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77–636—PDF 2001

S. HRG. 107–371

NOMINATIONS OF RICHARD CLARIDA, KENNETH

LAWSON, B. JOHN WILLIAMS, JR., JANET

HALE, JOAN E. OHL, JAMES B. LOCKHART

III, AND HAROLD DAUB

HEARING

BEFORE THE

COMMITTEE ON FINANCE

UNITED STATES SENATE

ONE HUNDRED SEVENTH CONGRESS

FIRST SESSION

ON THE

NOMINATIONS OF

RICHARD CLARIDA, TO BE ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY, DEPARTMENT OF THE TREASURY; KENNETH LAWSON, TO BE

ASSISTANT SECRETARY OF THE TREASURY FOR ENFORCEMENT, DEPARTMENT

OF THE TREASURY; B. JOHN WILLIAMS, JR., TO BE CHIEF COUNSEL FOR THE

INTERNAL REVENUE SERVICE AND ASSISTANT GENERAL COUNSEL IN THE DEPARTMENT OF THE TREASURY; JANET HALE, TO BE ASSISTANT SECRETARY

FOR BUDGET, TECHNOLOGY, AND FINANCE, DEPARTMENT OF HEALTH AND

HUMAN SERVICES; JOAN E. OHL, TO BE COMMISSIONER, ADMINISTRATION OF

CHILDREN, YOUTH AND FAMILIES, DEPARTMENT OF HEALTH AND HUMAN

SERVICES; JAMES B. LOCKHART III, TO BE DEPUTY COMMISSIONER, SOCIAL SECURITY ADMINISTRATION; AND HAROLD J. DAUB, TO BE A MEMBER OF THE

SOCIAL SECURITY ADVISORY BOARD

NOVEMBER 15, 2001

(

Printed for the use of the Committee on Finance
COMMITTEE ON FINANCE

MAX BAUCUS, Montana, Chairman

JOHN D. ROCKEFELLER IV, West Virginia

TOM DASCHLE, South Dakota

JOHN BREAUX, Louisiana

KENT CONRAD, North Dakota

BOB GRAHAM, Florida

JAMES M. JEFFORDS (I), Vermont

JEFF BINGAMAN, New Mexico

JOHN F. KERRY, Massachusetts

ROBERT G. TORRICELLI, New Jersey

BLANCHE L. LINCOLN, Arkansas

CHARLES E. GRASSLEY, Iowa

ORRIN G. HATCH, Utah

FRANK H. MURKOWSKI, Alaska

DON NICKLES, Oklahoma

PHIL GRAMM, Texas

TRENT LOTT, Mississippi

FRED THOMPSON, Tennessee

OLYMPIA J. SNOWE, Maine

JON KYL, Arizona

CRAIG THOMAS, Wyoming

JOHN ANGELL, Staff Director

KOLAN DAVIS, Republican Staff Director and Chief Counsel

(II)
(III)

C O N T E N T S

OPENING STATEMENTS

Page

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee

on Finance ............................................................................................................ 1

Grassley, Hon. Charles E., a U.S. Senator from Iowa .......................................... 4

Hagel, Hon. Charles, a U.S. Senator from Nebraska ........................................... 2

Nelson, Hon. Ben, a U.S. Senator from Nebraska ................................................ 3

ADMINISTRATION NOMINEES

Clarida, Richard H., to be Assistant Secretary of the Treasury for Economic

Policy, Department of the Treasury ................................................................... 6

Lawson, Kenneth, to be Assistant Secretary of the Treasury for Enforcement,

Department of the Treasury ................................................................................ 7

Williams, B. John, Jr., to be Chief Counsel for the Internal Revenue Service

and Assistant General Council in the Department of the Treasury ................ 8

Hale, Janet, to be Assistant Secretary for Budget, Technology, and Finance,

Department of Health and Human Services ...................................................... 10

Ohl, Joan E., to be Commissioner, Administration of Children, Youth and

Families, Department of Health and Human Services ..................................... 11

Lockhart, James B., III, to be Deputy Commissioner, Social Security Administration ................................................................................................................... 13

Daub, Hon. Harold J. Jr., to be a Member of the Social Security Advisory

Board ..................................................................................................................... 14

ALPHABETICAL LISTING AND APPENDIX MATERIAL

Baucus, Hon. Max:

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

Clarida, Richard H.:

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

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

Biographical ...................................................................................................... 34

Responses to questions from Senator Grassley .............................................. 43

Daub, Hon. Harold J., Jr.:

Testimony .......................................................................................................... 14

Prepared statement .......................................................................................... 43

Biographical ...................................................................................................... 45

Responses to questions from Senators Baucus, Rockefeller, and Conrad .... 57

Grassley, Hon. Charles E.:

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

Hagel, Hon. Charles:

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

Hale, Janet:

Testimony .......................................................................................................... 10

Prepared statement .......................................................................................... 59

Biographical ...................................................................................................... 60

Lawson, Keneth:

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 68

Biographical ...................................................................................................... 69

Responses to questions from Senators Baucus, Grassley, and Conrad ........ 77
Page

IV

Lockhart, James B., III:

Testimony .......................................................................................................... 13

Prepared statement .......................................................................................... 80

Biographical ...................................................................................................... 81

Responses to questions from Senators Baucus, Grassley, and Rockefeller . 89

Nelson, Hon. Ben:

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

Ohl, Joan E.:

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 91

Biographical ...................................................................................................... 94

Response to a question from Senator Grassley .............................................. 101

Williams, B. John, Jr.:

Testimony .......................................................................................................... 8

Prepared statement .......................................................................................... 101

Biographical ...................................................................................................... 103

Responses to questions from Senator Baucus ................................................ 108
(1)

NOMINATIONS OF RICHARD CLARIDA, KENNETH LAWSON, B. JOHN WILLIAMS, JR.,

JANET HALE, JOAN E. OHL, JAMES B.

LOCKHART III, AND HAROLD DAUB

THURSDAY, NOVEMBER 15, 2001

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

The hearing was convened, pursuant to notice, at 1:15 p.m., in

room 215, Dirksen Senate Office Building, Hon. Max Baucus

(chairman of the committee) presiding.

Present: Senator Grassley.

Also present: Senator Hagel, and Senator Nelson.

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE

The CHAIRMAN. The hearing will come to order.

Good afternoon, everyone. I apologize for the delay in today’s

hearing because of a vote going on. This is the time of year when

lots of unexpected, unanticipated events arise and we have to adjust.

Finally, we are here now and we can get on with the hearing,

and hopefully the confirmation of some very important nominations.

Today, we will consider seven of the President’s nominations to

important positions at the Social Security Administration, Treasury

Department, Internal Revenue Services, and the Department of

Health and Human Services.

The President has nominated Mr. Richard Clarida to be Assistant Secretary of Treasury for Economic Policy; Mr. Kenneth

Lawson to be Assistant Secretary of Treasury for Enforcement; Mr.

B. John Williams, Jr., to be Chief Counsel of the IRS; Ms. Janet

Hale, to be Assistant Secretary of Health and Human Services for

Budget, Technology, and Finance; Ms. Joan Ohl, to be HHS Commissioner of Children, Youth, and Family Administration; Mr.

James Lockhart III, to be Deputy Commissioner of the Social Security Administration; and the Honorable Harold Daub, to be Chairman of the Social Security Advisory Board. Welcome, Congressman. We are very fortunate to have you here.

Mr. DAUB. Thank you.

The CHAIRMAN. I, first, want to congratulate all of you, each and

every one of you, and also your families and the sacrifices that you
2

will be making, and particularly the sacrifices that your family and

friends will be making.

Each of you has obviously expressed a deep interest for public

service and to help provide service to our people and our country.

Each of us do it in different ways, and you have chosen the way

for you. I can say, in speaking for the committee, we deeply appreciate it.

I know, speaking for the Senate and for Americans all across the

country, all of us are very, very grateful for your willingness to step

up and do the very best you can, as you see it, and make decisions

which you think are best for the country. We thank you very, very

much.

I would like to also note at this time that the administration has

sent the committee 38 nominations this year and, as of today, we

have ably reported to the Senate 31. Today, we consider the remaining seven. It is our expectation to report these nominations

before we adjourn for the year, 38 out of 38.

The committee has worked hard this year to get these seniorlevel positions filled. It has not been easy, but I think the record

speaks for itself. It also illustrates the good working relationship

that we have on this committee.

We look forward, this afternoon, to learning more about our

nominees. Congratulations, again, to each of you. We thank you for

your willingness to serve.

At this point, I would like to turn to my good friend and colleague, Senator Grassley, for an opening statement. Also, my

friends from Nebraska, Senator Hagel and Senator Nelson.

Senator GRASSLEY. They can go ahead, if you want to introduce

them.

The CHAIRMAN. I want you to know, and all the country to know,

you have two great Senators.

Mr. DAUB. I think we do, too. Thank you very much.

The CHAIRMAN. They are both solid Nebraskans. They are like

the Nebraskan football team. [Laughter.] They do not wear red all

the time, but you can tell they are thinking red all the time. They

are very good.

Mr. DAUB. We expect them to be proud of our football team at

all times here, Senator. [Laughter.]

The CHAIRMAN. Go ahead, Chuck.

STATEMENT OF HON. CHARLES HAGEL, A U.S. SENATOR FROM

NEBRASKA

Senator HAGEL. Mr. Chairman, thank you.

I would only say for myself, not my distinguished colleague Senator Nelson, we are not always as good as the football team, Mr.

Chairman. But Mayor Daub is.

I am pleased to have an opportunity to take a couple of minutes

here and, thanks to you, Mr. Chairman, and to Senator Grassley,

our neighbor across the river, to endorse the nomination of our

friend Hal Daub.

I have known Hal Daub for more than 30 years. That probably

disqualifies me for being here, especially saying anything honest

about him. [Laughter.]
3

But, nonetheless, I am here and I would like to unequivocally endorse his nomination. I do that because I know who he is. I know

his character, I know his integrity, I know his ability.

But beyond that, Mr. Chairman, this is a very wise choice, in my

opinion, because he knows something about the matter in which he

is going to be dealing. He spent four terms in the U.S. House of

Representatives, spent time on the House Ways and Means Committee, was on the Social Security Subcommittee on the Ways and

Means Committee, is an Army veteran, is a University of Nebraska

law school graduate. He also worked in the private sector as an advisor/consultant/attorney to Deloitte and Touche. So, his skills are

rather remarkable, well-rounded, and deep, especially for the position to which he has been nominated by the President of the

United States.

His most recent activity has been just as remarkable as his past

accomplishments. That is, he has been an effective—very effective—mayor of Omaha, Nebraska. It has been because of his leadership and his capacity to make something significant out of very

little that Omaha has prospered in such a tremendous way. It has

been because of Hal’s leadership that Omaha is doing some rather

remarkable things in all measurements of civic responsibility.

So, Mr. Chairman, I very much appreciate you allowing me an

opportunity to say something about Hal Daub. I do have a prepared statement that I would ask to be inserted in the record. I,

again, would endorse in every way the nomination of Hal Daub.

Thank you.

The CHAIRMAN. Thank you, Senator. Without objection, your full

statement will be included.

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

The CHAIRMAN. Senator Nelson?

STATEMENT OF HON. BEN NELSON, A U.S. SENATOR FROM

NEBRASKA

Senator NELSON. Thank you, Mr. Chairman and Senator Grassley. I do note that Nebraska’s winning ways has Senator Grassley

wearing more red in his ties, which I have mentioned to him on

more than one occasion. [Laughter.] I think he is suggesting that

that may be closer to Iowa State red.

Senator GRASSLEY. I know there is something wrong with a Senator that will jump out of an airplane. [Laughter.]

Senator NELSON. If you have the same number of landings as

you do jumps, it works pretty well. [Laughter.]

I appreciate this opportunity to be here today and join with my

colleague, the senior Senator from Nebraska, to introduce a very

good friend of mine and to certainly endorse him in every way.

I can outdo Chuck by over 10 years in knowing Hal, because 40-

plus years ago we were Boy’s Staters together at Nebraska Boy’s

State, and we have known each other for a lot of years.

I have known him in a personal way, as well as in a professional

way. During my time as Governor, I often had the pleasure and the

opportunity to work with him to help benefit the State of Nebraska

and the city of Omaha in every way. He and I collaborated to encourage growth and prosperity and to deal with the development
4

of the riverfront, to return the land to good use, and to work with

government agencies in order to develop that area.

I have known his interest in public service from the time we

were young boys and young men together, and I have seen his

progress from the Senate to the mayor’s office. He has had an interest in public service virtually all of his life.

This is just another extension of that public service. It is the opportunity to be able to provide something of value back to the community, and in this case to our Nation, once again.

Diane and I have known Mary for a lot of years. As a fellow

Southwestern Nebraskan, it is always a pleasure to be able to see

Mary and to say to her, congratulations, as well.

Hal and I nearly had the opportunity to practice law together,

but he chose the accounting profession a decade or so ago. So, we

did not have that opportunity. But I am looking forward to working

with him again, and certainly in this new position.

So, Mr. Chairman, it is really a pleasure for me to be able to be

here today and to say that the President has chosen wisely in selecting Hal Daub for this very important position.

Thank you very much.

The CHAIRMAN. Well, thank you very much, Senator. This is

quite a companionship here.

Senator Grassley?

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

SENATOR FROM IOWA

Senator GRASSLEY. Mr. Chairman, I want to follow up on a point

you made about so many nominees coming out of this committee,

now clearing all that have come before the committee with this

hearing. I need to thank you for doing that.

I think I should take the liberty of thanking you for the President for doing that as well, and doing it in a bipartisan way and

doing it in, really, an expedited fashion.

I am going to make some comments that are unrelated to the

nominees that we have before us, but also I am making them, in

a sense, Mr. Chairman, so that these nominees will know my feelings on some very important problems that I am having with some

of the bureaucracies that they will be a part of.

I think, in most of these letters that I have written to departments and have not gotten answers to, I think you have joined me

in those letters as well, and maybe I have joined you in some of

the letters you have had.

But I am kind of at the end of my rope when it comes to the lack

of response and cooperation that I am getting from, particularly,

the people at the Department of Treasury.

I have a letter, as an example, that has been outstanding for

months to the IRS regarding an IRS employee, Mr. Kenneth

Dossey, who, under the previous administration, was allowed to receive a paycheck from the IRS for 3 years while he did not do a

day of work.

During this time, Mr. Dossey was indicted, convicted, and sentenced for several felonies. Mr. Dossey still collected a paycheck

from the IRS, even while confined to his house. My letter is focused

on the management decisions that led to these events.
5

In addition, the Chairman and I have jointly written to both Customs and the Department of Treasury, dated October 17 regarding

financial reporting related to terrorist actions of September 11th.

We have not seen a response for either of these letters, although

I do note that other Senators appear to be getting material on this

matter. Yet, the entrenched bureaucrats at the Department of

Treasury somehow cannot make a priority of responding to a joint

letter from the Chairman and Ranking Member of this parent committee.

Every day, we hear that we will get an answer tomorrow. I think

that, after a certain period of time, it is legitimate for me to be

tired of that. Congress has a constitutional function. That constitutional function we call oversight. I am very concerned that bureaucrats at Treasury are seeking to stymie this oversight by ignoring

or delaying legitimate inquiries from Congress.

I hope that everybody that understands how our constitution

works finds this is unacceptable. In fact, I think one of the questions that the Chairman—any chairman—regularly asks, is will

you respond to inquiries made by Congress, particularly if you are

asked to come before a committee. But I think that would also

apply to any sort of communication we might have.

I am pleased to have these hearings go forward and to have

these nominees reported out of committee. However, I want to assure the Department that, until answers to these letters are forthcoming, I will oppose nominations of Treasury officials from going

forward with the usual hold.

I do not use a secret hold, I always put in the Congressional

record the fact that I am holding up a nomination and my reason

for doing it. I hope that this message is very clear.

None of you need to be worried. I am not going to ask any embarrassing questions about this, because you do not know anything

about it. But some day you will be in a position to help respond

to letters from me, the Chairman, and other members of this committee, and I hope you will do it in a way that the constitution requires Congress to fulfill its oversight function.

The CHAIRMAN. Well, thank you, Senator. You made a very important point here.

I would like the Treasury nominees here to go back to the Treasury Department and inform the Department and/or the appropriate

agencies, the IRS, that the committee expects a response to Senator Grassley by tomorrow.

I also would like a list of outstanding Senate inquiries tomorrow.

Mr. LAWSON. Yes, sir.

The CHAIRMAN. Thank you.

Senator GRASSLEY. Thank you, Mr. Chairman.

The CHAIRMAN. All right. Time for opening statements.

I will begin with you, Mr. Clarida. I am informed I mispronounced your name the first time around. I apologize.

We would be very honored to hear your views and your thoughts

on being Secretary of Treasury for Economic Policy at the Department of Treasury.
6

STATEMENT OF RICHARD CLARIDA, TO BE ASSISTANT SECRETARY OF THE TREASURY FOR ECONOMIC POLICY, DEPARTMENT OF THE TREASURY

Mr. CLARIDA. Well, thank you very much.

The CHAIRMAN. And before you begin, could we ask you a favor?

If you have any family or friends here, introduce them.

Mr. CLARIDA. Oh, indeed I would. I am so proud.

The CHAIRMAN. Because this is really a joint venture.

Mr. CLARIDA. It certainly is. I am very proud to introduce my

dear wife, Polly Berry, and my two boys, Russell William and Matthew Quinn, who have come down from Connecticut for this day.

My father-in-law and mother-in-law, Jack and Rosemary Berry, in

the back. My good friend, Russell Jeffrey, all the way from Rhode

Island, also.

The CHAIRMAN. Well, good for you. You do better than most

nominees. That is good. [Laughter.] Congratulations.

Mr. CLARIDA. Thank you.

Well, Chairman Baucus, Ranking Member Grassley, and members of the committee, I am so grateful for this opportunity to appear before you today in connection with my nomination to be Assistant Secretary of the Treasury for Economic Policy.

