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S. HRG. 113–437 

PRESIDENT’S FISCAL YEAR 2015 BUDGET 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MARCH 5, 2014 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

RON WYDEN, Oregon, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

JOSHUA SHEINKMAN, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee on 

Finance .................................................................................................................. 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 4 

ADMINISTRATION WITNESS 

Lew, Hon. Jacob J., Secretary, Department of the Treasury, Washington, 

DC .......................................................................................................................... 6 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 4 

Prepared statement .......................................................................................... 45 

Lew, Hon. Jacob J.: 

Testimony .......................................................................................................... 6 

Prepared statement .......................................................................................... 47 

Responses to questions from committee members ......................................... 54 

Roberts, Hon. Pat: 

‘‘Connecting the Dots in the IRS Scandal,’’ by Bradley A. Smith, Wall 

Street Journal, February 26, 2014 .............................................................. 97 

Wyden, Hon. Ron: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 100 

(III) 

(1) 

PRESIDENT’S FISCAL YEAR 2015 BUDGET 

WEDNESDAY, MARCH 5, 2014 

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

The hearing was convened, pursuant to notice, at 10:34 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Ron Wyden 

(chairman of the committee) presiding. 

Present: Senators Schumer, Stabenow, Menendez, Carper, 

Cardin, Brown, Bennet, Casey, Warner, Hatch, Crapo, Roberts, 

Thune, Burr, and Isakson. 

Also present: Democratic Staff: Joshua Sheinkman, Chief of 

Staff; Jocelyn Moore, Deputy Chief of Staff; Michael Evans, General Counsel; Todd Metcalf, Chief Tax Counsel; and Adam Carasso, 

Senior Tax and Economic Advisor. Republican Staff: Chris Campbell, Staff Director; Mark Prater, Chief Tax Counsel and Deputy 

Staff Director; Nicholas Wyatt, Tax and Nominations Professional 

Staff Member; Jim Lyons, Tax Counsel; Preston Rutledge, Tax 

Counsel; Jeff Wrase, Chief Economist; and Caleb Wiley, Professional Staff Member. 

OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR 

FROM OREGON, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. Good morning to all. The committee will come to 

order. 

Before we begin today, I want to assure everyone that you did 

not accidentally walk into a meeting of the Energy and Natural Resources Committee, which I used to chair. Our friend, Max Baucus, 

is off to do an outstanding job in China, and this is still the Senate 

Committee on Finance, with a storied history. 

Now, in the story department, I learned recently that Senator 

Hatch was an outstanding basketball player in high school, and I 

have learned through my sources that he had a great one-handed 

set shot. He is even in the Baldwin High School Hall of Fame for 

basketball. 

Now, I played a bit of basketball myself. So Senator Hatch and 

I may try to figure out a way to get a regular Finance Committee 

pickup game going, except we are going to probably try to see if 

we can find some arcane rules so that the young members do not 

make us look bad. [Laughter.] 

I also want to welcome Senator Warner to the Finance Committee. Senator Warner demonstrates continually that our government can have a head and a heart, and we are lucky to have his 

business expertise and bipartisanship on fiscal issues. 

2 

Senator SCHUMER. Let the record show, Mr. Chairman, only 

Casey and I clapped. 

The CHAIRMAN. The record will so show. 

I am going to be brief this morning and, of course, state first that 

it is a tremendous honor to chair this committee and to work with 

all of you. This committee is the go-to place for tackling America’s 

big domestic challenges, and Senator Hatch and I intend to preserve the committee’s history of addressing these vital issues in a 

bipartisan way. 

In addition, the Finance Committee is the principal committee in 

the Senate with jurisdiction over international trade. Therefore, we 

are now looking at every possible economic lever to pressure Russia 

to step back from its unprovoked incursion into Crimea. The fact 

is, Russia has consistently used trade as a cudgel to bully its neighbors. The committee members will want Secretary Lew to tell us 

how the administration can best marshal our country’s economic 

might in defense of the people of the Ukraine. 

Now, back on the domestic front, the committee has before it several issues with a date stamp on them. Those issues include repealing and replacing the badly flawed Medicare payment system for 

doctors, enacting bipartisan tax reforms that make the tax code 

more fair and more pro-growth, shoring up our transportation system, and helping American workers compete in tough global markets. 

And we are very pleased to have the Secretary here today to discuss the President’s 2015 budget. This conversation on the budget 

is different than it has been in recent memory, because this year 

the Congress is actually operating under a bipartisan budget agreement, and the government is not closing down. So there is an opportunity to pivot from these budget battles and to focus on the big 

challenges before the country. 

I would submit that the top challenge is sustaining and expanding our middle class. Today, America has what I call a ‘‘Dollar 

Tree–Niemen Marcus economy.’’ As has been noted in several publications, the bargain stores are doing well, and the high-end retailers cannot keep enough of the expensive items in stock. But stores 

that cater to the middle class are hurting. 

Every one of our big economic challenges depends on sustaining 

and growing the middle class. And, just briefly, I will tick off a few 

areas where we can boost that cause. 

The first is innovation. Whether it is through the tax code or 

other action, investment and innovation in research can help turn 

creative startups into thriving businesses with more good-paying, 

high-skilled jobs. That is why I plan to move quickly to extend a 

number of expired tax provisions, such as the research and development credit. Over the long term, that credit, through comprehensive tax reform, could be made even more useful for American 

startups. 

The Obama administration’s budget includes a proposal for business tax reform. I believe a broader approach that comprehensively 

overhauls our broken, dysfunctional code would do more to give all 

Americans, especially the middle class, the opportunity to get 

ahead, and we are going to work in a bipartisan way and with the 

administration closely on that matter. 

3 

A second priority ought to be savings. The vast majority of savings are delivered through the tax system, and it is time for fresh 

policies that give all Americans the opportunity to accumulate 

wealth. The President offered one proposal to help workers save, 

myRA, during the State of the Union address, and the budget includes another called auto-IRAs. 

There is an additional idea that ought to be examined. As has 

been noted previously, establishing a savings account for every 

American child has had deep conservative roots and significant bipartisan support. The idea of helping young people, particularly 

ones of modest income, be part of the opportunity to accumulate 

wealth in this country is especially important, and such accounts 

could open doors to higher education, homeownership, and retirement security. 

Third, the committee is going to focus on education. This is another area where the tax code does not pass the smell test. There 

are 15 separate incentives to help defray the cost of an education, 

and each has its own set of mind-numbing rules and definitions. 

There are ways to improve those incentives, not just in the short 

term but for the long haul, through real tax reform, so that more 

Americans can secure the economic mobility that an affordable, 

high-quality education can give. 

Fourth, you cannot have big league economic growth with little 

league infrastructure. The committee is now working to provide 

fresh thinking that can pull some of the billions of dollars of 

private-sector capital off the sidelines and into infrastructure investments that spark new job growth. 

And America will soon need a solution to keep the Highway 

Trust Fund solvent. We are going to go prospecting, colleagues, for 

bipartisan ideas in both areas. 

In closing, this committee is going to focus on other issues outside our borders, besides Ukraine. One aspect of the international 

trade agenda that a number of colleagues have spoken about is currency manipulation. It is a major challenge confronting American 

workers and manufacturers. I look forward to working with Secretary Lew and the Department to ensure that our country is doing 

all it can to address misaligned currencies. 

And finally, Secretary Lew, to depart just for a moment from 

your portfolio, I would like to publicly thank the President for 

adopting a plan that Senators Crapo and Bennet and I from the 

Finance Committee and Senators Risch and Udall from the Energy 

Committee developed to reform Federal wildlife policy. Fires in Oregon and throughout the West have gotten bigger and hotter, but 

our policies have not kept up. And this new system is going to 

allow us to get more value out of this, in my view, also helping in 

a bipartisan way to address the challenge of these natural disasters. 

Let me turn now to Senator Hatch for his comments and, also, 

again express our thanks to Secretary Lew for his appearance. 

[The prepared statement of Chairman Wyden appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

4 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Thank you, Mr. Chairman. 

And, Mr. Secretary, we are very happy to have you here. 

I want to welcome our distinguished friend from Virginia, Senator Warner, to the committee. We are very pleased to have you 

on the committee. With your business background, I think it would 

be a great deal of help to us, to all of us, on this committee. 

But before I begin my statement, Mr. Chairman, I would like to 

take this opportunity to welcome you as the new chairman of our 

committee. Already you have hit the ground running, and you are, 

I think, setting a very good example for all of us, and I have really 

enjoyed the time that we have spent together up until now, and I 

look forward to a long-term working relationship with you. And, 

hopefully, we can do even better for this committee as the future 

occurs. 

And for those who do not know, Senator Wyden always plans 

ahead and thinks about future opportunities and challenges. For 

example, almost a decade ago, Senator Wyden selected the Senate 

office closest to our committee offices. [Laughter.] 

If you look down the hall, you will see the Oregon State flag. It 

is unique among our Nation’s State flags in that the front and back 

parts are different from one another. On the front is the State seal, 

and on the back there is a depiction of a beaver. As this flag demonstrates, it is typical of Oregonians to think outside the box. Senator Wyden is no exception. I am quite certain that he will bring 

his unique talents to the big job of chairing this great committee. 

Mr. Chairman, I look forward to working with you in this new 

capacity. Right out of the gate, I want to thank you for holding today’s hearing. And it is very, very important to have Secretary Lew 

here and to have this hearing on President Obama’s Fiscal Year 

2015 budget proposals. 

And again, thank you, Secretary Lew, for appearing before us 

today. 

To begin, I would like to note some problems with the process by 

which this proposed budget has been unveiled. First of all, we received this budget just yesterday, a full month past the statutory 

deadline. And what budget information we did receive yesterday is 

incomplete. For example, when you look at the appendix of the 

budget, there is often reference to a section called, ‘‘Analytical Perspectives,’’ but those perspectives are nowhere to be found. 

I assume that the rest of the budget information is forthcoming. 

Still, we can only wonder why it is being released a few pieces at 

a time. The administration appears to be approaching this hearing 

in the same way, as we did not receive Secretary Lew’s written testimony until late last night, which was less than helpful. 

When we get past the process issues and into the substance of 

the President’s budget, we see that the administration appears to 

be short on new ideas. Indeed, this budget consists largely of proposals from President Obama’s past budgets, which is surprising, 

given that none of them has received a single affirmative vote in 

Congress. 

These proposals represent a continuation of three familiar 

themes. First, we see the administration’s continued insistence that 

5 

we can achieve prosperity by adopting more tax-and-spend policies 

that grow the Federal Government. 

Second, there are the proposals centered on the apparent belief 

that ever more income redistribution will somehow lead to economic growth and job creation. 

And finally, we see another attempt to define ‘‘tax reform’’ as a 

process of raising taxes in order to fuel more Federal spending, 

while closing whatever the administration deems to be a ‘‘loophole’’ 

in the tax code. 

Based in part on rosy economic assumptions, the administration 

believes that its proposals will reduce our high debt-to-GDP ratio, 

but to get there and to help fulfill its tax-and-spend objectives, the 

budget envisions well over $1 trillion of additional taxes in the face 

of a persistently sluggish economy. 

I think that bears repeating. President Obama’s latest budget contains more than $1 trillion in proposed tax hikes. The administration claims, as it has for years now, that these additional revenues are needed to restore fiscal responsibility and reduce the deficit as part of the ‘‘balanced approach.’’ 

However, we need to look at the facts. Let us consider the deficit 

reduction that has occurred since the high deficit watermark 

achieved in fiscal year 2009. From the deficit of over $1.4 trillion 

in that year, the deficit fell to a still high $680 billion in fiscal year 

2013. Of the $736 billion of deficit reduction, $670 billion came 

from increased revenue and only $66 billion came from reduced 

outlays. 

So in terms of budget realizations, rather than promises for the 

future, less than 9 percent of the deficit reduction between 2009 

and 2013 came from reductions in spending. The vast majority 

came from increased revenue. Yet remarkably, in the face of that 

history, the administration’s insatiable desire for higher taxes leads 

it to propose more tax hikes along with even more spending. 

Put simply, the tax hikes envisioned in the President’s budget 

are not what our struggling economy needs. Unfortunately, while 

having pledged to focus like a laser on jobs, this administration decided, over the past 5 years, to focus on expanding government 

with a failed stimulus, the Affordable Care Act, and initiatives like 

the Dodd-Frank Act that is growing the big banks and shrinking 

community banks. 

None of these efforts laid a foundation for economic growth, and, 

sadly, the budget offered this week does not present a vision for 

such growth in the future. Instead, this budget proposal appears to 

be a political document designed to shore up support from the 

President’s left-leaning base in an election year. Now this, needless 

to say, is disappointing given all of the real challenges our Nation 

continues to face. 

