1

Testimony of Aaron Klein

Deputy Assistant Secretary

Office of Economic Policy

U.S. Department of the Treasury

Before the Senate Committee on Indian Affairs

“New Tax Burdens on Tribal Self-Determination”

Thursday, June 14, 2012

Introduction

Good afternoon, Chairman Akaka, Vice Chairman Barrasso, and members of the Committee. I 

appreciate the opportunity to testify before you on the Treasury Department’s Tribal 

Consultation program with a focus on our most recent consultation efforts to clarify and improve 

the application of the general welfare doctrine for Tribes for tax purposes. 

Tribal Consultation

In 2000, President Clinton signed Executive Order 13175, which required all executive branch 

departments and agencies to engage in Tribal consultation on policies that have Tribal 

implications. EO 13175 also required each agency to establish a single Point of Contact for 

Tribal Consultation, a position I hold at the Treasury Department. In November 2009, President 

Obama issued a Memorandum to all agencies and departments requesting that agencies be 

actively engaged in Tribal consultation, that agencies review and consider revising their Tribal 

consultation policies, and that they consult with Tribal governments as they do so. 

During those initial conversations with Treasury, Tribal leaders raised three key issues. First, 

they asked for a better process for improved Tribal consultation and an enhanced dialogue going 

forward. Specifically, they stressed the importance of Tribal sovereignty and that true 

consultation can only take place with the understanding that the relationship between Tribes and 

the Federal government is a government-to-government relationship. Second, Tribal leaders 

raised concerns about various tax code issues related to Tribal governments, Tribal corporations,

and Tribal members. Among the many tax issues highlighted by Tribal leaders, concerns about 

the application of the general welfare doctrine were the most frequently raised. Finally, Tribes 
2

raised a number of concerns regarding their access to capital for economic development. Within 

this area, issues relating to Tribal Economic Development Bonds as well as the Community 

Development Financial Institutions (CDFI) Fund’s Native American program were the two most 

significant. 

Treasury took the comments raised by Tribal leaders to heart. We have engaged in a series of 

meaningful actions in response to Tribal leaders’ concerns, and I would like to update the

Committee on our work.

Consultation Efforts

Treasury has taken a series of steps to enhance our Tribal consultation process. First, Treasury 

developed an internal Tribal consultation process as required by the Presidential Memorandum. 

This process is in accordance with EO 13175 and has three main principles:

• The Treasury Department is committed to the establishment of a comprehensive 

consultation process leading to meaningful dialogue with Indian Tribes on Treasury 

policies that have implications for such Tribes, and in particular those regulations and 

legislative proposals that have a direct and identifiable economic impact on Indian Tribes 

or preempt Tribal law. 

• Tribal consultation will assist Treasury’s development of policy, regulation, and 

legislative activities, as it will increase Treasury’s understanding of the issues and 

potential impact of activities on Tribes and American Indians and Alaskan Natives.

• The Treasury Department is committed to developing and issuing regulations and 

guidance in a timely and efficient manner.

Tribal consultation must take place from an understanding that conversations between the 

Federal Government and Tribal governments are conducted on a government-to-government 

basis, which is predicated on mutual understanding and respect for Tribal sovereignty. 
3

A strong consultation process requires open lines of communication in both directions. Tribal 

leaders need to be able to easily contact Treasury, whether to request a meeting, ask about a 

specific program, or submit their views on a particular issue. Treasury needs to be able to 

communicate with Tribal leaders in a clear, consistent, and transparent manner, and easily solicit

Tribal views on policy issues. To accomplish these objectives, we have set up several

institutional structures to improve our communication. First, we have created an email address 

for any Tribal leader to send a Tribal consultation request, Tribal.consult@Treasury.gov. 

Moreover, we have established a specific webpage dedicated to Tribal consultation which is 

regularly updated with the latest Tribal consultation requests, policy statements, and reports to 

Congress (http://www.treasury.gov/resource-center/economic-policy/tribal-policy/Pages/TribalPolicy.aspx). We have also released our Tribal consultation plan so that any Tribe or interested 

party can see how Treasury is fulfilling our Tribal consultation requirement.

