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22–374 2017

THE PRESIDENT’S FISCAL YEAR BUDGET 

PROPOSAL WITH U.S. SECRETARY OF THE 

TREASURY JACOB J. LEW 

HEARING 

BEFORE THE

COMMITTEE ON WAYS AND MEANS 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 11, 2016 

Serial No. 114–FC10 

Printed for the use of the Committee on Ways and Means 

( 


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COMMITTEE ON WAYS AND MEANS 

KEVIN BRADY, Texas, Chairman 

SAM JOHNSON, Texas 

DEVIN NUNES, California 

PATRICK J. TIBERI, Ohio 

DAVID G. REICHERT, Washington 

CHARLES W. BOUSTANY, JR., Louisiana 

PETER J. ROSKAM, Illinois 

TOM PRICE, Georgia 

VERN BUCHANAN, Florida 

ADRIAN SMITH, Nebraska 

LYNN JENKINS, Kansas 

ERIK PAULSEN, Minnesota 

KENNY MARCHANT, Texas 

DIANE BLACK, Tennessee 

TOM REED, New York 

TODD YOUNG, Indiana 

MIKE KELLY, Pennsylvania 

JIM RENACCI, Ohio 

PAT MEEHAN, Pennsylvania 

KRISTI NOEM, South Dakota 

GEORGE HOLDING, North Carolina 

JASON SMITH, Missouri 

ROBERT J. DOLD, Illinois 

TOM RICE, South Carolina 

SANDER M. LEVIN, Michigan 

CHARLES B. RANGEL, New York 

JIM MCDERMOTT, Washington 

JOHN LEWIS, Georgia 

RICHARD E. NEAL, Massachusetts 

XAVIER BECERRA, California 

LLOYD DOGGETT, Texas 

MIKE THOMPSON, California 

JOHN B. LARSON, Connecticut 

EARL BLUMENAUER, Oregon 

RON KIND, Wisconsin 

BILL PASCRELL, JR., New Jersey 

JOSEPH CROWLEY, New York 

DANNY DAVIS, Illinois 

LINDA SA ́ NCHEZ, California 

DAVID STEWART, Staff Director 

JANICE MAYS, Minority Chief Counsel and Staff Director 


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C O N T E N T S 

Page 

Advisory of February 11, 2016 announcing the hearing ...................................... 2 

WITNESSES 

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

of the Treasury ..................................................................................................... 6 

QUESTIONS FOR THE RECORD 

Chairman Kevin Brady of Texas to Jacob J. Lew ................................................. 100 

Charles W. Boustany, Jr. of Louisiana to Jacob J. Lew ....................................... 101 

Robert J. Dold of Illinois to Jacob J. Lew .............................................................. 108 

Mike Kelly of Pennsylvania to Jacob J. Lew ......................................................... 110 

Richard E. Neal of Massachusetts to Jacob J. Lew .............................................. 113 

Kristi Noem of South Dakota to Jacob J. Lew ...................................................... 114 

Charles B. Rangel of New York to Jacob J. Lew .................................................. 115 

Peter J. Roskam of Illinois to Jacob J. Lew .......................................................... 117 

Patrick J. Tiberi of Ohio to Jacob J. Lew .............................................................. 118 


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(1) 

PRESIDENT’S FISCAL YEAR BUDGET 

PROPOSAL WITH U.S. SECRETARY OF THE 

TREASURY JACOB J. LEW 

THURSDAY, FEBRUARY 11, 2016 

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

The Committee met, pursuant to notice, at 10:05 a.m. in Room 

1100 Longworth House Office Building, the Honorable Kevin Brady 

[Chairman of the Committee] presiding. 

[The advisory announcing the hearing follows:] 


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Chairman BRADY. The committee will come to order. Thank you 

for joining us today. Secretary Lew, welcome. We appreciate your 

time. Welcome today to today’s Ways and Means Committee hearing on the President’s budget proposal for the Department of the 

Treasury for Fiscal Year 2017. 

But before we begin I would like to take a moment to recognize 

a long-time Ways and Means staffer who will be attending her last 

budget hearing today. Margaret Hostetler is retiring in the coming 

days, after serving on the committee staff since 1987. She recently 

worked on Social Security Subcommittee staff, and is the all-time 

expert on budgets, trust funds, debt limits, and more. Her expertise 

extends back even before her time on the committee, to the early 

1980s, when she—do you really want all these years laid out, Margaret, like this? 

[Laughter.] 

Chairman BRADY. Well, when she served on the House Budget 

Committee staff for then-Chairman Bill Roth of Delaware, she 

helped design the Thrift Savings Plan for federal workers, the 

original Gramm-Rudman law in the 1986 tax reform. She is a 

walking encyclopedia of committee and congressional history, and 

we wish her the very best in the next phase of her life. 

Margaret, congratulations on the job well done. 

[Applause.] 

Chairman BRADY. Mr. Secretary, we are not fans of the budget 

the President proposed. I do want to begin by saying thank you for 

the collaborative work and successful work in making permanent 

a number of the temporary tax provisions at the end of last year. 

I think that both creates certainty for our economy and our businesses, and I think lays the foundation for pro-growth tax reform, 

going forward. So thank you for that work with this Committee. 

We are not fans of this budget, because either President Obama 

didn’t take the budget process seriously this year, or he is completely out of touch with the American people. It is hard to imagine 

how he could believe people would support a budget that contains 

a $3.4 trillion tax increase and $2.5 trillion in new spending. 


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For another fiscal year his extremely liberal budget is focused on 

growing Washington, not growing our economy. This document appears to exist solely to promote the President’s liberal legacy. It is 

a disservice to the American people. And while he gets to leave office at the end of the year, Americans will still be expected to pay 

for this irresponsible spending, if Congress were to follow this plan. 

So, instead of solving real problems, this budget just makes life 

more expensive for Americans. 

American people want jobs and opportunity, not higher taxes or 

more wasteful Washington spending. And while I believe the majority of this budget is completely irresponsible, I would like to talk 

to you today about three of my top concerns. First, the President’s plan to increase gas prices by $.25 per gallon is just absurd. Gas prices are low today, but we all know that 

will not always be the case. This new tax would have ripple effects 

across the economy, and constitutes a regressive tax on consumer 

goods and services that would hit Americans with fixed income the 

hardest, especially our senior citizens. 

The good news is the American people do not have to worry 

about this horrible idea. I feel confident that I can speak for the 

24 Republican Members on our committee when I say this tax proposal is dead, and dead on arrival. 

Secondly, I am absolutely opposed to the President’s plan to impose significant new taxes on small businesses, expanding the net 

investment income tax to all small business income. Mr. Secretary, 

our country is already experiencing economic growth, and millions 

of Americans had really just given up looking for a new job. 

So, instead of finding new ways to add additional tax burdens on 

our small businesses, this Administration should do everything 

possible to encourage Americans to start small businesses, hire 

new workers, and build success stories of tomorrow. This new tax 

hike is another proposal that will not see the light of day in this 

Congress. 

And finally, the President’s budget doesn’t address the fundamental problems of our broken Tax Code. Instead, it contains tax 

proposals that will actually make it harder for American companies 

to compete and succeed overseas and hire new workers here at 

home. 

Members of the Ways and Means Committee are working to provide the American people with a better alternative. So instead of 

higher taxes and more spending, we are committed to a pro-growth 

agenda that will help create jobs, increase paychecks, and expand 

opportunities for all Americans. So, despite my objections to many 

of the proposals in this budget, I do hope that we can reach common ground on some policies and build on the momentum from last 

December’s PATH Act, the permanency bill. 

Our first effort must be to address our broken international tax 

rules and the growing threat to American worldwide companies. 

The risks are far greater than many perceive. These companies 

provide good-paying jobs across this country, and they are key partners to the thousands of local businesses in each of our districts 

that supply goods and services throughout the supply chain. 

We simply can’t ignore the broad ramifications of our outdated 

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tunity to move forward in this critical area, I am confident we can 

keep the ball rolling. I am hopeful we can count on working with 

you, Mr. Secretary, to take some important steps toward the progrowth economy every American wants and needs. 

And thank you again for joining us today. We appreciate very 

much your time, and look forward to your testimony. 

With that I now yield to the distinguished ranking member from 

Michigan, Mr. Levin, for the purposes of an opening statement. 

Mr. LEVIN. Thank you, Mr. Chairman. Well, it is interesting to 

hear you attack the budget and then talk about looking for common 

ground. I don’t know how you look for common ground if you won’t 

hear testimony from the person who is the director of OMB. 

I have been here now 33 years. I don’t remember when there was 

a failure to take testimony from OMB directly. I guess this is part 

of a political tactic of the Republican Majority in the House and the 

Senate, but it is beyond explanation. And I think it undermines the 

credibility of all of your attacks. 

The Secretary is here—and, Mr. Secretary, you have presented 

some very comprehensive testimony. I guess you drew upon your 

experiences heading up OMB. And I guess you will have to today 

stand in, in a sense, not only as the Secretary of the Treasury, but 

defending the budget at large. And you do that very, very well, and 

spell out the progress that has been made today and the progress 

that needs to be undertaken in the future. 

But I think it is a lame excuse to talk about tax reform as a reason not to take any steps to address present tax problems. And one 

of them relates to inversions. And, Mr. Secretary, I am going to be 

asking you about this, and I think others will. What has been happening here while the Republican Majority has been essentially 

asleep, in terms of action on tax reform, is that more and more 

companies are moving overseas in name only, in order to avoid 

paying taxation, taxes. 

The most recent example is Johnson Controls. So they are now 

joining Tyco. Tyco, which inverted before, they are now Irelandbased, and they moved their headquarters from New Jersey in the 

1990s. So here you have a company, Johnson Controls, that benefitted dramatically from the action that was taken to save the auto 

industry of this country, led by the Administration. And they are 

essentially using a loophole to draw down their tax payments. 

We have introduced legislation, the Democrats in this House as 

well as the Senate, to address inversions. This Majority refuses to 

act. The CBO, or the tax committee, has indicated that we could 

save over $40 billion—that is the CBO estimate—over 10 years, if 

we would pass that legislation. But you just sit on your hands 

while companies take advantage of loopholes. And you say you 

want tax reform, and you use it as an excuse to do nothing. 

So why not act now on this inversion legislation? Why not? Some 

of you have said it is a problem, but you don’t act. And more and 

more companies are inverting, losing income, and doing something 

that citizens are not allowed to do. Citizens can’t simply change 

their address, maintain their life here, and pay lower taxes. But 

Johnson Controls can do that, Pfizer has done that, and numerous 

other companies. 


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So, I hope today, Mr. Chairman and Mr. Secretary, we will focus 

on actions that can be undertaken right now on loopholes, and not 

use the excuse of needed overall tax reform as a reason to do nothing. 

Welcome, Mr. Secretary. 

Chairman BRADY. Without objection, other Members’ opening 

statements will be made part of the record. 

Our sole witness today is the Honorable Jacob J. Lew, Secretary 

of the U.S. Treasury Department. Secretary Lew was confirmed as 

the 76th Secretary of the Treasury on February 27, 2013. Prior to 

that he served as the White House chief of staff, as well as director 

of the Office of Management and Budget. 

Welcome, Secretary Lew. The committee has received your written statement; it will be made part of the formal hearing record. 

And you have five minutes to deliver your remarks, and please 

begin them when you are ready. Welcome. 

STATEMENT OF JACOB J. LEW, SECRETARY OF THE 

TREASURY, U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Well, thank you, Mr. Chairman, Ranking Member Levin. It is a pleasure to be here for the first time with you 

as chairman, Chairman Brady. And I look forward to this testimony. 

As President Obama said in the State of the Union just a few 

weeks ago, this is a time of extraordinary change. And to make 

change work for the American people, we need to foster economic 

opportunities for all to leverage new technologies, to solve urgent 

problems, such as climate change, pursue a smart foreign policy 

that protects our national security, and work together to improve 

our political discourse. 

What we do in each of these areas is crucial to our future, as a 

nation. Today I will discuss the major aspects of the President’s 

budget, and how it lays out a vision for what we need to do as a 

country, both now and over the next 5 to 10 years and beyond, to 

create growth and to make sure that opportunity is broadly shared. 

In the seven years since President Obama took office amidst the 

worst financial crisis since the Great Depression, we have seen a 

sustained economic recovery and an unprecedented decline in the 

federal deficit. Notwithstanding some of the recent volatility that 

we have seen in financial markets, economic growth continues at 

a solid pace. 

Since my testimony a year ago, our economy has continued its 

record-breaking streak of private-sector job creation, which has 

reached nearly 6 consecutive years and more than 14 million jobs. 

Over the last two years we have experienced the strongest job 

creation since the 1990s. At 4.9 percent, the unemployment rate is 

half of its 2009 peak; real GDP expanded 1.8 percent last year, a 

pace of expansion that substantially exceeded many of our major 

trading partners; and we continue on a sound fiscal path. From 

Fiscal Year 2009 to 2015, the deficit, as a share of GDP, fell by almost three-quarters to two-and-a-half percent. 

Despite this progress, we have much more to do to fully address 

the challenges associated with our new economy. The President’s 

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cial compact for the 21st century, creating the conditions for sustained economic growth, while upholding the basic American belief 

that everyone who works hard should get a fair shot at success. 

It shows that investments in growth and opportunity are consistent with and contribute to putting the nation’s finances on a 

strong and sustainable path, and the budget substitutes more balanced deficit reduction and ends sequestration, while making other 

critical investments and addressing our fiscal challenges over the 

next 10 years. 

Today I would like to briefly focus on three key areas of the 

President’s budget, including our proposals to reform the Tax Code, 

invest in infrastructure, and support working families. 

First, fixing America’s business tax system is essential to promoting long-term growth and broad-based prosperity. The budget 

includes a number of concrete tax reform proposals to make our tax 

system more strong and more fair, including a complete reform of 

our international tax system, and a specific proposal to close the 

inversion loophole. 

While inversions may be legal, it is wrong for companies to take 

advantage of our infrastructure, education, support for research, 

and rule of law, and then avoid paying their fair share of U.S. 

taxes. I look forward to working with this Committee and this Congress to close the door to inversions. 

Second, we need to invest more in modern infrastructure that 

will create middle-class jobs in the short term and meet the needs 

of a growing economy in the long term. To accomplish this, the Administration has proposed a phased-in, $10-per-barrel fee on oil 

production and import that will ensure that we better manage the 

cost associated with fossil fuel use to provide a long-term solvency 

for the highway trust fund, and offer new funding for clean energy 

investments. 

This budget also funds an expanded core infrastructure program 

and takes small steps to level the playing field for private investment and public infrastructure through the Financing America’s 

Infrastructure Renewal, or FAIR, program. 

Third, we must support working families. This budget seeks to 

respond to the changing relationship between workers and their 

employers. For example, it proposes expanded unemployment insurance and introduces a new wage insurance program to help 

families stay on their feet when under-employed as part of a job 

transition. 

This budget also proposes to expand access to workplace retirement savings opportunities, complementing our success with the 

new MyRA program launched last year to help those without savings or retirement options at work begin to save for the future. 

In conclusion, the President’s budget will create a stronger, more 

inclusive economy today and in the future, while also maintaining 

fiscal responsibility. 

Of course, we must also work together to respond to more immediate events. For example, Puerto Rico, where unemployment remains above 12 percent, is experiencing an unsustainable debt crisis. The Administration proposed a comprehensive plan to address 

the commonwealth’s financial challenges, and I encourage Congress 

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islation to permit a financial restructuring, along with new oversight, neither of which cost any taxpayer dollars. 

This budget does not address every challenge we face. As the 

President said in the State of the Union, ‘‘Progress is not inevitable. But rather, it is the product of choices that we make together, as a nation.’’ We face a number of big choices in the coming 

years. For example, we still need to take action to strengthen Social Security to keep true to our commitments to previous and future generations of workers. 

The decade of fiscal responsibility laid out by this budget gives 

us the time we need to address these long-term challenges. In the 

recent agreement on the debt limit and the budget not only demonstrates that we have the capacity to find common ground on difficult issues, but it lays a foundation to address the immediate 

challenges we face. 

I look forward to working with this Committee to make more 

progress over the coming year. Thank you very much, and I look 

forward to answering your questions. 

[The prepared statement of Mr. Lew follows:] 


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Chairman BRADY. Great, thank you, Mr. Secretary, for your testimony. We will now proceed to the question and answer sessions. 

Before we talk tax reform, let me talk tax hikes. The President 

has proposed a major new tax hike on working families, a very divisive $10-per-barrel oil tax, which really is a hidden gas tax that 

would relate to about $.25 a gallon. The time, frankly, paychecks 

have been stagnant for seven or eight years, if not longer, families 

are really struggling—businesses to make ends meet—this is a 

huge, divisive regressive fuel tax increase that really falls on middle-class families. 

And so, the question is, how did the President think this new gas 

tax would help grow the economy? 

Secretary LEW. Well, Mr. Chairman, to begin with, you know, 

the oil fee is a way to help manage resources to reflect the cost that 

consuming oil imposes on our citizens and on our environment. 

At the same time, we have tremendous transportation and infrastructure needs that we need to address. And the oil fee provides 

a basis for both funding the highway trust fund and funding new 

investments in infrastructure and in new technology that will help 

America and American workers today and in the future. 

There is a not exact correlation between an oil fee and what gets 

passed through, so I am not going to comment on the amount that 

would be passed through, but I would point out that it is a $10- 

a-barrel fee that is implemented over 5 years. And if you just do 

that simple division, you know, $2 a barrel, right now we are seeing oil prices move on an hourly and daily basis in amounts that 

make $2 a barrel seem like small, not large, movements. 

So I think this is the perfect time to have a conversation about 

a policy like this, and we look forward to engaging. And we have 

proposed a mechanism to make sure that low-income families that 

have fixed consumption needs and can’t bear any burden have a 

way to get extra help out of it. 

So we would look forward to working to make this something 

that could be implemented in a way that is fair to all Americans. 

Chairman BRADY. Thank you, Mr. Secretary. One, I appreciate 

your explanation of it. My only advice is don’t spend too much time 

on it. It is going nowhere fast. 

I appreciate—while I didn’t see a lot of new proposals on the tax 

reform area within the budget, I know that you have a deep interest in simplifying this code, making it more competitive, sort of 

going beyond the Band-Aids of what we hear about inversions, actually going to the real problem. And I feel like we have got some 

bipartisan momentum because of the permanency bill that we 

passed. 

Can you give me your thoughts on where we may have common 

ground? 

Secretary LEW. I would be happy to, Mr. Chairman. And I—we 

have talked about this on quite a number of occasions. I think this 

is an area where we ought to be able to find bipartisan ground. 

You look at the consequences of delay on business tax reform, 

and they are enormous. We are seeing it in the inversions that 

have already been referred to. We need to stop the inversions, and 

the best way to stop the inversions is to reform our business Tax 

Code. 


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We are also seeing very troubling trends. Just today I wrote to 

the President of the European Commission, objecting to action that 

is being taken in Europe in the name of state aid subsidy actions 

that essentially takes a—makes an attempt to undermine our Tax 

Code by having a tax imposed overseas on what should be income 

in the United States. We need to fix the business Tax Code to get 

that money back. 

If we can do that, if we can close loopholes that are inefficient, 

if we can lower the business tax rates and require that overseas 

income be brought home, we also have the resources to make a significant investment in our infrastructure needs, going forward. I 

think those are ingredients that we ought to be able to make 

progress on. 

What I would say is if we can’t make broad progress on inversions—on business tax reform, we can’t ignore inversions this year. 

Congress needs to act. We can’t look back a year from now and say 

we should have stopped that. We need—Congress needs to act. 

Chairman BRADY. You know, I agree, and especially in the 

sense that there is an urgency. My worry is that we are becoming 

more and more isolated, more and more companies feel their only 

option—and shareholders—is to invert or face a hostile takeover 

from a foreign country. And shame on us—— 

Secretary LEW. Correct. 

Chairman BRADY [continuing]. If we don’t act to stop this from 

going forward. 

So, my sense is you are committed to working with us, trying to 

find that common ground to act this year, if possible, in this area. 

Secretary LEW. I consider this a year of work. We have a lot to 

do this year, and I look forward to getting this done. 

I realize there is not a lot of people who are optimistic about it, 

but we need to put the effort in to create the possibility. 

Chairman BRADY. Yes, I agree. Final point—the IRS is still a 

scandal-ridden agency that just doesn’t have credibility any more. 

You know, nearly three years ago, Treasury Inspector General, the 

watchdog for the tax administration, issued a report confirming the 

IRS did use inappropriate criteria to identify applications for taxexempt status for extra scrutiny. The targeting of American citizens based on their political beliefs highlights the potential avenues for abuse within the agency, and the many ways in which the 

discretion afforded within the Tax Code can be manipulated and 

exploited. 