And as you can see, Mr. Chairman, we have a lot to discuss 

today when it comes to the proposals in this budget, and there are 

other issues at the Treasury Department that also warrant our attention today. 

For example, I find it incredible that even with all the challenges 

our Nation is facing, the Treasury Department has decided to place 

the singling out of 501(c)(4) organizations for scrutiny near the top 

of its administrative agenda. As with the budget, it appears that 

6 

politics are driving the decision-making when it comes to promulgating regulations for Treasury. In my view, it would be useful for 

the administration to focus more on growth in the economy and 

jobs than on how the President’s party will fare in the next election. 

With those concerns in mind, I look forward to today’s hearing, 

and I want to thank you, Mr. Chairman, and welcome you, again, 

as our leader on this committee. 

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

The CHAIRMAN. Thank you, Senator Hatch. And particularly, 

your focus on the bipartisanship that we have been talking about 

is especially helpful. 

Secretary Lew, we are glad to have you. We will put your prepared remarks into the record, and please proceed as you wish. 

STATEMENT OF HON. JACOB J. LEW, SECRETARY, 

DEPARTMENT OF THE TREASURY, WASHINGTON, DC 

Secretary LEW. Thank you very much, Chairman Wyden, Ranking Member Hatch, members of the committee. I thank you for this 

opportunity to appear before you today to testify on the President’s 

budget. 

I want to add my personal congratulations to Chairman Wyden 

as we begin his first hearing as chairman of the Finance Committee. We have worked together for so many decades. It is a real 

honor to be the first witness—— 

The CHAIRMAN. The days when I had a full head of hair and rugged good looks. [Laughter.] 

Secretary LEW. And it is also a pleasure to welcome Senator 

Warner here as the committee’s newest member. 

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

Ukraine. As President Obama has explained in no uncertain terms, 

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

Ukraine’s territorial integrity, are a breach of international law. 

At this time, we are looking into a wide range of options, including sanctions and ways to increase Russia’s political and economic 

isolation. Our ultimate goal is to deescalate the situation in 

Ukraine. 

As the Ukrainian government prepares for elections in May, it is 

critical that the international community support their efforts to 

restore economic stability. I have spoken with the Ukrainian Prime 

Minister a number of times now, and he has told me that his government is ready to adopt vital economic reforms. 

We have been working closely with the international partners 

and Congress to develop an assistance package that will help the 

Ukrainian government implement the 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 a $1-billion loan 

guarantee and IMF quota legislation which will 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. 

7 

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 $1 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 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 this 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: 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 homeowners 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 the State of the Union address, we are more ready to meet the demands of the 21st century 

than any 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 yet where we need 

to be. Everyone here understands that. 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 alltime highs, middle-class wages have hit a plateau, with long-term 

unemployment an 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 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 tax 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 of 

rewarding hard work. This tax cut, which would go to more than 

13 million Americans, will be fully offset by ending tax loopholes 

8 

that let high-income professionals avoid the income and payroll 

taxes that other workers pay. 

Another initiative that will make a difference for hardworking 

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 

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

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 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. 

That 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 too long, brinkmanship in Washington has been a drag on economic growth. But 

9 

we have seen a significant amount of bipartisan progress in recent 

months, and that has helped improve economic momentum. 

Some cynics say it is fleeting, some call it election-year posturing, 

but I do not 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. 

Thank you very much, and I look forward to answering your 

questions. 

[The prepared statement of Secretary Lew appears in the appendix.] 

The CHAIRMAN. Secretary Lew, thank you, and we too look forward to working with you. 

Let us begin with Ukraine, if we might. It appears to me that 

Vladimir Putin’s actions in the Ukraine represent a last gasp for 

grandeur. His efforts to expand Russia’s footprint will only work to 

further isolate the country he calls home. 

Yesterday, Russia test-launched an intercontinental ballistic missile. But when was the last time a Russian company launched a 

new automobile line, an airplane, or an Internet company that 

could compete on the world stage? To me, his efforts to show power 

through 20th-century imagery only demonstrate the weakness that 

Russia is showing under Mr. Putin’s leadership. 

Now, Senator Hatch and I have zeroed in on a number of areas, 

particularly in the trade domain, where we think we can promote 

sensible policies to hold Mr. Putin accountable, such as ensuring 

that Russia’s World Trade Organization agreements are fully enforced. They are not now. 

So we can use trade tools at our disposal to help Ukraine and 

similarly situated countries. 

So what I thought I would do for the first question, Secretary 

Lew, is to ask what you think your best economic levers are at this 

point. And then give us, if you might, your sense of how we might 

have some guidelines to evaluate all of the proposals. 

I think, Senator Hatch, I have almost lost count of all the ideas 

that have been proposed for dealing with Russia. 

But if you might, start there, Secretary Lew. What do you think 

the best economic levers are? What do you think the guidelines are, 

particularly as they relate to timeliness—as you made the point— 

working with allies? What do you think the guidelines are that we 

might use? 

Secretary LEW. Mr. Chairman, I think that the President has 

been clear, we have been clear, that Russia has to be held accountable for the actions it has taken, and Russia also has to have a 

path to step back from what is dangerous escalation unless it stops. 

I think that the actions the President has announced illustrate serious attempts and, I think, effective ways to start this process of 

increasing Russia’s isolation. 

The G–8 is a very important meeting to Russia. We have already 

withdrawn from participation in preparations for it, and we are on 

a path where I think it is clear that Russia cannot sit at a G–8 

meeting while it is pursuing the policies that it is now pursuing. 

We have withdrawn a trade mission that was supposed to be 

working with Russia to continue making progress on a national inVerDate Mar 15 2010 20:32 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 R:\DOCS\90914.000 TIMD
10 

vestment treaty. We have withdrawn a presidential delegation that 

was supposed to be attending the Paralympics, something that we 

very much support, but it is not a time for a presidential delegation 

to be going to Russia. 

The President has made clear that he has asked us to develop 

further options. We will continue to develop those options. And I 

am going to reserve for the President the right to address future 

steps that we—he—might take, but we are clear that there need 

to be steps that hold Russia accountable for actions taken to date, 

and what we have to do has to be responsive and proportional as 

we go forward. 

The CHAIRMAN. If you could, Mr. Secretary, because of the urgency of the situation, let us say within 48 hours, if you could particularly give us some measures or guidelines in terms of how we 

would evaluate the proposals, and if you could get that to Senator 

Hatch, that would be helpful—Senator Hatch and I. 

The question I wanted to ask with respect to the domestic challenges is, I think we all know that, while the economy certainly has 

improved in a number of areas, we still have an enormous challenge in terms of dealing with the long-term unemployed. We have 

lots of folks out of work who, as a result of technological changes 

and a whole host of factors, have been unemployed for a long, long 

time. 

How does the President’s budget, in your view, best address the 

needs of the long-term unemployed? 

Secretary LEW. Mr. Chairman, I think, in a sense, the entire 

budget is an answer to that question, because it is not just one 

thing that we have done. It is really the frame. We need to drive 

economic growth, because the engine for creating jobs in this economy is economic growth. In its entirety, that is what this budget 

is designed to do. 

Specifically, we have targeted areas, from extending unemployment benefits for the long-term unemployed to skills training to establishing manufacturing hubs to extending the Buy America 

bonds—which we are now calling America Fast-Forward bonds—to 

continue to fund infrastructure spending, something that you were 

one of the champions of. These are the kinds of things we need to 

do. 

I think it is clear that if you look at the policy thrust of building 

our infrastructure and skills training—and by skills training, I 

think it is important to start at early childhood and go all the way 

to retraining when someone loses their job—those are the things 

we need to do to have a vibrant economy in the future, and this 

budget lays forth a vision of how to achieve that. 

The CHAIRMAN. Thank you. 

Colleagues, if we are going to stick to the 5-minute rule or get 

close to it, I had better start by setting an example. So my time 

has expired. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

Secretary Lew, I appreciate you appearing here today, and we 

appreciate what a difficult job you have. 

The nonpartisan Congressional Budget Office says that over the 

next 10 years spending on Social Security, Medicare, Medicaid, 

11 

CHIP, and exchange subsidies will total over $21.6 trillion. Moreover, that spending will grow at an average rate of 4.4 percent 

compared to growth in the size of the economy, which is projected 

to average 2.8 percent. Of course, that means that growth in the 

entitlement spending is unsustainable. 

Now, Mr. Secretary, I have two questions regarding the entitlements that I just mentioned. First, in light of the CBO projection of over $21.6 trillion of 

spending in the entitlements—and that is just some of the entitlements—by how much does the President’s budget propose to reduce 

that spending? And second, does the budget propose to reduce 

growth in the entitlement spending at all, and, if so, how? 

Secretary LEW. I think that the observation that you are referring to is one that we have seen for a long time. It has to do with 

the demographic aging of the baby boomers and the fact that people my age and older are retiring. So we knew that there was going 

to be an increase of spending on entitlement programs. The question was, would our fiscal house be in order to deal with that? 

What this budget shows is that, for the 10-year period covered 

by this budget, we reduce the deficit as a percentage of GDP to less 

than 2 percent. We are on a path that is sustainable, and it is a 

solid, firm foundation. 

In that period, we have instituted additional savings in entitlements. We have $400 billion of specified savings in Medicare. And 

obviously, these are challenges that we have all known were coming for decades. 

I think that keeping our fiscal house in order is of critical importance. How we do that reflects how we build an economy that is 

growing, and growth has a lot to do with our ability to tackle the 

demographic challenge. 

Unless we can get sustained growth into a healthy place, those 

fiscal challenges will only be more complicated. So I think this 

budget is a blueprint that deals in the right way with the next 10 

years in laying a foundation for the future. 

Senator HATCH. Last year, the Social Security trustees, which include you, reported that the Social Security Disability Insurance 

Trust Fund will be exhausted in 2016. As a trustee, Secretary Lew, 

you urged that lawmakers act in a timely way to, quote, ‘‘phase in 

necessary changes and give workers and beneficiaries time to adjust to them.’’ 

Now, Mr. Secretary, in the face of the impending exhaustion of 

the Disability Insurance Trust Fund, what does the budget propose, if anything, to address the exhaustion of that fund or to address the impending exhaustion of the Social Security Retirement 

Trust Fund a bit further down the road? 

Secretary LEW. Senator Hatch, obviously the time frame for the 

Disability Trust Fund is much more immediate—2016—versus decades away. I think that when experts look at what the options are 

for the Disability Trust Fund in the short term, there is a general 

agreement that there is going to need to be some kind of a reallocation of premiums that go into the trust funds for the short term. 

In the longer term, what our budget does is, it lays out a program of program integrity to make sure that people who apply for 

disability are eligible for it, and we would work together with the 

12 

Congress to make the kinds of changes we need to to protect that 

critically important program and make sure it is sound in the long 

term, and we look forward to working together on a bipartisan 

basis on that. 

Senator HATCH. Page 33 of the budget document discusses the 

future unsustainable deficits and debt and alludes to a larger tax 

increase that is undefined in the document. Specifically, the budget 

identifies that, even with reforms to Medicare and other entitlements and tough choices on the discretionary side, we will, quote, 

‘‘need additional revenue to maintain our commitments to seniors.’’ 

Now, I have two questions for you, which I will read through and 

then you can respond. 

First, if you agree with that part of the budget, then, in addition 

to the tax increases in the budget, what tax increase, either in 

terms of dollars over the next 20 years or so or as a share of GDP, 

does the administration believe will be necessary to get what it 

identifies as needed additional revenue to maintain our commitments to seniors? 

And second, do you think that the entitlements will have to be 

financed, at least in part, through a value-added tax or a carbon 

tax or some other non-income-based tax added to our existing tax 

system? 

Secretary LEW. Senator Hatch, I think the budget lays out very 

clearly our tax policies for the next 10 years. For a number of years 

now, the President has laid out principles that should govern how 

we look at Social Security reform, and I would be happy to followup and work with you on that going forward. 

Senator HATCH. Well, we would appreciate that. My time is up. 

The CHAIRMAN. Senator Burr is next, and then Senator Stabenow. 

Senator BURR. Thank you, Mr. Chairman, and let me also welcome you to the chair. 

The CHAIRMAN. Thank you. 

Senator BURR. Mr. Secretary, welcome. 

Mr. Secretary, after Lois Lerner disclosed last summer that the 

IRS had been targeting conservative organizations for more than a 

year, both you and the President stated that you were, and I quote, 

‘‘outraged’’ by that behavior. 

Do you stand by that comment today? 

Secretary LEW. Senator, I have stood by my comments that the 

actions taken reflected bad judgment and that they were unacceptable, that they could not happen again. We put in place an acting 

Director at the IRS who did a fine job to bring things into order. 

We have a new Commissioner of IRS who is equally first-rate. And 

we are committed to running the best IRS that we can possibly 

run. 

I am equally convinced that there was not any kind of malicious 

action there. It was bad judgment, and that bad judgment is unacceptable. 

