[Senate Hearing 108-]
[From the U.S. Government Publishing Office]



 
  DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND 
          RELATED AGENCIES APPROPRIATIONS FOR FISCAL YEAR 2004

                              ----------                              


                         TUESDAY, MAY 20, 2003

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 10:11 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Richard C. Shelby (chairman) 
presiding.
    Present: Senators Shelby, Specter, Murray, and Byrd.

                       DEPARTMENT OF THE TREASURY

                        Office of the Secretary

STATEMENT OF HON. JOHN SNOW, SECRETARY
ACCOMPANIED BY TERESA MULLET RESSEL, ACTING ASSISTANT SECRETARY, 
            MANAGEMENT AND BUDGET

             OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

    Senator Shelby. Good morning. The committee will come to 
order.
    I would like to welcome John Snow, Secretary of the 
Department of the Treasury. Thank you, Mr. Secretary, for 
appearing before the subcommittee today to discuss the fiscal 
year 2004 budget request for the Department of the Treasury. I 
look forward to learning about the new leadership you bring to 
the Department as well as the resources necessary to carry out 
the responsibilities at the Department.
    The Department of the Treasury has undergone significant 
changes since the transfer of the majority of its law 
enforcement bureaus and related functions to the newly created 
Department of Homeland Security and the Department of Justice. 
In the midst of those changes, the Department still maintains 
the key role in Government as economic policymaker, financial 
manager, and revenue collector. That is no small task, 
especially now as the country seeks economic recovery, job 
creation, and comprehensive tax reform and relief.
    The Department has also created a new Bureau, the Alcohol 
and Tobacco Tax and Trade Bureau, and also anticipates 
consolidating the Office of Inspector General and the Inspector 
General for Tax Administration. I am interested in learning, 
Mr. Secretary, more about those plans.
    As the threat of terrorism continues, finding ways to 
combat money laundering and other terrorist financing tools is 
an important role for the Department. It is vital to our 
ongoing counterterrorism efforts that we know what resources 
the Department will need to combat such nefarious activities.
    Treasury's budget request for fiscal year 2004 is $11.408 
billion, which includes $21.9 million for the activities of the 
Office of Foreign Asset Control, $57.5 million for the 
Financial Crimes Enforcement Network, and $5.3 million to 
increase the counterterrorism activities of the Internal 
Revenue Service's (IRS) Criminal Investigations Unit.
    These three bureaus within Treasury form part of the 
backbone of our ongoing fight against terrorist financing. 
Recent attacks in Saudi Arabia, Morocco, and Israel have shown 
it is important that we maintain a coordinated focus and 
provide the necessary resources to ensure that our combined 
efforts to disrupt terrorism financing are persistent and 
effective.
    Turning an eye toward the more traditional functions of 
Government, I want to briefly touch on the $10.4 billion 
request for the IRS that was discussed at length at a prior 
subcommittee hearing. The IRS' ongoing business system 
modernization efforts will require $429 million in the year 
2004. The subcommittee appreciates the efforts that continue to 
go into this massive upgrade that we hope will improve the 
speed, timeliness, and accuracy of IRS administration of the 
tax system.
    I am aware, Mr. Secretary, that last year's efforts 
encountered a hiccup of sorts. However, I am interested in 
hearing how the Department is working with the IRS to get back 
on track and ensure that schedule and cost setbacks do not 
become common occurrences.
    While the IRS' traditional role is to implement and enforce 
our tax laws, it has also been charged with administering the 
Earned Income Tax Credit. The budget proposes a number of 
changes to that program because of the high level of fraud 
associated with the program's administration. Each year, the 
IRS makes approximately--Mr. Secretary, listen to this number. 
Each year, the IRS makes approximately $9 billion in erroneous 
Earned Income Tax Credit payments--$9 billion. This is a direct 
and permanent loss to American taxpayers because it is 
virtually impossible to recapture these payments once they have 
been made.
    To implement the EITC Task Force recommendations, the 
Department is requesting $100 million to address the problems 
associated with the current program administration that results 
in overpayments. Eliminating erroneous payments and ensuring 
the proper administration of this program are certainly goals 
with which I completely agree.
    In conclusion, Mr. Secretary, I believe this is a 
straightforward budget that includes a number of important 
reforms and efforts at modernization. I appreciate that it will 
take time for the Department to adjust to the realignment of 
offices to the Department of Homeland Security and the 
Department of Justice. Mr. Secretary, I am confident that you 
have the opportunity to emerge stronger and more focused than 
ever.
    I want to thank you for being here today, and I look 
forward to your testimony and the question period.
    Senator Murray.

