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22–922—PDF 2016

S. HRG. 114–481 

PRESIDENT’S BUDGET FOR FISCAL YEAR 2017 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 10, 2016 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

ORRIN G. HATCH, Utah, Chairman 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

DANIEL COATS, Indiana 

DEAN HELLER, Nevada 

TIM SCOTT, South Carolina 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

MARK R. WARNER, Virginia 

CHRIS CAMPBELL, Staff Director 

JOSHUA SHEINKMAN, Democratic Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, Committee on 

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

Wyden, Hon. Ron, a U.S. Senator from Oregon .................................................... 3 

ADMINISTRATION WITNESS 

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

DC .......................................................................................................................... 5 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Hatch, Hon. Orrin G.: 

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

Prepared statement .......................................................................................... 41 

Lew, Hon. Jacob J.: 

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

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

Responses to questions from committee members ......................................... 48 

Wyden, Hon. Ron: 

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

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

(III) 

(1) 

PRESIDENT’S BUDGET FOR FISCAL YEAR 2017 

WEDNESDAY, FEBRUARY 10, 2016 

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

The hearing was convened, pursuant to notice, at 10:31 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Orrin G. Hatch 

(chairman of the committee) presiding. 

Present: Senators Crapo, Roberts, Thune, Portman, Coats, Heller, Wyden, Schumer, Stabenow, Cantwell, Nelson, Menendez, Carper, Cardin, Brown, Bennet, Casey, and Warner. 

Also present: Republican Staff: Chris Campbell, Staff Director; 

Sam Beaver, Professional Staff Member; Tony Coughlan, Tax 

Counsel; Jay Khosla, Chief Health Counsel and Policy Director; 

Jim Lyons, Tax Counsel; Eric Oman, Senior Policy Advisor for Tax 

and Accounting; Preston Rutledge, Tax Counsel; and Jeff Wrase, 

Chief Economist. Democratic Staff: Joshua Sheinkman, Staff Director; Michael Evans, General Counsel; and Adam Carasso, Senior 

Tax and Economic Advisor. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 

SENATOR FROM UTAH, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The committee will come to order. 

Today’s hearing is on President Obama’s budget for fiscal year 

2017. I particularly want to thank Secretary Lew for appearing before us this morning and providing his time for us. 

While there were some hints about some of the details in advance, Congress officially received the President’s budget proposal 

yesterday. And as has too often been the case—particularly under 

this administration—what we received was not a practical vision 

for the future but an ideological document designed more to satisfy 

political constituencies than to advance, at least in my opinion, serious policy proposals. 

For example, in his budget President Obama once again looks to 

raise taxes on hardworking Americans, including some special new 

regressive taxes that are being packaged as ‘‘fees,’’ with all the revenue going to fuel expanded government and spending that is being 

sold to the public as ‘‘investment.’’ No matter what terms people 

want to use, this budget once again taxes too much, spends too 

much, and never balances. It presents a vision for expanding government deficits as far as the eye can see, and an ever-growing national debt. 

That debt, by the way, currently stands at an astronomical $19 

trillion as of last week, I believe it was—close to 80 percent larger 

2 

than when the President took office and at a level relative to the 

size of our economy not seen since the years surrounding World 

War II. 

I will also note that the budget contains provisions relating to 

Puerto Rico. The challenges facing Puerto Rico have received a lot 

of attention in recent months, and, unfortunately, much of the debate has been overly politicized. The President’s budget calls for 

$6.6 billion intended to provide an Earned Income Tax Credit for 

residents of the island and roughly $30 billion for increased Medicaid funds, some of which are intended to offset what we are now 

being told was an inequity written into the so-called Affordable 

Care Act. 

Apparently, the authors of ACA wrote a Medicaid funding cliff 

for Puerto Rico into the law. Now we are being told—by some of 

those same authors, no less—that this funding cliff is unfair and 

must be undone. I would like someone—maybe Secretary Lew or 

perhaps any of the members of Congress who drafted and supported the health law—to explain why that was done in the first 

place. 

I have been working hard with a number of my colleagues to put 

together a package to help the people of Puerto Rico, who should 

be our real focus in this. I have a bill with Senators Grassley and 

Murkowski that offers assistance, along with more than $7 billion 

of fiscal relief to the island, without adding a penny to the Federal 

deficit or debt. And since last summer, I have been asking administration officials, as well as some of my Senate colleagues, just how 

much additional health funding they would like to see for Puerto 

Rico. In every case, specific details have been withheld, and Congress has simply been admonished to fix this problem in a fiscally 

responsible way. 

Yesterday, with the release of the budget proposal, we finally 

saw specific proposed numbers from the administration. Why it 

took until now for these details to emerge is beyond me, but at 

least they are here. In addition, while we are on the subject of 

Puerto Rico, I do not believe the administration has been straightforward about the nature of the debt restructuring authority it is 

seeking for the territory. 

While we keep hearing from our friends on the other side that 

Republicans are ungenerously denying Puerto Rico access to the 

bankruptcy protections offered to every municipality in the U.S., 

that is actually not what is being sought. Specifically, the administration is advocating to provide unprecedented debt-restructuring 

authority to Puerto Rico, with an explicit preference for public pension liabilities over debt issued by the Puerto Rican Government, 

even though the territory’s constitution gives preference to some of 

those latter debts. 

We need to be clear about what is actually being debated and 

proposed here, and, Secretary Lew, I hope to learn more about your 

thoughts on this today. And going forward, I surely hope to learn 

more about Puerto Rico’s pension exposures. In fact, just this morning I wrote to the Governor of Puerto Rico asking for details, since, 

all told, Puerto Rico’s debt and its unfunded pension liabilities 

amount to almost $120 billion. 

3 

As we know, lurking behind the recent increase in ever-larger 

municipal bankruptcies nationwide is a growing crisis of underfunded public pensions, and the underfunding of Puerto Rico’s public pensions is striking. 

Another issue that I look forward to discussing today is a provision of the recently enacted FAST Act regarding the inactive debt 

collection program. As we will likely hear today from Senator 

Grassley, if not others, the conference report accompanying the law 

made clear that the intent of Congress was for Treasury and the 

IRS to expeditiously implement this provision by utilizing approved 

private collection contractors and debt collection centers. The law 

also requires that contracts be signed within 3 months after enactment. That deadline is March 4th, just over 3 weeks away. So I 

look forward to a status update today on the efforts to get the contracts signed and the cases released and to ensure that taxpayers 

are made aware of the program and how it is going to be implemented. 

Finally, and related to the large Federal debt that Treasury is 

supposed to manage, I want to make note of some disturbing revelations from the House Financial Services Committee about contingency plans formulated by Treasury and the Federal Reserve. 

Secretary Lew, as you know, for nearly 5 years now, I have asked 

Treasury and the Fed for details about plans the agencies had to 

handle debt default, whether caused by a natural disaster, terrorist 

attack, cyber-attack, or debt limit impasse. I have asked for these 

details in writing, in public hearings, and in private conversations. 

And in response to my inquiries, you, your predecessor Secretary 

Geithner, Fed Chair Yellen, and former Chair Bernanke have all 

opted to cloak any contingency plans in secrecy, sharing them only 

in private discussions with financial market participants. All of you 

failed to provide specific answers to direct questions, choosing instead to obfuscate the issue. We know these contingency plans 

exist, yet officials at the highest levels of the executive branch have 

refused to share them with Congress or the American people. 

Now, I find this unacceptable. And because we have received virtually no voluntary cooperation on this issue, legislation to require 

such cooperation and provide accountability is now probably necessary so the American people can know as much about our debt 

management as those working at Treasury and the Fed and in financial markets. 

So as you can see, we have quite a bit to discuss today, and I 

look forward to a robust discussion of these and other important 

issues. 

With that, I will turn to my friend, the ranking member, Senator 

Wyden, for his opening statement. 

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

OPENING STATEMENT OF HON. RON WYDEN, 

A U.S. SENATOR FROM OREGON 

Senator WYDEN. Thank you very much, Mr. Chairman, and 

thank you for holding this hearing. And, Secretary Lew, we appreciate your being here for what I believe will be one final time on 

this particular item of business. 

4 

I would like to start, Mr. Secretary—and you and I have talked 

about this—by trying to put taxes, your principal focus, in what I 

think is the right context. Right now in America, there are two different tax systems. The one that most working people deal with is 

mandatory. Their taxes come directly out of their paycheck. And 

then there is another system for the well-connected, and under that 

system, it seems that you can often pay what you want when you 

want to. 

The fact is, most working Americans earn one or two paychecks 

a month. They may have a mortgage, a few kids. Those taxpayers 

interact with a very small portion of the American tax code. But 

there are far too many shadowy, cobweb-filled corners of the tax 

code that typical Americans never have to venture into. Those corners are loaded with byzantine rules that accountants and lawyers 

from white-shoe firms can use to pry open loopholes. 

As a result of all this complexity, you have increasingly slippery 

definitions of capital gains and income, and an array of tax-dodging 

strategies with names like ‘‘wash sales’’ and ‘‘swap contracts.’’ It is 

a mind-numbing system. And it is no wonder why somebody who 

works the line at a factory or has a gig at a mom-and-pop business 

would believe the tax code is stacked against them. 

Now, I do not think anybody would make a huge bet on a complete rewrite of the American tax code this year so as to address 

the entirety of the unfairness in terms of how our tax system plays 

out for those working families. But I do see a major opportunity for 

Democrats and Republicans in the Congress, working with the 

Treasury and the IRS, to work together right now. And that major 

opportunity is to crack down on the tax avoidance schemes that 

have resulted in the corporate tax gap. 

Now, I am going to have a lot more to say about that this afternoon when Commissioner Koskinen comes before the committee. 

But the short story is that two-thirds of the $1 trillion owed in corporate taxes goes unpaid every decade, and in my view, every policymaker ought to be doing more to figure out why and how you 

are going to fix this. And I also see this as an opportunity to free 

up resources so as to be able to take on a number of the big economic challenges of this time. 

And, by the way, there are a number of proposals that are in the 

budget that are clearly going to be of significant benefit for workers. Certainly the auto-IRA proposal would help a lot of workers 

start saving for the first time. 

As you know, Mr. Secretary, a number of us on this committee 

have proposed to expand the savers credit. We are all interested in 

helping those who are walking an economic tightrope. The community college proposals, in my view, are going to be quite helpful to 

students pushing to find that first high-wage, high-skill job. And 

you have a number of investments in children’s health that I think 

are very constructive. 

So there are a number of smart proposals that could be a huge 

help to working-class families and small businesses across the 

country, and I look forward to working on a bipartisan basis with 

our colleagues here to pursue those issues. 

Mr. Chairman, I also want to wrap up by thanking you, because 

I think it is worth noting, here in the Finance Committee, ChairVerDate Mar 15 2010 16:27 Dec 12, 2016 Jkt 000000 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 R:\DOCS\22922.000 TIMD
5 

man Hatch has scheduled three hearings for us to come together 

on a bipartisan basis to examine the President’s budget proposal. 

In my view, that is a major responsibility that we have and also 

a practical need to communicate with the administration. And that 

is true no matter which party controls the White House. And in 

fact, these debates that we are starting control much of the debate 

over the course of the year. Apparently, some other committees are 

not exercising this same responsibility this year, and I just want 

to say that I hope that does not become a precedent. 

Thank you very much, Mr. Chairman. 

The CHAIRMAN. Well, thank you, Senator Wyden. 

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

The CHAIRMAN. Before we go any farther here, let me give an introduction to Secretary Lew. 

Secretary Lew was confirmed to his current position on February 

27, 2013. Prior to his confirmation as Secretary of Treasury, Secretary Lew served as President Obama’s White House Chief of 

Staff and, before that, Director of the Office of Management and 

Budget, a position Secretary Lew also held during President Clinton’s administration, from 1998 to 2001. 

After leaving the Clinton administration and before joining the 

Obama administration as Deputy Secretary of State for Management and Resources, Secretary Lew served as executive vice president for operations at New York University and did teach as a clinical professor of public administration at NYU’s Wagner School of 

Public Service until June 2006, when he was named chief operating 

officer of Citigroup’s Alternative Investments Unit. 

In the middle of a long public-service career, Secretary Lew received an undergraduate degree from Harvard College and a law 

degree from Georgetown University Law Center. Detailing the rest 

of Secretary Lew’s public service career would likely take the rest 

of this meeting, and as such, let me just say that it has been long 

and productive. 

I want to thank you for all you have done for our country in your 

current job and what you continue to do. We will just take your 

statement at this time. Welcome to the committee. 

STATEMENT OF HON. JACOB J. LEW, SECRETARY, 

DEPARTMENT OF THE TREASURY, WASHINGTON, DC 

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

Ranking Member Wyden, members of the committee. As Senator 

Wyden noted, this is the last time I will be presenting the President’s budget, so there is kind of a nostalgic element to it. But we 

enter this final year with a great deal of energy, because there is 

still so much that we need to get done for the American people. 

As the President said in his State of the Union address, this is 

a time of extraordinary change, and to make this change work for 

the American people, we need to foster opportunities for all. We 

need to leverage new technologies to solve urgent problems such as 

climate change; we need to pursue a smart foreign policy that protects our national security; and we need to work together to improve our political discourse. What we do in each of these areas is 

crucial to our future as a Nation. 

6 

Today, I will discuss the major aspects of the President’s budget 

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

both now and over the next 5 or 10 years and beyond to create 

growth and make sure that opportunity is truly broadly shared. 

In the 7 years since President Obama took office at a time of the 

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

sustained economic recovery and an unprecedented decline in Federal deficits. Notwithstanding some of the recent volatility that we 

have seen and are seeing in financial markets, economic growth 

continues at a solid pace. Since my testimony a year ago, our economy has continued its record-breaking streak of private-sector job 

creation, which has reached nearly 6 consecutive years and more 

than 14 million jobs. 

Over the last 2 years, we have experienced the strongest job creation since the 1990s. At 4.9 percent, the unemployment rate is 

half of its 2009 peak. Real GDP expanded 1.8 percent last year— 

a pace of expansion that exceeds many of our major trading partners, and we continue on a sound fiscal path. From fiscal year 2009 

to 2015, the deficit as a share of GDP fell by almost three-quarters, 

to 2.5 percent. 

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

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

2017 budget puts forward the building blocks of a social compact 

for the 21st century, creating the conditions for sustained economic 

growth while upholding the basic American belief that everyone 

who works hard should get a fair shot at success. 

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

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

critical investments and addressing our fiscal challenges over the 

next 10 years. 

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

President’s budget, including our proposals to reform the tax code, 

invest in infrastructure, and support working families. 

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

includes a number of concrete tax reform proposals to make our 

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

our international tax system and a specific proposal to close the inversion loophole. While inversions may be legal, it is wrong for 

companies to take advantage of our infrastructure, our education, 

our support for research, our rule of law, and then avoid paying 

their fair share of U.S. taxes. I look forward to working with this 

committee and the Congress to close the door to inversions. 

Second, we need to invest more in modern infrastructure that 

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

of a growing economy in the long term. To accomplish this, the administration has proposed a phased-in $10-a-barrel fee on oil production and import that will ensure that we better manage the 

costs associated with fossil fuel use, provide long-term solvency for 

the Highway Trust Fund, and offer new funding for clean energy 

investments. The budget also funds an expanded core infrastructure program and takes small steps to level the playing field for 

7 

private investment in public infrastructure projects through the Financing America’s Infrastructure Renewal, or FAIR, program. 

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

respond to the changing relationship between workers and employers. For example, it proposes expanded unemployment insurance 

and introduces a new wage insurance program to help families stay 

on their feet when underemployed as part of a job transition. This 

budget also proposes to expand access to workplace retirement savings opportunities, complementing our success with the myRA program launched last year to help those without savings or retirement options begin to save for the future. 

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

inclusive economy today and in the future, while also maintaining 

fiscal responsibility. Of course, we must also work together to respond to more immediate events. As the chairman noted, in Puerto 

Rico there is work that we need to do, and I thank the chairman 

for working with us in December and since to try to think through 

an approach to dealing with this critical problem. Puerto Rico faces 

unemployment at 12 percent, and it is experiencing an unsustainable debt crisis. The administration has proposed a comprehensive 

plan to address the Commonwealth’s financial challenges, and I encourage Congress to act with the speed that this crisis requires. 

This must begin with legislation to permit a financial restructuring 

along with new oversight, neither of which costs any taxpayer dollars. 

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

President said in the State of the Union address, progress is not 

inevitable but, rather, it is the product of choices we make together 

as a Nation. We face a number of big choices in the coming years. 

For example, we still must take actions to strengthen Social Security to keep true to our commitment to previous and future generations of workers. The decade of fiscal responsibility laid out by this 

budget gives us the time we need to address these long-term challenges. And the recent agreement on the debt limit and budget not 

only demonstrates that we have the capacity to find common 

ground on difficult issues, but it also lays a foundation to address 

the immediate challenges we face. 

I look forward to working with this committee to make more 

progress together over the coming year, and I look forward to answering your questions. 

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

The CHAIRMAN. Well, thank you, Secretary Lew. 

Puerto Rico’s general obligation debt has specific repayment priority, according to the Constitution of Puerto Rico, yet your proposal, at least in my opinion, would blow right through that constitutional protection, even while you argue that Puerto Rico’s autonomy must be respected. And as I understand it, your proposal 

would also give preferential treatment among unsecured claimants 

to obligations of Puerto Rico’s public pensions and would, in effect, 

give those claimants preferential treatment relative to the general 

obligation bond holders. 

Of course, the issues here are very complicated. Among general 

obligation bond holders are retirees in my home State of Utah who, 

8 

under your formulation, would be subject to less preferable treatment than Puerto Rico public pension claimants. 

Now, I wonder if you could explain your proposal a bit more and 

explain your proposal to provide preference for public pension obligations over others, where some of those others are retirees in 

places like all of our States, really, but in places like my State of 

Utah, who also have claims on Puerto Rico that they thought were 

protected. 

Secretary LEW. Senator, the financial picture that Puerto Rico 

faces is very complicated. They have 18 different series of bond 

issues. They are very complicated. There are different levels of priority, different constitutional protections. 

But the math is clear. With $72 billion of outstanding bonds, 

they do not have the capacity to support the debt service on that, 

and there is a need for a restructuring. And a restructuring needs 

to include all of the bonds or virtually all of the bonds in order to 

be effective because, if you do it on too small of a base, it does not 

work. And we have never said that all bond holders get treated 

equally, so certainly there is the space to reflect the differences between different categories of bond holders. Even the voluntary offer 

that the Commonwealth put forward reflects that principle. 

And with regard to pensions, I think if you look at what has been 

happening in the last few months, pensions are being shifted, pension contributions are being moved, to pay bond holders right now. 

So you have workers in Puerto Rico paying into a pension fund, but 

the money is coming out to pay bond holders. That is not going to 

be there for their pensions. That is not a tenable arrangement. 

The result in Puerto Rico’s economy is clear. You are seeing thousands of people a month leave Puerto Rico. The economy of Puerto 

Rico cannot sustain the outmigration of the people who are capable 

of building the economic future. And I know that we have talked 

about this many times, Mr. Chairman; there is a crisis here that 

we agree needs to be addressed. The question is, how do we do it 

in a way that works, and how do we do it in a way that is fair? 

We have put forward a proposal that we think is comprehensive. 

What we have made clear is, the first steps have to be restructuring authority combined with oversight. That will not completely 

solve all the problems, but that is where the time urgency is. And 

we look forward to working with you on an approach to that that 

meets the standard of fairness that we can all defend. 

The CHAIRMAN. Well, thank you, sir. I often hear questions about 

why Congress will not grant Puerto Rico retroactivity, you know, 

the same chapter 9 bankruptcy tools that many municipalities 

across the country can access. Retroactive chapter 9 authority is 

what Senator Blumenthal’s bill and a proposal in the House involve, but your proposal, which some have called ‘‘Super 9,’’ is far 

different. Representative Pierluisi has indicated lack of support for 

your Super 9 proposal. 

Now, no one in Congress has filed legislation with a Super 9 

structure. State and territorial officials have expressed concerns 

about your proposal, including concerns about moral hazard and increased borrowing costs for States and municipalities across the 

country that could result from your proposal. So it seems that your 

9 

broad restructuring authority has not received broad public support 

once the details are known. 

Now, I wonder if you feel that there is support for your proposal 

in Congress, and, if so, if you have any thoughts on why no one 

has introduced your proposal as a bill in Congress? 

Secretary LEW. Well, Mr. Chairman, I have talked to all of the 

office holders in Puerto Rico: the Governor, the legislative leaders, 

their Representative in the House. I think there is a broad understanding and shared view that they need to have restructuring authority that will work, that will encompass enough of the debt. 

The CHAIRMAN. No question about that. 

Secretary LEW. And I know there are concerns with how that is 

structured. Those are details we could work through. As we have 

gone through this at a technical level, both with your team and 

with others in Congress, we have aired issues where there is room 

to find ways to work through this. 

But what does not work is to say that Puerto Rico should somehow solve the fiscal dilemma that it faces without some very broad 

restructuring authority, because Puerto Rico’s debt is principally 

the thing that is drawing down its ability to stay solvent. It is a 

case of insolvency where the debt is just beyond what they can support. And unless it is restructured in an orderly way, what will 

happen is, it will go through a decade of protracted litigation where 

different stakeholders with different bond holder interests will be 

suing the Commonwealth in court. You will have a lost decade 

where I do not know if the Commonwealth can recover from a 5– 

10 year period of litigation. 