Senator BURR. Well, I ask you because the contrition you expressed then seems at odds with the current attitude. Both you and 

the President have gone so far as to refer to the IRS persecution 

of those who disagree with you as ‘‘a phony scandal,’’ to quote. I 

13 

would suggest you are even going further than that and attempting 

to codify that bad behavior in the law. 

How can we interpret this new rule as anything other than an 

attempt to achieve the same stifling of 501(c)(4)s that Lois Lerner 

was, in fact, doing? 

Secretary LEW. Well, Senator, I continue to believe that the attempts to turn this into a scandal do not reflect the nature of the 

bad judgment that was involved, and I think that the—— 

Senator BURR. Well, Mr. Secretary, 100 percent of the 501(c)(4)s 

that had ‘‘Tea Party’’ in their name were referred for extra scrutiny. The word ‘‘progressive’’ did not appear on the Be On the LookOut list for extra scrutiny. And, of the 298 political cases, only six 

had ‘‘progressive’’ in their name. 

Secretary LEW. Senator, I—— 

Senator BURR. What do you conclude from that? 

Secretary LEW. Senator, I think bad judgment was equal opportunity. It addressed concerns of the right and the left. It was not 

good judgment, and it was unacceptable. But it was not politically 

motivated. 

Senator BURR. Two hundred and ninety-eight to six. 

Secretary LEW. You asked about the regulations. I want to point 

out the proposed changes in the regulations. After the situation 

was evaluated by the Inspector General at Treasury, there was a 

report that laid out actions to be taken. 

I made a commitment to keep all those recommendations, to follow through on all those recommendations. One of them was to 

clarify the rules, where the confusion in the policy was what was 

at the root of the bad judgment that caused the problem. 

In the proposed rule that we put out, it was actually a request 

for broad comment. It did not provide as detailed a policy as many 

people have said. And we have gotten, as you know, over 150,000 

comments, and we are going through them, as we said we would. 

Senator BURR. Did you have any conversations prior to the 10th 

of last May when Lois Lerner made her revelations concerning 

issuing a new rule restricting the political activities of tax-exempt 

groups—— 

Secretary LEW. Well, the IG report that came out—I do not remember the date of the IG report—it was right after that that we 

said we would follow through on all the recommendations of the IG 

report. I would have to check the date. 

Senator BURR. Mr. Secretary, last June, I sent a letter to the IRS 

encouraging them to respect the controlling OMB guidance and 

suspend fiscal year 2013 performance awards to IRS employees. 

As a former Director of OMB, I know you must feel that following OMB’s guidance is important. That is why I am sure you 

share my concern that the new Commissioner has decided to reverse that decision and to pay out a portion of the bonuses. 

Given that calamitous behavior of the Tax-Exempt Division and, 

I think, the damage that it has done to public trust in the agency’s 

ability to perform its core functions, do you believe it was appropriate for those employees to receive a bonus? 

Secretary LEW. Senator, I have to start by saying that the overwhelming vast majority of employees at IRS are hardworking public servants who do a fine job and deserve respect and thanks, and 

14 

that is something that I think is an important thing for all of us 

to remember. 

Secondly, there was a suspension of the bonus policy during the 

sequestration period, and there was a challenge under some of the 

collective bargaining agreements. I would defer to the Commissioner of IRS on how he has worked out the policy subsequent to 

that. 

Senator BURR. Did you pay bonuses last year at Treasury? 

Secretary LEW. I do not believe so. I would have to double-check. 

Senator BURR. Do you intend to pay them this year? 

Secretary LEW. I am not sure that that decision has come to me 

yet. 

Senator BURR. Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Burr. 

Senator Stabenow? 

Senator STABENOW. Well, thank you very much, Mr. Chairman. 

And first, I want to welcome you to your position. It is wonderful 

seeing you in that position, and I look forward to the basketball 

games between the two of you. 

Mr. Secretary, welcome, as always. 

And to the Senator from Virginia, we are happy to have you 

down at the end of the table. So we appreciate you being on the 

committee. 

A couple of things, in addition to my questions. I just want to 

start by saying that, given everything that has happened at the 

IRS, I am really pleased that you finally have the President’s person on the job, since the IRS, just for the record, was operating 

under President Bush’s IRS Commissioner through all of this. 

And realizing that there are legitimate questions and we all certainly want things to go well, I am glad that in the last couple of 

months, we have finally been able to confirm the President’s team, 

and I am confident, going forward, that this will be addressed in 

a fair way. 

Secretary LEW. And we are grateful to the committee for handling that. 

Senator STABENOW. Secondly, I think we are always going to 

have this debate about how to move the economy and, just for the 

record, also, legitimate differences. But I am for whatever works. 

I am sure you would agree. I came in under President Clinton in 

1997, into the House. And we balanced the budget within 6 

months. 

I took full responsibility for that, Mr. Chairman. [Laughter.] But 

what was interesting is that what worked was asking those doing 

very, very well in our country, the wealthiest Americans, to contribute a little bit more to help balance the budget, making strategic cuts where we could on things that did not work, and making 

strategic investments in education and innovation, and we balanced the budget. 

Then we tried a different approach next with the Bush administration that reflected high deficit-spending on wars. We could debate the wars, but they were not paid for. At the same time, rather 

than paying for them, we gave tax cuts—a revenue loss—to those 

who were the wealthiest Americans, and then, unfortunately, we 

15 

ended up cutting investments to middle-class families, opportunities for education, and so on. Deregulation went forward on Wall 

Street, and we lost 8 million jobs. 

So now we come to the Obama administration, again, back to trying to balance this, and I think it is pretty significant that we have 

seen the deficit more than cut in half and that you are saying we 

are on a path to create 2 percent of GDP in terms of the deficit. 

Jobs are coming back, not as fast as we would like them to, but 

they are coming back, and we are trying to rebalance by focusing 

on education, innovation, those things that will grow the middle 

class, because we know that we will never get out of debt with 10 

million people out of work. 

So, just for the record, I feel like, Mr. Chairman, we have approaches that have worked and approaches that have not worked, 

and I think we ought to focus on what works. 

My question, Mr. Secretary: I chair the Agriculture Committee, 

overseeing the Commodity Futures Trading Commission. This is an 

agency, as you know, that is incredibly important as we strengthen 

our economy and create opportunities for investments, and the 

CFTC oversees markets that impact everything from the price of 

groceries to the cost of fuel, interest rates, home mortgages, and so 

on. 

When we look at the CFTC’s increased responsibilities in the last 

number of years versus their budget, they barely have more staff 

than they did 20 years ago, and, as you know, their oversight has 

grown tremendously. The futures market has grown 5-fold, increasing by roughly 10 times the size of the futures market’s new responsibilities. 

They brought in $2 billion in fines last year alone, but received 

only about $215 million to operate. And I am very concerned about 

the ability of this agency to be effective in supporting our economy. 

So I wonder if you might just speak about the proposals by the administration and how the CFTC funding matches up with other 

funding mechanisms for other regulators. 

Secretary LEW. Thank you, Senator Stabenow. 

I must begin by thanking you for your comments about the 

1990s. I had the honor of being Budget Director during the 3 years 

when we ran a surplus and could not agree more than we had a 

set of policies that worked. And we today have a set of policies that 

work, and we know how to do this. 

As far as the CFTC goes, very briefly, it has been a major issue 

that we have joined really since Dodd-Frank was enacted: that we 

need to have enough people at the CFTC both to implement the 

rules and have cops on the beat to enforce them. 

We got just enough money in the appropriations bill this time to 

start ramping up to the point that we need to to implement the 

rules, but we need to have a sustained level of funding, predictable 

and with the increases to reflect the extra work that is required to 

implement the new rules. 

We have suggested that it would be a good idea to explore the 

kind of self-funding mechanism that the bank regulators have so 

that our financial regulators do not have to worry about year-toyear ups and downs in funding, but they can make sure that their 

16 

enforcement programs are there every year to protect American 

consumers. 

Senator STABENOW. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. If Senator Schumer is willing, Senator Isakson 

could go and then Senator Schumer. Is that acceptable? 

Senator Isakson? 

Senator ISAKSON. Thank you very much. 

I thank the Senator from New York. 

Mr. Chairman, welcome. Congratulations on your chairmanship. 

From my work with you over the last 9 years in the Senate, I am 

sure it will be an enlightening period of time under your leadership, and I look forward to serving with you. 

Secretary Lew, I call your attention to the bottom of page 3 and 

the top of page 4 in your remarks, where I quote the following: 

‘‘The President has called for streamlining and accelerating the 

permitting process for infrastructure initiatives, and the budget includes funding for a new interagency infrastructure permitting improvement center to help with these efforts,’’ end quote. 

Is that correct? 

Secretary LEW. I do not have the pagination in front of me, but 

that is our policy, yes. 

Senator ISAKSON. I will share it with you. It is exactly what I 

read. 

Secretary LEW. I trust it is correct. 

Senator ISAKSON. This is a little bit of a parochial question, certainly in my own self-interest and that of Senator Chambliss, but 

it belies everything your statement says, and I want to give you 

this information. You may not know it, and I would appreciate your 

following up on it. 

For 15 years, the Port of Savannah has been authorized for expansion. We have gone through 15 years of environmental studies, 

NOAA requirements, requirements by the Corps of Engineers, oxygenation requirements. The State has raised $248 million to match 

Federal money to expand that port. 

I traveled with Vice President Biden to Panama, and with the 

Mayor of Philadelphia and the Mayor of Baltimore just recently, 

because of the Vice President’s intent to expand infrastructure projects for the same reasons you state in your statement. 

On the 28th of February, just a few days ago, after everything 

had been done, 902 waivers were in both the House and Senate 

water bill. The President and the Vice President—I do not want to 

quote the President, and I cannot quote the President, but the Vice 

President, and I quote, said ‘‘we are going to get his project in Savannah done come hell or high water.’’ 

Everybody in the Corps was prepared to sign the program partnership agreement. NOAA had signed off; EPA had signed off. The 

money is in the bank at the State. Everything was done. 

Then the Director of OMB called the Corps of Engineers and told 

them specifically not to sign the partnership agreement. 

Two weeks before we passed the Omnibus Appropriations Act— 

and I was one of the nine Republicans who voted for it—we met 

with the Director of OMB, and the Director of OMB sent personnel 

from her office to meet with staff of mine and staff of Senator 

17 

Chambliss to craft the language for the appropriations bill to ensure that she would have the authority, the right wording and the 

right authority, to move money in the budget for fiscal year 2015 

from ‘‘intended’’ to ‘‘construction.’’ 

All of a sudden, Friday of last week, the phone started ringing, 

and the directions went to the Corps of Engineers, ‘‘Do not sign the 

project partnership agreement.’’ I personally got calls from OMB 

saying there is no precedent to do what we are doing, just 3 or 4 

weeks after we met with OMB staff to craft the language they 

asked us to get in the appropriations bill. 

So I cannot understand how the administration can say that it 

wants to accelerate projects, when we get a last-minute hold on a 

15-year authorization in which every ‘‘i’’ has been dotted and every 

‘‘t’’ has been crossed. 

Do you have an answer for that? 

Secretary LEW. Well, Senator Isakson, as Treasury Secretary, I 

am not deeply involved in the individual project decisions. So I cannot address the questions about the Port of Savannah. I will refer 

the question to our OMB Director. But I would say—— 

Senator ISAKSON. I have already talked to the OMB. I would appreciate your looking into it personally. 

Secretary LEW. I will take the question back, but, obviously, it 

is not a Department of Treasury issue. So I am going to have to 

go to OMB with the question. 

I would say that, going back, we have made a lot of progress at 

streamlining the approval process for important projects. 

In my home State of New York, Senator Schumer’s State of New 

York, the Tappan Zee Bridge was re-permitted for construction in 

18 months, something that nobody believed was possible. 

So this is very important. It is something we are committed to, 

and I will take back your question. 

Senator ISAKSON. I would appreciate it very much. 

Mr. Chairman, can I ask you a question? 

The CHAIRMAN. Of course. 

Senator ISAKSON. I am correct that both the majority and minority side are still investigating the IRS situation with Ms. Lerner. 

Is that not correct? 

The CHAIRMAN. We are working together on the investigation 

that began under Chairman Baucus, and we intend to continue to 

work on it and do it in a thoroughly bipartisan way. 

Senator ISAKSON. The reason I mention that is, for your edification and your benefit, the last month, I have taken every Friday 

to do town hall meetings in Georgia. The number-one thing that I 

am asked about is the IRS targeting of certain groups for audits— 

the number-one thing. 

It cannot be dismissed as an error in judgment until we get all 

the facts and find out if that is, in fact, what it was. So I would 

encourage you at Treasury, being responsible for IRS, to let them 

know they are the number-one topic of conversation. And when 

April 15th comes, they are going to be the number-one topic, for 

a lot of reasons we are all familiar with. 

