U.S. GOVERNMENT PUBLISHING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Publishing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

21–114 2016

THE PRESIDENT’S FISCAL YEAR 2015 BUDGET 

PROPOSAL WITH U.S. DEPARTMENT OF THE 

TREASURY SECRETARY JACOB J. LEW 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MARCH 6, 2014 

Serial No. 113–FC15 

Printed for the use of the Committee on Ways and Means 

( 


dkrause on DSKHT7XVN1PROD with LOCATORS
ii 

COMMITTEE ON WAYS AND MEANS 

DAVE CAMP, Michigan, Chairman 

SAM JOHNSON, Texas 

KEVIN BRADY, Texas 

PAUL RYAN, Wisconsin 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

JIM GERLACH, Pennsylvania 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

AARON SCHOCK, Illinois 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

TIM GRIFFIN, Arkansas 

JIM RENACCI, Ohio 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

ALLYSON SCHWARTZ, Pennsylvania 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

JENNIFER M. SAFAVIAN, Staff Director and General Counsel 

JANICE MAYS, Minority Chief Counsel 


dkrause on DSKHT7XVN1PROD with LOCATORS
iii 

C O N T E N T S 

Page 

Advisory of March 6, 2014 announcing the hearing ............................................. 2 

WITNESS 

The Honorable Jacob J. Lew, Secretary, U.S. Department of the Treasury ....... 3 


dkrause on DSKHT7XVN1PROD with LOCATORS

dkrause on DSKHT7XVN1PROD with LOCATORS
(1) 

THE PRESIDENT’S FISCAL YEAR 2015 BUDGET 

PROPOSAL WITH U.S. DEPARTMENT OF THE 

TREASURY SECRETARY JACOB J. LEW 

THURSDAY, MARCH 6, 2014 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, DC. 

The Committee met, pursuant to notice, at 9:32 a.m., in Room 

1100, Longworth House Office Building, Hon. Dave Camp [Chairman of the Committee] presiding. 

[The advisory announcing the hearing follows:] 


dkrause on DSKHT7XVN1PROD with LOCATORS
2 

ADVISORY 

FROM THE COMMITTEE ON WAYS AND MEANS 

FOR IMMEDIATE RELEASE CONTACT: (202) 225–3625 

Thursday, February 27, 2014 

No. FC–15 

Chairman Camp Announces Hearing on 

the President’s Fiscal Year 2015 Budget 

Proposal with U.S. Department of the 

Treasury Secretary Jacob J. Lew 

House Ways and Means Committee Chairman Dave Camp (R–MI) today announced that the Committee on Ways and Means will hold a hearing on President 

Obama’s budget proposals for fiscal year 2015. The hearing will take place on 

Thursday, March 6, 2014, in 1100 Longworth House Office Building, beginning at 9:30 a.m. 

In view of the limited time available to hear the witness, oral testimony at this 

hearing will be from the invited witness only. The sole witness will be the Honorable Jacob J. Lew, Secretary, U.S. Department of the Treasury. However, any individual or organization not scheduled for an oral appearance may submit a written 

statement for consideration by the Committee and for inclusion in the printed 

record of the hearing. 

BACKGROUND: 

On March 4, 2014, the President is expected to submit his fiscal year 2015 budget 

proposal to Congress. The proposed budget will detail his tax proposals for the coming year as well as provide an overview of the budget for the Treasury Department 

and other activities of the Federal Government. The Treasury plays a key role in 

many areas of the Committee’s jurisdiction. 

In announcing this hearing, Chairman Camp said, ‘‘A tax code that is simpler 

and fairer will make the economy stronger so there are more jobs and bigger paychecks. It is important that any closing of special-interest loopholes 

be used to lower tax rates—not to pay for new spending—so employers can 

start hiring again, families can save more and wages can start to grow. The 

Tax Reform Act of 2014, released last week, achieves these goals and includes ideas advanced by Democrats and Republicans in Congress, as well 

as those offered by the Obama Administration. This hearing will provide 

the Committee an opportunity to review the President’s tax proposals and 

Treasury Secretary Lew the opportunity to share ideas in the President’s 

budget designed to meet those same goals.’’ 

FOCUS OF THE HEARING: 

U.S. Department of the Treasury Secretary Lew will discuss the details of the 

President’s budget proposals that are within the Committee’s jurisdiction. 

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS: 

Please Note: Any person(s) and/or organization(s) wishing to submit for the hearing record must follow the appropriate link on the hearing page of the Committee 

website and complete the informational forms. From the Committee homepage, 

http://waysandmeans.house.gov, select ‘‘Hearings.’’ Select the hearing for which you 

would like to submit, and click on the link entitled, ‘‘Click here to provide a submission for the record.’’ Once you have followed the online instructions, submit all reVerDate Sep 11 2014 13:40 Oct 20, 2016 Jkt 021114 PO 00000 Frm 00006 Fmt 6633 Sfmt 6621 I:\WAYS\WAYSPS\21114\21114.XXX 21114

dkrause on DSKHT7XVN1PROD with LOCATORS
3 

quested information. ATTACH your submission as a Word document, in compliance 

with the formatting requirements listed below, by the close of business on 

Thursday, March 20, 2014. Finally, please note that due to the change in House 

mail policy, the U.S. Capitol Police will refuse sealed-package deliveries to all House 

Office Buildings. For questions, or if you encounter technical problems, please call 

(202) 225–1721 or (202) 225–3625. 

FORMATTING REQUIREMENTS: 

The Committee relies on electronic submissions for printing the official hearing record. As always, submissions will be included in the record according to the discretion of the Committee. 

The Committee will not alter the content of your submission, but we reserve the right to format 

it according to our guidelines. Any submission provided to the Committee by a witness, any supplementary materials submitted for the printed record, and any written comments in response 

to a request for written comments must conform to the guidelines listed below. Any submission 

or supplementary item not in compliance with these guidelines will not be printed, but will be 

maintained in the Committee files for review and use by the Committee. 

1. All submissions and supplementary materials must be provided in Word format and MUST 

NOT exceed a total of 10 pages, including attachments. Witnesses and submitters are advised 

that the Committee relies on electronic submissions for printing the official hearing record. 

2. Copies of whole documents submitted as exhibit material will not be accepted for printing. 

Instead, exhibit material should be referenced and quoted or paraphrased. All exhibit material 

not meeting these specifications will be maintained in the Committee files for review and use 

by the Committee. 

3. All submissions must include a list of all clients, persons and/or organizations on whose 

behalf the witness appears. A supplemental sheet must accompany each submission listing the 

name, company, address, telephone, and fax numbers of each witness. 

The Committee seeks to make its facilities accessible to persons with disabilities. 

If you are in need of special accommodations, please call 202–225–1721 or 202–226– 

3411 TDD/TTY in advance of the event (four business days notice is requested). 

Questions with regard to special accommodation needs in general (including availability of Committee materials in alternative formats) may be directed to the Committee as noted above. 

Note: All Committee advisories and news releases are available on the World 

Wide Web at http://www.waysandmeans.house.gov

f 

/. 

Chairman CAMP. Good morning. This hearing will come to 

order. Welcome, Secretary Lew. We appreciate you being here with 

us this morning, and your full written testimony will be made part 

of the record. 

Given that the House of Representatives is scheduled to begin 

voting at approximately 10:00 a.m. this morning. I would ask that 

you would provide a brief oral summary of your testimony, so we 

can move more quickly to questions from Members of the Committee. But in order to give as many Members as possible the opportunity to question the Secretary, Ranking Member Levin and I 

will forgo our opening statements. And, in addition, we will reduce 

to 3 minutes the time for questioning. 

So, Secretary Lew, welcome, and please begin. 

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Thank you very much, Mr. Chairman, Ranking 

Member Levin, Members of the Committee. I appreciate the opportunity to testify today on the President’s budget. 

Before I begin, let me say a few words about the situation in 

Ukraine. President Obama has explained in no uncertain terms 

that the steps Russia has taken to violate Ukraine’s sovereignty, 


dkrause on DSKHT7XVN1PROD with LOCATORS
4 

Ukraine’s territorial integrity, and—are a breach of international 

law. As the President announced this morning, he has signed an 

executive order to authorize sanctions on individuals and entities 

responsible for activities that undermine the democratic process, 

threaten the peace, security, stability, sovereignty, or territorial integrity of Ukraine, or misappropriate state assets within Ukraine. 

This executive order is a flexible tool that will allow us to sanction those who are most directly involved in destabilizing Ukraine, 

including the military intervention in Crimea, and does not preclude further steps, should the situation deteriorate. 

These sanctions build upon previous actions that the United 

States has taken. But, at the same time, as the President has said, 

we are prepared to work with all parties to de-escalate the situation, and we call on Russia to take the necessary actions to resolve 

this crisis. It is in Russia, the United States, and the world’s best 

interests to have a stable and prosperous Ukraine. And as the 

Ukrainian government prepares for elections in May, it is critical 

that the international community work together to support its efforts to restore economic stability. 

I have spoken with the Ukrainian prime minister a number of 

times, and he has told me that the government is ready to adopt 

vital economic reforms. We have been working closely with international partners and Congress to develop an assistance package 

that will help the Ukrainian Government implement reforms needed to restore financial stability and return to economic growth. As 

part of this international effort, the United States has developed a 

package of bilateral assistance focused on meeting Ukraine’s most 

pressing needs. This package will include $1 billion in loan guarantees and IMF quota legislation, which would support the IMF’s capacity to lend additional resources to Ukraine, and help preserve 

continued U.S. leadership within this important institution at a 

critical time. 

While the United States will not increase our total financial commitment to the IMF by approving the 2010 reforms, it is important 

to note that, for every dollar the United States contributes to the 

IMF, other countries provide $4 more. At a time when the U.S. is 

at the forefront of international calls in urging the fund to play a 

central and active first-responder role in Ukraine, it is imperative 

that we secure passage of IMF legislation now, so we can show 

support for the IMF in this critical moment, and preserve our leading influential voice in that institution. 

I want to be clear that, even as we deal with the unfolding 

events in Ukraine, we continue to focus on our central objective, 

which is expanding opportunity for all Americans. Over the past 5 

years, we have accomplished a number of important things to make 

our country stronger and better positioned for the future. In fact, 

since 2009 the economy has steadily expanded. Our businesses 

have added 8.5 million jobs over the last 47 months. The housing 

market has improved and rising housing prices are pulling millions 

of home owners from under water. At the same time, household 

and business balance sheets continue to heal, exports are growing, 

and manufacturing is making solid gains. 

The truth is, as the President said in his State of the Union, we 

are more ready to meet the demands of the 21st century than any 


dkrause on DSKHT7XVN1PROD with LOCATORS
5 

other country on earth. Nevertheless, our economy was thrown 

against the ropes by the worst recession of our lifetimes. And, 

while we are back on our feet, we are not where we want to be yet. 

Everyone here understands that. And the question is, what are we 

going to do about it? 