                   STATEMENT OF SENATOR PATTY MURRAY

    Senator Murray. Thank you, Mr. Chairman.
    I want to welcome Secretary Snow back to the subcommittee. 
Over the years, he has testified both in public and private 
capacities on a variety of transportation issues, and I have to 
say I am tempted to ask him about how we can enhance Amtrak's 
profitability or how we can improve management of our air 
traffic control but, rather, I will focus on Treasury issues 
this morning: the Earned Income Tax Credit, foreign sales 
corporations, and the Administration's plans in Iraq.
    Let me start with EITC because I am concerned about the 
President's plan to spend $100 million to target low-income 
families and possibly deny them this critical tax credit.
    The EITC is designed to help the working poor. It is 
probably the most targeted means-tested tax benefit in the 
entire Federal code. It was started by President Ford, and it 
was greatly expanded under President Reagan. While many working 
families are eligible to receive it, as many as 25 percent or 
more of those eligible families do not even apply for it. We 
should be taking steps to allow more eligible families to get 
the help they need, but I think the President's proposal goes 
the other way. It has the potential to throw many honest 
eligible families off the rolls by putting a complex paperwork 
burden on families who are already struggling. It could also 
have a chilling effect on many families who may be intimidated 
upon receiving an official notice from the IRS questioning 
their eligibility.
    We are told the goal is to minimize fraud, and I think we 
all agree that is an important and appropriate goal. Tax fraud 
by any taxpayer should never be tolerated. It is a disservice 
to every other family that works hard and plays by the rules. 
But I think there are many unanswered questions about whether 
the President's plan would meet that goal or whether it will 
end up purging many families who need it from the program.
    I have asked questions about this on a number of occasions, 
and I haven't gotten clear answers, and so I hope Secretary 
Snow is prepared to answer questions in detail today.
    On the most basic level, I would like to know if targeting 
the working poor is the most effective use of $100 million or 
if there are other places where we can get more bang for the 
buck in reducing tax fraud. It is estimated that hundreds of 
billions of dollars in tax revenue never come in every year 
because of tax cheats and people who underreport their true 
income. Will the Treasury reap the greatest benefits by 
clamping down on the working poor or on multimillionaires and 
their tax attorneys who use questionable means to dodge taxes?
    This subcommittee and our companion subcommittee in the 
House have not gotten straight answers. The IRS claims this is 
a balanced effort, balanced between fighting fraud and boosting 
participation for eligible families. That sounds good. However, 
the vast majority of the $100 million goes to increased 
enforcement, while only $13 million goes to increased outreach. 
That doesn't sound very balanced to me.
    I would also like to know if the Treasury Department 
through the IRS will have a formal public comment period before 
it publishes the pre-certification rules. Will the 
Administration evaluate the impact of its pilot project on 
working poor families before it expands this initiative to 2 
million families nationwide? We have been told that the 
Administration plans to require the study, but we don't know if 
the Administration and the subcommittee will have the results 