But we need to get to the bottom of that. And Senator Burr is 

precisely correct: it is the public’s number-one concern. 

18 

* The America Saving for Personal Investment, Retirement, and Education Act of 2013. 

Secretary LEW. Senator, we tried to be cooperative. We will continue to be cooperative with this committee’s and the House committee’s investigation, and the IRS Commissioner, John Koskinen, 

has made a similar commitment. And we understand you need to 

complete your investigations. 

I can just offer our judgment based on what we know. 

Senator ISAKSON. Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Isakson. 

Senator Schumer? 

Senator SCHUMER. Thank you, Secretary Lew, and thank you for 

the wonderful job you are doing. We are very glad you are there. 

I am glad, as a New Yorker, but more importantly, as an American. And I want to applaud your commitment in this budget to 

really focus on the middle class like a laser. 

The deficit is a problem, no question about it. But we have made 

good progress on the deficit, and I would posit that the number-one 

problem facing America is the decline of middle-class incomes. 

It affects our economy in so many ways. It affects our politics, 

it affects our whole way of being as Americans. And doing the 

kinds of things that you have done in the budget, both in terms of 

taxes—such as the American Opportunity Tax Credit, the provision 

that I helped author and worked with you to extend, making it permanent, is great, as well as the Child Tax Credit—and on the 

spending side, which I know is not your department, but doing investments in infrastructure and in education and in research, those 

are the ways to get the middle class moving again, and those at 

least have my highest priority. 

I have a couple of questions here on specifics. 

The first is on the ASPIRE Act.* I know the chairman mentioned 

it in his opening remarks. And it is so important, because one of 

the greatest barriers to financial stability for many young Americans is the lack of savings and assets. 

Nineteen percent of New York households, 31 percent of households nationwide, have no savings account. That is sort of unheard 

of, but that is what is happening. I remember when I was in grade 

school, we put a quarter into the King’s Highway Savings Bank 

every week, got a bank book, and it showed—— 

Secretary LEW. The Ridgewood Savings Bank. 

Senator SCHUMER. There you go. Another fine New York institution. 

Anyway, that is not done anymore, and children from families 

face significant barriers to attending college and owning a home. 

So for several Congresses, I have introduced—Congressman 

Gingrich was a sponsor, Senator Santorum, so it has real bipartisan support—the ASPIRE Act, which would establish a universal 

child savings account with Federal seed funding and matching contributions. 

I, first, am appreciative of the chairman highlighting this issue 

as one of the issues that he wants to move this year, which I really 

appreciate, and he mentioned it in his opening remarks. But I hope 

we can count on your support and the administration’s support for 

19 

both technical guidance as we move forward with this proposal, but 

also support of the basic concept: creating a lifetime savings fund 

for every child when they are issued a Social Security number, 

teaching people to save, encouraging people to save. 

One of the great problems in America is we do not save enough 

the way we used to. 

Would you please comment? 

Secretary LEW. Senator Schumer, we totally agree that encouraging savings is a critically important objective. That is one of the 

reasons we have made the myRA proposal such a prominent feature, because it does not sound like much, but starting a retirement account with $25 and adding $5 a pay period, it starts the 

habit of saving for retirement. 

Senator SCHUMER. Yes. 

Secretary LEW. Which is really the same idea that you are talking about. 

Senator SCHUMER. Right. 

Secretary LEW. The ASPIRE accounts are something we are 

happy to look at and work with you on technically. 

Senator SCHUMER. That is at the other end. 

Secretary LEW. It is at the beginning—— 

Senator SCHUMER. Young people as opposed to golden-agers. 

Secretary LEW. And we are happy to work with you on the proposal. Obviously, it is a question of, with limited resources, how do 

we optimize the decisions we make, and we are happy to work with 

you on this. 

Senator SCHUMER. Great. Well, thank you, and I look forward 

to—I am going to bother you until you end up supporting it. So it 

is now or later, take your pick. [Laughter.] 

The next issue is the AOTC. I was glad to see you made it permanent. 

One of the great problems the middle class faces is paying for 

college. It has become so much more expensive, and somebody at 

one of the little forums we had said that when he went to college, 

if he worked 40 hours a week on the minimum wage, he could earn 

tuition in a year. And now it takes something like 30 years working at the minimum wage to pay for tuition, so it shows you both 

ends changing. 

It is a shame that America is declining in the percentage of people who graduate from college. We used to be number one. We always worried about our K through 12 system, but we did not worry 

about our higher ed system. And still, the number-one worry about 

our higher ed system is expense. 

So I think it is very important, and I did not understand—I really like Paul Ryan. I think he is a fine, honorable man, and I liked 

working with him on many issues, but he attacked this provision 

in his War on Poverty report. I do not understand why our colleagues on the other side—this is a tax break to help middle-class 

families pay for college. 

And my question is, does it not seem to you to be the kind of 

thing—it used to garner bipartisan support. It was authored by 

Senator Snowe and myself when she was here on this committee. 

Does it not seem to you the kind of thing that should get both parties? That is the kind of thing we could come together on. 

20 

Secretary LEW. Senator Schumer, I certainly would hope that 

that is the case. I applaud the work that you and Senator Snowe 

did on this. It is something we very much embrace. 

When you look at our system of higher education, we still have 

the best higher education institutions in the world. When you look 

at the pathways toward opportunity, there is a dividing line for 

those who get a higher education and those who do not. 

If we really want to make sure that we equip the next generation 

with the skills they need to grow the economy and to make sure 

that everyone who is willing to work hard has a chance, we have 

to open the doors to education, and we look forward to working on 

a bipartisan basis to extend the AOTC and make it permanent. 

Senator SCHUMER. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Menendez? 

Senator MENENDEZ. Thank you, Mr. Chairman. I, first of all, 

want to congratulate you and look forward to your progressive 

leadership of the committee. And I am also looking forward, having 

moved up the rostrum here, to no longer smashing my knees with 

that of my staff from the other end. [Laughter.] 

So let me, Mr. Secretary, talk about—I know you are here about 

the budget, and, of course, budgets are also about values, from my 

perspective. It reflects what we believe as a country. 

But as we talk about the budget, I also look at the draft of the 

House Ways and Means Committee chairman’s tax reform plan 

that has a complete elimination of the State and local tax deduction. That is a proposal that would impose a significant and, from 

my perspective, unfair tax increase on millions of families in my 

home State of New Jersey and across a number of high-cost States 

in the country. 

Unfortunately for the reality of this bill’s prospects, experiences 

from the 1986 effort show that, as most tax experts know, any serious tax reform effort cannot be built on such a shaky foundation. 

So my question, to get a sense from you, is, in order for tax reform to become a reality, do you think tax writers should take into 

account the regional impact of any tax change? 

Secretary LEW. Senator Menendez, I guess I should start by saying I think that Chairman Camp deserves a lot of credit for putting 

a detailed plan out there. There are a lot of things in it that reflect 

thinking that many of us have had. There are a lot of things in it 

that many of us disagree with. But I think it is important for there 

to be a full discussion of tax reform. 

I think on the question of regional impact, we always have to 

worry about whether or not the tax policy or the spending policy 

we put into effect is fair and affects the country in a way where 

the outcomes are something that we would want as a policy. 

I think on the specific issue of State and local deduction, we 

have, obviously, approached it in a different way from the administration. We have treated it in the same way as other deductions, 

where we think there is an argument to limit the availability of deductions for the very high-income, but not to remove it as the basic 

mechanism, to permit the deduction of State and local taxes. 

State and local finances are very important to the stability of our 

economy, and I think that the complete elimination of the State 

21 

and local deduction would be something that would be a real challenge for many jurisdictions, and regionally it is not just the Northeast. It is certainly well beyond the Northeast. 

So I think it is something we would have to look very hard at, 

anything we did that went as far as that proposal. 

Senator MENENDEZ. There is a difference between high wealth 

individuals who may have acceptable limitations and regular 

middle-class families that this would be an economic body blow to. 

Secretary LEW. Right. 

Senator MENENDEZ. So I appreciate your thoughtfulness on that. 

I want to turn to something that I have been speaking to you 

about since your nomination hearing, and I know we recently had 

a conversation on this, and that is reform of the Foreign Investment in Real Property Tax Act. 

I just want to bring to your attention, again, that the tax on 

REIT shares owned by foreign pension funds was due to an administrative action, not a legislative one. So it seems to me that Treasury has authority to take some type of positive action here. As you 

may know, up until Notice 2007–55, a foreign pension fund had the 

ability to invest in a domestic REIT and have their shares treated 

similarly to a domestic pension fund. 

This is an area where the President has stated clearly that he 

wants to exempt foreign pension funds from this tax as a way to 

help restructure domestic commercial real estate debt and start 

building and creating jobs all over the country. And I have also 

heard from the President about his forceful statements that he 

wants to use executive authority on issues he deems are priority. 

This is one of those issues that was listed last year. 

So I hope you agree it makes sense for the administration, particularly Treasury in this case, to take some sort of action on 

FIRPTA reform, and I promised you that we were going to send 

some documentation. I want to call your attention to that—I mean, 

it will come to you specifically, but there are a number of distinguished tax experts who wrote to Treasury on October 8th regarding their interpretation that Treasury has the authority to modify 

that notice to exempt foreign pension funds. 

And I am disappointed to find out that, despite the importance 

to both the administration and Congress—this is a bipartisan 

issue, by the way, our legislation—to deal with this legislatively, 

although we think it can be done administratively as a bipartisan 

effort, it remains unanswered. 

So I hope you will personally have an opportunity to ask for the 

letter, look at it, read it, and come to a conclusion with those who 

work with you at Treasury to get to a point where we might actually be able to pursue something that the President himself wants 

to see. 

Secretary LEW. Senator Menendez, I will follow up and get a response to that letter. We are in total agreement that there should 

be a change of policy here. We have proposed legislation to do it. 

We would like to work with the committee to get that done. 

Our view has been that we did not have the authority, but I am 

happy to go back and take another look at it again. It is something—we have so many infrastructure needs in this country. Our 

22 

goal is to have an attractive place for foreign direct investment in 

the United States. 

This is a policy area that is a problem, and we will follow up and 

work with you to explore the question of what authority we have. 

Obviously, the most straightforward way to deal with it would be 

to change the law and make it clear, and I hope we have an opportunity to work together on that. 

Senator MENENDEZ. Well, thank you. 

Mr. Chairman, I appreciate the Secretary raising the IMF issue, 

as we are dealing with it in the Foreign Relations Committee, but 

I think it is beyond Ukraine. It is a question of whether we want 

to be in a position in the world to be able to influence the economic 

issues that affect us here at home, but that stabilize opportunities 

abroad. 

Secretary LEW. And I would like to thank Senator Menendez, as 

chairman of the Foreign Relations Committee, for the leadership he 

has shown in putting together a package for the Ukraine and for 

funding the IMF, and, frankly, for the bipartisan support that that 

is getting. We very much appreciate it. 

The CHAIRMAN. I appreciate Senator Menendez’s points as well, 

and look forward to working with him. 

Colleagues, we have three members here. In order of appearance, 

Senator Warner, Senator Bennet, and Senator Roberts. We can 

have each member get their 5 minutes in before the vote. We have 

Senator Cardin, and we will be able to get Senator Cardin in as 

well. 

So let us just begin, if we could, with Senator Warner. 

Senator WARNER. Thank you, Mr. Chairman. And I want to join 

my colleagues in commending you on your chairmanship. And I did 

not know the dais went down this far. [Laughter.] 

But I heard and appreciate your comments and Senator Hatch’s 

comments that this is going to be an inclusive committee, and, even 

if you are at the kids’ table, your voice will be heard. So I am grateful for that. 

I want to echo what Senator Menendez said about FIRPTA. As 

we think about getting foreign direct investment in job creation, 

this one should be a no-brainer. And whether we can do it administratively or legislatively—I am on Senator Menendez’s bill—I 

strongly support it. 

I want to move to a part of the President’s budget that others 

have touched upon, Senator Isakson and Senator Menendez, on infrastructure. I want to commend the President for thinking about 

this in a more aggressive manner and for the $150 billion he has 

put in, whether that is through a proposal that I am working on— 

that Senator Bennet is taking the lead on, but that I am his supporter and ally on—in terms of repatriation, or other proposals. 

I would simply point out to my colleagues that we are now seeing, just as we want to get foreign direct investment in the United 

States, the real estate, we are now, as you are well-aware, in a position where there is lots of private American capital that does not, 

cannot, invest in American infrastructure right now because we do 

not have an infrastructure financing authority. 

