOLOMON. I very much appreciate, as I said in my opening

statement, the words and the actions that you have taken to assist

the IRS and the Treasury Department in combatting tax shelters.

I worked with your staff and the staff of this committee, to beef

up——

Senator BAUCUS. That is right. And we appreciate that. That is

why I am asking the question.

Mr. SOLOMON. As I said, I have been involved in this for a long

time. In my view, there has been a positive impact, a deterrent effect.

Senator BAUCUS. Do you know how much the penalties are?

Mr. SOLOMON. Off the top of my head? I would have to go and

open up the code and look.

Senator BAUCUS. And that will say $10,000 a day. So if those

were imposed, that would be significant, I would think.

Mr. SOLOMON. Oh. This is for the listing.

Senator BAUCUS. Yes. The listing.

Mr. SOLOMON. I am sorry. I was thinking about the taxpayer failure to report as opposed to the listing requirement.

Senator BAUCUS. I am talking about the listing. Listing is

$10,000 a day.

I have a lot of other questions about that basic point. But I

would like, if you do not mind, Mr. Chairman, to turn to another

subject. That subject is something you asked a little bit about, and

that is an electronic fraud detection system, or the failures of an

electronic fraud detection system. You are aware of the problem,

are you not?

Mr. SOLOMON. Yes. In fact, Chairman Grassley and I just discussed it. You may have been out at that moment.

16

Senator BAUCUS. Do you know how many fraudulent refunds

were issued by the IRS during the 2006 filing season because the

IRS did not have a new refund fraud protection program in place?

Mr. SOLOMON. No. I do not know the exact number.

Senator BAUCUS. Do you know whether there will be any attempt

to recoup fraudulent refunds issued in 2006?

Mr. SOLOMON. I do not know of any attempt that will be made.

As I said to Chairman Grassley, it is important that this be fixed.

I have said that I am going to discuss this with the Commissioner

and am committed to moving forward to try to get this problem

fixed.

Senator BAUCUS. The IRS has kept this committee in the dark

about the failure of this program to work. Do you think it is appropriate for the executive branch to inform Congress about sensitive

matters before they become national scandals? Because this is

about to be a national scandal.

Mr. SOLOMON. I do not know the circumstances in this particular

case of what the IRS said or did not say, so it puts me in a somewhat awkward position to comment on this.

Senator BAUCUS. Is there going to be any kind of a fraud detection program for the 2007 filing season?

Mr. SOLOMON. I certainly hope so, and I intend to talk to the

Commissioner about it.

Senator BAUCUS. The amounts involved are huge.

Mr. SOLOMON. The IRS very much shares your concern about

preventing improper refunds. Very much shares your concern.

Senator BAUCUS. Well, they may, and I am sure they do at one

level. But a lot of it, as you know, is they try to develop new computer systems—I do not have the exact details, but the long and

the short of it is, they put one system on hold while they developed

a new one, and they contracted that out, and that did not work.

They did not go back to the first one.

It looks like a lot of money has been needlessly spent on the contractor who developed the system that did not work. That is why

all these fraudulent refunds go out and are not being collected.

Mr. SOLOMON. I believe the Commissioner shares your concern.

Senator BAUCUS. I am sure they share the concern. I am also

even more concerned why they have not done more about it and

why they have not kept this committee more informed about it so

that this committee can help solve it, and one way would be with

resources.

Mr. SOLOMON. I appreciate your comments, Senator.

Senator BAUCUS. Well, I know you appreciate it. But this whole

thing, as you said earlier, is deeds, not words. We have to get solutions here.

Thank you, Mr. Chairman.

The CHAIRMAN. Senator Bunning?

I need to ask my colleagues, before Senator Bunning, we are in

the middle of a vote. If you want to continue this discussion, then

I will go vote and come back while he is asking questions. Did you

want to continue another round?

Senator BAUCUS. Yes. I have more questions.

17

The CHAIRMAN. All right. Senator Bunning, if you will ask your

questions now, you will have time. Then we will go vote, then we

will come back and finish our discussion.

Senator BUNNING. Thank you.

Late last week, an IRS official, speaking to the ABA, commented

on the IRS’s attempts to interpret a provision of the recently enacted tax bill. This provision created a new excise tax for exempt

organizations that participate in prohibited shelter transactions.

The IRS official indicated that, in many of the provisions in

which employee benefit plans are involved, the statute does not

seem to require an accommodating partner. It was indicated that

many of the provisions could possibly apply to State and local governments, and just about all tax-favored benefit plans.

Has your office been looking into this issue, and do you have any

comments on it?

Mr. SOLOMON. Yes, Senator, we have been looking into this issue.

In fact, just within the last week, the IRS and Treasury Department issued a notice reminding taxpayers of their responsibilities

under this provision, but in addition, and equally importantly, asking for comments about the consequences of the provision, what

collateral effects it could have, who could be implicated or who

could be subject to it.