I am truly honored that President Bush has asked me to serve

in this important position, and I thank you for the privilege of appearing before you today.

Mr. Chairman, I have a deep and genuine respect for public service, and in particular for the advise and consent role of the Senate

in the confirmation process.

If I am confirmed, I really do look forward to working closely

with this committee, the Senate, and with members of the House

on addressing the important economic issues that face our Nation

at this time.

Before proceeding any further, I would like to take this opportunity to thank my parents who could not be here today, William

and Edith Clarida, for teaching me the values of hard work and

persistence that have brought me before you today.

Again, I would like to thank my wife Polly, and my boys Matthew and Russell, for providing the support and encouragement

that I will surely need to do this job, support and encouragement

that they offer knowing that it means that their father and husband will be away from home for the next several years.

Now, when I was growing up in a small town in downstate Illinois, the son of a public school teacher, I could not have predicted

that I would find myself honored with the nomination to be Assistant Secretary of the Treasury.

After graduating from the local high school, I attended the University of Illinois in Champaign, Urbana, where I studied economics. After graduating, I was accepted to Harvard in the Ph.D. program, and earned my Ph.D. in economics from Harvard in 1983.

Now, in the 18 years since then, I have been a professor of economics, first at Yale, and since 1988, at Columbia. From 1997 until

recently, I was the chairman of the Department of Economics at

Columbia.
7

I was very fortunate to be in public service once before in my life

in 1986 and 1987, when I was the senior staff economist with

President Reagan’s Council of Economic Advisors.

In that job I had the opportunity to work closely with the chairman and the members of the CEA on a wide range of economic

issues. That is a background that I think will serve me well, if I

am confirmed to be Assistant Secretary for Economic Policy.

Let me say that I support President Bush’s economic philosophy

and his policies for returning the economy to a path of robust, sustainable growth. I am also very eager to join the truly first-rate

team that President Bush and Secretary O’Neal have assembled at

Treasury.

Well, thank you once again, Mr. Chairman and Senator Grassley,

for the privilege of appearing before this committee. If confirmed,

I can assure you that I will work closely and enthusiastically with

you and members of this committee in the months and years to

come.

I would be pleased to respond to your questions.

The CHAIRMAN. Thank you, Mr. Clarida.

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

The CHAIRMAN. Mr. Lawson?

STATEMENT OF KENNETH LAWSON, TO BE ASSISTANT SECRETARY OF THE TREASURY FOR ENFORCEMENT, DEPARTMENT OF THE TREASURY

Mr. LAWSON. Thank you, sir.

Before I begin, I would like to recognize Monty Richardson, a

Federal prosecutor from Tampa, Florida, who is here on my behalf.

The CHAIRMAN. Well, great. Monty.

Mr. LAWSON. Thank you, Chairman Baucus and Senator Grassley. It is an honor and privilege to be here today to testify in support of my nomination to serve as the next Assistant Secretary of

the Treasury for Enforcement.

I would like to thank President Bush for the opportunity to serve

my country. I, further, would like to thank Secretary Paul O’Neal

for his support and confidence. I am humbled and honored about

the possibility of serving the Nation at this unique time in history.

Before proceeding any further, I would like to take the opportunity to thank my family for their love and support. Although they

could not be here today, their love and guidance are always with

me.

Further, for the past 10 years I have been blessed with a loving

and supportive wife. Please allow me to thank my wife, my partner

and best friend, Sonia Lawson. I am a richer man because of her.

I look forward to the challenges, opportunities, and responsibilities that await me, if confirmed as the next Assistant Secretary of

the Treasury for Enforcement.

I believe I am qualified to hold this important Treasury post. For

the last decade, I have been privileged to serve our country as both

a Marine officer and a Federal prosecutor.

Ten years ago, I began my government service as a U.S. Marine

prosecutor. During my military service, I was appointed as a Special Assistant U.S. Attorney for the Eastern District of North Caro-
8

lina. As a SAUSA, I traveled the Eastern District prosecuting cases

in Federal court on behalf of the United States, and it was my

honor to serve as a Marine officer.

After my military service, I was privileged to serve as an Assistant U.S. Attorney with the Middle District of Florida. As an assistant, I worked closely with Treasury’s enforcement bureaus, including Alcohol, Tobacco and Firearms, the Customs Service, Secret

Service, and the IRS Criminal Investigation Division. Together, we

investigated and prosecuted financial crimes that ravaged the Middle District of Florida.

From my 7 years as an assistant, I learned that dedicated professionals are housed in Treasury’s enforcement bureaus. Although

each bureau’s mission is as separate as fingers on a hand, when

brought together like a fist, enforcement bureaus are a dynamic

force in the war against crime.

However, the tragic events of September 11th have galvanized

our enforcement bureaus to focus their skills and talents to identify, disrupt, and dismantle the terrorists’ financial networks that

have funded our enemies.

If confirmed to serve as the Assistant Secretary of Enforcement,

I pledge to use all of my energy and skills to lead this mission and

to work hand-in-hand with our bureaus. With all due respect, I am

here before you today because this is my war and I want to be part

of the battle.

Thank you, Mr. Chairman. It would be my honor to answer any

questions.

The CHAIRMAN. Thank you, Mr. Lawson.

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

The CHAIRMAN. Next, we will hear from Mr. Williams.

STATEMENT OF B. JOHN WILLIAMS, JR., TO BE CHIEF COUNSEL FOR THE ITNERNAL REVENUE SERVICE AND ASSISTANT

GENERAL COUNSEL IN THE DEPARTMENT OF THE TREASURY

Mr. WILLIAMS. Thank you, Mr. Chairman and Senator Grassley.

I would like to introduce my family to you. My good friend and

wife, Marti.

The CHAIRMAN. Good.

Mr. WILLIAMS. My four children are here. They are not children

any more, Mr. Chairman.

The CHAIRMAN. Could you all stand and stay standing?

Mr. WILLIAMS. Rob, my oldest, Bernie, my youngest, Sarah, and

Ann.

The CHAIRMAN. Super.

Mr. WILLIAMS. And my mother, Sally Williams, is here, and my

mother-in-law, Ruth Roberts.

The CHAIRMAN. Well, that is wonderful. Thank you all very much

for attending and supporting your husband, father, and son.

Mr. WILLIAMS. Mr. Chairman, Senator Grassley, before I begin,

I want to let Senator Grassley know that I share your concern

about the responsiveness of the Internal Revenue Service.
9

If I am confirmed, Senator, I will not only make sure they are

responsive, but I will look into the reasons specifically why they

have not been responsive to you and to this committee.

The CHAIRMAN. Thank you very much.

Mr. WILLIAMS. I am very pleased, Mr. Chairman, to appear before the committee as the President’s nominee for Chief Counsel for

the Internal Revenue Service.

I consider this opportunity for public service to be a great honor,

and especially so at this time in our country’s history.

I would very much appreciate the opportunity to contribute to

the efforts that the Treasury is making in the war on terrorism,

and in helping Commissioner Rossotti develop a system of effective

tax administration.

In that context, I would like to offer the committee a brief summary of my thoughts on the role of the Chief Counsel.

The power to tax is exercised not only by enacting revenue laws,

but also by interpreting and enforcing them. In our democracy, we

must take special care to adhere faithfully to the law as enacted.

Only a fair and impartial interpretation and application of the law

can command the respect of our citizens. In my view, the Chief

Counsel’s principal duty is to assure that that respect is earned.

In fulfilling this duty, it is critical that the service publish more

guidance to the public, especially revenue rulings.

I share Commissioner Rossotti’s belief that the Chief Counsel’s

office needs to focus more on its advisory role to the public. Too

often, the public looks to informal advice given to specific taxpayers

to discern the positions of the service. This advice cannot, by statute, be relied on as precedential. If confirmed, one of my chief goals

will be to increase public guidance.

The Chief Counsel’s advisory role on interpreting the law should

not be confused with Counsel’s enforcement role. Enforcement is a

tool to assure even-handed application of the law, not a means to

obtain new interpretations of unclear law.

When interpretive uncertainties are clarified through public

guidance, the central focus of enforcement, whether civil or criminal, is properly to maintain the integrity of the revenue laws.

If fair application of the law does not render an acceptable policy

result, then legislative or regulatory changes should be the way to

effect the desired policy. I firmly believe that litigation should

never be the means to advance policy choices.

The public is entitled to know and rely on the law and the agency’s interpretations before cases are developed. Counsel must make

a renewed effort to develop those interpretations through public

guidance.

The Chief Counsel must also be dedicated to the operational success of the Service. Such dedication entails working closely with

the client, the Commissioner of Internal Revenue, and offering good

judgment to help inform the choices that the agency must make.

Most frequently, that means thinking hard about feasible alternatives. Sometimes that means saying no, but it never means taking too long to say it.

I would be pleased, Mr. Chairman, to answer any questions the

committee might have.

The CHAIRMAN. Thank you very much, Mr. Williams.
10

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

The CHAIRMAN. Next, Ms. Hale.

STATEMENT OF JANET HALE, TO BE ASSISTANT SECRETARY

FOR BUDGET, TECHNOLOGY, AND FINANCE, DEPARTMENT

OF HEALTH AND HUMAN SERVICES

Ms. HALE. Thank you.

My mother is in Florida and my brother is in California, so many

of the nominees’ families adopted me today and I want to thank

them. [Laughter.]

More importantly, I would like to introduce several friends. One,

is Eve Slater, who I hope someday soon will be sitting in front of

a different committee, but is not quite there yet.

Tom Casey, who has been with me through so many of my previous government experiences, a true friend and colleague, and I

am glad he is here.

Tom Gallagher, who has just joined the Department of Health

and Human Services, another Wisconsin person, and we are glad

to have him here.

The CHAIRMAN. Could you all three stand so you can all be recognized, please? Thank you very much. We appreciate your support.

Ms. HALE. Thank you, Mr. Chairman.

The CHAIRMAN. Thank you.

Ms. HALE. Mr. Chairman, Senator Grassley, it is an honor to appear before you today regarding my nomination as the Assistant

Secretary of the Department of Health and Human Services.

I know this will begin a close and productive partnership as we

work together, if I am confirmed, for both the Department and the

people that it serves.

I was deeply honored to be nominated, but the importance of this

position and the tremendous value and the service of the Department of Health and Human Services really struck home for me on

September 11th, when so many dedicated men and women from

CDC, NIH, the Office of Emergency Preparedness, the Public

Health Service, spent untold hours dealing with the tragedy in

New York and the efforts since that time with anthrax, and everything else. It is truly an honor and a privilege to serve on this

panel and in this government at this particular time.

The position of Assistant Secretary for Budget, Technology and

Finance embraces budget formulation and execution, financial policy and accountability, and information resources.

I have had similar jobs in other executive agencies, both at HUD,

Transportation, and at OMB, as well as at the House of Representatives. Hopefully, through that time, having seen it at an agency

level, a Department level, and at OMB, and again with a different

branch of the legislature, I hope that I can bring those skills to

work for the mission and the employees of the Department.

My background and combination of experiences has prepared me,

I think, to meet the challenges that face the Department in these

very difficult times. I look forward to carrying out the management

reforms proposed by the President and already begun by Secretary

Thompson. I look forward, if confirmed, to working with this committee.
11

One final note. I am dedicated to maintaining the clean audit

opinion of the HHS financial statements.

As I have said, there are many important issues before the Department that affect directly the daily lives of the American people.

I am excited and honored to be nominated by the President to

serve with Secretary Thompson and, if confirmed, this committee,

the administration, and the Department will have my energy as we

work together to face the challenges facing HHS.

Thank you for your consideration of my nomination. I will be

happy to answer any questions.

The CHAIRMAN. Thanks, Ms. Hale, very much.

Ms. HALE. Thank you.

[The prepared statement of Ms. Hale appears in the appendix.]

The CHAIRMAN. Ms. Ohl?

STATEMENT OF JOAN E. OHL, TO BE COMMISSIONER, ADMINISTRATION OF CHILDREN, YOUTH AND FAMILIES, DEPARTMENT OF HEALTH AND HUMAN SERVICES

Ms. OHL. Thank you very much.

I would like to introduce my husband, Ronald Ohl, my younger

sister Leslie Delgrosso, and my 15-year-old nephew, Joseph

Delgrosso.

The CHAIRMAN. Well, thank you all very much. Appreciate it.

Thank you.

Ms. OHL. Thank you.

Mr. Chairman, Senator Grassley, it is an honor to appear before

you this afternoon as President Bush’s nominee as the Commissioner of the Administration of Children, Youth and Families in the

Department of Health and Human Services.

I am very pleased to be given the opportunity to work with HHS

Secretary Tommy Thompson, who has been a recognized national

leader both in welfare reform and social services for children and

families, and also with Assistant Secretary Wade Horn, who served

as the Commissioner in the administration of President George

Herbert Walker Bush.

Over my 33-year career, I have focused extensively on improving

the lives of children and youth, be it their health, their education,

or their human services needs. If confirmed, I will bring to this position a broad range of experiences from both the public and private sectors, including demonstrated strength in management, program development, program implementation, fiscal management,

and budget development.

I am a very strong community-based person, in that I believe

that the solutions to the needs of children and families are at a

community level and not in State and Federal capitals.

Through government partnership at both the federal, State, and

local levels, we must ensure that the infrastructure and accountability system is in place for the delivery of quality health and

human services.

From 1997 until early 2001, I served as the cabinet secretary of

the West Virginia Department of Health and Human Services, referred to as DHHR. When Governor Underwood appointed me to

that position, he charged me with making DHHR modern, professional, and accountable.
12

At the time, DHHR was drowning in red ink, understaffed, and

had disallowances in virtually all Federal program areas. During

my 4-year tenure, I worked with Governor Underwood and the legislature to upgrade the productivity of the staff through training,

access to technology, compensation, and work environments; gained

high-performance bonuses for adoption and TANF-related job retention and overall success in the workforce.

We got food stamps to 93 percent of eligible families, the highest

rate in the country, and addressed food stamp payment accuracy;

reduced Title 4(e) foster care maintenance disallowances from an

error rate of over 30 percent to a single error in the 2000 audit.

We implemented two technology systems, one in child welfare,

one in child support; vacated two court orders; increased adoptions

and foster care to over 40 percent as a part of Every Child Deserves a Family.

We cut in half the number of foster children in out- of-State

placement and expanded the infrastructure, including communitybased, child residential, behavioral health, and MRDD services, utilizing dollars that had previously paid for out-of-State placements;

instituted differential subsidies to meet child care needs and supported improved child care quality.

We used the child care block grant, TANF direct, and TANF

transfers to provide child care subsidies to 25 percent of eligible

West Virginia children, double the national average.

I focus today on some of my accomplishments in the last 4 years

as cabinet secretary because I think it exemplifies the skills and

the abilities that I will bring to the Commissionership of the Administration of Children, Youth and Families.

I want to continue to work to see that the various levels of federal, State, and local government work together to ensure a strong

community-based infrastructure delivery system that is both established, maintained, and accountable for its outcome.

We need to continue to focus on prevention and early intervention, and I look forward to being an active participant in the Child

and Family Service reviews.

One area that I want to give special attention to is the needs of

the Nation’s youth. Since 1996, we have focused extensively on the

needs of young children through efforts of adoption, Head Start,

and child care.

Some of the initial welfare reform research is showing that many

of the needs of young children are being met, but the group that

is experiencing problems are those entering their teenage years.

Therefore, I will work extensively with Assistant Secretary Wade

Horn on a special initiative within ACF and look at ways to effectively link youth programs across Federal agencies.

I will also work closely with Secretary Thompson’s rural initiative, because I am from a rural State and I am well aware of the

barriers that are there that must be overcome for effective program

and service delivery.

The goal of ACF and ACYF is to improve the well-being of children and to strengthen families. I hope that through my comments

today, as well as the materials that I have submitted to your committee, that I have shown my deep commitment to those goals.
13

Mr. Chairman, if I am confirmed, I pledge to work on a bipartisan basis with you, the members of this committee, and Congress

to ensure that ACYF reaches these goals.

Again, I thank you for the opportunity to testify before you

today, and I am pleased to answer any questions that you might

have.

The CHAIRMAN. Thank you very much, Ms. Ohl.

[The prepared statement of Ms. Ohl appears in the appendix.]

The CHAIRMAN. Mr. Lockhart?

STATEMENT OF JAMES B. LOCKHART, III, TO BE DEPUTY

COMMISSIONER, SOCIAL SECURITY ADMINISTRATION

Mr. LOCKHART. Thank you, Mr. Chairman.

I would like to, before I start, introduce my wife, Cricket.

The CHAIRMAN. Cricket. Good.

Mr. LOCKHART. Unfortunately, my two children could not be here

today. One is studying in Florence. We had the opportunity to see

her last weekend, which was great. My son has a longstanding

scheduled interview with a business school.

The CHAIRMAN. Well, good luck to your children. Thank you,

Mrs. Lockhart, for attending.

Mr. LOCKHART. Mr. Chairman, Senator Grassley, it is a real

honor to appear before you today as President Bush’s nominee for

the Deputy Commissioner of Social Security. I would be honored to

have the opportunity to serve the many millions of Americans who

depend on Social Security now, and in the future.

I also welcome the opportunity to work with Commissioner JoAnne Barnhart to help meet the challenges that she discussed with

this committee during her confirmation hearing, and I ask for your

support.

Although my career has been mainly in the private sector, this

position would be my third opportunity for public service. The first,

was as an officer on a ballistic missile submarine. The second, was

as the executive director of the Pension Benefit Guaranty Corporation (PBGC).

When I joined the PBGC, I was greeted with a newspaper cartoon that had a little sign being put in front of a house saying,

‘‘Renovations Completed.’’ The house was labeled ‘‘PBGC.’’

As some of the members of the Finance Committee may remember, the renovations were not even close to being completed. It took

years, and the help of this committee and many others, but PBGC

now is a government success story.