And the President, in his budget, proposed this approach, and I 

would point out that this is an approach where we have taken 

23 

some of the ideas that were in the Infrastructure Bank that the 

President proposed earlier, made it slightly, candidly, more conservative, where we have taken out energy generation, we have 

guaranteed investment-grade investments, we have made sure that 

private dollar, first dollar loss applies. And the BRIDGE Act, which 

is infrastructure financing authority, now has five Republican cosponsors, five Democratic cosponsors, and a number of other members who are quite interested. It initially capitalized at $10 billion, 

but only scores at $7 billion. 

And I would just say, for my colleagues, when interest rates are 

at a record low, not to take advantage of trying to get that private 

capital into our infrastructure projects would be a great, great loss. 

The Transportation Infrastructure Finance and Innovation Act 

does a very good job. But we just received a TIFIA grant on our 

rail project at Dulles, and it took a year to process. 

So the idea of having a central point for project finance and infrastructure financing in the U.S. Government, I think, is terribly 

important. It does not replace the need for a permanent funding 

source, but financing is a key component. 

The reasons are quite simple. One, you need the place to get the 

long-term capital, patient capital, a place to invest in. Two, with 

the government backstop, you can save 200 basis points, which, on 

a multi-hundred-billion-dollar project, can be $30 million, $40 million, $50 million off the project cost. And third, while I commend 

the folks at TIFIA, you need to concentrate our expertise around 

road, rail, water, energy transmission, ports—something that is 

terribly important for Senator Isakson and me in Virginia—in one 

spot if we are going to have the expertise on the private-sector side 

to go against Wall Street. 

This is more commercial, but also I would make the point that 

I think particularly for smaller States, this is an asset that, for 

smaller projects that we have modified from previous proposals, 

would lower the minimum amount and actually increase the 

amount that goes to rural communities. They are not going to have 

the expertise at the local level to do this without some ability to 

draw upon some national expertise. 

So I just would like you to—and I do not want to overstate it. 

It is not a silver bullet. You have to have the permanent funding 

source, as well, the leverage to private capital, but this notion of 

an infrastructure financing authority or how we get private capital 

into our infrastructure needs, if you would like to comment on that. 

Secretary LEW. Senator, we are in total agreement. We do not 

think it is a choice. We need to have our conventional funding 

mechanisms, and that is why the highway bill reauthorization and 

a funding mechanism to have Federal infrastructure funding firmly 

secure are so important. 

We also need innovative funding mechanisms, like the Infrastructure Bank, and we need to look at things like—— 

Senator WARNER. Better if we call it a financing authority. 

Secretary LEW [continuing]. Financing authority, and things like 

the legislation to change FIRPTA so we can get foreign direct investment. 

I just came back from the G–20 meetings, which were concentrated on growth. And within growth, the question that we spent 

24 

a lot of time talking about across the world was how to make private investment in infrastructure something that could happen 

more easily and more effectively. 

And the things that the whole world talks about are, how do we 

get things permitted—that is why our one-stop coordination is so 

important—and how do we eliminate some of the friction in the 

system, which is why the financing authority is so important. 

But there is no scenario that takes government out completely. 

It is necessary for certain risk-sharing. It is necessary to keep certain essential projects that do not have a revenue stream going. 

So I think it is kind of ‘‘all of the above,’’ and we are determined 

to really make progress on it. And I must say, my view of the last 

31⁄2 decades has been that there really is bipartisan support for infrastructure. It is not something that is a party-line issue. 

So we should be able to make progress on it. 

Senator WARNER. Mr. Chairman, I just want to point out that 

our legislation starts with 10 original cosponsors: five Republicans, 

five Democrats. And I would also point out that I believe we are 

the only industrial nation in the world that does not have an authority or some ability to leverage private capital investment in infrastructure. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Colleagues, we are going to call some audibles here. We are just 

going to keep this going, because so many Senators are interested 

in it. In order of appearance, next is Senator Portman, 5 minutes. 

Senator PORTMAN. Thank you, Mr. Chairman. Welcome to you. 

Also, welcome to Mr. Warner, joining us down here at the kiddy 

table at the end of the dais. 

And, Secretary Lew, thanks for coming before us again. You 

know my disappointment with this budget, and it is very simple. 

We do not address the big issue, which is mandatory spending. 

We were just told by the Congressional Budget Office witness, 

sitting in a chair just like that one, only a couple of weeks ago, that 

the mandatory side of the budget, which is the part we do not appropriate every year, is now two-thirds of the budget, and it is 

going to grow to over three-quarters of the budget in the next 10 

years. And specifically, he said that health care entitlements are 

going to increase by about 115 percent, more than double. 

And we know these trust funds are in trouble already, and, looking at the future, Social Security Disability is depleted in 2017. The 

other two trust funds, the old-age trust fund in Social Security and 

the Medicare Trust Fund, both will be depleted, and therefore 

bankrupt, within the lifetime of most people retiring today. So I am 

very concerned that we are not addressing it. I think the President 

had an opportunity to do so. In fact, he even backtracked from 

what he had in his last budget in terms of looking at these important, but unsustainable programs. 

So my general question to you, which I do not want you to answer now because I want to get into taxes, is, what are we going 

to do about this issue? And, if we do not address it, we will continue to squeeze the discretionary side of the budget, including infrastructure—and my colleague just talked about that—defense, 

25 

and everything else and put more and more pressure on our economy. 

On the economic issue, revenue, you have over $1 trillion in new 

taxes in this budget after the $600 billion-plus and the new revenues in Obamacare and so on. And my concern, of course, is that 

economic growth is already incredibly weak, and that growth 

trumps tax increases by far in terms of how you get the right kind 

of revenue into the budget. 

In its new baseline, CBO has said we are looking at a 2.5-percent 

growth. They have downgraded. They have actually said that is $1 

trillion less in tax revenue over the next decade from their last report 9 months ago. 

And, by the way, every single one of their projections has been 

wrong. Their repeated decreases in projected economic growth do 

not translate into more than $2.2 trillion in reduced tax revenue 

through 2024. And keep in mind we are not talking about the bad 

economy the President inherited, because you might answer that 

way. These were additional downward economic projections that occurred after the President took office—after he took office. 

So, we have to get the jobs back and get the growth back. And 

I would just say the President spent years fighting for a $600- 

billion tax increase. In effect, America surrendered $2.2 trillion in 

revenue from continued sluggish growth during that period, if you 

look at it as economists would. 

So $1.2 trillion in new taxes you have proposed here. Professor 

Romer, who is President Obama’s former chairman of the Council 

of Economic Advisers, has said that an exogenous tax increase of 

1 percent of GDP lowers real GDP by roughly 3 percent. So, Mr. 

Secretary, I guess, does the White House believe that it can raise 

$1 trillion in new taxes for Obamacare, $620 billion in the fiscal 

cliff, $1.2 billion here, without significantly slowing economic 

growth? 

Secretary LEW. Senator, I think that if you look at the experience 

of the last several years, we are on a path of economic growth. It, 

obviously, took a long time to dig out of the recession from 2008– 

2009, but we are seeing better growth in the United States than 

in a lot of other economies, and we have put in place a number of 

important things. We, obviously, got our economy moving right 

away with the Recovery Act. We put in place financial reforms. But 

we also enacted the Affordable Care Act. So a lot of the policies you 

are talking about are in place, and we are growing. 

In this new budget, what we have proposed is an investment program that we think is what is necessary to build the economy in 

the future. We need infrastructure, we need skills training. 

Senator PORTMAN. Let me just say, again, Secretary Lew, if I 

could, my question was about the impact of taxes on the economy. 

Let me give you an example, just to be sure you know what I 

am talking about. You have the Buffett rule in here again this 

year, and you say we need to increase taxes on what is really investment capital, and the latest Joint Tax Committee analysis of 

this says that it essentially creates a 30-percent minimum tax on 

income over a million bucks, raises $71 billion over 10 years, and 

payroll taxes count toward the minimum, phased in. 

26 

Most of the taxes, they say, are going to hit capital gains and 

dividend income—so that is basically what we are talking about 

here—which help fuel investment, which brings economic growth. 

Let me ask you this, just as an example. Is it possible that such 

a steep tax increase for these kinds of investment income could reduce economic growth by even 1/40th of 1 percent; in other words, 

from 2.445 percent, which is projected, to 2.420 percent, 1/40th of 

1 percent? Is that possible that those kind of taxes on investment 

income could do that? 

Secretary LEW. Senator, I am happy to go back and look at different estimates. On the back of an envelope, it is hard for me 

to—— 

Senator PORTMAN. Well, the reason I ask you that is because, if 

so, then the entire $71 billion that you are raising through that tax 

is negated by slower economic growth. 

Secretary LEW. I think if you look at—— 

Senator PORTMAN. And that is the issue, as you know. 

The CHAIRMAN. I just want to make sure that the other Senators 

get a chance. 

Senator PORTMAN. I am sorry. I was not watching my time, Mr. 

Chairman. 

Let me just make this general point, if I could. I am, obviously, 

disappointed we did not deal with the mandatory side, and I know 

we are going to have to as a body, on a bipartisan basis, and you 

and I have talked a lot about this. There are ways that we can do 

it. 

I am pleased that there is some means-testing still in the budget. 

I know that has been controversial even, but you backed off on 

some other things. But we have to be careful on this tax code that 

we do reform that is pro-growth and that we do not put more taxes 

on this economy at a time when it is much weaker than any of 

us—— 

The CHAIRMAN. We have to go to Senator Brown. 

Senator BROWN. Thank you, Mr. Chairman. 

Secretary Lew, welcome. The President’s budget includes an important expansion of the Earned Income Tax Credit for workers 

without children. Thank you for that. That is reflective of the legislation that Senator Wyden and 30 of our colleagues introduced. It 

will matter for workers without children. It will make it permanent, that is particularly important, as is the cost-of-living adjustment for the Child Tax Credit. Thank you for that. 

This should be a bipartisan effort and a bipartisan issue. It started under President Ford. President Reagan said, I believe, if I 

could paraphrase, it was the best anti-poverty program that the 

Federal Government had. It was championed by Milton Friedman 

and the American Enterprise Institute. It is something we ought to 

be able to pass. 

Some have said, in response to your minimum wage proposal 

from the President, that $10.10 an hour with an increased tipped 

minimum wage and with the cost-of-living adjustment in it, that 

we should do the Earned Income Tax Credit instead. Let me just 

ask one sort of central question about this. 

Last week, I did a hearing on this committee, in the Subcommittee on Social Security, Pensions, and Family Policy, about 

27 

people’s retirement security, and it is clear there is a huge number 

of Americans, moderate- and low-income Americans, who have really only one leg of the 3-legged stool. They do not have—they certainly do not have a defined pension benefit. If they have a 401(k), 

there are just a few dollars, without much security, and they have 

very little or no savings. 

So the issue, in many ways, for retirement security is, what are 

we doing about wages in this country? We know that worker productivity has almost doubled in the last 35 years. We know profits 

are high. We also know wages have been stagnant for most Americans, and we know the minimum wage has 20 percent, 30 percent 

less buying power than it did 2 or 3 or 4 decades ago. 

Taking all of that together, talk to me about the importance of 

both a minimum wage increase and an Earned Income Tax Credit 

expansion in two ways. One, what does it mean to economic 

growth; and second, what does it mean long-term for those workers 

who are retiring 10 and 20 years from now after being in the lowest quartile or the two lowest quartiles of income earners? 

Secretary LEW. Senator Brown, I think that my answer to your 

question is, in a sense, the answer I would have given to Senator 

Portman if we had had more time. 

So I am going to kind of combine a couple of ideas in answering. 

We need to focus on growth in this country, and we have had no 

lack of income at the high end over these years, when we have seen 

a leveling off and shrinking of income in the middle and entry level 

of the workforce. 

I do not think there is anyone who doubts that when you raise 

the minimum wage, every dollar people earn is spent. It does not 

answer the question about saving for retirement, but it certainly 

does answer the question about getting that money back into the 

economy and stimulating economic activity. 

The EITC has been the most powerful engine to get people out 

of poverty and get them to work. Young people who are trying to 

work their way through college at low income ought to have the 

benefit of an EITC. Again, they are going to spend the money that 

they have disposable. 

Our challenge in terms of retirement savings is to get people 

started saving and to do it in a way where it is a habit that develops early and builds as people’s disposable income grows. That is 

why, even though it is a small number, the myRA is so important. 

Almost anyone can put away $5 a pay period. When you can put 

away $100, all the better. But you have to get started, and too 

many people wait too long. 

I think that we have to be kind of honest with ourselves about 

the tradeoffs within the system. If we are going to have a fiscal policy that is fair and balanced, if we are going to meet our deficit targets, we are going to have to focus on the areas that are really critical to growth. And we think that the tax proposals in this budget 

put burdens where they can be borne—and in a way that is consistent with economic growth—and invest in the things we need to 

do as a country to make sure the engine of economic growth picks 

up speed, and infrastructure and skills training are part of that. 

Though that was not what you asked about, it is on a continuum. 