So there is an urgent need to address this, and we would look 

forward to working with you and with others in Congress. I know 

I have had conversations probably with 50 members of the House 

and Senate, maybe more than that. There is a broad understanding 

that something needs to be done here. 

I guess what I just want to make clear is, when we act, we have 

to act in a way that works, or else the problem will be coming right 

back at us. And I do not think that will serve anyone’s interest. 

So we share the concern that this be something that is perceived 

to be fair. We share the concern that there be oversight to make 

sure that the future is a path which is sustainable. And I would 

look forward to working with you and others to find a quick solution to get there. 

The CHAIRMAN. Thank you. My time is up. Senator Wyden? 

Senator WYDEN. Thank you. Thank you very much, Mr. Chairman. 

Secretary Lew, as I indicated in my statement, you and I have 

talked about, when it comes to finding issues that Democrats and 

Republicans ought to be able to work together on, this corporate 

tax gap comes front and center. Two-thirds of $1 trillion owed in 

corporate taxes goes unpaid over a decade. And I recently sent a 

letter to the IRS Commissioner concerning the agency’s apparent 

lack of tracking of these corporate tax issues, and I think there are 

some questions. And I know we cannot in 5 minutes get into all 

of the details that I think would be very helpful to get on the 

record, because I think there are some questions about whether the 

10 

agency really knows the sources, the major sources, of this corporate tax gap. 

Based on your current knowledge, what are the major sources of 

corporate tax avoidance contributing to this vast sum of money 

that goes unpaid? 

Secretary LEW. Senator, I think the challenge is, there are not 

just one or two causes. There are many aspects of our economy that 

are just not on the books. There are many aspects of our country 

where businesses are organized to avoid taxes. If they do it legally, 

that is a different issue than if they do it illegally. And one of the 

basic challenges we have had at the IRS over the last few years 

is that, by being deprived of resources, we lack visibility into things 

that we should have more visibility into. 

I think it is a very good thing that at the end of the year we saw 

some restoration of a recognition that, in order to have an effective 

tax service, you need to fund it so that you can do enforcement, you 

can do oversight, you can get the data you need to answer the 

kinds of questions that you are asking. 

I totally agree with you, we should be able to put more resources 

into working on identifying the sources of the tax gap, and if there 

are enforcement mechanisms to get at it, to use our enforcement 

tools to do that. But enforcement is people. You know, you do not 

enforce by turning on a computer. You enforce by having revenue 

agents; you enforce by having teams that can do investigative 

work. And I am grateful for the increase we got, but, frankly, it 

was not for those purposes. The increase we got was for very important things like dealing with cybersecurity, being able to answer 

our phones. We still have gaps in the IRS budget that just do not 

give us the resources we need to enforce as effectively as we 

should. 

Senator WYDEN. Does the IRS, in working with the Treasury, 

have a modern database to track the major sources of the corporate 

tax gap? Because based on the letter and the communication we 

have had with the IRS, I do not think that is clear. I am going to 

get into it this afternoon, but I know you look at that very substantial sum of money, as I do, and say, not only is that not right, it 

is not fair to taxpayers who, as I indicated, just have their taxes 

pulled right out of their paycheck directly. But it also would be an 

opportunity to show that we can make tough choices. We can raise 

money, certainly, by collecting taxes owed and then make judgments about future priorities. 

So is there a database now, a modern database, to track the 

sources of corporate tax avoidance? 

Secretary LEW. Well, we do obviously have databases at the IRS, 

but as you know, they are old systems. They are systems that I 

think the team at the IRS does a very good job of making look 

more modern than they are by making them more accessible to taxpayers and others who are looking for information. But behind it 

all is a very old computer system. 

One of the things that we will be doing, mostly with a focus for 

cybersecurity and identity theft, is upgrading the computer system 

with some of the additional funds we have. But this has been an 

ongoing issue at the IRS, that it is an old computer system. I do 

not want to say it is a system that cannot give us the ability to 

11 

do this analysis, but I would defer to Commissioner Koskinen on 

the details of what needs there would be in terms of the data processing capacities. But overall, it is a system that needs investment. 

Senator WYDEN. One last question, if I might. As you know, 

there is a big difference between the tax on wages and the tax on 

investment income. And the gap, of course, has increased, and particularly it ought to be put in the context of the last major tax reform when Ronald Reagan decided, in conjunction with a lot of 

Democrats, Bob Packwood, a whole host of people, that he was 

going to have equal treatment in terms of taxes for somebody who 

makes a wage and somebody who has investments. 

In your view, what does the President’s budget do to begin the 

effort to close this gap in taxation between taxes on a wage and 

tax on investment income? 

Secretary LEW. Senator Wyden, the budget does quite a number 

of things. Some are repeat proposals from the past, things like 

changing the capital gains tax rate, like dealing with stepped-up 

basis. And some are new, like our provisions that try to get at all 

forms of income no matter how it is structured so that you cannot 

avoid self-employment taxes or taxes that were put in place to pay 

for health care by categorizing your income a certain way. 

I think it is a real problem in terms of the concentration of income we see today at the very top and the fact that the income 

comes in a form that is taxed very differently. The system does not 

look fair to working people who just pay tax on every dollar that 

comes in. 

That does not mean we should have a punitive standard towards 

unearned income, but when you can convert earned income into unearned income to get a lower tax rate, it creates a real problem. 

Senator WYDEN. My time is up. I just think it is worth noting 

that, in the last tax reform effort, Democrats and Republicans said 

there was an opportunity for everybody in America to get ahead, 

and one of the ways they did it was to treat wage income and investment income the same. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Roberts? 

Senator ROBERTS. Mr. Chairman, thank you very much for holding this hearing, and, Mr. Secretary, welcome back. 

I just want to register right off the bat my strong opposition to 

the proposal to place a new tax on oil. I know that is popular, certainly popular given the situation with the presidential race. I do 

not think it is an extraordinary opportunity; I think it is another 

blow to the oil and gas industry, which is hurting. 

Now, I have read and heard the economists talk about placing 

a tax on carbon in order to ‘‘address market failures and to properly account for the alleged costs of carbon-based energy sources.’’ 

The same economists contend that this would have little impact on 

the economy and that these costs, which they readily acknowledge 

will be passed through to consumers, can be implemented in a 

manner to minimize the impact on lower-income taxpayers. 

I have also heard it said that with the price of oil so low, now 

is the best time to implement an oil tax, and this is a quote: 

‘‘Fewer people will notice this tax.’’ Well, I know they may not see 

12 

it, but they sure as heck are going to feel it. Just because the tax 

hit would be less visible under the current market conditions does 

not mean that its impact would be less severe. 

I want to take a quick look at how this proposal will impact my 

State of Kansas where we still endeavor to produce oil and gas, despite the war against oil and gas by the administration. 

The oil and gas industry is a major component of the Kansas economy. Our producers on average invest over $700 million annually in the State. Ten percent of the workforce is employed in oil 

and gas production, either directly or in downstream industries. 

That is 118,000 workers who would be affected. That amounts to 

about 12 percent of Kansas payrolls and over 15 percent of the 

State’s tax revenue. All told, this is about $3 billion in family income in my State. It is no secret that global oil prices and supplyand-demand issues have hit the Kansas oil and gas industry hard, 

as well as many other States. 

Some of the State’s oil and gas service companies have laid off 

as much as 50 percent of their workforce, and some producers have 

seen layoffs of 20 to 25 percent of their workforce. Kansas production has dropped about 5.5 percent, and State tax revenue from the 

industry has dropped by over 50 percent. 

These are real impacts, very severe impacts, happening right 

now. This is just directly within the industry. Think about the related manufacturing and service industries. The administration has 

proposed a massive new tax, and make no mistake, it would significantly burden the economy, directly spilling over into gas prices 

and almost everything else produced or transported within our 

economy. 

The Kansas oil and gas industry is already hurting. I think this 

proposal would only make things worse. I find that unacceptable 

and hope that we certainly do not approve this. 

As described in your Treasury General Explanation, 15 percent 

of the revenue from the tax would be dedicated for relief for households with particularly heavy industry costs, sort of like a new national LIHEAP program. I do not view this as an extraordinary opportunity. In Kansas, most of the oil exploration and production 

companies are considered by any standard small businesses. My 

question is, does your department propose to set aside any of the 

revenue from this tax to assist oil and gas industry workers or 

workers who lose their jobs or are otherwise harmed by the new 

oil tax? 

Secretary LEW. Senator, I think if you look at the price of oil over 

the last year, or even over the last days, you have seen movements 

that are far more dramatic than the impact of the $10 fee over 5 

years. The $10 would be phased in over 5 years. I think we all 

know that we are watching oil prices moving by much bigger 

amounts than that almost on an instantaneous basis every day 

now. So I do not think we should exaggerate what the size of the 

fee is. 

We do think it is important at a time, particularly when oil 

prices are low, to put in place a mechanism that will both help to 

capture the benefit of making the price signal one that contributes 

to better usage, but also to put in place a mechanism for us to invest in the technology and the infrastructure that we need going 

13 

forward in this country. It would put our Highway Trust Fund in 

a more balanced, safe, sound place, and it would give us the renewable technologies and the new technologies of the future. 

It would apply to imported oil as well as to U.S.-developed oil, 

so it does not have a differential impact on—— 

Senator ROBERTS. Are you going to set aside part of this to help 

the oil and gas industry with regards to small businesses that 

would be hurt by this tax? 

Secretary LEW. So we obviously have set aside resources to deal 

with those who are low-income who have no alternative but to face 

higher prices but no income to bear it. I am happy to take a look 

at a proposal that you would have along those lines. 

Senator ROBERTS. Well, I would think—— 

Secretary LEW. I would be happy to get into a discussion about 

it. 

Senator ROBERTS. If it is low-income folks whom you are going 

to try to help with sort of a LIHEAP program, I think you ought 

to take a look at the harm that this tax will have on the oil and 

gas industry and maybe actually help those folks as well. 

Secretary LEW. Well first, you know, we do not know what the 

exact amount is that will be passed on to prices. That is going to 

depend on—— 

Senator ROBERTS. Well, my time has expired. I really appreciate 

your response. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Schumer? 

Senator SCHUMER. Thank you, Mr. Chairman. My first question 

is on tax reform, international tax reform, and you and I have 

talked about that at great length over the last year. To summarize, 

I think we need it for two reasons. 

First, American multinational companies should pay the taxes 

they owe. Right now, our companies making profits overseas can 

keep that money stashed offshore, avoid taxation altogether. That 

is unacceptable. 

Second, we have to protect American jobs and the future of our 

Nation’s economy. As you are aware probably more than anybody 

else, more and more of the Nation’s multinational companies are 

leaving our shores altogether, partnering up with foreign companies to pay lower taxes in foreign jurisdictions, moving headquarters jobs and intellectual property overseas. 

So you, Secretary Lew, and the administration, the President, 

have put forward a very serious international tax reform proposal 

that would transition to a new form of international taxation. 

House Republicans have proposed similar solutions. I have been 

pleased to work with a bipartisan group, including on this committee Senator Wyden, Senator Brown, Senator Carper, and Senator Warner. And we are trying to bridge over, of course, the divide 

between existing proposals. 

There is common ground. I remain at the table ready to work. 

I assume that is the case for you as well. 

Secretary LEW. Absolutely, Senator. 

Senator SCHUMER. That is called a softball question. You are allowed to answer it. [Laughter.] 

14 

Secretary LEW. We continue to believe that working together to 

get business tax reform done is absolutely a high priority. We got 

closer last year than people outside thought. 

Senator SCHUMER. Yes. 

Secretary LEW. There were very good conversations going on 

where there was a pretty broad sense that there might be an 

agreement on international business tax reform where we use onetime revenues to pay for infrastructure that we all want to be able 

to support without building future liabilities into the tax system 

that are unsustainable in terms of cost. It was disappointing that 

at the end of the year there seemed to be some pulling away from 

that. But we do not pull away from it. Our budget puts in place 

the proposal—— 

Senator SCHUMER. What is interesting in your budget is, it is the 

same proposal as last year, but the number of revenues by Treasury’s modeling increases from $205 billion to $350 billion. 

Secretary LEW. That is for the international tax provisions. 

Senator SCHUMER. Correct, and that is because more companies 

are moving overseas and keeping their money overseas. Is that 

right? 

Secretary LEW. It is simply a technical estimate of how much we 

think money is being kept overseas and how much it is being subject to tax overseas and what would come here when the tax is put 

in place. 

Senator SCHUMER. Right. So that means—— 

Secretary LEW. We need to deal with the problem. 

Senator SCHUMER. That increase in revenues also means lost jobs 

here, and it should be a warning signal, a shot across the bow to 

us. 

One final point, and this is for our Republican colleagues—and 

I have worked with Senator Portman and many others, you, Senator Hatch, on this proposal—and that is, I know the administration feels strongly, as do many of us on this side, that international 

reform must be coupled with investments in this country because 

that is the way to use not all of the money, but at least some of 

the money that we gain from getting these revenues, and without 

it, it is going to be hard to pass something. So has your view stayed 

the same, that we will not get a deal on international tax reform 

this year or forever without pairing it with some significant degree 

of investment? 

Secretary LEW. Senator, for several years, we have been advocating linking those issues for two reasons. One is, if you do not 

use that revenue for a one-time expenditure like an investment in 

infrastructure, you cannot cut rates with that amount, or it would 

be then losing revenue in the long run. So we think that that 

solves the structural problem of how do you deal with one-time revenue. 

Secondly, we have this enormous infrastructure need that there 

is broad bipartisan support for. If we are going to ever get a business tax reform bill that has real bipartisan support, it has to include the infrastructure investment. 

Senator SCHUMER. Agreed. 

Secretary LEW. So we are very much of that view. 

15 

Senator SCHUMER. I agree, and now Speaker but then Ways and 

Means Chair Ryan understood that completely. I just hope people 

on the other side will not pull away from that, because that will 

make it much harder to pass it. My final question—go ahead. 

Secretary LEW. I was just going to say, while we are going to put 

every effort we can into getting full business tax reform done, I just 

want to underscore the urgency of dealing with inversions. 

Senator SCHUMER. Right. 

Secretary LEW. We are seeing more and more stories of companies going overseas, large companies. We cannot wait a year to deal 

with this. 

Senator SCHUMER. Agreed. 

Secretary LEW. We need to deal with it, and deal with it now. 

And you could, if you wanted to, deal with inversion on its own. 

I do not think that is ideal. We should deal with business tax reform. But I do not want to be leaving in a year watching more companies having moved overseas, and I do not think anyone on this 

committee wants to look at that either. And the answer is, you 

need legislation. 

Senator SCHUMER. I agree we need it. Can you answer this ‘‘yes’’ 

or ‘‘no,’’ because my time has run out. Essential to getting Puerto 

Rico back on track is a broad bankruptcy provision. That is the 

view of many of us here on this side of the aisle. Is it the administration’s view? 

Secretary LEW. Absolutely. The only thing I would say is, there 

are multiple ways of drafting it. It does not have to be drafted as 

a bankruptcy code amendment. It could be drafted in terms of legislation that applies to the territories. The effect would have to be 

broad restructuring authority. 

Senator SCHUMER. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Stabenow? 

Senator STABENOW. Thank you very much, Mr. Chairman and 

Ranking Member, and welcome, Mr. Secretary. It is always wonderful to have you before the committee, and let me start by thanking you for working with me and leaders in my State to help us 

in a number of different areas. We very much appreciate it. 

As I start, when you were talking about the unemployment rate 

when President Obama took office, in Michigan it was 15.7 percent, 

and we were at the verge of losing the major foundation of manufacturing in the country. And with the administration’s help, the 

President’s help, we have turned that around. Unemployment is 

now 5.1 percent. So from 15.7 to 5.1 is a huge change. 

The challenge, as you know all too well, is that not everyone is 

feeling the recovery. And so when people lost the equity of their 

home, the primary way that middle-class families save, or lost their 

job, or even in the auto industry, took major cuts to save the industry, for those who have been threatened on all sides, it is very, very 

difficult even though the broad aggregate numbers are incredibly 

positive. And I want to speak about one area and ask for your comments regarding one area of incredible insecurity for people, and 

that is around pensions. And I know that colleagues of mine as 

well have spoken with you—and I share the concern—about the 

United Mine Workers. I am particularly, from the standpoint of 

16 

Michigan, concerned about the multiemployer pension plans and 

the reform legislation that passed at the end of last year, which, 

as you know, gave administrators of plans the ability to apply cuts 

to earned pension benefits for the first time since 1974. And it was, 

unfortunately, part of a must-pass appropriations bill to avoid a 

government shutdown at the time that did not give us, did not give 

Congress, time to debate the impact on retirees. And from my perspective, a pension is a promise. It is a key cornerstone of how we 

have had a middle class and the dignity and respect of work in this 

country. And I am deeply concerned about what we now face. 

On Monday, Treasury held a public meeting in Detroit to hear 

from retirees who would be directly affected. More than 500 people 

showed up for that meeting. They went into great detail about how 

they would be hurt by huge cuts, in some cases 50 to 70 percent 

of their proposed pension. These are folks who gave up annual increases in pay to have a secure pension for their future. And so this 

is incredibly concerning. I mean, it is really an outrage when I look 

at these numbers, and I would like to know what the administration would propose to address this incredibly serious issue and 

really broken promises for folks who have worked hard all of their 

lives and are trying to figure out how to go on in retirement. 

Secretary LEW. Senator, as you and I have discussed, it is a terrible problem, and there is no easy or good answer. And, as a result 

of the legislation you described, cosponsored in the House by Congressman Kline and Congressman Miller, that responsibility now 

falls to the Treasury Department to review the plans for working 

through multiemployer plans that are not able to make their payments. 

The challenge is, they all go to an underfunded Pension Benefits 

Guaranty Corporation fund, and, if there is not enough money in 

the fund to pay the benefits, the question is: do you drain that fund 

and then have nothing for anyone? 

We are in the process through the hearings you described—we 

appointed Ken Feinberg to administer this for us. He is going 

around listening, and he is listening to heartbreaking stories. And 

in the end, we will have to review the proposals that come forward 

from the plans, as actions are taken, and the first one will come 

up for review I believe in May. 

We will continue looking at what options there are in terms of 

how to review them, but at the core is this tension between not 

enough money to pay the benefits and very, very difficult changes 

in benefit structure to make the plans last longer. And since we do 

not have additional money to inject into the system, it does not 

give us the option of just saying, you know, kind of continue as you 

are, because that would end up hurting even more people. 

So these are terribly difficult discussions, and they are wrenching decisions, and I appreciate Ken Feinberg taking the task to report to me on that, and I will continue to stay close, working with 

all of you. 

Senator STABENOW. Thank you, Mr. Secretary. And, Mr. Chairman, one of the things I hope we will look at in future hearings 

is the accounting changes, the laws that were changed in the last 

several decades that allowed overfunded pension plans to suddenly 

be available for various other purposes, and changes that had nothVerDate Mar 15 2010 16:27 Dec 12, 2016 Jkt 000000 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 R:\DOCS\22922.000 TIMD
17 

ing to do with workers that have created a large part of this so that 

now we are talking about funding, but there is a lot more to it in 

terms of how pensions got to this particular point. And I think we 

have a lot of hard questions to look at and decisions that were 

made that were not in the best interests of working people. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Thune? 

Senator THUNE. Thank you, Mr. Chairman. 

Mr. Secretary, just a couple of general observations about the budget: $3.4 trillion in new taxes; revenues to GDP end up at 20 

percent, which has only happened once in the last 50 years—the 

50-year average is 17.4 percent revenue to GDP—spending goes up 

to 22.6 percent of GDP. That has only happened five times in the 

last half-century; the 50-year average there is 22.6 percent. And so 

spending is up, taxes are up, and, at the end of the decade, the 

debt goes from about $19 trillion today to $27.4 trillion. 

So the budget really is more spending, more taxes, and more 

debt. And it just seems to me that—you guys are on your way out. 

I mean, this was a chance to go big and go bold. And I just see 

it as another missed opportunity to do something that really matters about what we all know the fiscal crisis facing the country is, 

and that is mandatory accounts. It is the mandatory spending. In 

fact, the budget shifts more spending over into the mandatory account. So just some general observations—again, I am expressing 

my frustration and disappointment. 

I do have a question. This comes back to, slightly changing gears 

here for just a moment, how the U.S. financial services companies 

are treated under our trade agreements. My understanding is that 

the Treasury Department opposed the idea of providing U.S. financial services companies the same protections with respect to ensuring cross-border data flows that most other U.S. companies will 

benefit from under the TPP agreement. So I am just wondering if 

you might be able to clarify Treasury’s position on the issue. Do 

you believe that U.S. financial services firms should be protected 

from foreign laws that impose restrictions on where they can transfer or process customer data? 

Secretary LEW. Senator, this is a provision in TPP that we have 

been working on, talking with the financial services community 

about, but also with our own regulators. One of the issues here is 

the requirements of our regulators in terms of how they view what 

they need in order to have their prudential reviews of financial institutions. So, as we are in an international space, we cannot give 

away something that our financial regulators would need here in 

the United States. But we are working with industry and with the 

regulators as we go through this. We are sensitive to the concerns. 