Despite the hard work of Social Security’s dedicated team of over

63,000 employees, renovations are not completed there either.

The good news is the Social Security Administration is in a much

better state than the PBGC was in 1989. As Comptroller General

David Walker stated in his January report, ‘‘Social Security is a

leader in Federal service delivery.’’ He also said, ‘‘It is a leader

among government agencies for its accountability reports.’’

Importantly, however, that GAO report also said that there are

serious issues that must be addressed. The scale of Social Security

is colossal, representing a quarter of the Federal budget, paying

benefits to almost 50 million Americans, and protecting virtually
14

every American family. The successes have also been great. Almost

a half of today’s retirees would be in poverty without it.

Not surprisingly, the agency’s challenges are also large. The first

challenge is to ensure the long-term solvency of the program for future generations. A central function of Social Security is retirement

security. Retirement in the U.S. is often described as a three-legged

stool, with Social Security, private pension plans, and personal savings being those three legs.

I do not like the image of retirees sitting on wobbly, three-legged

stools. Working together to address savings and solvency issues, we

should try to make retirement an easy chair for every American.

The second challenge is to provide better and more timely service

to beneficiaries. The disability process takes much too long. The future service demands will increase dramatically as we baby

boomers begin to retire.

Service also means doing a much better job of educating the public about Social Security’s programs and retirement planning.

The third challenge is to improve the program’s integrity through

sound fiscal stewardship. The agency has a fiduciary responsibility

to all Americans to ensure that the trust fund’s assets are used to

pay proper benefits and to ensure that only eligible people are

given Social Security numbers.

There is a strong economic incentive for doing so. In several

areas, a dollar well spent on stewardship will produce up to $10

in savings.

The fourth challenge is to face Social Security’s own retirement

wave through recruiting and training staff. The agency recognized

this challenge early, but the other three challenges cannot be met

without a replenished and talented team.

As Commissioner Barnhart said to you in September, these

issues cannot wait. I look forward to working with the members of

the committee, Commissioner Barnhart, and the experienced, dedicated, and caring members of the Social Security team, to begin addressing these challenges immediately.

Although the agency’s renovations may never be fully completed,

our goal and duty must be to create not just a government success

story, but a success story for every American family.

Thank you.

The CHAIRMAN. Thank you very much, Mr. Lockhart.

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

The CHAIRMAN. You are next, batting cleanup.

STATEMENT OF HAROLD DAUB, TO BE A MEMBER OF THE

SOCIAL SECURITY ADVISORY BOARD

Mr. DAUB. Senator, there has already been way too much said

on my behalf, remarks for which I was most grateful.

Mr. Chairman, Mr. Grassley, and to the panel that I am privileged to be a part of today, first, let me say that it is a real honor

to be before you as a nominee of the President to be a member of

the bipartisan Social Security Advisory Board.

You are aware that the President did announce that, should I be

confirmed, he would designate me to serve as its chair.
15

I would like to introduce to you, although she was previously introduced by Senator Nelson, the best thing that has ever happened

to me and been a part of my life, and that is my wife, Mary. If you

would say hello and please stand, Mary.

The CHAIRMAN. Welcome, Mary.

Mr. DAUB. And I would like to thank Senator Hagel and Senator

Nelson for their time in coming today.

I would like you to also meet the executive director of the Social

Security Advisory Board. I know that staff here know her and have

depended upon her for much of the great advice that I know she

gives to them on this very important subject, and they, in turn to

you as members of the committee. Margaret Malone. If she would

stand and be recognized.

The CHAIRMAN. We have known Margaret for a long time and we

very much appreciate her work.

Mr. DAUB. As do I. Not only am I aware of how much the current

members of the board rely upon her judgment, skill and advice, but

I note that the staffs of the House and the Senate do as well.

I, too, want to say thank you to the staff of your committee, Mr.

Chairman, for the help they have extended to me during the preparation for this time together.

Congress created the Social Security Advisory Board in 1994 in

order to provide an independent and objective source of advice and

assistance to you, to the President, and the Commissioner of Social

Security.

The history and tradition of the board has been to work on a bipartisan—perhaps one should say more accurately a nonpartisan—

basis to provide information and recommendations regarding the

critical issues that face the Social Security programs.

There have been more than 20 comprehensive publications since

1996 in fulfillment of the board’s statutory mandate. I want to assure you today that I am committed to carrying out and building

upon this important tradition.

I am going to ask that my statement be included in the record.

This has been a long day for all of you.

I do want to point out the statistics that are contained in it, because I think they are important to be said. Over 45 million individuals rely on the processing and payment of benefits from social

insurance proceeds for retirement, survivors’, and disability benefits.

The total outlays for 2001 are estimated to be more than $400

billion, against an income currently of approximately $600 billion.

The estimated fund balance now is more than $1 trillion.

The administrative work is being performed by an aging Social

Security workforce of approximately 64,000 employees at an administrative expense or an outlay of more than $7 billion annually.

Five billion of that is for administration of the growing disability

determination and payment system, which dispensed about $90 billion in the year 2001, or nearly 5 percent of our total Federal budget outlay.

The Supplemental Security Income system, known as SSI, is also

administered by the Social Security Administration and served, for

example, last year more than 1.5 million new applicants.
16

So it is, as Mr. Lockhart said, a very, very complex and colossal

system that has an issue of solvency and a number of other policy

choices that are going to have to be made as we move to the socalled ‘‘magic’’ year of 2016, when the actuaries tell us that there

will be a balance between inflow and outflow, and at that point we

will begin to utilize what are referred to as surpluses.

So, it is my obligation and my commitment to you and to this

committee, if privileged to be confirmed, to help carry out the mandate Congress gave to us and to the Advisory Board. We stand

ready, willing, and able to help you in any way that we might.

Thank you, Mr. Chairman.

The CHAIRMAN. Thank you very much, Mr. Daub.

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

The CHAIRMAN. I now have three obligatory questions that I am

going to ask all of you. As I ask each question one at a time, I am

going to have to ask each of you to go down the row and say yes

or no, whatever you want to say.

The first question. Is there anything you are aware of in your

background that might present a conflict of interest with the duties

of the office to which you have been nominated? Mr. Clarida?

Mr. CLARIDA. No.

The CHAIRMAN. Mr. Lawson?

Mr. LAWSON. No, Mr. Chairman.

Mr. WILLIAMS. No.

Ms. HALE. No, Mr. Chairman.

Ms. OHL. No, Mr. Chairman.

Mr. LOCKHART. No.

Mr. DAUB. No, Mr. Chairman.

The CHAIRMAN. Thank you.

Second, do you know of any reason, personal or otherwise, that

would in any way prevent you from fully and honorably discharging the responsibilities of the office to which you have been

nominated?

Mr. CLARIDA. No, Mr. Chairman.

Mr. LAWSON. No, Mr. Chairman.

Mr. WILLIAMS. No, Mr. Chairman.

Ms. HALE. No, Mr. Chairman.

Ms. OHL. No, Mr. Chairman.

Mr. LOCKHART. No, Mr. Chairman.

Mr. DAUB. For the record, no, Mr. Chairman. I say my name only

because of the long line and whoever is trying to transcribe this

some day. So I am at the end of the list, whoever has the list.

The CHAIRMAN. The gentleman over at your far right deeply appreciates that.

Third, do you agree without reservation to respond to any reasonable summons to appear and testify before any duly-constituted

committee of Congress, if you are confirmed?

Mr. CLARIDA. Yes, Mr. Chairman.

Mr. LAWSON. Yes, Mr. Chairman.

Mr. WILLIAMS. Yes, Mr. Chairman.

Ms. HALE. Yes, Mr. Chairman.

Ms. OHL. Yes, Mr. Chairman.

Mr. LOCKHART. Yes, Mr. Chairman.

Mr. DAUB. Yes, Mr. Chairman.
17

The CHAIRMAN. For the record, that is Mr. Daub at the end.

[Laughter.]

We have a lot of panelists here and a lot to go over, so I will try

to be quick and to the point.

Beginning with you, Mr. Clarida. There is a big debate currently

in the Congress, one of them, on how to stimulate the U.S. economy. What are your views, briefly?

Mr. CLARIDA. My views.

The CHAIRMAN. That is, in the purview and the jurisdiction of

the Congress.

Mr. CLARIDA. Well, first of all, let me again thank the committee

for, certainly in my case, expediting this hearing and, if I am lucky

enough to be confirmed, giving me a chance to work with the committee toward what I think is a common goal, which is to make

sure that the economy rebounds and achieves its potential.

I guess what I would say, in answer to what is a very good question, Mr. Chairman, is that I support President Bush’s policies that

he announced on October 5th, which he suggested would be part

of a stimulus package. Those included rebates to low-income households, incentives to spur investment, cuts in tax rates for other

households.

In particular, I believe, following the events of September 11th

and the contraction in the economy that occurred in the third quarter, that the most important thing that the Congress and the President can do, working together, is to restore the confidence, which

has been wounded, in the economy, there is no doubt.

So, briefly, that is how I would answer your question.

The CHAIRMAN. Just speaking personally, as you look at both the

House-passed bill and that which passed this committee, your

thoughts as to which parts of those two bills would be most helpful.

Your personal views.

Mr. CLARIDA. Well, my views are that the way that I understand

the bill that passed in the House, from reading the newspapers and

what I understand has passed at least through this committee in

the Senate, is that there are a number of common elements.

As one who has spent most of his career in academia, I have not

mastered, perhaps, some of the fine points of the differences, but

I see a lot of common elements: a desire to spur investment, in particular, and also a desire to lower taxes or to give tax rebates to

households.

So, I see a lot of common elements. I think that a package that

contained those elements would be good for the economy.

The CHAIRMAN. Mr. Lawson, I have just a couple of questions for

you. One, is how do we beef up our anti-money laundering regime,

particularly in this unfortunate era of terrorism? The recently enacted anti-terrorism law contains a Treasury Department study on

anti-money laundering. As a Treasury official, you will be responsible for conducting the study.

Will you ensure that the Finance Committee is consulted before

the study is submitted to Congress?

Mr. LAWSON. Mr. Chairman, if I am confirmed, I promise to work

closely with this committee and consult with you to ensure that

that is done.

The CHAIRMAN. Thank you.
18

The Inspector General for Treasury has recently reported that

the IRS needs to improve its program for ensuring compliance with

anti-money laundering, particularly with respect to non-banks.

There are approximately 158,000 non-bank financial institutions in

this country. The IRS has information on less than half of them,

moreover, only one-third have been reviewed by the IRS, and according to that review, penalty referrals have declined from 44 in

1997 to 14 in 1999. There are big gaps in IRS’ examination coverage.

The question I have relates to the Inspector General report that

the IRS, in their view, anyway, is not doing a very good job of ensuring that non-bank financial institutions are complying with

Title 31 financial transaction reporting and recordkeeping requirements.

Have you had a chance to see that report?

Mr. LAWSON. No, sir, I have not.

The CHAIRMAN. Are you aware of it?

Mr. LAWSON. I am not aware of it, sir.

The CHAIRMAN. Just off the top, have you given much thought

to anti-money laundering efforts, strengths, gaps, and how efficient

we are or are not, and what we should do about it?

Mr. LAWSON. Sir, if I am confirmed, I promise to work closely to

ensure that the Patriot Act and its provisions regarding anti-money

laundering and compliance are carried out. Therefore, I will work

closely with our bureaus and with the IRS in developing means for

correct and accurate reporting.

The CHAIRMAN. This is, I think, an area that this country has not

spent enough time on and that we must be vigilent in this area.

Whether it is the traditional banking system or non-banks or it is

the system that is often used in the Mideast, that has got to be addressed a lot better as well. I do not have the answers.

As the person who is charged with rooting out violations of certain laws, I would just encourage you to, for right now, dig into it

very deeply.

Mr. LAWSON. Yes, sir.

The CHAIRMAN. I think that would be wise.

Senator GRASSLEY. Mr. Chairman?

The CHAIRMAN. Yes.

Senator GRASSLEY. Along the lines of money laundering, since I

was involved in the passage, with Senator Levin and Senator Kerry

on the money laundering bills that just passed, and they were directed more towards terrorism, but I originally got involved in

them because of money laundering and drugs, the regulations are

now being written on that. I hope that you will do what you can

to make sure that Congressional intent is followed.

I know various trade associations of financial institutions are

now doing what they can to minimize the impact of that legislation.

They fought the legislation through the Congress. We want to

make sure that that is a good tool.

I, just today, had a meeting with a person that is now in the private sector that used to be involved with the Drug Enforcement

Administration on money laundering. He says these are very, very

good tools that have now become a part of our law that you have

referred to as the Patriot Act.
19

So, we want to make sure that the full force of these laws are

followed and not let them be undercut by regulations being written

that might do that.

I would only offer that to you for advice, and to be aware of the

fact that that possibility is going on right now.

Mr. LAWSON. Thank you, sir.

The CHAIRMAN. Thank you, Senator.

Mr. Williams, as I am sure you know, the Wall Street Journal

reported on August 14, 2001 about you. The report was that you

‘‘waged a pugnacious campaign against the IRS 6 years ago that

infuriated some government lawyers who questioned the propriety

of his team’s tactics.’’ The article went on to state, ‘‘It is rare for

an official to join an agency after participating in an incident that

generated such ill will.’’

I think it would be appropriate for you to respond to that.

Mr. WILLIAMS. Thank you, Mr. Chairman.

First, I want to assure this committee that I have a very deep

respect for the Internal Revenue Service and a great deal of admiration for public servants who apply the law impartially and fairly.

I would say that that article interviewed some, but certainly not

others who have different views. I acted as an attorney for my client, within the bounds of the law, zealously.

I intend to do the same as Chief Counsel, representing my client

zealously within the bounds of the law, subject, of course, to the

duty we owe to the public to make sure that that law is fairly and

impartially interpreted.

But in terms of trial tactics, I would submit that, whether you

work for the government or whether you work for a private client,

it is your ethical duty to represent that client as zealously as your

skills permit, again, Mr. Chairman, always within the bounds of

the law.

The client in that particular instance wanted to use certain information that had been developed. It was submitted in accordance

with the rules of evidence, subject to the oversight of a Federal district judge, who permitted the examination to occur.

The CHAIRMAN. Do you think you will have to do some fence

mending at the IRS with the people who will be working for you

and with you?

Mr. WILLIAMS. I believe that the lawyers who were upset by that

incident are no longer with the government. The lawyers who understood the legitimacy of the trial tactic, who have communicated

that to me personally, do not present fences to mend.

I will, however, if there are any fences to mend, certainly look

for them and do it.

The CHAIRMAN. Why do you want this job?

Mr. WILLIAMS. Mr. Chairman, I have, through my career, wanted

to serve the public as much as I could. I believe that 25 years of

experience that I have dealing with this agency in a variety of positions, an official at the Justice Department, a judge on the U.S.

Tax Court, as a private practitioner, as one who was special assistant to the Chief Counsel in the Reagan Administration, gives me

a perspective that I do not think anybody else has.

I would like to offer that to the country, to help that institution

and to help Commissioner Rossotti in his restructuring of it so that
20

the institution becomes much more responsive, not only to this

body, but also to the public.

The CHAIRMAN. So, given that unique perspective, what are you

going to recommend?

Mr. WILLIAMS. As I said in my opening statement, Mr. Chairman, I believe that the Chief Counsel’s office has shifted away from

the guidance that the public needs, sorely needs, into a mode

where it kind of moves in fits and starts between cases and tries

to develop principles through litigation.

I do not think that is the right manner for this particular agency

to develop the law. I think that the law should be developed in consultation, obviously, with the Congress as statutes are developed to

make sure they are administrable, in consultation with Treasury in

the context of the regulations that are issued to make sure that the

intent of this body is accurately reflected in the administration of

that law, in dealing both with the agents in the field who are enforcing it, and with a public who is trying to comply with it in a

way that makes it clear and understandable to those whose duty

it is to comply with it.

The CHAIRMAN. There has been a lot of discussion in the press

about tax shelters, and that a lot of people are getting away without paying their taxes through abusive shelters. What is your sense

of that? Do we need new legislation to crack down on shelters? Can

you, as Chief Counsel, address the proliferation of some of these

abusive transactions? What do you think?

Mr. WILLIAMS. Mr. Chairman, I am aware of this committee’s

very hard work over the last couple of years. I think it is a very

hard problem that there are no easy solutions to. One person’s tax

shelter is another person’s pension plan. That is not to minimize

the instances where the law is manipulated in a way that it should

not be.

I think, specifically, the Internal Revenue Service at this point

has—and I am not in a position right now to really know this, but

I suspect that they have a lot of information that they could use

more effectively than they have in the past.

My experience in dealing with that institution over my career is

that they always ask for more information and have not used it as

effectively as they should. I would like to try to improve that.

Certainly, if there is a need, as there may very well be in certain

areas where the statute is crying out for amendment for this body

to act, I would certainly work with Assistant Secretary Weinberger

and this committee in whatever way I could to bring that to your

attention.

The CHAIRMAN. All right. Another question, is there is some

thought that the IRS is being outgunned by private litigants, like

you when you were in the private sector. That is, with very complex transactions that are put together to avoid payment of taxes.

Part of it goes to the question of whether our agents, those who

work at the IRS, are really up to it. I mean, paid compensation is

lower than they can earn on the outside. It is just a question of

whether or not we have got the firing power to deal with some of

this.

Mr. WILLIAMS. I did not outgun them, Mr. Chairman, I just had

better arguments. I was right on the law. I think the government
21

is not always right when it proceeds. Certainly, in the overwhelming majority of cases it is.

I think there are some circumstances where improved pay would

certainly help the institution develop and apply the law better. But

I think, by and large, the agents that I have dealt with on large

cases are very competent. They understand technical issues and

they are willing to deal with them.

The CHAIRMAN. But you are not concerned then about this

charge? You are not at all concerned?