So, yes, at the present time we, in fact, are looking at this. Various interested parties have asked to speak with us to describe to

us many of the issues that are raised by this provision.

Senator BUNNING. Is it because there are ambiguities in the tax

code as it was written or is it because of the interpretation of the

IRS in applying the code?

Mr. SOLOMON. The IRS has not yet had the opportunity to apply

this provision. This is a brand-new provision. It really comes down

to the ambiguities that are in the textual language that we need

to interpret. Before doing that, we need to understand the circumstances, as you describe, and situations where tax-exempt organizations, or pension plans, or State and local governments could

get caught up in it.

Senator BUNNING. You know, we have an awful lot of tax lawyers

on this committee staff. You would think we would be able to write

in clear language, that there would not be ambiguities in the code.

Mr. SOLOMON. I am always impressed at how well the drafters

draft the code. The English language is inherently ambiguous,

words are inherently ambiguous. I think they do an excellent job

in trying to draft to eliminate ambiguities.

Senator BUNNING. Can you comment on the Schedule M–3? Has

the information been reported on the new form? Has it been helpful

to the IRS and Treasury in enforcement and review?

Mr. SOLOMON. Yes. The Schedule M–3, as you are aware, is a

form that the IRS, with the help of the Treasury Department, put

together to reveal more book tax differences. The old Schedule M

was a very small schedule that really did not show many book tax

differences.

But the Schedule M–3 breaks it all out. It is a very important

tool, in audit, for the IRS to find potentially inappropriate transactions. It also helps the IRS to figure out who are the appropriate

people to audit.

18

The IRS is getting information from this. I believe in the past

week the IRS has said publicly that, in fact, they have found, from

the book tax differences, meaningful items that need to be audited.

Senator BUNNING. In following up on Senator Baucus’s question

line, is it a matter of dollars and cents on enforcement as far as

the basic problems that we are having, or the IRS is having, or

Treasury is having in enforcing what has been written as far as

shelters and things like that?

Mr. SOLOMON. Senator Bunning, I really appreciate your question, because you are getting to a very important point. In the discussions that we have been having today about the tax gap, it is

not just a question of enforcement. That is, there are important

concepts that need to be balanced.

It is not just about increasing enforcement. As you increase enforcement, you need to be concerned about taxpayer rights and burdens that are placed on taxpayers from increasing enforcement.

So it is not just about increasing enforcement. You have to consider these other, very important priorities in deciding how you

want to address the tax gap.

Senator BUNNING. I am going to recess the committee because

the Chair will be back very shortly. I have to go and make the

same vote that they made. So, the committee will stand in recess

until the Chair returns.

Mr. SOLOMON. Thank you, Senator.

[Whereupon, at 11 a.m., the hearing was recessed and reconvened at 11:11 a.m.]

The CHAIRMAN. Thank you for your patience, and thank you for

being understanding of Senate voting.

Senator Baucus and I have a few other issues to discuss with

you. I do not think it will take long.

Mr. SOLOMON. All right.

The CHAIRMAN. The IRS has engaged in significant review of

charity hospitals. They have sent out an extensive list of questions

to several hundred hospitals, asking questions. I am pleased to see

this action, but I am concerned that this is not just a fact-gathering

exercise. I hope the end result would be real changes in requirements of charity hospitals.

As you probably know, I am engaged in an ongoing review of like

kind. It is clear that these hospitals have so many different policies, that they are all over the map when it comes to providing

charity care, community benefit, and charges to the uninsured;

some charity hospitals are doing little, some a lot, some nothing.

These charity hospitals are receiving billions of dollars each year

in tax benefits. The public has the right to expect real public benefit returns. It is important to remember that the reason for this

is that the IRS changed the rules. There was no change in the law.

The IRS, in 1969, I believe was the date, changed the rules because they listened to—well, these are my words—lobbyists who

hoodwinked the IRS and the Treasury that the inability to afford

medical care was a problem of the past, that it was not going to

be something in the future. We are well aware that the inability

to afford medical care is very much a problem, and maybe more so

now than it was in 1969.

19

So, Mr. Solomon, it is clear that the IRS and Treasury decision

to change the rules regarding charity hospitals in 1969 was based

on inaccurate information. I would like your commitment that the

Treasury and the IRS are going to go back and look at the real

facts, that there is a great need to help low-income people facing

medical expenses, and that the Treasury and IRS are going to put

out new guidelines during this administration that put real teeth

in charity care, community benefit, and charges to the uninsured,

and other important issues in that area. Poor people should not

have to suffer because of decisions that were made by Treasury

back then.

So to that end, I request the following: a time-line for review and

proposals for reforming guidance in this area; second, the individuals responsible at Treasury and IRS for reviewing the materials

submitted by hospitals and for drafting and reviewing new guidance so that we can talk to them; a copy of all documents, memorandums, and materials in the possession or control of IRS that

were related way back then to that 1969 decision; and a copy of all

submissions from hospitals that the IRS receives, as well as the

names of any hospitals that did not respond.