It is certainly not something that is designed to, was meant to, put 

a burden on U.S. financial institutions. We bargained very hard in 

TPP to get terms that are very favorable generally to U.S. financial 

institutions on a global basis. This is actually a case where what 

we in the United States—‘‘we’’ meaning not Treasury but our independent regulators—require in terms of data availability is one of 

the issues we have to work around. 

Senator THUNE. I know generally on cross-border data flows, the 

agreements I thought were things that we really prioritized, but it 

18 

seemed with financial services it was a different standard. What 

you are telling me is that that is actually something that you are 

working on with the industry and the regulators to—— 

Secretary LEW. Yes, and we have, in other aspects of TPP, been 

very aggressive to make sure that local data requirements are not 

put in place, for example, to restrict the ability of a global system 

like a credit card system to work effectively, because we have big 

industries in that area. This is kind of a sub-issue because of the 

regulatory requirements here in the United States, but we are 

working through it and are sensitive to the concerns. 

Senator THUNE. Okay. 

Secretary LEW. If I might, Senator, just back to your observation, 

and I do not mean to take your time—— 

Senator THUNE. But you will. 

Secretary LEW. If I could take 30 seconds of it? 

Senator THUNE. Go ahead. 

Secretary LEW. It is true that the budget would trend back up 

in the end to 20 percent of GDP. I remember well when we were 

at 20 percent of GDP. I was Budget Director at the time. We had 

a surplus in the United States, and we were on a path towards 

paying down our national debt, and it was a period of great economic growth. 

I think when you look at the growth of spending, you have to recognize that Medicare and Medicaid, for demographic reasons, will 

grow, and, as a unified budget, we have to look at, are we doing 

what we need to do? I think that some decisions that were made 

between 2000 and 2009 made it harder. I think that our budget 

puts it in the right place, and we do not spend any money that we 

do not offset, so fiscally it is balanced. And I think these are important conversations for us to have going forward this year and beyond. 

Senator THUNE. Well, I would just say, though, the tough choices 

are with regard to those parts of the budget that we all know are 

growing dramatically. And in a matter of a few years it is all going 

to be entitlements and interest on the debt that eat up all of our 

revenue that comes in, and everything that we spend for defense 

and discretionary is going to be borrowed money, which is why we 

end up with a huge debt at the end. 

So I mean, part of it, of course, is we have to figure out how to 

meaningfully rein in, reform those programs so that they fit the demographics of the future. And then we have to get growth up to 

a higher level, which obviously I think comes back to some of the 

issues which—I am out of time—I will not have a chance to get 

into, but I think tax reform goes squarely at. So you know, when 

you are growing at 1 to 2 percent or slightly more—I think you 

were saying 2.3, 2.6 over the course of the next decade—it just does 

not get us there fast enough. 

So thank you, Mr. Chairman. My time has expired. 

The CHAIRMAN. Thank you. 

Senator Coats? 

Senator COATS. Thank you, Mr. Chairman. 

A little bit of what I am going to do is vent. Senator Thune laid 

the precedent for being able to do that. 

19 

When you said that this is your last presentation here before the 

committee—— 

Secretary LEW. Presentation of a budget. You are welcome to 

have me for other purposes. [Laughter.] 

Senator COATS. Well, particularly related to the budget, I would 

think you would say you are relieved not to have to come back, because every budget you came to present has been soundly rejected 

by the Congress, and both parties. I think last year it got one vote. 

I am not sure who that was. In previous years, it has gotten zero 

votes. So I mean, you must think that at some point, what a waste 

of time and effort goes into coming up here, presenting a budget, 

and not having any support from either party. That is just an observation of mine. 

You state on your first page here that this is a vision for the future, and I look at this as something that is totally disconnected 

with the reality of where we are. Senator Thune talked about the 

big gorilla in the room that we have not been able to deal with, and 

that is mandatory spending. And as you know, over the last 5 or 

6 years, the Congress together with the President has tried to come 

to some solution to put in place some long-term reforms that would 

keep us from becoming insolvent and so debt-laden that our children and grandchildren simply are not going to begin to have the 

opportunities that my generation has had. So that is a failure on 

all of our parts, not without trying, but the bottom line is, it is a 

failure, and it is going to continue to put us in a very, very difficult 

situation. 

So I guess one of my questions is, why do we go through this charade? Speaking for my constituents—who I think are being reflected in these primaries as simply saying, you guys are spending 

stuff that we no longer accept. And whether it is the Democratic 

Party or the Republican Party, there are messages being sent out 

there saying, we have caught on to this shell game that goes on 

in Washington. They sit there and talk about how to fix the future, 

and the future looks ever more dim. 

So why can we not sit down here and talk about the real problems that we face and offer some solutions instead? And you said, 

do not worry, because everything we are going to spend in the future is offset. Well, it is offset by $3 trillion of more taxes. And I 

do not know of an economist out there who says the way to prosperity and creating innovation and creativity and supporting, not 

only our businesses and innovators but supporting our middle-class 

families and lower-income people, is to raise taxes $3 trillion over 

the next 10 years. 

So I guess I am using most of my time here to vent, but I would 

like to get your respons to some of this, because I just think, based 

on what we watched last night, the public is saying, ‘‘This is a 

bunch of gibberish going on up here in Washington, and we want 

something different.’’ And obviously, radically different, from both 

sides. I mean, both of our establishment candidates got shellacked 

in Iowa and shellacked last night. They are frustrated with DC— 

I am not talking just Ds or Rs or Independents—they say, these 

people have failed and why can we not get on to something that 

is more related to reality? 

20 

Secretary LEW. Well, Senator, I recognize that we have different 

views of how we should address the future, but I think this budget 

is a very clear picture of how we believe we should address the future. I think we have also shown over the last couple of years that, 

when we sit down and engage on difficult issues, we find pathways 

to work together and make real progress. We made real progress 

last year on a number of important issues. 

So I actually think it is quite relevant to present a coherent vision. It is part of our system that there are different approaches 

to what the answer for the future is. And if we could get back to 

the place where you take those differences and you figure out 

where you can work together, we ought to be able to do business 

tax reform. There is a lot of overlap between the two sides of the 

aisle here and between the administration and Republicans in Congress on how to think about it. We should just sit down and do it. 

I think people would feel better if we had a tax system where we 

did not have inversions anymore. I actually think there is a lot in 

the budget that we should make progress on. 

Senator COATS. We might be better able to do it if you would 

bring forward a budget that gets at least a majority of support on 

a bipartisan basis. When you bring forward a budget year after 

year after year and it gets zero votes from Democrats or Republicans, does it ever give you pause that maybe your vision for the 

future is not selling with the American people? 

Secretary LEW. I have been working on budgets for most of the 

last 40 years, and I have not known a year when there has not 

been that kind of a difference between parties beginning the year. 

And then you go to work on the things where you can get work 

meaningfully done—— 

Senator COATS. But regarding the major issue that we all face, 

both sides, mandatory spending, over the last 40 years we have not 

addressed that. 

Secretary LEW. Well, we actually have over the last 40 years 

done a lot of things on mandatory spending that have made a difference. I mean, I was part of Social Security reform in 1983 that 

made a real difference. 

Senator COATS. That is legitimate, and that is 1983. 

Secretary LEW. And I think if you look at the Affordable Care 

Act, while we may not agree on the policy, it is pretty clear that 

it has helped reduce spending on health care in Medicare. It has 

extended the life of the trust fund. It is the most important turning 

of the corner on spending on health care in decades. 

That does not mean we do not have more work to do, but I actually think when we have an environment where we can work together on the things where there is room to make progress, we can 

give the American people something that they should be proud of. 

When it is just shutdowns and fighting and crisis, it is not hard 

to understand how people get fed up with that. 

Senator COATS. The chairman has been very generous with my 

time. I yield back, Mr. Chairman, but thank you, Mr. Secretary. 

The CHAIRMAN. Thank you. 

Senator Menendez? 

Senator MENENDEZ. Thank you, Mr. Chairman. 

21 

Mr. Secretary, thank you for your good work. I want to talk 

about Puerto Rico: 3.5 million American citizens, and I underline 

that, American citizens who have fought in our armed forces in just 

about every conflict this country has had for the last century. And 

if you come take a walk with me to the Vietnam War Memorial, 

you will see a disproportionate number of their names on that wall. 

Now, due to a multitude of issues, American citizens living on 

the island of Puerto Rico are now in dire straits. They have an economic and debt crisis that threatens to explode into a full-force humanitarian calamity, and that is not politics. That is the reality on 

the island. It is the reality that I hear from many Puerto Ricans 

living in the State of New Jersey who have loved ones there, who 

tell me about the challenges of their families on the island. 

Now, there are those who contend that Puerto Rico should not 

be able to restructure its debt, even though it had that right in the 

law at one time, and it was surreptitiously stripped out and no one 

knows why—but it had that right—and instead that it should simply raise taxes and cut spending to a degree to get its books in 

order. 

The problem with that is that the debt payments in Puerto Rico 

are 36 percent of Puerto Rico’s annual revenue, a rate that is six 

times the U.S. average. So it seems that any solution that does not 

include restructuring authority will be woefully inadequate. And, 

you know, I know some people say this is being politicized. I think 

it is being politicized for the hedge funds, the bottom feeders who 

bought cheap and now want to maximize their profits. That has 

nothing to do with the 3.5 million American citizens in Puerto Rico. 

And it has nothing to do with the exodus that we are seeing of 

Puerto Ricans coming to the mainland, where they will enjoy all 

the rights and responsibilities of any other U.S. citizen—which, by 

the way, will be far more costly. 

So I want to get the administration on the record to make this 

clear. And, in fact, if Puerto Rico did not have to make its debt payments, it would actually run a $1-billion surplus this year—a $1- 

billion surplus. 

So do you agree that providing Puerto Rico with the tools to restructure the debt is a necessary component of any successful recovery package? 

Secretary LEW. Senator, I totally agree. I think there are other 

things that need to be part of a comprehensive plan in the long 

run, but there is an immediate crisis in Puerto Rico. I was just in 

Puerto Rico a couple weeks ago. I met with business leaders. I met 

with working people. I met with all the public officials. It is not a 

future crisis. It is a current crisis. They talk about hospital wards 

being shut down, schools being closed, pensions that are being 

drained of money, people paying into pension funds that are being 

emptied out to pay for bond payments. This is not sustainable. People are leaving the island. And the economy cannot recover if the 

economy shrinks because people leave. 

When you are insolvent, it is by definition what you said: your 

bond payments just cannot be supported any longer, and you have 

to restructure. That is what happens in the private sector when 

companies become insolvent. It happens when cities become insolvent. 

22 

Puerto Rico has a unique package of debts. It is complicated. 

There are 18 different series of debt. They could be in court for 5 

to 10 years with litigation. I do not think Puerto Rico’s economy 

could recover from 5 to 10 years of protracted litigation. There will 

not be an economy to talk about. And so I feel it is a real crisis. 

Senator MENENDEZ. So, if it was good enough for Trump, it is 

good enough for the people of Puerto Rico? 

Secretary LEW. Well, I am going to leave the comparisons to others, but I do think that 3.5 million Americans who are going to be 

in chaos if Congress does not act—— 

Senator MENENDEZ. Let me ask you this very briefly. The chapter 9 authority open to municipalities, that really does not 

meet—— 

Secretary LEW. It does not really work. It addresses about a 

third of the debt, and that is not—— 

Senator MENENDEZ. And with large debt payments due in May 

and July, is there not going to be a point where we will face the 

consequences if we continue to delay to act? 

Secretary LEW. You know, they have only managed to be in default on small bond issues by doing things that are almost unthinkable in terms of financial management. I mean, when you talk 

about prematurely emptying out pension funds to pay bond holders, that is not something you do if you are not already bankrupt. 

And, when you talk about taking money that is dedicated to one 

bond holder and shifting it to pay another bond holder, that cannot 

go on for very long. 

So I cannot tell you at what point they run out of those extraordinary and very unhealthy kinds of tools. But it cannot go on forever, and restructuring authority has to be in place enough in advance that they can actually restructure to meet May and July as 

they come. 

So I think the first quarter is a meaningful period. The deadline 

the Speaker set for the House to act in the first quarter is very important. We are willing to work with anyone and everyone who approaches this with the intention of solving the problem. We know 

that there is going to have to be oversight along with restructuring. 

I do believe that doing something on the Medicaid reimbursement 

and EITC is important. But I totally agree with you: without restructuring, there is not a solution. 

Senator MENENDEZ. Well, Mr. Chairman, there is a fierce urgency of ‘‘now’’ on this issue, and I just do not get the sense that 

many of my colleagues understand that. And I hope we can awaken 

them to that fierce urgency of ‘‘now’’ and the rights that 3.5 million 

American citizens have and would have if they were living here in 

the United States. It is just fundamentally wrong. And so when 

you ask people to don the uniform, shed their blood, risk their 

lives, and at the same time you cannot treat them with the same 

dignity and respect that they would have here on the mainland, 

something is fundamentally wrong about that. And I hope we can 

prick the conscience of the Senate to move on this issue, Mr. Chairman, because this is really consequential to millions of people. 

The CHAIRMAN. You raise a lot of good points, and to be honest 

with you, we are in the process of doing that. I am going to come 

up with a different bill than the one we filed which would do the 

23 

job to a large degree, or at least get us started on it in time to do 

it even more thoroughly. So I hope I can enlist your support when 

we finally get this—there is no politics, as far as I am concerned. 

I want to get it done, and I will do my—— 

Senator MENENDEZ. Mr. Chairman, you will have my support if, 

at the end of the day, what we are going to do is give the people 

of Puerto Rico the same opportunity that any United States citizen 

has here. So I am happy to work with the chairman towards that 

goal. I just have a real fierce sense of urgency, and I cannot, you 

know, elaborate on that enough to drive that point home. I appreciate the chair’s—— 

The CHAIRMAN. Well, I am trying to get this done before the end 

of March, and we will see what we can do. 

Senator Brown, you are next. 

Senator BROWN. Thank you, Mr. Chairman. I want to throw in 

with the words of Senator Menendez about the 3.5 million citizens 

of Puerto Rico—again emphasizing these are American citizens— 

and that this should be done quickly and the fierce urgency of 

‘‘now’’ that Senator Menendez talked about. 

Secretary Lew, thank you for the work you are doing. I have in 

my State and Senator Portman’s State the city of Lorain, the city 

of Cleveland. Lorain at one point had a higher percentage of Puerto 

Ricans than any city in America. Right after World War II, 500 

men from Puerto Rico came to Lorain to work at U.S. Steel, and 

their girlfriends and families followed to the point that there is a 

vibrant community there, and so many of them are still very connected to the island of Puerto Rico as American citizens. 

I want to talk for a moment, Mr. Secretary, about something this 

committee did, Mr. Chairman, that was so very, very important. As 

part of the bipartisan tax extenders package, we made permanent 

the temporary extensions of the Earned Income Tax Credit and the 

Child Tax Credit. Whether measured in terms of the number of 

people lifted out of poverty or in terms of the additional money 

they have placed in low-income families’ pockets, this is the largest 

anti-poverty advance since the 1993 Budget Act, save the Affordable Care Act. So other than the Affordable Care Act, what this 

committee did bipartisanly last year on the EITC and CTC was the 

most important anti-poverty advance that this country has had. 

I want to focus, of the two, on the Earned Income Tax Credit. 

In 2013, the most recent year for which complete data is available, 

some 27 million families and individuals earned and claimed the 

EITC; 6.2 million people were lifted out of poverty; half of those 

were children. But a glaring hole remains in the program. Workers 

who do not claim children, as you know, Mr. Secretary, on their tax 

return are the only workers who can be taxed more deeply into 

poverty, which is ironic considering we always brag about rewarding work when we make our speeches around here. It is wrong. Nobody who works full-time should live in poverty. That is a fundamental—should be a fundamental tenet of American values, and I 

think it is. 

Forty-three of my colleagues and I, including many of us on this 

committee, introduced a proposal to correct this problem. Speaker 

Ryan has offered similar proposals, as has the administration. Give 

24 

us thoughts, if you would, on the proposal, the need it would address, and particularly its impact on the economy. 

Secretary LEW. Well, Senator, first, I agree with your assessment 

of the significance of making the refundable credits permanent. I 

do not think that there is anything more important that we could 

have done to deal with poverty in this country and to create an incentive to work, which is why there has historically been bipartisan 

support for the EITC. I think that this is one of those areas where 

there ought to be a way for us to work in a bipartisan way to get 

something done. I have talked to Speaker Ryan when he was chairman of the Ways and Means Committee and since about this many 

times. He has talked with the President about it, as has been reported. 

I think that this is an area where, if we could put some other 

issues aside and concentrate, we could create a model for how you 

deal with problems of shared concern that both help deal with an 

inequity and help get people back into the workforce. If you tax 

people into poverty, you cannot then complain that people are not 

becoming part of the workforce. I mean, one of the reasons the 

EITC was created was to make work pay, to make it so that people 

would not have this kind of perverse taxation when going to work 

at very low wages. 

So I do not know that there is any more elaborate economic response to it. I think you put a pretty accurate point on it. If you 

have a tax that is taxing people into poverty, it is not a good tax. 

And if you have a solution, it is one that there ought to be broad 

bipartisan support for because everybody supports work. And the 

Earned Income Tax Credit was created in a Republican administration. It has been supported in bipartisan budget agreements for 

many decades that I have been involved with. I hope this can be 

the next chapter, and I hope we can do it this year. 

The CHAIRMAN. Senator Bennet? 

Senator BENNET. Thank you, Mr. Chairman, and, Secretary Lew, 

thank you so much for your leadership and for your service over 

so many years. 

I want to start with an unrelated issue, which is, I wonder 

whether you could describe for the committee—we have a vote tomorrow on the Customs bill—the enforcement provisions in that 

bill and their importance. 

Secretary LEW. Yes, Senator, thank you. I think that the enforcement provisions are very important because, while it is critically 

important to have trade agreements that open borders for free 

trade, it is equally important that we have meaningful tools to enforce fair trade and that we use those tools. I mean, antidumping 

and countervailing duties are important tools, and the Customs 

conference report comes after we had taken some action at the end 

of last year, where we added to the resources we have in our departments to implement the antidumping and countervailing duty 

laws. So, when the conference report on Customs is passed, it will 

be another round of enforcement tools. 

It would create accountability for future administrations—this 

administration and future administrations—for the prosecution of 

cases of duty evasion. The bill creates deadlines by which the Customs and Border Patrol will have to notify U.S. companies of acVerDate Mar 15 2010 16:27 Dec 12, 2016 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 R:\DOCS\22922.000 TIMD
25 

tions taken to investigate allegations of antidumping and countervailing duty. It gives the Border Patrol extra tools to protect intellectual property. It streamlines operations to facilitate the flow of 

legitimate trade. And it gives us tools on an issue that you helped 

to craft to bring currency issues into sharp focus so we can be even 

more effective pushing back on any unfair practices in that area. 

Senator BENNET. I appreciate your help on that provision. I want 

to go back to the line of questioning that Senator Thune was talking about, because we are at the moment cutting, across the board, 

domestic and defense spending. And from the point of view of the 

next generation of Americans, that is certainly not what we ought 

to be doing. And, simultaneously, we now have $19 trillion of debt 

on the balance sheet, which from the point of view of the next generation of Americans is a lousy deal. That combination is toxic for 

the people who are coming after us. 

And I wonder—I would like to give you the opportunity to tell 

us what advice you are going to give your successor for how they 

could lead this Congress in a bipartisan way to actually begin to 

address this staggering imbalance that we are proposing to place 

on the next generation of Americans. The time has come for us to 

actually get this work done. So what is your advice for how we can 

do it? Lead us out of the wilderness. 

Secretary LEW. Senator, I think whoever takes my place will be 

coming into a very different situation than my predecessor, and I 

stepped into—— 

Senator BENNET. I should point out—I am sorry—that the last 

time we did have a balanced budget, you were the Budget Director. 

So that is another reason I am asking. 

Secretary LEW. Well, thank you, Senator, and I am proud of that. 

You know, we had a deficit that was 10 percent of GDP, and it was 

climbing, and it was looking like the debt would cross 100 percent 

of GDP. We had a full-blown crisis that we had to get our hands 

around. We had to steady the economy. And then we had to start 

moving towards deficit reduction, both as the economy recovered 

and as we could reach political consensus. 

We are delivering an economy in a very different place. You 

know, we have a budget which is stable. We have the deficit below 

3 percent of GDP. The projections of the deficit as a percentage of 

GDP stabilized in this 10-year window, around 75 percent of GDP. 

I am not saying that that is something that we should have for all 

time, but it is not like a hockey stick going off. And I think that 

whoever takes my place will be coming into a situation where hopefully there will not be crisis management but the kind of long-term 

planning where you can say 10 years, 20 years, 30 years down the 

road, where do we want to be? 

Our budget actually is something of a blueprint for how to think 

about it. We have to invest in the short and medium term to get 

the kind of economy that gives people a chance to have a stake and 

a future that is bright. And I think to have the debate about what 

do you do about long-term entitlements will be a very different debate if we can turn the corner on the sense that so many people 

feel left out of the economy today. 

So I think to jump right into dealing with what do we do 10 and 

15 years from now, when there are real needs in transportation 

26 

and infrastructure, real needs in education and training, real needs 

in research that we are not meeting, we have to fill that space. I 

think the budget agreement at the end of last year gives us a period of time where we can make progress there. The budget lays 

out a lot of ideas. Let us get progress done on the ones that we can 

agree on, and then whoever comes in will hopefully be able to take 

the debate forward. It is not a debate that begins and ends. It goes 

on. 