My view is the IRS’s actions have completely demoralized the 

IRS from within, caused American people to lose confidence in it. 

To date, to my view, Treasury and IRS have taken no concrete 

steps to restore that credibility and ensure this abuse of power 

doesn’t happen again. Just the opposite: IRS proposed a new rule 

that would make it easier for them to target Americans. 

Furthermore, this Committee asked GAO to review the whole 

IRS selection process, and the GAO concluded it is still possible for 

American citizens to be targeted for audits based on the political, 

education, or religious beliefs, which is why, in the permanent 

PATH Act, we have for the first time a ban on the IRS targeting 

Americans for their political beliefs or using personal emails for 

business. 


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So, my question is, I know you too want an IRS that is credible 

again, that is neither seen Republican or Democrat, but actually is 

following the law in how they audit and how they handle these tax 

applications. What is Treasury doing to restore the credibility of 

the IRS? 

Secretary LEW. Mr. Chairman, I think you and I agree completely the actions that gave rise to your concerns were unacceptable. And action was taken immediately to replace all of the senior 

people involved, and to make sure that it could never happen 

again. We brought in a new IRS commissioner, who I think has 

done a tremendous job under very difficult circumstances at a time 

when the funding for the IRS budget being cut was causing huge 

morale problems at the IRS, not the issue that you are describing. 

It was the fact that they didn’t have enough people to answer the 

phones. 

Last year we made some progress. We actually saw, for the first 

time in several years, an increase in the IRS budget to fund answering the phones, to help us deal with cyber security threats, to 

help us fix our computer system. I think the IRS is doing a tremendous job. The 90,000 people at the IRS who did nothing wrong have 

been criticized for what a few people that we all criticized for their 

actions did. 

We need to support the people at the IRS so that they can run 

a tax system that is worthy of our country. We can’t not have people to answer the phone or enforce the Tax Code. 

Chairman BRADY. My belief is this IRS commissioner is less 

credible than the one before, who was less credible than the one 

before that. And the line of work has to be done—you will hear 

from Members today about the abysmal service at the IRS, and the 

real problems still there. 

So, look, we are going to disagree in a big way, and this Committee is going to pursue this until we are sure Americans can’t be 

targeted, and they are getting the service they need. 

Secretary LEW. You have 100 percent agreement from us that 

Americans should not be targeted for their political beliefs. That is 

unacceptable. Whoever does it is wrong, if they do it. And that is 

the view of the Administration, it is the view of the IRS commissioner, and I look forward to working together to make sure we can 

build confidence in that, because that is very important. 

Chairman BRADY. Thank you, Secretary. 

As I turn to Mr. Levin I would like to note that, while he lamented OMB not being invited for this fiscal year budget, as 

though that happens every year, the truth is last time OMB has 

testified on the President’s budget at Ways and Means was in 2011 

on that 2012 budget, and the OMB director at the time, I am pretty sure it was you, Secretary Lew—— 

Secretary LEW. I seem to be invited to testify wherever I am sitting. 

[Laughter.] 

Chairman BRADY. That doesn’t seem to be a problem. 

Mr. Levin, you are recognized. 

Mr. LEVIN. Oh, but look, the budget director isn’t being asked 

to testify before the budget committee. 

Chairman BRADY. We are the Ways and Means Committee. 


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[Laughter.] 

Mr. LEVIN. I know, but there is another committee called the 

Budget Committee. Defend why the Budget Committee is not asking the director of OMB to testify. 

Chairman BRADY. Well, I will tell you what. I will give you Mr. 

Price’s phone number, and you can visit with him shortly about it. 

[Laughter.] 

Mr. LEVIN. No, my suggestion is you have his phone number, 

call him up and ask why. 

Chairman BRADY. I think we will get a chance to explore that 

in a moment. 

Mr. LEVIN. Mr. Price? Where is—— 

Mr. PRICE. Will the gentleman yield? 

Mr. LEVIN. I will yield. 

Mr. PRICE. Well, I appreciate that. We are on a short timeline 

this year in order to get the budget done, and so the—— 

Mr. LEVIN. All right. 

Mr. PRICE. And as a matter of fact—— 

Mr. LEVIN. I will take back my time 

Mr. PRICE [continuing]. When the President’s budget came to 

the floor, only two Democrats voted for it out of the entire Congress 

in—— 

Mr. LEVIN. Okay. But look, that is not, Mr. Price, a reason not 

to hear from him. That is worse than a lame excuse. 

Let me just say you said shame on us, Mr. Chairman. When it 

comes to these loopholes, really, it is shame on you. So I want to 

ask the Secretary, because we favor corporate tax reform, looking 

at it. This has been going on for years. Is there good reason not 

to act on the inversion issue because we have failed to act on corporate tax reform, Mr. Secretary? 

Secretary LEW. Congressman Levin, I would have to say that 

the right thing to do is to reform our Tax Code, because the problem in our Tax Code is we have these huge inefficiencies, loopholes, 

deductions, and rates that are statutory rates that are too high. 

But we have to deal with inversions. If we can’t deal with the 

whole Tax Code, I don’t think that we can justify—I can’t; I hope 

this Committee can’t justify—doing nothing while another year of 

inversions goes on. 

We are doing everything we can, administratively, to stop inversions. We have put out two pieces of guidance that have had some 

effect. We are working on another one. But we have made clear 

from the very start the only way to stop inversions is through legislation. 

So, if you gave me a choice, I would choose business tax reform 

that fixes the problem properly. But if that can’t happen, I strongly 

urge that you look at doing something on inversions, because I 

don’t think anyone a year from now is going to look back and say 

they didn’t do anything, while more companies moved overseas. 

Mr. LEVIN. All right. Let me ask you. Related to that is the 

issue of earning stripping. And there has been recent discussion 

about how, when companies invert, they then utilize earning 

strippings to make it worse. And we are gong to be introducing legislation once again relating to this. 


ralbany on LAP520R082 with HEARINGS
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Just tell us what you think about this, and the limits on your 

authority, and why it is necessary for Congress to act. 

Secretary LEW. Congressman, I think if you look at the—— 

Mr. LEVIN. Describe it so everybody understands what happens. 

Secretary LEW. So, you know, earning stripping is when a company moves overseas and it assigns the earnings to the lower tax 

jurisdiction to avoid taxes. And, you know, there are ways of addressing that on a freestanding basis. 

We have provisions which would stop inversions and stop earning stripping. You could pull that out of our business tax reform 

proposal. I haven’t seen the proposal that you have described 

whether it is the same or not, but it certainly is possible to do that. 

Now, I do not want to be unclear. I think it is far superior to do 

it in the context of real business tax reform. But you could pull 

those provisions out and, if you can’t do full business tax reform, 

we should. Because what we can do administratively—we are looking at what we can do on earning stripping, but we don’t have a 

very sharp scalpel, in terms of the options that we have, administratively. We are very careful, using our administrative authority 

within the boundaries that we have. You have the ability to write 

a law that would make it much more precise. 

Mr. LEVIN. Thank you. I yield back. 

Chairman BRADY. Thank you. Mr. Johnson, you are recognized. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Mr. Secretary, welcome back. As the Secretary of the Treasury, 

you also serve as managing trustee for Social Security. 

Mr. JOHNSON. And on the screen you will see the size of the 

Social Security shortfall each year since 2009. 

I know we talked about this last year, but it seems to me the 

news just keeps getting worse for Social Security. 

My question is, just for the record, do you agree that Social Security finances have gotten worse since Obama took office in 

2009—— 

Secretary LEW. Well—— 

Mr. JOHNSON [continuing]. Yes or no? 

Secretary LEW. No. Look, I think that looking at the chart— 

which I am having a little trouble reading, but I think I can see— 

the—you know, we knew for decades that the Baby Boomer retirement was going to start increasing the amount of draw on the trust 

fund. That is why we built up reserves in the trust fund, so that 

it could be drawn down when the Baby Boom retired. 

I think, if you look at the life span of the Social Security trust 

fund, we have seen it actually improve from year to year—not 

every year, but—so I don’t think just looking at what the draw in 

the trust fund is. The question is, do we stand behind the trust 

fund? I think we should stand behind the trust fund. American 

workers pay into the Social Security trust fund—— 

Mr. JOHNSON. I hear you. 

Secretary LEW [continuing]. So it can be there when they retire. 

Mr. JOHNSON. My question was do you think that finances 

have gotten worse since you all took office? 

Secretary LEW. I think that the Baby Boomers started retiring 

since we took office. I have certainly gotten seven years older. So 

I know it in a very personal way. 


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I don’t think we can pretend that the Baby Boom won’t continue 

to retire each year, which is why we knew that we were going to 

have a period where benefits were going to grow, and we needed 

to have reserves to draw down. 

I think what is not on the chart that you are showing me is the 

actions taken in the period from, like, 2000 to 2009 that affected 

our overall fiscal posture. In the unified budget terms, the question 

is are we able to do it. We need to make sure we can pay Social 

Security, and it is our obligation, as we deal with the rest of the 

budget, not to make Social Security the victim because we have 

other budget challenges we have to—— 

Mr. JOHNSON. Well, let me show you what the President said 

about Social Security in his first budget submission in 2009. It is 

on the screen. 

[Slide] 

Mr. JOHNSON. For the next six budgets, the President basically 

repeated the same message. But this year what has he had to say? 

Nothing. Not a single sentence about fixing Social Security. 

I would like to ask unanimous consent to insert into the record 

these quotes from previous budgets on Social Security. 

[No response.] 

Chairman BRADY. Without objection. 

[The information follows:] 


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f 

Mr. JOHNSON. Question two, as managing trustee of Social Security’s trust funds, don’t you believe we need to act now to fix Social Security? 

Secretary LEW. Congressman, I have worked on Social Security 

for almost 40 years. 

Mr. JOHNSON. I know you have. 

Secretary LEW. I had a significant hand in the 1983 reforms, 

which I—are one of the things I am very proud of in my career. 

I have always thought that the sooner we could have a bipartisan 

conversation on dealing with Social Security, the better. But, you 

know, that is going to require a willingness on both sides to talk 

about things, you know, which involve taxes as much as benefits. 

We haven’t been in an environment like that. In 1983 it worked. 

I hope we get to that point in a political debate, conversation, 

where we can have that conversation again. 

Mr. JOHNSON. Well, I—— 

Secretary LEW. I don’t think there is an urgent crisis. I don’t 

think Americans should worry that their Social Security won’t be 

there. 

Mr. JOHNSON. Well, I think—— 

Secretary LEW. The reality is—— 

Mr. JOHNSON [continuing]. Some of them do. And you know, we 

needs to get to work today, and I think you agree. 

You know, Americans who depend on Social Security, and those 

who are working today and paying thousands of dollars a year into 

Social Security, they want, need, and deserve better. 

Secretary LEW. Yes, I agree. I think Americans deserve to count 

on their Social Security. And the thing that we just have to tell 

Americans is that the shortfall that we look at over the next 75 

years, even at its worst, leaves their Social Security 75 percent 


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funded. We have a gap, we have time to deal with it. It has to be 

dealt with on a balanced, even-handed basis. 

I have always thought that the sooner, the better. This has not 

been a five or seven-year period when we have had the conditions 

for that kind of conversation. 

Mr. JOHNSON. I agree with you, but the President didn’t say 

one word about it. Thank you very much, yield back. 

Chairman BRADY. Thank you. Mr. Rangel, you are recognized. 

Mr. RANGEL. Thank you, Mr. Chairman. Well, it didn’t surprise 

me, Mr. Chairman, that you would say that the Administration 

proposal is dead on arrival, because I think that was determined 

some seven years ago, that anything coming out of the Administration would be considered dead on arrival. But this is the end, and 

I am so—it is so painful that we can’t find some common ground 

as we end the Obama Administration and our country finds itself 

in a position that we are asking foreign governments to be kind to 

us as relates to how they tax the corporations that have left the 

United States. 

Are you saying, Mr. Secretary, that you have written a letter to 

the European Union, asking them not to take advantage of our tax 

system by taxing U.S. corporations that have left our country and 

settled abroad? Are you asking—— 

Secretary LEW. No, that—what I have written to them—— 

Mr. RANGEL. What are you asking? 

Secretary LEW. Yes. What I have written to them is that U.S. 

corporations that keep their income overseas, they are still subject 

to U.S. taxes. I, in the letter, say that we need to enact business 

tax reform and bring that money home. 

Mr. RANGEL. We have to—— 

Secretary LEW. We have to do that. 

Mr. RANGEL. What are you asking—— 

Secretary LEW. Well, what they shouldn’t be doing is they 

shouldn’t be leveeing taxes on the income that should be taxed 

here. 

Mr. RANGEL. Why? Under what theory of international law are 

you asking foreign countries not to tax income that we feel belong 

to us but we—— 

Secretary LEW. Well—— 

Mr. RANGEL [continuing]. Refuse to reform our Tax Code to get 

the income? 

Secretary LEW. The fact that Congress has not yet enacted tax 

reform doesn’t change the basic principles of what is subject to tax 

in the United States. If the intellectual content and the innovation 

is in the United States, there is a substantial tax due in the United 

States when that money comes home. 

Because the money hasn’t been repatriated, it is sitting, for the 

moment, not taxed. We have said that money should come home. 

In our tax reform proposal, it would all come home and be taxed 

at 19 percent—— 

Mr. RANGEL. If the foreign countries tell you, like the Republicans are telling you, that your request is dead on arrival, and we 

don’t reform our tax system, what is the next step that you take? 


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Secretary LEW. Well, look. I don’t—I understand that they are 

skeptical about the capacity to enact tax reform, and I think showing that we are making progress and we can get it done—— 

Mr. RANGEL. What progress—— 

Secretary LEW [continuing]. Would actually help a lot. 

Mr. RANGEL [continuing]. Are we making? 

Secretary LEW. Well, the progress has been relatively small to 

date. I think that, you know, there are overlaps of issues where I 

think Members on both sides of the aisle and we could agree, but 

we haven’t really made significant progress. We haven’t moved a 

bill forward. That is not a basis, I think, for reaching in and asserting tax authority over U.S. income. That is something—— 

Mr. RANGEL. Well, it is not a basis for the Republicans saying 

that any proposal is dead on arrival, either. 

Secretary LEW. I agree with that. I mean, I—— 

Mr. RANGEL. Okay. Well, listen. I—the search now has to be for 

common ground. I don’t think any Republican believes that General 

Electric, who in 2013 paid 4 percent taxes, last year 10 percent 

taxes, they have $36 billion overseas, that we should not have that 

money. These corporations that are going overseas take advantage 

of our research, our infrastructure, our—everything, and they go 

overseas. 

I don’t see a partisan issue here. So what—forgetting public 

meetings, because this is for the public, it is a presidential year. 

But behind the scenes, where Americans get together, Republicans 

and Democrats, do you have any hope at all that there is something done that would be good for Americans and the tax system, 

where we can have reform, lower the corporate rate, improve our 

education, our infrastructure, and have a fair, competitive position, 

internationally? Is there any hope at all, notwithstanding the 

chairman saying that your public proposal is dead on arrival? 

Secretary LEW. I think that the responsibility that everyone in 

this room has to stop inversions and to make sure that the kinds 

of things we are talking about in terms of the erosion of the U.S. 

tax base gets stopped should give all of us reasons to be more hopeful. 

I am probably more hopeful always than most, because I think 

if we give up we make sure nothing happens. We have got to be 

hopeful. We have got to put the effort in to make it real—— 

Mr. RANGEL. Is there any one person on the Republican side 

that gives you any basis for that hope? 

Secretary LEW. Well, I appreciated the chairman’s opening comments, where he expressed the desire to continue working together. 

I am prepared to do—— 

Mr. RANGEL. I would like to take down his words—— 

Secretary LEW. I am prepared to do that. We have known, you 

know, that conversations over business tax reform are an uphill 

battle, because people always say it is too hard to do. It can’t be 

too hard to do. We have to make it something we can get done. If 

it can’t happen this year, it is going to have to happen some time 

soon. But what we can’t do is push off this issue on inversions indefinitely, because we are just going to see more and more American companies going overseas. 

Mr. RANGEL. Thank you. 


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Chairman BRADY. Thank you, Mr. Chairman. As I yield to Mr. 

Tiberi let me be clear: tax increases in this budget proposal are 

dead. Discussions on tax reform, especially in the international tax 

area, are very much alive. 

I appreciate the letter that you sent, because what the EU is 

doing—now there is going beyond simply addressing income shifting. It is a money grab targeted on U.S. companies in a variety of 

ways, not just to generate revenue, but to make it more uncompetitive for U.S. companies to compete around the world. That is why 

we need not just treat the symptoms of what we are seeing, but 

the real problems around it. And that is the Tax Code. In that area 

we share, I think, common ground, Mr. Secretary. 

Mr. Tiberi. 

Mr. TIBERI. Thank you. 

Mr. Lew, your written testimony claims that ‘‘In the seven years 

since President Obama took office, we have seen a sustained economic recovery,’’ and that economic growth continues at a solid 

pace. 

Additionally, the latest budget touts the success of administration policies past, present, and proposed. I would like to address 

the Administration’s economic and fiscal policies relative to reality, 

a reality which indeed is reflected in OMB’s growth forecast underlying this proposed budget. 

I would also note that this reality recognized in the budget does 

not seem to be recognized either in your comments today, quite 

frankly, about economic growth continuing at a solid pace, or the 

President’s recent rhetoric. 

[Chart] 

Mr. TIBERI. So I have a chart that was released today by the 

Joint Economic Committee that you will see in front of you, and it 

has past Obama budgets from this Administration, and they have 

repeatedly projected a surge—in the red—of economic growth that, 

quite frankly, never happened. 

So the Fiscal Year 2017 budget seems to finally accept the reality 

of the inability of the Administration’s policy to generate the surge 

that each of the past budgets have said would happen that didn’t 

happen. Worse, even, are OMB’s projections of annual growth rates 

for the long term at 2.3 percent lower than earlier budgets, but 

much lower than—as you know—the average growth rate of 3.2 

percent it calculates through the post-war period—post-war period. 

I might add that CBO, the Federal Reserve, and the blue chip 

indicators all project even lower long-term growth than the OMB. 

And then we wonder why, in the Democrat and Republican primaries, voters are angry. They are full of anxiety that this new 

normal of 2.3 percent, which is significant in terms of wage growth 

and what people are feeling, is happening out there. 

So, the chart displayed vividly captures how the Administration’s 

own expectations have not come true. They have been deflated. 

These aren’t my numbers. The black is the actual number. As you 

can see, it doesn’t look like it is solid or sustained, the black number, which is actual numbers, versus the red, which is OMB’s projections. 

So, how could the Administration continue to cling to the same 

basic economic policy, Mr. Lew, of more taxes, more debt, bigger 


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government, more spending, more regulation? Isn’t it time to reconsider a new way forward? 

Secretary LEW. Congressman, this chart starts in 2010, 2 years 

after the deepest recession since the Great Recession [sic]. If it 

went back a couple of years earlier, you would see the biggest hole 

we have had since the Great Depression, which we dug out of, and 

we have created 14 million jobs doing it. 

You go around the world, the world is looking at the United 

States as a beacon of hope. I am not arguing that we don’t want 

more growth. I want every tenth of a percent we can get on GDP. 

But—— 

Mr. TIBERI. Mr. Lew, those are your projections, not mine. The 

red is your projection. 

Secretary LEW. So—— 

Mr. TIBERI. In fact, you were director at one point. 

Secretary LEW. But, Congressman, I am talking about the experience that we have had. Economic projections? We have been close 

to, you know, other forecasts as we have gone through. Forecast 

error can be in either direction. Obviously, you always would like 

to over-perform. But when you look at the headwinds we have had 

globally, we have continued to grow at a sustained rate notwithstanding substantial international headwinds, because the core 

strength of the U.S. economy, the U.S. consumer, has been strong. 

That is reflected in the jobs numbers. 

Mr. TIBERI. But the actual number is not sustained. I don’t 

want to quibble with you, but I think anybody, any economics 

teacher, would say that black number is not sustained growth. In 

2.3 percent versus what has happened—versus the World War II 

growth, including every other economic recovery, has not been even 

near what every other economic recovery has—even your—again, 

even your own projections. 

Secretary LEW. The performance of the U.S. economy has had to 

create economic growth and jobs to make up for the deepest, deepest hole we have had in 70 years, in terms of our economy. We 

have done that. We have performed in a way that—you know, I 

have been to international meetings where, three years ago, people 

looked at us and said, ‘‘How could you cause a financial crisis?’’ 

They now look at us and say, ‘‘How do you have this economy that 

bounces back, where the American people bounce back?’’ 