So I actually think one has to look at these proposals in the whole 

28 

and look back not just to 2008–2009, but over the last several decades. What are we going to do to change the direction of middleclass income in this country? And I think our budget does that. 

Senator BROWN. Thanks. I would add, for my last 20 seconds, a 

higher minimum wage, as you said—if you raise it to $10.10, it 

does not mean they are going to put $25 a week into savings. But 

it does mean a couple of things. It means that others get raises a 

little higher than that. They may be able to save a little bit under 

myRA. It also means their Social Security benefit will go up a little 

bit, because the lowest-wage workers, obviously, have the lowest 

Social Security benefits too. 

Secretary LEW. And look, at a very fundamental level, anyone 

who works full-time in this country ought to take home a paycheck 

that is at least at the poverty level. 

The CHAIRMAN. The clock is running in our favor. The vote has 

not started. 

Senator Cardin then Senator Bennet. 

Senator CARDIN. Thank you, Mr. Chairman. 

First, I want to welcome Senator Warner to our committee. It is 

great to have him here, and I know that he will be a great addition 

to the committee. So welcome. 

Mr. Chairman, it is nice to have you as our chairman, and I congratulate you on your elevation, and we look forward to working 

together as a team for our country. 

I particularly appreciate your initial questions to Secretary Lew 

in regard to the Ukraine and tools that are available. It is a very 

dangerous situation, not just for Ukraine, but globally. 

I had a hearing yesterday on the East Asia and Pacific Subcommittee, and we were talking about the security issues in the 

South China Sea and China’s reaction to what is happening in the 

Ukraine and what options they may use if there is not a robust response to what Russia has done in Ukraine. 

I had a hearing just this morning, which is the reason I was late, 

with the Helsinki Commission on the Western Balkans, and, clearly, what is happening in the Ukraine affects the attitude of countries to respect borders around the world. So every tool we have at 

our disposal needs to be utilized to make it clear that Russia cannot violate its international commitments in regard to Ukraine’s legitimate borders. 

Let me also comment just very briefly on the budget. Mr. Secretary, I know you had a very difficult choice. The budget numbers 

are compromise numbers. They are not what we all would like to 

see, and we all would like—and the administration has been very 

clear about this—a long-term budget agreement that, yes, deals 

with tax reform and revenue, so we have some predictability in our 

tax code to help businesses, and continues the progress made in 

bringing down health care costs, which will bring down entitlement 

spending. 

And that is what we need, to get that predictability in our budget. And that is the thing I hear most from the private sector on at 

least job growth: predictability is key to making decisions. And the 

administration has worked very hard and been very bold about 

putting forward suggestions in that regard, and I applaud you for 

29 

that, because it does lead to job growth, as Senator Warner has 

been talking about, and Senator Brown and others. 

Yes, we need to do a better job at job growth. We have to have 

a budget that allows us to invest adequate money in education and 

research and infrastructure. That is how we create jobs. But let 

me, in the few minutes I have, raise a question where we have 

some agreement and disagreement, and that is retirement savings. 

We have talked about this before. 

In the best of times, we did not save enough as a Nation, and 

we did not put enough away for retirement. In tough times, it is 

even more difficult. And Senator Brown is absolutely right in regard to the minimum wage and in regard to the EITC. These are 

valuable tools that give stronger ability to workers to be able to put 

money away for their retirement, and myRA, I think, is a good first 

step. I think that is a good idea. 

I remember when I was in school, we put a little bit away every 

week for U.S. savings bonds. I think it makes sense to get people 

as early as possible putting money away. 

But we have shown what works and what does not work. And 

things that work, like the Saver’s Credit, let us build on that. Automatic enrollment, that works. But we also know that low-wage 

workers are not inclined to put money away just because there is 

a tax advantage. They need money on the table, and that is where 

the Saver’s Credit comes in, but that is also where employersponsored plans come in. 

My concern is that you, once again, have put a cap on tax benefits to limit what you can put away in preferred retirement options, 

which could have unintended consequences of terminating more 

plans, allowing less people to be covered by retirement savings. 

So, Mr. Secretary, I want to work with you, because I think there 

are ways that we can, obviously, work together. There is broad interest on both sides of the aisle to have more robust opportunities 

for people to put money away for retirement and savings. And I 

know that you are open to that, but I wanted to give you a chance 

to comment. 

Secretary LEW. Senator, we are in total agreement about the 

need to create more savings opportunities to get people started, to 

get them on a path toward having a strong amount of personal savings to look forward to in their retirement. 

The proposal we have on limiting the availability of tax benefits 

for savings is very narrow. We do not say that there is any limitation on the amount that one can save. We just say that once there 

is $3.1 million in an account, additional contributions are not eligible for preferred tax treatment. So for most Americans, $3.1 million in retirement savings is 

more than they can even dream of. If we can get everyone to the 

point where they are hitting that limit, we will have succeeded in 

our goal. 

Senator CARDIN. I think you are also limiting the 28-percent deductions on some, and I think there are some additional—— 

Secretary LEW. The 28-percent limitation applies to a very broad 

range, and that is really just saying that people in the highest income bracket should get the same value for their tax deductions 

and credits as people who earn $250,000 a year. It does not take 

30 

away a tax deduction. It just caps it at the amount that is benefiting people who are kind of at the beginning of the high end. 

Senator CARDIN. We will continue the discussion. 

Secretary LEW. We will continue the discussion. 

The CHAIRMAN. Thank you. 

The very patient Michael Bennet. 

Senator BENNET. At long last. 

Mr. Chairman, first, I would like to welcome my friend, Senator 

Warner from Virginia, to the kids’ table. It is nice to be sitting at 

the big kids’ table, but that will happen in time. 

Senator WARNER. I am feeling younger and younger in this committee. 

Senator BENNET. Thank you. 

And, Mr. Chairman, congratulations to you. We are all delighted 

that you are chairing the committee, and my hope for you and for 

all of us is that this committee can become the model of bipartisanship that this Senate and this Congress needs. 

I met before I came here this morning with my county commissioners in Colorado, and it is the most diverse array of people you 

could imagine. Every political party was represented, urban and 

rural areas were represented, people with very strong convictions 

and disagreements who very easily came together on the six priorities they have for the State of Colorado. And the discussion we 

had suggested that the next 15 things on the list, if there were 

room for them, we could all agree on. 

And I think one of those things, Mr. Secretary—welcome back, 

by the way—really is infrastructure. You have heard that throughout the committee’s questions today. Mark Warner has a bill; I 

have a bill called the Partnership to Build America Act. It has 

seven Republicans, five Democrats, and an independent on it. That 

is pretty good. And I know of the chairman’s interest in it. 

But I would ask, first, that you take a look at that bill, and, if 

there are ways in which we can improve it, I would love to hear 

about it. I do not know whether you have followed it at all, but I 

would just encourage us to imagine that we can actually do something on infrastructure in this committee. And I do not know if 

there is anything else you would like say about it. 

I guess I have one last thing, and then I will shut up. I had the 

occasion recently to visit Union Station in Denver, where we have 

built a passenger rail station, a heavy rail station, a light rail station, a bus station. I was working for the Mayor of Denver when 

all this started. 

It has a bunch of local money, and $1 billion in Federal money. 

You cannot find another example of what we have built in Colorado 

unless you go abroad. And I am really proud of what people did 

there because, when you stand there, what you say to yourself is, 

‘‘This is too big an asset for what we have right now.’’ But what 

you realize is that, 50 years from now, somebody is going to stand 

there and say, ‘‘You know what? It was really good that somebody 

50 years ago thought about us.’’ 

I think that is what our parents and grandparents thought when 

they built the infrastructure that we are not now maintaining, 

much less building the infrastructure we really need in the 21st 

century for our kids. 

31 

So there is a little bit of a question in there, but I am going to 

turn it back over to you, Mr. Secretary. 

Secretary LEW. Well, Senator, I could not agree more on the need 

and the gratitude that we have to past generations, and that we 

should hope future generations have to us. 

The infrastructure that was built in this country in the 1930s, 

the infrastructure that was built in this country in the 1950s and 

1960s, is what has built the economic foundation for growth in the 

United States. That is not going to last forever, and we have to be 

on the job, and we have to make sure that we leave behind infrastructure that can mean a 21st century and beyond of sustained 

growth and leadership in the United States. 

We have looked at the legislation that you have put in, and I 

think there are a lot of points of overlap between that approach 

and ours. We have, obviously, proposed taking the business tax reform debate and moving it aside, doing business tax reform and infrastructure together while we pursue broader comprehensive tax 

reform. 

I think that the obstacles to broader comprehensive tax reform 

will bring us back to some of the divisive issues on fiscal policy. On 

the business side, there is a lot more basis for consensus, and I 

hope we can make progress. 

Senator BENNET. I guess I would suggest, on that point, and I 

hear you and understand it, I do not think we need to get tangled 

up on all that. 

We obviously do need to do comprehensive tax reform, but God 

knows when that is going to happen. And this is a modest, in some 

sense, amount of money, $50 billion we are talking about, to capitalize. We do not have to reform the whole tax code to get it back. 

But in any event, let us keep working on it. 

Secretary LEW. We are happy to work with you. Let us do something now. 

Senator BENNET. Speaking of taxes, when I look at the code, I 

often think what is embedded here is really a fight between the future and the past, and you have a bunch of incumbent interests 

that are protecting those incumbent interests, and what it threatens is the innovation in our economy, and that is important to me 

because of all the questions we heard today about median family 

income continuing to fall. 

I do not think we solve that problem without educating our people and without having the most innovative ecosystem on the planet, because it is the jobs that are created next week and the businesses that are created next week that matter. 

The budget contains several tax proposals, I think, that are consistent with that. It strengthens the research and development tax 

credit and makes it permanent. It also permanently increases the 

amount of startup expenses that small businesses may deduct. 

I wonder if you would take your last seconds here to tell us how 

else this budget is intended to support, or the tax provisions in particular, support innovation in this country. 

Secretary LEW. I think you have put your finger on the primary 

drivers. Obviously, what has made our economy the cutting-edge 

economy is our innovation and our ability to translate technical 

and scientific breakthroughs into commercial endeavors. 

32 

We should have a tax code that encourages that on a predictable 

basis, where it is not changing constantly. We have tried to make 

some structural changes in how we would provide the tax credit for 

research and experimentation to make it meet the needs of businesses today and not looking back 20 years. 

I think we always have to look forward. We cannot have a tax 

code that was designed to deal with the challenges of either 1960 

or 1980. We need a tax code that deals with the challenges of the 

21st century, and we have tried to put proposals together that do 

that, and I look forward to working with this committee to get that 

accomplished. 

Senator BENNET. Thank you. Thank you for your testimony. 

Thank you, Mr. Chairman. I was talking about my county commissioners earlier, and I would say that, speaking of predictability, 

not a single one of them said that they had ever passed a continuing resolution as a way of resolving their budget issues. 

With that, I will yield the floor. 

Senator HATCH [presiding]. Thank you, Senator. 

We will turn to Senator Roberts now. 

Senator ROBERTS. Well, thank you, Senator. I had some glowing 

remarks about the chairman, and, of course, we are talking to an 

empty chair here. [Laughter.] 

I did not mean that to reflect poorly upon the chairman. But at 

any rate, he is originally from Wichita, KS, and they are now discovering his chairmanship. They are very proud, and they are 

going to besiege the chairman with the milk of human kindness 

and humble requests, maybe a little frankincense and myrrh and 

a little bonus depreciation for the aircraft industry, if that works 

out. 

But I have a lot of pride that a good friend and a colleague has 

now become chairman of this committee. People ask me how I get 

along with Ron Wyden, and I say, everybody gets along with him. 

You might not agree with him, but everybody gets along with him. 

That is rare in these times. 

Mr. Secretary, one of the issues—like Senator Burr has referred 

to, and Senator Isakson—I am always asked about on my visits 

home is whether anybody will ever be held accountable for the 

scandals at the IRS. 

Let me just say that I have introduced legislation, along with 

Senator Flake—let me get to that here. The bill would stop the IRS 

from intimidating or targeting groups for their beliefs. Forty other 

Senators have cosponsored this bill. Last week, the House passed 

very similar legislation. 

I hope this is on the fast track, and it would simply halt further 

action on the IRS’s proposed regulations until ongoing investigations are completed by the Justice Department, the House Ways 

and Means Committee, and this committee, the Finance Committee. I do not think it is controversial. Just let the full light of 

day shine on these practices before allowing the IRS to move to 

new restrictions on any political activity. 

So the bill freezes further IRS action for 1 year and would make 

it clear that the IRS can only enforce the regulations that were in 

place before all this mess began. 

33 

Mr. Secretary, do you think it is appropriate to propose more regulations before the relevant committees, including this committee, 

have completed the investigation of the IRS actions? 