Mr. SOLOMON. Mr. Chairman, I very much appreciate your leadership in the charity area, including in the hospital area. I know

you have been a champion of good governance with respect to charities for years, and we very much appreciate that. Our charitable

community is very important to our society. Charitable giving is

very important to our society.

At the same time, we need to make sure that our charitable organizations are, in fact, carrying out charitable purposes. So, I very

much appreciate your concern. I have been made familiar with the

issue. Apparently this dates back to 1969; I believe you are correct.

There is a community benefit standard that is used to determine

whether a hospital qualifies for tax-exempt status. I want to make

sure that your concerns are addressed, and we will take a fresh

look at this. I will participate in taking a fresh look at this.

I do note that the IRS has sent out a questionnaire to various

hospitals to try to ascertain more information. The IRS is in the

fact-gathering portion of its study of this area. In using those facts,

the IRS is going to decide what its next steps are. But speaking

for me personally, I want to make sure that your concerns are addressed.

The CHAIRMAN. Thank you very much. I appreciate that. I am

glad that the Treasury has initiated what they have already. But

I want to make sure it is a useful tool, and as a useful tool, it is

used then.

A few years ago—and this is not just your department, but it is

going to bring us back to your department—in every department of

government there was great interest in performance measures and

being able to determine whether government agencies were doing

the right thing, or whether they were doing enough of it, and finally whether they were doing a good job of whatever they were

supposed to do.

So, how do you think that we should measure performance and

success in your office? What should we be looking for as signs of

accomplishment and benchmarks? What do you hope to accomplish,

20

and how do you think that we should be holding you accountable

as you and your staff perform this work?

Mr. SOLOMON. Mr. Chairman, there is a lot to that question.

First, with respect to our role, the role of the Office of Tax Policy

is to provide analysis and give advice to the Secretary of Treasury,

and the Secretary of Treasury makes recommendations to the

President and to the Congress.

Therefore, one aspect of judging what we do is the quality of advice that we give to the Secretary, and ultimately the quality of the

proposals and the recommendations that come to you. So that is

one aspect of evaluating what we do, the advice we give to the Secretary and the advice and recommendations that ultimately come

to you.

A second area in which you might judge us is how well we work

with the Congress, how well we work with you, with Senator Baucus and others, in the responsibilities that we have to provide our

views with respect to the difficult tax issues before us. So, working

with you, measuring how well we interact with you, how good our

advice is, what our recommendations are, I think that is the second

aspect.

A third aspect of how to measure us is in implementation, the

guidance process. We spend an enormous amount of time working

on regulations, notices, revenue rulings, and other guidance to

carry out the legislation that you have enacted.

Recent examples of that are in the 2004 JOBS Act. There were

very important provisions that needed to have regulations written

very quickly, including the repatriation deduction, the manufacturing deduction, and the new rules about deferred compensation.

We immediately engaged in those tasks, and we have issued an

enormous amount of guidance in that area. So judging us by what

we do in the guidance process is another way of judging whether

we have accomplished our mission. I would also add another recent

act, the Energy Policy Act. We have issued an enormous amount

of guidance. That is another area in which you can measure what

we do.

A final way that you might be able to measure us is what we do

with respect to the public. As an example, our Office of Tax Analysis prepares studies and other documents for public review to discuss the important issues before us. So, in terms of how you might

judge us, those are four ways in which you might judge how we

carry out our responsibilities.

The CHAIRMAN. All right. Well, thank you very much.

Senator Baucus, I have two more points I would like to make,

then I will stay as long as you want to stay for your questions.

Senator BAUCUS. All right.

The CHAIRMAN. These last two really are not questions. It is explaining something that we have asked for information on and

have not gotten, and will you help us get it?

In the JOBS Act, we directed Treasury to produce several studies

involving aspects of our international tax regime that are aimed at

restricting the ability of multinationals to shift income outside our

country. Studies on earnings stripping, transfer pricing, income tax

treaties were due no later than June 30, 2005, so you can see we

are 13 months behind that.

21

A study on the effectiveness of the corporate inversions provisions is due no later than December 31 of this year. These studies

were requested by us because the issues they will address are vital

to protecting our tax base.

These issues are also important to the debate that we are going

to be having on tax reform. Therefore, after your confirmation, will

you see to it that these studies are completed by the end of the

year?

Mr. SOLOMON. Mr. Chairman, completing these studies is a very

high priority for us. For the first three, which are the earnings

stripping, transfer pricing, and income tax treaties, we are going to

try to get those studies done by year-end, as you request.

In fact, right now we are in the fact-finding and economic analysis portion of those studies. That is moving along. That should be

completed in September, so we are expecting to complete those reports by the end of this year.

The CHAIRMAN. Yes.

Mr. SOLOMON. With respect to the inversion study, we are currently in the process of issuing guidance. That is, there have been

two rounds of temporary regulations that have been issued with respect to inversions, and we are working on a third round of possible guidance with respect to inversions.