in hand before the initiative is launched. I hope Secretary 
Snow will be able to answer those questions this morning.
    Another issue that concerns me is the Administration's 
support for repealing the Extraterritorial Income (ETI) 
Exclusion Act of 2000 in response to a World Trade Organization 
dispute with the European Union. ETI, previously known as 
Foreign Sales Corporation, provides a tax break to U.S. 
exporters who employ American workers. ETI creates and sustains 
jobs for American workers. According to a recent study, 
exporters that benefit from the ETI may employ as many as 3.5 
million American workers, including more than 100,000 in 
Washington State.
    I am very concerned that the Administration has thrown up a 
white flag on this issue. The Administration's actions could 
give the Europeans a green light to threaten $4 billion in 
retaliatory tariffs against American agricultural and 
manufacturing exports. If we proceed with the Administration's 
white-flag approach, we will give Europe a tremendous 
competitive advantage and will hurt American workers.
    I have written to the U.S. Trade Representative about this, 
but I still have not received a response, and I hope the 
Secretary will have more to say about this important economic 
policy and tax issue.
    Finally, I will ask several questions about U.S. efforts in 
Iraq. I am anxious to hear from the Secretary regarding 
international participation in the effort to rebuild Iraq. We 
have all seen the news reports that the effort to rebuild Iraq 
could cost up to $600 billion over the next decade. The 
Administration's budget request is silent on these costs, and 
we have been told there will not be another supplemental 
funding request this year. I hope the Secretary can give the 
subcommittee and the full Appropriations Committee greater 
information about this issue.
    I am curious about the Administration's latest thinking on 
international participation in the effort to rebuild Iraq. In 
particular, what role does the Administration see for the 
United Nations and countries that did not join the coalition 
forces in Iraq? Several Administration officials have given the 
Appropriations Committee very general responses to that 
question. I hope the Secretary will be more forthcoming with 
this subcommittee on the Administration's current position.
    Finally, I will have questions for the Secretary regarding 
the Administration's views on contracts negotiated by Saddam 
Hussein's regime. I understand there are numerous high-profile 
examples of Saddam's business dealings, some of which were 
agreed to with the specific objective of undermining 
international economic sanctions placed on the regime. I 
believe these contracts should be set aside. The new Iraqi 
Government should not be burdened with Saddam's business 
dealings. I hope the Administration agrees with me on this 
issue, and I hope we can work together to ensure that no U.S. 
taxpayer assistance is ever used to reward Saddam's business 
partners, those who actively worked to undermine economic 
sanctions on Saddam Hussein.
    So, Mr. Secretary, again, I welcome you here today and I 
look forward to your testimony and a good dialogue this morning 
as we move forward to craft our bill for the coming fiscal 
year.
    Thank you, Mr. Chairman.
    Senator Shelby. Senator Byrd.
    Senator Byrd. Mr. Chairman, I thank you and I thank the 
ranking member for your comments. I will save my time for 
questions.
    Thank you.
    Senator Shelby. Mr. Secretary, we welcome you to the 
committee. Your written statement will be made part of the 
record in its entirety. You may proceed as you wish.