Since adopting our new Tribal consultation process, Treasury has engaged in multiple 

consultation processes over a wide variety of issues, including Tribal Economic Development 

Bonds and the application of the general welfare doctrine. In addition, we have continued to hold 

general consultation and listening sessions to solicit input from Tribal leaders as well as to 

enable Tribal leaders to ask detailed questions directly to Treasury officials. 

Consultation can and must take place both in Washington, D.C. and in Indian country. I have 

engaged in consultation and listening sessions in South Dakota, Oregon, and Louisiana. Other 

Treasury officials have travelled across the country to conduct specific outreach efforts, 

including a series of conferences and events regarding access to capital, which were sponsored 

by the CDFI Fund along with the Federal Reserve Banks of Minneapolis and San Francisco and 

other federal agencies. My colleagues at the IRS have also regularly held consultation sessions 

across the country. 

Tribal leaders often raise issues that concern both Treasury and IRS. To best address these 

concerns, we have regularly held joint consultation sessions where Tribal leaders engage with

senior officials from both Treasury and IRS simultaneously. This not only maximizes efficiency 
4

but also encourages a more collaborative process so that everyone is hearing and responding to 

all parties.

General Welfare Doctrine

During the course of our consultation efforts, Tribal leaders repeatedly raised concerns regarding 

whether certain payments or benefits provided by the Tribe to members are excludable from 

taxable income under the general welfare doctrine. This exclusion governs the types and kinds 

of benefits that Tribes can provide to their members without creating a taxable event. To be 

clear, it does not govern what benefits a Tribe can provide its members. Tribes are free to 

provide benefits on whatever basis they see fit, subject to other provisions of law. What this 

exclusion does govern is whether the provision of such a benefit constitutes taxable income on 

the part of the recipient. 

Treasury and IRS listened to and considered the requests of Tribal leaders for increased clarity 

on the application of the general welfare doctrine. We agreed to begin a consultation process 

dedicated exclusively to this issue late last year, holding our first consultation meeting on 

November 30, 2011, in conjunction with the President’s Tribal Nations summit. On March 8, 

2012, we held another consultation session hosted by the National Congress of American Indians 

in conjunction with their annual conference. To provide an opportunity for direct dialogue for all 

Tribal leaders who were not able to make the earlier in-person consultation sessions, we also 

held a national phone call just two weeks ago on May 30, 2012. In all of these meetings, 

Treasury and IRS participated jointly, and while exact attendance figures are not known, it 

appears that approximately 300 people in total attended these events. 

Our Tribal consultation on this issue was not limited to just these in-person meetings. The IRS 

issued Notice 2011-94 on November 15, 2011, which invited comments concerning the 

application of the general welfare exclusion to Indian Tribal government programs. When 

various Tribal leaders requested additional time to submit comments, we accommodated their 

requests by extending the deadline by an additional 30 days. I am pleased to report that we have
5

received over 65 comments from Tribes and Tribal leaders within the official comment period,

and more than 20 additional comments since then. 

Through our review of the written comments, our direct consultation efforts, and our own 

internal analysis, it is clear to us that additional guidance and clarity on the general welfare 

doctrine is warranted. Treasury and the IRS have now publicly committed to issue new written, 

published guidance on this subject. In doing so, we will remain mindful of the comments and 

positions thoughtfully articulated by Tribes and Tribal leaders during the consultation process.

Access to Capital

Access to capital is another critical concern raised repeatedly by Tribes and Tribal leaders. 

Treasury is actively engaged in helping Tribes access capital to grow their local economies. 

Within the CDFI Fund, a bureau of Treasury whose mission is to expand the capacity of 

financial institutions to provide credit, capital, and financial services to underserved populations 

and communities in the United States, the Native American CDFI Assistance Program (NACA) 

focuses exclusively on establishing and growing CDFIs in American Indian, Alaskan Native, and 

Native Hawaiian communities. I believe the NACA program represents one of the most 

successful programs in promoting access to capital in Indian Country. There are 70 certified 

Native American CDFIs in operation all around the country, hopefully serving many of the 

Tribes represented here today. As an economist, I like to measure the success of a program by 

demand. Certified Native CDFIs have grown by over 38% since 2009 and have increased fivefold since 2001, when there were just 14. Clearly there is demand among American Indians, 

Native Alaskans, and Native Hawaiians for CDFIs. 