The President’s budget lays out a clear path to move us in the 

right direction. It not only fulfills the President’s pledge to make 

this a year of action, it offers a framework for long-term prosperity 

and competitiveness. This budget addresses the critical issues we 

face as a Nation. It recognizes that while corporate profits have 

been hitting all-time highs, middle-class wages hit a plateau, with 

long-term unemployment and ongoing challenge. It recognizes that 

while the stock market has been vibrant, saving for retirement and 

paying for college is little more than a dream for millions of American families. It recognizes that while our national security threats 

are shifting, and we are bringing the war in Afghanistan to a responsible end, soldiers, military families, and veterans struggle to 

succeed in our economy. And it recognizes that while work is being 

done to put the final pieces of financial reform in place, reforms 

like the Volcker Rule have made our financial system stronger, and 

an engine for economic growth once again. 

The solutions in this budget flow from a frank assessment of 

these challenges. They are carefully designed to show the choices 

we can make to increase opportunity and bolster the middle class. 

For instance, a cornerstone of these proposals is to expand the 

earned income tax credit, so it reaches more childless workers. We 

know this credit is one of the most effective tools for fighting poverty, and it is time to adjust it so it does an even better job rewarding hard work. This tax cut, which would go to more than 13 million Americans, will be fully offset by ending loopholes that let 

high-income professionals avoid the income and payroll taxes that 

other workers pay. 

Another initiative that will make a difference for hard-working 

men and women is myRA. This retirement security program will be 

available later this year, and it will allow Americans to start building a nest egg that is simple, safe, and can never go down in value. 

While this budget puts forward essential pro-growth initiatives, 

it also calls on Congress to reinforce our growth-enhancing strategies by passing measures like comprehensive immigration reform 

and trade promotion authority. But even as it does these things, 

make no mistake; this budget is also serious about building on the 

success we have made together to restore fiscal responsibility. 

The fact of the matter is, the deficit, as a share of GDP, has fallen by more than half since the President took office, marking the 

most rapid decline in the deficit since the period of demobilization 

following the end of World War II. The deficit is projected to narrow even more this year. And today we are charting a course that 

will push the deficit down to below 2 percent of GDP by 2024, and 

rein in the national debt relative to the size of the economy over 

10 years. 

Last year, the President put forward his last offer to Speaker 

Boehner in his budget as part of a balanced compromise. This 

year’s budget reflects the President’s vision of the best path forward. While the President stands by his last offer, he believes that 


dkrause on DSKHT7XVN1PROD with LOCATORS
6 

the measures in his budget are the best way to strengthen the 

economy now. As this budget demonstrates, the President is firmly 

committed to making tough choices to tackle our fiscal challenges 

and our fair and balanced solutions represent a comprehensive approach to strengthening our Nation’s financial footing. 

This approach shrinks the deficit and debt by making detailed 

responsible changes to Medicare, while eliminating wasteful corporate tax loopholes and subsidies that do not help our economy, 

and by scrapping tax breaks for those who do not need them. 

Increasing basic fairness in our tax code is not just about improving our Nation’s fiscal health, though. It is also about generating 

room so we can make investments that will strengthen the foundation of our economy for years to come. This means helping to create 

more jobs by repairing our infrastructure, increasing manufacturing, boosting research and technology, and fostering domestic 

energy production. It means training Americans so they can get 

those jobs by promoting apprenticeships and upgrading worker 

training programs. It means improving our education system by expanding access to preschool and modernizing high schools. And it 

means making sure hard work pays off by creating more Promise 

Zones, increasing college affordability, and raising the minimum 

wage to $10.10 an hour, and indexing it to inflation. 

In closing, let me point out that this budget represents a powerful jobs growth and opportunity plan. It is carefully designed to 

make our economy stronger, while keeping our fiscal house in 

order. 

What is more, it offers Washington a real chance to work together. As everyone on this Committee knows, for far too long 

brinkmanship in Washington has been a drag on economic growth. 

But we have seen a significant amount of bipartisan progress in recent months that has helped improve economic momentum. Some 

cynics say it is fleeting, some call it election year posturing, but I 

don’t agree. I believe this progress is real, I believe we can keep 

finding common ground to make a difference, and I believe we can 

continue to get serious things done on behalf of the American people by working together. 

I thank you, and I look forward to answering your questions. 

[The prepared statement of Secretary Lew follows:] 


dkrause on DSKHT7XVN1PROD with LOCATORS
7 


dkrause on DSKHT7XVN1PROD with LOCATORS21114A.001
8 


dkrause on DSKHT7XVN1PROD with LOCATORS21114A.002
9 


dkrause on DSKHT7XVN1PROD with LOCATORS21114A.003
10 


dkrause on DSKHT7XVN1PROD with LOCATORS21114A.004
11 


dkrause on DSKHT7XVN1PROD with LOCATORS21114A.005
12 


dkrause on DSKHT7XVN1PROD with LOCATORS21114A.006
13 

f 


dkrause on DSKHT7XVN1PROD with LOCATORS21114A.007
14 

Chairman CAMP. Well, thank you very much, Mr. Secretary. 

The Administration’s budget proposal assumes that three temporary tax provisions that were first enacted in 2009 and expire in 

2017 are permanent. This means that making them permanent 

doesn’t ‘‘cost anything,’’ as they don’t have to be offset. Making 

these provisions permanent relative to current law is estimated to 

cost about $154 billion. What standard did you use to determine 

what extenders would be assumed to be permanent and not offset, 

and which would not? 

Secretary LEW. Mr. Chairman, you are asking a question about 

the baseline that we used, and baselines are a complicated technical matter. We have tried—— 

Chairman CAMP. I am fully aware of that. 

Secretary LEW. I know. I understand you know that. And we 

have tried for the last number of years to have the baseline reflect, 

as best as it can, the things that are, in practice, more permanent, 

and really part of the ongoing, you know, challenge of funding government. 

We believe the refundable tax credits, the earned income tax 

credit, the items you were referring to, should be made permanent. 

We made that case, obviously, many times over. It actually doesn’t 

make a difference whether it is in the baseline or not, in terms of 

what the final bottom line is. A budget has to cover all of the 

spending and revenue flows in it. 

And the bottom line is that when you look at our budget, by reducing the deficit to 3 percent of GDP, and on a path to 1.9 percent 

of GDP, we have put together a package that accommodates it. It 

is a technical decision that I think is the right one. Others, the 

Center for Responsible Budgets, the Senate Budget Committee, 

others, have made a similar decision. I understand there are technical issues in the baseline that—— 

Chairman CAMP. And—well, and if I might, there are many tax 

extenders that have been part of the tax code for a lot longer than 

those three provisions, such as Section 179 for small business expensing, which was part of the 2001 and 2003 tax relief, or the 

R&D tax credit, for example, which was enacted in 1981. So I think 

a strong case can be made that these provisions should be permanent, as well. 

And, obviously, when I released the discussion draft on comprehensive reform, I specifically asked for feedback on that particular issue. And I would just ask you your thoughts on a discussion about which tax extenders should be part of the baseline, and 

do you think that is an appropriate discussion to have. 

Secretary LEW. Mr. Chairman, I actually think that when we do 

tax reform, coming out of tax reform, we would be better off if we 

had more of a sense of permanence because certainty about what 

is in the tax code and what isn’t helps to contribute to—more certainty is a better environment for investment. 

The challenge we have had is—with the extenders is there has 

been an ongoing debate about which ones to extend, and whether 

or not they are permanent. And we believe that the tax credits that 

we put in the baseline are items that have a different character. 

You know, we did propose, as a matter of policy, to make our— 

the research and experimentation tax credit permanent. So we toVerDate Sep 11 2014 13:40 Oct 20, 2016 Jkt 021114 PO 00000 Frm 00018 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21114\21114.XXX 21114

dkrause on DSKHT7XVN1PROD with LOCATORS
15 

tally agree that there are items that should be made permanent. 

And what is policy and what is baseline is something we are happy 

to talk about. Coming out of tax reform—and I will note that in the 

plan you put forward there are some very clear paths there 

which—you know, some of it overlaps considerably with what we 

are talking about—— 

Chairman CAMP. Well, thank you. And I look forward to having 

that discussion with you on those issues. 

On another topic, a lot of people are angry about how complicated the tax code is, and I certainly hear that from people in 

my district who are hard-working taxpayers. You know, as we have 

talked about in this Committee, the code has 15 different provisions for saving for college. The IRS has a 90-page instruction 

booklet on that. The draft reform legislation includes the bipartisan 

proposal by Congressmen Davis and Black and to consolidate and 

modernize certain tax breaks. 

Now, my question to you is, are there certain opportunities to reform and simplify the code, particularly for parents trying to save 

for college education, our hard-working taxpayers, that we can accomplish without necessarily having to resolve the question about 

whether comprehensive reform should raise revenue or not? 

Secretary LEW. Mr. Chairman, there, I think, is always room for 

conversations about what we can do to make the tax code more efficient, more effective, and easier for people to use. I do think that, 

as we get to the conversation of comprehensive tax reform, it is inherently tied to the fundamental question of whether revenue is 

part of a long-term fiscal plan. 

On the question of the education provisions, you know, simplification is a desirable goal, but we also have different objectives 

that are achieved by different pieces of the code now. And I think 

the challenge, and a conversation we look forward to having with 

you, is how to get the balance right, so that we still are encouraging the kind of behavior that we think makes a difference for the 

economic future of both families and the country. And I know, in 

your plan, you know, there are changes, some of which we have 

questions about in terms of, like, the AOTC. And I think those are 

important questions for us to work through. 

Chairman CAMP. Yes, and I was obviously asking about not necessarily a comprehensive approach, but on individuals. 

But last, the Administration says that the business tax reform is 

long-run revenue neutral. And that strikes me as being inaccurate, 

given that, the way I read your budget, you are really proposing 

$150 billion business tax increase in the first decade to pay for infrastructure. And then the proposal would be revenue-neutral in 

years 2011 and beyond. I think, put another way, I think it could 

be described, if you looked at year one to the long run, it is really 

a $150 billion tax increase. Because I think, truly, to be revenueneutral, you need to calculate the $150 billion as part of that approach. Don’t the first 10 years count, as well? 

Secretary LEW. Mr. Chairman, the challenge is that the—any 

tax reform is going to throw off a certain amount of revenue at the 

beginning, as there is a transition that won’t be there in the long 

run. So, if one were to take that revenue and lower rates permaVerDate Sep 11 2014 13:40 Oct 20, 2016 Jkt 021114 PO 00000 Frm 00019 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21114\21114.XXX 21114

dkrause on DSKHT7XVN1PROD with LOCATORS
16 

nently, it almost forces you to lose revenue after the introductory 

period. So, years 2011 through 2020 would start to lose revenue. 

There is a choice what to do with the one-time flows. You could 

reduce the deficit with it, and that is a perfectly legitimate decision 

to make, or you could do one-time expenditures. We believe that a 

one-time expenditure on building infrastructure would be good for 

the economic future of this country, and that is why we proposed 

it. I actually think that—when I talk to CEOs, one of the things 

that they raise with me, even before tax issues, is the need for infrastructure. So I actually think that there is support in the business community for the idea. 