An important aspect of that study is to have those guidance

items interpreting the statute in place, at which time we can complete the analysis of the effectiveness of those provisions. So that

study is going to follow the other three studies, but we are expecting to complete the first three studies by year-end.

The CHAIRMAN. The next one is in regard to the IRS rules on

partial annuitization. I think there is some improvement needed in

those rules, so I am asking you to work with us, particularly since

Americans are living longer and they want to ensure that their retirement savings do not run out.

Partial annuitization is a way of avoiding that. The issue allows

retirees to gradually convert portions of their annuity savings into

streams of income. I believe that partial annuitization can, and

should, be encouraged. There are not clear IRS guidelines on that,

so that is a major barrier.

Before he left the Treasury, I wrote a letter to Secretary Snow,

asking him to look at this and work with me on a common-sense

solution to improving current rules. I would like to ask you to do

the same thing. So would you work with me to ensure that we can

improve the rules in this area and strengthen Americans’ retirement security?

Mr. SOLOMON. Yes, I will, Chairman Grassley.

The CHAIRMAN. And could I also ask you to please give me a response to the letter that I sent to Secretary Snow, and then a time

line for addressing that issue as quickly as possible?

Mr. SOLOMON. Yes. I will respond immediately to your letter.

The CHAIRMAN. Good.

Then one point. This is not a matter of having a debate right

now, but to further state my position, where I interjected myself

into your conversation with Senator Bunning on economic substance.

22

Regarding the earlier discussion on economic substance and the

impact of the Coltec case, it is certainly good news for the integrity

of our tax system that the Federal Circuit Court of Appeals reversed the ridiculous holding of the Court of Claims that drew the

vitality of the judicial doctrine into question.

However, there is still a lack of uniformity among the circuits regarding whether a transaction needs both a business purpose and

an economic reality, and what counts as non-tax benefits in determining whether a transaction has economic substance.

So while the Coltec case is a welcome decision by the Appeals

Court, the need for uniformity in applying economic substance doctrine still remains, and that is the principal goal of codifying the

definition of economic substance.

The Senate has done this four or five times in very recent years.

We run into trouble in the House of Representatives, but it is

something that I think both Senator Baucus and I are committed

to getting done, because we ought to have the same principle of

taxation on economic substance apply, regardless of whatever circuit you live in.

So, we have different circuits determining different things. We

ought to have some uniformity, and that is our goal. Plus, we feel

that there is an awful lot of revenue being lost.

Senator Baucus?

Senator BAUCUS. Thank you, Mr. Chairman.

Mr. Solomon, I am just curious. In the President’s budget request, he requested an extension of AMT relief, which you have referred to a couple of times, only through 2006, but not for 2007.

You state that one of your top priorities is AMT relief. But the

budget, the guy you work for, does not provide for it. So how are

we going to reconcile that?

Mr. SOLOMON. Well, one of my priorities, as I stated, is tax reform. AMT is to be considered in the context of tax reform.

If one is going to deal with the Alternative Minimum Tax, which

is, as we discussed, a tax that is going to result in more and more

taxpayers being subject to the AMT, it has to be considered in the

context of overall reform of our tax code. It is a parallel tax system.

We should have a single tax system in which Americans are taxed.

Senator BAUCUS. Well, everybody agrees with you on that. But

still, it is very expensive to fix, as you well know. It is not in the

President’s budget for next year, so it is going to be hard to fix it

if it is not in the budget, I would think.

Mr. SOLOMON. As I have said, it is a very important issue, and

I think we need to consider what to do about it. It cannot be viewed

in isolation.

Senator BAUCUS. It cannot be?

Mr. SOLOMON. It cannot be viewed in isolation.

Senator BAUCUS. I agree with that.

I would like to turn now a little bit to tax reform, generally. The

President’s budget requested $500,000 for an Office of Dynamic

Analysis. But as I mentioned in my opening statement, I have seen

the May 25, 2006 Dynamic Analysis prepared by Treasury on the

tax reform proposals. So, would I be correct that the funds for dynamic analysis have already been found elsewhere?

Mr. SOLOMON. I am sorry. Could you——

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Senator BAUCUS. Have those funds already been found to pay for

dynamic analysis? You requested $500,000 for the analysis. You

have already done the analysis on the tax reform proposal.

Mr. SOLOMON. We have a limited capability at the present time

to do dynamic analysis. As you understand, dynamic analysis

measures the effect of changes in the tax law on the larger economy, and it takes into account macroeconomic effects.

Senator BAUCUS. Correct.

Mr. SOLOMON. We have some limited capability at the present

time, but not very much.

Senator BAUCUS. But it is very difficult to do.

Mr. SOLOMON. But it is very difficult to do.

Senator BAUCUS. And there are a lot of assumptions.

Mr. SOLOMON. As in all.

Senator BAUCUS. As in all. Even static, lots of assumptions.