                    STATEMENT OF SECRETARY JOHN SNOW

    Secretary Snow. Thank you very much, Mr. Chairman, Senator 
Murray, Senator Byrd. It is a great pleasure to be here today 
and to have this opportunity, with Acting Assistant Secretary 
Teresa Ressel, to be with you to discuss the Treasury 
Department's fiscal year 2004 budget request. I will make a 
brief oral statement and ask, Mr. Chairman, that my full formal 
statement be included in the record.
    You hit on the fundamental issue we face in a management 
sense in your good opening comments, because it is clear that 
with the creation of the Department of Homeland Security, the 
Treasury Department has undergone the most significant 
transformation in its long history. And the recent divestiture 
of most of the Treasury's law enforcement bureaus has created 
an opportunity--I think a very important opportunity and one we 
want to make the most of--to refocus on our core mission. This 
core mission would in my view encompass the following things:
    First, creating jobs for economic growth, security, 
promoting economic security, jobs, and growth. That broad 
category of things is something that the Treasury Department I 
think has to be terribly focused on.
    Another broad category of things that the Department needs 
to be focused on is ensuring that the tax system is effectively 
administered and is fair for all taxpayers.
    And, finally, the Treasury Department has a critically 
important mission in focusing on fighting the financial war 
against terrorism.
    The budget proposal which we have submitted for fiscal year 
2004 totals $11.408 billion. We have provided the committee 
with a detailed breakdown and justification for this request. I 
would like to take the opportunity here this morning to 
highlight three areas of particular importance.
    First, going to the primary mission, developing and 
implementing policies to provide economic security, jobs, and 
growth for the American people. Of course, this mission is 
embodied in, among other things, the President's plan for Jobs 
and Growth, which is pending before both bodies of the 
Congress. The goals of the Jobs and Growth plan are to 
stimulate consumer spending, promote investment by individuals 
and businesses that will lead to economic growth and job 
creation, and deliver critical assistance to unemployed 
citizens. The fact is we are in a recovery, but it is too slow. 
As a result, too many Americans don't have work.
    Second, Treasury is working to ensure that the U.S. tax 
system is fair for all Americans. That is a critically 
important part of what Treasury is all about. A cornerstone of 
Treasury's mission is helping citizens meet their tax 
responsibilities while maintaining the fairness of the system 
and respecting individual taxpayer rights, a matter that was 
touched on in the opening statements as well.
    Of course, this mission is mainly the responsibility of the 
Internal Revenue Service (IRS), the biggest single part of the 
Treasury Department. IRS is responsible for collecting most of 
the revenues of the United States Government.
    Thirdly, as is increasingly becoming apparent, I think, and 
as you mentioned, Mr. Chairman, in your opening comments, 
Treasury serves a critical role in fighting the financial war 
on terrorism. This work touches on several of Treasury's core 
functions and involves many of our jurisdictions, our offices, 
and our departments.
    Treasury implements the financial war on terrorism through 
a number of mechanisms, including a new Executive Office of 
Terrorist Financing and Financial Crime, which will work with 
the International Affairs Terrorist Financing Task Force and 
with the office devoted to critical infrastructure protection 
in the Office of Domestic Finance. So this war on terrorist 
finance cuts through a number of different divisions of 
Treasury.
    Finally, I would like to add that the Treasury Department 
continues to use the five elements of the President's 
Management Agenda as a guide to achieving our key priorities in 
accomplishing the Department's overall mission.

                           PREPARED STATEMENT

    Let me say in closing here that I look forward to working 
with you, Mr. Chairman, with members of the committee, and your 
staff as we move in fiscal year 2004 to maximize Treasury's 
resources to see that we are doing the best job we can in the 
interests of the American people. I am hopeful that together we 
can work to make the Department a model of good management and 
good service to the American people.
    And, with that, I thank you again for the opportunity to be 
here and look forward to trying to respond to your questions.
    [The statement follows:]

                    Prepared Statement of John Snow

    Chairman Shelby, Ranking Member Murray, and members of the 
Committee, I appreciate the opportunity to discuss Treasury's fiscal 
year 2004 budget request.
    With the creation of the Department of Homeland Security, Treasury 
has undergone the most significant transformation in its 214-year 
history. The recent divestiture of a majority of Treasury's law 
enforcement bureaus and related functions \1\ has provided an 
opportunity for Treasury to refocus its core missions. Treasury 
continues to fill a crucial role in economic policy making, 
international economic development, the financial war on terrorism, tax 
administration, banking and financial markets, and the government's 
financial management.
---------------------------------------------------------------------------
    \1\ The United States Customs Service, the United States Secret 
Service, the Federal Law Enforcement Training Center, a portion of the 
Bureau of Alcohol, Tobacco and Firearms, and the Office of Enforcement.
---------------------------------------------------------------------------
    The budget proposal for fiscal year 2004 totals $11.408 billion. I 
am committed to rooting out ineffective programs and will continue the 
challenge begun in the fiscal year 2003 budget process for each 
Treasury bureau to carefully examine their operations to improve 
efficiency and effectiveness.
    We have provided the Committee with a detailed breakdown and 
justification for Treasury's fiscal year 2004 budget request. I would 
like to take the opportunity today to just highlight four areas of 
focus for fiscal year 2004:
  --Providing economic security, jobs, and growth,
  --Ensuring the tax system is fair for all through a comprehensive 
        compliance effort,
  --Serving a critical role in the financial war against terrorism, and
  --Maintaining the integrity of our Nation's financial systems and 
        safeguarding our Nation's currency.