Chairman CAMP. Yes. Outside of the motivation for it—but it is 

a $150 billion cost in the first decade. But I think—am I accurate 

in that it is revenue-neutral in years 2011 and beyond? So if you 

look at the entire time frame in question, it is actually not revenueneutral to the tune of $150 billion—— 

Secretary LEW. There is a dilemma, Mr. Chairman, that if you 

crank the savings, the revenues that come for one time when there 

are timing shifts, or when new provisions go into effect, into permanent rate changes, you will lose money in the out-years. So you 

would have to step down rates as you got to year 2011 to be truly 

revenue-neutral. We think our proposal is a better approach than 

that. 

Chairman CAMP. All right. Mr. Levin. 

Mr. LEVIN. Welcome. I welcome your statement and the President’s actions on Ukraine. And I hope all of us will rally together 

to be supportive of the President’s action. 

And I think the Chairman has started this off on the right step, 

if I might say so, so that we talk about your testimony and issues 

relating to that, including tax reform. I think that is the way we 

should be doing this hearing, and not wander off into other subjects. So let me ask you about two portions of your comprehensive 

testimony. 

On page four you say, ‘‘Because long-term unemployment remains a pressing economic and social issue, the budget provides resources for new public-private partnerships to help get the longterm unemployed back into paying jobs.’’ I think that is right on 

target. Just, if you would, state briefly the position of the Administration on extension of unemployment compensation to the longterm unemployed, now over two million who have lost their benefits. 

Secretary LEW. Congressman Levin, we strongly support the extension of long-term unemployment benefits. You know, as we look 

at the unemployment statistics, it is clear that short-term unemployment is coming back down to a more normal range. But longterm unemployment is staying stubbornly high. 

That means there are people who are looking for work who can’t 

find work, and we need to continue, as we have every time unemployment has been at these kinds of levels, respond with long-term 

unemployment benefits that phase out as the unemployment rate 

comes down. 

You know, I think the important thing for us to do is deal with 

the short-term need by extending long-term unemployment benefits, but also focus on what we do to get the economy growing fastVerDate Sep 11 2014 13:40 Oct 20, 2016 Jkt 021114 PO 00000 Frm 00020 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21114\21114.XXX 21114

dkrause on DSKHT7XVN1PROD with LOCATORS
17 

er, creating more jobs, which is why we focus on things like rebuilding our infrastructure, on skills training, and manufacturing 

hubs, the things that will be job-creators, to create opportunities 

for people. 

Mr. LEVIN. Good. My time will be up soon. I just wanted to refer 

on page two to your statement about non-defense discretionary 

funding levels. And I hope, during our discussion, you will have a 

chance to analyze this. Because I think the way we are headed, 

non-defense discretionary funding levels are now being lowered to 

levels that we haven’t seen in decades. 

Secretary LEW. Congressman, that is definitely true. Part of— 

we have done an enormous amount of deficient reduction, most of 

it through spending reduction, most of it through discretionary 

spending reduction. I think that what we are trying to do in this 

budget is make a case that on both the defense and the non-defense side, in order to meet the needs of our Nation, we are going 

to have to find ways to hit our fiscal targets, while restoring the 

ability to invest in our future and defend the country. 

Mr. LEVIN. Thank you very much. 

Chairman CAMP. Mr. Brady is recognized. 

Mr. BRADY. Thank you, Mr. Chairman. Yesterday’s decision by 

the White House to allow canceled insurance plans under the ACA 

to continue past the election, was that primarily a political decision? 

Secretary LEW. Congressman, as you know, that decision was a 

decision that was in the purview of the Department of HHS, not 

Treasury. I think I could speak generally to it, but not specifically. 

In general, our approach to the implementation has been to do 

everything we can to implement the Affordable Care Act in a 

smooth, effective way. Obviously, there were some bumps at the beginning. We have fixed the technical issues, and we are moving forward. 

Mr. BRADY. But this is not a technical issue. I mean, until recently, both you and the President described these plans as substandard. As these plans still viewed as substandard? 

Secretary LEW. Congressman, again, I am going to leave the discussion of—— 

Mr. BRADY. Well, it is in your budget. 

Secretary LEW. Yes. 

Mr. BRADY. That is what we are here to talk about. 

Secretary LEW. And the goal in implementing the Affordable 

Care Act has been to make sure that we—the new plans can be in 

place—— 

Mr. BRADY. But I guess my question is—— 

Secretary LEW [continuing]. The exchanges can be in place, and 

we are working hard—— 

Mr. BRADY. But what has changed? If these were substandard 

plans, as described by the President—and I believe he said, ‘‘Americans deserve better’’—are they still viewed as substandard plans? 

Secretary LEW. You know, Congressman, I think we have been 

clear that we think that the right level of coverage is prescribed in 

the Affordable Care Act, and we have exchanges in place, both 

State and Federal, to offer that coverage. And we are going to work 

very hard to get people into those plans. 


dkrause on DSKHT7XVN1PROD with LOCATORS
18 

Mr. BRADY. But, obviously, with the White House continuing to 

delay or change these, clearly, something is wrong or they would 

have left it in place. 

So, my question is, is this primarily a political decision? Because 

the substandard plans, as described by you and the White House 

a couple weeks ago haven’t changed. So what has changed? 

Secretary LEW. We have been working since the enactment of 

the Affordable Care Act to, step by step, implement it as effectively 

as possible. I think the announcements yesterday are the last 

major changes that affect individuals and businesses. And it provides a clear path for the time forward—— 

Mr. BRADY. Well, is—— 

Secretary LEW [continuing]. And I think that clarity is important. 

Mr. BRADY. Obviously, for something to change, the view has to 

be that forcing people into the Affordable Care Act is more harmful 

to them than allowing them to stay on substandard plans, correct? 

Secretary LEW. No, I—— 

Mr. BRADY. I mean it has to be one or the other. 

Secretary LEW. I think—— 

Mr. BRADY. It is great as it is, or there is a problem with making them change plans. 

Secretary LEW. I think, through the Affordable Care Act, we are 

offering people choices. Those choices are good choices. People are 

signing up at very rapid rates—— 

Mr. BRADY. If they are good—I don’t mean to interrupt, but if 

they are good choices, why the change, if not for politics? 

Secretary LEW. I want to just repeat what I said, which is that 

we are looking at the implementation of the Affordable Care Act, 

to have it be as smooth as possible, and—— 

Mr. BRADY. Are there any other delays being considered? 

Secretary LEW. I think that we have now put in place the major 

pieces for individuals and for businesses, and our goal is to—— 

Mr. BRADY. No other changes? Can you commit to us, and people who are wondering, will there be any more delays of the ACA? 

Secretary LEW. Yes, we are going to continue to implement the 

Affordable Care Act in as effective a way as we can. And I am not 

aware of any other changes, but, obviously, I can’t tell you what 

we will discover, going forward. 

Chairman CAMP. All right, thank you. Mr. Rangel. 

Mr. RANGEL. Thank you. I want to thank the Chairman for 

bringing up the important question of tax reform. And we haven’t 

enjoyed too much of a bipartisan atmosphere here. 

Mr. Secretary, do you have any reason to believe that the Administration would be able to have some form of tax reform with the 

Republican Majority in the House, other than the bill—the draft, 

rather—being presented? 

Secretary LEW. Congressman Rangel, I actually believe that 

there is space for us to work together. I think we have made it 

clear that, on the business side, we think that there is a convergence of thinking. If you look at the draft bill that the Chairman 

put out, and the white paper that the President put out, there are 

a lot of areas, not of identical provisions, but overlap. I think we 

could work together on large pieces. 


dkrause on DSKHT7XVN1PROD with LOCATORS
19 

As I said in my response to the Chairman, I think there is a fundamental question on individual reform that we disagree on whether it should be revenue-neutral, or whether it should contribute to 

the long-term fiscal plan. 

Mr. RANGEL. Let me reframe my question—— 

Secretary LEW. And I think that is a bigger obstacle—— 

Mr. RANGEL. It is absolutely no question that there is vast 

areas that we could be working together. My question to you, have 

you received any indication, other than the submission of a draft 

bill, that the Congress is going to work with the Administration toward any type of tax reform? 

Secretary LEW. Well, I have conversations with the Chairman of 

the Ways and Means Committee on a regular basis. I—— 

Mr. RANGEL. And have you reached a conclusion that, with this 

conversation, it is possible that we could do something? 

Secretary LEW. I am a big believer in possibility. I think if people keep talking, anything is possible. 

Mr. RANGEL. Well, let me—you know, we have a lot of problems 

with unemployment. And the results of this has been a vast boom 

in homelessness. And I am glad to see that there is expansion and 

target of giving support to the homeless, as well as affordable housing. Is there any way for you to give to, us the congressional districts that are suffering with unemployment, as well as affordable 

housing, have you got that broken down to statistical data? I just 

can’t believe that only Democrats are suffering. 

Secretary LEW. Congressman, we obviously don’t do the unemployment data. The Treasury Department, the Department of 

Labor does. I am happy to have somebody go back and ask if it is 

available on a congressional district—— 

Mr. RANGEL. I would really appreciate to see how many Americans are suffering because the Congress is not moving forward—— 

Secretary LEW. Yes. 

Mr. RANGEL [continuing]. With support of legislation. I yield 

back the balance of my time. 

Chairman CAMP. Thank you. Mr. Tiberi. 

Mr. TIBERI. Mr. Lew, thank you for being here. I raised an issue 

last year, when you were before us, regarding a situation that—impacting many of my Ohio constituents. And I have yet to receive 

a reply. And so I was hoping to broach it with you again, and don’t 

expect you to answer it today, but, if you could, make sure your 

staff replies. 

This week marks 2 years since the IRS issued a memorandum 

taxing aircraft management services as commercial aviation, subject to the ticket tax, instead of general aviation, subject to the fuel 

tax. This is contrary to congressional intent, with a law that was 

passed in 1970, and contrary to IRS practices for 40 years. This 

just changed 2 years ago, and we still haven’t been able to get a 

reason as to why they have done this. So, about a month ago, a 

little over a month ago, I sent you a bipartisan letter on the issue, 

and I haven’t heard back. 

Again, don’t expect you to answer it today, but if you could flag 

it, and have—— 

Secretary LEW. I will flag it, Congressman. 


dkrause on DSKHT7XVN1PROD with LOCATORS
20 

Mr. TIBERI [continuing]. Your staff get back to us, because there 

is bipartisan concern about what is happening. 

Another issue I just want you to touch on briefly, if you could, 

is you have been around this town a long time, and you understand, like all of us understand, that the structural driver of our 

debt is mandatory spending. So, no matter what happens, and no 

matter what we do on the discretionary side, we continue to have 

an increase in mandatory spending. And we see that as far as the 

eye can see. 