That doesn’t mean we have done all the work. We have a lot of 

proposals. If we could work together on things like infrastructure, 

you would see some more progress. If we could work together on 

education and training, you would see more progress. We have jobs 

in this country that aren’t being filled because we don’t have people 

with the skills for the jobs. 

Mr. TIBERI. Well, I would argue—— 

Secretary LEW. So there is a lot of work we could do to make 

more progress, but I think if you look at where the country was 

seven years ago, and where it is now, we have made a lot of 

progress. 

Mr. TIBERI. Thank you. 

Chairman BRADY. Thank you. Dr. McDermott, you are recognized. 


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Mr. MCDERMOTT. Thank you, Mr. Chairman. Secretary Lew, I 

want you to remember you are talking to the American people, as 

well as to this Committee. So I want you to be very clear and simple in how you explain things. 

I have been listening for as long as I have been in Congress 

about the fact that debt was going to bury America, and that was 

going to be the end of us. Can you tell us what the President has 

done with the question of debt during his eight years in office? 

Secretary LEW. Well, when we took office, the projections were 

the debt was going to grow to over 100 percent of GDP. We were 

seeing deficits, annual deficits of 10 percent of GDP. The annual 

deficit is down to 2.5 percent of GDP. We have stabilized the debt 

at around 75 percent, which is high by historical standards, but it 

is because we were coming out of the deepest recession since the 

Great Depression, so that it is for a reason that it got as high as 

it did. 

We are also in a period of very low interest rates. So it has made 

it more manageable to handle the debt that we have. 

I think that we have made a huge amount of progress. That is 

not to say that over the long term we shouldn’t be working towards 

reducing it. I am not going to argue that, if we could work together 

on the kinds of tax policies and the kinds of deficit reduction that 

would make sense in the long term, we could make more progress. 

But what we can’t do is we can’t just cut the things that we need 

to grow in order to reduce the deficit more in the short run. 

Mr. MCDERMOTT. Well, that is what I wanted—— 

Secretary LEW. You were seeing that for a few years. When sequestration was allowed to take effect, it was cutting at the bone 

of this country. It was hurting our economy on a year-to-year basis. 

The actions taken to restore discretionary spending, the annual appropriations, and to replace cuts in annual appropriations with 

longer-term, more balanced fiscal policies, has actually help boost 

the American economy by several tenths of a percentage point. So 

we have a control to even do better. 

Mr. MCDERMOTT. Do you think a country can grow without 

spending and going into debt? Can you put money into the national 

institutions of health, or—how do you get the national institutes of 

health to work—— 

Secretary LEW. I think right now, when you look at what our 

debt is, our deficit, annual deficit, is essentially interest on the 

debt. Economists call that primary balance. You know, so we are, 

on a current basis, paying for what we spend, but we do have the 

debt that we have to service. That is why it is, relatively speaking, 

stable. 

That is not to say that we should have no concerns over the next 

20, 30, 50 years. But right now, if the trade-off between investing 

in infrastructure, investing in research and development, and an 

incremental additional bit of deficit reduction, I think would be economically a mistake. 

Mr. MCDERMOTT. Does the budget reflect that? 

Secretary LEW. Yes, the budget reflects that. I mean it maintains stability in this 10-year window. It—we will leave office with 

a manageable situation. We inherited what was an economy and a 


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budget that was in complete meltdown, so I think we have made 

huge progress over the last seven years. 

We still have more work to do on many, many fronts. So I am 

not saying—— 

Mr. MCDERMOTT. Let me bring you to the point of that other 

work to do. Have you seen the Republican proposal for tax reform? 

Have they come up to the White House and said, ‘‘This is what we 

would like to pass, Mr. President, what do you think about it’’? 

Secretary LEW. The only formal proposal that I have seen is the 

one that the former chairman of this Committee, Dave Camp, put 

out. 

Mr. MCDERMOTT. What happened to it? 

Secretary LEW. Well, it didn’t get—I think I was more friendly 

to it than many people in Congress were. I think there were a lot 

of things in that plan that we could reach bipartisan agreement on. 

Not the whole thing. 

But if you look at what we are saying, and you look at what is 

in that plan, and you overlap them, the overlap would tell any reasonable person there could be agreement here. Obviously, you got 

to engage and work it through. 

Mr. MCDERMOTT. Last night we were at the Library of Congress, we heard about Reagan. It took Reagan 6 years, from 1980 

to 1986, to get tax reform through. That was at a time when 

Reagan talked to Tip O’Neill, and when you had Members in the 

Senate on both sides working together, Packwood and Bradley and 

all the rest, and Rostenkowski and all of the people—are the elements there today for us to do that? 

Secretary LEW. Look, I think that, you know, it is more challenging today than it was in 1986 because in 1986, you know, there 

was no need to pay for the rate reductions. And, you know, we have 

proposed business tax reform that pays for itself. And our budget 

this year repeats that it should pay for itself, looking at last year’s 

expiring provisions and—as a whole. 

Chairman BRADY. Thank you, Mr. Secretary. All time has expired. 

Mr. Reichert. 

Mr. REICHERT. Thank you, Mr. Chairman. 

Welcome, Mr. Secretary. I want to touch briefly on an issue that 

you commented on yesterday with the Senate related to TPP forced 

data localization. And I want to read your quote. ‘‘One of the issues 

here is the requirements of our regulators in terms of what they 

need to have their prudential reviews of financial institution.’’ And 

you added, ‘‘So, as we are in the international space, we can’t give 

away something for our financial regulators that they would need 

here, in the United States. But we are working with the industry 

and the regulators, as we go through this.’’ 

So, what—Mr. Secretary, I am not convinced that our financial 

regulators have made the case that they—that having such a provision adversely affects their prudential review. I just want your 

commitment that you will work with us in trying to resolve this 

issue. 

Secretary LEW. Congressman, I will work on it. This is a complicated issue. There is a lot of memories of what happened in the 

financial crisis when there was a problem getting access to inforVerDate Sep 11 2014 06:57 May 31, 2017 Jkt 022374 PO 00000 Frm 00036 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22374.XXX 22374

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mation overseas, and it contributed to the inability of some of our 

regulators to respond, because they couldn’t see what was going on. 

So I think there are legitimate concerns. We are having a conversation to see—with the—with industry, with the regulators. 

What can we do, going forward? 

And as I also said yesterday, in general our view on data localization is we ought not to tolerate barriers being created that require that information technology be on-shored in each of the countries where you are doing business. And we have pushed hard in 

many areas against localization. This is a more complicated area 

because of the prudential regulatory concerns, and we have made 

the commitment that trade agreements won’t overrule any of the 

prudential regulatory matters. 

Mr. REICHERT. So I will take that as a yes, that you are—— 

Secretary LEW. Yes, I—— 

Mr. REICHERT [continuing]. Working—— 

Secretary LEW. We are working hard to try to come to a place 

where people—— 

Mr. REICHERT. Okay. 

Secretary LEW [continuing]. Can be more comfortable. 

Mr. REICHERT. I look forward to working. I want to switch real 

quick to something that you and I talked about last year, and that 

is taxes on small businesses. And I am really frustrated by the 

President’s budget in this regard. 

At least we have some agreement, though, on the earned income 

tax credit. So I am happy to see that, and some efforts on waste, 

fraud, and abuse, and in other areas of the proposal. 

But let me just go through what I personally think tax reform 

should look like. And I don’t see it in the President’s budget. In 

fact, I think it is really offensive to small businesses. Tax reform 

should stimulate growth and efficiency by reforming America’s current complicated and burdensome system into a simpler, fairer, 

Tax Code, flatter Tax Code. Tax reform should promote U.S. jobs 

and higher wages through a more competitive international tax 

system. Tax reform should ensure that small businesses have a fair 

and competitive tax system, including the tax rate. 

As a result of the President’s budget, the top rate for small businesses will be 43.4 percent. They don’t get it. And I don’t get it, 

either, Mr. Secretary. Tax reform should aggressively lower rates 

and simplify the code. Even after enacting substantial increases in 

capital gains taxes in 2010 and again in 2013, President Obama 

continues to propose raising taxes on the investment American 

workers need to become more productive and earn higher wages. 

In 2009 the top rate on capital gains was 15 percent. With the 

enactment of the 3.8 percent tax on investment income to fund 

Obamacare, it was raised to 18.8 percent in 2010. In 2013 it went 

to 23.8 percent. And with the proposal today, another 4.2 percent 

has been added, and effectively it will be 29.2 percent. 

Mr. Secretary, I and the small businesses in this country would 

like your commitment to work with us on—and I would like you 

to explain to me how raising taxes on small businesses helps the 

American economy grow, helps small businesses grow, helps create 

jobs. I don’t understand how you can raise taxes and create a growing economy and create jobs. Can you tell me how that helps? 


ralbany on LAP520R082 with HEARINGS
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Secretary LEW. Well, Congressman, the President’s tax reform 

proposal would be a tax benefit for 95 percent of small businesses. 

So we totally agree that we ought to be helping—— 

Mr. REICHERT. We went through this last year—— 

Secretary LEW [continuing]. Small business. 

Mr. REICHERT [continuing]. And your numbers don’t add up. 

Secretary LEW. Well, I am happy to go through it with you more 

than I can do in—— 

Mr. REICHERT. What I just read to you are tax increases on 

small businesses. 

Secretary LEW. Yes. You know, I just would point out that the 

choice to organize as a pass-through or as a corporation is a decision businesses make, and—— 

Mr. REICHERT. These are family-owned businesses that you are 

taxing, Mr. Secretary. 

Secretary LEW [continuing]. And we—— 

Chairman BRADY. The time has expired. 

Mr. REICHERT. I yield back. 

Secretary LEW. I look forward to—I really haven’t had a chance 

to respond, but I would love to have a more complete conversation, 

because this is an important issue. We are very much advocates for 

small business. 

Chairman BRADY. Thank you. 

Mr. Neal, you are recognized. 

Mr. NEAL. Thank you, Mr. Chairman. 

Thank you, Mr. Secretary. And I want to congratulate you for 

what I think has been a stellar career. And I assume this is your 

last budget presentation to the Congress. Always well recommended, and an individual who is very easy to have a conversation with. And I think you have really done a terrific job as Secretary of the Treasury—not to miss the point that one of the great 

ironies of my time in Congress is that the budget decisions that 

were made well before Barack Obama was President made by our 

friends on the other side, who really set the fire upon Barack 

Obama’s inauguration, and they get to call the fire department. I 

mean there is a certain irony to that period of time. 

But let me speak specifically to an issue that is important to 

those of us in western Massachusetts, and that is the ongoing debt 

crisis in Puerto Rico. And I—again, pleased with the leadership 

that you have demonstrated on it. I think there is an acceptance 

that there are going to have to be structural changes, the worker 

participation rate in the island of Puerto Rico I think we all acknowledge is problematic. And not to miss the point that in restructuring they are going to need some debt relief, as well. And 

I know that there is an acceptance that there is going to have to 

be, perhaps, a—if I might use the example of a control board put 

in place. 

But the island needs more than structural changes. And it certainly needs more expansive economic opportunity and growth. And 

most of us who have constituents and constituencies that involve 

tourism, we know that they are much subject to the vagaries of 

economies. 

So could you talk a little bit about what your ideas are to fix the 

Puerto Rican economy, Mr. Secretary, and—— 


ralbany on LAP520R082 with HEARINGS
35 

Secretary LEW. I am happy to. Thank you for the kind personal 

words. As you know, I started out working for House Speaker 

O’Neill. And much of what I have learned I owe to the time I spent 

with him. And I think of that every time I am in this room. 

Mr. NEAL. Thank you, Mr. Secretary. 

Secretary LEW. I think if you look at Puerto Rico, it is a classic case of insolvency. They have $72 billion of debt in a very complicated structure that they can’t pay. They don’t—it is a third of 

their budget, they don’t have the capacity. So there has to be a restructuring of their debt, in order for them to have an economic future that can get back into any kind of a healthy place. 

The immediate need is for Congress to pass legislation that will 

permit them to restructure their debt. They don’t have that ability 

on their own. I agree with you there is going to need to be some 

kind of oversight that is respectful of Puerto Rico, but is serious, 

accompanying that. 

We have been working on both sides of the Congress, House and 

Senate, on both sides of the aisle. I have talked to dozens and dozens of Members of the House and Senate. I think there is a broad 

understanding that this is something that will determine whether 

three-and-a-half million Americans are plunged into chaos. 

And I think there should be no misunderstanding of the immediacy. They are already, for all practical purposes, in default. They 

are not able to pay some of their bonds on a current basis. To pay 

the other bonds they are doing things that would be unthinkable 

in any governmental organization that was not insolvent. They are 

taking money out of pension funds to pay bond holders. They are 

taking money that is dedicated to one group of creditors and moving it to pay another. These are classic kinds of things you do when 

you are insolvent. 

Now, there is a solution. They can work through a restructuring. 

That restructuring can be respectful of the fact that there are different categories of creditors. It doesn’t have to be one size fits all. 

But it requires Congress taking action, because I don’t believe that 

a voluntary restructuring process will be successful. 

Let me just kind of say what happens if they don’t restructure. 

If they don’t restructure, there is going to be a cascading series of 

defaults that will lead to prolonged litigation, probably 5, 10 years 

of litigation. It will tie the island in knots, and it will take an economy that is already suffering, with 3,000 people a month leaving 

the island, and just make it so that it may never be able to bounce 

back. 

So this is quite urgent, it is something that I think we have to 

all remember, that three-and-a-half million Americans, including 

veterans, deserve our immediate attention. 

Chairman BRADY. Thank you. Dr. Boustany, you are recognized. 

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

Lew. 

I—let me just start by saying I condemn this crude oil tax in the 

harshest terms. I think it is the wrong diagnosis and the wrong 

prescription. Now I can tell you, as a—before I came here, as a cardiovascular surgeon I had to deal with a lot of complex problems. 

You got to get the diagnosis right, and you got to act with urgency 

to fix the problem. 


ralbany on LAP520R082 with HEARINGS
36 

This industry, American energy production, took us out of recession. It was one of the major factors that took us out. It was American innovation that has restructured the entire energy markets 

now superimposed on slack demand because of low growth, globally. We need the right approach to this. And putting this tax on 

oil is going to hit the producers, it will hit the refiners, it will make 

us less competitive. And the consumer in America will pay the 

price at the end of the day. We deserve better than that. We need 

a real 21st century energy strategy that is part of our broader economic strategy. But I wanted to at least get that on the record. 

But now I want to focus on international tax for a moment. This 

is something I have been working on. I am chairing the Tax Policy 

Subcommittee with the recent changes we have had. We are committed to doing this, and doing it with urgency. I don’t have to tell 

you about the problems out there with the OECD BEPS issue, 

state aid, a hostile tax environment, adverse mergers and acquisitions and inversions. All of this, we all know about it, we have 

talked about it ad nauseam. It is time for action, and we need a 

commitment from you to work with us on this Committee to do 

this. 

Now, I have put forward a bill. And I appreciate your letter to 

the president of the EU commission. It is important that you step 

up on the economic diplomacy side to promote our American companies in an unfair environment right now. I put forward some legislation dealing with BEPS and Action 13 because some of our— 

our companies feel like they are going to be treated unfairly with 

regard to this master file issue. 

The legislation gives you, as Secretary of Treasury, more tools to 

deal with this by potentially withholding country by country reports when necessary, and using that as leverage. Would you support that effort? 

Secretary LEW. Congressman, we will look at all the tools that 

we have at our disposal. They sometimes don’t work as well when 

you look closely. But I am not familiar with that particular matter, 

but I am happy to take a look at—— 

Mr. BOUSTANY. I would ask that you do that. Secondly, I don’t 

think we should be taking the approach of punitive measures going 

after our American business that is trying to help grow this economy, the tip of the spear of American soft power, globally. What we 

need is we really need international tax policy that is going to promote economic growth, competitiveness, and innovation, that frees 

up capital, brings it back. 

And that is what we are going to be working on, from lowering 

the corporate tax rate to something that is really competitive, moving to a dividend exemption system, trying to deal with base erosion in a very fair way, and looking at other types of innovations 

like an IP box, are you committed to working with us on these 

issues? 

Secretary LEW. Congressman, I am committed to working together to get business tax reform done that works. I have made 

clear we think that that should encompass lowering the statutory 

rate, closing the loopholes, providing—using the one-time revenue 

to pay for infrastructure, and closing down the inversions. 


ralbany on LAP520R082 with HEARINGS
37 

I am open to suggestions. There are some things that we have 

some problems with, as you know, and we—I am not going to pretend that we love the patent box idea. That is something we think 

is—has some problems. But I am open to working on this. 

And you mentioned base erosion. It is important to remember 

that we have made more progress in the last two years on the 

international discussion of base erosion than in the prior 20 years. 

When the G20 adopted base erosion principles, that was a big step 

forward. One of the concerns I raised in my letter—— 

Mr. BOUSTANY. We have to make sure that these things are 

applied fairly, and—— 

Secretary LEW. That is exactly where I was going. 

Mr. BOUSTANY. Right. 

Secretary LEW. One of the points I made in the letter I wrote 

to the president of the European Commission is it risks undermining the progress we have made if there are unfair actions being 

taken that target—— 

Mr. BOUSTANY. They are going beyond Action 13 now, with—— 

Secretary LEW. Yes. 

Mr. BOUSTANY [continuing]. These country-by-country reports. 

So I am glad you are doing this. But I want to give you more—— 

Secretary LEW. Well, we have to act, because we can’t pretend 

that our companies are not parking money to prevent paying— 

avoid paying taxes on it. That is wrong, also, and we need to bring 

that money home. 

Mr. BOUSTANY. That is why we need tax reform—— 

Secretary LEW. Right. 

Mr. BOUSTANY [continuing]. And not punitive measures directed at American business. We need positive measures, going forward. 

And I want to give you the tools, and your successor the tools as 

Treasury Secretary, to have the leverage to deal in this very difficult environment. So I hope you will work with me—— 

Secretary LEW. I look forward to working with you—— 

Mr. BOUSTANY [continuing]. And our committee on this. Thank 

you, I yield back. 

Chairman BRADY. Thank you. Mr. Becerra, you are recognized. 

Mr. BECERRA. Thank you, Mr. Chairman. 

Mr. Secretary, great to have you with us. Thank you for your testimony. And, by the way, I hope you go at warp speed at what you 

are doing in trying to go after those tax cheats, those tax evaders, 

those companies that depend on American military power, American foreign and diplomatic efforts, that depend on the American 

public to make them as good as they are, that depend on American 

consumers to be profitable. 

I hope you go out there and do everything you can to show those 

American companies that if they want to continue to be American 

companies they should pay their fair share of American taxes, because no American who gets paid on a weekly or monthly basis 

with a paycheck, and has his or her taxes deducted at the same 

time he gets—he or she gets a check should be—should find that 

a company can avoid paying those taxes because they don’t have 

the same kind of monthly deductions to help keep our government, 


ralbany on LAP520R082 with HEARINGS
38 

we the people, our government, functioning to protect our American 

families and those American companies. 

So you go to it, and do not be intimidated by anyone who is trying to protect companies that are not paying their fair share of 

American taxes. 

I wanted to ask you about Puerto Rico—and I know you have 

been asked a little bit about it already. Do you see any light at the 

end of the tunnel here? Because the people in Puerto Rico, those 

U.S. citizens in Puerto Rico, are trying to figure out will we finally 

see action taken so that they can get their house, fiscal house, back 

in order? 

Secretary LEW. Look, I do see some light in the tunnel. I think 

it is very important that Speaker Ryan directed the House committees to take action by the end of March. It reflects the urgency of 

the need to act now. There are May, June, and July bond payments 

due. You need to act in time for Puerto Rico to have space to be 

able to manage that. 

I think there is differences of views as to how to do this. Those 

differences can be bridged. The one thing that I just have to say 

on a slightly more pessimistic note is this is not a case where just 

doing something solves the problem. It has to be something that 

works. It has to cover enough of the debt that they can actually restructure and have a way forward. And I have heard some proposals that would limit it to such a small portion of Puerto Rico’s 

debt that it doesn’t solve the problem. 

So, there is various ways to do it. There is ways to be—to not 

have it create precedence for states. There is ways to do it without 

amending the bankruptcy code. Because of the territorial status, 

you could do it through territorial legislation. We are open to a conversation on a bipartisan/bicameral basis, but it has to happen fast. 

If action isn’t taken in the March/April time frame, we are going 

to find ourselves looking at May, June, and July before we blink. 