As I said to Senator Thune, we have to be realistic about what 

the mix of revenue and spending is. When we balanced the budget 

in the 1990s, when we ran a surplus, we had 20 percent of GDP 

revenues, as was pointed out. That was consistent with running 

what was projected to be a $5.5-trillion surplus the day I left office. 

Now, if you are looking at a period where we have the Baby 

Boomers retiring, it should not be a surprise to anyone that the demographics are a little rougher. You know, when my generation 

was born, everybody knew that 65 years later people were going to 

be 65. So that is not a surprise. What we could have done in the 

2000–10 period was carry forward the fiscal position we were in in 

2001. We did not do that. Then we had a financial crisis. Then we 

had a recession. But we are now in a more stable place. 

So if we are going to make progress in the short and medium 

term, we are going to have to work towards the politics that permit 

the kind of civil debate to deal with these issues on a bipartisan 

basis, which is the only way they can really be dealt with. 

Senator BENNET. Thank you, Secretary Lew. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you. 

Senator Casey? 

Senator CASEY. Thank you, Mr. Chairman. 

Secretary Lew, I will just ask one question, and I will be brief 

because I have to run, but I want to commend you for your public 

service. This is your third or fourth chapter of significant public 

service, and we are grateful. It is a hard job in any environment, 

but especially the current climate in Washington. So we commend 

you for that. 

I was talking to you earlier today about an issue that I know you 

work on every day and the administration does as well and probably does not get enough attention: the strategy to focus on terrorism financing or our efforts to cut off financing to terrorists, and 

especially now the challenge that ISIS presents. 

I would ask you just to answer one question, if you could update 

us on your current efforts; and, number two, is there anything you 

hope we would do in addition to the obvious thing the Senate has 

not done, which is to confirm Adam Szubin? You cannot talk tough 

on terrorism and not confirm Adam Szubin, who is the leader on 

this issue in your department. So, in addition to putting an important focus on Adam Szubin, whom we should confirm, could you 

give us an update on what is going well in terms of cutting off ISIS 

financing and what more we can do? 

Secretary LEW. I appreciate your calling attention to the urgent 

need to confirm Adam Szubin as Under Secretary for this critical 

set of responsibilities. Our department and our government are the 

leaders in the world in dealing with threat financing, and we have 

27 

to provide help and technical support and information to countries 

around the world to be effective. And we should have an Under 

Secretary who has been confirmed to do that job as effectively as 

possible, and I appreciate your support. 

Let me just give you a little bit of a background and current 

state of where we are in the counter-ISIL effort in terms of finance. 

ISIL has evolved over the last couple of years. They started by conquering territory and taking bank vaults and using the money. 

They then developed oil resources and extortion—‘‘taxes’’ they 

would call them, but we consider the methods they use to be extortion—to get renewable sources of funding. 

As they have changed, we have changed. So we have worked 

with the Government of Iraq to close 90 branches of banks in ISILcontrolled territory. We have worked with our military to target 

vaults so that they could literally be blown up to destroy money 

that is in their control. We have worked to close the energy resources so that it is much harder, if not impossible, for them to sell 

that oil in most parts of the world, though obviously there is trade 

with Syria in particular that is very troubling. 

When you look at what we are doing now in terms of what is 

called ‘‘Tidal Wave II,’’ we are not just striking the oil refineries. 

We are striking at the oil tanker trucks which they use to move 

the oil to the border, and we have been very effective. We have 

worked with the Government of Iraq to shut down payments into 

the system. So there are employees and retirees who are not getting paid because they live in ISIL-controlled territory. These 

things are very hard on the non-ISIL people in that territory, but 

it is what you have to do to deprive them of an evergreen source 

of funding. 

Now, I cannot say that we are done. They are always evolving, 

but what they have also done is they have grown so that they need 

more money than they can raise, and that means they cannot continue to grow, and we have to keep cutting back on their sources 

of renewable funding, make it harder and harder for them to grow 

and force them to shrink. And obviously, there are other military 

efforts, but I am just talking about what we can do on the finance 

side. 

We had a meeting at the United Nations, at the Security Council, in December, the first time in history that finance ministers 

from around the world met in the Security Council. And together 

with Russia, I sponsored a resolution that had the whole world 

agree to treat ISIL the way we treat al Qaeda for the purpose of 

threat finance and sanctions. 

So we have an aggressive effort. It has diminished their ability 

to keep their financial flows up to their needs. We have turned, I 

think, a corner in terms of making it hard for them just to stay 

where they are, and they have to make hard choices. And we need 

to do more, and we have powerful tools to do it. But they are not 

the kinds of tools we used with Iran. It is a different entity. There 

is a lot of work we need to do bilaterally with countries in the region, so we do not just shut down oil trade but we shut down cement trade. And it is not like trucks come with banners saying that 

they are ISIL trucks. Everything goes through middlemen. And one 

of the things we did at the UN was to make middlemen liable to 

28 

sanctions, so that it is not just the ISIL forces themselves that can 

be sanctioned, but it is anyone who deals with them. 

So we have a lot of work to do, but we are working very hard 

at it, and Adam Szubin is leading the effort for us. 

Senator CASEY. Thank you very much. 

The CHAIRMAN. Senator Cardin? 

Senator CARDIN. Thank you, Mr. Chairman. 

Secretary Lew, I join my colleagues in thanking you for your extraordinary career of public service and the effective manner in 

which you have handled Treasury. I am very proud of your work. 

We are here on the budget. We are here on some of the tax proposals that are in the budget that is under the jurisdiction of this 

committee. And I certainly support what you are trying to achieve 

in higher education to make it more affordable for American families, to make pensions easier for individuals to accumulate funds 

for retirement security. Senator Portman and I are working on 

some of these ideas and hope to work with you. 

Some of your energy proposals, particularly making permanent 

the 179(d) provisions dealing with energy efficiency and expanding 

it to retrofits—all that I think is good. New Market Tax Credits, 

thank you; permanency and expanding the limits, very important 

in the State I represent. Low-Income Housing Tax Credit expanded—there are a lot of good things in here. I just want to use 

my time to talk about the fundamental issue of the competitiveness 

of our tax code globally. 

You are making certain recommendations that you made in the 

last budget. They certainly deal with parts of the problem. But 

they do not deal with the fundamental issues. The two fundamental problems we have are, one, we have two tax codes—one for 

the wealthy and one for the rest of us, and the wealthy figure out 

ways to get around the changes we make, and they are always two 

steps ahead of us. You have some proposals in here to deal with 

that, but if we pass them, they will figure out something else. 

And the second is, we have high marginal rates compared to the 

countries we have to compete with: the 35-percent corporate rate 

that you deal with and you try to get lower, the 39.6-percent individual rate. And what is amazing about that is that this Nation, 

among the nations we compete with, relies less on the governmental sector, so why should we have the largest marginal rate? 

So I want to know why we are not considering something fundamentally different where we could have the lowest marginal tax 

rates in the industrial world by 5 percentage points on both income 

and consumption. We could get a corporate rate down to 17 percent, an individual rate down to 28 percent, and we could do this 

in a revenue-neutral way so you are not going to lose any revenues—it is all paid for within the tax code. You are not trying to 

take it from one sector to the other. It is all within the tax code 

itself. It rewards savings. It is very efficient. You do not use the 

tax code as much as it is used today for policy, but use it to collect 

revenue. That may seem a little strange to use the tax code to collect revenue. It is progressive, more progressive than the current 

tax code. I would say that is not necessarily a high bar, but it is 

more progressive than our tax code, which I would think most people would want. 

29 

One of the complaints we hear about it is that, well, that is visionary, it is long-term; what can we do in the short term? We have 

been talking about this for 30 years. This is your last opportunity 

to give us good advice, and I would hope you would be visionary. 

And one last point, if I might, before I give you your time to respond. There are now Democrats and Republicans both proposing 

this type of tax reform, so this is not something that cannot happen. It can happen. And the more and more people look at it, they 

start to say, gee, why are we not doing this? Why is America sticking out as the only industrial nation in the world that does not use 

consumption taxes? 

So I understand the political hurdles. I would tell you this: your 

proposals have political hurdles. Some of them are so commonsense, but everything has political hurdles. So why not try to correct the problem? 

Secretary LEW. So, Senator, obviously the question of income tax 

versus consumption tax is a very serious theoretic, analytic one. 

We have never endorsed a consumption tax. Many other countries 

do, and their overall tax burden may not be lower than ours. It is 

just that the way it is paid is through different mechanisms. So 

their income tax is lower, but their total tax may well be higher. 

We do, as you know well, have sales taxes at the State and local 

level in many parts of the country, so this is an area where there 

has been a Federal income tax and State and local authorities have 

tended to use sales taxes. 

It is not by the basic nature that a consumption tax is more progressive. By its basic nature it actually could potentially be less 

progressive. One would have to design it very carefully in order to 

make it progressive. 

Senator CARDIN. The two design factors—and we have introduced 

a bill to do this, so this is not hypothetical. The two design factors 

are, first, that it will be revenue-neutral. It will not grow revenue, 

it will not lose revenue. It will be revenue-neutral. And the second 

is, it will be more progressive than our current tax code because 

you cash out the benefits that we have under our current system 

to make our tax code progressive. 

Secretary LEW. So I understand that those are the objectives that 

would be behind a proposal that you have designed. I am just saying that inherently in the design of consumption taxes, people at 

low income levels consume 100 percent of their income; people at 

high income levels do not. You have to overcome that by design. 

So it is not something we have supported or we are working on 

a proposal for. Obviously, it is an area of intellectual inquiry that 

anyone working on tax policy pays attention to and thinks about, 

and I would be happy to have conversations about it, but it is not 

an area where we are currently looking to put proposals forward. 

Senator CARDIN. I did not expect you to embrace it. That was not 

the purpose of the question. The purpose is this: that we are going 

to have hurdles getting any of this done, and we have been arguing 

about this for a long time. And it is no longer theoretical. The fundamental problem we have is that we are not competitive, and 

there is no reason why we should not be competitive. We should 

have an advantage in our tax code. As you point out, when you add 

up the tax burdens of the countries we compete with, they have a 

30 

higher tax burden than we do. So why are we losing companies to 

Great Britain, for example? 

Secretary LEW. Yes. I think, Senator, that our business tax system is the reason we are losing companies, not our individual 

tax—— 

Senator CARDIN. Over 90 percent of our businesses pay a personal rate. 

Secretary LEW. But those are not the companies that are moving 

overseas. 

Senator CARDIN. Some are. 

The CHAIRMAN. Senator, your time is up. 

Senator Portman? 

Senator PORTMAN. Thank you, Mr. Chairman. And, Secretary 

Lew, good to have you back with us. As former OMB Director, you 

are probably having nightmares about the budget hearings that 

you have had in the past, and this is relatively easy. 

Secretary LEW. Many fewer notebooks as Treasury Secretary 

than as OMB Director. 

Senator PORTMAN. Yes. I always hated those hearings. 

Senator Cardin talked about the competitiveness of our tax code, 

and you and I have talked a lot about this. Senator Schumer talked 

about it earlier. I agree with Senator Cardin that we have to have 

a broader reform of our tax code in order to be competitive, including those companies that are pass-throughs. But in the meantime, 

we know, as you have said today, that we have a real problem with 

regard to our business tax as it relates to C corporations, and they 

are not competitive. And my one concern about what you said 

today, as you know, is you are focusing a lot on these inversions. 

I do not think inversions are the biggest problem. I think the biggest problem is just that companies are not competitive, and, therefore, even when you cannot invert because we put some regulations 

out there, we continue to have the problem. 

I would reference Shire. As you recall, AbbVie was going to do 

an inversion with Shire. These are two huge pharmaceutical companies, Shire an Irish company. They did not move forward because they did not want to go through the hoops that you required 

in your regulations. And so what has happened? Over the last 13 

months, Shire has bought now four U.S. companies. They have 

said, fine, you guys put these regulations out, we will just start 

buying, gobbling up U.S. companies. The last one was a couple of 

weeks ago, a $32-billion acquisition, their fourth one. And as you 

know, they take investments and jobs with them when they do 

this. 

So we have to get at the underlying problem, and I know Senator 

Schumer talked about it. He and I have worked together on this. 

We have our working group. You have worked well with us. I am 

trying to come up with a framework. As you know, I am happy 

about some parts of the budget and not others as it relates to this 

issue, and I think we need to keep an open mind. 

I am maybe the last one on this committee who really believes 

we can get something done this year, but I think we have to. It is 

not so much that it is the right thing to do. It is that we have to, 

because if we do not, we are going to continue to lose more people 

overseas. And it is workers, it is wages, it is benefits. That is what 

31 

gets affected, based on all the studies I have seen. So I would just 

ask you if you could talk a little about that. 

Secretary LEW. I did not mean to suggest that inversions were 

the only problem. I think inversions are a big problem, and it is 

indicative of the competitiveness concerns. And I am totally with 

you that we ought to get something done this year. We had conversations last year where reasonable people could see a pathway 

forward. I do not think that any of us should feel comfortable just 

watching more American businesses leave the United States, be 

purchased by foreign companies, because we fail to make the effort. 

Senator PORTMAN. Yes, I appreciate your comments, and I think, 

you know, let us be honest. A lot of people are saying, well, the 

leadership in Congress and the White House has kind of put this 

off. And what you just told me is that you are not putting it off. 

You are prepared to roll up your sleeves, get reengaged in this with 

us, and try to do something this year. I think if we wait a couple 

years, which is what a lot of people are saying, we are going to lose 

so many more businesses. In fact, about every week or so, we are 

going to lose one, particularly when people figure out we are not 

going to deal with it, because in these board rooms, with activist 

shareholders out there pushing and these investment banking 

firms and others offering these big proposals that make the owners 

of the company and the board members well-off but hurt the workers, I think there is going to be more pressure. 

Let me ask you about something else, if I could: the Hardest Hit 

Fund. You have worked with us on ensuring at the end of the year 

that we had a better allocation for the Hardest Hit Fund. We put 

more funding in. You got $2 billion now of Hardest Hit Funds that 

you have to allocate. Senator Brown and I and Senator Stabenow 

and I have worked on this issue. This is something that affects 

Ohio a lot, Michigan a lot, some other States. Ninety-one percent 

of our allocation has now been drawn down. We have so many 

blighted properties out there, and these are abandoned homes that 

are not just a magnet for crime, but they are also reducing the 

value of everybody else’s homes in the neighborhood. 

So could you just tell us today what you are doing with regard 

to distributing these funds? We would like them to be directed to 

the States with the highest need and made available specifically for 

blight elimination purposes, of course. But could you tell us a little 

about the allocation formula and how you intend to distribute the 

funds? 

Secretary LEW. Thanks, Senator, and thank you for the work 

that you, Senator Brown, and Senator Stabenow did to make this 

funding available. And we are working as quickly as we can to 

make sure that we get it allocated. We are looking at a combination of approaches to get some money out quickly, as quickly as 

possible, through an automatic formulaic approach, but also to 

keep a mechanism to target based on where the need is the greatest on specific applications. 

We are very close to completing the process of putting that together. It is obviously only a few weeks since the provision was enacted. I have made it clear to my team that I view this as an urgent issue, because I would like to be able to commit the money 

and get it out there in use this year. That was the intention of the 

32 

legislation. And I am very proud of the work that has been done 

on blight removal using Hardest Hit Funds. It was something that 

was, at the time, an innovative interpretation of the Hardest Hit 

Fund, but I totally agree with you. If you have a house on a block 

with blighted housing on it, if you do not remove the blighted housing, your chances of staying above water are really tough—— 

Senator PORTMAN. Exactly. 

Secretary LEW [continuing]. Because blighted housing brings 

down all the values. So the economics of it are very strong—— 

Senator PORTMAN. Well, thank you—— 

Secretary LEW [continuing]. Communities are very strong. We 

are doing our best to get it out quickly. 

Senator PORTMAN. We appreciate your commitment to that, and 

let us know if we can help you. All I will say is that we have 

100,000 homes in Ohio that we believe are vacant and abandoned, 

based on the Cleveland-based Thriving Communities Institute, that 

need help now and are ready to be demolished. And we appreciate 

your commitment to that, and we hope this funding will go toward 

blighted communities and toward those States that have—— 

Secretary LEW. Well, it will be a national program, obviously, but 

we are very much keeping in mind how to be consistent with the 

purposes that Congress had in the legislation, and we are, as I say, 

very close to being ready to—I mean, time is of the essence. We do 

not want this to become a March, April, May issue. 

Senator PORTMAN. Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Cantwell? 

Senator CANTWELL. Thank you, Mr. Chairman. And, Mr. Secretary, thank you for being here. I had a chance to talk to you earlier, but I want to just reiterate my concern with the budget on the 

$190-million cut, 19.2-percent cut, to the Hanford cleanup. It is 

very important that we do not miss cleanup deadlines and that we 

make sure that technically difficult aspects of this project are met, 

and that the challenges of the River Corridor remediation continue 

to have great focus. I know that everybody always looks at the 

budget and thinks there are ways to get money, the big numbers, 

and they look at cleanup, but this is the largest cleanup project in 

the world, and it has taken a long time and needs to happen, and 

we need to have the continued support. 

So I appreciate hearing your comments on that, and I know you 

will tell me that you are going to get back to me because of your 

position, but I want to put the administration on notice that this 

is something that we have grave concerns about in the budget, and 

we want to work with you on it. 

I also would like it if you would comment on where we are with 

the TPP bill. I supported Trade Promotion Authority because I believe in a global economy. The number of bilaterals that were being 

done without us was not where we needed to be, and we should 

allow a lot of different ideas to come before the Congress with different proposals. 

So I want to hear where you think we are for the rest of the year 

with that, because I hope that we are not going to have a delay 

by our colleagues on the Republican side of the aisle on moving forVerDate Mar 15 2010 16:27 Dec 12, 2016 Jkt 000000 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 R:\DOCS\22922.000 TIMD
33 

ward on that legislation. I know some people would like to put it 

off until the next election, but if we truly believe that this is about 

an effort of the United States making sure that China does not become the dominant player in a developing economy, what are we 

going to do to make sure that there is market access to U.S. products and goods that are important in the Asian market? 

And last, not to throw all this complexity at you on a variety of 

subjects, this issue of Puerto Rico—because of my other responsibility as ranking member on the oversight of territories—to me it 

seems like Congress needs to really act on the restructuring. Your 

budget proposal reflects comments that the administration made 

before the Energy and Natural Resources Committee that, again, 

has oversight over territories. So we appreciate that the budget reflects a restructuring plan, but if you could also comment on why 

it is so important that the restructuring plan take place immediately—I know people think, oh, we might have more time, June, 

July. We really need to act now, and if you could address that, I 

would so appreciate it. 

Secretary LEW. So, Senator, let me try to quickly cover all three 

questions. 

On Hanford, I will take back the comments you made and share 

them with OMB. When I was OMB Director, I paid close attention 

to this, but it is, as you noted, not currently something that is directly mine. But I will take back your comment. 

On TPP, the signing of the agreement was an important step. 

The Customs bill being taken up tomorrow is another important 

step. And we are going to continue to press forward to have a vote 

on TPP. Obviously, we are working very hard to make sure that 

when the vote comes up, we have the support to pass it. 

If I could take one step back and look at where we were in early 

December or the middle of last year and where we are now, we 

have done a lot of important things to promote U.S. economic leadership in the world and U.S. economic strength. We are not looking 

at an Export-Import Bank that is unfunded. That is hugely important. We are not looking at IMF quota reforms that are creating 

friction with the United States and the rest of the world. We have 

done our part. We have kept our commitment. And we have TPP 

signed and now queued up for a vote this year. 

So we are going to keep pressing forward, but I think that U.S. 

leadership in the world economically is part of what makes our 

country strong, and the trade agreements that provide opportunities for the U.S. to participate in the future global growth are a 

critical part of that TPP. 

On Puerto Rico, I have to begin by thanking you for the efforts 

that you have been making for months now to try to make sure 

this issue gets the kind of attention it deserves. I believe it is a crisis. I believe there is a need for action immediately on restructuring authority and on oversight. I think there are other aspects, 

which we address in our plan, where if we can get them done, they 

are urgently needed. But we cannot put off restructuring and oversight, and we look forward to working with you in your other committee or in whatever committee Congress chooses to address this. 

But I think the people of Puerto Rico need us to act. That is 3.5 

34 

million American citizens who are going to be plunged into chaos 

if Congress does not act. 

Senator CANTWELL. Are we not at the point now where this could 

cost the U.S. economy billions of dollars if more and more people 

migrate from Puerto Rico to the U.S. because we have left this 

issue unresolved? And the notion that they can restructure on their 

own just is not there. They do not have the authority. 

Secretary LEW. We are seeing thousands of people leave Puerto 

Rico for the mainland, and they are American citizens. They do not 

need any permission. They have rights to come anywhere and 

should have those rights because they are American citizens. 

What is terrible is that it is further hurting the economy of Puerto Rico when people who are part of the economic future leave the 

island, and it does shift the cost burden to wherever those people 

go if there are costs that fall either on health care systems or public authorities. 

So the only pathway to a stable future for Puerto Rico has to involve them restructuring their debt. There are a variety of ways 

that authority could be legislated. We look forward to working with 

you and others to do it in a way that can meet with bipartisan support. But we just have to remember that at the core, if they do not 

get to restructure their debt, they are insolvent. They cannot keep 

making those payments without having the economy grind into a 

place that it could possibly not bounce back from. And without restructuring authority, they are just going to default on one after 

another series of debts. They will be locked up in 5 or 10 years of 

ugly litigation, and that is something that will set the economy 

back even more. 