And so, for my kids, we are doing them a disservice by not tackling what really is the true driver of our national debt. You, in the 

President’s budget, arguably take a step backwards. You still do 

some provider cuts. But when are we, you and me—I am not making this a partisan issue—Democrats and Republicans, with leadership from the White House, going to start tackling through reforms, substantive reforms, the structural driver of our debt? 

Secretary LEW. Congressman, I think we should start by recognizing that we have actually done a lot. And I know we don’t all 

agree on the Affordable Care Act. But I think we can agree that 

if we look at what has happened to health care costs in this country, the rate of growth is coming down. And I believe that the action taken in the Affordable Care Act is part of that. If health care 

costs come down, that has an enormous impact on what the direction and the slope of the growth of entitlement costs is. So we have 

done quite a lot. 

In our budget we have, as you noted, some more provider savings. But we also have some things that are tough policy, like income-related premiums, where, in bipartisan conversations, it has 

been one of the reforms that we have looked at. The President 

made clear when he put his proposal on chain CPI in the budget 

that he was doing it because that is something that we were—we 

understood was necessary to have a bipartisan discussion on an 

overall package. It was never his first choice. 

Since we are not in the middle of a bipartisan discussion, I 

wouldn’t describe it as a step back. He has put his vision of where 

we are going forward. He has also said when there is—if there is 

an interest in the last offer, it is on the table. 

I think that, you know, we have to look at what we have accomplished. We have reduced the deficit by half. We are on a path 

where we are at 3 percent of GDP, going down to less than 2 percent of GDP. I don’t disagree that we have challenges on the revenue and the entitlement side, tax reform and entitlement reform, 

that we are going to need to deal with. I don’t think we have the 

kind of emergency that we had, you know, a few years ago, when 

we were looking at deficits as a percentage of GDP that were an 

immediate problem. We have a challenge now where what we have 

to do is get a bipartisan spirit together so everything can be on the 

table. And when everything is on the table, I think we can do it. 

Chairman CAMP. All right. Thank you very much. Mr. 

McDermott. 

Mr. MCDERMOTT. Thank you, Mr. Chairman. Jack, I am 

pleased that you are here, talking about the budget. And I want 

to—really have a minute or two, so I want to focus on one issue, 

and that is the whole issue of the minimum wage. 


dkrause on DSKHT7XVN1PROD with LOCATORS
21 

It strikes me that, year after year, the basket of goods that people can buy has dropped over the course of time with the minimum 

wage. And I put this graph up there so that people could see where 

the minimum wage has been. Now, in 1938, when Charlie and I 

were born, or so, it was $.25 an hour, and has gradually risen to 

$7.25. And the value of its ability to buy, what—its value in buying 

has dropped. And you can see the red dots. You can’t buy as much 

as you could with the minimum wage in the past. 

And the President—in the State of Washington we are at $9.19. 

We have already—we are leading the country. Oregon is right behind us at $8.85, I think. Talk about what the increase in the minimum wage means to the economy. 

Secretary LEW. Congressman, I think that you got to start with 

what the minimum wage means to a working family. Anyone who 

is working full-time in this country should have a wage that is at 

least at the poverty level. And that is what a minimum wage of 

$10.10 would do. 

I think we all know that somebody who is taking home wages at 

that level is spending the money as they earn it. So it is going 

straight into consumption, straight into demand, and that goes into 

the economy. We also know that we have a disparity of income in 

this country, and that for people at the high end, they are not— 

they shouldn’t be spending all of their earnings, but it is not an environment where the money is finding its way all back into the 

economy. A lot of money is sitting on the sidelines. 

I think that raising the minimum wage right now would actually 

be good for the economy. You know, there are economists who have 

made arguments in both directions. You can have competing studies. I think that it is the right thing to do, and it is good for the 

economy. And our experience, when we have seen the increases in 

the minimum wages in states, or when the Federal Government 

raised the minimum wage in the 1990s, was that it was basically 

neutral, in terms of the economy. I think right now, given where 

we are, it would actually be helpful. 

Mr. MCDERMOTT. Is there any study any place that shows that 

raising the minimum wage depressed the economy? 

Secretary LEW. Look, there are all kinds of studies out there, so 

I don’t want to say there are no studies showing. The studies that 

I find persuasive support the argument that I made. 

Mr. MCDERMOTT. Okay, I guess we all do that. I yield back the 

balance of my time. 

Chairman CAMP. Thank you. Mr. Reichert. 

Mr. REICHERT. Thank you, Mr. Chairman. Secretary Lew, in 

2009 the Administration economists predicted that, under the Administration’s trillion-dollar stimulus plan, the unemployment rate 

would never rise above 8 percent, but we all know that is what 

happened. Unemployment rates soared above 8 percent for 3 years. 

It has fallen to 6.6 percent, only because, I think, millions of people 

have stopped looking for work, and are no longer counted as officially unemployed. 

So, that is nowhere near the 5 percent unemployment rate the 

Administration said we would have by now. In fact, in your current 

budget, the Administration doesn’t expect the unemployment rate 


dkrause on DSKHT7XVN1PROD with LOCATORS
22 

to return to 5 percent, ever. The best we will ever see is 5.4. Why 

has this been the weakest recovery for jobs, ever? 

Secretary LEW. Congressman, when we came in in January, 

2009, we knew the economy was bad. But when the statistics were 

finalized as to how bad it was, the deep hole from that recession 

was much worse than anyone knew at the time. So I think you 

have to look at it in perspective of how bad the situation was. It 

was much worse than when those projections were made. It was 

much worse than anyone understood. 

I think if you look at the path of the recovery, given how bad it 

was when we started, bringing the unemployment rate into the 

mid-sixes is a lot of progress. We have said it is not enough—— 

Mr. REICHERT. Excuse me, Mr. Secretary. We are now going on 

6 years. And why should we believe the Administration’s policies 

in this budget will work any better to promote job creation and reduce unemployment? 

Secretary LEW. Well, I actually think that, if you look at the 

record of this Administration between the Recovery Act, and the 

Dodd-Frank Act, and the actions we took, we contributed in a very 

significant way to the recovery. And if you compare the United 

States to other developed economies, we have a stronger economy 

that is growing—— 

Mr. REICHERT. Sir—— 

Secretary LEW [continuing]. Better because we—— 

Mr. REICHERT. Sir, the budget that you are presenting today, 

how can we have faith that it will speed up our economy? 

Secretary LEW. Well, I think the policies stand on their own. I 

am happy, when we have the time, to make the case on—— 

Mr. REICHERT. I think the unemployment rate speaks for itself. 

Secretary LEW. But I think the record of where we are, compared to other developed economies, is a very compelling case. 

Mr. REICHERT. And I know my time is limited. Real quickly, 

can you assure us that by next week you can have to this Committee a request of Dave Camp, as the Chairman has repeated over 

and over, the emails and documents from Lois Lerner? 

Secretary LEW. You know, I know that there has—we have been 

back and forth on that issue, and there are conversations with the 

IRS on that. I am going to leave that to the conversations that we 

have had. 

Mr. REICHERT. Can you commit to providing those documents 

by the end of the week, next week? 

Secretary LEW. We have worked to respond to the Committee’s—— 

Mr. REICHERT. No commitment? 

Secretary LEW [continuing]. Requests, and we will continue to 

be cooperative—— 

Mr. REICHERT. It is not happening, sir. Can you commit to 

make it happen without a deadline? Can you make it happen? Yes 

or no? 

Secretary LEW. Congressman, we will continue to work with this 

Committee—— 

Mr. REICHERT. Can’t do it? Okay. Thank you, I yield back. 

Chairman CAMP. Mr. Lewis. 


dkrause on DSKHT7XVN1PROD with LOCATORS
23 

Mr. LEWIS. Thank you very much, Mr. Chairman. Thank you 

very much, Mr. Secretary, for being here. Many of us, Mr. Secretary, feel that it is our duty to ensure that the IRS has the 

tools it needs for taxpayer service and enforcement. In the past 

few years, the budget of the IRS is being reduced. I noticed in 

the President’s budget it is getting a small increase. I believe the 

budget has been cut by $1 billion. The President’s budget proposed 

$12.5 billion in funding for the IRS. It is small. It is necessary to 

increase the IRS budget. How can the IRS provide the service to 

the people we represent if the budget is steadily being cut and not 

increased? Reduce service? Reduce employees? 

Secretary LEW. Congressman, I agree 100 percent that the IRS 

needs resources to do its work for two reasons. First of all, it is just 

a bad business decision to not fund the IRS so that it can collect 

taxes effectively. And our system of voluntary compliance, depends 

on an effective IRS. 

You know, second, when individuals, citizens, call the IRS for 

help, they ought to be able to get somebody on the other end of the 

phone. And if you don’t have people there, they can’t get their 

phone calls answered. So I think funding the IRS is of critical importance. And we put in our budget, actually, a substantial increase to demonstrate how important we think it is, about a 7.5 

percent increase. 

And I know it is a difficult time, given budget constraints. But 

I think the dollars put into the IRS pay off in many ways, not the 

least of which is we collect revenue that is due. 

Mr. LEWIS. Yes, sir. Worth it, and good investment. 

Secretary LEW. It is a good investment. And, you know, look. I 

know that it is not a good thing when people call and ask for advice or an interpretation and explanation, and nobody answers the 

phone. We owe people to be there to answer the phone. 

Mr. LEWIS. Well, thank you very much, Mr. Secretary. Mr. 

Chairman, I yield back. 

Chairman CAMP. Thank you. Dr. Boustany. 

Mr. BOUSTANY. Thank you, Mr. Chairman. Welcome, Secretary 

Lew. It is widely acknowledged, and we agree that a key economic 

policy is moving forward on trade, international trade with TPP 

and TTIP. And yet we have trade promotion authority legislation, 

specific legislation, bipartisan, bicameral, that has been introduced. 

Can you—it is widely acknowledged, too, that the Administration 

cabinet have not put in the political capital going forward to get 

this passed and—with the exception of perhaps Ambassador 

Froman, who has been vigorously, you know, pursuing this. 

Can you commit on the part of the Administration that this legislation, this specific legislation, H.R. 3830, the Bipartisan Congressional Trade Priorities Act, is a priority for this Administration, 

and to seek passage of this? 

Secretary LEW. Congressman, the President addressed this issue 

in his State of the Union very clearly. 

Mr. BOUSTANY. One sentence. And it really was a bland statement. Our trading partners are looking for a definitive statement, 

because they are not going to negotiate to finality on these agreements until we have trade promotion authority—— 


dkrause on DSKHT7XVN1PROD with LOCATORS
24 

Secretary LEW. I spend a considerable amount of my time talking to our trading partners. The finance ministers have a piece of 

these trade negotiations in the financial area. And I have spoken 

to most of my counterparts in TPP countries, trying to advance our 

interest in trade negotiations, because the test here is bringing 

back a TPP and a TTIP that meet our standard of a high-quality 

agreement. 

Mr. BOUSTANY. Absolutely. 