Mr. WILLIAMS. I do not want to leave that impression with you,

Mr. Chairman. It is a concern. It has been an issue for a long time.

The CHAIRMAN. How do we solve it?

Mr. WILLIAMS. I think that there are a number of parts. One, is

the recruitment and the pay that can be offered to Federal employees who we need to be dedicated to this effort needs to be improved. I do not think there is any question about that.

You look at the starting salaries in the private sector, and they

are multiples of what the Federal Government starts people at. No

matter how dedicated you are, as one may be, to public service, I

personally understand because I had to leave public service for financial reasons the last time. I certainly understand that problem

and the drive that is there to take people away from public service.

That is one thing, obviously, that the Chief Counsel cannot do

much about. There is, I think, something that can be done in terms

of coordinating technical positions and educating agents, giving

more authority and power to the litigants, to the lawyers who litigate cases to develop the cases.

The tools are there, Mr. Chairman, I believe. I think there needs

to be better, more effective use of those tools in the audit level. The

Internal Revenue Service has enormous power, enormously intrusive power, to get information that it needs. I do not think they use

it as effectively as they should at the audit level. That is one.

Number two, once they get the information, how do they process

it? You have got to process it with an attitude which requires, I

think, not only technical education, but promotion of an ideal that

the Internal Revenue Service is in the business to help people comply with the law.

Yes, to enforce it where it is broken, but also to help people comply, so that the attitude is not, we are looking for a fight, but we

are looking to help you pay the right amount of taxes which this

Congress has said the taxpayers owe.

The CHAIRMAN. That is a good point. I urge you to follow up on

that one. Many people talk to me about how agents come in and

say, we are going to audit you, and keep auditing, and auditing,

and auditing until we find a $10 mistake. That happened, I know,

in a couple of cases. They finally found it, so they finally stopped

reviewing his books.

Mr. WILLIAMS. I have horror stories I could relate, too.

The CHAIRMAN. Yes.

Mr. WILLIAMS. I think, by and large, the institution does want

to do the right thing. To the extent that I can help them get there,

I would like to.

The CHAIRMAN. I thank you for that. I urge you very strongly to

move in that direction.
22

One other question for you, then I know Senator Grassley has

several questions.

That is the problem of the audit lottery. A lot of taxpayers know

that fewer and fewer Americans are getting audited. That is, the

lottery number is so low that they are probably not going to get

caught, therefore, there is a greater inclination to ‘‘fudge.’’ What do

we do about that?

Mr. WILLIAMS. Well, the easy answer is to say to increase audits

and increase resources. I think that the Commissioner’s attempt to

move toward filing electronic information processing, is part of that

solution. When I was at the IRS 20 years ago, they did not match

1099s with returns. Now, I did not know that before I got there.

The CHAIRMAN. That was done here.

Mr. WILLIAMS. When you stop and think about it, it is a fairly

simple thing to do. I mean, not simple to accomplish, but a simple

thing to think about that ought to be done. That is why one of the

things I said was, the information is there. It is not always used

very effectively.

I think a fear of being audited is always healthy. But the question is not just is a revenue agent there looking over your shoulder,

looking at your return, but does the agency have the tools necessary to match up what is being reported with what should be reported?

The CHAIRMAN. Thank you, Mr. Williams. We could go on forever, of course, but we will not. I urge you all success, because that

is a very tough job.

Mr. WILLIAMS. Thank you, Mr. Chairman.

The CHAIRMAN. Senator Grassley?

Senator GRASSLEY. Yes. I thank you very much, Mr. Chairman.

I do not have questions for all of you. Because I do not have questions for some of you does not mean that I think your work is less

important than the others, but I want to concentrate on just a few

items here.

I would ask Ms. Ohl a question, or maybe it is a reaction from

you more than a question. One of my largest concerns is at-risk

children, and particularly how, through the States, we give money

to the States. I have been primarily interested in restoring families

and moving children through the foster care system and into permanent homes.

One thing we hear from children that are in foster homes, is they

want permanency. We have got so many kids growing up to 18 and

going out into the cold, cruel world that have never had any parents. I think part of the problem is that we have had some perverse

financial incentives that have encouraged States to keep people in

the foster care system.

I wonder if you would give us your thoughts about that. Not necessarily that you agree with me, but I just want to know what your

thoughts are, and particularly if you believe that there are any perverse incentives in the present programs that we have.

Ms. OHL. Thank you very much, Senator Grassley. One of the

reasons, when I gave my statement, I concentrated on having run

a State system and I tried to show the amount of accountability,

that I had worked with the Governor and the legislature to build
23

into the child welfare system, I think that is the key factor in this

matter.

I think as a part of the Adoption and Safe Family Act, the Congress put in place a series of limits, time limits, that things had

to happen on cases with children in foster care. I think that has

been very, very helpful.

I also would say to you that, currently, the Child and Family

Service reviews are currently under way, looking at all of the State

child welfare systems. It is my understanding that 15 States were

done this last year, and they will then do the additional States over

the next 2 years.

These are very comprehensive reviews of the child welfare system, probably the best bird’s eye view of child welfare that the

Congress and HHS has probably ever, ever had. I think this will

be very helpful for all of us, looking at the way cases are being

managed, case work is being done at the ground level, looking at

where there are problems.

The Congress has invested a lot in data systems and looking at

what data is there, the caliber of the data, and how it is being utilized so we know what is happening to children. We need to move

children to permanency. As I said, in West Virginia we had ‘‘Every

Child Deserves a Family.’’ I could not articulate that more strongly.

I think we have in place, with the Child and Family Service reviews, a way to be reporting to Congress on an ongoing basis of the

current status of child welfare, working with the States in ways to

make improvements in the system. I pledge to you to be a very active participant in that process.

Senator GRASSLEY. Thank you very much.

Mr. Lockhart, I want to ask you some questions that are probably not questions—maybe a couple of questions—that have had

some prominence because of the terrorist activities and terrorists

getting Social Security numbers legally. But this was an issue even

before September 11th, so I do not want to just focus upon terrorists getting it.

In fact, I had asked for a General Accounting Office report—and

we have gotten it back, or at least a preliminary position on it—

and they have said, as far as the Social Security Administration is

concerned, ‘‘there does not seem to be a program or an entity’’—if

this is wrong, you can clarify it—’’that seems to be centering upon

the illicit issuing of Social Security numbers.

Not that nobody is concerned about that, or should not be concerned, but there is not a concentration on that. That is in regard

to false identity and a lot of other things that have been out there.

We have had the Social Security Administration Inspector General report that Social Security numbers have been issued to individuals based on counterfeit evidentiary documents. One audit revealed 999 of 3,557 original Social Security number applications reviewed were approved based upon improper evidentiary documentation.

Once a Social Security number has been issued, the Social Security Administration has little ability to prevent or curtail the use

of that Social Security number in committing further fraud.
24

So a very general question. How would you approach this in your

new responsibilities to stop the Social Security Administration from

issuing numbers based upon counterfeit documents?

Mr. LOCKHART. Senator Grassley, I really do share your concern.

It is a very serious issue, the misuse of Social Security cards and

numbers, with not only identity fraud, but obviously the fact that

some of the terrorists had Social Security numbers is extremely upsetting. The Social Security Administration issues 5 million new

numbers a year, and 11 million replacement cards a year.

I have discussed this with the Inspector General at the agency,

and certainly he, as you know, is very concerned as well and is

working on this issue. Certainly when I get there, I will work with

him and other people in the agency to look at it.

I think there has been an emphasis to get the cards out, to get

the numbers out quickly, concentrating on the service aspect of it

rather than the stewardship aspect. We have to seek a better balance and be more accurate when we look at the documents.

We have to work with the other agencies involved, and particularly INS, and we are starting to do that, to make sure that the

documents that we look at are real.

Senator GRASSLEY. All right.

Mr. Lawson, I think, under your jurisdiction you have a lot of

law enforcement, ATF, Secret Service, Customs, FINSIN, as we call

it, and I think IRS Criminal. At least that many. Is that right?

Mr. LAWSON. That is correct.

Senator GRASSLEY. Now, this is directed more towards just what

has happened since September 11th rather than the long view of

your work. I ask it, because as I recall from reading reports of Federal efforts to investigate terrorism, a lot of your people’s time will

be spent more on that than maybe prior to September the 11th.

Also, I know the FBI is doing the same thing, putting a lot of effort

into that.

Would you describe how you see your work and the work of

agents that you are responsible for in the fight against terrorism,

whether it be Secret Service, or whether it be Customs, or any of

that?

Mr. LAWSON. Senator Grassley, just briefly, I would see my role

as the Assistant Secretary, if I am confirmed, working with coordinating our bureaus together. If you remember from last week with

Operation Green Quest, we had our bureaus working together to

block terrorist accounts which were identified across this world.

Sir, I believe, as Assistant Secretary, I will provide the leadership in directing these bureaus with OFAC, Secret Service, Customs, in finding and identifying these accounts so we can block

them and stop them from utilizing these funds to fund terrorist activities.

In the time where you got your appointment and then some period of time before you come up here to be with us, I presume you

have been interacting with people within the Department, or your

division. Since September the 11th, do you feel like this has a real

high level of concern within your division of Treasury?

Mr. LAWSON. It is the most important thing we have to do.

Senator GRASSLEY. My staff is on top of things here. I can never

read my staff’s writing. In fact, sometimes I cannot even read their
25

printing. [Laughter.] But here is another issue that does not involve just Treasury or just your responsibilities within Treasury.

Maybe I have talked more about this with FBI and other agencies. But I am very interested in your department’s willingness to

share with other departments, as I am interested in Justice and

FBI sharing with other departments.

And I am not talking just about Justice or just about Treasury,

because this is within government a lot. In fact, there has even recently been some talk about, has the FBI been cooperating enough

with the Centers for Disease Control in regard to anthrax and

some other bioterrorism, as an example.

My question comes from what I feel is too often a problem of

agencies not being ill-intended or anything, but that somehow we

have our responsibilities, and we have our work, and we have our

information, and that is true of an attitude throughout government, to a point where what you might have in your department

could be helpful to some other department.

Now, maybe there is a lack of communication, but also maybe

there is a barrier built up about, we have got our work, we have

got our information, the other department has got their work, they

have got their people, let them get their information, to a point

now where maybe there has not been enough sharing of information, enough communication, so that the right hand of government

knows what the left hand has been doing.

Or the way I would say it, is instead of this department saying,

this is my work and we have got our people and our information,

let the other department get their information, they have got their

work and their personnel, instead of, it is FBI, it is Treasury Department, and it is this agency, or that agency. It is like the American people, or who we are working for, does not mean anything.

But we are all working for the American people. We are all Americans. We are all trying to get everything done.

Do you, within the law, have any problems with making sure

that you share all the information you can with other agencies to

get the job done, or do you think that this is not a problem? You

can say, Chuck Grassley, I do not think that you have described

the problem we have got in government, if that is what you believe.

But I want to ask you. If I have not been clear, tell me, and I will

ask it again.

Mr. LAWSON. Sir, you have been crystal clear. To be candid with

you, I am a team player. We have one team here, and that is our

country. My belief, if I am confirmed—forget being confirmed, being

an American—I believe we should share as much information between bureaus as possible under the law.

If I am confirmed as the Assistant Secretary, any information I

have in my files, any information my bureau has, under the law,

whatever I can provide, I want to provide quickly and efficiently.

Senator GRASSLEY. All right.

Just a further explanation. For instance, again, this is the FBI

and not anybody in Treasury. But because they are spending so

much more time on terrorism and it is such a big job and they are

asking local law enforcement to help them, but the chiefs of police

were saying, well, the FBI wants our help but they will not share

information with us. It got to a point where chiefs of police met
26

with Mr. Mueller, and I think there is going to be greater cooperation.

But this is a common concern of local law enforcement, that the

FBI has got information and they will not share it, so how can you

get the job done of getting those who are violating law arrested, get

them under control, get to the problem.

So I think you expressed a good attitude. I appreciate it very

much.

I believe, Mr. Chairman, that is the end of my questions.

The CHAIRMAN. Thank you very much, Senator. I appreciate your

digging into those questions.

I guess, Ms. Hale, I will ask you my question. The question really comes down to the TANF program. We are going to be reauthorizing the program next year. As you know, we replaced FDC with

the block grant program. It is working, in some areas, quite well.

But one area that is a bit of a question, is with respect to Indian

tribes. As you well know, some tribes would like to receive the

grants themselves and not have to work through States, the argument being that each area is a little bit unique. Why skim money

off the top?

Your thoughts about that.

Ms. HALE. Mr. Chairman, I have not yet had an opportunity to

study in depth the TANF program. I know that the department

now, with my colleagues at ACF, are starting to develop the reauthorization.

Both Secretary Thompson and myself have been very concerned

about the Indian nations and their rights, so I think that I can

speak for both of my colleagues that are not here, and probably one

sitting here, that we will take a very particular look at that as we

are developing the reuathorization. I know the department is starting to work on that as we develop a proposal to submit to the Congress in February.

The CHAIRMAN. Ms. Ohl?

Ms. OHL. Mr. Chairman, even though this would not be under

my purview if confirmed, I can tell you that there have been a series of listening sessions that the Secretary has convened around

the country in order to, in effect, listen to States as well as they

did one with the tribes.

I will tell you, I attended the one in New York and it is truly

a listening session. So, Federal officials have an opportunity to

hear from the States, the tribes, the advocates, recipients, what

their thoughts and ideas are on how TANF has worked, and their

thoughts and ideas of things that need to be addressed in reauthorization.

The CHAIRMAN. It is my experience in working with tribes,

States, and Federal programs that that is a direction we should not

move in. Neither are working out compact agreements between

States and tribes, or more directly, the tribes.

But the governance at many tribes is quite good. It is very good.

And they do know the problems and they do care deeply about

their people. I just think it is a lot more efficient. It gives them

confidence in themselves, gives then statute, more efficient use of

dollars.
27

I just urge you to think very strongly about ways to help make

that happen in different ways, and what seems to be working best

and most efficiently. In my experience over the years, that is a

good direction to work toward.

Ms. HALE. We will review that very carefully as we are finalizing

that proposal.

The CHAIRMAN. Thank you.

As you probably also know, there is some concern among members of the Senate about the length of time it takes to process, particularly, disability claims. In my home State in Montana, I have

a lady, Marilyn Nelson, who is in charge of Social Security, as well

as disability claims.

She just took it upon herself to go around Montana and talk to

the various Social Security offices and to see how she could help,

how they could help. There were delays up to 3 years to claimants,

and that, clearly, is inexcusable. I mean, that is years too long. A

month is probably too long, in some cases. Not all, because there

are certain administrative procedures you have to go through.

But I asked Ms. Barnhart when she was here before our committee if she would give a report to us on what needs to be done,

both administratively and legislatively, to solve the backlog problem. Maybe Mr. Lockhart is the proper person to direct this to. You

are, in fact, But she said that she would get back to this committee, I think, by March 31st. I think that was the date.

I would just like to comment on that if you could, Mr. Lockhart,

and how that analysis is coming along. You may not know because

you are not there yet, and she is. But that is very important to this

committee, and more important, obviously, to the people we serve.

Mr. LOCKHART. Yes. Commissioner Barnhart was just sworn in

officially yesterday, so she is in place. Certainly, I share with her,

and with you, Mr. Chairman, the concern that in some cases it

does take up to 3 years to get a disability payment finally agreed

to. That really is much too long. The process is much too long.

The agency, I think, historically has had a lot of initiatives to try

to speed it up. Some of them have worked, some of them have not.

There is a lot of activity going on.

As part of this 6-month review, the March 31st date that she

agreed to, we will certainly look into all of the things that have

been done in the past and look at how we can speed the process

up, look at what resources we need to speed it up, because it is

really unacceptable at this point.

The CHAIRMAN. Have you had a chance to talk to her at all on

how that is coming along? Not that you should, but I am just curious.

Mr. LOCKHART. Well, again, she has really just, unfortunately,

joined this week. But I know it is one of her top priorities. She is

just in the process of putting a new person in charge of that area.

The CHAIRMAN. I encourage you to move very diligently. This

committee will be holding quite extensive, and perhaps aggressive,

but in the best sense of the term, oversight hearings next year on

a wide variety of subjects in the jurisdiction of this committee.

That is not something that gets a lot of headlines, but frankly

I think it is something that is needed so we can all help each other

serve our people. So there might be some tough questions asked,
28

but not with a view toward embarrassing anybody, unless that is

deserved, but rather a view toward stepping up.

I am not one to criticize government. I am not one to criticize

Federal employees. I think that is wrong, it is counterproductive,

it is too much of a cheap shot, et cetera. But I think it is true that

too often Federal employees do suffer a little bit from ‘‘inside-thebeltway-itis.’’ I think it is extremely important to just get out and

travel, see people, talk to people. You get a lot better sense of

things. New ideas, and so forth pop up.

Sometimes, because of that problem, I think a lot of people want

to do the right thing here in Washington and Baltimore, et cetera,

but they just kind of see things with blinders on. They just do not

have the ability to see beyond the way to solve this more quickly.

Mr. LOCKHART. It is a very serious problem and we will certainly

be working on it. As I said, it is one of the top priorities. I have

a disabled niece and a disabled nephew. Certainly, disability is an

area that concerns me a lot, and I know it does Commissioner

Barnhart. It will certainly be one of our top priorities.

The CHAIRMAN. All right.

Mr. DAUB. May I just add what you know, I am sure, Senator,

and the staff knows, that the Social Security Advisory Board has

done a particularly good job, I think, at looking carefully at the

issue of disability. They have done extensive data collection, a lot

of field work, extensive policy analysis, reflecting the Board’s mandate to give you information and understanding of this issue.

As the baby boomer generation that we are so concerned about

ages, the number of disabled will grow. I alluded in my opening

statement to the size of the disability program. It eats $5 billion

of the $7 billion of administrative costs. It is 5 percent of the Federal budget, and it is a complicated, slow process. It is in need of

reform.