             PROVIDING ECONOMIC SECURITY, JOBS, AND GROWTH

    Treasury's primary focus is on developing and implementing policies 
to provide economic security, jobs, and growth for the American people. 
This mission is embodied in the President's Plan for Jobs and Growth. 
Its goals are to encourage consumer spending that will continue to 
boost the economic recovery; promote investment by individuals and 
businesses that will lead to economic growth and job creation; and 
deliver critical help to unemployed citizens. The President's proposal 
would: speed up the 2001 tax reductions to increase the pace of the 
recovery and job creation; encourage job-creating investment in 
America's businesses by ending the double taxation of dividends and 
giving small businesses incentives to grow; and provide help for 
unemployed Americans, creating new re-employment accounts to help 
displaced workers get back on the job.

    ENSURING THE TAX SYSTEM IS FAIR FOR ALL THROUGH A COMPREHENSIVE 
                           COMPLIANCE EFFORT

    A cornerstone of Treasury's mission is helping our citizens meet 
their tax responsibilities, while maintaining the fairness of the tax 
system for all and respecting taxpayer rights. This is mainly the 
responsibility of the Internal Revenue Service, which collects most of 
the revenue needed to operate government. This responsibility entails:
  --Meeting the annual demands related to processing over 2.6 billion 
        tax-related documents,
  --Sending out over 95 million tax refunds,
  --Providing quality service on taxpayer phone calls, email and walk-
        in assistance concerning tax law and account-specific 
        questions, and
  --Maintaining a balanced and comprehensive enforcement presence.
    The fiscal year 2004 budget provides $133 million of new funding to 
focus resources and staffing toward the most significant areas of non-
compliance, resulting in more examinations of high-income taxpayers and 
businesses.
    Another proposal for fiscal year 2004 permits private collection 
agencies (PCAs) to support the IRS' collection efforts while affording 
full protection of taxpayer rights, allowing the IRS to devote 
resources to more complex enforcement and collection issues. PCAs are 
currently used by 42 state tax authorities and by other large federal 
programs. By eliciting the assistance of PCAs, the IRS should 
eventually be able to handle more collection cases at an earlier stage 
in the process--before the accounts become stale and non-collectible.
    The fiscal year 2004 budget strives to improve the effectiveness of 
the Earned Income Tax Credit (EITC) program by ensuring that benefits 
go to those who qualify for them. The EITC program is aimed at 
rewarding those who work and helping families out of poverty. However, 
in 1999, between 27 and 32 percent of EITC claims--or between $8.5 
billion and $9.9 billion--were paid in error. Congress has recognized 
this by providing a separate appropriation that has been used for EITC 
enforcement.
    As a result, the fiscal year 2004 budget requests an additional 
$100 million to begin a new strategy for improving the EITC program. 
The IRS will begin to use an integrated approach to address potential 
erroneous claims by identifying cases that have the highest likelihood 
of error before they are accepted for processing and before any EITC 
benefits are paid. A key part of this strategy is to begin certifying 
taxpayers for the EITC. The IRS will seek to minimize the burdens on 
taxpayers by using existing databases and other sources of information 
to verify eligibility in advance. This integrated approach is designed 
to provide far greater assurance that EITC payments go to the 
individuals who qualify for the credit, without sacrificing the goals 
of the EITC program.
    Fiscal year 2003 and fiscal year 2004 are key transition years for 
IRS core systems modernization efforts, as the foundation of our 
Nation's tax system is beginning to be replaced, building a bridge to 
provide interactive and improved customer service. The fiscal year 2004 
budget provides $429 million for the continuation of the Service's 
modernization effort in re-engineering business processes and 
developing new business systems to replace the antiquated and obsolete 
system.
    In fiscal year 2003 and fiscal year 2004, IRS will roll out the 
first two phases of a multi-year effort to replace the main taxpayer 
database. This new database will provide accurate tax account answers 
on a real-time basis, enabling IRS to develop new approaches to 
simultaneously improve tax collection and taxpayer assistance.
    As a partial result of the transfer of nearly 70 percent of the 
Office of Inspector General account to the Department of Homeland 
Security and the Department of Justice, the fiscal year 2004 budget 
proposes a consolidation of the Inspector General services at Treasury, 
the Office of Inspector General and the Inspector General for Tax 
Administration. While retaining those specific functions outlined in 
the Restructuring and Reform Act of 1998 (RRA98), the combined 
Inspector General for Treasury will be responsible for providing 
oversight to the remaining Treasury bureaus.