Mr. SOLOMON. There are a lot of assumptions. So with our limited resources, we have attempted to do some dynamic analysis,

but we would need more resources to do a better job in this area.

Senator BAUCUS. Has Treasury sought outside expert advice before publishing its new dynamic analysis on its work with the Tax

Reform Panel? Has Treasury sought outside advice?

Mr. SOLOMON. Treasury believes that its work on dynamic analysis needs to be credible and transparent. In my view, to the extent

that a dynamic analysis office gets up and running, it would be

very important for the credibility and the transparency of it to engage and discuss this with outside people.

Senator BAUCUS. I am a little concerned about transition relief

required under one of the panel’s recommendations, and that is the

consumption tax, the second of the two recommendations.

I do not believe, frankly, that the transition rules for any of these

plans are fully understood, certainly not by the private sector.

Maybe by some academics, by some theoreticians, but not by a lot

of companies who actually have to pay taxes.

For instance, under the panel’s transition rules for the growth

and investment plan of the progressive consumption tax, a taxpayer with existing inventory would presumably lose all deductions

with the cost of purchasing these goods for resale or purchasing

materials or processing. With one-quarter of inventory currently

valued at $1.7 trillion, any partial transition relief would be extremely costly. Is that not accurate?

Mr. SOLOMON. Transition issues are extremely important in any

tax reform proposal. Depending upon what provisions are enacted

in tax reform, you will have to consider transition relief. Depending

upon what the provisions are, yes, some could be much more difficult than others. It is one of the most important issues, one of

many important issues, in considering tax reform.

Senator BAUCUS. But in this case, the dollar amounts are stupendous that a business would have to pay.

Mr. SOLOMON. Well, in any kind of tax reform, you have to consider transition relief.

Senator BAUCUS. I do not think business understands that at

this point. You have people in Treasury saying this is the greatest

thing since sliced bread, this consumption tax, in theory.

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Mr. SOLOMON. Are you referring specifically to a consumption tax

approach?

Senator BAUCUS. The consumption tax approach.

Mr. SOLOMON. My comments were more general, that in any tax

reform, you have to consider the issue of transition. The Treasury

Department has not adopted any view at the present time as to

how tax relief should go forward, if that is the question.

Senator BAUCUS. That is correct. That is correct.

Mr. SOLOMON. All right.

Senator BAUCUS. I am not talking about the consumption tax,

the consumption tax proposal in the Tax Reform Panel. It is true,

Treasury has not made a recommendation in that regard. But I am

just asking the basic question, is it not true that transition relief

under that proposed consumption tax——

Mr. SOLOMON. Under the Tax Panel’s proposal——

Senator BAUCUS. Yes. The Tax Panel’s proposal.

Mr. SOLOMON [continuing]. The transition relief with respect to

the growth and investment tax. It is a very important issue. You

have to consider it both from the simplified income tax and the

growth and investment tax.

If you are moving to a consumption tax, yes, it is a very important issue. I do not personally, at this moment, recall exactly what

the number is. But I agree with you, transition is an issue that

needs to be given lots of consideration.

Senator BAUCUS. The numbers are just out of sight. They are not

understood by the business community. That is why I am making

this point to you, right now, today. Hopefully, somebody in the

business community might take note, that some of the theoretical

proposals by some within the Treasury—in fact, one person sitting

behind you is one of the major persons doing this—is flawed.

That is, it has huge complications, huge implications for business, and I do not know that business understands that, with respect to the consumption tax proposed by the Tax Reform Panel.

Mr. SOLOMON. I understand. Again, it goes back to a comment

I made before. We should look at the entire packages and consider

all the issues in entire packages and not just focus on one of the

issues.

Senator BAUCUS. You mentioned five or six goals when you first

made your statement, and I appreciate those. But as you were listing them, I was just struck by how you do all of this, that is, including AMT relief, to keep tax rates low, protect home-ownership

and charities, and so forth, how that fits within the context of the

budget. We have to pay for some of this, too. We have to balance

things out. At least, that is the theory, here.

Mr. SOLOMON. That is part of the challenge. I listed these as

goals. Some of those goals may be more achievable than others. But

you have to take all the pieces, all the parts, and put them together

to make a practical package. That was my final point.

Senator BAUCUS. I appreciate that.

Do you believe that tax cuts pay for themselves?

Mr. SOLOMON. I am not an economist, but, in my view, tax cuts

affect behavior. Appropriate tax cuts can affect behavior that helps

the economy grow and affect tax revenues.

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Senator BAUCUS. I appreciate that. But do they pay for themselves?

Mr. SOLOMON. Again, in my personal view, not being an economist, I would say that the way I described it is my personal view

of what tax cuts do.

Senator BAUCUS. I am just saying, we are warning everybody

that there is a limit here. Your boss, about-to-be boss, Secretary

Paulson, sitting where you are now, when that question was asked

of him, said, no, tax cuts do not pay for themselves. He did go on

to say some of what you have said.