So the deadline the Speaker set for the House Committee to act 

in the first quarter of the year was very important. We are going 

to work with them, with you, with everyone willing to engage, with 

the chairman, to get something done that will work. It has to be 

effective. We cannot just call it a solution. It has to work. 

Senator CANTWELL. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Heller? 

Senator HELLER. Mr. Chairman, thank you. I will take my 30 

minutes now. [Laughter.] 

First of all, thank you very much for holding this hearing, and 

thank you also for your commitment to tax reform. And I want to 

thank the Secretary for being here also, and thank you for your patience to get where we are now. 

The comments made by Senators Schumer and Portman are very 

reflective of some of the thoughts that I have had. And you and I 

have had some pretty good conversations in this committee, just a 

year ago when we were talking about the highway bill and the use 

of repatriation, those revenues, for a fundamental change in the 

way we deal with infrastructure in this country. 

With the passage of the 5-year highway bill that was supported 

by the administration, is there a different use now for those revenues? You keep talking about infrastructure, but is there another 

use for it? 

Secretary LEW. So, Senator, as you and I have discussed, the 5- 

year reauthorization was important because going year to year is 

35 

terrible, but it did not have sufficient funding to provide for the 

kinds of expansions of infrastructure that we need in so many 

parts of our country, including the West. So for us to be able to 

have opportunities to build the infrastructure we need for the 21st 

century, we are going to need more funding. 

We think that using the funds associated with business tax reform are a win-win. First of all, the biggest advocates for infrastructure investment are the businesses of the United States. They 

need us to have better roads—— 

Senator HELLER. I agree with you. 

Secretary LEW [continuing]. And there is a bipartisan basis for 

agreement. So we are still very much of the view that bringing 

them together is essential. 

Senator HELLER. And I am pleased that you continue to have the 

view that perhaps we could get something done this year. I do not 

know what the possibilities of that are. That is probably up to the 

chairman more than it is up to me, but I certainly do hope that 

we keep open minds in this process. 

I want to turn to another subject, and that is the IRS. The GAO 

reported, and I will say the quote, ‘‘the lowest level of telephone 

service during the fiscal year of 2015.’’ You have oversight. Only 38 

percent of the callers were able to reach an IRS agent. 

Secretary LEW. That is terrible. 

Senator HELLER. What is the new threshold? I mean, you oversee 

the IRS. What is the threshold that you want to meet? 

Secretary LEW. Senator, my goal would be for everyone to get 

their phone call answered. 

Senator HELLER. I would agree. What is realistic? 

Secretary LEW. If you have visited an IRS call center, you have 

seen empty seats where there should be people answering the 

phones. It takes people during tax season to answer the phones. At 

the end of the year, we got an increase in appropriations that gave 

us the ability—we are hiring people. You know, we worked as 

quickly as we could. This tax season, we will have more people in 

place to answer calls. It will not be perfect. We did not get enough 

money to completely solve the problem, but we are going to dramatically improve—— 

Senator HELLER. What should be the expectation? 

Secretary LEW. Commissioner Koskinen will be here this afternoon—— 

Senator HELLER. Right. I am going to ask him the same questions. 

Secretary LEW. He probably will be in a better position to give 

you a pinpoint estimate. You know, we want to substantially reduce the wait time and the drop rate because, frankly, I believe it 

is unacceptable for taxpayers to call their government and not get 

an answer. But that was not because we did not want to answer 

the phones. We were not given the money to hire people to answer 

the phones. 

Senator HELLER. Is that your responsibility or Commissioner 

Koskinen’s responsibility? 

Secretary LEW. Well, he manages the IRS on a day-to-day 

basis—— 

Senator HELLER. Right. I know that. 

36 

Secretary LEW [continuing]. And reports up to me. He and I talk 

about this issue. I advocated for the funding that we got in December, so I very much am engaged in making sure that we do better 

here. But what neither he nor I can say is that we can get the 

phones answered if we do not have enough people. 

I will tell you the truth. We started in—— 

Senator HELLER. So what is the expectation? I guess that is what 

I am trying to get at. 

Secretary LEW. I do not have at this time a number off the top 

of my head. 

Senator HELLER. We all have the same goals, but what is the expectation? 

Secretary LEW. The expectation is, it will be approaching 70 percent. 

Senator HELLER. All right. All right. 

Secretary LEW. Approaching 70 percent. Whether it will hit 70 

percent, Commissioner Koskinen can maybe give you a little bit 

more. I mean, I will tell you the truth, they were recruiting people 

before the appropriation passed in the hope that the appropriation 

was passed. But they could not hire anyone until they had the 

money. So we are talking about from the end of the year until now 

standing up new personnel to be in place, trained to answer questions. So—— 

Senator HELLER. All right. Let us change topics really quickly, 

because I do not have a lot of time here. He is not giving me my 

30 minutes. 

On the Omnibus, as you know, there is a 2-year delay on the 

Cadillac tax. In your budget, you talk about a geographic adjuster. 

Can you explain the geographic adjuster? 

Secretary LEW. The idea behind the Cadillac tax was always to 

just hit the top, most expensive plans, and say that this is a way 

to bend the cost curve and a way to make sure that—— 

Senator HELLER. But that affected 1.3 million Nevadans. 

Secretary LEW. Right, and it had geographical disparities because of cost differences in different areas, and there was concern, 

fairly broad concern, that it was getting beyond the highest-priced 

plans. 

The proposal that we have addresses the concern about geographical disparity and it also makes it clear that it applies to the 

most expensive plans. And we continue to believe that it is very important that, if we are going to get our hands on the entitlement 

problem we have all talked about, part of that is bending the cost 

curve on health care, and the Cadillac tax helps you do that. 

Senator HELLER. Is there any other tax that has a geographical 

adjuster to it? 

Secretary LEW. I am not sure. I am looking at my tax counsel. 

Yes, I would have to go back and check if there are others, but—— 

Senator HELLER. Here is my concern. It may affect California, it 

may affect New York, but I have a feeling that it is not going to 

affect Nevada. And you know, our unions, our public employees, 

they are all going to be affected. Our senior citizens are all going 

to be affected by this Cadillac tax in a couple of years. And if this 

geographical adjustment does not affect Nevada, I have some 

issues with it. 

37 

Secretary LEW. But, Senator, the way this will work is that the 

threshold will be set at the gold plan level by States, so States with 

higher costs will get a higher threshold. I would have to check 

where Nevada fits on the series—— 

Senator HELLER. Can you get back to me? 

Secretary LEW. We can get back to you. 

Senator HELLER. Okay. I would like that. 

Secretary LEW. It was meant to address in a fair way, across the 

country, that the gold plan reflected local costs. But we can get 

back to you. 

Senator HELLER. Mr. Secretary, thank you for being here. 

Secretary LEW. Thank you. 

Senator HELLER. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator, for your patience. 

Senator Carper? 

Senator CARPER. Thanks, Mr. Chairman. 

Mr. Secretary, I want to just follow up. I had not planned to 

raise this, but Senator Heller has raised the issue of a Cadillac tax. 

I remember 5 or 6 years ago, when we were debating the Affordable Care Act, having economists arrayed here to your left, Mr. 

Secretary, and to your right, from all across the ideological spectrum, and they said, if you do nothing else on health care reform, 

the one thing you need to do is to make sure that at some point 

in time, when the cost of health care coverage for a person, for a 

policy, reached a high level, at some point in time it should not entirely be treated as a tax-free benefit—there has to be some consequence. 

And they all agreed on that. They all agreed on that. We ended 

up with a jury-rigged, Rube Goldberg kind of approach, the Cadillac tax, to try to scratch that itch. But I applaud your efforts to 

try to do something geographically in the President’s budget. 

But—— 

Secretary LEW. We have the support of those economists still. 

They all signed a letter—— 

Senator CARPER. They sure have. They sure have. We have their 

names. 

I think Senator Heller also mentioned infrastructure and whether or not the repatriation money for international tax reform 

should be used for that purpose. I said to the President, and I 

would certainly say to you, that I would support international tax 

reform, as part of the working group led by Senator Schumer and 

Senator Portman. But I said, if we could actually pass that, use 

that money, at least for a while, for infrastructure, that would be 

fine by me—although it runs counter to what we have done for 50 

years, and that is for the people, the businesses, that use the roads, 

highways, bridges, to actually pay for them. And it is not a wild, 

crazy idea. It seems to have worked out pretty well for about half 

a century. I was intrigued by the $5-per-barrel oil fee that I think the administration is proposing. I have not drilled down on it—— 

Secretary LEW. Ten dollars over 5 years. 

Senator CARPER. There you go. I have not drilled down on it too 

much yet, but I am intrigued by it. I bought gas last weekend for 

my minivan, a Chrysler Town and Country minivan with 413,000 

38 

miles on it, and I filled it up for—God only knows how many times 

it is—but it was the cheapest gas I have bought for a long time for 

my minivan: $1.73. And I was just standing there thinking, while 

I was pumping gas, I was thinking, you know, if we would raise 

the gas tax 4 cents a year for 4 years, that would be 16 cents. Add 

that $1.73, and gas would still only be $1.89. Maybe we should 

have done that. But we did not. 

So just make the case for me for this proposal, if you would. 

Secretary LEW. I think the fee makes sense for two reasons: first, 

it does reflect the costs associated with fossil fuel use, which is 

something that makes good sense, and it would, at a time when we 

particularly have low oil prices, give us the ability to phase in 

gradually a fee that gives us the ability to invest more in infrastructure, to give a boost to the Highway Trust Fund, and to invest 

in new technology, which we need to have energy independence far 

into the future. 

So we view it as being something that will serve multiple objectives. We understand it is not a proposal without controversy, but 

it also meets a number of very important policy objectives. 

Senator CARPER. All right. Thank you. I am just coming from a 

hearing on the Environment and Public Works Committee, and we 

are focused on the work of the Army Corps of Engineers. As you 

know, they do a lot of important infrastructure work, mostly along 

our coasts, but also on rivers and so forth. We were bemoaning— 

one Senator after another—the fact that there is not enough money 

for the Army Corps of Engineers to do the work. There is a huge 

backlog. And as it turns out, there is this huge backlog that you 

referred to and that I have talked about many times in the transportation realm. And we do not have enough folks at the IRS there 

to answer questions, be good on the phone, help taxpayers with 

their concerns, because we do not provide enough money. We provided some money, a bump-up, but it is not nearly enough money. 

And we could actually—correct me if I am wrong on this, but we 

are always looking for pay-fors around here, you know, to pay for 

tax cuts in terms of offsets or to pay for spending. And I will ask 

John Koskinen this when he comes in later today to testify, but I 

think a pretty good pay-for could actually be to provide some additional resources for the IRS. Does it actually more than pay for 

itself? Any idea what the multiplier—— 

Secretary LEW. It pays for itself many times over. 

Senator CARPER. Yes, there is a multiplier. It is not just dollar 

for dollar. 

Secretary LEW. It pays for itself many times over, and it also creates a stronger tax system where people have a sense of fairness, 

that everybody is treated the same way. And so I have been a big 

advocate of more funds for taxpayer enforcement from many different seats of government. 

Senator CARPER. Good. Well, Mr. Chairman, I am Tom Carper, 

and I approve that message. [Laughter.] 

We made a good start last fall, but we need to do more. And it 

is a fair thing to do for all these folks who are calling our offices 

telling us that they are not getting the kind of service that they 

want. 

Secretary LEW. Right. 

39 

Senator CARPER. And it is the right thing to do for our country. 

Secretary LEW. I remember in the 1990s when the problem was 

at the Social Security Administration, and at the time I considered 

it critically important that if you called Social Security, you had to 

get your phone call answered. It is like the point of contact with 

the Federal Government that people would most frequently have. 

The IRS is right up there, and it is just not acceptable to have a 

system where people, citizens, cannot get through to the two parts 

of the government that they actually touch in their lives. 

Senator CARPER. And by doing this, if we actually provide some 

more resources for IRS, it actually helps us reduce our budget deficit in the end. So that is a win-win. 

Thanks, Mr. Chairman, and thank you, Mr. Secretary. 

Secretary LEW. Thank you. 

The CHAIRMAN. Thank you, Senator Carper. We appreciate you. 

Mr. Secretary, with regard to inversions, I doubt seriously that 

you are going to be able to get through, before the end of the year, 

the territorial recovery of monies, for many reasons, some of which 

are political, some of which are just time concerns, and some of 

which come from it being difficult to get both sides together. But 

we are working on a corporate integration program that may very 

well put a stop to inversions that really, if we could go on a bipartisan basis, could make a real dent in those problems this year. 

Now, we are stuck right now because we have to wait until Joint 

Tax comes up with its analysis. So far it looks good. And I hope 

that you will keep an open mind with regard to that, because it is 

something that I think is doable. And it would put a real crimp in 

the inversions that have been going on in our society, corporate inversions. And I think we would get companies back once we do it. 

Now, we all know that the best way to solve that problem is to 

cut the corporate tax rate so that we are competitive, and that is 

another matter that is very, very difficult to do under current circumstances, with the problems between both of the parties here in 

the Senate. I am looking for ways to bring people together with the 

administration to see if we can solve these problems. 

So, when we get a little farther down the line, I want you to 

come up and go over with me this corporate integration program 

that I think might very well be something that would help you, 

help the administration, and help this country to resolve these inversions that have been going on. You are willing to do that, I 

know. 

Secretary LEW. Well, Mr. Chairman, I am not familiar with the 

details of the proposal, and it is hard to see how it addresses inversions without looking at it. But I would be happy to look at it, and, 

as we have that conversation, I also hope we can talk about whether the anti-inversion provisions and the earnings-stripping provisions might be doable even if we cannot do all of business tax reform. 

The CHAIRMAN. Well, I am afraid of those, because I think that 

they will cause more inversions rather than solve the problem. This 

would solve a lot of the problem. It would not solve it all, but it 

would give us time to do what really needs to be done. I think you 

and I could agree on that. 

40 

I would ask you to look through the JCT analysis of the Earned 

Income Tax Credit for Puerto Rico that I have made public just 

this morning. So, if you will look at that—— 

Secretary LEW. I have not seen it yet. I am happy to look at it. 

The CHAIRMAN. I know you will, and I would appreciate if you 

would. In the meantime, I wonder whether you have given any 

thought to difficulties of administering what you propose and the 

very real concern about improper payments that can easily arise 

under your proposal. 

Secretary LEW. I think that we have a great deal of experience 

dealing with the Earned Income Tax Credit, and—— 

The CHAIRMAN. And 25 percent of the payments are wrongfully 

made. 

Secretary LEW. I think we would be able to work with the Commonwealth to implement it in a way that was designed to have the 

compliance rate be higher. One of the things that Congress enacted 

last year was a provision giving Treasury the ability to provide 

technical assistance in a more robust way to Puerto Rico, and we 

have people working with them. So we would endeavor to work 

with them to set things up so that it is run in a very sound way. 

I would be happy to follow up with you on any concerns you have 

on that. 

The CHAIRMAN. Thank you. Well, I am going to do everything in 

my power to solve that problem. I think we ought to get it out of 

politics and get it solved. There are good people down there, and 

we are quite a bit to blame too. When we took the tax credit away, 

it cost them 100,000 jobs, as I estimate it. So I think we have to 

resolve this problem, and I hope we can keep it out of politics. 

Secretary LEW. I agree. I have been trying to deal with it as a 

crisis that we need to deal with on a bipartisan basis. 

The CHAIRMAN. Well, let us hope we can do it before the end of 

March. That is the goal here. 

Secretary LEW. That would be my goal too, Mr. Chairman. 

The CHAIRMAN. Well, we will work with you. 

Let me just say I would like to thank my colleagues and you, Mr. 

Secretary, for participating in this hearing. I think we have had a 

good discussion here today, and I hope that we can continue working together in the future. 

I will just make this point. If any member wishes to submit written questions for the record, please do so by the close of business 

on Wednesday, February 17th. 

And so, Mr. Secretary, you have been very patient to go through 

this long, arduous hearing, and I just want to thank you for your 

patience. 

With that, we will recess until further notice. 

Secretary LEW. Thank you, Mr. Chairman. 

[Whereupon, at 12:40 p.m., the hearing was concluded.] 

(41) 

A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

PREPARED STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH

WASHINGTON—Senate Finance Committee Chairman Orrin Hatch (R–Utah) today 

delivered the following opening statement at a hearing examining the Obama administration’s Fiscal Year (FY) 2017 budget request for the Department of Treasury: 

Today’s hearing is on President Obama’s budget for Fiscal Year 2017. I want to 

thank Secretary Lew for appearing before us this morning. 

While there were some hints about some of the details in advance, Congress officially received the President’s budget proposal yesterday. And, as has too often been 

the case—particularly under this administration—what we received was not a practical vision for the future, but an ideological document designed more to satisfy political constituencies than to advance serious policy proposals. 

For example, in his budget, President Obama once again looks to raise taxes on 

hardworking Americans, including some special new regressive taxes that are being 

packaged as ‘‘fees,’’ with all the revenue going to fuel expanded government and 

spending that is being sold to the public as ‘‘investment.’’ 

No matter what terms people want to use, this budget once again taxes too much, 

spends too much, and never balances. It presents a vision for expanding government, deficits as far as the eye can see, and an ever-growing national debt. 

That debt, by the way, currently stands at an astronomical $19 trillion, close to 

80 percent larger than when the President took office, and at a level relative to the 

size of our economy not seen since the years surrounding World War II. 

I will also note that the budget contains provisions relating to Puerto Rico. The 

challenges facing Puerto Rico have received a lot of attention in recent months. And, 

unfortunately, much of the debate has been overly politicized. 

The President’s budget calls for $6.6 billion intended to provide an Earned Income 

Tax Credit for residents of the island, and roughly $30 billion for increased Medicaid funds, some of which are intended to offset what we are now being told was 

an inequity written into the so-called Affordable Care Act. 

Apparently, the authors of ACA wrote a Medicaid funding cliff for Puerto Rico 

into the law. Now, we are being told—by some of those same authors, no less—that 

this funding cliff is unfair and must be undone. I’d like someone—maybe Secretary 

Lew or perhaps any members of Congress who drafted and supported the health 

law—to explain why that was done in the first place. 

I have been working hard with a number of my colleagues to put together a package to help the people of Puerto Rico, who should be our real focus in this. I have 

a bill with Senators Grassley and Murkowski that offers assistance, along with more 

than $7 billion of fiscal relief to the island without adding a penny to the federal 

deficit or debt. 

And, since last summer, I have been asking administration officials, as well as 

some of my Senate colleagues, just how much additional health funding they would 

like to see for Puerto Rico. In every case, specific details have been withheld and 

Congress has simply been admonished to fix this problem in fiscally responsible 

way. 

42 

Yesterday, with the release of the budget proposal, we finally saw specific proposed numbers from the administration. Why it took until now for these details to 

emerge is beyond me. 

In addition, while we’re on the subject of Puerto Rico, I do not believe the administration has been straightforward about the nature of the debt restructuring authority it is seeking for the territory. 

While we keep hearing from our friends on the other side that Republicans are 

ungenerously denying Puerto Rico access to the bankruptcy protections offered to 

every municipality in the U.S., that is actually not what is being sought. 

Specifically, the administration is advocating to provide unprecedented debtrestructuring authority to Puerto Rico, with an explicit preference for public pension 

liabilities over debt issued by the Puerto Rican government, even though the territory’s constitution gives preference to some of those latter debts. 

We need to be clear about what’s actually being debated and proposed here, and, 

Secretary Lew, I hope to learn more about your thoughts on this today, and, going 

forward, I hope to learn more about Puerto Rico’s pension exposures. In fact, just 

this morning I wrote to the Governor of Puerto Rico asking for details since, all told, 

Puerto Rico’s debt and its unfunded pension liabilities amount to almost $120 billion. 

As we know, lurking behind the recent increase in ever-larger municipal bankruptcies nationwide is a growing crisis of underfunded public pensions, and the 

underfunding of Puerto Rico’s public pensions is striking. 

Another issue that I look forward to discussing today is a provision of the recently 

enacted FAST Act regarding the inactive debt collection program. As we’ll likely 

hear today from Senator Grassley, if not others, the conference report accompanying 

the law made clear that the intent of Congress was for Treasury and the IRS to 

expeditiously implement this provision by utilizing approved private collection contractors and debt collection centers. The law also requires that contracts be signed 

within 3 months after enactment. 

That deadline is March 4th, just over three weeks away. So I look forward to a 

status update today on the efforts to get the contracts signed and the cases released, 

and to ensure that taxpayers are made aware of the program and how it will be 

implemented. 

Finally, and related to the large federal debt that Treasury is supposed to manage, I want to make note of some disturbing revelations from the House Financial 

Services Committee about contingency plans formulated by Treasury and the Federal Reserve. 

Secretary Lew, as you know, for nearly 5 years now, I have asked Treasury and 

the Fed for details about plans the agencies had to handle debt default, whether 

caused by a natural disaster, terrorist attack, cyberattack, or debt limit impasse. I 

have asked for these details in writing, in public hearings, and in private conversations. 