Mr. BECERRA. Well, thank you for that. And I hope that Congress will step to the plate and do its part because, quite honestly, 

it has to be Congress who has to make it possible. And we are talking about doing something that helps the people in Puerto Rico 

without costing American taxpayers a single penny. And I think it 

is outrageous that U.S. citizens in Puerto Rico have to wait until 

Congress will act to be able to get their fiscal house in order. They 

are just simply asking for the same opportunities that states have, 

that cities have, to make sure that they get their fiscal house in 

order. And it is distressing. And so I urge you to continue your efforts there. 

Can I—I am going to veer for a second. Can you send a message 

to Commissioner Koskinen for me? Could you please tell him to do 

not—don’t be intimidated by some of the words that he may be 

hearing coming out of this Congress, telling him not to do his job. 

I think it is outrageous that today we have in the law a provision 

in the law that allows certain entities to create a corporation and 

call it non-profit, which is supposed to be there for the exclusive 

purpose of providing social welfare services, and that provision in 

the tax law is being used by entities to game the system and play 

politics. 


ralbany on LAP520R082 with HEARINGS
39 

More money is being spent by these so-called not-for-profit entities than the political parties combined. And that this Congress 

would put a provision into law that prevents the commissioner of 

IRS from investigating those entities that are gaming the system 

is outrageous, and I hope that the commissioner will not be intimidated, and will pursue the proper investigation of this to make sure 

that American taxpayers’ money is not misspent. 

Chairman BRADY. Thank you. All time is expired. 

Mr. BECERRA. Yield back my time. 

Chairman BRADY. Mr. Roskam, you are recognized. 

Mr. ROSKAM. I think there is unanimity on the committee that 

we want the IRS to follow the law as the law is written. But let 

me bring your attention to something else, Mr. Secretary. 

In 2008 to 2012, ClearStream, which is a Luxembourg financial 

service provider, essentially accumulated and was involved in the 

transfer of payments, and shielded the Iranian Government, took 

in $1.67 billion in payments. There was federal litigation that was 

brought by the victims of terror through the Marine bombing in 

Beirut, and they were unable to attach that money. A federal judge 

invited the Treasury Department, the Office of Foreign Asset Control, to weigh in on the question. OFAC did not weigh in on the 

question, and the judge ruled against the victims of terror. 

So, think about it. You have got this foreign entity that is this 

Luxembourg operation that is involved in, essentially, a financial 

hustle and a manipulation, arguing that these assets are outside 

and cannot be attached by a U.S. jurisdiction. And notwithstanding 

the good work of OFAC in the past, they were silent. They were 

absent, and they didn’t weigh in on this. 

So, if we are deferring then on this—essentially, a sharia sort of 

financial arrangement, how is it that we can, number one, bring 

justice to these victims and, number two, isn’t that a dangerous 

precedent? And can you—I mean—and these are in violation, Mr. 

Secretary, of executive orders. I mean this is pretty clear stuff. Can 

you give us a sense of where this is going, and how these victims 

get their justice? 

Secretary LEW. Congressman, I don’t comment on specific matters that are pending either at OFAC or in other bodies like that. 

But let me just talk, if I could, a little bit about both the victims 

and about our approach on sanctions. 

We, obviously, have a great deal of empathy for the victims, and 

have on many occasions, you know, worked to make sure that, to 

the extent that we can be helpful, that we are helpful. 

The—our approach on sanctions has, I think, been very tough. 

We have worked, you know, without any reservation to go against 

Iranian assets and put them in a place where we lock them up. 

And I think that is one of the reasons that we saw Iran come to 

the negotiating table over its nuclear weapons, because it 

worked—— 

Mr. ROSKAM. Listen, I will stipulate that is why they came to 

the negotiating table. 

Secretary LEW. Yes. 

Mr. ROSKAM. Time is short, so let me urge you to reconsider 

this OFAC question, because I think it is a problem. It is a problem 

vis-a-vis the Iranians, it is going to be a problem vis-a-vis any 


ralbany on LAP520R082 with HEARINGS
40 

other bad actor who basically says, ‘‘Hey, we are able to take this 

money and by doing bookkeeping manipulations, we are able to 

keep this outside of the jurisdiction.’’ That is a problem. 

Let me ask you a question as it relates to tax treatment. ThenChairman Ryan wrote to the President last fall, asking about the 

901(j) provisions. These are tax provisions. This is authority that 

the President has to waive certain favorable tax treatment, possibly, to the Iranians. Based on what you were just saying about 

the Administration’s attitude on sanctions, do we have your assurance that the Administration is not going to waive any provisions 

under 901, under Section 901, so long as the Iranians are complicit 

with terror? 

Secretary LEW. So I am going to have to get back to you on 901. 

I—— 

Mr. ROSKAM. It is the foreign tax treatment for the Iranians. 

Secretary LEW. So what we have made clear is that we are going 

to hold Iran accountable for its behavior. 

Mr. ROSKAM. And does the accountability mean they don’t get 

any—they don’t get waiver—— 

Secretary LEW. Well—— 

Mr. ROSKAM [continuing]. So long as they are continuing to finance Hezbollah, Hamas, and these other terror organizations, 

which—— 

Secretary LEW. Well—— 

Mr. ROSKAM [continuing]. The Administration admits they are 

doing? 

Secretary LEW. So having agreed on the nuclear issues, we have 

lifted the nuclear sanctions, but we have in place the—sanctions on 

terrorism, sanctions on missile development, sanctions on regional 

destabilization. In the last weeks we have put in place additional 

designations on missile designations. I have been clear that all of 

those efforts will continue underway. 

I am not familiar with the 901(j) issue, so I don’t want to address 

it specifically. But our view on our—on the non-nuclear sanctions 

is that they stay in place, and that Iran has to change its behavior 

in those areas. 

At the same time, we have lifted the nuclear sanctions because 

they complied with the nuclear agreement, and that is a good 

thing, because that slows down and takes them off the path they 

were on to—— 

Mr. ROSKAM. Silence is assent. And the unwillingness to answer Chairman Ryan’s question I think is troubling. 

Chairman BRADY. Thank you. 

Mr. Doggett, you are recognized. 

Mr. DOGGETT. Thank you, Mr. Chairman. And thank you, Mr. 

Secretary. 

I think eyes glaze over for anyone who is watching our discussion 

of earnings stripping and inversions, unless they are a tax lawyer 

or perhaps a lobbyist for one of these tax-dodging corporations. 

Earnings stripping, in simple form, is two corporations next door 

to each other competing for the same American customers, and one 

of them comes up with the bright idea with their accountants and 

tax lawyers that they will shift some of their profits and not be 

taxed like their competitor to some sham offshore operation. And 


ralbany on LAP520R082 with HEARINGS
41 

they do that, and we have permitted them to do that, and they 

gained a competitive advantage over an American company that is 

here, doing its fair share. 

Same thing is true of inversions, where a corporation basically 

renounces its charter, its American citizenship, and declares that 

it is a foreign corporation, even though it keeps all of its operations 

here. This is not a new problem. 

Treasury did the study almost a decade ago about how earnings 

stripping and inversions come together and predominate within the 

inversion category. I think it is outrageous that this giant rip-off 

of the American people continues to occur, that our Republican colleagues obstruct legislation that has been pending here for years. 

You come up with the same proposals year after year. 

It would seem to me that the inversion problem is so severe that 

we would be better off, in addition to what you propose, doing what 

Secretary Clinton has proposed, and which—a matter in which I offered legislation last year and will re-introduce, and that is to have 

an exit tax. 

The Supreme Court thinks these corporations are people, and 

they ought to be treated like wealthy people who renounce their 

citizenship, who don’t love America enough to pay any taxes here, 

and who go off and get a passport from some Caribbean island. 

I think a legislative approach to deal with a Tyco that goes to 

Bermuda, goes to Ireland, but really stays in New Jersey—that is 

Johnson Controls will join them. A Pfizer that won’t charge Americans Irish pharmaceutical prices, but want to pay Irish taxes is a 

really serious problem this Congress does, as you suggest, need to 

urgently address with legislation. 

But I think also, Mr. Secretary, this is where we have some disagreement. Because of the failure of this Congress to act, and the 

fact that it is very improbable that it will act, you need to be more 

completely using existing administrative authority. The actions 

that you have taken to try to discourage inversions haven’t worked 

very well. The inversions have continued. In fact, in size they may 

well have increased. 

I believe that as you look at codifying or reducing to formal regulations what you have already done, that you have authority 

through Section 385 to limit earnings stripping, that you have authority under Section 385 to draw a distinction between debt for 

multinationals and debt on the domestic scene, and that you ought 

to use that authority because you can see this Congress will not 

act. 

Similarly, under Section 956, as has been urged by Professor 

Avayona, who has testified here on a number of occasions, you 

have the ability to deal with the hopscotch transactions that are 

going on, where companies like Pfizer are dodging their responsibilities to pay their fair share, as Mr. Becerra said, of our national 

security. You have other authority under Section 956. 

And I would just urge you to recognize this is a hemorrhage that 

is going on. It is a hemorrhage that has been going on for some 

time. This Congress won’t act. And it really begins to appear to 

anyone who is cynical about it that you would rather use these inversions as an excuse for broader tax reform than to prevent them 

from happening. 


ralbany on LAP520R082 with HEARINGS
42 

I am all for broader tax reform. I think our rates should come 

down. But I don’t think tax reform should be used as an excuse to 

just let multinationals pay even less than they are now. We get 

some sense of how big that gap is from the proposal that you have 

advanced for tax reform where you have increased by 70 percent 

to $350 billion the amount that you believe would be obtained with 

your 19 percent rate being applied. 

That is a huge amount. It has grown substantially since last 

year. It will continue to grow. Please use your authority to stop 

some of this now, even though we know the ultimate solution is a 

Congress that cares about protecting the American people and seeing that our businesses are dealt with on a level, competitive playing field. I yield back. 

Chairman BRADY. Thank you. 

Dr. Price, you are recognized. 

Mr. PRICE. Thank you, Mr. Chairman and welcome, Mr. Secretary. I want to start with a compliment on the President’s budget. I noted that there are cuts and consolidations on the discretionary side that are identified of nearly $30 billion in Fiscal Year 

2017. And so I want to thank you for that positive move. I hope 

we can get together and work on that. 

I want to, however, talk initially about kind of the big picture. 

And we have talked about a lot of specifics on this budget. But the 

fact of the matter is that the President’s budget, the budget that 

you all are presenting, is—incorporates $4.1 trillion in spending in 

the next fiscal year, the first budget by a president over $4 trillion. 

It proposes $3.4 trillion in new taxes, new taxes on the American 

people, including that $10-a-barrel tax on oil which is paid by the 

American people. That is not paid by those companies, it is paid 

by the American people, one of the most regressive taxes that this 

Administration has proposed. 

Adds 9—your budget adds $9.3 trillion—trillion dollars—to the 

national debt over a 10-year period of time, and it never, ever, ever 

balances. The budget never balances. That increase in debt means 

that we pay more interest on that debt. In fact, in 2022 the interest 

on the debt in your budget, the President’s budget, will exceed the 

amount that we are spending to protect the American people, the 

amount that we are spending on defense. And the interest rate in 

2026 will be over $900 billion a year, certainly not a sustainable 

path, I don’t believe. 

You were—you said earlier that, ‘‘Progress is not inevitable, it is 

the result of choices.’’ And so, I want to share with you a slide here, 

and revisit an issue that has been talked about. 

Mr. PRICE. And folks are passing this out. This is the growth 

projections from Congressional Budget Office, average growth over 

a 10-year period of time, over the last 4 years. In January of 2012, 

in 2012, the projection was it would be 3 percent a year. Then 2.9 

percent a year. And then 2.5 percent a year. And then 2.3 percent 

a year. And then—and this projected from CBO—2.1 percent a 

year. 

Mr. Secretary, that doesn’t appear to be a movement in the right 

direction, and it appears to be the result of some choices that the 

Federal Government is making. So I would ask you why do you beVerDate Sep 11 2014 06:57 May 31, 2017 Jkt 022374 PO 00000 Frm 00046 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22374.XXX 22374

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lieve the projections are—have dropped over 30 percent, 30 percent 

in the past 4 years? 

Secretary LEW. Well, Congressman, as I was indicating before, 

if you look at all of the economic indicators, obviously, the creation 

of 14 million new jobs and the reduction—— 

Mr. PRICE. That is not the question. 

Secretary LEW. So—— 

Mr. PRICE. Why has the projection for growth gone down 30 percent? 

Secretary LEW. You know, there is no question right now that 

there are international headwinds that are slowing U.S. growth. 

We are doing well in an environment, a global environment, that 

is very challenging. 

Mr. PRICE. Let me ask you—— 

Secretary LEW. And I think that that has to be taken into account. 

Mr. PRICE. You are absolutely right. Shouldn’t also the taxes 

that we apply to businesses and individuals be taken into account, 

and the regulatory oppression that we have? 

What is our corporate tax rate right now? 

Secretary LEW. Our statutory rate is 39.5 percent. 

Mr. PRICE. Thirty-nine-and-a-half percent. And you are familiar 

with the OECD, the industrial—— 

Secretary LEW. Look, there is no doubt our—— 

Mr. PRICE. The list of industrialized countries—you are familiar 

with the industrialized countries? 

Secretary LEW. That is why we are all so much saying that we 

support business tax reform. Our statutory tax rate and our average tax rate have nothing to do with each other. 

Mr. PRICE. And you proposed to take the corporate tax rate to 

what? 

Secretary LEW. We have proposed taking it to 28 percent. 

Mr. PRICE. And Canada’s rate is? 

Secretary LEW. I would have to look—— 

Mr. PRICE. Fifteen. 

Secretary LEW [continuing]. To get the exact—— 

Mr. PRICE. And Germany’s rate is 15. And Ireland’s rate is 12.5. 

And Switzerland’s rate is 8.5. 

Secretary LEW. Yes. 

Mr. PRICE. And the United Kingdom’s rate is—— 

Secretary LEW. I think if the United States’ statutory tax rate 

was 28 percent, it would be enormously competitive in the—— 

Mr. PRICE. Let me talk about inversions, because we have heard 

them called tax cheats. Are these companies cheating? Are they 

cheating the tax—— 

Secretary LEW. Look, I have said it is wrong, and we have to 

change the law. 

Mr. PRICE. Is it illegal? 

Secretary LEW. No, we have to change the law. Congress has to 

change the law—— 

Mr. PRICE. Okay. It is important that people appreciate it is not 

illegal. 

Secretary LEW. That doesn’t make it right. 


ralbany on LAP520R082 with HEARINGS
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Mr. PRICE. And you are right. And when you have got so many 

companies doing this, at some point we have got to look in the mirror, as a country. 

Secretary LEW. Yes, look at—— 

Mr. PRICE. What are we doing that is incentivizing them to 

move? Because they didn’t move 20 years ago. They didn’t move 40 

years ago. In fact, they wanted to start their businesses in the 

United States, because they knew this was the place of opportunity, and the place where things could thrive and grow. And 

something has happened now for these companies to say to themselves when they sit in the room and try to figure out just how to 

make a go of it, how to create jobs and grow businesses, something 

has happened for them to say, ‘‘We think it is better for us to be 

at those lower tax rates.’’ 

Secretary LEW. Our Tax Code is broken. And Congress has to 

fix it. That is why I have, for three years, come before this Committee saying let’s work together to fix it. 

Mr. PRICE. And let me—and we thank you for that. But nothing 

has been done. And I want to associate myself with the remarks 

earlier that mentioned the pass-through entities, the small businesses have a tax rate above 40 percent. So we, as a government, 

are punishing job creators and the American people. 

Secretary LEW. Well, if you are interested in working on fixing 

business tax—— 

Mr. PRICE. Look forward to it. 

Secretary LEW [continuing]. The business Tax Code so we can 

lower the statutory rate and be competitive in the world, that is 

what we are advocating, so—— 

Chairman BRADY. Time has expired. Thank you. 

Mr. Thompson, you are recognized. 

Mr. THOMPSON. Thank you, Mr. Chairman. 

Mr. Secretary, thank you very much for being here. I want to 

commend the President’s budget in regard to the new market tax 

credits. I think that is extremely important. And I want to commend you and your team for working with my office on improving 

that program. We came to you with an issue regarding closed military bases, and tried to put a BRAC component. 

I had legislation in the House to do that, bipartisan with a 

former Member of—Ralph Hall from Texas. And in this Congress, 

sadly, it went nowhere. But with your commitment and your determination, we were able to work around that, and figured out a way 

to allow closed military bases to take advantage of these tax credits. And that is going to be extremely important, and will be job 

growth-inducing and environmentally important, as well as these 

bases start to—— 

Secretary LEW. I appreciate your interest in the new market tax 

credit and your advocacy for it. I am pretty attached to it. It is one 

of the last things we did at the end of the Clinton Administration 

on a bipartisan basis with the Congress, and I think it has done 

an enormous amount of good, which is why we are—we are supportive of it because it works. 

Mr. THOMPSON. Well, I appreciate it very, very much. And the 

one issue I do have concern with—and I think you know my position on this well, and that is the repeal of LIFO. 


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My concern, as you know, is the retroactive aspect of it, and I 

think that—if that were to happen, it was going to be very damaging to a lot of businesses who have been playing by the rules, 

abiding by the law, and working right here in this country, not one 

of these—not these companies that try and manipulate the Tax 

Code so they don’t have to pay taxes or move overseas so they can 

avoid taxes. But just good business people, good businesses right 

here at home, trying to make a living and trying to employ people. 

And if this retroactive component is to take effect, it would be very 

damaging to these folks. 

And I know you passed out the letter that you had sent to the 

European commission, and in it you reference to the DG for competition that you—one of your first concerns is that they are changing procedures and imposed penalties retroactively. And I just 

wanted you to know that those of us who represent districts that 

have LIFO companies, LIFO industries, we feel the same heartburn when you talk about retroactively collecting revenues and 

changing the Tax Code. 

So I would really like to work with you to see if we can’t figure 

this out, and just wonder if you have considered the impact of this 

proposal on small businesses and their employers, and if you—and 

have you considered that it could be less disruptive or less burdensome on businesses—ways that it would be less burdensome on 

businesses if they used the LIFO in its existing condition? 

Secretary LEW. Congressman, I understand this is an issue of 

deep concern to businesses in your district, and it is, in common 

with other loopholes that we close in the Tax Code, something that 

does impose a burden on those who have benefitted from what we 

believe is something that needs to be fixed in the Tax Code. 

The nature of this provision is it will be implemented over time 

that firms will have an ability to do some averaging, so it doesn’t 

hit all at once. And we don’t view it as retroactive, because it just 

is a question of the timing, not the incidence of the tax burden. So, 

we would look forward to working with you on this. 

I think that one of the reasons tax reform is so hard to do is that 

it does impose burdens to close loopholes. But we can’t lower the 

statutory rate if we don’t close the loopholes that make the average 

rate now—— 

Mr. THOMPSON. I don’t disagree—— 

Secretary LEW [continuing]. Lower than the statutory—— 

Mr. THOMPSON. I don’t disagree with you on that front. However, when you close a loophole but reach back and try and collect 

those revenues that were the revenues from tax law as it used to 

be before change, I think that is where the rub comes. 

It would be the same if, you know, we changed the tax bracket 

at which you are taxed, and went back 5 years or 10 years and had 

you make that up. It just seems inherently unfair, and it would 

have a very negative impact on businesses. And not just in my district. There is a number of people on this dais and throughout the 

Congress who have LIFO companies, and it would harm them and 

their communities. So thank you. 

Secretary LEW. I appreciate the concern. 

Chairman BRADY. Thank you. For the Members’ information, let 

me ruin Mr. Larson’s day by noting we will be going two-to-one 


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questioning at this point to ensure all of our Members get a chance 

to question the Secretary. 

So, Mr. Smith, you are recognized. 

Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman and 

thank you, Mr. Secretary, for your presence here today. 

I just want to clarify some things here. Now, when you said business tax reform, that is equating to corporate tax reform, correct? 

Secretary LEW. Well, I mean, the reason we call it business tax 

reform is we also have done things to change the way that all businesses can handle their accounting and their choice of how they 

present themselves, what form they organize under. So there are 

benefits that go to particularly small businesses under the proposals that we have. 

Our changes to the rate structure are on the corporate side. 

Mr. SMITH OF NEBRASKA. So you are saying that a small 

business that might pay under the individual tax rate or passthrough is inclusive of this in this term? 

Secretary LEW. Well, for example, we propose increasing the 

Section 179 deduction. That will be a benefit to small businesses, 

however they are organized. So there are benefits in here that are 

going to accrue to small businesses. Our calculation is—— 

Mr. SMITH OF NEBRASKA. But no rate reform for—— 

Secretary LEW. That is what I said. The loophole closers and the 

rate changes are on the corporate side. 

Mr. SMITH OF NEBRASKA. Okay, but I—I appreciate that clarity, because, let’s face it, roughly half of all private-sector employment in the United States exists in these pass-through entities 

that pay tax under the individual rate structure. Isn’t that accurate? 