I am just saying, we have to be careful, not going down this road

of assuming that tax cuts are the salvation of everything, the old

supply side stuff. I am just asking us to get off the partisan rhetoric here and look at the actual factual analysis, the degree to

which tax cuts add to the deficit, or do not.

I am not talking about the Wall Street Journal editorial page.

They have one ideological view and they cannot see anything else

besides their one view. I am, rather, talking about just trying to

be honest and analytic and being factual about all this.

Sure, tax cuts are great, but we have also got to pay for a lot

of things, too. So just lowering taxes alone is not going to balance

the budget. You have to also have tax revenue to balance the budget when you are going through all your tax reform.

Now, let us finish on that one final point. I do not know this, but

it may be the administration is thinking about, next year, proposing some kind of entitlement commission, some way to address

the question of entitlements.

I am just suggesting to you, Mr. Solomon, as strongly and as effectively as I can, when the subject comes up to the administration,

that you counsel the administration to do this the right way, not

for partisan political purposes.

The President, regrettably, set up a commission for Social Security. It was a partisan, ulterior-motive operation to privatize Social

Security. It was dead on arrival. There have been other proposals.

The Medicare Commission also had ulterior motives. That, too,

was dead on arrival. This Tax Reform Panel, frankly, is another

one. It is very, very questionable because the deck was stacked.

There were various ulterior motives when that was put together.

Let me put it this way.

In a tax bill, several years ago, I suggested an honest-to-goodness, true Tax Reform Panel, a commission to look at just some of

the things you mentioned, namely, the complexity of the code, the

inconsistencies in the code, inefficiencies of the code, et cetera, and

let us figure out a way to get a much better system.

I suggested a bipartisan panel, Republicans and Democrats, and

this and that. I talked to the Chairman about it, and he thought

it was a good idea. Senator Voinovich from Ohio was really excited

about it, and we offered to put that amendment in.

In conference, guess what happened? Lo and behold, it was taken

out in conference. You know why? Because the administration

wanted to have its own, and its own was the Tax Reform Panel we

have just been talking about.

They did not want to do it the right way, the right way being

non-partisan, both ends of Pennsylvania Avenue working together.

26

Rather, they wanted to do it their way, their way or the highway,

and that is why it is not getting very far, and that is why it is not

doing terribly well.

So we have a commission—if we do, if the administration suggests one—on entitlements, I strongly suggest, it has to have everything on the table. It has to have entitlement reform, as well as

other spending on the table, discretionary spending, as well as revenue. You have to have it all on the same table. It has to pass the

‘‘smell’’ test. It cannot be political, it cannot be partisan.

I just strongly urge you to push for that point of view, a commission very similar to the Commission on Social Security back in the

1980s when Social Security was in very tough shape.

President Reagan appointed Alan Greenspan, a bipartisan outfit.

They shook hands. They were going to do this together. It was not

partisan, it was not political. We got a good solution. That is the

only way, in my judgment, we are going to be able to address true

tax reform, true entitlement reform, and get a handle on our finances.

The CHAIRMAN. Senator Wyden?

Senator WYDEN. Thank you, Mr. Chairman.

I want to begin by expressing my thanks to you, Mr. Chairman,

for the announcement that today we are going to begin the effort

to look at tax reform. As you know, you and I have talked about

this on many occasions, you, I, and Senator Baucus.

I want to thank Senator Baucus as well, because I think this is

really welcome news, Mr. Chairman and Senator Baucus, that we

are going to have a chance to look at this in a bipartisan kind of

way. I appreciate all of the conversations both of you have had with

me over the last few months.

Mr. Solomon, as you know, I introduced the Fair Flat Tax Act

to try to begin the effort to develop, on a bipartisan basis, tax reform. I want to begin by asking you about what I think is an awful

lot of common ground that can exist on this tax reform issue. Let

me give you some examples.

My simplified 1040 tax form, in my Fair Flat Tax, is 30 lines

long; the President’s panel has one that is a few lines longer. For

purposes of government work, they are the same. I mean, this is

not something that needs to be a huge partisan bicker-fest. In my

Fair Flat Tax proposal, a one-page 1040 form; the President has

got one that, for all practical purposes, is almost the same.

In my Fair Flat Tax, we take the brackets from six to three; the

President’s commission goes from six to four. The reason I chose

three is, I chose the same ones Ronald Reagan began with when

he began this effort in 1986. So again, for purposes of government

work, we are about at the same place.

I proposed abolishing the Alternative Minimum Tax; Chairman

Grassley, Senator Baucus, and I have been working together on

that. The President proposes that as well. Is it not a fact that, as

we begin this debate on tax reform, beginning with the Chairman’s

hearing, there is a lot of common ground that exists right now that

could bring Democrats and Republicans together and get us started

on this?

Mr. SOLOMON. Senator Wyden, thank you for raising this. I appreciate the prior opportunity that we had to discuss these issues.