And, in response to my inquiries, you, your predecessor Secretary Geithner, Fed 

Chair Yellen, and former Chair Bernanke have all opted to cloak any contingency 

plans in secrecy, sharing them only in private discussions with financial market 

participants. All of you failed to provide specific answers to direct questions, choosing instead to obfuscate the issue. 

We know these contingency plans exist, yet officials at the highest levels of the 

executive branch have refused to share them with Congress or the American people. 

This is unacceptable. 

And, because we’ve received virtually no voluntary cooperation on this issue, legislation to require such cooperation and provide accountability is now probably necessary so the American people can know as much about our debt management as 

those working at Treasury and the Fed and in financial markets. 

So, as you can see, we have quite a bit to discuss today. I look forward to a robust 

discussion of these and other important issues. 

43 

PREPARED STATEMENT OF HON. JACOB J. LEW, SECRETARY, 

DEPARTMENT OF THE TREASURY

Chairman Hatch, Ranking Member Wyden, Members of the Committee, thank 

you for the opportunity to appear before you today. 

As President Obama said in his State of the Union address, this is a time of extraordinary change and, to make this change work for us, we as a country must 

focus on the future by confronting head-on some of our biggest challenges. The 

President concentrated on four key areas to which we must attend in the coming 

years, specifically: (i) fostering economic opportunities for all Americans; (ii) leveraging new technologies to solve urgent problems such as climate change; (iii) pursuing 

a smart foreign policy that protects our national security; and (iv) working together 

to improve our political discourse. What we do in each of these key areas is crucial 

to our future as a nation. As Treasury Secretary, I focus most of my time in the 

area President Obama addressed first, namely how to spur growth and opportunity 

in our new economy. Today, I will discuss the major aspects of the President’s Budget and how this Budget lays out a vision for what we need to do as a country both 

now and over the next 5 or 10 years and beyond to create growth and make sure 

that opportunity is broadly shared. 

Before turning to what we need to do for our economy over the long-term, let me 

first note the progress we have made over the course of the Administration. 

HOW FAR WE HAVE COME

In the 7 years since President Obama took office amidst the worst financial crisis 

since the Great Depression, we have seen a sustained economic recovery and an unprecedented decline in the federal budget deficit. Since my testimony a year ago, our 

economy has continued its record-breaking streak of private sector job creation, 

which has reached nearly 6 consecutive years and 14 million jobs. Over the last 2 

years, we have experienced the strongest job creation since the 1990s. At 4.9 percent, the unemployment rate is half of its 2009 peak. Consumer confidence is strong 

and small businesses are planning further increases in their payrolls. Rising home 

prices have restored trillions of dollars in home equity to homeowners. 

Last year, we celebrated the 5-year anniversaries of two major pieces of legislation—the Affordable Care Act (ACA) and the Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Dodd-Frank)—that have had an important impact on the 

economic security of American households and the stability of our financial system, 

an essential prerequisite for long-term growth. As the coverage provisions of the 

ACA have taken effect, nearly 18 million more Americans have gained coverage. The 

ACA has also improved coverage for those who already had health insurance, and 

changed the incentives for hospitals, doctors, and other providers to encourage higher quality, more efficient care. Health care inflation has been notably slower over 

the past 5 years, and, for the first time ever, more than 90 percent of Americans 

have health care coverage. And Dodd-Frank has put in place protections that ensure 

that the financial system today is better capitalized, less leveraged, and far safer 

than it was prior to the crisis. It also created the Financial Stability Oversight 

Council, a body that looks across the entire financial system to identify future 

threats to financial stability, and the Consumer Financial Protection Bureau, an 

agency whose sole purpose is to protect Americans from unfair, deceptive, or abusive 

financial practices. 

The administration has also worked hard to make our tax system stronger and 

fairer. Legislation enacted since early 2009 has decreased average tax bills by several hundred dollars for those in the lower third of the income distribution, while 

ensuring that those at the top pay a fairer share, especially among families in the 

top 1 percent and top 0.1 percent. Through policies like the Recovery Act expansions 

of the Earned Income Tax Credit, the Child Tax Credit and the American Opportunity Tax Credit (recently made permanent); ACA subsidies for purchasing health 

insurance; higher tax rates on dividend and long-term capital gains income; and reinstating the top rate on the highest earners to the level that prevailed in the 1990s, 

after-tax income increased substantially for lower-income families and the overall 

tax system became more progressive during this administration. We have also made 

the Tax Code more stable and predictable by making major individual and business 

provisions, such as the Research and Experimentation (R&E) Tax Credit and enhanced small business expensing, permanent in last year’s agreement, providing the 

certainty businesses need for effective planning. 

44 

Notwithstanding some of the recent volatility we have seen in the financial markets, economic growth continues at a solid pace. Real GDP expanded 1.8 percent last 

year. Private domestic demand—the demand generated by American households and 

businesses—was the principal driver of growth, expanding at a solid 2.7 percent. 

Both private sector forecasters and the IMF expect the underlying strength in domestic demand to continue this year, with real GDP growth picking up to around 

2.5 percent. This pace of expansion substantially exceeds that of many of our major 

trading partners, and, in fact, soft demand from abroad for our exports has been, 

and will continue to be, a significant drag on U.S. growth. While a widening trade 

deficit is natural in these circumstances, the rest of the world cannot depend on the 

United States to be the sole engine of growth. That is why this Administration has 

consistently worked with our international counterparts to encourage the implementation of strong and comprehensive policies to support growth. 

Meanwhile, we continue on a sound fiscal path. The deficit for fiscal year 2015 

was roughly $150 billion or three-quarters of a percent of GDP lower than we anticipated in our Budget 1 year ago. From fiscal year 2009 to 2015, the deficit as a share 

of GDP fell by almost three-quarters to 2.5 percent. Only the period of demobilization following the end of World War II saw a faster pace of fiscal consolidation. 

Since 2011, four fifths of the deficit reductions we have achieved have been from 

spending cuts. 

And over the past 3 years, we have seen real progress in returning to fiscal policy 

that boosts our economy. The administration began with bipartisan efforts to stabilize and restore growth to our faltering economy with targeted investment, but 

subsequent fiscal policy choices hurt, rather than helped, the economic recovery. In 

March 2013, sequestration cuts that were never intended to take effect were implemented, reducing GDP by 0.6 percentage points and costing 750,000 jobs. But later 

that year, following a series of damaging and unnecessary debt limit stand-offs and 

a protracted government shutdown, policymakers finally began to turn away from 

manufactured crises and austerity budgeting. The President worked with Congress 

to secure a 2-year budget agreement that replaced a portion of the harmful sequestration cuts with more balanced and sensible deficit reduction measures. This allowed for higher investment levels in 2014 and 2015, a significant contribution to 

the improvement in the labor market over the past 2 years. Between its peak in 

2009 and the end the 2015, the deficit dropped by almost 1 trillion dollars, or over 

7 percent as share of GDP. An increase in revenues as a share of GDP and a decrease in spending as a share of GDP played roughly equal roles in the decline 

Again for 2016, when harmful sequestration cuts were scheduled to return, the 

President worked with congressional leaders from both parties to secure another 2- 

year budget agreement (the Bipartisan Budget Act of 2015 or BBA), showing that 

the right results for the country can be achieved when we work together. The BBA 

will create an estimated 340,000 jobs in 2016 alone, while supporting middle-class 

families, investing in our long-term growth, protecting Social Security, and safeguarding our national security. Finally, the year-end FY 2016 omnibus appropriations act included a bipartisan agreement to extend expiring tax provisions that 

will, among other things, boost support for research and development and clean energy investment in the private sector, provide permanent tax relief to working families, and simplify and cut taxes for small businesses. 

Still, more needs to be done. Non-defense discretionary funding in 2017 will be 

at its lowest level since 2006, adjusted for inflation, even as the need for pro-growth 

investments in infrastructure, education, and innovation has only increased due to 

the Great Recession and its aftermath. Inflation-adjusted defense funding will also 

be at its lowest level since 2006. And without further action from Congress, the sequester will come back into effect in 2018 and put at risk the economic progress 

we have made. 

We must also not leave behind our communities in distress. Nowhere is this more 

evident than with the 3.5 million Americans living and working in the Commonwealth of Puerto Rico. While the economic health of our nation has improved dramatically since President Obama took office, Puerto Rico’s economy continues to suffer. Their unemployment remains above 12 percent. Outmigration continues to accelerate. And the Commonwealth’s debt is unsustainable. As a result, the administration proposed a comprehensive plan to address Puerto Rico’s financial challenges 

and we encourage Congress to act with the haste this crisis requires. This must 

begin with legislation to permit a financial restructuring along with new oversight, 

neither of which cost any taxpayer dollars. 

45 

THE FY 2017 BUDGET AND WHERE WE ARE GOING

Despite the significant progress we have made over the past 7 years, we have 

much more to do to address fully the challenges associated with our new economy. 

As the President indicated in the State of the Union address, the most significant 

and most pressing of our economic challenges is how we ensure that the benefits 

of our growth are shared by all Americans. While more Americans have jobs than 

ever before, millions of Americans are still searching for work and millions of parttime workers are still searching for full-time opportunities. We are still not seeing 

enough growth in household income and wages, and too many American families 

still have limited savings, impairing their ability to cope with an economic shock 

such as job loss, let alone retirement. 

The President’s FY 2017 Budget is designed to address these and other pressing 

problems. It puts forward the building blocks of a social compact for the 21st century, creating the conditions for sustained economic growth while upholding the 

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

The President’s FY17 Budget shows that investments in growth and opportunity 

are compatible with putting the nation’s finances on a strong and sustainable path. 

The Budget substitutes more balanced deficit reduction and ends sequestration, 

while making other critical investments and addressing our fiscal challenges over 

the next 10 years. It keeps deficits below 3 percent of GDP while stabilizing debt 

and putting it on a declining path through 2025—key measures of fiscal progress. 

The Budget accomplishes these goals by more than paying for all new investments 

and continuing to achieve significant deficit reduction. The Budget includes roughly 

$375 billion of health savings that grow over time and builds on the ACA with further incentives to improve quality and control health care cost growth. It also includes smart tax reforms that promote growth and opportunity, while strengthening 

tax policies that help middle-class families afford child care, higher education, and 

a secure retirement. 

The Budget also shows that responsible deficit reduction can be achieved without 

cuts in critical aid to poor Americans and without undermining our commitments 

to seniors and workers. The Budget puts us on sound fiscal footing even as it modernizes benefits for workers, invests in evidence-based efforts to reduce poverty and 

promote opportunity, and protects Social Security and Medicare. 

REFORMING THE TAX CODE

In 2012, the President first laid out his Framework for Business Tax Reform, and 

the President’s Budget continues to put forward a robust business tax reform plan 

to support economic growth, encourage businesses to create good, high-paying jobs 

in America, and expand opportunity so our nation’s economic gains support a strong 

middle class. Fixing America’s business tax system is essential to promoting longterm growth and broad-based prosperity. Over the three decades since we last rewrote it, the tax system has become heavily burdened by loopholes and inefficiencies. Businesses are forced to focus too much attention on tax planning and financial 

engineering rather than growing the top line of their businesses. 

One clear indication of the need for reform is the pace at which companies are 

pursuing corporate inversions to avoid paying U.S. income taxes. While inversions 

may be legal, it is wrong for these companies to take advantage of U.S. infrastructure, education, support for research, and rule of law, and yet avoid paying their 

fair share of U.S. taxes. While the administration has used its administrative authority to reduce the economic benefits of these transactions and to limit them to 

some extent, the only real solution is for Congress to enact business tax reform that 

addresses the root inefficiencies that cause these problems and specifically closes the 

inversion loophole. The growing bipartisan consensus in Washington on how to 

achieve business tax reform creates the opportunity to take this key step sooner 

rather than later. In the meantime, Congress should act this year to change our tax 

laws to stop corporate inversions. 

The Budget again calls for a fiscally responsible business tax reform, and makes 

a number of concrete tax reform proposals, including a complete reform of our international tax system. Last year’s permanent extension of several important business 

tax provisions, including the R&E Credit, advanced important components of our 

tax reform agenda. But that legislation did not offset the budgetary impact of those 

cuts and leaves the job of reforming our business tax system undone. Though the 

end-of-year legislation on certain business tax extenders was a first step, we need 

46 

to take further steps to enact a comprehensive business reform plan, that, taken together with the extenders legislation, is deficit-neutral in the long run. 

BUILDING A 21ST-CENTURY INFRASTRUCTURE

While last year’s surface transportation reauthorization bill, the Fixing America’s 

Surface Transportation (FAST) Act, will help address our nation’s crumbling infrastructure, we should not be content with merely repairing aging roads, bridges, rail, 

and transit systems. Transportation infrastructure has been a key ingredient of economic growth in this country nearly since its inception. And infrastructure investment provides a double return: in the short-term, it creates middle-class jobs across 

a range of skills and sectors; in the long-term, it provides assets that meet the needs 

of a growing economy and make our towns and cities more attractive to new business investment. Investments in our transportation network can also help us tackle 

the threat of climate change. Today, the transportation sector contributes nearly 30 

percent of U.S. carbon emissions. We will need to move to a cleaner, low-carbon 

transportation system that is also more resilient to the impacts of climate change. 

To help make this transition, the Budget proposes to invest $20 billion per year 

to shift Federal investments towards cleaner transportation options like rail and 

transit; $10 billion per year in new and innovative grant programs that partner the 

Federal Government with local and state governments to accelerate the move towards smarter, cleaner, and more integrated communities; and $2 billion to accelerate development and deployment of clean vehicle technology. 

To fund these investments, the administration has proposed a $10.25 per barrel 

fee on oil, which would be gradually phased in over 5 years. There are many costs 

associated with fossil fuel use, and given our highly oil-dependent transportation environment, an oil fee will ensure that we better manage our resources to reflect 

those costs. These resources would also provide for long-term solvency for the Highway Trust Fund, renamed the Transportation Trust Fund in the President’s Budget 

to reflect its multi-modal nature, beyond the current extension. 

The private sector can play a valuable role in helping to maximize limited public 

resources for infrastructure. Effective public-private partnerships are a growing procurement alternative for state and local governments; these arrangements may accelerate the delivery of complex projects, leverage the resources and expertise of the 

private sector, mitigate construction and operational risks, and reduce the likelihood 

of deferred maintenance. The Budget includes a number of proposals to take small 

steps to level the playing field for private investment in public infrastructure 

projects where appropriate, including renewing our proposal to create Qualified Public Infrastructure Bonds, which would extend tax-exempt benefits to certain publicprivate partnerships, and introducing the Financing America’s Infrastructure Renewal program, which would provide direct loans to U.S. infrastructure projects developed through public-private partnerships. 

Finally, the Budget maintains its support of our long-standing infrastructure 

bank proposal, which would help target and manage the complexity of implementing 

economically and regionally significant infrastructure investments. There are a 

number of creative ideas in Congress about how to boost our infrastructure investment, and I look forward to continuing to work with Congress to build a 21stcentury infrastructure. 

PROVIDING OPPORTUNITY THROUGH EDUCATION

The United States was one of the first countries to provide public high school education, and as a result we were one of the most highly educated populations in the 

20th century. Now it’s time to ramp up our workforce for the 21st century by ensuring broad access to high quality education, starting with pre-K, as well as training 

for those who are already out of the education system. And we must make sure that 

once they complete their schooling, our students are not burdened with a mountain 

of debt that they cannot repay. 

The Budget recognizes that changes in our economy make it more essential than 

ever that workers have the right education and training. It thus includes policies 

that enhance educational opportunities from pre-K through college. We propose to 

provide pre-K for all; offer every student hands-on computer science and math classes; and make community college and career and technical schools free for responsible students. Furthermore, this year’s Budget introduces a tax credit to incentivize 

employers to join consortia with community colleges. This will help drive development and resourcing of career training programs that train for real employment 

needs in the region and provides a hiring tax credit when consortia employers hire 

47 

new workers out of the program. In addition, for those already in the workforce who 

are struggling with the rapid change in the economy, the Budget also provides for 

job retraining so they can bring new skills to bear. Finally, the Budget provides 

funding to implement the administration’s ongoing efforts to ensure that student 

loan contractors provide high-quality loan servicing to students. This funding will 

also allow the Department of Education to provide enhanced oversight and strengthen enforcement activities, such as pursuing schools that engage in deceptive or misleading practices toward students, including veterans. 

PROVIDING A SAFETY NET FOR WORKING FAMILIES

The Budget again proposes a set of policies that will raise the incentives for working, including raising the minimum wage and reducing taxes on working families. 

For example, it proposes to strengthen the Earned Income Tax Credit for workers 

without dependent children—the only group that the Federal tax code taxes into 

poverty or taxes deeper into poverty. The Budget also addresses some new needs 

of working families, given changes in the relationship between workers and their 

employers over time. For example, it proposes expanded unemployment insurance 

and introduces a new wage insurance program to help families stay on their feet 

when their wage earners are underemployed as part of a job transition. The President’s plan would ensure that workers have access to wage insurance that would 

replace half of lost wages, up to $10,000 over 2 years. Displaced workers making 

less than $50,000 who were with their prior employer for at least 3 years would be 

able to leverage these resources to help them get back on their feet and on the way 

to a new career. 

Similarly, the Budget addresses holes in our unemployment insurance system, including by expanding coverage to many part-time, low-income, and intermittent 

workers, and workers who leave work for compelling family reasons. It would also 

ensure that states provide 26 weeks of coverage. This is coupled with a plan to 

make it easier for companies to avoid lay-offs through work-sharing, while incentivizing states to offer and allow retraining for workers on unemployment insurance 

or to provide relocation vouchers or subsidized employment. In addition, it would 

expand intensive career counseling to long-term unemployed, discouraged, and parttime workers. 

ENCOURAGING RETIREMENT SAVINGS

While the vast majority of people understand the benefits of saving for retirement, 

it is a fact that many Americans have very limited savings, and some have no retirement savings at all. Low- and moderate-income households have especially low 

levels of accumulated assets, and as many as 78 million working Americans do not 

have a retirement savings plan at work. To help people start saving, late last year 

Treasury launched the MyRA retirement program. It is free to get started, there are 

no minimum balances or fees, and there is no risk of losing money because savings 

are invested in risk-free U.S. Treasury securities. MyRA fills a crucial gap in the 

retirement savings system by providing an option for people who do not have access 

to a retirement savings plan at work. It helps people get started saving by allowing 

people to contribute any amount, no matter how small, and it does not conflict with 

private retirement options since the balance is ultimately rolled over into a privatesector IRA after 30 years or once it reaches $15,000, whichever comes first. 

But, this just scratches the surface. The Budget proposes to expand access to 

workplace retirement savings opportunities by encouraging more employers to offer 

plans and making it easier for workers to participate by enabling small businesses 

to come together and create pooled 401(k) plans at lower cost and with less burden 

than they would have on their own, automatically enrolling workers without access 

to a workplace plan in an IRA, providing tax credits for small businesses that begin 

offering retirement plans or choose to automatically enroll workers in existing plans, 

and allowing long-term, part-time workers to participate in their employer’s plan. 

CONCLUSION

The policies in this Budget will create a stronger, more inclusive economy today 

and in the future, while also maintaining fiscal responsibility. Of course, this Budget does not address every challenge we face in the long term. For example, we must 

strengthen Social Security to keep true to our commitments to previous and future 

generations of workers. And while business tax reform would significantly boost the 

economy, there are also significant challenges and inefficiencies on the individual 

side that we must address. 

48 

Our problems will undoubtedly not all be solved in the next 11 months—far from 

it. But there is still much we can accomplish. As the President said in his State 

of the Union address, progress is not inevitable but rather is the product of choices 

we make together as a nation. We face a number of big choices in the coming years. 

And though responsibility for addressing our nation’s biggest problems will soon 

pass from this administration to the next, we all have a stake in our country’s future. Whether you hold public office, run a small business, serve in the military, 

or are struggling to find a job, we all have duties as citizens—to vote, to engage, 

to speak out for what we believe in—that we must exercise to foster an America 

of the future that reflects our shared goals and values. 

QUESTIONS SUBMITTED FOR THE RECORD TO HON. JACOB J. LEW

QUESTIONS SUBMITTED BY HON. ORRIN G. HATCH

PUERTO RICO

Question. Secretary Lew, the President’s budget proposes that certain tax credits 

be applied from the federal personal income tax code to residents of Puerto Rico who 

do not otherwise participate in the Federal personal income tax system. As you 

know, in my legislation with Senators Grassley and Murkowski, tax relief is provided through a payroll tax cut. Such a provision would be relatively straightforward to implement given that residents of Puerto Rico already pay the federal 

payroll tax. 

In an analysis of application of the Federal Earned Income Tax Credit and Child 

Tax Credit to residents of Puerto Rico, the Joint Committee on Taxation identifies 

a number of administrative issues to consider. Of course, it is difficult to take only 

part of the Federal personal income tax system and apply it to Puerto Rico, and 

issues of improper payments, which already plague the federal system, would be a 

concern. 

In the meantime, I wonder whether you have given thought to difficulties of administering what you propose, and the very real concerns about improper payments 

that can easily arise under your proposal. 

Answer. Yes, we have considered how best to administer these types of credits in 

Puerto Rico. Our recommendation is to provide funding to allow the Commonwealth 

to administer an earned income credit through its own income tax system. Puerto 

Rico would design an earned income tax credit that best meets the needs of its 

workforce and best fits its tax system. Subject to Treasury oversight, Puerto Rico 

would be responsible for certifying that payments were correct. We think this will 

result in a lower level of improper payments and lower administrative burdens for 

IRS and Puerto Rico taxpayers, than a system in which Puerto Rico taxpayers 

would file separate U.S. income tax returns just to claim the Federal Earned Income 

Tax Credit. 