I skipped in my statement emphasizing that one area where we

wanted to be as helpful as we can in the oversight and the work

that you are going to be doing, reflected by the number of bills that

have been introduced by you and others, is to make sure that those

who are in need of timely and fair decision making will receive it.

The problem is that reform is needed, and the system needs to

be fixed. So, we want to be helpful to the committee as well.

The CHAIRMAN. I urge you both, during the next several years as

we get closer to some solutions on retirement generally, Social Security, personal savings, and pension funds, et cetera, and I know

you will do this, but just a reminder, is to stay just religiously nonpartisan.

Sometimes partisan statements really do get in the way. It is one

thing for a member of Congress to get partisan. It is sort of the nature of the beast, which we should minimize, frankly. But it is also

something else when a Social Security Administrator, Deputy

A.administrator, somebody on the Advisory Commission, makes a

partisan statement, too. That just gets in the way.

I think the American people think, my gosh, that person is heading up Social Security, or is Deputy Commissioner of the Advisory

Board. That person is there for us, not there to serve a political

perspective or political point of view.
29

I just urge you to follow that religiously, and to push back if

somebody tells you, hey, you are getting partisan here. You will

have the support of this committee to be totally nonpartisan.

Mr. DAUB. One of the great attractions to me when the subject

was raised, Mr. Chairman, of whether or not I would want to continue in some way to render public service—which I find enormously compelling, as I know you do—was the idea that the last

report of this board, with its divisions structured by the Congress,

was unanimous in a true nonpartisan, or if you will, bipartisan,

fashion. It is the only way Social Security is ever going to get fixed.

The CHAIRMAN. Well, I am going to try something a little novel

here. One of the things that I think somewhat frustrates all of us,

is our country is so big, we are so blessed, it is such a wonderful

country that we happen to be citizens of.

But sometimes our different government agencies serving people

get a little stove-piped. We have economic policy in the Treasury

Department, we have Enforcement, we have IRS, we have HHS,

and the various departments in Social Security.

You have all heard different comments by different nominees

here. All of you are going to get confirmed and you are going to do

a great job serving our country.

Do any of you have any advice for any of the others? [Laughter.]

Here is your opportunity. Any thoughts on how we can kind of

work together here? We have a great team. So it is in your individual areas, but also working together.

Mr. DAUB. I will just quote a quote when I was confirmed and

sworn in as a member of Congress and was interviewed in Time

magazine many years ago, Senator. They asked me what I thought

would happen at the end of my career some day. I said, well, if

there is an epitaph to be written, it will be known that I had a

good staff.

The CHAIRMAN. Believe me, I know how important that is.

Ms. OHL. Mr. Chairman, one of the things that I would say, is

that September 11th clarified a number of things. I think that

going forward, how it is that we bring the best minds of the government, as well as the best minds of the private sector, around

the table in order to work together, whether it is Treasury, Social

Security, whatever, in a focused type of way, is what we need to

be doing on behalf of the people of America.

The CHAIRMAN. Well, I appreciate that. That is a good point. I

know of people who are not going to run for higher office. That is,

not the Presidential level, but the House and the Senate, but for

September 11th. When that happened, boy, they wanted to step up.

Ms. OHL. I also think that I know, for instance, at HHS we have

had within some of the conference rooms Congressional staffs, as

people were unable to be in various buildings that they used to occupy. So I think, increasingly, both as we focused on some of the

issues post-September 11th, I think there will be much more, hopefully, integration across.

I also would say one thing. I come from a State level. As I said,

I came from a rural State. I think it is most important that we out

and about in the country and listening to what people are saying.

What it is that our programs do is only as good as it is effective

at the community base level.
30

The CHAIRMAN. Good advice.

Others?

Ms. HALE. I would just follow up. I was fortunate, post-September 11th, to go down to CDC and see the ability of HHS’s agencies working with the State and local public health authorities. So

we have worked within our department, we have worked with the

State and localities, we have much more to do.

But we have also found that HHS has not normally been in the

national security arena, and we have now found ourselves much

more reliant on Justice and Treasury. I would share what my colleague just said, that we have worked, I think, strongly with the

Congress—at least those in the department—and need to continue

to exchange the information so that we can make a difference.

Mr. WILLIAMS. Mr. Chairman, I would give some advice to myself

more than anybody else. Basically, to not become parochial. In

these positions, I think it is very easy to get focused on the particular problems within the agency and to lose sight of a broader

perspective, particularly in tax policy, for example. You can get so

focused on what the proper tax policy is, that you lose sight of how

it affects people in a broader way.

I think, whether it is tax policy, or social policy, or retirement

policy, it is really important and it sort of echoes the thought that

you should get out and talk with people, as Senator Grassley was

indicating in his concerns about government not sharing information with one another.

In these positions, in the leadership positions, you have got to be

able to step back and just remind people that we are there to serve

the entire American public and not just the particular interests of

the agency.

The CHAIRMAN. That is a very good point. It reminds me of my

first or second week of law school. The dean said to all of us—and

I think this is true for everything we do—you have to look at your

studies here through both a telescope and a microscope. I think

that is good advice for all of us.

Mr. DAUB. Missions change. Whoever thought that the postal

system would have ever had to be viewed as a security agency? As

we look at all the people that are here today ,thinking about what

the larger interconnection is, with your first challenge to us with

this wonderful dialogue, which I found very refreshing and interesting, that we all think differently about how we get along, share

information, and work together on problems we never thought

maybe fit in our stovepipe.

The CHAIRMAN. Mr. Lawson?

Mr. LAWSON. Mr. Chairman, he is correct. The best advice I received was from Chief Justice Elizabeth Kovakavitch in Florida.

She said, we have to think out of the box in this war. Our enemies

have attacked us in creative ways. We must be just as creative,

just as cunning, and not just think as we did in, say, 1970, 1980,

1990, or 2000. Let us reach out beyond ourselves.

The CHAIRMAN. Well, that is all good advice. I can tell by listening to all of you that you have got your hearts set for the right reasons. We are all very lucky—without being too corny about this—

to be Americans.
31

We have such resilience in this country, such a can-do, positive

attitude, and we are so blessed compared to the people around the

world. It is just up to us to take advantage of that by doing the

right thing and just building on those strengths and on those values.

Mr. Clarida?

Mr. CLARIDA. Chairman Baucus, if I might, since you gave us

this really special opportunity, I would just say that going through

this experience being nominated, and through this hearing, especially following the events of September 11th, I must admit I did

receive some phone calls, both from friends and people in Washington, saying, are you going to take the job? There was never a

doubt in my mind. In fact, if anything, I was more determined to

do so.

Also, just to say that one thing that is so clear to me, actually,

going through this, which I think is a very positive feature of our

system of government, is that we really do have the President and

the Congress.

So often the press might associate a policy with an individual,

but really we are talking about the people’s policies. To get anything done, it is really not about the individuals, it is about working together. I certainly look forward to being part of that, if I am

confirmed.

The CHAIRMAN. Well, thank you.

I wish you all the very best of luck. I know you have very rewarding times. Sometimes it can be a little frustrating. You might

wonder, why in the world did I take this job? But, all in all, it is

going to be very rewarding.

Besides the oral questions that I and Senator Grassley have

asked, you might be given some written questions. If so, I urge you

to respond very quickly so that we can get your nominations to the

floor and get you working.

Thank you very much. The hearing is adjourned.

[Whereupon, at 2:55 p.m. the hearing was concluded.]

(33)

A P P E N D I X

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF RICHARD H. CLARIDA

Chairman Baucus, Ranking Member Grassley, and Members of the Committee, I

am grateful for the opportunity to appear before you today in connection with my

nomination to be Assistant Secretary of the Treasury for Economic Policy. I am

truly honored that President Bush has asked me to serve in this important position,

and I thank you for the privilege of appearing before you today.

Mr. Chairman, I have a deep and genuine respect for public service, and in particular for the advise and consent role of the Senate in the confirmation process.

If I am confirmed, I look forward to working closely with this Committee, the Senate, and with members of the House of Representatives on addressing the important

economic issues that face our nation at this time.

Before proceeding any further, I would like to take this opportunity to thank my

parents, William and Edith Clarida, for teaching me the values of hard work and

persistence that have brought me before you today. I would especially like to thank

my dear wife, Polly Barry, and two fabulous boys, Matthew Quinn and Russell William, for providing the support and encouragement I will surely need to do this job,

support and encouragement that they offer knowing that it means that their father

and husband will be away from home for the next several years.

When I was growing up in a small town in downstate Illinois, the son of a public

school teacher, I could not have predicted that I would find myself honored with the

nomination to be Assistant Secretary of the Treasury. After graduating from public

high school, I attended the University of Illinois at Champaign-Urbana, where I followed a rigorous program of study in economics and mathematics. I was accepted

to Harvard’s graduate program in economics in 1979, and earned my Ph.D. in 1983.

In the 18 years since then, I have been a professor of Economics, first at Yale, and

since 1988, at Columbia, where I am presently a tenured full professor of Economics

and International Affairs (on leave). From 1997-2001, I was Chairman of the Department of Economics at Columbia.

I was fortunate to be in public service from 1986-1987, when I was a senior staff

economist with President Reagan’s Council of Economic Advisers. I had the opportunity to work closely with the Chairman and the Members of the CEA on a wide

range of economic policy issues, a background that I think will serve me well if I

am confirmed as Assistant Secretary for Economic Policy.

I support President Bush’s economic philosophy and his policy agenda for returning the economy to a path of robust, sustainable growth. I am also eager to join the

truly first rate team that President Bush has put together at Treasury, including

Secretary Paul O’Neill, Deputy Secretary Ken Dam, and Under Secretaries John

Taylor, Peter Fisher and Jimmy Gurule.

Thank you once again Mr. Chairman, for the privilege of appearing before this

Committee. If confirmed, I can assure you I will work closely and enthusiastically

with you and the Members of this distinguished committee in the month and years

to come. I would be pleased to respond to your questions.
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RESPONSES TO QUESTIONS FROM SENATOR GRASSLEY

Question 1: As Assistant Secretary for Economic Policy, your job will be to report

on current economic conditions and assist in the development of appropriate economic policies.

As you are aware, there has been a lot of discussion lately about the need to

‘‘stimulate’’ the economy. Some people say we should stimulate consumer spending

by putting money in people’s pockets. Other people say we should stimulate business spending by reducing taxes on investment.

Regarding these two options, I would like you to comment on a statement by

Steve Entin, who was Deputy Assistant Secretary for Economic Policy at the Treasury Department in the Reagan Administration.

According to Mr. Entin, ‘‘tax cuts do not work by giving people money to spend...

Because when taxes are cut, the government immediately borrows the money back

from the public (or pay down less debt) to maintain its own outlays, wiping out the

increase in provate spending power. Ditto for an increase in government spending.

Keynesian stimulus is a myth.... Tax cuts work only changing incentives

. . . . by increasing the reward to incremental hours worked, or to incremental

purchases of plant, equipment, buildings, etc.’’

What are your views on this issue?

Answer: My reading of the economics literature leads me to the following observations regarding the effect of tax cuts on the economy. Cuts in marginal tax rates,

especially those that are long lasting, do have significant effects on consumption,

savings, and entrepreneurial effort. It should be remembered that millions of small

businesses pay taxes at the individual rates, so a cut in marginal income tax rates

encourages small business formation, investment and employment though the supply side.

Question 2: Do you believe, given our current economic conditions, that if people

save their money it won’t be invested because there are no new investment opportunities available?

Answer: It is difficult to predict in advance and with precision how much of a particular tax cut will be spent and how much will be saved. The economics literature

suggest that this will depend on the extent to which households think the tax cut

is long lating; if so, more will be spent than if households think the tax cut is temporary. Most likely, some of the tax cut will be saved, but certainly not all. The

extra saving will support some combination of a rise in investment at home and a

reduction in the current account deficit (a rise in net foreign investment abroad).

PREPARED STATEMENT OF HON. HAROLD J. DAUB, JR.

Mr. Chairman and Members of the Committee, I am honored to be here today as

nominee of the President to be a member of the bipartisan Social Security Advisory

Board. As you are aware, the President has announced that should I be confirmed,

he will designate me to serve the Board as its Chairman.

May I introduce to you my wife, Mary, who is present with me at this special occasion.

The Congress created the Social Security Advisory Board in 1994 in order to provide an independent and objective source of advice and assistance for the Congress,

the President, and the Commissioner of Social Security. The history and tradition

of the Board has been to work on a bipartisan, or perhaps more accurately, a nonpartisan basis, to provide information and recommendations regarding critical

issues facing the Social Security programs—more than 20 comprehensive publications since 1996 in fulfillment of the Board’s statutory mandate. I want to assure

you today that I am committed to carrying out—and building upon—this important

tradition.

This is a challenging time for Social Security. The Social Security actuaries

project that by 2038 there will not be enough money in the Social Security Trust

Funds to pay the benefits that will be due under current law. The Congress will

have to make difficult choices to ensure that workers now and in the future will

have a social insurance system upon which they can depend. Both policy makers

and the public will need objective data and analysis to make informed decisions. If

confirmed, I will do everything I can to see that the Social Security Advisory Board

will be prepared to assist you.

I also am committed to continuing the important work the Board has undertaken

to improve the capacity of the Social Security Administration to provide the effective, efficient, and compassionate service that the public needs and deserves.
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As a former Member of Congress, particularly because of my service on the Ways

and Means Committee and its Social Security and Health Subcommittees, and as

a former Mayor of Omaha, I have learned how important it is for government institutions to be responsive to the needs of the public they serve and for those responsible for making policy to understand clearly the facts and circumstances that contribute to the making of wise and workable public policy. This is particularly true

for Social Security. People turn to Social Security at critical times in their lives—

upon retirement, disability, or death. How Social Security responds to their needs

affects not only their personal well being and that of their families, but their attitude toward government as well. Social Security must be able to provide the service

they need if they are to believe that government is effective.

Over 45 million individuals rely on the processing and payment of benefits from

social insurance proceeds for retirement, survivors and disability benefits. The total

outlays for 2001 are estimated to be more than $400 billion, against an income of

approximately $600 billion. The estimated fund balance is more than $1 trillion. The

administrative work is being done by an aging Social Security work force of approximately 64,000 employees at an administrative outlay of more than $7 billion, $5 billion of which is for the administration of the growing disability assessment and payment system which dispensed about $90 billion in the year 2001, or nearly 5% of

our total Federal budget. The Supplemental Security income (SSI) system is also administered by the Social Security Administration network and served more than 1.5

million new applicants last year.

As you know, approximately 3.4 workers support one retiree in our present system. Self-employed workers pay a total of 15.30% of their total taxable earnings into

the system. For an employed worker, add old age and survivors insurance of 5.3%,

plus disability insurance of .90%, plus health insurance of 1.45%, with the employer

matching those amounts, for the same total tax cost. Approximately 154 million

workers pay Social Security taxes. A retiree’s average check in 2002 will be $874.00

and the Part B physician’s premium will be $54.00 per month—that is the contribution each covered retiree pays as a co-payment for that coverage, up 2.6% over 2001.

Today, one of Social Security’s most critical delivery systems shortfalls is in the

area of disability. As the Board’s reports have shown, Social Security’s complex disability programs need reform if those who are disabled are to be assured of fair and

timely decisions. As the baby boomers age and file for disability benefits in increasing numbers the problems in the system will rapidly become more acute. It is important that they be addressed as promptly as possible.

Mr. Chairman, I believe that Social Security has underpinned the stability of middle America and gives critical resources to those who earn less in our society during

their lifetime.

We can work together to fashion those improvements in this program that enhance benefits and strengthen the financial foundation upon which future generations can depend, just as has been accomplished for those who have retired since

this program’s inception.

Mr. Chairman, it would be an honor and a privilege to have the opportunity to

be part of the effort to address these and other critical issues confronting Social Security and the Social Security Administration. If confirmed, I look forward to the

challenge of helping to carry out the broad mandate that the Congress has given

the Advisory Board. We will stand ready to help you in any way we can.
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RESPONSES TO QUESTIONS FROM SENATOR BAUCUS

Question 1: Do you envision making any changes in the way the Social Security

Advisory Board has been run?

Answer: No. I have studied the Board and read its Minutes since 1996 and believe

that the Board has been managed quite effectively and selected its projects quite

carefully to provide helpful and in-depth policy information and discussion. It may

be useful to add one additional staff person, a trained economist, which would allow

more creditable independent analysis but this or any other change would certainly

have to be with the concurrence of my Board colleagues.

Question 2: You have indicated to my staff that you would like the Social Security

Advisory Board to be ‘‘aggressively proactive’’ in the coming debate on Social Security financial reform. What do you mean by ‘‘aggressively proactive?’’

Answer: I refer you to my written testimony attached, and in particular, page 1,

paragraphs 2 and 3. They precisely convey my meaning of being aggressively

proactive. I am very interested in this assignment and believe I owe everyone my

dedicated time and effort, and not just a trip to a 6 hour meeting once a month.

I’d like to be an active Chair, inputting leadership and ideas and being responsive

to the charges carefully spelled out in the 1994 legislative act establishing this Advisory Board. This non-compensated position should be real, not superficial, in terms

of the work necessary and expected.

Question 3: In recent reports, the Social Security Advisory Board has identified

serious funding and staffing challenges that need to be addressed if the agency’s important service responsibilities to the public are to be fulfilled (especially in the Disability program). Do you plan to work with the other Board members to further develop the Board’s important contributions in this area?

Answer: Yes, and again I refer you to my written testimony. My goal will be to

continue the positive contributions to policy discussions by focusing the Board’s efforts not only on ways to improve operations of the Social Security Administration,

especially the Disability program and the delivery of services to the public, but as

well to explain the program’s financing challenges and options in a scholarly and

academic fashion so that policy makers can make their decisions in a timely fashion.