     SERVING A CRITICAL ROLE IN THE FINANCIAL WAR AGAINST TERRORISM

    The campaign to stop the financing of terrorism is a top priority 
for this Administration and this Department. Treasury continues to play 
a critical role in this vital effort. This work touches on several of 
Treasury's core functions, and involves many of our jurisdictions, 
offices and departments.
    Treasury implements these functions through a number of mechanisms. 
Treasury serves as Chair of the interagency Policy Coordinating 
Committee, which is responsible for coordinating the day-to-day 
development and implementation of policies to combat terrorist finance. 
We have also just created an Executive Office of Terrorist Financing/
Financial Crime under the Treasury Deputy Secretary, which will work 
with the International Affairs Terrorist Financing Task Force and with 
the deputation devoted to critical infrastructure protection and 
strengthening U.S. legal and regulatory protections against terrorist 
finance in the Office of Domestic Finance.
    Treasury continues to play a critical role in the law enforcement 
and regulatory communities' fight against terrorist finance through the 
Financial Crimes Enforcement Network (FinCEN), the Office of Foreign 
Assets Control (OFAC) and the Internal Revenue Service Criminal 
Investigation Division (IRS-CI). These entities will report to, and in 
the case of IRS-CI work collaboratively with, the newly created 
Executive Office of Terrorist Financing/Financial Crime.
    The Financial Crimes Enforcement Network (FinCEN) fosters 
interagency and global cooperation and serves as a link between the law 
enforcement/intelligence communities and financial institutions and 
regulators in fighting domestic and international financial crime. 
Their strategic analyses of domestic and worldwide money laundering 
developments, trends, and patterns provide U.S. policymakers a platform 
on which important decisions concerning terrorist threats can be made. 
The fiscal year 2004 budget provides FinCEN an additional $6.8 million 
for administering additional requirements mandated by the USA PATRIOT 
Act of 2001 and subsequent regulatory requirements, including expanding 
the Bank Secrecy Act (BSA) to new industries, and accelerates efforts 
to enable electronic filing of BSA data more efficiently through the 
Patriot Act Communications system.
    Through the FinCEN, Treasury continues to support the FBI's 
Terrorism Financing Operations Section, the Policy Coordinating 
Committee Action Group on Terrorist Financing, and the National Money 
Laundering and Terrorist Financing Strategy of 2002 (formerly the 
National Money Laundering Strategy).
    The Office of Foreign Assets Control administers and enforces the 
U.S. government's economic sanctions and embargo programs against 
targeted foreign governments and groups that pose threats to the 
national security, foreign policy, or economy of the United States. 
Since September 2001, Treasury's Office of Foreign Assets Control has 
frozen over $36 million in terrorist assets in U.S. financial 
institutions. OFAC's designation and asset blocking process has served 
as the spearhead of the President's financial war on terrorism.
    The Internal Revenue Service Criminal Investigation (IRS-CI) 
Division specializes in analyzing complex financial information and 
determining whether that information is in violation of tax laws, money 
laundering laws, and the Bank Secrecy Act. In addition, IRS-CI is 
heavily involved with the Joint Terrorism Task Forces (JTTFs), 
Operation Green Quest and similar partnerships focused on disrupting 
and dismantling terrorist financing. In particular, IRS-CI is focused 
on preventing the abuse of charities by those who support terrorism.
    The coordination of Treasury's multi-faceted efforts to combat 
terrorist financing and other financial crimes, both within the United 
States and abroad, will be led by the newly created Executive Office of 
Terrorist Financing/Financial Crimes. This Office, in coordination with 
offices within the Treasury and other government agencies, will work to 
reduce the risk that the domestic and international financial systems 
are being misused by criminals and terrorists, and using these same 
systems to identify, block and dismantle sources of financial support 
for terror, money laundering, and other criminal activities.
    This new office works side by side with the International Affairs 
Task Force on Terrorist Financing (TFTF), which was established shortly 
after September 11th to track and monitor countries' efforts to combat 
the financing of terrorism and to devise strategies to build an 
international coalition. The TFTF helps coordinate international 
designation of terrorists, which has resulted in a global total of 
$124.9 million in terrorist assets being blocked. The TFTF coordinates 
Treasury's anti-terrorist financing efforts in the international 
financial institutions, multilateral forums such as the G-7 and G-20, 
and bilaterally with other finance ministries.