TTIP AND FINANCIAL SERVICES

Question. Secretary Lew, as you know, the 12th round of negotiations on the 

Trans-Atlantic Trade and Investment Partnership, or TTIP, agreement begins February 22nd. Over the past several years, I have called upon the administration to 

ensure that TTIP includes a comprehensive financial services framework, encompassing both market access and regulatory cooperation. 

You and I both know that TPP fell short of achieving strong market access outcomes and effective rules for U.S. financial services providers. You simply cannot 

repeat that mistake when it comes to TTIP. In fact, if you do, it will likely further 

weaken support for approval of TPP. 

Can you commit to me that TTIP will be comprehensive when it comes to financial services, including in areas of regulatory cooperation? 

Answer. The Administration shares your view that financial services are a critical 

part of any trade agreement, and we strive to secure the strongest possible market 

access commitments ensuring that U.S. financial institutions have effective, nondiscriminatory access to foreign markets. Additionally, we seek protections for investors in financial institutions and that binding arbitration is available for related disputes. 

49 

In TTIP, as in previous trade agreements, the Administration is seeking robust 

market access commitments in financial services. However, our trade objectives with 

respect to financial services are wholly independent and separate from the norms 

and modalities of prudential regulation. This separation is a feature of all agreements to which the United States is a Party (including the WTO General Agreement 

on Trade in Services). We believe that financial regulatory cooperation should continue to make progress in existing and appropriate global fora, such as the G20 and 

international standard-setting bodies, and bilaterally through the Financial Markets 

Regulatory Dialogue. 

BEPS AND COUNTRY-BY-COUNTRY REPORTING

Question. Secretary Lew, there were reports in just the last week suggesting that 

the EU may try to force public disclosure of at least some parts of country-bycountry, which you agreed to as part of the OECD Base Erosion and Profit Shifting—or BEPS—project. 

As I understand it, in the BEPS negotiations, Treasury took the position that the 

Federal Government should be involved in these country-by-country tax reports, to 

assure taxpayer confidentiality. And I think that is the right position. 

However, now that I hear about the EU attempting to force public disclosure of 

these country-by-country tax reports, I am concerned. 

What are your thoughts on this, and how do you think the U.S. should respond 

to calls for any forced public disclosure of country-by-country tax reports? 

Answer. Implementation of the BEPS country-by-country reporting outcome is 

being undertaken by many countries around the world, including the United States. 

A country-by-country (CbC) report submitted by U.S. multinational firms to the Internal Revenue Service pursuant to the final regulations covering this submission 

will be tax return information protected by the strict confidentiality rules under the 

Internal Revenue Code (Code). The Code allows the Internal Revenue Service to exchange a CbC report with a competent authority of a tax jurisdiction to the extent 

provided in, and subject to the terms and conditions of, an information exchange 

agreement (including tax treaties and tax information exchange agreements). All of 

the information exchange agreements to which the United States is a party require 

the information exchanged to be treated as confidential by both parties, and disclosure and use of the information is limited to tax purposes. The United States will 

not exchange return information, including any country-by-country reports, with any 

country that fails to protect the confidentiality of that information. We have not yet 

seen any specific details of the EU initiative you refer to, but once that legislation 

is made public, we will be happy to provide to you our views about it. 

TREASURY FISCAL AGENT AND FINANCIAL AGENT APPROPRIATIONS

Question. Secretary Lew, Treasury spends well over $1 billion per year out of permanent, indefinite appropriations for the Federal Reserve to act as a ‘‘fiscal agent’’ 

of the government, and to hire private-sector financial firms to act as ‘‘financial 

agents’’ of the government. 

I believe that Treasury has not been appropriately responsive to congressional inquiries about how it uses those appropriations, and believe that legislation is required to ensure accountability. 

I also believe that Treasury, in a secretive alliance with the Fed regarding Federal debt contingency planning, has been disturbingly reluctant to share information 

and to answer direct questions from Congress. 

Secretary Lew, why has it taken since the summer of 2011 for Treasury and the 

Fed to begin, under pressure of subpoena, to provide information about your contingency planning for interruptions in debt-service payments? 

Answer. Treasury has addressed the Committee’s questions on this topic, and we 

remain committed to working with the Committee to address any needs that it has. 

As the Chair of the Council of Inspectors General for Financial Oversight wrote in 

2012, Treasury found no option other than Congress acting to increase the debt 

limit that could reasonably protect the full faith and credit of the United States, the 

American economy, or individual citizens from very serious harm. 

50 

TPP AND DATA LOCALIZATION

Question. Secretary Lew, among my concerns with the recently concluded TransPacific Partnership, or TPP, agreement is the fact that it does not prohibit local 

data storage requirements in the financial services sector. This outcome is inconsistent with the clear Trade Promotion Authority negotiating objective to prevent 

countries from requiring local storage of data. 

These types of localization requirements are a serious problem for U.S. financial 

services companies, who often face pressure to store their data overseas. This increases costs, reduces data security, and in some cases, makes entering markets 

unfeasible. 

It is remarkable to me that the TPP agreement would permit these types of requirements. I would like your assurance that the administration will work with 

Congress and the affected U.S. stakeholders to ensure that all industry sectors receive the same protections against data localization requirements, in both TPP and 

in future trade agreements. 

Answer. The significant increase in data localization barriers to trade around the 

world is of serious concern to the Obama administration. We are advancing efforts 

to reduce and prevent the proliferation of localization barriers to trade, including 

restrictions on data flows and requirements to establish infrastructure domestically, 

through the full range of bilateral, regional and multilateral fora, including the 

WTO, APEC, and the OECD. 

With respect to financial services, over the last few months, Treasury and USTR 

have worked to develop a new approach for addressing concerns about the treatment 

of financial services under data localization obligations in our trade and investment 

agreements through extensive consultation with U.S. financial regulators, as well as 

feedback from Congress and stakeholders. Treasury and USTR have been working 

to achieve two important policy objectives: eliminating protectionist and tradedistorting data localization measures imposed by foreign governments in the financial services sector and ensuring that U.S. financial regulators have access to the 

information they need for regulatory and supervisory purposes. 

We believe we have reached a good path forward and are looking to address concerns about data localization in the financial sector through a comprehensive multipronged approach. For ongoing and future negotiations, including the TiSA negotiations, we would propose an obligation that broadly prohibits all forms of data localization when financial regulators have access to information stored abroad. We 

would also propose obligations that provide companies with the opportunity to address potential access concerns before regulators impose data localization requirements. 

The TPP needs to be handled differently than ongoing and future negotiations because the TPP negotiations are closed, and reopening them would cause the agreement to unravel. Most TPP Parties are also party to the TiSA negotiations, and we 

expect to table our new approach with those Parties this month. For the remaining 

TPP Parties—Brunei, Malaysia, Vietnam, and Singapore—we will work closely with 

stakeholders and Congress on a path forward for addressing any specific concerns. 

COVERED AGREEMENT

Secretary Lew, the Department of Treasury and USTR recently announced your 

intention to negotiate a Covered Agreement with the European Union. As you know, 

one of the key goals of negotiating covered agreements is to ensure a balanced playing field among U.S. and European Union based insurers and reinsurers. 

I understand that, under the EU’s Solvency II Directive, European insurers and 

reinsurers with U.S. affiliates are permitted to rely on U.S. State-based capital requirements to meet their European Solvency Two requirements. Conversely, the EU 

will not allow U.S. insurers and reinsurers to rely on the very same standards when 

seeking to provide insurance or reinsurance in the EU market. This is at best unfair 

and at worst blatant discrimination against U.S. service providers. It may even violate the EU’s World Trade Organization obligations. 

Will you work to eliminate this discriminatory treatment under the Covered 

Agreement negotiations? 

Answer. I appreciate your interest in this topic and share you concern that, without an agreement between the United States and European Union (EU), U.S. insurers and reinsurers conducting business in the EU could face an unlevel regulatory 

51 

environment under Solvency II. Treasury and the Office of the United States Trade 

Representative (USTR) will not enter into a covered agreement with the EU unless 

the terms of that agreement are beneficial to the United States. Treasury and USTR 

notified the Committee on November 20, 2015, of our negotiating objectives for a 

covered agreement with the EU. One of these objectives is to obtain treatment of 

the U.S. insurance regulatory system by the EU as ‘‘equivalent.’’ This treatment 

would allow U.S. insurers and reinsurers to operate in the EU on the same regulatory terms as insurers and reinsurers domiciled in the EU or in other jurisdictions 

deemed equivalent by the EU under Solvency II. 

These negotiations remain in the early stages and it is too early to predict the 

final substance of any potential final covered agreement. 

Additionally, in recognition of the important role of state insurance regulators, 

Treasury and USTR have engaged extensively with representatives of the state insurance regulators during the covered agreement process and will continue to do so 

as negotiations with the EU advance. 

CORPORATE DEBT VS. EQUITY

Question. Secretary Lew, for many decades, corporate profits have generally been 

taxed twice—once at the corporate level, and then again at the shareholder level. 

According to the President’s Council of Economic Advisor’s Chairman Furman, citing Treasury statistics, under corporate tax laws, equity-financed investment is 

taxed at a 27 percent rate, while debt-financed investment has an effective rate of 

negative 39 percent. That’s right, negative 39 percent. 

I wonder whether you agree that something ought to be done to address such a 

distortion; do you have any ideas on how to address it; and will you work with us 

on this committee as we explore ideas to address the distortion? 

Answer. The President’s approach to business tax reform is intended to reduce a 

number of tax-induced distortions including distortions in the choice of financing. 

A tax system that is more neutral towards debt and equity reduces incentives to 

overleverage and produces more stable corporate finances, making the economy 

more resilient in times of stress. A lower corporate income tax rate by itself would 

reduce but not eliminate the bias toward debt financing. 

The President’s Budget also proposes a financial fee that would impose a charge 

on leverage used by the largest financial firms as another way to address concerns 

with over-leverage. Finally, the President’s Budget proposes to limit the ability of 

multinational firms to saddle their U.S. operations with disproportionately large 

amounts of debt which then generate large interest deductions in the United States. 

This proposal, if enacted, would ensure that a firm’s leverage is spread relatively 

evenly across its worldwide operations. 

The administration would be willing to explore ideas that would reduce the tax 

preference for debt-financed investment even more, such as by ‘‘haircutting’’ interest 

deductions by a specified percentage. Various approaches to limiting interest deductibility could finance lower tax rates and do more to encourage investment in the 

United States than many other ways to pay for income tax rate reductions. 

Question. The U.S. film industry is one of our crown jewels which generates jobs 

across the country and is a major export of the U.S. However for years, China has 

erected barriers to importation and distribution of U.S. films. In June of 2012, after 

a successful challenge of China’s practices before the WTO, the U.S. entered into 

an agreement with China, which included China’s commitment to open up theatrical 

distribution of U.S. films to independent producers, rather than having it under the 

control of a government controlled entity. Yet, almost 3 years later, there has been 

no movement by China to implement these provisions. Can you assure me that this 

issue will be taken up again at the 2016 S&ED which you will lead? 

Answer. In February 2012, the United States and China reached an alternative 

solution with regard to certain rulings relating to the importation and distribution 

of theatrical films in a WTO case that the United States had won. The two sides 

signed a memorandum of understanding (MOU) providing for substantial increases 

in the number of foreign films imported and distributed in China each year, along 

with substantial additional revenue for foreign film producers. 

Significantly more U.S. films have been imported and distributed in China since 

the signing of the MOU, and the revenue received by U.S. film producers has increased significantly. However, work remains with respect to certain MOU commitVerDate Mar 15 2010 16:27 Dec 12, 2016 Jkt 000000 PO 00000 Frm 00055 Fmt 6601 Sfmt 6621 R:\DOCS\22922.000 TIMD
52 

ments, including with regard to commitments to open up film distribution opportunities for imported films. 

The United States made recent progress on this important issue. At the June 

2015 S&ED meeting, China committed to ensure that any Chinese enterprise licensed to distribute films in China can distribute imported flatfee films on its own 

and without having to contract with or otherwise partner with China Film Group 

or any other state-owned enterprise. The United States is monitoring China’s actions. Furthermore, the United States has been pressing China to take similar steps 

with regard to films that are distributed in China on a revenue-sharing basis. 

QUESTIONS SUBMITTED BY HON. JOHN THUNE

Question. I noticed that while the newly released budget references the ‘‘Administration’s Framework for Business Tax Reform’’ released in 2012, it does not specify 

a target corporate tax rate as part of business tax reform. 

Does the administration still support a 28-percent corporate tax rate as the goal 

of business tax reform? And, if so, do you think this rate target is aggressive 

enough, considering that the average statutory tax rate in the European Union in 

now around 22 percent? 

Answer. In 2012, the President first laid out his Framework for Business Tax Reform, which describes the administration’s overall approach to reform. The President’s plan would close loopholes and broaden the tax base to facilitate lowering the 

maximum statutory corporate income tax rate to 28 percent; improve the international tax system by moving toward a hybrid system with a global minimum tax 

on the earnings of foreign subsidiaries that prevents base erosion; strengthen key 

incentives for important investments in the U.S.; simplify and reduce taxes for 

small businesses; and maintain fiscal responsibility so that reform does not add to 

long-run Federal budget deficits. At 28 percent, down from 35 percent, the statutory 

U.S. corporate income tax rate would be generally in line with other large OECD 

economies. A reform that reduced the corporate income tax rate to 28 percent, in 

conjunction with the other improvements described in the framework would improve 

both the quantity and quality of U.S. investment, enhancing economic productivity 

and increasing output. Moreover, a reduction in the corporate tax rate to 28 percent 

could be achieved without permanently reducing corporate tax revenues by broadening the corporate tax base. Hence, the administration’s proposed reform improves 

the corporate tax system but without adding to the Federal Government’s long-run 

budget deficits. 

Question. As you know, the OECD’s Base Erosion and Profit Shifting (BEPS) proposals have generated substantial controversy and concern from U.S. enterprises 

that conduct business around the globe. How will the Treasury Department ensure 

that U.S. businesses and investors are not subject to double taxation as a result of 

the OECD BEPS project? 

Answer. One of the basic goals of the OECD BEPS project is to reduce instances 

of stateless income—earnings not taxed by any country. In addressing that goal, it 

is important to recognize the various existing components of the international tax 

system that limit the instances of double taxation. For instance, the United States 

offers a foreign tax credit to offset the effects of foreign income taxes imposed on 

the earnings of a foreign subsidiary, to eliminate double taxation. In addition, the 

bilateral income tax treaties we have in force with our trading partners include provisions by which the IRS and partner foreign tax administrations endeavor to resolve instances of double taxation that may arise. Additionally, we are working 

within the G20 to promote initiatives to enhance tax administration around the 

world in a way that minimizes tax uncertainty and the potential for double taxation. 

Question. I noticed that once again the administration is proposing a limitation 

on the value of itemized deductions as well as a so-called ‘‘Buffett Rule,’’ both designed to raise taxes on certain Americans. As you know, many charitable organizations have voiced concerns that these proposals would have a damaging impact on 

charitable giving. Why did you take the concerns of the charitable community into 

account in designing one proposal but ignore them in the other? 

Answer. Charitable organizations play an important role in communities throughout the country, and tax incentives to make charitable contributions are retained 

under both the ‘‘Buffett Rule’’ and the proposal to limit the value of certain tax expenditures. The treatment of charitable contributions under the two proposals is 

53 

equivalent. Under the ‘‘Buffett Rule,’’ taxpayers would receive a tax credit of 28 percent of the value of their charitable contributions. Under the proposal to limit the 

value of tax expenditures, the tax value of the deduction would also be set at a maximum of 28 percent of the contribution. We do not believe that either proposal would 

have a large effect on charitable giving, for several reasons. First, giving is motivated by many reasons other than tax savings. Second, only a small fraction of taxpayers would be subject to either of these proposals. Third, taxpayers who are affected would still have a substantial tax incentive to make charitable contributions. 

For example, a taxpayer in the top rate bracket will still receive a tax benefit of 

28 percent of each dollar donated (the same incentive that taxpayers in the 28 percent tax bracket have now). 

Question. One element of your tax reform proposal—the 19 percent minimum tax 

on foreign income of U.S. companies—has increased dramatically in the amount of 

revenue it is estimated to raise. The proposal was estimated to raise around $200 

billion when proposed last year, but is estimated to raise roughly $350 billion in this 

year’s budget. 

What does this substantial increase tell us about the need for tax reform and also 

about how much revenue the U.S. is currently losing due to our outdated corporate 

tax system? What do you believe is driving this increased revenue projection? 

Answer. The minimum tax proposal included in the administration’s broader business tax reform plan raises revenue to the extent that the foreign earnings of U.S. 

companies are taxed at rates below 19 percent (before accounting for foreign tax 

credits)—rates that are generally well below those which apply in large OECD 

economies. This global minimum tax, then, is aimed at slowing the global ‘‘race to 

the bottom’’ in corporate income tax rates. The upward revision in the revenue effect 

of this proposal reflects, to some extent, the fact that a rising level of multinational 

firms’ earnings is reported in low-tax foreign jurisdictions, and to a larger extent, 

that the effective foreign-tax rate actually paid by U.S. multinational corporations 

to foreign governments is lower than previously estimated. Reductions in foreign 

taxes paid reduce foreign tax credits available to be credited against the minimum 

tax, and thus increase minimum tax revenues almost one for one. 

The fact that U.S. multinational corporations face extremely low foreign effective 

tax rates on their foreign earnings and that effective rates paid have continued to 

trend downward even in the post-recession era illustrates the ongoing efforts by 

U.S. multinationals to shift profits to low-tax jurisdictions and the porousness of our 

current international tax system, which allows such shifting to occur. These taxinduced distortions to businesses’ decisions regarding where to locate activities and 

where to report profits impose costs in the form of tax planning and foregone domestic investment. An important objective of the administration’s minimum tax proposal is to reduce opportunities for firms to engage in such tax planning and to improve their incentives to locate real economic activity in the U.S. 

Question. As you know, the President’s budget request would increase premiums paid to the PBGC by multiemployer plans with the aim of raising $15 billion to protect pension benefits for workers and retirees. Can you speak to the current state 

of the PBGC, particularly in light of the proposed rescue plan for the Central States 

Pension Fund? 

Answer. The Pension Benefit Guaranty Corporation (PBGC) insures the benefits 

of approximately 40 million people, 10 million of whom are multiemployer plan participants. The PBGC insurance is an important backstop to private pensions in the 

U.S. However, according to PBGC analysis, PBGC’s multiemployer insurance fund 

is more likely than not to exhaust its funds in the next 10 years. While the projected 

insolvency of the Central States Pension Fund contributes to the PBGC’s multiemployer deficit, it is expected to go insolvent after the PBGC exhausts its multiemployer fund. PBGC will provide updated projections when it publishes its 2015 Projections Report along with a report of the adequacy of multiemployer premiums required under the Kline-Miller Multiemployer Pension Reform Act of 2014. 

QUESTIONS SUBMITTED BY HON. JOHNNY ISAKSON

Question. Georgia is third in film production in the country, which provides direct 

jobs related to the content produced and indirect jobs in the construction, restaurant, hotel, and service industries. Film production and the content produced 

represent a large American export sector. Thus, the United States needs to ensure 

that global markets are open for these products. Last June, the Strategic and EcoVerDate Mar 15 2010 16:27 Dec 12, 2016 Jkt 000000 PO 00000 Frm 00057 Fmt 6601 Sfmt 6621 R:\DOCS\22922.000 TIMD
54 

nomic Dialogue with China included a discussion of the implementation of the 

China Film Agreement. China committed to allow independent producers to distribute U.S. films in China. 

What is the status of China’s implementation of the China Film Agreement? 

Answer. In February 2012, the United States and China reached an alternative 

solution with regard to certain rulings relating to the importation and distribution 

of theatrical films in a WTO case that the United States had won. The two sides 

signed a memorandum of understanding (MOU) providing for substantial increases 

in the number of foreign films imported and distributed in China each year, along 

with substantial additional revenue for foreign film producers. Significantly more 

U.S. films have been imported and distributed in China since the signing of the 

MOU, and the revenue received by U.S. film producers has increased significantly. 

However, work remains with respect to certain MOU commitments, including with 

regard to commitments to open up film distribution opportunities for imported films. 

The United States made recent progress on this important issue. At the June 

2015 S&ED meeting, China committed to ensure that any Chinese enterprise licensed to distribute films in China can distribute imported flatfee films on their own 

and without having to contract with or otherwise partner with China Film Group 

or any other state-owned enterprise. The United States is monitoring China’s actions in this regard. Furthermore, the United States has been pressing China to 

take similar steps with regard to films that are distributed in China on a revenuesharing basis. 

Question. What action is the U.S. Treasury Department taking to ensure that 

China complies with the agreement in this growing market? 

Answer. See answer to question 1. 

QUESTIONS SUBMITTED BY HON. DEAN HELLER

Question. To begin, I sent you a letter January 21st of this year, addressing my 

concerns about our outdated international tax code, and have yet to receive a response. I look forward to receiving your response and respectively request a response by March 2nd, 2016, on the January 21st letter, as well as the following 

questions. Should you not be able to meet this date, please reach out to my staff 

to provide a timeline for when we should expect a response. 