Question 4: Since its inception, the Social Security Advisory Board has been able

to make many positive contributions to policy discussions by focusing its efforts on

ways to improve the operations of the Social Security Administration and the delivery of services to the public. At the same time, it has limited its work on solvency

issues largely to explaining the program’s financing challenges and options for reform in an effort to improve understanding among policymakers and the public.

This has been a sensible decision given the attention devoted to solvency issues in

other arenas, such as the President’s Social Security commission. This also has been

important because the resources and time of the Social Security Administration’s actuarial and policy staffs are already taxed by the needs of the President, members

of Congress and others in developing and evaluating reform proposals. To date the

Board has provided a great service to this Committee and others by concentrating

on important but neglected policy issues related to program operations. Do you foresee continuing that same focus for the work of the Board, or do you have plans for

the Board to broaden its focus?

Answer: I have no plans for the Board to broaden its focus. I plan, with Board

concurrence, to review the funding and staffing deficiencies that have been identified by the Board’s study to date with Commissioner Barnhart, the Administration,

and with House and Senate Committees of jurisdiction to assess progress that has

been made to underscore more urgent as well as longer term needs. I also plan to

seek expert opinion that may confirm prior recommendations unfulfilled, or suggest

modifications and new approaches from a public policy point of view. The current

Board is very well experienced, and possesses substantial institutional knowledge,

and this consultative process will take some time to conclude. Administrative efficiency, telephone response, accuracy of benefit calculations, and identification and

privacy issues are serious and worthwhile efforts for the Board to continue to focus

upon. In so doing, the Board brings to light those issues upon which policy choices

need to be made and upon which the agency, the Administration, and the Congress

can act with more insight. While there are other reliable sources of information and

analysis, my goal would be to continue the positive work of the Board and to insure

the dependability of the information that we present to you.

RESPONSES TO QUESTIONS FROM SENATOR ROCKEFELLER

Question 1: In recent reports, the Social Security Advisory Board has identified

serious funding and staffing challenges that need to be addressed by the Social Security Administration, the President and Congress if the agency’s important service
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responsibilities to the public are to be fulfilled. How do you plan to work with the

other Board members to further develop the Board’s important contributions in this

area:

Answer: I have no plans for the Board to broaden its focus. I plan, with Board

concurrence, to review the funding and staffing deficiencies that have been identified by the Board’s study to date with Commissioner Barnhart, the Administration,

and with House and Senate Committees of jurisdiction to assess progress that has

been made to underscore more urgent as well as longer term needs. I also plan to

seek expert opinion that may confirm prior recommendations unfulfilled, or suggest

modifications and new approaches from a public policy point of view. The current

Board is very well experienced, and possesses substantial institutional knowledge,

and this consultative process will take some time to conclude. Administrative efficiency, telephone response, accuracy of benefit calculations, and identification and

privacy issues are serious and worthwhile efforts for the Board to continue to focus

upon. In so doing, the Board brings to light those issues upon which policy choices

need to be made and upon which the agency, the Administration, and the Congress

can act with more insight. While there are other reliable sources of information and

analysis, my goal would be to continue the positive work of the Board and to insure

the dependability of the information that we present to you.

Question 2: You have served as an elected official at various levels, and how will

this experience effect you leadership on the Social Security Board?

Answer: I was privileged to be elected four times to the United States House of

Representatives, to be a member of the House Ways and Means Committee and to

sit on its subcommittees on Social Security and Health, and to be elected twice to

serve as Mayor of our Country’s 43rd largest city. Those experiences have taught

me many things, with respect to leadership, but most importantly, to do one’s homework, seek expert advice and counsel, listen intently, be respectful of and include

all of your colleagues in the decision making process, be open, as I am to all ideas

and suggestions, and insure efficient, prompt, and professional staff work. Openness

and truthfulness, coupled with accuracy and promptness, enhance the credibility of

all of those who serve in public office, be we elected or appointed. We will acquit

ourselves well. I believe in consensus building, in appropriate compromise and in

the virtue of civility, comity and patience. I have no personal issue agenda, and certainly no desire to seek elective office again. And because of my privileged prior public service, particularly in Congress, I believe I understand better than most Board

or Commission appointees, what individual members need and expect from these

kinds of consultative, advisory organizations. We leave the politics of these issues

to the elected officials—not that political considerations should ever be absent from

one’s policy awareness.

RESPONSE TO A QUESTION FROM SENATOR CONRAD

Question: In recent reports, the Social Security Advisory Board has identified serious funding and staffing challenges that should be addressed by the Social Security

Administration, the President and Congress if the agency’s important service responsibilities to the public are to be fulfilled. How do you plan to work with other

Board members to further develop the Board’s important contributions in this area?

Answer: I have no plans for the Board to broaden its focus. I plan, with Board

concurrence, to review the funding and staffing deficiencies that have been identified by the Board’s study to date with Commissioner Barnhart, the Administration,

and with House and Senate Committees of jurisdiction to assess progress that has

been made to underscore more urgent as well as longer term needs. I also plan to

seek expert opinion that may confirm prior recommendations unfulfilled, or suggest

modifications and new approaches from a public policy point of view. The current

Board is very well experienced, and possesses substantial institutional knowledge,

and this consultative process will take some time to conclude. Administrative efficiency, telephone response, accuracy of benefit calculations, and identification and

privacy issues are serious and worthwhile efforts for the Board to continue to focus

upon. In so doing, the Board brings to light those issues upon which policy choices

need to be made and upon which the agency, the Administration, and the Congress

can act with more insight. While there are other reliable sources of information and

analysis, my goal would be to continue the positive work of the Board and to insure

the dependability of the information that we present to you.
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PREPARED STATEMENT OF JANET HALE

Mr. Chairman and Senator Grassley, it is an honor to appear before you and the

distinguished Members of this Committee regarding my nomination as Assistant

Secretary for the Department of Health and Human Services. I hope this marks the

beginning of a close and productive partnership in which we work together to improve both the Department and the people we serve. I have worked with several

of you and your staff before and I look forward to doing so again.

I was deeply honored to be nominated in May for this position—but the importance of this position and the tremendous value and service that the Department

of Health and Human Services provides struck home for me and for so many people

after September 11th—the dedication of the employees, the mission of the Department and the opportunity to serve the American people as we protect the public

health is paramount. From the Secretary himself, to Office of Emergency Preparedness and the Public Health Service, NIH, CDC, SAMHSA, Aging, CMS—each and

every part of the department has played a valuable role. I look forward to playing

my part in these efforts, should the Committee confirm me for this position

The position of Assistant Secretary for Budget, Technology and Finance embraces

budget formulation and execution, financial policy and accountability, and information resources management. I have been fortunate in previous public service to have

done similar work. I served in a number of budget and management positions in

the Executive Branch agencies and at the Office of Management and Budget. I

served as Deputy Assistant Secretary for Housing at the Department of Housing

and Urban Development, Assistant Secretary for Budget and Programs at the Department of Transportation, and as Associate Director at the Office of Management

and Budget. Hopefully, having been through the budget formulation and execution

process and providing oversight management from three different perspectives—the

program level, the department level and OMB—I can foster a more effective and efficient approach to carrying out these functions at HHS. As Executive Vice President of the University of Pennsylvania and as Associate Administrator of Finance

for the House of Representatives, I have overseen the development of new financial

systems, one of Secretary Thompson’s priorities.

My background and combination of experiences has prepared me to meet the challenges and confront the substantial issues that face the Department of Health and

Human Services, and which are also so important to this Committee. I look forward

to the opportunity of carrying out the management reforms proposed by the President and begun by Secretary Thompson, and working with each of you to implement

the ideas and suggestions of this Committee.

Secretary Thompson is committed to creating a more unified Department of

Health and Human Services with a shared mission and goal to serve the people of

this great Nation. I enthusiastically support this goal and look forward to confronting the challenges that lie ahead, such as directing resources to the highest

performing programs and using information technology to bring better government

services to the public at reduced costs. Already, the Department is moving towards

even stronger accountability by streamlining our financial management and information systems and enhance coordination across the Department and eliminate unnecessary duplication.

As the Department’s Chief Financial Officer, I am dedicated to maintaining a

clean audit opinion on the HHS financial statements.

To meet these challenges, and to better align the Department’s management and

budget activities, it will be important to provide a greater focus on performance and

to more closely integrate performance with our budget decisions. To do this, we

must identify high quality outcomes and accurately monitor the performance of our

programs.

There are many other important issues before the Department of Health and

Human Services that directly affect Americans in their day-to-day lives. Many are

not simple issues or easy to resolve. But, they are issues that are fundamental to

the American people and the health and well-being of our country. I am excited and

honored to be nominated by President Bush and to serve Secretary Thompson. And

I am excited to work with a cadre of truly extraordinary, dedicated public servants—men and women who are responsible for providing health and human services

to so many Americans. If confirmed, this Committee, the Administration and Department and its employees will have all of my energy as we worked together on

the HHS programs.

Thank you for your consideration of my nomination, and for the honor of appearing before you today. I am happy to answer any questions you might have.
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PREPARED STATEMENT OF KENNETH LAWSON

Thank you Chairman Baucus, Senator Grassley, and Members of the Committee.

It is an honor and privilege to be here today to testify in support of my nomination

to serve as the next Assistant Secretary of the Treasury for Enforcement.

I would like to thank President Bush for the opportunity to serve my country. I

further would like to thank Secretary Paul O’Neill for his support and confidence.

I am humbled and honored about the possibility of serving the Nation at this unique

time in history.

Before proceeding any further, I would like to take the opportunity to thank my

family for their love and support. Although they could not be here today, their love

and guidance are always with me. Further, for the past ten years, I have been

blessed with a loving and supportive wife. Please allow me to introduce my wife,

partner, and best friend, Sonia Lawson. I am a richer man because of her.

I look forward to the challenges, opportunities, and responsibilities that await me

if confirmed as the next Assistant Secretary for Enforcement. I believe that I am

qualified to hold this important Treasury post. For the last decade, I have been privileged to serve our country as both a Marine officer and a federal prosecutor. Ten

years ago, I began my government service as a United States Marine prosecutor.

During my military service, I was appointed as a Special Assistant United States

Attorney in the Eastern District of North Carolina. As a SAUSA, I traveled the

Eastern District prosecuting cases in federal court on behalf of the United States.

At this time, I must recognize Major Brian Jackson, United States Marine Corps,

my fellow Marine who had served with me then. He is here in the audience to support me today.

After my military service, I was privileged to serve as an Assistant United States

Attorney in the Middle District of Florida. As an AUSA, I worked closely with each

of Enforcement’s bureaus: the Bureau of Alcohol, Tobacco and Firearms, Customs

Service, Secret Service, and IRS-CI. Together, we worked closely in investigating

and prosecuting financial crimes that ravaged the Middle District of Florida. From

my seven years as an Assistant, I have learned that dedicated professionals are

housed in Enforcement’s bureaus. Although each bureau’s mission is as separate as

fingers on a hand, when brought together as like a fist, Enforcement’s bureaus are

a dynamic force in the war against crime.

However, the tragic events of September 11th have galvanized our Enforcement

bureaus to focus their skills and talents to identify, disrupt and dismantle the terrorists’ financial networks that have funded our enemies. If confirmed to serve as

the Assistant Secretary of Enforcement, I pledge to use all my energy and skills to

lead this mission, and to work hand in hand with our bureaus. With all respect,

I am here before you today because this is my war and I want to be part of the

battle.

Thank you Mr. Chairman. It would be my honor to answer any questions.
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RESPONSES TO QUESTIONS FROM SENATOR BAUCUS

Question: Would you support giving Customs the authority to search outbound

mails sealed against inspection upon reasonable cause to suspect that such mail

contains controlled substances, weapons of mass destruction, or other material prohibited by U.S. law from being sent through the mails? Please explain.

Answer: Yes, I would. Customs currently conducts warrantless searches of inbound mail for unreported monetary instruments, weapons of mass destruction, firearms, and other contraband used by terrorists. Similarly, Customs conducts

warrantless searches of outbound mail sent via private carrier (such as FedEx) for

such items. However, the Postal Service refuses to grant Customs access to search

outbound mail or mail transiting the US mail carried by the Postal Service. The attached provision would resolve the legal debate with the Postal Service over Customs’ authority to examine outbound mail, and ensure that all outbound mail is subject to warrantless searches for such items. This provision was included in a Customs appropriations bill that was passed out of the House Ways and Means Committee last month.

Statutory Language:

SEC. 144. BORDER SEARCH AUTHORITY FOR CERTAIN CONTRABAND

IN OUTBOUND MAIL.

The Tariff Act of 1930 is amended by inserting after section 582 the following:

‘‘SEC. 583. EXAMINATION OF OUTBOUND MAIL

‘‘(a) EXAMINATION.—

‘‘(1) IN GENERAL.—For purposes of ensuring compliance with the Customs

laws of the United States and other laws enforced by the Customs Service, including the provisions of law described in paragraph (2), a Customs officer may,

subject to the provisions of this section, stop and search at the border, without

a search warrant, mail of domestic origin transmitted for export by the United

States Postal Service and foreign mail transiting the United States that is being

imported or exported by the United States Postal Service.

‘‘(2) PROVISIONS OF LAW DESCRIBED.—The provisions of law described

in this paragraph are the following:

‘‘(A) Section 5316 of title 31, United States Code (relating to reports on

exporting and importing monetary instruments).

‘‘(B) Sections 1461, 1463, 1465, and 1466 and chapter 110 of title 18,

United States Code (relating to obscenity and child pornography).

‘‘(C) Section 1003 of the Controlled Substances Import and Export Act (21

U.S.C. 953; relating to exportation of controlled substances).

‘‘(D) The Export Administration Act of 18 1979 (50 U.S.C. app. 2401 et

seq.).

‘‘(E) Section 38 of the Arms Export Control Act (22 U.S.C. 2778).

‘‘(F) The International Emergency Economic Powers Act (50 U.S.C. 1701

et seq.).

‘‘(b) SEARCH OF MAIL NOT SEALED AGAINST INSPECTION AND OTHER MAIL.—Mail

not sealed against inspection under the postal laws and regulations of the United

States, mail which bears a customs declaration, and mail with respect to which the

sender or addressee has consented in writing to search, may be searched by a Customs officer.

‘‘(c) SEARCH OF MAIL SEALED AGAINST INSPECTION.—(1) Mail sealed against inspection under the postal laws and regulations of the United States may be

searched by a Customs officer, subject to paragraphs (2) and (3), upon reasonable

cause to suspect that such mail contains one or more of the following:

‘‘(A) Monetary instruments, as defined in section 1956 of title 18, United

States Code.

‘‘(B) A weapon of mass destruction, as defined in section 2332a(b) of title

18, United States Code.

‘‘(C) A drug or other substance listed in schedule I, II, III, or IV in section

202 of the Controlled Substances Act (21 U.S.C. 812).

‘‘(D) National defense and related information transmitted in violation of

any of sections 793 through 798 of title 18, United States Code.

‘‘(E) Merchandise mailed in violation of section 1715 or 1716 of title 18,

United States Code.

‘‘(F) Merchandise mailed in violation of any provision of chapter 71 (relating to obscenity) or chapter 110 (relating to sexual exploitation and other

abuse of children) of title 18, United States Code.

‘‘(G) Merchandise mailed in violation of the Export Administration Act of

1979 (50 U.S.C. app. 2401 et seq.).
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‘‘(H) Merchandise mailed in violation of section 38 of the Arms Export

Control Act (22 U.S.C. 2778).

‘‘(I) Merchandise mailed in violation of the International Emergency Economic Powers Act (50 U.S.C. 1701 et seq.).

‘‘(J) Merchandise mailed in violation of the Trading with the Enemy Act

(50 U.S.C. app. 1 et seq.).

‘‘(K) Merchandise subject to any other law enforced by the Customs Service.

‘‘(2) No person acting under authority of paragraph (1) shall read, or authorize

any other person to read, any correspondence contained in mail sealed against inspection unless prior to so reading—

‘‘(A) a search warrant has been issued pursuant to Rule 41, Federal Rules

of Criminal Procedure; or

‘‘(B) the sender or addressee has given written authorization for such

reading.

RESPONSES TO QUESTIONS FROM SENATOR GRASSLEY

Question 1: Explain how you will personally make sure the Office of Foreign Assets Control (OFAC) more quickly freezes accounts and seizes the assets of suspected terrorists. We learned last month that our allies in the European Union and

United Nations for months had made public a list of suspected terrorists whose assets should be frozen, but OFAC waited until well after September 11 to do the

same. Your answer should include ideas on how to streamline the process of identifying suspected terrorists and their assets, and the reason for the belated action

against terrorists’ financial networks.

Answer: If I am confirmed as the Assistant Secretary, it is my goal to ensure that

OFAC properly and swiftly execute its duties in freezing suspected terrorist assets.

In my view, this can be done by increased information sharing and decreasing coordination time with other departments, agencies and bureaus. With respect to prior

OFAC lists, I am advised as follows:

As background, on August 22, 1998, the President issued an Executive Order

under the International Emergency Economic Powers Act (‘‘IEEPA’’) freezing the assets of Usama bin Ladin and the Al-Qaida network by adding their names to those

targeted under a 1995 IEEPA-based Executive Order freezing the assets of terrorists who threaten the Middle East peace process. On July 6, 1999, the President

issued an IEEPA-based Executive Order freezing the assets of the Taliban and (1)

persons determined to be owned or controlled by, or to act for or on behalf of, the

Taliban; or (2) to provide financial, material, or technological support for, or services

in support of, any of the foregoing.

On October 15, 1999, the UN Security Council passed Resolution 1267, requiring

states to freeze assets of the Taliban, as designated by a UN Committee setup under

the Resolution. On December 19, 2000, the Security Council passed Resolution 1333,

requiring states to freeze the assets of Usama bin Laden and individuals and entities associated with him as designated by the Committee, including those of AlQaida. In March 2001, the Committee issued a consolidated list of Taliban officials

identified by the Committee. It was this list of Taliban officials, not a list of suspected terrorists, that was made public by the European Union and the UN. Thus

OFAC already had in place IEEPA-based freeze orders targeting Usama bin Ladin,

the Al-Qaida organization, and the Taliban before the UN passed Resolutions 1267

and 1333.