We are trying to keep pace with demand for Native American CDFIs. In March of this year,

Treasury announced the results from our most recent round of funding for the NACA program. 

There were 71 applicants for over $23 million in funds. This included 25 existing certified 

Native CDFIs that applied for more than $16 million in grants along with 46 potential new 

Native CDFIs, certified Native CDFIs, and Sponsoring Entities that applied for over $6 million 
6

in technical assistance grants. Over the lifetime of the NACA program, Treasury and CDFI have 

awarded over $57 million to more than 250 applicants. 

Given its success, there is also strong support for the NACA program in Congress, and I would 

like to thank Chairman Akaka, members of the Indian Affairs Committee, especially Banking, 

Housing, and Urban Affairs Committee Chairman Johnson, and others for their continued strong 

support for the NACA program. This is program is one of the most powerful and effective tools 

to promote economic development and bring basic financial services into Indian Country, and we 

are committed to working with Tribes and Tribal leaders to ensure its continued success. 

Treasury has also worked with Tribes to help improve their access to the capital markets. As 

many of you are well aware, under current law Tribes have a more limited authority to issue taxexempt municipal debt than states and localities. Many Tribes have argued against this policy on 

a variety of grounds, including that it has inhibited economic development, hampered Tribes’ 

access to the capital markets, and was unfair when compared to the broad authority granted to 

State and local governments. The American Recovery and Reinvestment Act (Recovery Act) 

responded to these concerns by granting Treasury the authority to allocate $2 billion of Tribal 

Economic Development Bonds (TEDBs) to Tribal governments. These allocations would grant 

Tribes the authority to issue tax-exempt debt for a wide range of projects that previously would 

not have qualified. Treasury acted quickly, allocating the funds in two different $1 billion 

tranches and giving awards to 134 applicants.

Treasury was also given an opportunity in the Recovery Act to study the TEDB program and 

report back to Congress on both the program and, more broadly, on the issues surrounding 

Tribes’ ability to issue tax-exempt debt. Our first step in this process was to act in accordance 

with Executive Order 13175 and begin a consultation process with Tribes. Through that process 

we received written comments from 27 Tribes, Tribal organizations, and interested parties from 

our open Notice in the Federal Register as well as many other comments and insights through 

various consultations. The input that we received through the consultation process proved 

invaluable as we sifted through the various policy options available. Broadly speaking, the 
7

comments indicated the strong desire to grant Tribal governments permanent and indefinite 

authority to issue tax-exempt debt similar to the authority enjoyed by state governments.

Treasury submitted its congressional report on TEDBs in December 2011, in which we 

concluded:

“For reasons of tax parity, fairness, flexibility, and administrability, the Department 

recommends that Congress adopt the State or local government standard for tax-exempt 

government bonds... on a permanent basis for purposes of Indian Tribal government eligibility 

to issue tax-exempt governmental bonds, without a bond volume cap.”

That is we recommended that Congress make permanent the experiment begun in the Recovery 

Act and allow Tribal governments to have access to tax-exempt bonds on their own terms as 

consistent with the TEDB program. This conclusion is broadly consistent with the positions 

articulated by many Tribes and Tribal leaders. 

While Treasury has made this recommendation for parity on tax-exempt debt, it will not become 

law until Congress acts. In the meantime, TEDB allocations from the original $2 billion still 

exist and Treasury and the IRS are working to reallocate the existing authority. In that endeavor 

we have continued to seek Tribal input and hope to announce our plans for reallocation in the 

very near future.

Conclusion

Treasury remains committed to working with Tribes and Tribal leaders through our consultation 

process. In my view, our Tribal consultation on the general welfare doctrine is a perfect example 

of this process working at its best. Tribal leaders presented these issues to Treasury and IRS 

through general consultation and Treasury and IRS examined the issues and agreed to a more indepth specific consultation, resulting in an extensive and highly productive dialogue. 

Consequently, the new guidance will improve the administrability and fairness of the tax code 
8

while providing Tribes and Tribal members greater certainty for compliance. That concludes my 

testimony, and I look forward to answering any questions you may have.