Secretary LEW. And we have worked—I have worked with the 

Chairman on issues related to the TPA. We do have a new Chairman on the Senate Finance Committee, he has expressed an interest in going and having some additional consultation on this. There 

is no question whether we support—we are putting a huge effort 

into—— 

Mr. BOUSTANY. So all the work done in getting a bipartisan, 

bicameral agreement on this legislation is going to be for naught 

if we are basically starting over on it. 

Secretary LEW. Well, I am not going to speak for anyone else, 

in terms of whether it is starting over or working from where you 

are. That is really—you know, the Chairman is going to have to 

make his own judgement—— 

Mr. BOUSTANY. So that Administration is not committed to this 

specific piece of legislation. 

Secretary LEW. I think we have made clear that we support 

TPA. We support TPA that addresses the critical issues. And we 

are available to work with Congress on this, and we want to get 

it done as quickly as possible. 

I don’t think we should take our eye off of the trade negotiations 

themselves, because I don’t agree with your characterization in 

terms of the progress made. I just this week had some conversations with some of our principal, you know, counterparts, where I 

have gotten concessions on important issues that advance the process. 

Mr. BOUSTANY. Well, I have no doubt that is the case, but—— 

Secretary LEW. So we are working very hard on it. 

Mr. BOUSTANY. But to really get to the point of seeing these 

countries, our negotiating partners, making tough domestic political decisions to complete this, Congress is going to have to pass 

TPA, and we have specific legislation. 

Secretary LEW. Yes. 

Mr. BOUSTANY. It is ready to go. I don’t understand why the 

Administration is not putting a full court press into this to get 

this—— 

Secretary LEW. What I have said to our trading partners in my 

conversations is we are committed to getting these agreements finalized, we are committed to getting TPA. And we are committed 

to getting across the finish line on these things. Now let’s get to 

work. And they get back to work. 

So, I don’t think we should feed the idea that you can’t make 

progress on TPP or TTIP. 

Chairman CAMP. All right, thank you. 

Mr. BOUSTANY. Thank you, Mr. Chairman. 

Chairman CAMP. The Committee stands in recess until 11:00. 

[Recess.] 


dkrause on DSKHT7XVN1PROD with LOCATORS
25 

Chairman CAMP. The Committee will be in order. First of all, 

I want to publicly thank the Secretary for accommodating the 

schedule today. It has been rather disruptive, and we very much 

appreciate your making yourself available. 

Secretary LEW. My pleasure. 

Chairman CAMP. Mr. Neal is recognized. 

Mr. NEAL. Thank you, Mr. Chairman. Mr. Secretary, just a word 

of applause to your efforts on EITC, auto-IRA, and continued support for new markets tax credits. And then I want to use my time 

to give it to you for the purpose of talking about a much underreported budget outlook from where we were 5 years ago. So, perhaps you could lay out for the Committee where we were and 

where we are. 

Secretary LEW. Well, Congressman, you know, I don’t—it is hard 

to exaggerate how much improvement we have seen from 5 years 

ago until now. I mean we obviously saw an economy that was in 

freefall, and deficits that were growing, and the need to respond to 

that economic crisis, and deficits that were, you know, at historically high levels. We have cut the deficits in half. We have gotten 

the debt and the deficit as a percentage of GDP under control. 

And, clearly, we have challenges for the long term, and I think 

we all know that there are challenges that we are going to have 

to deal with over the next number of years. But we have actually 

reached a point where, unlike the last number of years, we don’t 

have an urgent, immediate fiscal crisis. We have, actually, a very 

sustainable path for the period of time covered by this budget, 

which actually gives us an important opportunity to shift our attention to what does it take to build a strong, growing economy. 

What are the foundations of a growing economy? Which is why, in 

this budget, we focus so much on things like infrastructure and 

skills training and manufacturing hubs. 

And it doesn’t mean that we don’t have to do it in the context 

of a responsible fiscal policy. Obviously, we have in our budget the 

way we think you make the trade-offs to stay on the right fiscal 

path. It is a world of difference from what it was 5 years ago. 

And I think if you look at what—I was a little earlier talking 

about in terms of the comparison of the United States to other developed economies. We are in a world of better shape. We have a 

lot more to do before we are going to be satisfied. But when I meet 

with my international colleagues and I talk to them about struggling to get over 3 percent of GDP growth, they think getting to 

1 percent would be more than they could imagine. And so, we are 

doing much better. 

Mr. NEAL. Thank you, Mr. Chairman. 

Chairman CAMP. All right—— 

Mr. NEAL. Thank you, Mr. Secretary. 

Chairman CAMP. Thank you. I also will note that the Secretary 

has a hard stop at 12:00, noon. 

Mr. Roskam is recognized. 

Mr. ROSKAM. Thank you, Mr. Chairman. Mr. Secretary, I want 

to draw your attention to the interchange between your Department and Chairman Camp on the question of (c)(4)’s, subject of a 

lot of debate and discussion recently. 


dkrause on DSKHT7XVN1PROD with LOCATORS
26 

The Chairman sent a letter to you and then your assistant secretary responded on February 25th. And in the response, the assistant secretary made four very—in my view—broad conclusions. 

And this is in paragraph three of the February 25th letter. And I 

want to walk them through you, point out that—the claims I think 

are not meritorious. 

So, the letter claims that the proposed rule doesn’t restrict any 

form of speech. And in terms of the proposed rule, we are talking 

about the Administration’s proposed rule on (c)(4)’s. And yet, both 

the American Civil Liberties Union, and the Heritage Foundation 

have come to a very different conclusion on that. I mean—and the 

ACLU really comes out with an admonition. They say that it will— 

your rule, your proposed rule, ‘‘will pose insurmountable compliance issues that go beyond practicality and raise First Amendment 

concerns of the highest order.’’ 

So, ironically, the Administration has been able to bring together 

the ACLU and the Heritage Foundation in criticism. But why 

would the Department be just so completely dismissive of that 

First Amendment claim, and just make an assertion, basically, in 

paragraph three of the letter? Do you stand by that assertion, or 

do you understand the level of concern that people have about the 

chilling effect on First Amendment—— 

Secretary LEW. Congressman, I understand that these—this 

issue raises very strong feelings on both sides. I think it actually—— 

Mr. ROSKAM. It is not the feelings I am concerned about. It is 

the merits of the argument. Do you think it encroaches on First 

Amendment? 

Secretary LEW. Look, I think that the challenge of defining what 

is and is not covered by this is very—it is a big challenge. And the 

reason we put out draft rules the way we did was to invite the kind 

of comment that we are getting. 

I think that we were very clear that this is an area where we 

need the benefit of a lot of views being expressed. I am not sure 

we envisioned 150,000 views being expressed, but we have gotten 

more comment on this than on any other rule that we have ever 

issued, and we are now looking at it. And we are going to take everything under advisement, and we are going to look at the issue. 

The IRS will continue to work on it. And we are very open to hearing what the pros and cons of different approaches here is. 

And this is something that, if it was easy to deal with, you know, 

probably would have been dealt with a long time ago. And I think 

we are at the beginning, not the end of the process of working our 

way through. 

Mr. ROSKAM. You can sense a bit of reluctance in my voice in 

that it seems the Department has made a decision already about 

the nature of the proposed rule. When the assistant secretary is 

making an assertion, and the assertion is it does not restrict any 

form of political speech—that is paragraph three, second or third 

sentence—— 

Secretary LEW. Well, that is certainly our view. But the reason 

we took comment was to evaluate different perspectives. 

Mr. ROSKAM. Good, fair enough. I am glad to hear that you are 

open. Are you similarly open about the other claim? 


dkrause on DSKHT7XVN1PROD with LOCATORS
27 

Chairman CAMP. I am afraid time has expired. 

Yes, 3 minutes goes quickly. 

Mr. ROSKAM [continuing]. Pretty quick. Thank you. 

Chairman CAMP. And we have other Members. Mr. Becerra. 

Mr. BECERRA. Thank you, Mr. Chairman. Mr. Secretary, thank 

you for your patience and in letting us return to inquire of you. 

Can I make a quick comment? First, thank you so much for a 

forward-looking budget, one that tries to invest in our people, that 

tries to build an economy that works for all Americans. There is 

a particular aspect of your budget that you submitted on behalf of 

the President that I wanted to touch on, because it is an issue that 

often escapes notice as an economic engine of growth, and that is 

immigration reform. 

Many of us know that if we are finally able to fix our broken immigration system, not only is it good for our national security, not 

only is it good for families that will no longer be torn apart, but 

it is also extremely good for our workers, for our businesses, and 

our economy, in general. You include within the budget immigration reform, and it scores as giving a net positive to the economy 

and to American businesses and workers. Can you comment on 

that? 

Secretary LEW. Congressman, I think that the immigration reform issue is one that there are many reasons to be for. It is the 

right thing to do, it is good for our economy, and it is who we are, 

as a people. 

The economic argument is, I think, undeniable. You look at the 

CBO estimates that were done on the immigration bills—bill that 

came out of the Senate. It makes clear that it grows the workforce, 

it grows payroll taxes, it helps to fund Social Security and Medicare. It has a material positive impact on the economy. 

And you look at our businesses in this country, whether it is the 

Fortune 500 or the high-tech firms, where innovation is greatest. 

A disproportionate number are founded by either immigrants or 

first-generation Americans. It has been the American story that we 

constantly replenish the, you know, innovative spirit of this country with people who come here in search of better life and in building a better America. And I think the economy reflects that, and 

the numbers reflect that. 

Mr. BECERRA. And most of what you have just said reflects 

American values. Maybe now, give me a sense in terms of the hard 

numbers. In terms of the budget, the hard numbers, what is the 

impact of including immigration reform in your budget? 

Secretary LEW. Congressman, I may have the exact number 

with me. If not, I will get back to you. The—you know, the estimates are that the deficit would be reduced by about $850 billion, 

you know, over the long term, and the economy would grow by 

about $1.4 trillion over the next two decades. So we are talking 

about large impacts. 

Mr. BECERRA. So, if you were to take out immigration reform 

from your budget, we would lose that close to $1 trillion in deficit 

reduction, and over $1 trillion in economic growth. 

Secretary LEW. The effects of immigration reform, if you don’t 

do immigration reform, would be removed. Our budget is a policy 

budget. 


dkrause on DSKHT7XVN1PROD with LOCATORS
28 

Mr. BECERRA. Thank you very much. Mr. Chairman, I yield 

back. 

Chairman CAMP. Thank you. Mr. Gerlach. 

Mr. GERLACH. Thank you, Mr. Chairman. Secretary, thank you 

for coming today. I want to focus on your initial comments about 

Ukraine by way of disclosure. I co-chair the Ukraine Caucus here 

in the House, so I was very interested by your initial comments in 

your testimony. 

First of all, let me say thank you to the President and the Administration for this action they have taken on this executive order 

to block the assets and the property of a number of people. If you 

have the information now, great. If not, if you can, provide it to me. 