Secretary LEW. Yes. I mean we have to also be clear that the 

pass-throughs are a very different—they are very different kinds of 

businesses that are pass-throughs. Most small businesses are going 

to get a benefit from our business tax reform proposal. The ones 

that are going to tend not to are not what people usually think of 

as pass-throughs. It is large firms, like oil pipeline, gas pipeline 

companies, hedge funds that have organized as pass-throughs to 

take advantage of a more attractive structure in the Tax Code. So 

we have to be clear who we are talking about. 

Mr. SMITH OF NEBRASKA. But in the same vein, I mean, corporate tax reform would include General Electric. Wouldn’t that be 

accurate? 

Secretary LEW. Correct. 

Mr. SMITH OF NEBRASKA. And—— 

Secretary LEW. Anyone organized on the corporate side. 

Mr. SMITH OF NEBRASKA. Right, right. So I would hope that 

realizing that the current state of our Tax Code is begging for reform—and not just the corporate side, or not just perhaps adding 

some layers of complexity on the individual side that we would say 

is a tax relief, but, you know, simplifying our Tax Code must happen. 

And, you know, I—there is a lot of debate now about, you know, 

small, large businesses, domestic, international. And so we know 

that U.S. businesses have generated business overseas. And I see 

that as a good sign. Would you agree with that? 


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Secretary LEW. I think generating business at home and overseas are both good signs. 

Mr. SMITH OF NEBRASKA. Right. And I am glad we can agree 

on that. 

Now, you had mentioned earlier about wanting to require businesses to return their profits to the U.S., require U.S. businesses 

to return their profits—— 

Secretary LEW. Yes. Right now you have a lot of businesses that 

are holding their earnings overseas before they bring them home. 

They are not investing them overseas, they are not investing them 

here, they are just deferring bringing them home. 

We would—as we go through the process of rewriting the business Tax Code, we would say that all that income that is parked 

overseas comes home. And then we propose a tax rate of 19 percent. I believe the—— 

Mr. SMITH OF NEBRASKA. What would be the mechanism that 

would require them to bring that back? 

Secretary LEW. It would be a requirement in the—that, actually—my tax counsel is correctly pointing out they wouldn’t have 

to bring it home, they would have to pay taxes on it. You couldn’t 

defer the tax on it. They could leave it sitting where it is, but they 

couldn’t defer the taxes any longer. 

Mr. SMITH OF NEBRASKA. Okay. So I do hear you saying that 

our international tax policy needs to be reformed, and we can help 

businesses, U.S. businesses, grow as a result, and help our economy as well. Is that accurate? 

Secretary LEW. Yes. And, you know, Congressman, I will say I 

have said to some of the U.S. businesses that are affected by the 

actions we have talked about in the European Union that they 

ought to, before having the kind of minimum tax proposal that we 

have, to bring that money home and clarify this issue so they are 

not being attacked overseas. 

I actually think it would be better for everyone if we did it. You 

know, you could negotiate what the rate is. You know, if I recall 

correctly, Chairman Camp proposed 12 percent, I think a 12 percent rate. We proposed 19. 

You know, the point is it shouldn’t be sitting tax free. The reason 

we are seeing the kind of outrage around the world is the money 

is just sitting there. That is not an excuse for saying that it is not 

U.S. income to be taxed in the United States. But only Congress 

can do something that will address that. 

Mr. SMITH OF NEBRASKA. Thank you. 

Chairman BRADY. Thank you. 

Ms. Jenkins, you are recognized. 

Ms. JENKINS. Thank you, Mr. Chairman. 

Thank you, Secretary Lew, for being with us today. Over the past 

five years in the House there have only been two votes in support 

of the President’s budget. There is 435 of us, 2 votes for the President’s budget the last 5 years. All of us are elected to represent the 

American people. And I am just really puzzled, when you are rejected that soundly by the folks here in the people’s house, why you 

wouldn’t be willing to work with us on changing—I think you 

called this budget your vision for America—one that might more 

accurately reflect the priorities of the American people. 


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You know, this Committee has discussed on numerous occasions 

that the American people are being hurt by this President’s failed 

economic policies, and statistics that we just saw show that growth 

is being stuck at two percent, nationally. That really does not do 

justice to the hard-working American people who are suffering 

right now. 

In this budget for Fiscal Year 2017 our budget chairman has al- ready noted you will increase annual spending by $2.5 trillion over 

the next 10 years. It includes 3.4 trillion in new taxes. Annual collections will increase by over 2 trillion in 10 years. The debt, federal debt held by the public, will increase well over 7 trillion in the 

next 10 years. That is a 51 percent growth in debt in just 10 years. 

The President’s plan more than triples interest costs, which remains the fastest growing item in the budget. The President’s estimates indicate the net interest outlays will grow 228 percent over 

the 10-year budget window. Under this President’s plan, interest 

costs are going to be larger than the appropriations for the Defense 

Department for 2022. 

This budget is putting us on a path where we are just borrowing 

to continue to pay for more borrowing. Can you tell us and the 

folks that we represent how can you be comfortable with this budget, when we are borrowing nearly twice as much money as we are 

currently borrowing, just money to pay more money? 

Secretary LEW. Congresswoman, you know, if you look where we 

started in 2009, and where we are now, we have stabilized the situation that was out of control. I know what it means to balance a 

budget; I was OMB director for three years—— 

Ms. JENKINS. Well then, why don’t you budget—— 

Secretary LEW [continuing]. The only three years we had a balanced budget. 

Ms. JENKINS. Why don’t you balance the budget? 

Secretary LEW. But when we came into office, the economy had 

shrunk by way more than two percent. It was like eight or nine 

percent the year before. 

Ms. JENKINS. You are talking about—— 

Secretary LEW. We had the deepest—— 

Ms. JENKINS [continuing]. About 2022. 

Secretary LEW. Yes, so—— 

Ms. JENKINS. You can’t ever, ever get to balance—in perpetuity, 

when we take these figures, and you project it out in perpetuity, 

you can’t ever point to a time where you will stop spending more 

of my constituents’ money than you take in. And I get tired of hearing this primary balance. The folks at home know what balance 

means. It means you don’t spend more money than you take in. 

And I don’t see how we can look our kids in the eye and explain 

to them why we can’t pay for the things that we are enjoying 

today, we are just going to send them the bill. 

Secretary LEW. So, look. I think that we have to look at the drivers of some of the spending and ask: Do we want to pretend it is 

not happening? Demographic changes have meant that more people 

will be on Social Security and Medicare in these coming decades—— 

Ms. JENKINS. So you are just not being honest with people—— 

Secretary LEW. No—— 


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Ms. JENKINS [continuing]. You really intend to raise taxes—— 

Secretary LEW. No—— 

Ms. JENKINS [continuing]. A whole lot more than the budget reflects, you just don’t want to tell them that. 

Secretary LEW. No, I am being completely honest. I am saying 

that, you know—go back a few years. When I was OMB director 

and we had a surplus, we were building up, over the 10 years when 

I left, $5.5 trillion of surplus. 

Ms. JENKINS. Why can’t you do that again? 

Secretary LEW. That money wasn’t there when we came back in. 

We were seeing deficits that were enormous. And we have stabilized it. I don’t think Social Security and Medicare should be cut, 

you know, to take away from people what they need and what they 

have been promised. 

Ms. JENKINS. And we will agree on that—— 

Secretary LEW. And we have proposed a balanced approach—— 

Ms. JENKINS. So what year does your—— 

Secretary LEW [continuing]. To get to a stable budget. 

Ms. JENKINS [continuing]. Your budget balance? 

Secretary LEW. I am not going to say that it presents a year of 

balance. 

Ms. JENKINS. That is because it never does. 

Secretary LEW. I said it is a stable, sustainable path, and we 

have a long period when we can deal with some of these long-term 

issues. 

I think I would ask the question to you: How would you balance 

the budget? What would you cut? 

Ms. JENKINS. Our budgets the last few years, and the budget 

that the budget chairman will present, they always get to balance, 

and puts us on a path to totally eliminate the debt. 

See, the problem here is—— 

Secretary LEW. And I suspect there will be policy there—— 

Ms. JENKINS. Excuse me. The problem here is—— 

Secretary LEW [continuing]. That we have real disagreements 

over. 

Ms. JENKINS [continuing]. That people in Kansas are sitting 

there, running their businesses and their personal finance, and 

they have to balance their budget. And they can’t, for the life of 

them, figure out why we can’t do the same here in Washington. 

Chairman BRADY. Thank you. Mr. Larson, you are recognized. 

Mr. LARSON. Thank you, Chairman Brady. And thank you for 

holding this hearing. I would just say that—and Secretary Lew, 

thank you so much for your service to the country in two administrations. And thank you for leaving us with a surplus, and having 

balanced the budget, and left us in a position that we could have 

built on, where we would have alleviated all of our national debt 

by 2009. 

There was another administration that happened in between 

and, yes, there were also wars that have taken place. But clearly, 

this Administration has done an outstanding job in digging us out 

of the ditch that we were presented—as you pointed out, the worst 

since the Great Depression. 

I want to thank the chairman, as well, for his comments about 

the kind of cooperation that we saw at the end of the session. I 


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think we ought to build on that, as a committee. You know, above 

the chamber it was Webster who famously said, ‘‘Let us develop 

our resources of our land, call forth its powers, build up its institutions, promote all of its great interests, and see whether we also, 

in our day, in generation, may not perform something worthy to be 

remembered.’’ I think that is what the American people want. They 

are tired of this back-and-forth. You see that, we see it on both 

sides with respect to our presidential races. 

And look who—look where the public is. And as many are calling 

this an outsider revolution, I am heartened to see that Donald 

Trump, for example, is supporting—the Republican frontrunner is 

supporting increases in Social Security, is advocating directly negotiating with pharmaceutical companies so that we can actually 

lower the cost. We are heartened by this. 

We are heartened, clearly and always, by the standard-bearer of 

our party, Hillary Clinton, standing up for expanding Social Security, and Bernie Sanders, as well. This is a great opportunity. 

I would like to submit for the record also—and I have the greatest respect for my colleague from Texas, I am glad that he brought 

up those—the situation that exists with Social Security. But I 

would add just a couple of things, Mr. Lew, by way of question. 

Social Security often times gets called an entitlement. I believe 

this is called the Federal Insurance Contribution Act. Is it not, in 

fact, a premium payment that individuals make into the Treasury? 

Secretary LEW. Well, it is funded by employer and employee contributions. 

Mr. LARSON. Yes. And I would like to submit for the record this 

actuarial report from a Social Security chief actuary, a plan that 

we have introduced on this side. And I hope—and I say this with 

all due respect—that we are able to get a hearing on this, because 

it is the vitality of ideas. And with both sides of the aisle talking 

about this in a presidential race, I think we should be talking 

about it here in this Committee as well, because this should be 

something that this Committee that has—can be remembered by. 

And I think it is long overdue that we come to an understanding. 

Mr. Neal pointed out the other day in another hearing that we 

had—and I thank you for that, Mr. Chairman—that we have become totally reliant. Employers are moving to 401(k)s as the only 

means in which members are going to be able to put money aside. 

If not for Social Security, what do we have? 

And for Republicans now finally—and I commend Mr. Trump for 

saying, ‘‘Look, we cannot be talking about cutting benefits from 

people who the only thing that they may have to retire on is their 

Social Security, including most women.’’ I know that the gentleman 

from Texas understands this from the people that he has represented all of his life. And I think, at its core, all of us want to 

make sure that we are preserving Social Security so that it works 

for the people. 

We have an opportunity to do this. We have a proposal that will 

do this that will not increase the national debt but, in fact, will 

provide an opportunity that will not only expand benefits, but— 

how about this, and I hope my colleagues will join me with this— 

provide a tax cut for working seniors, because we have never adjusted since 1983, when Mr. Lew and others did the work on this 


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Committee to make sure we put there—we placed there, and did 

not make the change for our working seniors to have a tax break. 

So let us join together on this, solve the problem for the next 75 

years, not 40, not 30, but do it in a way that we both offer extra 

and expanded security and tax cuts. Clearly, we can both agree on 

that. 

Chairman BRADY. Thank you. Without objection, the documents 

will be entered into the record. 

[The information follows:] 


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Chairman BRADY. Mr. Paulsen, you are recognized. 

Mr. PAULSEN. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for being here. I am going to start my first question on 

trade, actually. 

Like my colleagues, I am very concerned about the exclusion of 

financial services-related data from the TPP’s data flows obligations. And, as you negotiate now with TTIP, right, with our European allies, I would really urge you don’t make the same mistake. 

In addition, I would urge you not to exclude financial services 

from the regulatory cooperation provisions. And I know that the 

Administration disagrees with some of us about the interplay between financial services regulatory issues and TTIP. However, a 

specific exclusion will actually do nothing more than diminish the 

outcome in a very all-important financial services market access 

outcome. 

So, I would just really strongly urge and encourage you to reconsider if you want our support. And can you commit to working with 

us a little bit on this language? This has been a tension point, I 

know. 

Secretary LEW. Yes, I—on the data localization, I would very 

much be open to working together. We are working with all the 

parties. 

On the question of TTIP, let’s separate the question of data localization from whether financial regulation should be included. Hopefully, we can get to a place where, going forward, we figure out how 

to manage the data localization issue so that we are in a place that 

there is broader comfort with, going forward. 

On the inclusion of the financial regulatory issues, we may just 

have a disagreement. I have been very clear with my European 

counterparts that we do not believe that regulatory issues should 

be governed by a trade agreement in the area of financial regulation. We have many mechanisms to coordinate, which I think are 

working effectively. Just yesterday we saw in the commodities 

trading area an important agreement reached, many years in development. 

So I think we need to use the channels that exist, but I would 

not put them into a trade agreement. 

Mr. PAULSEN. Well again, and you have met with some of our 

European colleagues, actually just yesterday. And if we want to 

have a good outcome in the market access area, I think we have 

got to make sure we are having ongoing conversations in this regulatory framework topic, as well. 

Let me get on to one other question before I run out of time. The 

highway bill that we just passed this last fall, the FAST Act, there 

was a provision that would facilitate the collection of taxes that are 

already owed to the government but are not being actively pursued 

by the IRS, while also pursuing and protecting taxpayer rights and 

privacy. 

So now, pursuant to the new law, how is Treasury going to comply with congressional intent? What efforts are underway now to 

ensure that Treasury has the appropriate resources in the way of 

collection contractors and debt collection centers to actually carry 

out the goals of this expeditious tax collection and protecting taxVerDate Sep 11 2014 06:57 May 31, 2017 Jkt 022374 PO 00000 Frm 00077 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22374.XXX 22374

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payer rights? Because this was a paid-for, used-for in the highway 

bill that just passed. 

Secretary LEW. Congressman, the IRS is now working on implementing that provision of the highway bill. And as they go forward, 

they are going to be making sure that, while they implement the 

provision, they also protect the taxpayer rights and the privacy of 

taxpayers as a high priority. Turns out to be more complicated in 

the implementation than in the conception. And I would look forward to following up with you on that. 

Mr. PAULSEN. Okay, that would be great. I mean is it a separate—are we expanding the number of collection—qualified collection agencies, then, or are we using the existing list that is on the 

table? Because there is an approved list right now that can be 

used. Or are we using more RFPs in searching out more collection 

agencies? Or what is the delay, I guess, because—— 

Secretary LEW. Yes, I think the challenge is how do we do it in 

a way that we make sure we protect taxpayers, particularly their 

privacy rights. And I would have to get back to you on which contracts are being used. 

Mr. PAULSEN. Thank you, Mr. Chairman. I yield back. 

Chairman BRADY. Thank you. Mr. Marchant, you are recognized. 

Mr. MARCHANT. Thank you, Mr. Chairman. 

Thank you, Secretary Lew. One of the Treasury’s important roles 

is to help administer and oversee the Committee on Foreign Investment in the United States, particularly determining the effect of 

these foreign transactions on our national security. 

Last year global cross-border mergers and acquisitions reached a 

six-year high, with Chinese firms investing 15.7 billion in the 

United States, a new record. And already this year it looks like 

there will be the same kind of activity. Already we have seen several deals announced this year, early this year, the China—including Zoomlion’s $3.3 billion acquisition of Connecticut-based Terex; 

Chinese conglomerate Dalian Wanda’s group of Hollywood legendary entertainment; and then the proposed sale of the Chicago 

stock exchange to an investor group led by China’s Kaisen Enterprise. And lastly, Chem China has proposed a $43 billion takeover 

of Switzerland’s Syngenta, which has a major, major presence in 

the United States. 

Secretary, can you talk to us about what activity you are engaged in in ensuring that these mergers and acquisitions are not 

going to affect our national security? 

Secretary LEW. Congressman, we take our responsibilities as the 

chair of CFIUS very seriously. And we have a process where the 

national security agencies do an assessment and offer their views 

as to whether or not there are national security issues. If there are 

national security issues, there is an effort made to look at is there 

a path to mitigation that would be appropriate. And I could tell you 

these are not easy decisions. 

In general, we believe in—you know, that legitimate transactions 

shouldn’t be blocked; only things that are really covered by the 

statute that present a national security risk should be. It is a very 

challenging area, because of highly confidential review. We have information provided to us by the firms that are proprietary informaVerDate Sep 11 2014 06:57 May 31, 2017 Jkt 022374 PO 00000 Frm 00078 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22374.XXX 22374

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tion. Even the fact of some of the things is something we can’t talk 

publicly about. 

So, it is one of the more difficult areas where it is kind of— 

looks—it is very difficult to explain, since I can’t talk transaction 

by transaction. What I can tell you is that, you know, we are criticized by some overseas for using a standard that they think is too 

tough, that we are not focusing on national security issues. What 

I tell them is the same as what I will tell you, that this is truly 

a national security process. 

If they are not national security issues—we don’t stop a transaction because we don’t like it or for any other reason. So there has 

never been a case that I am aware of where there has been any 

issue, other than a national security issue, nor am I aware of any 

national security issue that hasn’t been addressed, either in a satisfactory way to permit a transaction to go forward or, if not, for 

the message to be sent that it wouldn’t be. And in most cases the 

applications are withdrawn, if they are not going to be approved. 

So, it is a challenging area, but we take it very seriously. And 

it is one that I think we have to be very fair about, because we 

don’t want to see barriers raised to U.S. companies in the name of 

national security when it is not. We have been very critical of other 

countries when they say we are not—you know, ‘‘We are going to 

put standards in place that are national security standards,’’ when 

they are really just trade barriers or barriers to acquisition. 

So, I am very comfortable with the way we approach it. A lot of 

deference is paid to the security agencies in the process. And it 

takes up a lot of people’s time to go through these reviews. There 

have been more of them recently, just because there are more 

transactions. 

Mr. MARCHANT. Thank you, yield back. 

Chairman BRADY. Thank you. Mr. Lewis, you are recognized. 

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

you for your courtesy. 

Thank you, Mr. Secretary, for being here. Thank you for your 

years of service, for your leadership. You are so calm and so cool. 

I don’t know whether you take it from the President, or he takes 

it from you. But thank you. 

Last year, Mr. Secretary, the taxpayer advocate noted that the 

2015 filing season was like a Tale of Two Cities. For those who did 

not need IRS assistance, there was very few problems. But for 

those who did need help, it was, ‘‘by far, the worst in memory.’’ I 

am quoting the advocate, it is not my quote. 

As the ranking member of the Oversight Subcommittee, I have 

fought long and hard for the IRS to have the resources and support 

it needs to serve American taxpayers. I believe the Administration 

shares these goals. 

Mr. Secretary, will you—how will the President’s budget move 

the IRS toward being able to provide the direct, personal, and timely assistance that American taxpayers deserve and expect? Now, 

other side for years—I have been around for a while—had tried to 

cut—in essence, destroy the IRS. Tell me. How would the President’s budget support and strengthen? 

Secretary LEW. Well, Congressman, I couldn’t agree with you 

more. The American people deserve to have an IRS with the reVerDate Sep 11 2014 06:57 May 31, 2017 Jkt 022374 PO 00000 Frm 00079 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22374.XXX 22374

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sources so that, when you pick up the phone and call the IRS, 

there is a person at the other end to answer it. Last year the answer rates were in the thirties, like 37 percent, something like 

that. Outrageous. 

You know, I am outraged when I can’t get my phone calls answered if I call a business or a government agency. Americans have 

the right to have their phone calls answered. It is not magic, it 

takes people answering the phones. We didn’t have the appropriation to hire the people to answer the phones, so the phones couldn’t 

be answered. 