27

I believe there is a lot of common ground. Before you came in, I

was talking about some of the elements.

Chairman Grassley asked me, what are some of the important

elements that I would see in tax reform? Interestingly enough, they

correspond to many of the items that you have discussed. For example, simplification, trying to keep rates low, dealing with the Alternative Minimum Tax. There are many elements that can be the

basis for common ground for discussing this important issue.

Senator WYDEN. What did you think about the basic philosophy

of what was done in 1986? I do not want you to go through everything, but the basic philosophy of 1986 was to try to drive down

rates, keep progressivity, get rid of clutter. I mean, that was essentially what was done in 1986.

What do you think, just your own personal judgment? I recognize

it is not an administrative position. But just, what is your sense

about that kind of approach?

Mr. SOLOMON. I think the approach of trying to keep rates low,

trying to simplify the code, are very important priorities.

Senator WYDEN. How about progressivity?

Mr. SOLOMON. And progressivity is important as well. One additional element that we have today is dealing with the Alternative

Minimum Tax.

Senator WYDEN. Right.

Mr. SOLOMON. The Tax Act of 1986 did the things that you said,

lowered rates, broadened the base, maintained progressivity.

Today, we have an additional challenge, which is dealing with the

Alternative Minimum Tax.

Senator WYDEN. Since 1986, there have been more than 14,000

changes to the tax code. It comes to three for every working day

for the last 19 years. If, on a bipartisan basis, we can get tax reform accomplished this time, I am looking at ways to keep us from

sliding back, if we can get it done.

Do you have any thoughts on that? I mean, obviously tax policy

is one where, given the nature of changes in the economy, you always have to be prepared to deal with those, and this is the committee that deals, of course, with the code and has a huge role over

what happens in American economic life.

But do you have any thoughts on what can be done as part of

a tax reform effort this time to keep the Congress, if we can get

there again as we did 20 years ago, to keep from sliding back and

just having another 14,000 breaks in the next 20 years, then starting all over?

Mr. SOLOMON. Senator, as someone who works extensively in

published guidance, I can completely appreciate the 14,000 changes

that have occurred since 1986. One of our primary responsibilities

is to draft regulations to try to interpret those 14,000 changes.

I also agree with your point for the need for stability in our tax

code. Stability is very important for planning, for individuals, for

small business, for large corporations. So, stability is very important as well.

One of the challenges we face is to try to create a stable tax code.

Part of the issue is, in fact, our democratic process. One of the

great aspects of our democratic process is that the Congress can respond to the needs of various constituencies. But one of the chalVerDate 11-MAY-2000 14:46 Jan 11, 2007 Jkt 095484 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 31518.000 SFIN1 PsN: SFIN1
28

lenges we face is, if we simplify the law, perhaps that there will

be more reluctance to change it through 14,000 changes over a period of 20 years.

Senator WYDEN. I am going to be asking you some more about

this, because the Congress is now moving with earmark reform to

crack down on some of the foolish budget spending. I think we

ought to be having a debate on a bipartisan basis about tax breaks

and tax rules that also do not really get us a lot of value for the

break, since it is the American people’s money.

I want to ask you about one other issue. Again, it relates to the

changes since tax reform the last time. On the corporate side, in

my Fair Flat Tax proposal, one of the major differences between

what I did and what was done in 1986 is, I was a bit more cautious

about real estate, given all the changes that have taken place in

the real estate sector over the last 20 years.

But I was tougher on energy subsidies, because I am convinced

that these energy subsidies, particularly after I asked all the oil

company executives whether they needed them and they all said

no, I think we can look to make some savings there.

What is your reaction to that philosophical kind of bent? Again,

not the administration taking a position, but particularly as it relates to history? I think a lot has happened in the real estate and

the housing sector which has caused me to be more cautious there.

I think a lot of these energy subsidies—I mean, we are spending

$20 billion on royalty relief alone—have lost their historical basis.

What are your thoughts on those two changes, in particular?

Mr. SOLOMON. I think one of the important aspects of any tax reform proposal is to try to have consistent treatment among different economic activities. That is, to try to prevent tax-related distortions. One of the issues that we have in our current code is that

there are many tax-related distortions.

In a perfect world, the tax code would not create any economic

distortions. There are situations, though, where it is important to

social policy to have certain preferences, to encourage certain behavior.

It gets into this balancing, that is, the equal treatment of all

versus whether or not certain preferences should be extended to

certain groups or certain industries. Not only would you have to

consider that for real estate, and oil and gas, but you would have

to consider that across the board.

Senator WYDEN. Let me ask you one other question. The Chairman has been very gracious, as always, to give me the time.

The session, for all practical purposes, as it relates to big tax reform and the like is over. So here we are in July, and fortunately

Chairman Grassley is stepping up and we are going to have the

hearing with former Senators Breaux and Mack, and that will be

useful. We have had some useful discussions with Secretary

Paulson.