Secretary LEW. Senator, I think that your characterization of no 

one being held accountable is something that does not reflect what 

we have done. We brought in a new IRS Commissioner. He replaced all of the intermediate levels of leadership in the chain to 

the incident that we have said was unacceptable and had to be 

something that was fully investigated and never done again. 

Policies were put in place to change the practices, and, as I think 

we all know, the Inspector General report had a recommendation— 

all the things that I described were recommended, but it had an 

additional recommendation that the rules need to be clarified, because part of the problem is unclear rules. 

We have put out for comment a preliminary approach which, I 

might add, does not even provide all the detail, because we said in 

order to develop the detail, we needed comment from all parties. 

Senator ROBERTS. I know it does not have all the details. I am 

concerned about that. Let me just—— 

Secretary LEW. Well, that reflects—— 

Senator ROBERTS. I know your clarification argument with regard to all this. 

Let me ask another question. In developing these regulations, 

why did the IRS limit the new rules to (c)(4)s and not apply them 

to other regulated not-for-profit organizations, such as unions? 

Secretary LEW. Well, the proposed rules went out and asked for 

comments on a broader range of areas. The final rules have not 

been written. 

I think one of the reasons for going out was to get comment, and 

we have gotten it from right and left. There are over 150,000 comments. It is going to take a while to go through the comments. I 

am not sure that any rule has gotten more comments, and we are 

going to go through them as quickly as—— 

Senator ROBERTS. Why do we not just wait until the investigations are over, and then you could take a look at that? I think only 

one person was fired. Everybody else retired without any sanctions, 

and that was voluntarily. 

Let me just ask you the basic question here, because I talked to 

Mr. Fix-It, which is how I refer to the new man there. He indicated 

that he was just going to try to fix things at the IRS and that he 

did not have anything to do with the investigation, other than trying to get things behind everybody. 

But is the Internal Revenue Service equipped to regulate political activity? Should we not reduce or eliminate the agency’s role 

in this area and keep regulations and politics where it belongs, 

that is, with the Federal Election Commission? 

I do not know why on earth we had to go down this road. 

Secretary LEW. Senator, the rules in this area have evolved over 

a long period of time. The clarification proposed is intended to start 

a process of clarifying it so that there will not be any kind of ambiguity, and we look forward to working with Congress going forward 

as we review the extensive amount of interest that is reflected in 

the comments. 

34 

Senator ROBERTS. I am 24 seconds over time. I do not see anybody else. I would say to the acting chairman, I just have one other 

request, that the article by Bradley Smith back on February 26th 

in the Wall Street Journal be put in the record at this point. 

Senator HATCH. Without objection. 

[The article appears in the appendix on p. 97.] 

Senator ROBERTS. It really gets to the heart of the matter. Everybody asks, how did this happen, how did this start? 

On February 16, 2012, seven members of the majority wrote to 

the IRS asking for an investigation of conservative organizations. 

I am not saying that is where it started to begin with, but that 

surely gave it a push, and I think that is pretty obvious, and I really regret that that happened. 

My time is up, although you know, I would tell the acting chairman, if that is the appropriate term, that Senator Wyden, when I 

was chairman of the Intelligence Committee and we were trying to 

confirm General Hayden as the CIA director, asked for 20 minutes—we had 20 minutes at that time, not 5, not that I am saying 

we should subject you to 20 minutes, sir. But at any rate, then he 

asked for another 20 and another 20. Now, that is an hour. 

So I am probably over here about 1 minute and 40. Maybe I 

could have an account or something. I could sort of bank on that 

or something. 

Senator HATCH. I think what I am going to do is ask one last 

question, if I can. 

Senator ROBERTS. I appreciate that. 

Thank you, Mr. Secretary, for coming. 

Secretary LEW. Thank you, Senator. 

Senator ROBERTS. I appreciate it. 

Senator HATCH. We are kind of ping-ponging. I went over to the 

first vote, and Senator Wyden will be back, but hopefully this will 

not be much longer. 

In one of the darkest moments in modern political history, President Nixon sought to use the IRS to target his political enemies, 

and, thankfully, for the sake of our Nation and our democracy, the 

IRS Commissioner at the time stood up to the President and the 

White House and refused to allow the IRS to be used for political 

purposes. 

And just as the IRS Commissioner decades ago had a clear role 

in rejecting or approving President Nixon’s recommendations to 

target Americans based on their political views, the IRS Commissioner of today, John Koskinen, has a clear role in rejecting or approving the current proposed IRS regulations that, if finalized, will 

make it more difficult for Americans to speak out against bad public policies. 

Treasury regulations make clear that the IRS Commissioner can 

block proposed regulations prior to those regulations moving up the 

chain to the Treasury Department to become final. In other words, 

if Commissioner Koskinen is opposed to the IRS regulations and 

truly committed to restoring the credibility and the reputation of 

the IRS, as he claims, he can block the regulations from moving 

forward. 

Now, Secretary Lew, if you approve of those regulations, then I 

must say you are wrong, but can you at least confirm that—and 

35 

I am not saying you do—but can you at least confirm that the IRS 

Commissioner has the authority to choose to not approve making 

the IRS targeting regulations final and that he may exercise that 

authority free of influence or pressure from Treasury and/or the 

White House? 

Secretary LEW. Senator Hatch, I think you and I agree 100 percent that the IRS should be totally apart from politics, and I think 

we all learned in the 1970s of the danger of crossing that line. 

I also know that the investigations that we have done in terms 

of information available to us—and I hope this is confirmed by the 

investigations that you conduct—is that there was no political activity behind the very bad judgment that was exercised in the case 

of the 501(c)(4) reviews. 

I think the development of regulations between the IRS and 

Treasury is a well-established practice, where there is a policy discussion that goes on and Treasury plays a lead role in developing 

tax policy, but IRS plays a critical role in the implementation of it, 

and one has to inform the other. 

So I can guarantee you that the process here will be full and fair 

and open. The 150,000-plus comments are going to take a while to 

go through, but everything will be reviewed. That is what should 

happen on an important policy matter. 

Senator HATCH. Sure. Sure. But I think what I am asking is, do 

you agree with my view that Mr. Koskinen can stop this, if he 

wants to, just like the IRS Commissioner during the Nixon administration? 

Secretary LEW. Yes. In the role of approving policy as opposed to 

enforcement actions, enforcement actions are totally in the domain 

of the IRS Commissioner, as is appropriate. Policy is signed off on 

jointly by the IRS Commissioner and the Assistant Secretary for 

Tax Policy, and both have a role to play there. 

Senator HATCH. Now, let me get this straight. We have had this 

situation arise where it looks like the IRS is being misused and 

that some people have acted improperly at the IRS. We are in the 

middle of an extensive investigation on that, a bipartisan investigation, by this committee. 

All I am asking is that, if Mr. Koskinen decides to resolve this 

matter, he has the authority to do so. That is all I am—— 

Secretary LEW. Well, I tried to answer the question. If I was not 

clear—— 

Senator HATCH. You are going back and forth and all around. 

Answer it ‘‘yes’’ or ‘‘no.’’ Does he have the authority to say, we are 

going to stop this? 

Secretary LEW. He does sign off on policy regulations, as does the 

Assistant Secretary for Tax Policy. So both have signoffs. It takes 

both. 

Senator HATCH. In other words, if he decides that they have gone 

too far and that this is improper, he still has to get your approval 

on the regulations. 

Secretary LEW. When we publish rules, both the IRS Commissioner and the Assistant Secretary for Tax Policy sign off on them. 

So what I am saying is, those are the two approvals that go in. And 

I am not going to characterize for what reasons he would or would 

not exercise that judgment. That is, obviously, something that is 

36 

his judgment to make. But he does sign off as IRS Commissioner. 

All IRS Commissioners sign off on regulations. 

Senator HATCH. Well, let me just ask it a different way. Yes or 

no: can the IRS Commissioner choose to stop the rule absent your 

or the White House’s pressure? 

Secretary LEW. Well, I am trying to respond to your question, 

Senator, and it—— 

Senator HATCH. Well, I think the answer is clear. He ought to 

be able to. 

Secretary LEW. He does have the authority to either sign off or 

delegate to his deputy the right to sign off. He also has the right 

not to sign off. 

Senator HATCH. No. But if he does decide to—— 

Secretary LEW. I am just not going to speculate on what motivation goes behind the decision—— 

Senator HATCH. Well, you cannot decide what he is going to do. 

Secretary LEW. Yes. 

Senator HATCH. But the thing I am trying to establish is, he has 

the right to stop this type of stuff. 

Secretary LEW. He either decides to sign off or not, yes, 

Senator HATCH. Right. All right. I think that is all I need. 

Could I ask one other question? 

The CHAIRMAN. Yes, you can. As it happens, I am getting ready 

to ask another one as well. So, please. 

Senator HATCH. Let me just ask one more question. 

Secretary Lew, I have been watching with deep concern Russia’s 

use of economic and trade measures against the new Ukrainian 

government. Now, this is part of a larger pattern, it seems to me, 

of Russian economic coercion, certainly against its neighbors, for 

nothing but political reasons. 

In a letter I sent yesterday, I raised my longstanding concerns 

with Russia’s actions and its continuing refusal to meet its international economic obligations. In that letter, I urged the administration to use all tools at its disposal to demonstrate to Russia the 

importance of complying with its international obligations and offered to work with the administration to put more tools at its disposal, if necessary. 

Now, Mr. Secretary, do you have any views about the administration’s efforts to improve Russia’s compliance with its international obligations, which existing policy tools are not being fully 

utilized, and what further tools can be used to bring pressure to 

bear on Russia and to bolster our friends and allies in the region? 

Secretary LEW. Senator, as I tried to make clear at the beginning 

of this hearing, it is a very important matter for us to be clear that 

Russia’s actions are unacceptable and that there have to be consequences, but there also has to be a path for Russia to take to step 

back, and we are going to respond in a way that is responsive and 

proportional. 

And we have already taken actions with regard to the G–8 meetings, which are very important to Russia. We have taken action 

with regard to a trade delegation that was supposed to be negotiating the binational investment treaty, which has been called back. 

We have taken action by keeping a presidential delegation from attending the Paralympics—again, very important. Russia put a huge 

37 

amount into the Olympics and the Paralympics, and not participating is a clear sign. 

Our policy is clear that they have to politically and economically 

feel the isolation that comes from acting in a way that is inconsistent with international law. The President has made clear that 

he has asked for other options. We are developing those options. I 

am going to leave it to the President to decide what options to exercise. But we are, obviously, looking at what other steps would be 

appropriate. 

Senator HATCH. Mr. Secretary, the parts of the budget that have 

been made public so far do not seem to have much, if anything, to 

say about promoting growth through trade, including the TransPacific Partnership, or TPP, and the Transatlantic Trade and Investment Partnership, or TTIP. 

Now, I noted that in the page-and-a-half section of the budget titled, quote, ‘‘Cuts, Consolidations, and Savings,’’ the President calls 

for a grant of authority to him to submit proposals to organize the 

executive branch via a fast-track procedure. However, I am not 

aware of any call by the President in the budget for fast-track authority to negotiate our trade deals, called Trade Promotion Authority, or TPA. 

Now, Mr. Secretary, given the potential for trade deals to grow 

the United States economy and create domestic jobs, is TPA simply 

not a priority for this administration? 

Secretary LEW. Senator, I think the President made clear in the 

State of the Union address that Trade Promotion Authority and the 

two agreements, the Pacific agreement and the Atlantic agreement, 

are both important priorities, and we want to work with this committee on a bipartisan basis as the chairman takes a look at how 

to move TPA forward. 

Most importantly, we want to move forward on both TPP and 

TTIP so that we can bring the kind of high-quality agreement that 

will help promote U.S. economic growth, world economic growth, 

back to the Congress. 

It is an area where I hope we can have bipartisan cooperation. 

Senator HATCH. I hope so too. 

Secretary LEW. We agree. 

Senator HATCH. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Hatch. 

Secretary Lew, on this matter of the 501(c)(4)s—and I was out 

of the room, and thank you, Senator Hatch, for your graciousness 

so I could make the votes. But we have had a number of colleagues 

raise this issue, and, of course, I am sort of parachuting into this 

matter, because, as you know, Chairman Baucus and Senator 

Hatch and the Finance Committee staff, on a bipartisan basis, have 

been working on this. 

They have interviewed 28 IRS employees and received approximately 500,000 pages of documents. It is my hope and expectation 

that this report will be ready for release next month or in early 

April. 

Senator Hatch and I have agreed, and I thank Senator Hatch for 

his thoughtfulness, that we are going to meet every week, and it 

is my intent to work with him in a thoroughly bipartisan way on 

it. And it just seems to me that it is not appropriate for this comVerDate Mar 15 2010 20:32 Oct 27, 2014 Jkt 000000 PO 00000 Frm 00041 Fmt 6633 Sfmt 6633 R:\DOCS\90914.000 TIMD
38 

mittee or for the Senate to take action until this bipartisan investigation is completed, and, obviously, we are going to have a big debate when it is over. 