At the end of the year, there was a slight increase in the IRS 

budget for three purposes, one of which was to staff the hiring of 

people for tax season. Now, that was passed in December, and tax 

season began in January. We have hired a lot of people, but they 

have to be trained. We are hoping to get close to 70 percent, in 

terms of the answer rate, but we didn’t get full funding, even with 

the increase last year. 

So there is no mystery to service; service is people. I give a lot 

of credit to the IRS team for working really well to make the online 

services very accessible. And a lot of the calls are falling off, because people are doing things online with the IRS, like they do 

with other agencies and other businesses. But that doesn’t eliminate the need for people to actually ask questions in difficult cases. 

And when they call, they should get an answer. 

So the simple answer is we have requested more money for people to answer the phone. You know, it is much broader than just 

customer service. In order for us to enforce the Tax Code effectively, we need more people in the enforcement operations, and we 

are losing money, leaving money on the table if we don’t have enforcers to go and say, ‘‘We have audited you, you owe more taxes.’’ 

Apart from losing money, I don’t think people like it if they think 

that other people get away with cheating. One of the ways a voluntary tax system works is you have confidence that everyone is 

treated the same way, and if you follow the rules it is fine, if you 

don’t you get caught. We shouldn’t let people who cheat get off the 

hook, because that undermines confidence in the tax system. 

So it just boils down to money. Obviously, we have got to do the 

work well, and we look forward to continuing to work with this 

Committee and others in Congress to make sure that we put the 

money to good use. But there is just a need for more funding. 

Mr. LEWIS. Mr. Secretary, when the government was closed 

down for a little while—— 

Secretary LEW. Yes. 

Mr. LEWIS [continuing]. I went back to Atlanta and visited a 

federal building. And many of the federal employees, including IRS 

employees, heard that I was coming. And they met me, thanking 

me for coming by. And some was very glad and pleased to be able 

to go back to work. What effect do you think closing down the government have on federal employees? 

Secretary LEW. Well, Mr. Lewis, first, I visited the Atlanta field 

office just a few weeks ago, and it was a dedicated group of people 

who care deeply about their country, and who care deeply about 

doing their job, as well. The only concerns I heard them raise were, 

‘‘How can we do better protecting people’s identity? How can we do 


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better at providing better service?’’ And they said, ‘‘Will you get us 

the resources to do it, so that we can get this job done well?’’ 

I think, if you look at the impact of the government closure and 

where the furloughs were deepest, the IRS got one of the worst 

burdens in government, because it is all people. And I think it was 

terribly demoralizing to people. I give a lot of credit to the people 

of the IRS, that they pick themselves up and they come back determined to do a good job. 

They have also been through a difficult period where a few people behaved badly, and we have all agreed that they needed to be 

held accountable. But the vast majority of people didn’t deserve the 

criticism that they got, because they—— 

Chairman BRADY. Thank you, Mr.—— 

Secretary LEW [continuing]. Didn’t do anything wrong. 

Chairman BRADY. Thank you, Mr. Secretary. 

Mr. LEWIS. Thank you, Mr. Secretary. 

Chairman BRADY. Mrs. Black, you are recognized. 

Mrs. BLACK. Thank you, Mr. Chairman and Secretary Lew. It 

is always good to have you here with us. I really am not sure— 

there is so much to say, I am not sure where to start. But let me 

start by saying that I would love for us to work on simplifying the 

code, because I really do believe that that would help some economic growth. 

I would say that that economic growth would hopefully be better 

than what we have continued to see. And this chart has already 

been shown about the economic growth that has occurred, and the 

GDP growth in the years that the President has been in office. And 

I even had to draw in here over at the end another column, because 

the projected growth for this upcoming year is 1.8 percent. And I 

want to note in your remarks you said economic growth continues 

on a solid path. I don’t consider this a solid path. 

And then, in the proposal by the President we see an increase 

in taxes on oil, taxes on savings and investment. None of that really helps economic growth. 

But I want to go in another direction, because we can talk about 

adding more money to the treasury, but where I am concerned 

about is the money that perhaps is being wasted and not being 

used, and using hardworking taxpayer dollars. And I want to pull 

up a report when Secretary Burwell was here yesterday. This is a 

report that came out of the Senate. And this report—‘‘Illegal Immigrants Benefitted by up to $750 million in Obamacare Subsidies.’’ 

Now, we can’t talk about raising taxes until we get our office 

straight, our house straight, on what we are doing. We have to protect our taxpayer dollars. Hardworking taxpayer dollars don’t like 

to read this kind of thing in the mail, or on their iPads. 

This is a failure. This is a failure of being sure that you verify 

before someone gets these tax credits and these subsidies. And we 

see that as not happening. We have known for several years in the 

Affordable Care Act that is not happening. 

Now, I know it is law that if they cannot verify their legal status, 

that for 90 days they are going to receive the subsidies. I happen 

to believe you shouldn’t even give it out for 90 days, because now 

there is a pay-and-chase. And we have seen this in other programs, 

like the EITC. We are also seeing this in the education tax credits. 


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We don’t even really know how many dollars—this is one situation, 

but we really don’t even know how many dollars we are trying to 

chase that were given out on self-attestation, where there wasn’t 

verification of income in those other programs like auto-renewal, 

where we didn’t even say, ‘‘Has there been a change in your income.’’ 

So, there are dollars going out the door that we are not sure that 

they are really going properly out the door. And then chasing them 

is a real problem. So there is a disconnect between HHS and the 

IRS in giving out these tax credits. And what I want to hear from 

you, as the treasurer who is in charge of all the dollars in this 

country, is that there is going to be something done about making 

sure that these dollars don’t go out the door without there being 

verification. 

As a matter of fact, I have a bill, and have had it for a number 

of years now. I would like all my colleagues to sign on to this bill 

with me. It is called ‘‘No Subsidies Without Verification,’’ because 

if I apply for something in the private industry, and I don’t have 

all of the paperwork to show that I qualify for whatever it is that 

I am applying for, I don’t get whatever it is that I would like to 

have, just because I say that, ‘‘Well, I don’t have to prove it,’’ or, 

‘‘There is 90 days that can go by. By the way, give me that money 

bank, but I haven’t given you all of my qualifications.’’ 

Can I get some assurances from you that this is something that 

is going to be taken care of, and we won’t continue to see this happening? 

Secretary LEW. Congresswoman, first, let me acknowledge that 

we are committed to protecting taxpayer dollars and implementing 

the Affordable Care Act and the Tax Code, generally. So, in principle, you are not going to get any disagreement on that. 

In the Affordable Care Act, you know, our implementing guidance is clear that the premium tax credit is not allowed for individuals who are not lawfully present in the United States, and that 

such individuals who receive the advance premium tax credit must 

repay it when they file their tax return. 

Mrs. BLACK. So can you tell me, Mr. Lew, how much money is 

coming back? Of this—— 

Secretary LEW. I would have to get back to you, yes. 

Mrs. BLACK. Could you get back to me on that? 

Secretary LEW. I—— 

Mrs. BLACK. Can you get back and tell me, in the previous 

years of the money that has gone out the door, how much money 

has come back? Because we have had testimony from the OIG here 

in this Committee about all of these other programs, where the 

money goes out the door, about how much money that they are able 

to get back. And that number is—— 

Secretary LEW. I will get—— 

Mrs. BLACK [continuing]. Minuscule, compared to what goes out 

the door. 

Secretary LEW. I will get back to you, but I just want to assure 

you the IRS is using all of its standard enforcement tools, including—— 

Mrs. BLACK. Well, it is not working. 


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Secretary LEW [continuing]. Offsetting future refunds when it 

comes to—— 

Mrs. BLACK. It is not working. 

Secretary LEW [continuing]. Anyone who fails to reconcile. 

Mrs. BLACK. We need to change policy, because it is not working. 

Chairman BRADY. Thank you. Mr. Young, you are recognized. 

Mr. YOUNG. Thank you, Mr. Chairman. 

Mr. Secretary, thank you for being here before the committee. I 

wanted to speak to you about the President’s corporate tax reform 

proposal, specifically its impact on many of our multinational corporations, like those in my home state of Indiana, the impact it 

could have on their liquidity. 

You will recall under the former Chairman Camp’s draft reform 

proposal that he had sort of a two-tiered structure for dealing with 

overseas earnings, for the subsidiaries of multinational corporations. He applied one rate, 8.75 percent, to cash earnings and a second rate, 3.5 percent, on non-cash earnings. This was done purposely, to recognize there is a difference between what these earnings are spent on, what they are invested in, where they are left. 

We don’t have $2 trillion—I know you understand—that is sitting 

in some back account overseas. Much of that is invested or reinvested in equipment, infrastructure, and other things. 

And so, I have concerns that applying a single rate will require 

businesses in some instances to borrow in order to pay this tax that 

has been proposed. It will certainly lower domestic investment, reinvestment here in the United States, and investment in these 

businesses that are important to all Americans. 

So my question is why does the President take this single-tier 

approach, in terms of taxing these overseas earnings? So we will 

just start with that. 

Secretary LEW. So, in principle, we—I think we might even 

agree that there is not a difference between a dollar earned and invested and a dollar earned and put in a bank account. 

Mr. YOUNG. Right. 

Secretary LEW. It is subject to taxation. So the basic principle 

is, you know, that all corporate earnings should be taxed on a comparable basis. 

I understand the question you are asking, and the liquidity—the 

cashflow issues. It is not a liquidity issue if firms have a capital 

structure where they are able to finance it or to manage it. It is 

only a liquidity issue if they can’t. If there are real liquidity 

issues—— 

Mr. YOUNG. Have you prepared for that contingency within the 

President’s proposal—— 

Secretary LEW. Well, look, I mean, to tell you the truth, we have 

not gotten into a level of detail on working through the differences 

between our proposal and proposals from the Hill. 

Mr. YOUNG. I am asking about your proposal, not the contrast. 

Secretary LEW. I think we provide some time for—— 

Mr. YOUNG. Time to adjust? 

Secretary LEW. It is a five-year period to pay the taxes that are 

due. So that is an attempt to make it not become kind of a sudden 


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burden that would stress a firm’s cashflow. If that is not sufficient, 

we are obviously open to a discussion about how to deal with it. 

I don’t think the two-tier rate is really fair, in terms of treating 

one dollar earned a different way than another. But it is not the 

goal to create tax bills that can’t be paid. I actually think in most 

cases it wouldn’t present that kind of a problem. But, you know, 

if we can get into that level of detail, we would have made a lot 

of progress. So I would look forward to, you know, kind of working 

that through. 

Mr. YOUNG. Well, I look forward to working it through, as well. 

And I would like to play a constructive role in that conversation. 

My thought is I know you have an incredible amount of internal 

expertise over there at Treasury. We, in contrast, were able to 

come up with a reform proposal with Ways and Means Committee 

staff and Member input, which, my understanding, is very different 

than the—— 

Secretary LEW. Yes. 

Mr. YOUNG [continuing]. Way in the 1980s the tax reform proposal was done. So I am surprised you haven’t been able—— 

Secretary LEW. Well, no, we have—— 

Mr. YOUNG [continuing]. To get down to that level of detail, 

candidly. 

Secretary LEW. We provided technical support to Chairman 

Camp at the time. 

Mr. YOUNG. And we were grateful for that. 

Secretary LEW. Yes. So it is not that we are unfamiliar with it. 

Mr. YOUNG. Right. 

Secretary LEW. We have one approach, you have another approach. The reason we haven’t gotten to that level of detail is we 

haven’t had a real negotiation over what would the middle grounds 

look like. I would welcome being in that kind of conversation. 

Mr. YOUNG. Right, and just so, you know, some of my constituents who may be watching, or others who might be watching, I 

mean, what we are talking about here is, you know, there may be 

some company that has, you know, invested in a bunch of buildings, brick and mortar, and we are actually talking about taxing 

the monies that were used to invest in that brick and mortar, 

which, you know, seems a bit off. 

But again, you have conceded—if that term strikes you as loaded, I will allow you to recharacterize it—but you certainly indicated 

that there—this perhaps is not optimal, and we can improve upon 

it. 

Secretary LEW. Yes, and I do think that we have to keep our eye 

focused on what I think we all agree on, which is that—— 

Mr. YOUNG. Right. 

Secretary LEW [continuing]. There are companies sitting on 

huge amounts of cash overseas, some of them borrowing against 

them to be able to bring money home because of low interest rates, 

and never paying taxes until that money is actually, you know, 

physically moved. And that is wrong. I mean the system has to be 

fixed. 

Mr. YOUNG. Thank you. 

Chairman BRADY. Thank you. Mr. Blumenauer, you are recognized. 


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Mr. BLUMENAUER. Thank you, Mr. Chairman. 

Mr. Secretary, thank you again for visiting with us. I appreciate 

the President staking out a bolder vision, in terms of what we 

should be looking at in a year, when lots of people are talking 

about what the future is. And there is lots of continued debate 

about what we have done. And I think the record that is set forth 

that you have been involved with is a very strong one, in terms of 

a very impressive recovery, compared to what the President inherited, very strong growth, which happened in terms of health care. 

The catastrophe that was suggested actually hasn’t happened. 

And when I talk to people in the health care industry in my community, whether they are doctors, hospitals, insurance people, it 

has been a rather remarkable five years dealing with something, 

despite the fact that Congress wasn’t willing to fine-tune it, they 

were just sort of chipping away at it. 

So, I appreciate a bold statement. I appreciate laying out a vision 

for the future. I appreciate being able to engage with what we have 

done and what we can do, going forward. 

I noted with interest the President included in his proposal a 

$10.25 fee on—per barrel of oil to be invested in infrastructure, especially green infrastructure. And, as you and I know, we have had 

a number of conversations, how much I support the President’s 

commitment to infrastructure, although we have had some modest 

disagreement about how to go forward. 

I hearken back to your days with Tip O’Neill, when Speaker 

O’Neill and President Reagan were able to raise the gas tax on a 

bipartisan basis—— 

Secretary LEW. I remember it—— 

Mr. BLUMENAUER [continuing]. A nickel a gallon, back when 

that was real money, and had tremendous impact on our country. 

I noted—I am pleased that the President appears to have 

changed his position about whether—about having people who 

make under $250,000 a year paying more to be able to support infrastructure. I commend that. The estimates I have seen is that a 

$10.25-per-barrel charge would translate maybe $.20, $.25 a gallon 

at the pump. It also has other impacts that I am not certain have 

been fully vetted with the President’s proposal, things like school 

buses and home heating oil. But I am assuming people will work 

to deal with making sure that it—if it were enacted, that it would 

work in a smooth and equitable fashion. 

But my question to you, Mr. Secretary, is why should we go 

through the machinations of the barrel charge that gets the petroleum industry moving from neutral to opposed? I didn’t see vast 

numbers of people lining up supporting it, like they did with our 

gas tax increase. Why don’t we just—is there opportunity for us to 

work with the Administration to just do it directly now, and raise 

the gas tax to meet these objectives on a sustainable basis, going 

forward, rather than a proposal that actually would cost more, and 

has more negative consequences? 

Secretary LEW. Well, Congressman, I appreciate the kind words 

for our policy, but I just want to be clear. We have imposed no direct tax on consumers. I understand that there are different analyses of what the pass-through rate would be, but I don’t think—— 


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Mr. BLUMENAUER. You don’t think that a $10-a-barrel increase—— 

Secretary LEW. I don’t think—— 

Mr. BLUMENAUER [continuing]. Is going to be reflected in 

higher gasoline—— 

Secretary LEW. I don’t think—— 

Mr. BLUMENAUER [continuing]. Prices at the pump? 

Secretary LEW [continuing]. You can just divide it by the 42 gallons in a barrel. 

Mr. BLUMENAUER. No, I am not suggesting, but—— 

Secretary LEW. So the—there is a range of possible amounts 

that will be passed through. But there is—no, this is not a direct 

tax on consumers, this is a tax on oil industry. 

[Laughter.] 

Secretary LEW. As I have said to you in many conversations in 

the past, we remain open to working with you and others in Congress on anything we can get a majority for to—— 

Mr. BLUMENAUER. Okay. 

Secretary LEW [continuing]. Increase funding for highways. 

Mr. BLUMENAUER. Great. Well, reclaiming 20 seconds, I think there may be some debate whether it is $.15, $.20, $.25, or $.30. 

You and I will agree that it is going to be a significant increase at 

the pump, and probably less than the gas tax I proposed. 

I would hope—and I appreciate your offer to do something that 

is bipartisan—I hope that we can use this as an opening. I have 

got some colleagues on the committee that are interested in a longterm solution. And I would hope at some point we could have that 

conversation before the year is out. 

Thank you. Thank you very much for your courtesy. 

Chairman BRADY. Thank you. Mr. Kelly, you are recognized. 

Mr. KELLY. Thank you, Chairman. 

Mr. Lew, good to see you again. I am fascinated because you 

come here every year, and it must be very difficult, from your background. And I look at what the mission statement is for Treasury. 

If we just put that up for a minute. 

[Slide] 

Mr. KELLY. And I think sometimes we become confused as to 

who it is we work for. I don’t really view you as working for the 

Administration, I view you as working for the American people. 

Secretary LEW. That is exactly how I view myself. 

Mr. KELLY. Yes, and I think we are the same way. 

Secretary LEW. Yes. 

Mr. KELLY. But sometimes the conversation drifts—— 

Secretary LEW. He works for the American people, too. 

Mr. KELLY. Yes, yes. And it drifts into something else. 

But I just wanted to read this, so—because I know people at 

home, where I am coming from, if they were watching this, they 

would have fallen into this coma because of the Washingtonese, 

where nobody understands what is actually being said, so they just 

kind of nod and then they walk off and do something else. 

But the mission statement for the Treasury is to maintain a 

strong economy and create economic and job opportunities by promoting the conditions that enable economic growth and stability at 

home and abroad, strengthen national security by combating 


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threats and protecting the integrity of the financial system, and 

manage the U.S. Government’s finances and resources effectively. 

Now, I have looked at your background, it is very impressive. A 

lot of it has been spent in the public sector, not the private sector. 

And I think that is where the disconnect—for somebody who has 

been in the private sector all his life, and has understood that a 

budget is something that is kind of—not kind of, but exactly where 

you are going, it is a road map. And we may call it visionary, 

where we would like things to go. But where I am from, in western 

Pennsylvania, it is more kitchen table economics, where a husband 

and a wife sit down to figure out what do they have to work with, 

revenue-wise, and that dictates what they can spend. 

In Washington, we dictate what we are going to spend, and then 

we don’t come anywhere close to being able to pay for that. Now 

we are going to have to do something else, and the something else 

is usually borrowing. And we continue year after year after year 

with deficit spending. And we are really proud right now that we 

have actually reduced deficit spending. We are actually below a 

half-a-trillion dollars a year. We are feeling pretty good about it. 

And I keep thinking about this, a husband and a wife sitting 

down. And the wife says, ‘‘You know, honey, this is the best year— 

since we have gotten married. You brought home $32,500 last 

year.’’ And he goes, ‘‘Yes, I know. I had a lot of overtime, and I was 

able to work a little bit harder.’’ 

And she says, ‘‘That is great. It is okay if I go out and spend $37,000 or $38,000, then, right?’’ 

And he is, ‘‘No, no, let’s get together on this, because the math 

just doesn’t work, going forward.’’ 

Now, I look at these things, and I start to wonder, myself. If people at home can get it, and we tell them to tighten their belt, and 

we tell them they are going to have to do more with less—and a 

lot of it falls down to a broken Tax Code, and the reason we need 

a bigger IRS is because the code is too big, and the people call in 

because they don’t understand it and, more importantly, they are 

scared to death of the penalties for not abiding by it. 

Where you are, and where you have been—and you advise the 

President on this—has there ever been a serious conversation—and 

I mean this sincerely, and this is Republicans and Democrats—has 

there ever been a serious conversation about where is it that we 

are going with this? Do we really look at this and say, ‘‘This is sustainable’’? 

And then the other—the conversation on inversions, I mean, honestly, we need to put that poster up as the beatings will continue 

until moral improves. We keep accusing these people—tax cheats? 

These people are horrible? 

I pay wage taxes, by the way. Anybody that looks at the Tax 

Code understands that, when it comes to Social Security, yes, the 

person, the associate, puts the money in. So does the employer. It 

is a matching fund. When we talk about these people going overseas, they don’t go overseas because they hate America. They go 

overseas because we are making it impossible for them to be profitable here. By the way, everybody that works for them is paying 

wage taxes, and they are matching it to a great degree, and they 

are paying a lot of other taxes. 


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My question to you, as you start the end of a career, where is 

it that you see this going? Because I don’t see it. At 19 trillion in 

the red and climbing, and this President’s budget takes it way over 

the cliff, could you possibly be able to sit down and say, ‘‘You know, 

what, Mr. President? Looks good to me.’’ I mean it doesn’t. This is 

a very bleak future. But we have assets, we could turn this around 

with a proper Tax Code, regulation reform, and really make it easier for people in America to be successful. They pay a high portion 

of whatever it is they make in taxes. 