The Committee held a hearing late last year on the European Union’s (EU) State 

Aid investigations. I, like a number of my colleagues, are deeply concerned with the 

trend of these cases. Just recently, the EU Commission concluded that 35 multinational companies benefited from Belgium’s ‘‘excess profit’’ tax structure. And this 

is in addition to outstanding cases that are already targeting American companies, 

such as Starbucks, McDonalds, Amazon and Apple. I am pleased to see that Bob 

Stack recently met with EU representatives to discuss some of these concerns. What 

specifically is the Treasury doing to protect our U.S. multinational companies and 

the American jobs that could be detrimentally impacted as a result of some of these 

rulings? 

Follow-up: As you are also aware, these back-door tax increases on American companies could also result in American taxpayers footing the bill through foreign tax 

credits. Given the rise in EU state aid investigations and lawmaker’s concerns over 

reduced revenue, what steps are the Treasury taking to address retroactive tax increases? 

Answer. We have continued to make the EU Commission (EC) aware of our concerns and have strongly urged the EC to reconsider its approach in a letter to EC 

President Jean-Claude Juncker. My letter urged President Juncker to reconsider 

these unilateral actions and to focus instead on our cooperative work through the 

OECD–G20 Base Erosion and Profit Shifting project. In addition, I and other Treasury officials have discussed these issues extensively with Commissioner Margrethe 

Vestager, her staff, and other key representatives of the EC. Finally, I raised this 

issue with European counterparts during the recent G20 meetings in Shanghai. We 

are continuing to consider all modes of engagement to convey our strong view that 

the EC should reconsider its approach in these cases. 

Question. As you are likely aware, Chairman Brady has announced his intention 

to move international tax reform through his committee later this year. With a 5- 

year highway bill completed, deemed repatriation paying for a highway bill seems 

55 

to be off the table in the short term. Could the administration consider supporting 

international tax reform with the revenue from deemed repatriation used for lowering the corporate tax rate? 

Answer. A key principle of the President’s Framework for Business Tax reform 

is that it not add to the Federal budget deficit—either in the short term or in the 

long term. Using one-time, transition revenue, such as from a deemed repatriation, 

to permanently lower the corporate rate provides the illusion of being revenueneutral within the 10-year budget window, but would in fact be revenue-losing in 

the long run, adding to the fiscal pressures faced by future generations. The administration’s plan instead calls for using that one-time revenue to make much-needed 

investments in the nation’s infrastructure, which benefits businesses and the economy overall by providing good middle-class jobs in the short run and increasing the 

efficiency of our transportation networks in the long run. 

Question. I, like a number of my colleagues, are waiting to receive a response from 

your colleague, Bob Stack, who was a witness at a Finance BEPS hearing last year. 

I commend the chairman and ranking member for their efforts to address the concerns BEPS can cause American businesses. To be clear, in what ways did the 

Treasury consult Congress as the BEPS plan was taking shape? 

Follow-up: If nothing is legally binding in the BEPS process, why has the Treasury decided to implement country-by-country reporting? 

Answer. The Treasury Department has engaged with Congress throughout the 

course of the BEPS project, primarily through numerous briefings by Deputy Assistant Secretary Stack. 

Regarding country-by-country (CbC) reporting, the Treasury Department and the 

IRS have determined that the information required under the proposed regulations 

will assist in better enforcement of the Federal income tax laws by providing the 

IRS with greater transparency regarding the operations and tax positions taken by 

U.S. multinational firms. In addition to this direct benefit from collecting U.S. CbC 

reports, pursuant to income tax conventions and other agreements relating to the 

exchange of tax information (collectively, information exchange agreements), a report filed with the IRS may be exchanged by the United States with other tax jurisdictions in which the U.S.-based firm operates. The ability of the IRS to receive reciprocal CbC reports will provide information that will assist the IRS in performing 

risk assessment of foreign multinational firms operating in the United States. 

The country-by-country work at the OECD achieved a global, uniform approach 

to the reporting and dissemination of CbC information through tax administrations. 

In the absence of such agreement, countries around the world might well have imposed their own reporting obligations on the multinationals doing business in their 

jurisdictions, and such reporting requirements could vary from jurisdiction to jurisdiction, thereby increasing the compliance burden on U.S. multinationals. The U.S. 

Treasury Department worked closely with the business community and other stakeholders on virtually all aspects of the drafting and implementation of CbC reporting. 

Question. Many of my fellow colleagues are concerned about TPP. Thousands of 

Nevadans, including Shawn from Reno, have written me expressing their deep concerns with the trade deal the administration negotiated. As you know, I wrote a letter to Ambassador Froman and yourself to reiterate my strong desire that TPP uphold the strong standards laid out by TPA. Do you believe TPP upholds the strong 

standards of TPA? 

Follow-up: What steps are you personally taking to address lawmakers concerns? 

Answer. TPP upholds the strong standards laid out by TPA. Treasury has worked 

closely with USTR and Congress to meet the objectives of TPA. We will continue 

to work with congressional leadership, and we hope that Congress will approve this 

agreement as soon as possible. It’s the right thing to do for our economy and for 

American leadership in the strategically important Asia-Pacific region. 

TPP is a high-standard trade agreement that will benefit the U.S. economy and 

level the playing field for American workers and businesses. TPP countries will cut 

18,000 tariffs on Made-in-America products. Also, TPP puts in place historic labor 

and environment standards that will ensure trading partners play by high standard 

rules. 

Regarding currency, for the first time in the context of a trade agreement, the 

macroeconomic policy authorities of the TPP countries have adopted a Joint Declaration that addresses unfair currency practices by promoting transparency and acVerDate Mar 15 2010 16:27 Dec 12, 2016 Jkt 000000 PO 00000 Frm 00059 Fmt 6601 Sfmt 6621 R:\DOCS\22922.000 TIMD
56 

countability. In the Declaration, countries commit to avoid unfair currency practices 

and refrain from competitive devaluation, to provide transparency in their foreignexchange intervention and foreign reserves data, and to meet regularly for comprehensive macro and exchange-rate discussions. 

The Joint Declaration addresses the objectives on currency set out by Congress 

in the Trade Priorities and Accountability Act passed in June 2015. 

QUESTIONS SUBMITTED BY HON. RON WYDEN

BUSINESS INVESTMENT SIMPLIFICATION THROUGH POOLING

Question. Today there are $40 trillion in capital assets in the U.S. economy, with more than $2.5 trillion in new investment every year. While we know capital investment is an important aspect of economic growth, our cost recovery system is stuck 

back in the 1980s. CBO has found it is one of the largest sources of bias in our tax 

code, with computer and technology companies one of the biggest losers. And while 

current tax free reinvestment rules may soften the blow, these so-called like-kind 

exchanges are so complex that many small businesses can’t use them. 

Meanwhile, creative tax consultants and brazen taxpayers can manipulate a raft 

of complex cost recovery rules by parting-out buildings or changing around lineitems on their accounting books to cut millions of dollars off their tax liability. 

Do you think there are things we can do to simplify our cost recovery rules? The 

Business Tax Reform Working Group, co-chaired by Senators Cardin and Thune 

spent a lot of time discussing a simplified pooled cost recovery system. Is that a 

place to start? 

Answer. Except for certain limited expensing and bonus depreciation incentives, 

cost recovery rules for capital assets have remained essentially unchanged since 

1986. We are aware that the current rules can require burdensome record keeping 

and may introduce computational complexity. We are also aware of concerns that 

the current rules are outdated, resulting in uncertainty and disputes between taxpayers and the IRS. In undertaking business tax reform, a thorough review of the 

cost recovery provisions of the Tax Code should definitely be part of the policy discussion, with an emphasis on simplicity where possible. The work done by Members 

of the Senate Finance Committee to think these issues through is a good start. 

BARRIERS TO MULTI-EMPLOYER PENSION PLANS (MEPS)

Question. Secretary Lew, I’m pleased that the administration included a legislative proposal to expand multiple employer plans in the President’s budget. Senators 

Hatch, Brown and Nelson also are working on legislation to address the issues 

under current law with open MEPs. Open MEPS would enable small employers to 

sponsor high-quality, low-cost plans, with fewer administrative burdens than plans 

sponsored by a single employer. And so I’m pleased with the joint interest in this 

topic. 

However, as you know, we don’t need to wait for legislation, as Treasury today 

could address a big problem when it comes to MEPs. In a letter dated November 

17, 2014, I, along with some of my Democratic colleagues, asked you to address the 

so-called ‘‘one bad apple rule’’ that creates a disincentive for small businesses to join 

MEPs. 

Under current Treasury regulations, if one employer participating in a multiple 

employer plan violates the tax qualification rules applicable to retirement plans, the 

entire plan can be disqualified, with potentially devastating tax consequences for all 

of the participating employers and their employees. This not only seems unfair, but 

it is also materially impeding the growth of multiple employer plans among small 

businesses. 

As I stated in my letter, this is a problem that can be addressed by Treasury 

today, since the position in the Treasury regulations is not required by the statute. 

And I urge you to revisit this regulatory position, which discourages MEPs. 

Secretary Lew, can I have your commitment that you’ll address this problem administratively? 

Answer. We appreciate your continued interest in this important topic of how to 

bring more working Americans into the tax-favored retirement system, including 

through expanding participation options in multiple employer plans (MEPs). As you 

57 

note, stakeholders have raised concerns that the ‘‘one bad apple’’ or ‘‘taint’’ rule can 

be a disincentive for small businesses to join MEPs. Office of Tax Policy and IRS 

staff have been actively considering possible ways, including potential changes to 

Treasury regulations, to eliminate or reduce that disincentive without unintentionally increasing noncompliance with Internal Revenue Code requirements in the 

MEP community. Through these efforts, we have recognized that any changes to the 

current rules should address, among other things, whether there would be situations in which the responsibility for noncompliance should be allocated between the 

MEP provider and a participating employer and, even more importantly, what processes can be put in place to afford protection to the retirement benefits of the employees of a noncompliant participating employer in a MEP. Work in this area is 

ongoing, and any regulatory change would be subject to the usual notice and comment process. 

QUESTION SUBMITTED BY HON. ROBERT P. CASEY, JR. 

Question. Access to affordable childcare child is essential for all working Americans, which is why I am glad to see the President re-proposed a policy I have championed in the Senate to increase the Child and Dependent Care Tax Credit, and 

make it available to more American parents and families. Secretary Lew, can you 

speak to the importance of having high-quality childcare, from both an education 

perspective, and an economic perspective. 

Answer. Access to affordable child care is a barrier to employment or further 

schooling for many individuals. Although the child and dependent care tax credit 

partially offsets these costs, the value of the credit has eroded over time because 

income level at which the credit begins to phase-down and the expense limit are not 

indexed for inflation. 

Child care costs are particularly high among families with children under age 5 

because these children are generally too young to attend elementary school and because care for very young children can be more expensive. In addition to imposing 

a financial burden on working families, these additional costs are an impediment 

to reentry into the workforce by parents. Empirical evidence suggests that mothers 

of children under age 5 have lower rates of labor force participation and employment than mothers of older children, suggesting that child care costs may delay employment for mothers who would prefer to return to market work. Expanding child 

care assistance to taxpayers with children reduces obstacles for these parents to 

participate in the labor force or in education programs. And importantly, helping 

families afford the rising cost of quality child care promotes child development, with 

long-term benefits for children and our society. 

For these reasons the administration proposes to increase the child and dependent 

care credit and create a substantially larger credit for taxpayers with children under 

age 5. In 2017, about 5.3 million families would receive an average of about $930 

from these proposed changes to child care tax incentives. We appreciate your continued efforts to improve the Child and Dependent Care Credit and look forward to 

working with you to enact an expansion. 

QUESTIONS SUBMITTED BY HON. MARK R. WARNER

Question. The international tax reform proposal included in the President’s Fiscal 

Year 2017 Budget imposes a 19-percent minimum tax on foreign earnings, and is 

estimated to raise $350 billion over 10 years. Last year, you estimated that the 

same 19-percent minimum tax on foreign earnings raised $205 billion over 10 years. 

At the same time, the Congressional Budget Office estimates that by 2026, increasing erosion of the corporate tax base will lower corporate income tax receipts 

by 5 percent compared with collections in 2016. Half of that difference is attributable to the shifting of income out of the United States. I know that many of my 

colleagues on this Committee share my concern over the significant amount of base 

erosion we are facing. 

What factors contribute to this significant increase in revenue raised by your minimum tax proposal? 

Answer. The minimum tax proposal included in the administration’s broader business tax reform plan raises revenue to the extent that the foreign earnings of U.S. 

companies are taxed at rates below 19 percent (before accounting for foreign tax 

58 

credits)—rates that are generally well below those which apply in large OECD 

economies. The global minimum tax is aimed at slowing the global ‘‘race to the bottom’’ in corporate income tax rates. The upward revision in the revenue effect of this 

proposal reflects, to some extent, the fact that a rising level of multinational firms’ 

earnings is reported in low-tax foreign jurisdictions, and to a larger extent, that the 

effective foreign-tax rate actually paid by U.S. multinational corporations is lower 

than previously estimated. Reductions in foreign taxes paid reduce foreign tax credits available to be credited against the minimum tax, and thus increase minimum 

tax revenues almost one for one. 

The fact that U.S. multinational corporations face extremely low foreign effective 

tax rates on their foreign earnings and that effective rates paid have continued to 

trend downward even in the post-recession era illustrates the ongoing efforts by 

U.S. multinationals to shift profits to low-tax jurisdictions and the porousness of our 

current international tax system, which allows such shifting to occur. These taxinduced distortions to businesses’ decisions regarding where to locate activities and 

where to report profits impose costs in the form of tax planning and foregone domestic investment. An important objective of the administration’s minimum tax proposal is to reduce opportunities for firms to engage in such tax planning and to improve their incentives to locate real economic activity in the U.S. 

Question. Fully leveraging the potential of the Digital Accountability and Transparency (DATA) Act of 2014 presents an opportunity for agencies to facilitate better 

management, and the Department of the Treasury, along with the Office of Management and Budget, must provide leadership in issuing critical guidance for agencies 

to move forward. To that end, please answer the following questions. 

The DATA Act requires that the financial data standards issued by Treasury and 

OMB incorporate widely accepted elements, to the extent reasonable and practicable. A recent Government Accountability Office report (GAO–16–261) evaluated 

the 57 issued standards in light of 13 leading practices developed by the International Organization for Standardization (ISO), and found that most adhered to 

leading practices. However, GAO also found that several of the standards require 

additional clarity, in order for agencies to report data that can be aggregated or 

compared. How does Treasury plan to further clarify these standards? 

Answer. In GAO’s recent report (GAO–16–261), they recommended that OMB, in 

consultation with Treasury, provide agencies with additional guidance to address 

potential clarity issues on several data standards that were finalized last year. 

While Treasury worked closely with OMB in developing the data standards, OMB 

is leading this effort, and we defer to OMB to update you on the status of this recommendation. 

Question. The GAO report found that final versions of the technical schema and 

intermediary broker system have been delayed, leaving agencies without sufficient 

time to develop appropriate plans. For example, Treasury has issued several beta 

versions of the technical schema, but the final version was expected in December 

and agencies cannot move forward without the final schema. Likewise, Treasury’s 

pilot at the Small Business Administration of the broker was limited in scope. When 

does Treasury plan to release the final schema and broker system? 

Answer. On April 29, 2016, Treasury released the DATA Act Information Model 

Schema (DAIMS) v 1.0 that will further clarify the reporting specifications for agencies based on the 57 data definition standards. The DAIMS v 1.0 was revised over 

the past year based on hundreds of comments provided by the public and Federal 

agencies. It includes artifacts that provide technical guidance for Federal agencies 

about what data to report to Treasury including the authoritative sources of the 

data elements and the submission format. The DAIMS also provides clarity on how 

the public can better understand the inherent complexity of the data and an overall 

view of the hundreds of distinct data elements illustrating how Federal dollars are 

spent. 

The DATA Act Broker is a tool that Treasury is developing to allow agencies to 

submit the required data in a standardized format. The Broker will accept data submitted directly from agencies and it will also pull data from existing data sources 

when needed. The Broker will validate agency data, allow agencies to certify the 

data, and complete the data submission and uploads to the DATA Act operating infrastructure. Treasury created a prototype Broker last year and used it to test agency data. Treasury is in the process of updating the DATA Act Broker based on the 

DAIMS v 1.0 release in April 2016 and will continue to test it with the agencies 

before finalizing it later this year. 

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Question. High-quality data retained by agencies is essential to facilitating better 

governance. What steps is Treasury taking to ensure that data is of the highest 

quality, including taking a least-burdensome and data-centric approach to implementation? 

Answer. Treasury established a transparent and interactive process for DATA Act 

implementation to ensure that Federal agencies and external stakeholders can participate in the process to improve data quality and meet the data consumer’s needs. 

Two key principles that Treasury is following are the Agile Development Methodology and User-Centered Design. These principles will help contain implementation 

costs and provide the greatest chance of success in meeting the transparency objectives to improve data quality. 

Treasury remains committed to the data-centric approach for DATA Act implementation. Last year, Treasury conducted a pilot to explore the feasibility of 

leveraging industry data exchange standards to map Federal financial data to a 

standard taxonomy and format. This is a critical component to DATA Act implementation because much of the Federal financial data resides in non-interoperable systems that cannot be readily retrieved. The DAIMS v 1.0 released in April 2016 adheres to these principles. It collects financial data directly from agency systems 

when required and also pulls award data from existing systems to reduce agency 

burden. 

Question. Treasury’s budget proposal includes $19.8 million for implementation efforts at Treasury itself and a new, $3 million initiative to build out cross-agency 

support services at Treasury’s Administrative Resource Center to implement the 

law. However, the lack of a line item for DATA Act implementation at most other 

agencies in the President’s budget is concerning. What shared services does Treasury anticipate building out, and how would this enable other agencies to better leverage the potential of the DATA Act? 

Answer. Nineteen-point-eight million dollars in multiyear funding was previously 

approved in FY 2016 for the Bureau of the Fiscal Service’s government-wide implementation. For the FY 2017 request, ARC will use its funding to upgrade ARC’s financial management system platform to meet DATA Act reporting requirements for 

ARC’s shared services customer agencies. This funding will also support ARC in improving business processes supporting FPDS reporting and other award reporting 

to USASpending.gov in preparation of the new DATA Act reporting. ARC will also 

prepare for and provide ongoing DATA Act reporting services to Federal agencies 

using ARC’s system platform. 

PREPARED STATEMENT OF HON. RON WYDEN, 

A U.S. SENATOR FROM OREGON

Thank you, Mr. Chairman, and thank you, Secretary Lew, for appearing before 

the Finance Committee to outline President Obama’s budget proposal one final time. 

Here’s where I’d like to begin today. There are, in America right now, two different 

tax systems. The one most people deal with is mandatory—their taxes come directly 

out of the paycheck. Then there’s another system for the well-connected, and under 

that system, you pay what you want, when you want to. 

The fact is that most Americans—people who earn a few checks a month, and who 

may have a mortgage and a few kids—those taxpayers interact with a very small 

portion of the tax code. 

But there are far too many shadowy, cobweb-filled corners of the code that typical 

Americans never have to venture into. Those corners are loaded with byzantine 

rules that accountants and lawyers from white-shoe firms can use to pry open loopholes. 

As a result of all this complexity, you have increasingly slippery definitions of capital gains and income, and an array of tax-dodging strategies with names like wash 

sales and swap contracts. It is a mind numbing system. And it’s no wonder why 

somebody who works the line at a factory or has a gig at a mom and pop business 

would believe the tax code is stacked against them. 

Now, I don’t think anybody would bet on there being a complete rewrite of the 

tax code this year that addresses this fundamental unfairness or the many other 

ways our tax code is broken. But I see a big opportunity for Democrats and Republicans in Congress, the Treasury Department, and the IRS to work together now. 

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And that’s by cracking down on the tax avoidance schemes that result in the corporate tax gap. 

I’m going to have a lot more to say about this later this afternoon when Commissioner Koskinen comes before the committee. But the short story is that two-thirds 

of a trillion dollars owed in corporate taxes goes unpaid every decade, and in my 

view, policymakers ought to be doing a lot more to figure out why and how to fix 

it. I see this as an opportunity to free up some dollars to take on the big economic 

challenges of this era, many of which are reflected in proposals in the President’s 

budget. 

For example, the auto-IRA proposal will help a lot of workers start saving for the 

first time. The second-earner tax credit will help a lot of families who are walking 

an economic tightrope every day. The community college partnership tax credit will 

help students who are looking for that first high-wage, high-skill job coming out of 

school. Investments in early education and children’s health will help guarantee 

that kids start life with security and opportunity. And there are many other smart 

proposals that will be a big help to millions of families in Oregon and across the 

country. I’m looking forward to working on a bipartisan basis with my colleagues 

in Congress to pursue those issues. 

Mr. Secretary, thank you again for being here today. And thank you again, Mr. 

Chairman—particularly for scheduling three hearings this week for the Finance 

Committee to come together on a bipartisan basis to examine the President’s budget 

proposal. In my view, we have both a responsibility and a practical need to communicate with the administration as effectively as possible—no matter which party 

controls the White House. This practice informs the debates that come over the 

course of the year on Capitol Hill. It is disappointing that some other committees 

this year are not exercising this same responsibility. I hope that does not become 

a precedent. 

Æ