For example, for the long term, I feel very strongly about the legislation. It is the only bipartisan campaign finance bill now on the 

table here in the Senate, the bill I have with Senator Lisa Murkowski. And Senator Murkowski puts it very eloquently. She says 

it is time to apply the ‘‘even Steven’’ rule: the same thing that you 

do for the NRA is what you do for the Sierra Club. 

And so, for the longer term, I think there are a host of opportunities for Democrats and Republicans to get together and get on top 

of this issue. But for the immediate situation, with respect to the 

debate that you have heard this morning—and I have not heard all 

of it—with respect to the 501(c)(4) issue, I just do not believe it is 

appropriate for this committee or for the United States Senate to 

take action until the bipartisan investigation, which, in my view, 

Senator Hatch and Chairman Baucus began in a very thoughtful 

way, is completed. 

So you do not have to comment on that. 

Secretary LEW. I would just like to thank you for acknowledging 

the enormous amount of document production that has gone on. We 

have tried to be cooperative and to provide the committee what it 

needs, and we are looking forward to the committee completing its 

work so we can all see the results and then move forward. 

The CHAIRMAN. Let me talk a little bit with you about tax reform. I think we have a couple more minutes before the vote, and 

you have been very thoughtful to talk to me about some of the approaches for the future. 

As you know, I have about 9 years’ worth of sweat equity into 

all of this and really began it with Rahm Emanuel when we could 

not get a Republican sponsor. Then Senator Gregg sat on a sofa 

with me every week for almost 2 years to get what still is the first 

bipartisan Federal income tax reform bill since the 1986 reforms, 

and then, fortunately, Senator Dan Coats, our colleague from Indiana, was willing to step in when Senator Gregg retired. 

And as you and I have talked about, there are certainly differences between the parties at this point. Revenues would be one 

in particular. But I think there are also some areas for common 

ground that we ought to stake out early, and that is what I really 

want to talk to you about for just a couple minutes, and then I 

want to recognize Senator Thune for his questions. 

By the way, I want to thank Senator Thune for another bipartisan effort you are going to hear a lot about, and that is our effort 

in the digital goods area, where, in areas like cloud computing, 

America has a strong economic advantage, and I thank Senator 

Thune for being willing to work in a bipartisan way on it. 

Secretary Lew, what brought 1986 together was Democrats said, 

we have really seen all of these special interest tax breaks clutter 

up the code. There have been thousands and thousands of them. 

And Republicans said, okay, we are concerned that the tax code is 

incredibly inefficient. It is not doing what is necessary for growth. 

And in effect, both sides said they could support the other. In other 

words, right at the get-go, there was a major opportunity for common ground. 

39 

I think we have found another one. Given the fact that consumers drive about 70 percent of the economic activity in the country, we ought to do something to help the middle class. 

Now, Senator Gregg and Senator Coats and myself and Senator 

Begich have been able to come up with a paid-for middle-class tax 

cut, paid for by, in effect, eliminating a host of the other special 

interest breaks and tripling the standard deduction. 

Give me your thoughts, if you might, for a minute before we recognize Senator Thune. What are other areas where there is opportunity for common ground? In other words, we know that there is 

a difference of opinion on revenues. Do you have any thoughts on 

some other areas that we might stake out early on, given the fact 

that this tax code is a dysfunctional mess? I call it a rotten carcass 

of an economic system. It clearly does not work. What are the other 

possibilities for some common ground early on as we tackle this in 

a bipartisan way? 

Secretary LEW. Well, Mr. Chairman, I know that you have 

worked for years trying to put together bipartisan approaches here, 

and we have talked about some of the technical issues in there and 

what it takes to have bills that truly are revenue-neutral. 

I think that, on the individual side right now, we have seen for 

several years the challenge of getting beyond the fiscal debate, and 

I think the notion of doing revenue-neutral individual tax reform 

is something that would be very challenging without doing a broader fiscal agreement, because it is not likely that, in a generation, 

you do major tax reform and then you come back and you address 

the tax code again. 

So that led the President to the view in July that, while he 

wants to pursue comprehensive tax reform and hopes that we are 

in an environment where we can have a fiscal frame that would 

permit us to make progress there, on the business side, there is 

much more of a coming together of views. There is kind of a convergence of general approaches, where, if we were able to succeed, we 

would do something very good for the economy by having the business tax rate, the statutory tax rate, come down. 

Our average tax rate is already lower because of all the loopholes 

that are bringing many companies special benefits, but our statutory rate is one of the highest in the world. That is an extra burden 

for companies when they want to have their headquarters in the 

United States. It is an issue in terms of base erosion and our international conversation about making sure that we do not have stateless income. 

And I think it has the added benefit that there are one-time savings where you really have two choices. You can either use that 

money to reduce the deficit, which is a laudable objective, so we do 

not discredit that as an objective, or you could use it for one-time 

expenses. What you cannot do is lower rates as if the one-time saving is gone forever, because then you would, in the next period of 

time, be losing revenue. 

That is why the President proposed pairing business tax reform 

with an infrastructure initiative. I think there is the basis there 

where you have seen proposals on both sides that have elements 

of agreement, and I think that it is something that, the more we 

40 

talk about across party lines and with each other, the more we 

have an opportunity to get something important done. 

The CHAIRMAN. Very good. 

Senator Thune? 

Senator THUNE. Thank you, Mr. Chairman. 

Secretary Lew, nice to have you here. Welcome back. 

I also want to welcome our new chairman and really look forward to working with him. As Chairman Wyden mentioned, we 

have worked together on a number of issues: digital goods, digital 

trade; most recently, a letter that we spearheaded, signed by 33 

Senators, in support of maintaining the charitable deduction in tax 

reform, because we believe it is very important in encouraging 

charitable contributions. 

I noticed again that the budget this year did have the 28-percent 

limitation on itemized deductions that many of us think is going 

to negatively impact charitable giving. And I am just wondering 

about the rationale for doing that. Should we not do everything we 

can to increase charitable giving in order to reach those that government cannot or has not been able to assist? 

Secretary LEW. Senator, I think we totally agree that we ought 

to provide incentives for charitable giving, and the limitation actually does not take away the incentive for charitable giving. What 

it does is, it says that the value of a deduction should be capped 

at 28 percent, which is roughly where a $250,000-a-year income 

puts the value of your tax deductions right now. 

I would point out that we have seen tax rates higher and lower. 

We have not seen the small changes on the margin lead to a decline in charitable giving. 

Most people give because they want to give, and there is a tax 

benefit that goes with it. So I do not think we have seen historically that when tax rates went down, we saw a decline in charitable giving. So I actually do not believe our proposal would have 

the adverse effect that some have worried about. 

We have also expressed an interest in working with Congress on 

this, because we do share the goal of making sure that there is a 

strong encouragement to charitable giving. There is so much important work in this country that goes on, not through government or 

through commercial activity, but through the not-for-profit sector. 

So I think we are in total agreement on the importance of it. We 

perhaps do not have exactly the same view of what the impact of 

the limit is. I actually think the history of experience with different 

tax rates supports our analysis. 

Senator THUNE. And I have seen a lot of analysis that suggests— 

I do not think people give because of the tax deduction, but I think 

it does affect the amount they give. I think that it does have impacts, and I have seen a good amount of analysis that suggests 

that capping it would, in fact, reduce the amount that people are 

giving. 

I think people are still going to give to those causes, but I just 

do not think it is going to be on the same levels. 

Secretary LEW. And the only point I would make is, we did not 

see the amount of giving go down when rates came down. So it just 

argues that it is not quite as much, not as variable. 

41 

But we are happy to continue this conversation, because we really do have the same goal. 

Senator THUNE. I wanted to ask too—I know you have probably 

answered many questions on this already, but I get questions from 

my constituents and I think people across the country about the 

whole issue of the bonuses that went out to the IRS employees and 

whether or not it is appropriate that bonuses be paid out at an organization that has so brazenly betrayed the public trust. And even 

if you do not agree—and I do not think you probably do—that the 

targeting of conservative groups was politically motivated, it is 

hard to deny that there was a gross incompetence there and negligence with regard to how the agency processed the applications 

of these social welfare organizations. 

So, do you think that these employees associated with that decision, whether it was politically motivated or not, to target these 

Tea Party groups, deserve bonuses? 

Secretary LEW. Senator, I think it is really important not to describe such a large agency as the IRS as if everyone was involved 

in one activity. We have made clear that what happened in the 

(c)(4) experience was unacceptable. We believe it was bad judgment. You will reach your own conclusion when you complete your 

investigation. We have seen no sign of political interference in any 

of the reviews we have done. 

I think that the policy on compensation for the IRS broadly has 

to reflect the fact that we have an enormous number of people who 

are tireless, hardworking public servants who do a fine job under 

very difficult circumstances, and we are not seeing the level of 

funding for the IRS to make it possible for them to do everything 

that we really need them to do. 

In that world, making sure that we have proper compensation 

and fair compensation is an important thing, and I would just note 

that there was a pause in those payments. There were some collective bargaining issues that arose. And in resolution of it, there is 

a new policy in place. 

Senator THUNE. Well, I would just say, I mean, I know there is 

a law suit and the union issue that you referenced, the collective 

bargaining thing, but there were an awful lot of bonuses paid out 

to executives who were not a part of that lawsuit, too. 

And I just think it is awfully hard to justify to the American people that, in an agency whose credibility has been so badly damaged, that somehow you could pay out bonuses. I mean, I think it 

just flies in the face of everything that is logical to the American 

people. 

To have the American people have to see what has happened 

with this whole episode, which has reflected, I think, very badly on 

the IRS, and then find out that they are being rewarded with bonuses, I mean, this is—— 

Secretary LEW. Senator, I guess I would point to some other 

things happening at the IRS that we, I think, on a bipartisan basis, 

applaud over this same period of time. 

We have implemented the Foreign Account Tax Compliance Act, 

which was a law that passed with bipartisan support, to make sure 

that we would have transparency across country lines so that illegal tax evasion could be stopped. The work done by our IRS on this 

42 

has become the world standard. I go to international meetings, and 

what I hear other finance ministers saying is, we want FATCA for 

all. 

So we have people who have done fine work during this period, 

and I just think we have to recognize that it is a large agency doing 

a lot of things. 

Senator THUNE. And if that is true, and I do not—I mean, I am 

sure there is a big mission, big agency, but we know for sure there 

are certain folks in certain offices who were associated with these 

actions that have, I think, reflected so unfavorably and so negatively upon the agency. 

And I guess the last comment I will make is perhaps a followup question. Is there a way that you can selectively figure out, 

though, how not to reward the people who are doing these sorts of 

things? Reward the people who are doing the good things that you 

just alluded to, but, please, do not reward the people who are responsible for this behavior. 

Secretary LEW. Senator, obviously, the IRS Commissioner would 

be better-equipped to address that than myself. But I would note 

that the senior managers who were anywhere in the chain of command who exercised bad judgment in running the program are no 

longer there, and I think that reflects the seriousness with which 

we took the bad judgment and the consequences of it, and the fact 

that we had an acting Commissioner who took quick and decisive 

action. 

So we very much share the view that anyone who was responsible for doing things that they should not have done does have to 

be held accountable. 

Senator THUNE. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary. 

The CHAIRMAN. Thank you, Senator Thune. 

I have a couple of business matters to deal with, and then we 

can wrap up. 

On the question of hearing from you with respect to the Ukraine, 

Secretary Lew, all we are interested in is getting a sense from the 

Department what kind of guidelines and principles we ought to be 

using in evaluating the host of proposals that have been advanced 

by Senators in terms of holding Russia accountable for the incursion into the Ukraine. 

Obviously, matters like timeliness, their effectiveness, are what 

we want to hear from you on. If you could get that to Senator 

Hatch, that would be great. 

Also, I expect that Senators may want to submit some questions 

to you in writing. We will hold the record open until Friday on 

that. 

Also, just because I know members and staff have some questions with respect to the business meeting that had been noticed 

for this morning, we, obviously, do not have a quorum at this time. 

We do have some organizational issues to work through, and it is 

my intent to consult with Senator Hatch and find an appropriate 

time to convene the business meeting off the floor. 

Secretary Lew, we thank you. We thank you for your patience. 

It has been a long morning, and we did not expect all of these 

votes. 

43 

And on a personal level, I want you to know how much I look 

forward to working closely with you. 

Secretary LEW. Thank you very much, Mr. Chairman, and I look 

forward to the same. 

The CHAIRMAN. The Finance Committee is adjourned. 

[Whereupon, at 12:40 p.m., the hearing was concluded.] 

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A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD


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Æ 


90914057.eps