So just—you only have a couple seconds left, and you only have 

a couple months left, too, but what would you do differently? Because I just don’t see it changing. 

Secretary LEW. Well, I will do the best I can in 30 seconds. 

Mr. KELLY. Yes, I know, and this could take three or four hours 

for us talk, but—— 

Secretary LEW. Look, the truth is it is hard to compare a kitchen 

table and a federal budget. There is a fundamental difference between a government, a sovereign that goes on forever, and a household that has, you know, the years that it manages. So there are 

big differences between the two. 

But even at the household kitchen table, I mean, how many of 

us have sat down with our spouse and said, ‘‘Can we afford this 

house, can we borrow X amount and have the next 30 years to pay 

it back,’’ and reach the decision that you could? Now, I—— 

Mr. KELLY. Just to interrupt you, please, listen, you can’t borrow your way out of debt. And we are continuing to build this debt 

that is going to—it is going to capsize this entire country. There 

is no difference between kitchen table and what we are talking 

about. The only difference is here you don’t—we can raise taxes so 

we can print our own money. You can’t do that at home. 

Secretary LEW. Right, that—— 

Mr. KELLY. And that is where the big separation is. I must tell 

you the American people have lost confidence in the way we run 

this company. 

Chairman BRADY. Thank you. All time is expired. 

Mr. Renacci, you are recognized. 

Mr. RENACCI. Thank you, Mr. Chairman, and thank you, Secretary Lew, for being here. 

I, like Mr. Kelly, came from the private sector. So it is interesting as I listened here. You know, we talk about Social Security, 

it is okay. We talk about inversions, yes, we have to fix it. We 

talked about debt, you said it is stable, you will leave office with 

a manageable situation. We talk about economic growth is reasonable. The problem is we have no sense of urgency. That is the real 

problem. 

So, last week I was at a high school. I talked to juniors and seniors. I had them put up red cards or green cards. One of the questions I asked them, ‘‘Is our country going in the right direction?’’ 

It was a sea of red, 95 percent no, it is not going in the right direction. These are the people who have to deal with this debt. 

I asked them if our debt is too high. A sea of green. Yes, our debt 

is too high. I asked them if our government is working together to 

solve problems. It was a sea of red, absolutely no, we are just not. 

Now, these are kids 19, 20, 21, 22. These are voters, these are peoVerDate Sep 11 2014 06:57 May 31, 2017 Jkt 022374 PO 00000 Frm 00088 Fmt 6633 Sfmt 6602 I:\WAYS\OUT\22374.XXX 22374

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ple who are going to have to live with what we are saying is okay, 

manageable. This isn’t manageable. This debt, if it continues, it 

grows, is not manageable. 

And it is not that hard to compare. The real difference is when 

a husband and wife realize that they can’t pay their bills they have 

a sense of urgency. When the Federal Government realizes that its 

debt is growing, you know what they say? ‘‘It is manageable.’’ That 

is a problem. That is a real problem. And that is the issue that I 

think we have to get past. 

And it is amazing. You know, my colleague, Mr. Larson, spoke 

about working together. We have to work together. You have an opportunity last eight, nine months of your career. I will guarantee 

you, if you were talking to Tip O’Neill today, he would not say $19 

trillion is a good number. I am sure he wouldn’t. You may say different, but I will bet you if you and I were sitting at a bar, having 

a drink, you probably would say a little different if there was just 

two of us. 

Secretary LEW. I don’t think any of us would have imagined the 

size of the economy or anything else, so the numbers reflect economic growth. But he believed in the role of government and the 

need for us to have a willingness to finance things that were critical. 

Mr. RENACCI. But I will bet you he would have been shocked 

at 19 trillion. We will leave it at that. 

But—so we have to be able to figure out a way to work together, 

and that has got to be the issue. And hopefully, that can be—something can be done. It would be great if the President would say, ‘‘I 

want to work with Republicans to try and get this done. This debt 

is growing too much.’’ And I think that is what is frustrating for 

me. I have been here five years, and I just keep hearing the same 

thing. 

And Mr. Kelly talked about Washingtonese. The people back 

home, they are saying, ‘‘I don’t understand what they are talking 

about. I know one thing, the debt is growing too high.’’ 

But let’s just talk about some specifics. I did want to get into 

some details on the budget. You know, I constantly hear from my 

constituents how the Federal Government needs to cut down fraud, 

waste, and abuse. And you know, unfortunately, the Administration budget did expand refundable tax credit programs without proposing any meaningful safeguards. 

I agree, the EITC has a laudable policy goal of encouraging rewarding work by low-income Americans to increase labor workforce 

participation. However, this program, in its current form, is rife 

with fraud and improper payments. I understand that the EITC 

program has the highest improper payment rate of any Federal 

Government program: over 27 percent in Fiscal Year 2014. Over 

the last 10 years, the—issued an estimated 134 billion in improper 

payments. 

One of the issues that—again, I am a CPA, a business guy. One 

of the primary causes of the high improper payment rate is the 

EITC program relies more directly on self-reported income of individuals, without regarding any verification. This stands in contrast 

to the means-tested cash welfare programs that require income 


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verification. In other words, individuals flat out invent fictitious incomes to maximize their EITC cash bonus. 

Mr. Lew, do you believe—I am going to give you three questions—that the fraud and improper payment rate of over 25 percent is acceptable? That is question one. 

Do you believe that the budget that has any proposal would 

make a serious effort to combat this? 

And lastly, do you agree this is a serious problem? 

Secretary LEW. Look, I would begin where I hope we agree, that 

the earned income tax credit is one of the most effective programs 

we have had, both to reduce poverty and to get people—— 

Mr. RENACCI. I agree with that. 

Secretary LEW. That is why it has had bipartisan support. 

Each year the IRS recovers or prevents about $2 billion in improper EITC claims. 

Mr. RENACCI. But is an improper payment rate of 25 percent 

acceptable? 

Secretary LEW. And—no, we have been working hard to bring it 

down. One of the things we have put in this year’s budget is proposals that would simplify the EITC and improve compliance. One 

of the—I mean I am not sure I agree with you on attributing where 

most of the errors occur. Some of it is just because it is complicated, and we have to simplify it so people could comply. 

Mr. RENACCI. And I know we are running out of time, but 

wouldn’t verification of income be the simplest way of—— 

Secretary LEW. Well, that—our tax system is one where you file, 

and then we look at it afterwards. I think it would be a pretty dramatic change, and one that, if you did it on a broad basis, would 

make our tax system even more cumbersome. But we can have further discussions—— 

Chairman BRADY. Thank you. All right, Mr. Pascrell, you are 

recognized. 

Mr. PASCRELL. Thank you. Thank you, Secretary Lew. We have 

never really explained what was the real effect of the tax cuts of 

2001 and 2003 on budget and debt, coupled with the plan for prescription drugs, and then not paying for two wars. When you look 

at the charts about what affects the debt and what affects the deficit, these are major, major areas. But let’s—that is yesterday’s 

chapter. 

I am pleased to see that the budget includes over 600 million in 

allotments to extend the earned income tax credit—we were just 

talking about that—for Puerto Rico. The EITC is already available 

to Americans living in the 50 states and the District of Columbia. 

Introducing the EITC in Puerto Rico would encourage work and encourage workers to come out of the shadows into the formal economy. 

We have introduced legislation, H.R. 4213, Tax Equity and Prosperity for Puerto Rican Families Act, along with Mr. Pierluisi of 

Puerto Rico, to extent this important income and work support to 

the residents of Puerto Rico. 

Secretary Lew, we have heard a lot about the need for Puerto 

Rico to have a mechanism to restructure its debt. In fact, that is 

all we have been occupied with. But should we also be considering 

economic development? Very briefly, give us your take on that. 


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Secretary LEW. Absolutely. I think that the immediate and urgent is the ability for them to restructure their debt and to get the 

kind of oversight that would give everyone comfort. 

But the real goal is not to restructure the debt. The real goal is 

to get back to economic growth. And one of the things that the 

EITC proposal does is it helps to get them back to economic growth 

by making it easier to bring people back into the workforce. And 

I think it would be very important, if we could do it. 

I have, you know, reluctantly said on a number of occasions that 

if we can’t do everything, we have to at least do restructuring and 

oversight right away, because we just don’t have time to put that 

off. But that doesn’t at all diminish the importance of dealing with 

both the question of getting the economy back, which the EITC is 

part of, and the real unfairness that their reimbursement for Medicaid is so much lower than other jurisdictions get. 

Mr. PASCRELL. Yes, we have a couple quick questions. How 

would the EITC in Puerto Rico impact economic development? And 

why, in your opinion, is it so important to include these citizens in 

this refundable credit? And I will—and—— 

Secretary LEW. Well, Puerto Rico is no different than any other 

part of our economy. If—the rationale for the EITC is to make 

work pay, so people will come back to work and be productive. If 

you go to work and have the EITC to make it so that you don’t get 

excessively taxed because of going back to work, because of loss of 

benefits and other things, you get the EITC instead, that will be 

good for the economy. It will create more productive labor and it 

will reduce reliance on benefit programs. 

Mr. PASCRELL. The budget does not—— 

Secretary LEW. Which is the same as the rationale around—for 

the EITC nationally. It is not different in Puerto Rico. 

Mr. PASCRELL. I would hope not. 

Secretary LEW. Yes. It is part of the United States, and there 

are 3.5 million American citizens. 

Mr. PASCRELL. What the budget does not address is expanding 

the child tax credit in Puerto Rico. Why are their children treated 

any different than the children on the mainland? Even though it 

has previously endorsed the idea—if you remember in the 2011 

task force report, it was endorsed and nothing ever happened after 

that. Could you explain why this was left out of the budget—— 

Secretary LEW. Well, we obviously looked at what could we do 

that would make the most dramatic difference in Puerto Rico. We 

put our plan together. In general, in our budget we put a lot of emphasis on the EITC. That is why we have the childless worker provisions in our budget. 

You know, we are also supportive of the child credit, and I am 

happy to discuss issues related to that, you know, nationally, or 

with regard to Puerto Rico. 

Mr. PASCRELL. And something we have been struggling with, 

Mr. Secretary, about our underground infrastructure, in terms of 

pure water, and we know that—the challenges. And, unfortunately, 

we got to be hit with—on the side of the head with a two-by-four 

to understand what the heck is going on. It is not a sexy subject 

to talk about when it is underground, but it is there. 


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I really advocate and continue to advocate—and this is a bipartisan thing—private activity bonds in the water infrastructure. We 

should be emphasizing this. We need $500 billion to replace and 

upgrade our water supply. We are not doing anything, really, about 

this, just as we neglected our roads. You have seen the picture of 

the encased pipe that is corroded. It could be applied to any agency 

in the government, when we neglect things and think they are 

going to heal themselves. 

Secretary LEW. We do have the state revolving fund, where we 

do try and support—— 

Mr. PASCRELL. I want that cap to be raised, so that a lot of 

other people—— 

Chairman BRADY. Thank you—— 

Mr. PASCRELL [continuing]. A lot of municipalities—thank you, 

Mr. Chairman. 

Chairman BRADY. You bet. Mr. Meehan, you are recognized. 

Mr. MEEHAN. I want to thank you, Mr. Chairman. 

And, Mr. Secretary, thanks again for being with us. The issue of 

Iran sanctions was raised earlier. About a decade ago, the previous 

administration engaged the Libyan Government and Mr. Gaddafi 

in sanctions relief and, as a condition of that sanctions relief, required the Libyan Government to make whole certain victims of 

terrorism, including those who were victims of the Lockerbie bombing. Recently, this Administration has made a decision to—send $100 

billion to Iran. As a former prosecutor, I looked at the question of 

those who had been victims of Iranian terror, and appreciated that 

the United States itself actually encouraged those victims to seek 

compensation for those damages in American courts. I also discovered that there are some $43.5 billion which has been awarded by 

United States courts against Iran to those victims of terror. 

These are Marines at barracks that have been blown up. These 

are American citizens sitting in a cafe ́ in Tel Aviv. Why did the Ad- ministration allow $100 billion to flow to Iran, in light of this 

precedent, before requiring that they pay the obligations that they 

owe to the victims of Iranian terror? 

Secretary LEW. Congressman, obviously, the—it—concerns that 

you have about the victims of terror are concerns that we share. 

And I will defer to my colleagues in the Justice Department, some 

of the details—— 

Mr. MEEHAN. Well, these weren’t decisions made by the Justice 

Department. 

Secretary LEW [continuing]. Of addressing the—those—— 

Mr. MEEHAN. This was a determination made by the President 

that was—— 

Secretary LEW. Let—to respond in terms of the policy behind the 

nuclear agreement, as we had extensive debate over the summer, 

it is critically important for the peace of the world and the United 

States that Iran not get nuclear weapons. We negotiated with Iran 

to successfully get them to back away from all of their pathways 

to a nuclear weapon. And in exchange for that, provided relief from 

sanctions after the performed on those commitments. They performed on those commitments, and the sanctions on nuclear issues 

are lifted. We have not lifted sanctions on—— 


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Mr. MEEHAN. You lifted, but—— 

Secretary LEW. But we have not lifted sanctions on other issues. 

We continue to have sanctions—— 

Mr. MEEHAN. Mr. Secretary, excuse me, though. But what it 

has done is Iran, with new resources, turned around and purchased 

military equipment from countries like Russia, military equipment 

which is very likely going to find its way into utilization against 

others in the Middle East, fomenting further acts of terror. 

I go back to ask that question again. If they had the millions and 

millions of dollars to buy military equipment, why couldn’t we have 

required—this has nothing to do with nuclear. This is pay your bill 

before we give you one penny of relief. 

Secretary LEW. So, Congressman, the number you used, the 100 billion, we do not believe $100 billion will be available to Iran 

under—— 

Mr. MEEHAN. Well, 43.5 billion is the sum—— 

Secretary LEW. Yes. 

Mr. MEEHAN. I mean let’s say—are they going to get 43.5 billion, or—— 

Secretary LEW. There is—there will be some amount. There 

have been different estimates, even from within Iran, that are even 

smaller than that. It is substantially less. We can walk it down to 

no more than 50 to 60, and I think it will be less than that, because there are real issues that encumber that money. 

I think that the agreement is one where what Iran did in keeping its part of the bargain on dismantling the reactor at—— 

Mr. MEEHAN. Well, whether they have—— 

Secretary LEW [continuing]. Heavy water reactor, and putting 

the centrifuges either into storage or destroying them, shipping out 

the uranium, and subjecting themselves to oversight and inspection—— 

Mr. MEEHAN. Mr. Secretary, my time is running out—— 

Secretary LEW [continuing]. That is something that is of real 

value—— 

Mr. MEEHAN. Whether they have actually fulfilled the requirements is an open-ended question. 

Let me just ask one other question, if I may. I have refinery 

workers in my district. 

Secretary LEW. I couldn’t hear, I am sorry. 

Mr. MEEHAN. I have 3,000 refinery workers in my district. And 

they have already been disadvantaged by the determination to 

allow foreign refineries to ship oil now, refined oil, into the United 

States, about a $3-a-barrel differential. Can you explain to me—can 

you tell those workers that a $.25-a-gallon increase on oil tax will 

not affect their jobs? 

Secretary LEW. Congressman, what I can tell you is over the last 

year we have seen a barrel of oil come down so much more in value 

than the amount of the fee we are talking about, which is $10 

phased in over 5 years, that—there is a lot of disruption in the oil 

sector, but this is small in comparison to what they have experienced. 

Mr. MEEHAN. Thank you, Mr. Secretary. 

Chairman BRADY. Thank you. Mr. Rice, you are recognized. If 

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age. Please excuse me while I go over to do that. Mr. Holding will 

run the rest of the hearing. 

But thank you again for being here today. 

Secretary LEW. Thank you. 

Chairman BRADY. Mr. Rice. 

Mr. RICE. Secretary Lew, thank you for being here today. You 

know, I have heard you mention and—first time I heard it was the 

State of the Union, the President lamenting the bitter state of political discourse, and how—he admitted—— 

Secretary LEW. I am sorry, I am having trouble hearing you. 

Mr. RICE. And how it got worse during his term. And I think 

that is an awful shame. It think it is really curious, because I think 

the President is a very bright man, and he is certainly very charismatic. But I have seen, throughout my limited term here of three 

years, that the President spends a tremendous amount of time on 

the bully pulpit, throwing stones and working around and even 

subverting Congress. 

And you see Administration officials coming in here and lying 

and not responding to subpoenas and delaying and obfuscating and 

talking about how transparent the Administration is. I think it is 

a terrible, terrible shame. And we sit here, he has got 11 months 

left in his term, and now he is lamenting this discourse. 

I would love the opportunity to work with the Administration to 

solve some of the problems, these terrible problems that face our 

country that we all talk about. Republicans and Democrats, we all 

go home and talk about the fact that Medicare and Medicaid—excuse me, Medicare and Social Security are crippled, and they are 

heading toward insolvency. We all talk about the sad state of our 

Tax Code, and how it is not competitive in the world. And what I 

would like to see is serious talks about how to solve some of these 

problems. 

What specific proposals—I am not going to say it is all the Administration’s fault, I think it is Congress’s fault, too. But what 

specific proposals has the Administration made to fix Social Security? We all know it is a problem, we all know it is going to be insolvent in 15 years or so. I know of one, and that was CPI that was 

in the budget, what, two years ago. Is it in the budget this year? 

Secretary LEW. No. But, Congressman, I would say that if you 

are concerned about Medicare, and you look at the results of the 

Affordable Care Act, we have, for the first time in a generation, 

turned the cost curve around, reduced the rate of growth—— 

Mr. RICE. So—— 

Secretary LEW [continuing]. Done more to help the—— 

Mr. RICE. So it will last three more years, right? 

Secretary LEW. I can’t hear you. 

Mr. RICE. It will last three more years, right? Great. How do we 

solve the problem? We are not—we haven’t solved the problem. We 

need to make real solutions to solve the problem. How do we get 

to this next step of tax reform? 

You know, Dave Camp put out a detailed tax reform proposal. I 

haven’t seen one from the President. I hear you say, ‘‘Well, there 

are some things in there we liked.’’ 

Secretary LEW. Well—— 


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Mr. RICE. I mean have we sat down and tried to work through 

that, and tried to get to a real tax reform proposal, other than just, 

you know spitting at each other? 

Secretary LEW. Congressman, I think in the conversations I 

have had with the three chairmen of this Committee that I have 

worked with, they all understand what the Administration’s tax 

proposal is. We have had good conversations about where the areas 

of overlap are. It is not that we don’t have a plan, we have a plan. 

We put out a white paper—— 

Mr. RICE. What—— 

Secretary LEW. We haven’t had the political space to reach a 

consensus. 

Mr. RICE. Well, doesn’t the Administration—that is what confuses me. You know, the President is the leader of the country, 

right? Doesn’t he have a role in creating that political space? 

Secretary LEW. Absolutely. He has tried. 

Mr. RICE. You said a little while ago, ‘‘I am willing to work with 

anything we can get a majority on.’’ Well, doesn’t he have a role 

in building that majority? 

Secretary LEW. Yes, and—— 

Mr. RICE. I have been in Congress for three years. I have seen 

him engage with Congress twice. Once is when he said Assad 

crossed the red line in Syria, and the second is on TPA. He has 

been not present here at all, in my view. 

Secretary LEW. Well, Congressman, if you look in the area of tax 

reform and—in business tax reform, we put forward a proposal 

over three years ago which many on our side of the aisle didn’t immediately embrace. We said, ‘‘Let’s reduce the statutory rate, let’s 

cut corporate taxes, let’s use closing loopholes to pay for it.’’ 

Mr. RICE. Yes. 

Secretary LEW. And we proposed something to be a bridge between the parties, use the on-time revenue for infrastructure—— 

Mr. RICE. That is right, and Dave Camp put out—— 

Secretary LEW. For two years, that—— 

Mr. RICE. Dave Camp put out a very specific proposal that 

talked about very specific—you call them loopholes, I call them deductions and credits—that would meet that. And it went nowhere. 

Secretary LEW. And I have had—— 

Mr. RICE. It is not just the fault of Congress, it is also the fault 

of the Administration. The Administration has a role in building 

that majority. 

I want to ask you about one thing in particular. Under 

Obamacare—you know, I don’t even know what the law is today, 

because the President—his whim changes the law. But under the 

premium tax credit and the cost sharing reduction provisions 

that—Congress appropriated money for one and not the other, and 

the Administration has blended the two and used the money illegally—moved money from appropriated—what was appropriated to 

what was not appropriated. 