In January 2001, immediately after the UN passed Resolution 1333, OFAC prepared two Executive Orders explicitly implementing Resolutions 1267 and 1333

under authority of both IEEPA and the United Nations Participation Act (‘‘UNPA’’).

The packages were immediately provided to the NSC for interagency clearance. As

a result of significant foreign policy concerns, the inter-agency consultation process

was prolonged.

The President’s Executive Order issued on September 24 invoked authority under

both IEEPA and the UNPA and explicitly implemented Security Council Resolutions

1267 and 1333.

Question 2: The Bureau of Alcohol, Tobacco and Firearms (ATF) merged its regulatory and law enforcement components in October 1998, essentially inserting civilian control into the details of law enforcement operations. What is your opinion of

this merger and its effect on ATF’s law enforcement mission, particularly in the

realm of firearms and explosive crimes? Do you think ATF’s mission would be better

served if its structure was changed back or the regulatory and law enforcement components were split? What is ATF’s role in the nation’s counter-terrorism efforts in
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the wake of September 11 attacks, and is the bureau’s present structure suitable

for that role?

Answer: ATF’s current structure is a result of a series of organizational and structural changes, designed to improve execution of its mission. The final piece of this

restructuring process was reflected in the field structure changes in 1998. Although

ATF supports its current structure, if I am confirmed as the Assistant Secretary of

Enforcement, it is my intent to review ATF’s organizational structure to ensure that

I exercise proper leadership and oversight over it.

Moreover, in my view, if I am confirmed as the Assistant Secretary of Enforcement, I believe that ATF must continue to maximize its core skills in firearm and

explosive investigations in its role in the war against terrorism. As demonstrated

in a North Carolina ATF tobacco investigation, ATF has the ability to use its skills

in identifying terrorist efforts to raise and launder money in tobacco or other regulated items. I believe that ATF’s core skills make it an invaluable player in the war

against terrorism.

Question 3: If not you, then who at Treasury will be responsible for ensuring that

law enforcement and financial agencies are sharing information both within Treasury and with other federal government departments, such as the Justice Department and the intelligence community? Do you plan to create accountability measures to ensure this happens? What are they?

Answer: If confirmed as the Assistant Secretary for Enforcement, it is my plan

to continue the Office of Enforcement’s aggressive steps in facilitating inter-bureau

information sharing. An example of this sharing is Operation Greenquest.

Greenquest is a multi-agency task force consisting of Treasury and DOJ law enforcement bureaus, which work closely in identifying and disrupting hawalas and

financial accounts connected with terrorist organizations. With intelligence obtained

from the Office of Foreign Asset Control (OFAC), Greenquest has executed search

warrants, blocked accounts and stopped millions of dollars from flowing into the AlQueda network.

Secondly, Enforcement has continued this process by providing Treasury law enforcement agents to the FBI’s Joint Terrorist Task Force. Customs, Secret Service,

and ATF special agents have been detailed to assist the FBI’s task force in order

to share intelligence to identify and locate members of the hidden terrorist cells. By

providing these Treasury assets to the FBI, this has further encouraged information

sharing between law enforcement bureaus.

Moreover, the Foreign Terrorist Asset Tracking Center (FTAT) which is staffed

by Treasury, Justice and state law enforcement agents, shares information to identify foreign terrorist groups which may threaten the United States’ national security. Moreover, FTAT identifies suspected terrorist funding sources and concomitant

movement of funds. The FTAT uses this information to conceptualize, coordinate,

and implement strategies within the U.S. government to deny these target groups

access to the international financial system; impair their fund raising abilities; expose, isolate and freeze their financial holdings; and work with other friendly governments to take similar measures.

Finally, through the 2001 Money Laundering Strategy, the Office of Enforcement

is congressionally tasked with the formation and execution of the High Intensity

Money Laundering and related Financial Crimes Area (HIFCAs) task forces. The

HIFCAs are focused upon enforcement efforts on large-impact cases, professional

money launders, and the financial systems, which exploit them. Per the Strategy,

the HIFCAs are composed of Treasury, Justice and local law enforcement authorities that will, along with suspicious activity report analysis from FinCEN, use this

shared information to investigate possible terrorist and drug related money-laundering activity.

Utilizing these tools to promote information sharing between law enforcement bureaus, the best measurement standard will be identifying suspects and financial accounts and then blocking these accounts through cooperative law enforcement actions.

RESPONSE TO A QUESTION FROM SENATOR CONRAD

Question: I am concerned that the Treasury adequately shares information it has

about the tobacco industry with state Attorneys General and state revenue administrators. Will you be willing to work with the Senate in devising a legislative approach that would provide for the sharing of appropriate IRS and Customs information with the states for the purpose of: (1) assisting the states in enforcement of settlement agreements the states have signed with various tobacco manufacturers; and

(2) assisting the states in enforcement of state statutes that require tobacco manu-
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facturers that have not participated in a settlement agreement to deposit money

into escrow accounts?

Answer: It is my understanding that Treasury officials have met with the National Association of Attorneys General on this issue. I am further aware that

Treasury is currently awaiting a business case from NAAG. If confirmed, I look forward to working with the Senate and the attorneys general on developing a legislative approach to enabling the States to get the information they need.

PREPARED STATEMENT OF JAMES B. LOCKHART III

Mr. Chairman, members of the Committee, it is an honor to appear before you

today as President Bush’s nominee for Deputy Commissioner of Social Security. I

would be honored to have the opportunity to serve the millions of Americans who

depend on Social Security. I welcome the opportunity to work with Commissioner

Jo Anne Barnhart to help meet the challenges that she discussed with this committee during her confirmation hearing and I ask for your support.

Although my career has been mainly in the private sector, this position would be

my third opportunity for public service. The first was as an officer in the Navy on

a ballistic missile submarine and the second was as Executive Director of the Pension Benefit Guaranty Corporation (PBGC).

When I joined the PBGC, I was greeted with a newspaper cartoon, which had a

‘‘Renovations Completed’’ sign being placed in front of a house labeled PBGC. As

some members of the Finance Committee may remember, the renovations were not

even close to being completed. It took years and the help of this committee and

many others, but PBGC is now a government success story.

Despite the hard work of Social Security’s dedicated team of over 63,000 employees, renovations are not completed there either. The good news is that the Social

Security Administration is in a much better state than the PBGC was in 1989. As

Comptroller General David Walker stated in GAO’s report of January 2001, Social

Security is ‘‘a leader in federal service delivery’’ and ‘‘a leader among government

agencies for its accountability reports’’. Importantly, however, the GAO report says

that there are serious issues that must be addressed.

The scale of Social Security is colossal, representing a quarter of the Federal

Budget, paying benefits to almost 50 million Americans and protecting virtually

every American family. The successes have also been great. Almost a half of today’s

retirees would be in poverty without it. Not surprisingly, the agency’s challenges are

also large:

• The first challenge is to ensure long term financial solvency for future generations. A central function of Social Security is retirement security. Retirement

in the U.S. is often described as a three-legged stool with Social Security, pension plans and personal savings being the legs. I do not like image of retirees

sitting on wobbly three-legged stools. Working together to address savings and

solvecy issues, we should try to make retirement an easy chair for every American.

• The second challenge is to provide better and more timely service to beneficiaries. The disability process takes much too long. The future service demands will increase dramatically as we, baby boomers, begin to retire. Service

also means doing a better job of educating the public about Social Security’s

programs and retirement planning.

• The third challenge is to improve program integrity through sound fiscal stewardship. The agency has a fiduciary responsibility to all Americans to ensure

that Trust Fund assets are used only to pay proper benefits and to ensrue only

eligible people are given Social Security numbers. There is also a strong economic incentive for doing so. In several areas a dollar well spent on stewardship

will produce up to ten dollars in savings.

• The fourth challenge is to face Social Security’s own retirement wave through

recruiting and training staff. The agency recognized this challenge early, but

the other three challenges cannot be met without a replenished, talented team.

As Commissioner Barnhart said to you in September, these issues canot wait. I

look forward to working with the members of this Committee, Commissioner

Barnhart and the experienced, dedicated, and caring members of the Social Security

team to begin addressing these challenges immediately. Although the agency’s ‘‘renovations’’ may never be fully completed, our goal and duty must be to create not

just a government success story, but a success story for every American family.
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RESPONSES TO QUESTIONS FROM SENATOR BAUCUS

Question 1: According to press reports you support the President’s plan to replace

part of Social Security’s defined benefits with individual investment accounts. In

1989, as Executive Director of the Pension Benefit Guaranty Corporation, you argued forcefully that ‘‘defined benefit plans continue to offer considerable advantages

over other types of retirement plans.’’ Among the advantages you enumerated were

that a defined benefit plan ‘‘provides predictable retirement income with protection

against the uncertainty and volatility of investment risk associated with defined

contribution plans.’’ (Remarks to the APPWP Quarterly Board Meeting, September

19, 1989) As you know, a much smaller share of the workforce is protected by defined benefit pension plans at work than when you made those arguments in 1989,

making Social Security’s defined benefit protections even more significant than in

the past. In the case of Social Security, why have you concluded that it is okay to

substitute defined contribution individual accounts for defined benefits and their

protection against market risk and volatility?

Answer: As the nation ages and the baby boomers begin to retire, a critical challenge will be to ensure that there are adequate Social Security, pensions, and savings assets to ensure all Americans are comfortable in their retirement. Both defined benefit and defined contribution pension plans play an important role in retirement security. Defined benefit plans generally provide more stability than defined contribution plans which on the other hand offer more upside potential. Of

course, in the corporate pension world most of the defined benefit pension plans

were fully funded, and I was very active in encouraging the sponsors of underfunded

plans to improve their financial position. Unfortnately, participants of some underfunded pension plans discovered that they lost some of their promised benefits when

their plans suffered distress terminations.

A mix of both defined benefit and contribution plans are better than either alone.

Likewise, moving to private accounts for a portion of one’s Social Security benefit

may give a better balance, diversification, and a chance for higher benefits. A lot

will depend on how the private accounts are structured and invested. It should be

possible overtime, for instance, to offer investment options that provide more stability as an individual gets closer to retirement. I am looking forward to reading the

alternatives from the President’s Commission and working with Congress to achieve

bi-partisan reforms.

Question 2: In recent reports, the Social Security Advisory Board and the General

Accounting Office have identified serious funding and staffing challenges that need

to be addressed if the agency’s important service responsibilities are to be fulfilled

(especially in the Disability program). What steps do you see that can be taken to

address this problem in the near term and in the long term?

Answer: Clearly, improving the level of service being provided to the disabled is

one of the major challenges that confront the Social Security Administration. Three

years is too long to determine a person’s eligibility for a disability benefit. If confirmed as Deputy Commissioner, I will work with Commissioner Barnhart to improve the Agency’s performance in this area. As Commissioner Barnhart indicated,

she did not—and neither have I—sought leadership positions at the Social Security

Administration in order to preside over the status quo. At her confirmation hearing,

Commissioner Barnhart described the process she will use to determine levels of

service the American public has a right to expect, and the resources that would be

required to provide that service. I understand that she already has put this process

in motion and will report her findings as you and she discussed. I look forward to

working with the Commissioner to complete this important evaluation. Looking out

over a longer horizon, we need to better position the Agency to handle the increase

in benefit applications that will flow from the aging of the baby boom generation.

SSA needs to begin now to put in place the infrastructure needed to handle the

workloads anticipated from this cohort of beneficiaries, and I look forward to working on these issues if I am confirmed as Deputy Commissioner.
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RESPONSES TO QUESTIONS FROM SENATOR GRASSLEY

Question 1: The SSA Inspector General has reported that ‘‘SSA controls to detect

or prevent undocumented immigrants from obtaining a false or stolen SSN do not

always work as intended and are not always used. Moreover, these mechanisms do

not indicate whether the misuse is connected with possible terrorist activity.’’

The Inspector General has also stated that ‘‘The tragedies of [September 11] demonstrate that SSN misuse and identity theft are ‘breeder’ offenses with the ability

to facilitate crimes beyond our imaginations.’’

It has been widely reported that the hijackers and their suspected accomplices

committed identity theft, including at least one documented case of using a false

SSN, to infiltrate the United States while planning the September 11 attacks.

Given the connection between Social Security Number misuse and possible terrorism acts, how do you intend to improve SSA’s performance to identify illegal

aliens and prevent them from obtaining false or stolen SSNs?

Answer: The activities of the September 11 terrorists certainly point to the serious

problems associated with identity theft, Social Security number misuse, and falso

Social Security numbers. I understand that, even before the September 11 attacks,

SSA had begun a review of its enumeration process. We also need to strengthen our

liaison with both the Department of State and the Immigration and Naturalization

Service. If confirmed as Deputy Commissioner, I will work with the Agency to

strengthen the integrity of the enumeration process.

Question 2: SSA policy allows individuls to obtain up to 52 replacement Social Security cards in a year. Clearly, this number seems high and prone to allow opportunities for identity theft.

The SSA Inspector General has determined that 192 individuals obtained six or

more replacement SSN cards during a 1-year period.

Identity theft was a prime modus operandi of the September 11 terrorists.

What are your plans to regulate Social Security cards to prevent these cards and

Social Security numbers from falling into the hands of possible criminals or—infinitely worse—terrorists?

Answer: I am deeply concerned by the problems you describe. Clearly, the Agency

needs a process for replacing lost Social Security cards that meets the legitimate

needs of workers while at the same time preventing the abuses you describe. Many

long-established processes and procedures are undergoing review in light of the terrible tragedy of September 11, and certainly issuance of Social Security cards should

be part of this review. If confirmed as Deputy Commissioner, I will make sure that

this process is completely reviewed and needed changes are implemented quickly.

Question 3: In the past five years, the Social Security Administration Inspector

General has investigated 61 SSA employees who have disclosed, sold or released Social Security number information. These criminal allegations include submission or

processing of false SSN applications, selling legitimate SSNs, and selling counterfeit

SSN cards. Forty-five of these cases resulted in criminal convictions, approximately

half of which resulted in incarceration.

How do you intend to stop SSA employees from stealing or otherwise misusing

Social Security numbers?

Answer: The abuses you describe are very serious, and demand constant vigilance

on the part of Agency managers to prevent them in the future. As your question

indicates, these actions are criminal violations of Federal law and must be prosecuted to the fullest extent of the law. I understand that there are already a number

of procedures employed by the Agency to prevent these abuses, but clearly, the

Agency must do more. If confirmed as Deputy Commissioner, I will work with Agency managers to review existing procedures to prevent such offenses in the future.

RESPONSES TO QUESTIONS FROM SENATOR ROCKEFELLER

Question 1: According to the law, the Deputy Commissioner’s duties are designed

by the Commissioner, Jo Anne Barnhart. Based on your discussions with Commissioner Barnhart and other administration officials, do you have a sense of your role

and what issues the Commissioner intends to designate to you? Do you know what,

if any, role you will play in the debates about Social Security’s long term solvency?

Answer: As Commissioner Barnhart, herself, is very new to her job, we have only

had a brief discussion about the role I will play at Social Security, if confirmed. As

the number two at SSA, I would expect to be working with Commissioner Barnhart

in all the important issues that the Agency faces including the debates on long-term

solvency. A key role I would expect Social Security to play in this debate would be

to provide factual analysis of alternative reform proposals. I would also expect to

have some responsibilities in the areas of the other three challenges that I men-
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tioned in my statement—service, stewardship, and future staffing and training

needs.

Question 2: I believe that one of the strengths of Social Security, is that it is a

guaranteed benefit that is indexed for inflation to protect the living standards of the

elderly and disabled. It is a social insurance program where individuals contribute

and then receive benefits based on their contributions and needs for retirement and

disability. Unlike a lump sum payment, these benefits do not expire. Seniors are ensured benefits throughout their lives. Do you believe this is an appropriate role for

government to protect families? If not, what role do you envision for Social Security?

Answer: Social Security is a critically important program for all working Americans and families as well as the disabled and elderly poor. I agree that an important

strength of Social Security is the inflation indexed retirement and disability annuity

that it provides. As I said in my statement, I strongly believe in Social Security’s

mission to protect American families. It is certainly a key reason why I accepted

the nomination to serve as Deputy Commissioner. To continue to do so, reforms will

be necessary to ensure the program’s long-term solvency. Working with Congress,

Commissioner Barnhart and Social Security’s team, I am hopeful that bi-partisan

reforms will be enacted to ensure that Social Security continues to protect American

families for many generations to come.

Question 3: According to press reports, the President has made clear that he

wants Social Security reform to include individual investment accounts. The transition from the existing system to individual investment accounts will take years and

it will include major transition costs. The President has said that he does not intend

to raise taxes to pay for the transition costs. Based on your understanding of the

President’s initiative, how does he intend to cover the costs. If you do not know the

President’s views, could you discuss the options to pay for transition costs besides

increasing taxes.

Answer: Any reforms in such a large and important national retirement program

as Social Security will take many years to have an impact. Social Security is now

out of long-term actuarial balance, which means that there will not be sufficient Social Security Trust Fund and payroll tax resources to meet our obligations unless

changes are made. One calculation puts the cost to restore the balance of $3.4 trillion in present day dollars. Transition costs should be compared to this present

shortfall. At this point, I am awaiting the proposals of the President’s Commission

which I assume will address the transition costs of the various alternatives. From

these proposals, I hope bi-partisan reforms will be enacted because the sooner the

reforms are in place the lower the long-term costs will be.

Question 4: You advocated privatizing PBGC. Would you recommend the same for

Social Security programs including disability and the survivor insurance, and explain why.