Do you have any estimates or approximations about how many people this particular executive order would impact, in terms of those 

people that have property or assets within the jurisdiction and the 

authority of the United States that can be blocked, or frozen? Do 

you have any rough estimates at this point what that is? 

Secretary LEW. Congressman, I don’t have that right now. What 

we did this morning was we laid down a very clear framework. It 

is flexible, it is something that can be directed in a number of different directions. You know, it is aimed at identifying individuals 

or entities that are undermining democratic processes in Ukraine, 

not just Ukrainians, threatened the peace, security, and stability, 

and sovereignty of Ukraine that contribute to the misappropriation 

of funds, or that purport to assert authority inappropriately over 

the Ukraine. So it gives us a tool that is very flexible to work with 

so that we can respond in a proportional way to the situation, as 

it develops. 

Mr. GERLACH. Okay. Do you get a sense, based on your discussions within the Administration, do you get a sense yet about the 

European Union partners of ours, whether they are going to be 

willing to move forward with aggressive sanctions the way is necessary, and I think is going to be continued to be debated and discussed here in Congress and with the Administration? Do you get 

a sense that the European Union countries—— 

Secretary LEW. Well—— 

Mr. GERLACH [continuing]. Are going to also be as aggressive 

as necessary with this situation? 

Secretary LEW. The European Union just the other day, yesterday, took action, really, following on what we did almost immediately, when our financial center put on a watch list individuals 

who might be moving Ukrainian money inappropriately out of government and public accounts. 

The—yesterday the European Union did designate a number of 

Ukrainians. I know the leaders in Europe are meeting today, even 

while this hearing is going on. We have obviously made the case 

for solidarity in dealing with this issue in a very united way. And 

I—just to reference my own comments this morning is one of the 

reasons we think it is so important that the IMF issue, the IMF 

reform issue, is relevant, that is one of the things that we need to 

do to show that we have the leadership role, or we can press others 

to do what they need to do at the IMF, and to speak with a real 

voice of leadership on this issue. 

Mr. GERLACH. Thank you. 


dkrause on DSKHT7XVN1PROD with LOCATORS
29 

Chairman CAMP. Thank you. Mr. Doggett. 

Mr. DOGGETT. Thank you, Mr. Chairman. Thank you, Mr. Secretary. On the question of further changes in the way we tax international transactions, you have a number of new proposals in your 

budget. You refer in the budget documents to stateless income, to 

tax havens, to incentives that are in our tax code, to export jobs 

overseas. In terms of measuring the extent of the change that 

needs to occur in the short term, if I read the documents correctly, 

you say that over the next 10 years there are about $276 billion 

in additional revenues that should be in our treasury that are not, 

as a result of these loopholes and special provisions. 

Secretary LEW. Congressman, I have to go back and check the 

numbers to see if that is exactly right. But it is a significant impact. And it reflects, really, what we think is both an important 

policy issue, and something that there should be bipartisan agreement on, which is that our tax code should not encourage the export of American jobs. We need to close down the provisions that 

offer preferential treatment for those kinds of practices. 

Mr. DOGGETT. There is one new provision there, and I believe 

you discussed it with Chairman Camp. He has a provision in his 

proposal also that would use the transition monies in changing the 

system overall to fund our serious problems with highway infrastructure. 

I know the issue of a temporary tax holiday has come up several 

times in the past, and the Administration has opposed that. When 

I asked President Obama about it when he was here at the Capitol 

last year, he said we have looked at the math and it just doesn’t 

work to have a temporary tax holiday, as distinguished from perhaps some future transition. Does the Administration continue to 

oppose this unwise—any temporary tax holiday or short-term tax 

holiday of the type we had in 2004 to fund transportation or anything else? 

Secretary LEW. Congressman, we think that the proposal that 

the President made in July and that is now in our budget is the 

right way to do it, which is to have a transition to a new reform 

tax system, which is very different from a one-time tax holiday. We 

think the scoring would be different. We think the policy is different. We think that is the right way to do it. 

And I hope we can work together on an approach to business tax 

reform, where we can get this done. And we are very open to that 

conversation, and would love to engage in it. 

Mr. DOGGETT. Thank you very much. 

Chairman CAMP. Thank you. Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman, and thank you, Secretary Lew, for taking the time to be here today. I would like to 

associate myself briefly with Mr. Boustany’s comments and concerns relating to the various issues. But while countries such as 

Japan are taking positive steps to open up to more U.S. agriculture, it is vital we have trade promotion opportunities, actually, 

to ensure we get the strongest assurances our trade partners in 

Asia and Europe will not continue to use unscientific barriers to 

discriminate against American producers. And I hope that we can 

work together to address these issues. 


dkrause on DSKHT7XVN1PROD with LOCATORS
30 

Relating to the budget more specifically, though, I hope that, 

with tax reform, we can help more hard-working taxpayers than 

just corporations filing under the C-corporation designation. And 

also, looking at various other things, I know that in your statement 

you indicated the President’s budget adheres to agreed-to discretionary spending caps, but also includes an additional $56 billion 

discretionary spending fund above and beyond that. Can you explain why that occurred? 

Secretary LEW. Yes, Congressman. It was very important that 

there was a budget agreement in December, very important that 

Congress passed appropriation bills in January, and that we are on 

a path—we are including the enactment of borrowing authority. We 

are doing business in a more orderly way, and it is good for the 

economy, it is good for the country. 

The President laid out a budget within the boundaries of the 

budget agreement. He also said that, as a matter of policy, just as 

the December budget agreement had a way of paying for increased 

discretionary resources with other changes, we need to continue 

down that path because as we go forward we don’t have the right 

discretionary levels. We are going to need things to invest in, both 

our economy and our security. And—but we have to pay for it. And 

he offered his proposal of how to do that. He was very clear that 

he has a budget within the caps, and then he has things that he 

would propose as policy changes, where we hope we can get that 

conversation going. Obviously, if we can’t agree on how to pay for 

it, we are left with lower spending levels. Mr. SMITH. Well, I would hope that with the $17 trillion debt 

that we are facing, this is an agreed-upon situation or analysis, 

that we can pursue policies that can help reverse that. And thank 

you. 

Secretary LEW. The only thing I would add, Congressman, is 

that when the Budget Control Act was enacted, it was set up for 

sequestration not to happen. It was set up to have an overall budget agreement make sequestration unnecessary. And the President’s 

budget really is consistent with that, saying, ‘‘Here is another way 

to back out some of those cuts that we did not ever really think 

were right, nor, on a bipartisan basis, did anyone say they wanted 

at the time.’’ 

Mr. SMITH. Well, and I hope that, moving forward, we can work 

together on some fantastic opportunities to grow our economy, tax 

reform—comprehensive tax reform—being a priority. 

Secretary LEW. Look forward to working together. 

Mr. SMITH. Thank you. 

Chairman CAMP. Thank you. Mr. Blumenauer. 

Mr. BLUMENAUER. Thank you, Mr. Chairman. Mr. Lew, we 

appreciate your taking time to join us and visit us. I appreciate the 

Chairman, in his work dealing with tax reform, carved out some 

space for infrastructure investment. I also appreciate the strong 

words that we have had from the President supporting infrastructure. It was part of the Affordable—the Recovery Act. It has been 

referenced, going forward. And that there is a proposal that has 

been included. 

In the off chance that neither your proposal or the Chairman’s 

proposal are enacted in the next six months, we are facing a deadVerDate Sep 11 2014 13:40 Oct 20, 2016 Jkt 021114 PO 00000 Frm 00034 Fmt 6633 Sfmt 6602 I:\WAYS\WAYSPS\21114\21114.XXX 21114

dkrause on DSKHT7XVN1PROD with LOCATORS
31 

line. We have basically exhausted the trust fund. We have contracts that are not going to be—that the Department of Transportation is going to be withholding money this summer. States and 

localities, as a result, are going to be pulling back this spring. We 

are facing a 30 percent reduction over the next 10 years. And we 

need a stable, long-term, consistent source of funding. 

Now, I am not suggesting that the Administration dive in to another area. You will fight for your proposal, and we will see what 

happens. But I would hope that we would be—that there is a possibility of being open to a proposal that I have introduced that is 

supported by the AFL–CIO, the U.S. Chamber of Commerce, the 

AAA, truckers, contractors, local government, a number of individual unions, professional groups, to raise the gas tax to be able 

to replenish it. 

Would the Administration, if their proposal is not accepted, if the 

Chairman’s proposal is not enacted, would the Administration be 

open to working with Congress on the first gas tax increase in 21 

years? Would you entertain that, at least? 

Secretary LEW. Congressman, I also was pleased to see in the 

Chairman’s tax reform proposal that he was, as we are, looking for 

a way to fund infrastructure. We have tried in our budgets a number of different approaches to engage in a serious, bipartisan conversation about how to fund something that I think we all agree 

we need to do, which is maintain, you know, our infrastructure for 

economic growth in the future. 

We have put in our budget what we think is the best way to deal 

with it, and we are going to continue to advocate for that. But if 

you look at the budget proposals we have put in in past years, we 

have said we remain available to work with Congress on a bipartisan basis to find a mutually acceptable funding mechanism. And 

that remains at the core of our belief today. 

Mr. BLUMENAUER. Thank you, Mr. Lew. Mr. Chairman, I 

would hope that some time in the near future we might be able to 

have a hearing on transportation finance, since that is our jurisdiction. The clock is ticking, and I think it would be enlightening to 

at least hear, so we can prepare for our responsibilities later in the 

spring. 

Chairman CAMP. I know we are looking and working with you 

on maybe trying to do something in that vein in the near future. 

Mr. BLUMENAUER. Super. Thank you very much, Mr. Chairman. 

Chairman CAMP. Ms. Jenkins is recognized. 

Ms. JENKINS. Thank you, Mr. Chairman. Thank you, Mr. Secretary, for being here. 

This year, President Obama chose to unveil his budget—late 

again—at a D.C. elementary school. And in his remarks he said, 

‘‘My budget is designed with their generation and future generations in mind. And at a time when our deficits have been cut in 

half, it allows us to meet our obligations for future generations 

without leaving them a mountain of debt.’’ That is the end of the 

quote. 

However, just last month, CBO said the deficit will start to grow 

again in just 2 years. By 2022, we will again be running trilliondollar deficits, even though we will be taking in historically large 


dkrause on DSKHT7XVN1PROD with LOCATORS
32 

amounts of revenue. And this is just because spending will grow 

twice as much as revenue. Over the next 10 years we will add $10 

trillion more to our national debt, for a grand total of $27 trillion. 

A quote from CBO said this, ‘‘Such large and growing Federal debt 

could have serious negative consequences, including restraining 

economic growth in the long term.’’ 

In the latest forecast, CBO projected that our Nation’s growth potential over the next 10 years will be much slower than the average 

since 1950. Contributing to this lost potential, CBO states, ‘‘The 

economic and incentives caused by Federal tax and spending policies that are expected to keep hours worked and output lower than 

would be otherwise expected.’’ CBO now expects Federal budget 

deficits between 2014 and 2023 to be about 7.3 trillion, which is a 

trillion larger than predicted last year, due primarily to weak 

growth. 