But the next 6 months are going to be critical, this period between July and January especially, because that is the period of

time the Congress will not be here much of that session, and of

course, that is the period where you really frame the debate.

29

Hopefully, in the next State of the Union address the President

will have an opportunity, on a bipartisan basis, to challenge the

Congress and the country to step forward and work together.

What are you going to be doing, as of now, between this period

and early next year to help us advance the cause? For example, are

you all starting to model various scenarios? If you are, of course,

I hope that one of the first models will be on the Fair Flat Tax Act

and the like.

But kidding aside, tell me how you are spending your time,

whether you are modeling, now, various kinds of scenarios, and

what are you all doing in this period between July of 2006 and

January of 2007, which is when the key prep work gets done, so

that hopefully we can move forward?

Mr. SOLOMON. There are many questions in your question. Our

first order of business, as I mentioned before, is to brief Secretary

Paulson on tax reform, to bring him up to speed on all the issues

that we have been considering.

In the time since the Tax Panel issued its report, we have been

studying the report, and we have been considering alternatives to

the proposals that the Tax Panel has brought forward.

But I agree with you, we need to consider this issue shortly. I

think it is an important time, and I think we need, at the Treasury

Department, to move forward with our consideration of this as

quickly as possible.

Senator WYDEN. But are you doing the modeling? I mean, for example, there are a variety of reform proposals that have been offered. I have made one, Senator DeMint has one that I am sure he

will want to have considered; a variety of Senators have them.

We want to make sure, to accelerate this debate, when we call

you, that you will be able to get into the nuts and bolts of those

proposals. To do that, you have to model them.

Mr. SOLOMON. Yes. We have considered, among ourselves, various alternatives. Is that economic analysis or in terms of revenue?

Senator WYDEN. Right. It is both.

Mr. SOLOMON. To others, we have given some consideration, but

we also have been considering internal alternatives.

Senator WYDEN. What is an ‘‘internal alternative’’?

Mr. SOLOMON. We have been considering options. We have been

considering our own possible options with respect to tax reform.

Senator WYDEN. Well, I hope that you will look at both, because

there are Senators on both sides of the aisle who have proposals

that they feel strongly about, both on and off this committee.

You all have thoughts on it, and it is going to be essential that,

certainly as we move towards the end of the year, when we get

down to looking at various ways that we might be able to proceed

on this, that you can give us both revenue and essentially economic

analysis to some of the implications. You can be sure you will be

getting a number of calls from me about this after you are in place.

Mr. Chairman, thank you. Again, when I read the comments you

had in the last paragraph of your statement, Mr. Chairman, I

think that is really good news. I think it is good news that we are

going to be moving ahead. You have had many conversations with

me about this, and I am really glad to see that.

The CHAIRMAN. We have not had our last one.

30

Senator WYDEN. I thank you.

The CHAIRMAN. I did have another question about tax cuts paying or not. I do not disagree with anything you said, so do not take

it wrong. In fact, a lot of it is in agreement.

But on the question, do tax cuts pay for themselves, as you know,

and as you have heard, some have alleged that they do not pay for

themselves. I just told you, I agree with what you said. I guess I

would go at this a little bit differently than you did, but not disagreeing with you.

I would ask the question this way: can you, or anybody, I would

ask, prove that tax cuts do not pay for themselves? A fair answer

is the answer you gave in your testimony. The truth is, opponents

of the relief cannot prove that tax cuts do not have behavioral effect.

The opponents cannot prove that point, that is, that tax relief

does not produce positive economic impact.

That obviously does not prove that it does not lead to more revenue.

So I am reminded of something that George Yin said, who has

now left our committee as Director of Joint Tax. He had an exchange with Senator Schumer, asking a question about the unused

tax benefits for the Liberty Zone legislation that we passed after

September 11, 2001 to help New York City recover.

Mr. Yin said, to that question, the point of incentives was to spur

activity. The activity did occur, which is a good thing. So the point

that I am making is, the revenue estimating is important, but it

is not the whole story.

So, I would like to keep this dynamic in mind as we approach

now what is going to be—some in July, and then some again in

September—the debate of reform as we hold some hearings before

this committee.

Now, if you would like to comment, you could comment, but you

do not have to.

Mr. SOLOMON. What I would add, Mr. Chairman, is that tax relief, as I said, affects behavior, which helps the economy. In part,

it goes to dynamic analysis. Dynamic analysis takes into account

larger macroeconomic effects in understanding the impact of tax relief.

The CHAIRMAN. For staff of any members, or any members listening elsewhere on television, if you have written questions of this

nominee, I would like to have them submitted by tomorrow.

Then, of course, an admonition to you is, we usually make sure

that every question is answered before we bring up your nomination. Thank you very much.

Mr. SOLOMON. Thank you, Mr. Chairman.

The CHAIRMAN. And good luck to you in your new endeavor.

Mr. SOLOMON. Thank you, Mr. Chairman.

[Whereupon, at 11:53 a.m., the hearing was concluded.]

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