Answer: PBGC plays a very important role as a guarantor of private sector, funded corporate pension plans—but a significantly different role than Social Security’s

disability and survisorship programs. Social Security’s disability and survivors programs are critical to some of the most vulnerable Americans. President Bush has

made it clear in the principles that he established when creating the Social Security

Commission that modernization of the Social Security program must preserve Social

Security’s disability and survivors insurance programs.

PREPARED STATEMENT OF JOAN E. OHL

Mr. Chairman and Members of the Committee, my name is Joan Eschenbach Ohl.

It is an honor to appear before you this morning as President Bush’s nominee for

Commissioner, Administration on Children, Youth and Families (ACYF) in the Department of Health and Human Services (HHS). I am also very pleased to be given

the opportunity to work with Secretary Tommy Thompson who has been a recognized national leader in both welfare reform and social services for children and

families and with Assistant Secretary Wade Horn who served as Commissioner in

the administration of President George Herbert Walker Bush.

Over a 33-year career, I have focused extensively on improving the lives of children and youth—be it their health, their education or human services needs. If confirmed, I will bring to this position a broad range of experiences that I believe have

prepared me for this important position. I have experience in both the public and

private sectors and have demonstrated strength in management, program development, program implementation, fiscal management and budget development. One of

the hallmarks of my career has been establishing effective organizational structures,

programs and services. I am a very strong community-based person in that I believe
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the solutions to the needs of children and families are at the community level and

not in State and Federal capitals. Through government partnerships—at Federal,

State and local levels—we must ensure that the infrastructure and accountability

system is in place for the delivery of quality health and human services.

From 1997 until early 2001, I served as Cabinet Secretary of the West Virginia

Department of Health and Human Resources (DHHR). When Governor Underwood

appointed me to this position, he charged me with making DHHR modern, professional and accountable. DHHR was drowning in red ink, understaffed and had disallowances in most Federal program areas. In my four-year tenure, I worked with

Governor Underwood and the Legislature to strengthen the Department by extensive focus on employees, their training, access to technology, compensation and work

environments. Because of insisting on strong fiscal management, the Bureau of

Medical Services—Medicaid ran in the black for fiscal years 1999, 2000 and 2001

for the first time since 1978. All past disallowances and penalties (some were from

the late 80s) were paid off or settled. When I left West Virginia State government

earlier this year, virtually all of the programs eligible for enhanced funding or high

performance bonus funding were receiving that funding. This included adoption incentive funds, TANF high performance bonuses for job retention and success in the

workforce, and enhanced funding from USDA for food stamp payment accuracy. And

it is important to note that West Virginia’s food stamp program gets benefits to 93%

of all eligibles—the highest percentage rate of any State in the country. In the foster

care program under title IV-E of the Social Security Act, we went from disallowances with the case error rate in excess of 30%, to a year 2000 audit where 80 cases

were reviewed and 79 were without error and one had a judicial determination

error.

I oversaw the completion and implementation of two technology systems including

the West Virginia Statewide Adoption and Child Welfare Information System

(SACWIS) and the child support information system ‘‘OSCAR.’’ West Virginia is one

of 22 States that currently has a fully operational SACWIS system and has submitted all of its adoption and foster care reports without error or penalty. Its child

support system was the sixth in the country to receive certification.

I also worked in order to vacate two Federal court orders under which the Department was operating—one in child support enforcement and another regarding the

office of health facilities licensure and certification. Substantial progress was made

on two long-standing mental health court orders. I sought to see that the substance

of all of these court orders were met and therefore could be vacated.

During my four years at DHHR, we achieved a 40% increase in finalized adoptions as part of the ‘‘Every Child Deserves a Family’’ program and last year, West

Virginia received an award for the most diligent use of the Adoption Resource Network—an internet-based program.

We also worked with the Governor and the Legislature to greatly expand the continuum of community-based family support and family preservation services. In

1997, there were almost 500 West Virginia children in out-of-state placements. As

a part of the ‘‘Bringing Our Children Home’’ program we reduced the number of

children in out-of-state placements by 50% and used the funds that had been paid

to out-of-state placements to increase West Virginia’s infrastructure for communitybased, children’s residential, behavioral health and MR/DD services. We sought and

received additional funding for early intervention programs because we knew we

must intervene early on with children and families in their communities and in

their homes.

Finally, let me touch on child care as it is an integral component to the success

of welfare reform. In West Virginia many families had found it very difficult to access subsidized child care. Thus we established programs of enhanced funding in

areas where we wanted to see quality improvements in the child care program. We

paid more per day per child in any center or program which was nationally accredited or served children and families in non-traditional hours; and we paid more per

day per child for programs that served infants and toddlers and completed a 40 hour

training program.

In 1997, I met then Governor Thompson when he came to West Virginia to meet

with business groups regarding welfare reform. During his visit he gave me one bit

of advice which I took to heart, he said to be sure to invest in child care. And we

did. We utilized the Child Care Development Block Grant, and made TANF transfers, and did TANF direct payments for child care and in 1999 and 2000 West Virginia was recognized by HHS as having the highest percentage of utilization of subsidized child care of any State in the country. West Virginia provides child care subsidies to 25% of those eligible as compared to 12% nationally and has done it with

no waiting list.
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I decided in this brief presentation to focus on my last four years as West Virginia

Secretary of Health and Human Resources because it best exemplifies the skills and

abilities I would bring to the position of Commissioner of the Administration on

Children, Youth and Families. I will continue to work to assure that the various

levels of Federal, State and local government work together to ensure that a strong

community-based infrastructure delivery system is established, maintained and accountable for its outcome. We must continue to focus on prevention and early intervention programs and services. And I will look forward to being an active participant in the Child and Family Service Reviews.

In Head Start, we need to assure the comprehensive nature of the Head Start program with special emphasis given to ensure that children receive the EPSDT screen

and all subsequent follow up services both for their physical and behavioral health

needs. There needs to be special attention given to literacy programs that ensure

children are prepared and ready to enter kindergarten. We will work to coordinate

with the Department of Education on a number of other early childhood programs.

Under enrollment issues exist in some parts of this country and I will work with

regional offices and grantees to address this issue, especially in outreach to special

populations.

One area I want to give special attention to are the needs of our nation’s youth.

Since 1996 we have focused extensively on the needs of young children through efforts such as adoption, Head Start and child care. Some of the initial welfare reform

research is showing that the needs of young children are being met, but the group

which is experiencing problems are those youth entering their teenage years. We

cannot neglect the needs of these youth. We need to focus on positive youth development programs. We are all well aware of the high rates of teenage drug and alcohol

use, on school failure, violence, pregnancy and most tragically suicide. If confirmed,

I will work extensively with Assistant Secretary Horn on a special initiative within

ACF and look at ways to effectively link youth programs across all Federal agencies.

I will work closely with Secretary Thompson’s Rural Initiative. Being from a rural

State, I am well aware of many of the barriers which must be overcome for effective

program and service delivery. I will work on initiatives which help to strengthen

programs and services for rural children and families, as well as strengthen rural

communities.

The goal of ACF and ACYF is to improve the well being of children and to

strengthen families. I hope that through my comments today, as well as the other

materials I have submitted to your Committee, that I have shown my deep commitment to these goals. Mr. Chairman, if I am confirmed, I pledge to work on a bipartisan basis with you, the members of this Committee and the Congress to insure

that ACYF reaches these goals.

I thank you for the opportunity to testify before you today and I would be pleased

to answer any questions you might have.
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RESPONSE TO A QUESTION FROM SENATOR GRASSLEY

Question: What is the status of the process to develop outcome measures? What

are the next steps in the process?

Answer: For more than a year, the Department has engaged in several levels of

activity to develop, refine and implement a performance assessment system for improving the outcomes for adolescents and young adults transitioning out of the foster care system. In line with the statutory requirements set forth in the Foster Care

Independence Act of 1999, these activities focus on using a set of outcomes measures

and data on youth services and services provided to assess State performance.

The Administration for Children and Families (ACF) has recently completed an

extensive consultation process to collect input and feedback on draft outcome measures based on the eight indicators identified in the legislation. The consultation activities have included focus, advisory and technical work groups composed of a variety of stakeholders. Researchers, practitioners, foster care youth, parents, child welfare officials and caseworkers from all over the country have participated. Moreover,

they convened an on-going Standing Work Group, individuals who served as key

technical experts in the developmental process of identifying and refining measurable, achievable measures for assessing State performance in the Chafee Foster

Care Independence Program.

ACF is presently finalizing the recommendations they have received from the

Standing Work Group and other stakeholders regarding outcome measures, data

elements, information system requirements, and the modification of data collection

business procedures at the State level to accommodate the Chafee requirements.

These recommendations will be submitted to senior staff within ACF for their consideration and approval.

Once the decisions are made, they will proceed with the implementation activities

that will include the development and issuance of policy and programmatic guidance

and technical assistance to the States.

PREPARED STATEMENT OF B. JOHN WILLIAMS

Good day, Mr. Chairman, Senator Grassley and Members of the Committee. I am

very pleased to appear before the Committee as the President’s nominee for Chief

Counsel for the Internal Revenue Service. I would like to introduce my family to

the Committee.

Mr. Chairman, I consider this opportunity for public service to be a great honor,

and especially so at this time in our country’s history. I would very much appreciate

the opportunity to contribute to the efforts that Treasury is making in the war on

terrorism and in helping Commissioner Rossotti develop a system of effective tax

administration.

I would like to offer the Committee a brief summary of my thoughts on the role

of the Chief Counsel in the administration of the tax laws.

The power to tax is exercised not only by enacting revenue laws but also by interpreting and enforcing them. In our democracy we must take special care to adhere

faithfully to the law as enacted. Only a fair and impartial interpretation and application of the law can command the respect of our citizens, and in my view the Chief

Counsel’s principal duty is to assure that that respect is earned.

In fulfilling this duty, it is critical that the Service publish more guidance to the

public, especially revenue rulings. I share Commissioner Rossotti’s belief that the

Chief Counsel’s office needs to focus more on its advisory role to the public. Too

often the public looks to informal advice given to specific taxpayers to discern the

positions of the Service. This advice cannot, by statute, be relied on as precedential.

If confirmed, one of my goals will be to increase this public guidance.
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The Chief Counsel’s advisory role on interpreting the law should not be confused

with Counsel’s enforcement role. Enforcement is a tool to assure even-handed application of the law, not a means to obtain new interpretations of unclear law. When

interpretive uncertainties are clarified through public guidance, the central focus of

enforcement, whether civil or criminal, is properly to maintain the integrity of the

revenue laws. If fair application of the law does not, render an acceptable policy result, then legislative or regulatory change should be the way to effect the desired

policy. I firmly believe that litigation should never be the means to advance policy

choices. The public is entitled to know and rely on the law and the agency’s interpretations before cases are developed. Counsel must make a renewed effort to develop those interpretations through public guidance.

The Chief Counsel must be dedicated to the operational success of the Service.

Such dedication entails working closely with the client and offering good judgment

to help inform the choices the agency must make. Most frequently that means

thinking hard about feasible alternatives. Sometimes that means saying ‘‘no,’’ but

that never means taking too long to say it.

I would be pleased to answer any questions the Committee might have.
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RESPONSES TO QUESTIONS FROM SENATOR BAUCUS

Question 1:

• What is the best way to shut down shelter activity? • How do you plan to address these transactions as Chief Counsel? • What role does litigation play in resolving the tax shelter problem? • How do you intend to make the IRS more successful in the courtroom? • How do you plan to target tax shelter cases for litigation? • What is the role of disclosure in addressing tax shelters? Can you elaborate on

the reports of a new program to encourage disclosure by waiving penalties even

on transactions that the IRS has listed as tax shelters subject to the reporting

and registration requirements? • What is the proper role of penalties in this area? Should the IRS impose penalties on taxpayers who engage in these aggressive transactions? How do we ensure uniform application of these penalties? • You stated in your testimony that ‘‘one person’s tax shelter is another’s pension

plan.’’ What did you mean by that statement? Are there ‘‘abusive’’ tax shelters

and, if so, how would you characterize them?

Answer: By way of background, it is important, in my view, to distinguish transactions that reduce or defer net income based on sound application of legal principles and economic analysis from transactions that twist normal English usage in

statutes and regulations, have no economic substance and lack business purpose, or

are shams-in-fact. In writing a shelter definition that attacks the cancer of ‘‘abusive’’

shelters, it is important to avoid destroying legitimate transactions for which tax reduction or deferral is a legitimate and statutorily acknowledged objective.

I believe that the Chief Counsel can help the Commissioner use the tools available

for enforcement and compliance more effectively. For example, the injunction provisions, I.R.C. § 7408, and promoter penalty provisions, I.R.C. §§ 6700 and 6701,

should be considered where appropriate. The Chief Counsel must assure that an impartial review of questionable transactions and applicable legal authority is undertaken to determine whether a transaction is abusive, and if so, whether a change

in the law is required or clarifying guidance is sufficient. Prompt guidance to the

Commissioner where the taxpayer’s legal position is not reasonable, followed by

prompt development of the case is essential to successful enforcement. Further, if

the legal position is not reasonable or involves misrepresentations of fact, appropriate sanctions should be sought against the advisers and promoters, if any. The

Chief Counsel should assist the Commissioner in relaying concerns about specific

transactions to promoters and in obtaining from promoters’ lists of other promoted

transactions and lists of investors.

The Chief Counsel can help the Service to be more successful inside and outside

of the courtroom by better development of the facts early on. This means a careful

and thoughtful use of the broad information gathering tools the Service already possesses.

Narrowing the group of cases that should be pursued by the Service to litigation

is important to success. Targeting tax shelters for litigation requires early identification and a careful and impartial evaluation of the case based on the specific facts

and circumstances presented and the legal issues raised. Critical to this evaluation

is an understanding of the real litigating hazards in a case.

Although I am not in a position to elaborate on the reported penalty waiver program, disclosure of information is critical to the Service’s compliance and enforcement efforts. Disclosure helps the Service determine at an earlier stage whether

there is a need for changes in the law, clarifying guidance, or enforcement efforts.

Penalties must be applied to curb behavior that is abusive of the tax system. The

punishment must be rationally related to the abusive behavior. The Chief Counsel
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must be prepared to support the investigations of taxpayers, return preparers and

promoters, and to recommend the imposition of penalties where appropriate.

What I meant by ‘‘one person’s tax shelter is another person’s pension plan’’ is

that the law frequently permits deferral of tax, and whether that deferral is regarded as an ‘‘abusive’’ tax shelter or as a fair application of the law can often depend on the particular facts and circumstances. I believe there are ‘‘abusive’’ tax

shelters. ‘‘Abusive’’ used as a qualifier of tax shelters was coined in the 1980’s as

a descriptive shorthand for distinguishing legitimate tax shelters from shelters

based on false or misleading information, valuations or economic assumptions. As

I had noted earlier, I believe that there is a difference between legitimate transactions and those that either twist normal English usage in statutes and regulations, have no economic substance and lack business purpose, or are shams-in-fact.

Question 2: Will you commit to provide the Senate Finance Committee with a

comprehensive and detailed report on tax shelters by early next year?

Answer: As I stated during my testimony before the Committee, if confirmed as

Chief Counsel, I will make every effort to work with Commissioner Rossotti to provide timely the information sought by the Committee regarding the internal revenue

laws and their administration. At this time, however, I simply do not have sufficient

information to commit to a report in the time frame requested by the Committee.

If confirmed I will commit to evaluating the issues identified as expeditiously as

possible. In that regard, one of my priorities would be to insure that legal, compliance, and tax policy considerations with respect to tax shelters are promptly and

effectively coordinated.

Question 3: Do you believe that the IRS and Treasury have an interest in ensuring that tax practitioners maintain certain levels of professionalism, particularly

with respect to opinion writing? What changes, if any, would you make to the recently issued standards?

Answer: The Service, Treasury, and the public all have an abiding interest in high

standards of professionalism, especially in opinion writing. I would need to study

carefully the comments on the proposed changes to Circular 230 in order to make

informed recommendations regarding these proposed changes. One issue that I

know has been raised is the scope of opinions that will be subject to the proposed

new standards. Some commentators have indicated that the scope of opinions subject to the proposed new standards should be narrowed. They indicate that the proposed new standards apply to the opinions on most legitimate tax planning, and not

just to opinions on aggressive transactions. There are also federal preemption questions relating to state licensing and questions regarding the scope of the Secretary’s

authority to regulate practice before the agency.

Question 4: Do you see yourself playing a role in the Government’s continuing efforts on [the Rite-Aid] issue? What steps do you believe should be taken, if any, to

prevent duplication of losses, particularly if the Government loses the case?

Answer: In Rite Aid Corp. v. U.S., 255 F.3d 1357 (Fed. Cir. 2001) (‘‘Rite Aid’’), the

Federal Circuit held that the duplicated loss factor provisions of Section 1.1502-20

of the Treasury Regulations, which resulted in the denial of a single economic loss

incurred by the taxpayer, were not within the statutory authority delegated by Congress under I.R.C. § 1502. On October 3, 2001, the Federal Circuit denied the Government’s motion for rehearing and rehearing en banc. To my knowledge, the Government has not sought certiorari, and I do not know whether the Government intends to do so. As the Committee is aware, I am the attorney for the taxpayer in

Rite Aid. If confirmed as Chief Counsel for the Service, I would of course recuse myself from any continuing involvement in this case.

Question 5: Based upon your experience, what do you believe is the most serious

problem facing the tax system and what steps would you recommend (or take) for

correcting the problem.

Answer: Incomprehensibility of the tax law is the most serious problem facing the

tax system. Simplification of both substance and procedure would help to correct the

problem.

Question 6: What do you think of IRS’ new programs, and what (if any) specific

steps would you take to ensure that guidance is provided on a timely basis?

Answer: The Commissioner’s efforts to resolve issues early on with taxpayers is

a laudable goal which the Chief Counsel’s office should support. Guidance where the

law is unclear is essential to voluntary compliance and enforcement. An important

role of the Chief Counsel’s Office is to assist the Commissioner in the early identification of issues and the timely issuance of guidance.

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