If the President’s budget were to become law, even by the President’s own number crunchers our Nations’ debt would still reach 

$25 trillion. It would add 8.3 trillion to the debt, and hike taxes 

by over a trillion, and fails to ever reach balance. Not too long ago, 

back in 2008, when candidate Obama criticized his predecessor as 

unpatriotic and irresponsible for the debt growing from 5 trillion to 

9 trillion in his 8 years in office. In his words—and I quote—‘‘He 

is taking out a credit card from the Bank of China in the name of 

our children.’’ End quote. 

Can you help explain to us, and square the words of candidate 

Obama with President Obama? 

Secretary LEW. Congresswoman, you know, as somebody who 

was director of OMB for the only 3 years in modern times when 

we ran a surplus, I understand the value of fiscal policy that puts 

this country in a solid place. You know, when I left OMB in 2001, 

there was a $5 trillion surplus over the next 10 years being projected. When I came back to OMB, we had a huge deficit because 

the money had been spent on tax cuts we couldn’t afford, on wars 

we didn’t pay for, and then we had the worst financial crisis since 

the Great Depression. 

Ms. JENKINS. But under this budget—— 

Secretary LEW. President Obama came into office—— 

Ms. JENKINS. Since our time is limited, under this budget, what 

year will the Federal Government stop taking in—or stop spending 

more money than they take in? 

Secretary LEW. Congresswoman, as I have said—— 

Ms. JENKINS. Do we have a year? 

Secretary LEW. This budget—— 

Ms. JENKINS. Or is it true that in this budget we never, ever 

can point to a point in time where we will stop spending more 

money than we take in? 

Secretary LEW. If you look at the—— 

Ms. JENKINS. I am just asking. Is that true? 

Secretary LEW. If you look at the period covered by this budget—— 

Ms. JENKINS. Is that true or false? 

Secretary LEW [continuing]. It puts the deficit into a place where 

it is sustainable. When we came into office, it was out of control. 

We have more work to do, going forward. But this budget is—— 


dkrause on DSKHT7XVN1PROD with LOCATORS
33 

Ms. JENKINS. So it never, ever balances, ever? 

Secretary LEW. It gets the—it takes the deficit down to less than 

2 percent of GDP—— 

Chairman CAMP. All right, time has expired. Mr. Davis. 

Mr. DAVIS. Thank you, Mr. Chairman. You know, I commend 

the President for his focus on increasing work and opportunity 

within the budget. And I want to highlight the expansion of the 

earned income tax credit and exclusion of Pell income from education credit calculations as critical changes needed. I have advanced similar legislation solutions for years, and am pleased to 

see the Administration embrace these changes. 

For years, I have actively promoted expanding the earned income 

tax credit for single workers within my fatherhood bill. I heard 

from my constituents years ago that the EITC was not helping single men as it could and should, and the research supports their 

concerns. My fatherhood bill originally focused on expanding the 

EITC for non-custodial fathers who are current on their child care 

obligations. In the last few years, we have expanded our focus to 

include all single workers, including those without children, given 

the strong positive effects on lowering the unemployment rates, increasing marriage rates, and reducing incarceration rates for single 

men. 

The EITC has been one of the most effective anti-poverty programs in our tax code, which is why there is a long history of bipartisan support. Indeed, the largest expansions were led by conservative Republicans such as the former Majority leader Dick 

Armey. I applaud the President for incentivizing work through an 

expansion of the EITC, and promise to work with the Administration to do so. 

Further, I am extremely happy to see the improvements to how 

the code handles Pell grants. I have championed this fix for years, 

because it will make college more affordable for our lowest-income 

students. Mr. Secretary, could you comment on how these policies 

would improve opportunity and decrease policy? 

Secretary LEW. Congressman, I think I agree 100 percent that 

the earned income tax credit has been one of the most important 

policies we have had in the last quarter-century to deal with both 

incentives to work and ending poverty. I have had the privilege of 

working on it since the Ford Administration. And it has been expanded in Democratic and Republican Administrations by Democratic and Republican Congresses because it works. So, we have 

put a proposal on the table to deal with a population that is not 

now getting as much benefit from it as they might. And we think 

it is an important policy, and we look forward to working with the 

Congress on it. 

In terms of educational opportunity, we know that the difference 

between opportunities in life are dramatic for people who have and 

have not had a higher education. So, whether it is Pell grants or 

AOTC, our budget is aimed at giving every American a chance to 

succeed in this economy. 

Chairman CAMP. All right, thank you. Thank you. Mr. Schock 

is recognized. 

Mr. SCHOCK. Thank you. Mr. Lew, I would like to draw your 

attention to an Internal Revenue Service memorandum that our 


dkrause on DSKHT7XVN1PROD with LOCATORS
34 

Committee got permission from the taxpayer yesterday to use before the Committee. This is the first victim of the IRS’s targeting 

of Tea Party groups dating back to February of 2010. This is the 

memorandum that was used to transfer this case to Washington, 

D.C. It was an application by the Albuquerque Tea Party for 

501(c)(4) status. 

On this memorandum the folks in Cincinnati could have checked 

box A when transferring this case, which says this application involves an issue in which there is inadequate published precedent 

or rules necessary. Obviously, that is what they check when there 

is confusion about precedent. But Cincinnati did not check that 

box, Mr. Lew. They checked box B, and then wrote in the reason, 

which was ‘‘per an email response from Holly Paz on February 

26th of 2010, this application should be transferred to D.C., due to 

the potential for media interest.’’ 

Sir, this is the first of hundreds of Tea Party cases that were 

held up not in Cincinnati, but rather, based on this memorandum 

and hundreds of others that we have, were held up by directives 

from Washington, D.C., specifically. This conflicts, obviously, with 

the Administration’s assertion, when this news first broke, that nobody in Washington, D.C.’s IRS office or the Administration knew 

anything about it, that it was solely isolated to Cincinnati. 

As you know, Holly Paz is second-in-command—or was—at the 

IRS for exempt organizations. She has since resigned. The first in 

command, Lois Lerner, has pled the Fifth. And this Committee has 

struggled to get the information from the IRS, particularly the 

emails of Lois Lerner. And I hope that you can confirm with this 

Committee you are going to do everything in your power to get us 

100 percent of Lois Lerner’s emails. Right now we have gotten a 

couple percent of Lois Lerner’s emails. Made very difficult, quite 

frankly, to reach some determination. 

My question, Mr. Lew, is this. The rule that you have put out 

in November states this rule is necessary because there was some 

confusion within the IRS about how to handle these Tea Party— 

these groups’ tax-exempt status. But, sir, this email, or this memorandum and subsequent emails, suggest otherwise. This suggests 

that, throughout 2009 and early 2010, hundreds of these similarlike Tea Party applications were approved, screened, went through 

the normal process, and it wasn’t until Washington, D.C. got involved through a directive via email to Cincinnati that instructed 

them to uphold or to withhold approval, and rather, to start batching these applications. 

So, why the inconsistency between D.C. really being the directive, versus Cincinnati making this decision on their own? 

Secretary LEW. Mr. Chairman, do I have the time to—— 

Chairman CAMP. If you could, make a brief answer. 

Secretary LEW. Congressman, first, to—I am reading this piece 

of paper that has been put in front of me. And just to be clear, 

what it says is that the application should be transferred to the EO 

technical, which is what is standard procedure when an office 

doesn’t know what to do and it is complicated. So it doesn’t say exactly what you described. 

Second—— 

Mr. SCHOCK. Well—— 


dkrause on DSKHT7XVN1PROD with LOCATORS
35 

Secretary LEW [continuing]. The issue of ambiguity and confusion in the rules, it was not my observation alone. The IG that did 

a report on this reached that conclusion and said it was necessary 

to clarify it. So it is not—I don’t think it is just a question of my 

saying that there is ambiguity. There was a finding by the IG, 

which is one of the things that triggered the review that led to the 

proposal. 

And, as I have said earlier, we know that this is a complicated 

area, we invited comment. It was not even a full proposed rule. It 

was a draft of a proposed rule saying we need comment to make 

sure we get this right. We got 150,000 comments, and we are working our way through them. 

Mr. SCHOCK. Lerner’s emails? 

Chairman CAMP. Thank you. Time has expired. I would just say, 

Mr. Secretary, we don’t have all the documents. And I have sought 

your assistance in trying to make sure that we get all the documents in the future. 

Mr. Thompson is recognized. 

Mr. THOMPSON. Thank you, Mr. Chairman. Mr. Secretary, 

thank you very much for being here. I have just one question, given 

the time constraints, and that is on the provision in the President’s 

budget that repeals the LIFO tax provision, Last In First Out. And 

it is my understanding that it doesn’t just end the LIFO opportunities or practices, but it does it somewhat retroactively, where it 

reaches back and requires a repayment from companies, large and 

small, of the benefits that they have received from LIFO over the 

years. Is that correct? 

Secretary LEW. Congressman, the policy is to shift so that we 

make sure we don’t end up with a permanent avoidance of taxation 

because the accounting system permits the increase in value of inventory to go—to not be captured. 

If you sell something that you made for $1 at $10, and the last 

one costs you $10 to make, and you deduct $10, there is no taxation—— 

Mr. THOMPSON. I understand how the LIFO practice works. 

But my interest is in the retroactivity of the provision in the President’s budget. I don’t know how it can be fair where you could go 

back 60 or 70 years and basically re-assess someone and their tax 

liability. It would be like your tax bracket going up and we go back 

10 years and require you to pay that under that new provision. 

Secretary LEW. So the policy repeals LIFO, so that has the effect 

of treating it as an accounting change, which is reversed. And that 

is how it was designed. I would be happy to follow up with you on 

your concerns about the impact of that. 

Mr. THOMPSON. Well, I have talked to you about it in the past, 

because it is not the first time that it showed up. And I am—I 

would be honored to be able to sit and talk to you, and explain how 

this particular provision would be harmful to many constituents in 

my district, but in other districts, as well. But it just seems grossly 

unfair to change the taxing provisions and then go back 60 years 

and collect on that. 

If that happens, this is going to have the effect of putting people 

out of business, and that is not maybe they will have a tough time, 


dkrause on DSKHT7XVN1PROD with LOCATORS
36 

maybe they won’t be able to make it, but it is going to be—have 

a crippling effect on a pretty important part of our economy. 

Secretary LEW. Yes. I don’t think we agree that the impact 

would be as you have described it, but I am happy to follow up. 

Mr. THOMPSON. Great, thank you very much. I yield back, Mr. 

Chairman. 

Chairman CAMP. Thank you. And, Mr. Thompson, I would just 

say I appreciate the concerns you are raising, and that is why the 

draft—at least the discussion draft—pairs that with a lower rate 

for manufacturers on that. 

Mr. Buchanan. 

Mr. BUCHANAN. Yes. Mr. Secretary, thanks for being here 

today. I do a lot of town halls. A lot of us do. I got here in 2007. 