And this Committee has actually written letters And subpoenaed 

repeatedly information about this, and not one document has been 

provided. It has been going on for over a year. Can you tell me how 

we can get this resolved? Let’s see this cooperation from the Administration. 


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Secretary LEW. Well, Congressman, we have, obviously, said 

what we think the law is. The House has brought a lawsuit, so that 

will be resolved by the courts, and we will continue to consult—— 

Mr. RICE. No response to the subpoenas from—— 

Mr. HOLDING [presiding.] Time has expired. 

Secretary LEW. Our staffs have been talking. 

Mr. HOLDING. Mr. Davis from Illinois is recognized for five 

minutes. 

Mr. DAVIS. Thank you very much, Mr. Chairman, and thank 

you, Mr. Secretary. And I want to compliment you on your long and 

distinguished career in government service. 

I do believe that we have made some serious progress since passage of the Recovery Act. And I also believe that this budget would 

significantly continue that progress. Let me ask you. How much 

have we reduced the deficit since 2010? 

Secretary LEW. Well, the annual deficit has gone down 75 percent, from roughly 10 percent to roughly 2.5 percent. 

Mr. DAVIS. How is our current economic growth affecting the 

deficit? 

Secretary LEW. Economic growth is good for the budget. It grows 

the base of income and revenues go up and automatic stabilizing 

spending goes down. So recovery has been good for the budget. It 

obviously was a very deep hole we were in, so it doesn’t completely 

erase the deficits. 

Mr. DAVIS. You know, I have heard the aspersions relative to 

the proposed budget. And if we were to adopt the President’s budget, when would we begin to see some shrinkage in our debt? 

Secretary LEW. Well, we—you know, we can see the deficit remain in the 2.5 to 3 percent range. We will see the debt stabilize 

at roughly 75 percent of GDP. And, you know, it will be ongoing 

issue that we have to work through, what the 20, 30, 40-year timeframe looks like for turning the debt around. 

Mr. DAVIS. So certain kinds of investments would actually have 

a positive impact on the debt? Is that—— 

Secretary LEW. Well, I think growing the economy—if we were 

to do the things I think we know we need to do on infrastructure 

and education, and help to—on immigration reform, grow the economy through the things that we know will help, that actually helps 

the budget because it grows income. And therefore, revenue comes 

in on a natural basis. 

We have done a lot to cause an economic recovery, and to encourage an economic recovery, but there is more we can do, and the 

budget continues to contain ideas and programs to do that. 

Mr. DAVIS. Although our economy is indeed improving—and I 

don’t think there can be any denial of that—there are still groups 

in America—— 

Secretary LEW. Absolutely. 

Mr. DAVIS [continuing]. Who are not taking advantage. For example, I cite a recent study that the University of Illinois did at 

Chicago which showed that almost half of the African American 

males in the City of Chicago ages 20 to 24 are neither in school, 

don’t have a job. Given the need to strengthen the well-being of 

these individuals and others, I am delighted to know that we are 


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advocating for expanding the earned income tax credit to help single parents. 

In addition, given that Chicago is one of the largest beneficiaries 

of the new market tax credits, I am delighted that we are talking 

about making it permanent. 

And I am really concerned about the President’s proposal to provide tax credits for community colleges to try and connect, hopefully, with this group that I just mentioned. Could you expand a 

bit—— 

Secretary LEW. Yes. 

Mr. DAVIS [continuing]. On what the Administration is thinking 

about with that? 

Secretary LEW. Congressman, I couldn’t agree more that we 

have to make sure that the benefits of economic growth offer opportunity more broadly, and are shared by all parts of our community. 

You take one thing you mentioned, the childless EITC, childless 

earned income tax credit. It is the only part of our Tax Code, the 

only group in our country, that is taxed into poverty, childless people who would be eligible for the EITC. And that is just wrong. We 

should not have a tax that makes you go from working and staying 

barely above poverty to going below poverty. And I think that is 

why there is actually some bipartisan agreement on the childless 

EITC as a concept. 

I hope we can work on that this year. We don’t—none of us 

should feel like we get to take this year off. We have a year to get 

more things done, And that is what this budget was put out there 

to try and encourage. 

Mr. DAVIS. Thank you very much. And I yield back, Mr. Chairman. 

Mr. HOLDING. Ms. Noem, five minutes. 

Mrs. NOEM. Secretary Lew, talking about poverty, I wanted to 

address something that is going on with my Native American tribes 

in South Dakota. And, as you know, the Federal Government has 

a trust responsibility to provide health care for Native Americans 

in the United States and Alaska Natives. And, because of this responsibility, they were exempted from the individual mandate of 

the Affordable Care Act. But tribal employers and tribal businesses 

were not exempted from the employer mandate that was also included in that law. 

You know, tribal governments in South Dakota employ several 

hundred employees. They fear they could be on the hook for millions of dollars of penalties. In fact, they are often very isolated. It 

is difficult to have economic development in these regions. They 

struggle to keep people in positions, in jobs, taking care of their 

families. And having that kind of penalty impacting them would 

greatly undermine health care, education, opportunities in the future. 

You know, it is some of the most impoverished counties in the 

country. And so, clearly, this was not the intent of the law, to jeopardize them and their opportunities to provide for their families by 

making them subject to the employer mandate. So I would like to 

know what the Department of Treasury is doing to clarify the law 

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tives from the Affordable Care Act, and the employer mandate that 

is included within it. 

Secretary LEW. Congresswoman, let me just begin by saying 

that Treasury—I personally value the government-to-government 

relationship between tribal governments and the Federal Government. And over the last number of months Treasury has received 

quite a few letters from Indian tribes, tribal leaders, and tribal organizations, raising the concerns that you are describing. 

Treasury has met with tribal leaders and tribal organizations to 

discuss these issues, and—including during the tribal consultation 

call that Treasury recently held with over 200 representatives of 

tribes and tribal organizations. We are reviewing the issue carefully, taking into consideration the feedback that we have received. 

And, as you know, the statute has no exception for Indian tribal 

government employees. But we are committed to considering the 

concerns that are being raised by tribal stakeholders, and I would 

be happy to follow up with you. 

Mrs. NOEM. Is the intention of the Administration or the Treasury Department to exempt them from the employer mandate, then, 

and to find a way—— 

Secretary LEW. Well, the statute doesn’t give us the authority to 

exempt. So we are looking at the comments and the concerns, and 

looking to see what, if any, action can be taken. We can’t create 

an exemption that doesn’t—— 

Mrs. NOEM. Well, I have legislation that would do so. I would 

appreciate your support with it, as well, if we need to clarify the 

statute. 

But clearly, because they were exempted from the individual 

mandate, the intent of the law is clear that Native Americans 

should not face this kind of penalty, especially in areas like I have, 

in South Dakota, where they are impoverished already, and have 

a difficult time with economic development. It would be a hardship 

that would jeopardize the little prosperity and way of life that they 

have today, which is little to none. 

Secretary LEW. Well, I have a lot of empathy for the people in 

Indian Country, but—and understand the poverty there, so—— 

Mrs. NOEM. Well, and specifically in South Dakota even, it is 

worse. Out of the top 11 poorest counties in the nation, I have 5 

of them in South Dakota, and they are all my Native American reservations. So this is something that is there, is constantly on their 

mind, it is constantly on my mind, and we need resolution, too. 

So I know that you are indicating that you will work with me, 

but we need to find a solution, too. So let’s—— 

Secretary LEW. Yes. Sitting here, I don’t know what the solution 

is, but we are happy to follow up. 

Mrs. NOEM. Okay, thank you. I yield back. 

Secretary LEW. Thank you. 

Mr. HOLDING. I recognize myself for five minutes. Secretary 

Lew, the Department of the Treasury and the IRS take seriously 

the taxpayers’ obligation to preserve records, documents [sic]. Indeed, as you know, individual corporate filers who lose records, documents, face significant penalties. 

The Federal Records Act that heads—that the heads of agencies 

quote—and I will quote this—‘‘Make and preserve adequate and 


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proper documentation designated to furnish the information necessary to protect the legal and financial rights of persons directly 

affected by the agency’s activities.’’ So, just like taxpayers under 

audit, then, Treasury and the IRS are required to preserve important documents. We can agree on that. 

And when the Treasury and the IRS are being investigated, or 

engaged in litigation with private parties, they are supposed to 

maintain records that may be relevant to those proceedings. 

In June of 2014 the IRS announced that it had lost Lois Lerner’s 

emails, and destroyed back-up tapes in the face of multiple subpoenas—the internal hold notices and document preservation notices from the IRS, TIGTA, and DOJ. The IRS testified before this 

Committee that the Lerner document destruction was just a fluke, 

And that the IRS would improve its systems. 

But it is deja vu all over again. In the middle of an audit of a 

large corporation, the IRS marked documents for deletion and destroyed records that were under a litigation hold. When questioned, 

again, the answer is that it is not as bad as it looks. And while 

the IRS attempted to destroy the documents, by sheer luck not all 

of the records had indeed been destroyed. 

So my question, Mr. Secretary. What is the Treasury’s policy 

about employees who destroy documents that are part of a litigation or investigation? 

Secretary LEW. Well, Congressman, whenever—first, we comply 

with the federal record retention policies, And that is the policy, 

and continues to be. When there is any kind of an investigation, 

parties are notified about retention requirements that are particular to cases with investigations. 

I think that, you know, obviously, there has been a lot of discussion about the facts that are at issue. I don’t think your characterization of them is one that we would agree with, in terms of whether things were destroyed or whether, because of the standard practices, there was a writing over of—on a routine basis, of storage 

materials. 

I am happy to get back to you with more details. But it is certainly my policy that we all need to comply with the requirement. 

Mr. HOLDING. So are you taking steps that would ensure that 

the IRS stops destroying records integral to any investigation? 

Secretary LEW. I—— 

Mr. HOLDING. I mean can you point to any concrete steps that 

you are taking in light of—— 

Secretary LEW. I am not conceding that there was destruction. 

You know, there—you know, the practices of using storage materials and writing over them was driven more by budget concerns 

than anything else. But I do know that they are doing a lot more, 

and it is costing them a lot more money to not do that kind of writing over in the future, in part to respond to the inadvertent—— 

Mr. HOLDING. Would you agree that it undermines the confidence that the American—— 

Secretary LEW. Yes. 

Mr. HOLDING [continuing]. People would have in the IRS, when 

they seem to be held to a different standard regarding the retention of documents than individual taxpayers are? 

Secretary LEW. They are held to the same standard—— 


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Mr. HOLDING. Do you think the individual taxpayer would receive a very warm welcome from the IRS if they just said, ‘‘Well, 

in the common practice of my business I seem to be overwriting 

these relevant documents on a regular basis that you would like to 

have for this audit’’? 

Secretary LEW. Look, I think the overwriting, as a general practice—this has nothing to do with a records retention issue. It was 

a matter of cost and efficiency—— 

Mr. HOLDING. So does cost and efficiency trump the record retention—— 

Secretary LEW. No, I am not—we are happy to get back to you, 

but my understanding is that they are not doing the overwriting 

anymore, and it is much more costly because of that. There is more 

storage and more devices. 

Mr. HOLDING. Are they sufficiently complying with the record 

retention policies? 

Secretary LEW. It is certainly the policy to comply. You know, 

I have to defer to those who oversee, you know, on a daily basis, 

whether there—— 

Mr. HOLDING. Well, Mr. Secretary, I don’t think you would accept from a taxpayer the excuse that, ‘‘For efficiency and cost savings, I destroyed my relevant records that you would like for this 

audit.’’ 

My time has expired. I recognize Ms. Sa ́nchez for five minutes. 

Ms. SA ́ NCHEZ. Thank you, Mr. Chairman, and thank you, Mr. 

Secretary, for hanging with, to the bitter end, the last few Members that are here to ask questions. 

I am interested in discussing some aspects of the Administration’s 2017 budget, because I think—and it has been said many 

times on this Committee—that budgets are a very clear reflection 

of what priorities we value. And our priorities, I think, should be 

very clear, in terms of what we need to do for the American public. 

We need to create an environment for good-paying jobs that 

allow workers to support a family. We should offer our children an 

opportunity to get an education and to be able to develop their talents without the threat of crushing debt from going to pursue a 

higher education. We should be fostering innovative businesses and 

creating a business environment that allows our domestic industries to thrive. 

And I am happy to see, quite frankly, that the President’s budget 

reflects all of those priorities. I think it is a healthy road map, and 

a—quite a good statement about what his priorities are. 

One of the issues that I would really like to drill down on in the 

President’s—is the President’s child care tax incentive proposal. As 

a mom who has faced the struggle to find affordable and quality 

health care, I know of many couples that, even though they find 

out they are expecting, and it should be a time of great happiness 

and joy, they also begin to fret. That is the moment they begin to 

fret and think about just exactly how are they going to be able to 

swing working and quality child care. 

Too often, families don’t find options that help them. And there 

are a number of examples in certain states where parents are actually paying more to send an infant to day care than they are to 

send children to college. And you know, that is just alarming to me. 


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Too many families are forced to make economic choices for their 

families, rather than the choices that are best for their families, 

and we have to stop that madness. 

So I am interested in hearing a little more detail from you about 

the President’s proposed changes to the child care tax credit, and 

how that provision specifically could benefit working families in 

this country. 

Secretary LEW. Well, Congresswoman, I couldn’t agree more 

that the issues of child care are fundamentally important to working families. And it is indeed a real challenge for many families to 

make ends meet. And you can’t go to work if you can’t get the child 

care. So it is an economic issue, as well as a personal family issue. 

And the President’s budget contains a number of policy initiatives to try and ease the burden on working families. It would provide a new simple tax credit to two-earner families. It would be a 

second earner credit of up to $500 per year. We would reform the 

child care tax incentives, raising the threshold, which begins to 

phase down now at 15,000, to 120,000, so that the rate reaches 20 

percent of income above $148,000. 

We would simplify and better target education tax benefits to improve college affordability. Child care is the first set of bills, but, 

you know, college bills are on the horizon. And—— 

Ms. SA ́ NCHEZ. As somebody who experiences both of those 

things, I definitely feel the pain. 

Secretary LEW. I have been through many years of both. And finally, we would expand the earned income tax credit for workers 

without qualifying children, which is a different issue than you 

raised, but it is critically important, in terms of providing working 

families the ability to stay in and—get into and stay in the workforce. 

Ms. SA ́ NCHEZ. I appreciate your response, and I am just going 

to add one comment onto the end of this, since I have got about 

60 seconds left. 

I actually was discussing the issue of trying to find affordable 

child care with another colleague. And a third colleague sort of 

overheard, somebody a little bit older than I am, and his contribution to the conversation was, ‘‘Well, can’t the grandparents just 

watch the children?’’ And I wanted to—I bit my tongue, but what 

I wanted to say is—— 

Secretary LEW. The grandparents are working, also. 

Ms. SA ́ NCHEZ. Well, no. I have a father with Alzheimer’s, who 

is in full-time nursing care, and a mother who is retired, who can’t 

run after a young child, due to health problems. So I think there 

is a lack of understanding and—— 

Secretary LEW. Right. 

Ms. SA ́ NCHEZ [continuing]. Awareness of just how difficult it is 

for families to get that kind of support that they need. 

Secretary LEW. As a proud and doting grandfather, I relish 

every minute I get to spend with my grandchildren. But, you know, 

it is just not practical to expect grandparents to leave the workforce early, in many cases. And, as you say, the responsibility for 

two generations creates a real sandwich generation. 

Ms. SA ́ NCHEZ. Yes. Thank you so much for your time. 

Mr. HOLDING. Mr. Crowley is recognized for five minutes. 


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Mr. CROWLEY. Thank you, Mr. Holding. It is appropriate, two 

guys from Queens. 

Secretary LEW. Bringing it home. 

Mr. CROWLEY. Mr. Secretary, welcome once again. Today on 

the House floor is a bill to compel the Administration to come to 

Congress and discuss the budget and the deficit. Pretty interesting, 

is it? 

Secretary LEW. It is a little ironic. 

Mr. CROWLEY. So I find it odd, like you, I think, that this week 

the Republicans are refusing to have the guy who writes the budget for the White House—they haven’t asked him to testify. In fact, 

they are not inviting him to testify before Congress to discuss the 

budget and the deficit. And we both find that ironic. 

But since he is not going to be invited to come before the Hill, 

maybe you could channel your best Shaun Donovan for us here and 

answer a few questions about the budget and the deficit, as you 

have been doing throughout this morning and this afternoon. 

Earlier this week the President issued his budget for the year, and it outlined ways to cut $2.9 trillion from the debt. Is that correct? 

Secretary LEW. Correct. 

Mr. CROWLEY. Now, this is on top of about $4 trillion in previously enacted deficit reduction by the President, mostly in spending cuts, though some in closing tax loopholes and increasing the 

taxes paid by millionaires, as well as the economic policies put in 

place by this Administration, and carried out by Democrats also 

helped to improve the economy. Is that not correct? 

Secretary LEW. Correct. 

Mr. CROWLEY. Would saving the auto industry, which Republicans bragged they wanted to let go bankrupt, or investing in 

clean, renewable energy manufacturing, which is revitalizing our 

nation—including in places like Buffalo, New York, for instance— 

be some of the economic policies put in place by this Administration and carried out by Democrats also, has it helped to improve 

the economy? And maybe you can add a few others, if you can 

think of them. 

Secretary LEW. Look, I think, if you look at the auto industry, 

saving the—we have had months—several months of record, historic record auto sales by the U.S. auto industry that could have 

easily been out of business—— 

Mr. CROWLEY. In fact—— 

Secretary LEW [continuing]. If not for the actions we took—— 

Mr. CROWLEY. In fact, Mr. Secretary, under the—President 

Obama, the U.S. auto industry has created 645,000 American jobs. 

Secretary LEW. Right. 

Mr. CROWLEY. When, again, my Republican colleagues wanted 

to let Detroit go bankrupt. Is that not correct? 

Secretary LEW. Yes. I mean I think that it is an enormous recovery, rebound for the auto industry. And it very much proves the 

wisdom of not losing that critical industry. 

Mr. CROWLEY. One of those pesky tax loopholes we closed without Republican support was to prohibit Americans from hiding 

their money offshore in foreign bank accounts. Is that not correct? 

Secretary LEW. Mm-hmm. 


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Mr. CROWLEY. It is odd the Republicans opposed that commonsense action, but maybe they represent a lot of folks with Swiss 

bank accounts. No one that I know in Queens fits that bill, nor did 

anyone complain about the closing of that giant loophole, that giant 

billion-dollar loophole. 

A simple fact is that the first trillion-dollar annual deficit was 

created when President Bush was president, in the final year of his 

presidency. Have those trillion-dollar deficits been stopped by this 

Administration? 

Secretary LEW. We have been reducing the deficit by a faster 

rate than any time since the end of World War II. There is still 

a deficit, because we started in such a deep recession and such 

a—— 

Mr. CROWLEY. They are no longer a trillion—— 

Secretary LEW. No, it has been dramatically reduced. 

Mr. CROWLEY. Mr. Secretary, the Affordable Care Act, or 

Obamacare, was slated to save taxpayers $100 billion in the first 

10 years. How much has it saved to date, being only in its first five 

years of law? 

Secretary LEW. I should have—if I were the budget director, I 

would have those numbers at my disposal, but I will have to go 

back and a—— 

Mr. CROWLEY. Well, I am told that, by the numbers we have 

from OMB, compared with the 2011 mid-session review, projected 

federal health care spending for 2020 will have decreased by $185 

billion, not $100 billion, based on current budget estimates, saving 

above and beyond—way above and beyond—the deficit reduction 

directly attributed to the Affordable Care Act. So we can put that 

in your quiver. 

And the private sector has created new jobs in every month since 

the Affordable Care Act, that dreaded job killer, was enacted into 

law. Is that not correct? 

Secretary LEW. Not only have we created more jobs, but we have 

seen jobs created at a pretty rapid rate in the small business part 

of the economy, which was where a lot of the biggest concerns were 

raised. 

Mr. CROWLEY. So the only thing sent to the so-called death 

panels were the Republican lies about the health care law, and how 

it would hurt our economy. 

So let me close by saying that I do not think we need to make 

America great again, as we already are the greatest nation on 

earth. And I pity those that need to spin untruths and lies to tear 

down the greatest nation on this planet. Thank you, Mr. Secretary, 

for being here today. 

Secretary LEW. Thank you. 

Mr. HOLDING. I would like to thank the Secretary for appearing 

before us today. 

Please be advised that Members may submit written questions 

to be answered later in writing. Those questions and your answers 

will be made part of the formal hearing record. 

And, with that, the committee stands adjourned. 

[Whereupon, at 1:14 p.m., the committee was adjourned.] 


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