And the budget that you were proposing today, I think the biggest 

issue that comes out of those meetings is debt, deficit, and spending. But the budget we are proposing today, the revenues are going 

to be what, and the spending is going to be what, for the record? 

Just quickly. I am not asking you per dime, I mean, but—— 

Secretary LEW. No, I understand. But I don’t want to give you 

a number and have it be wrong. 

Mr. BUCHANAN. Anyway, let me just say this, because we got 3 minutes. I think it is about $700,000, $800,000 difference. 

Here is my point I am trying to make. You had mentioned that we made some progress, we have cut the deficit in half, $1.3 trillion 

down to $700 billion, or something like that. But the big concern 

is—and you mentioned about 2 percent of the GDP and that is all 

the deficit is going to go up. But I got here in 2007, and I have 

been hearing it for the last 7 or 8 years. The fact of the matter is, 

in that year, the debt was $8.5 trillion, roughly. We were running 

a $130 billion deficit. Today it is $17 trillion, quickly going on, by 

the time this Administration finishes up, going to be $20 trillion in 

debt. If you look at the normal cost of money—this is what I hear 

every day—normal cost of money is 4 or 5 percent. You could have 

a trillion dollars in interest, which is 30 percent of the whole budget, in terms of reduction. 

And so, I say this to you because I was born in Detroit, I grew 

up in the Detroit area. Detroit is bankrupt. And I am concerned 

about the future of our country. What I hear from business people 

in my community and other places is that they are concerned about 

the uncertainty because of the debt and deficit spending. 

So, I guess I just ask you, what would you tell my constituents? 

When I have to deal with this everywhere, they say nowhere else 

on the planet do they do what they do in Washington. In the State 

of Florida, we had less revenues, we made the adjustments. But 

here, we are leaving a bankrupt country to our children if we don’t 

change the way we do business. And it seems like the Administration has to lead on this. Congress has got a responsibility. And I 

will say it is not just Democrats, it is Republicans, if you look over 

50 years. But if we don’t change this, we are going to use—it is 

going to be devastating to our children and grandchildren. 

So, I would like to have you look at the debt long-term deficit, 

as well, but what would be your comments to my constituents? 

Secretary LEW. Congressman, you know, as I said earlier, as 

somebody who was the budget director for 3 years when we ran a 


dkrause on DSKHT7XVN1PROD with LOCATORS
37 

surplus, we balanced the budgets, we ran a surplus, I took a lot 

of pride in having accomplished that. It was policies that were enacted between 2001 and 2008 that dug a hole that got—we didn’t 

have a surplus any more, and then we had the worst economic crisis since the Great Depression. So, now we do have a deficit of $649 billion in 2014. But the 

numbers, as a percentage of GDP, really matter. During the same 

period, from—— 

Mr. BUCHANAN. Let me just say I know what you are saying. You don’t think the debt matters. I mean $17 trillion, going to $20 

trillion—— 

Secretary LEW. No, but Congressman, all—— 

Mr. BUCHANAN. You don’t think—that is what—I am telling 

you what people are telling me. They are concerned about the future—— 

Secretary LEW. Yes. 

Mr. BUCHANAN [continuing]. For Medicare, Social Security, 

and their children when they see this debt continue to skyrocket. 

And I think that is a game that has been played, frankly, in Washington with Republicans and Democrats over the last 50 years. It 

is that debt that has got everybody concerned. 

Chairman CAMP. Yes, and if you could, just answer briefly. 

Secretary LEW. Yes. We have cut the deficit in half, and we have 

the deficit in the last year, as a percentage of GDP, under 2 percent. GDP will grow from $17 billion to $27 billion over that period. 

So nominal numbers and percentage of GDP are very—both important numbers. And the percentage of GDP shows the progress we 

have made. 

So, it is—I know it is hard to explain because GDP is a complicated concept. But it is a much bigger economy in—— 

Mr. BUCHANAN. Come to Sarasota, Florida and do a town hall 

with me, and we will see what we got. 

Chairman CAMP. All right. Mr. Reed. 

Mr. REED. Thank you, Mr. Chairman. Thank you, Mr. Secretary, for being here today. I wanted to go into—you made a comment that we are kind of through this emergency-type—we now 

have a crisis looming over our head in some of your testimony. And 

one of the things that I am very concerned about is the overall entitlement bomb that I see going off with Medicare insolvency, Social Security insolvency, and those are long-term issues. 

But something that really touched me last night when I was 

reading the budget and looking through your written testimony is 

I saw no reference to Social Security disability and the insolvency 

that is going to hit in January 2016, with the Social Security disability program. In fact, in your testimony, the only reference to 

Social Security was in relationship to its relationship with immigration reform. 

So, my concern is, if the White House doesn’t see this impending 

$35 billion problem in 2016, where Social Security disability recipients are going to receive a 20 percent cut in their payments 

monthly as a result of this insolvency with the disability trust 

fund, that is—I care about those people. Those are millions of people that are going to wake up, and the best we are doing right now 

in Washington, D.C. is to say we are not even putting it in our 


dkrause on DSKHT7XVN1PROD with LOCATORS
38 

budget, we are not even going to address it as a crisis, as an impending entitlement bomb going off. 

To me, it is the canary in the coal mine, that if we don’t get our 

act together—and I encourage the White House to please highlight 

this issue and come up with a solution, because I am not seeing 

it in the budget, I don’t see it in your testimony. And I don’t want 

to look at a Social Security disability recipient, as I have in town 

halls, and said, ‘‘I am trying to fix it. But I will tell you, Washington, D.C. is not listening.’’ 

Secretary LEW. Congressman—— 

Mr. REED. What do you have to offer? 

Secretary LEW [continuing]. I totally agree that we need to address the situation of the Social Security disability trust fund. And 

we do—have said—I have said that there is only one solution the 

technical experts believe can work in the time frame between now 

and 2016, and that is a reallocation of the tax rate, as we have 

done in the past. 

At the same time, we have proposed in our budget program integrity provisions that will make sure that we do an even better 

job making sure that only people who are qualified get disability 

payments. We will clear out the backlogs of reviews. And we need 

to work together on that, and we look forward to working together 

on it. It is something we need to deal with—— 

Mr. REED. I wholeheartedly agree with you, we need to work together. 

Secretary LEW [continuing]. 2016 is close. And we do have a little more time—— 

Mr. REED. The problem with reallocating the tax is aren’t you 

then hurting the actual—the solvency of Social Security itself, by 

shortening that period of time? 

Secretary LEW. Given the difference in size between the trust 

funds, it has a very small impact on the duration of—— 

Mr. REED. So you are willing to sacrifice the viability of Social 

Security itself—— 

Secretary LEW. I am just saying that none of the policies you 

could put in place would have an effect in time for 2016. Long term 

policies take a long time to have effect. I think technical experts 

on both sides agree that if you don’t want to cut benefits, which 

none of us want to do on disability, there is going to need to be 

a reallocation. And we look forward to working together—— 

Mr. REED. But, just so I am clear, so the White House position 

is—to the fix—is that—for this—is to reallocate the tax? 

Secretary LEW. Well, in the short term. But I said we also have 

program integrity provisions in place, and we look forward to working together to take a look at the longer-term issues in disability. 

Mr. REED. Appreciate that. 

Chairman CAMP. Thank you. 

Mr. REED. Thank you. 

Chairman CAMP. Time has expired. The Secretary has been very 

accommodating by coming back today, and I know he has to leave 

directly at noon. So we will have one more question, a 3-minute period, from Mr. Young, and then we will conclude. 

Mr. YOUNG. Thank you. Mr. Secretary, in your opening statement you indicated that last year the President put forward his 


dkrause on DSKHT7XVN1PROD with LOCATORS
39 

budget as part of a balanced compromise. And this year’s budget 

instead reflects the President’s vision of a best path forward. Are 

bipartisan compromises not part of a best path forward? 

Secretary LEW. Congressman, as somebody who has spent most 

of my professional life molding bipartisan compromises—bless 

you—I very much believe that bipartisan compromises are in the 

best interest of this country. But you usually start with different 

positions that get worked out. 

What we did in last year’s budget was we kind of cut to the 

chase to say we almost had an agreement, let’s finish it. Frankly, 

there wasn’t a lot of take-up on our proposal. It was out there, and 

we didn’t get it done. At some point you have to go back and say 

we have our view, you have your view, and then we work for a bipartisan compromise. 

Mr. YOUNG. I see. So your view, your best path forward, as indicative in this budget, presumably includes never bringing our Nation’s accounts into balance? 

Secretary LEW. Well, Congressman, I think, as I have said before, we do an enormous amount on this budget to put our fiscal 

house in order and keep it in order. I think that, you know, the 

challenge we had in 2009 was gargantuan. We have cut the deficit 

in half. We are on a path towards a 2 percent of GDP—— 

Mr. YOUNG. We are looking at a path forward here in the budget, not 2001 to 2008. Interesting segment of time you choose. But 

the path forward would indicate that it never comes into balance. 

This doesn’t appear to me to be a budget, as popularly understood 

by, say, the business community or rank-and-file Americans. Instead, it is, for those of us who celebrate Christmas, a Christmas 

list. 

If you could indicate what year it comes into balance and how 

you intend to bring it into balance, it would be easier to negotiate 

between our figures, balancing in 10 years in the past, and your 

figures, balancing currently at infinity. Then bipartisan compromise, as I see it, could happen. What say you, sir? 

Secretary LEW. So, Congressman, you know, we came very close 

to a bipartisan agreement along the lines of last year’s budget. 

That didn’t happen. But that didn’t come to balance in 10 years. 

It was not—there was not a negotiation about coming to balance 

in 10 years. 

We believe that the urgent need right now is to make sure the 

engine of growth in this country is kicked into high gear. And we 

have put together a budget that has a responsible fiscal policy and 

a growth strategy, and we look forward to working in a bipartisan 

way to reach a consensus. 

Mr. YOUNG. If this is your optimal path forward, the country 

deserves better. History will remember you as the Treasury Secretary who presided over a period when plans were not put forward 

as our Nation started to drown in a sea of red ink. And I would 

not want to have that sort of legacy. 

It is regrettable that you won’t work with us to make the largest 

programs of government sustainable. Thank you so much for coming here today and offering your perspective on why you haven’t 

done that. 


dkrause on DSKHT7XVN1PROD with LOCATORS
40 

Secretary LEW. Congressman, I would just point out that, as the 

only living OMB director in history to have a surplus for 3 years, 

I am proud of my record. 

Mr. YOUNG. Thank you, sir. Thank you for your service. I yield 

back. 

Chairman CAMP. Thank you. Without objection, all Members 

may submit questions for the record. 

Again, I want to thank the Secretary for his time this morning, 

and for accommodating a very disjointed schedule. With that, this 

hearing is adjourned. 

[Whereupon, at 12:02 p.m., the Committee was adjourned.] 

Æ 


dkrause on DSKHT7XVN1PROD with LOCATORS