    MAINTAINING THE INTEGRITY OF OUR NATION'S FINANCIAL SYSTEMS AND 
                   SAFEGUARDING OUR NATION'S CURRENCY

    In fiscal year 2004, Treasury continues its responsibility to 
maintain the integrity of our Nation's financial systems and safeguard 
our Nation's currency.
    The Financial Management Service will continue to improve the 
quality of Federal financial management, fully implement debt 
management services operations, modernize Government-wide accounting 
and reporting infrastructure, and progress toward an all-electronic 
Treasury financial system.
    The Bureau of the Public Debt will continue its management and 
support of the applications and systems used to conduct Federal 
borrowing and debt accounting operations, re-enforcing its mission of 
providing high quality customer service to investors in Treasury 
securities. Public Debt's customers range from individuals with small 
amounts to invest, to the largest financial institutions, as well as 
the more than 200 Government trust funds.
    The Office of the Comptroller of the Currency serves as the 
Administrator of National Banks, chartering new banking institutions 
only after investigation and due consideration of charter applications 
and supervising existing national banks through the promulgation of 
rules and regulations for the guidance of national banks and bank 
directors.
    The Office of Thrift Supervision charters, regulates and examines 
Federal thrifts, cooperates in the examination and supervision of 
State-chartered thrifts and reviews applications of State-chartered 
thrifts for conversion to Federal thrifts. They also review 
applications for the establishment of branch offices.
    The activities of the United States Mint and the Bureau of 
Engraving and Printing are vital to the health of our Nation's economy. 
These agencies share the responsibility for ensuring that sufficient 
volumes of coin and currency are consistently available to carry out 
financial transactions in our economy. They are also responsible for 
manufacturing cash products that not only foster domestic pride, but 
also promote respect and confidence in the world's most accepted 
currency.
    The United States Mint receives no appropriation and, under its 
Public Enterprise Fund, operates in a business-like fashion that 
enables it to respond to the needs of retail commerce. In addition to 
producing a reliable supply of circulating coinage--including the newly 
designed coins of the 50 State Quarters Program--the United States 
Mint will continue to fulfill its mission to produce the Nation's 
commemorative coins, medals, bullion coins, and other numismatic items, 
as well as its mission to protect the Nation's precious metals and 
other assets at Fort Knox and at other United States Mint facilities.
    The Bureau of Engraving and Printing is in the process of 
redesigning our Nation's paper currency to counter the trend of 
computer generated counterfeiting. Building on past security features, 
the new design, known as NexGen, may begin circulation in the $20 note 
as early as fall 2003, with the $50 and $100 notes to follow 12 to 18 
months later.

       FOUNDATION FOR SUCCESS--THE PRESIDENT'S MANAGEMENT AGENDA

    We continue to use the five elements of the President's Management 
Agenda as a guide to achieving Treasury's key priorities, and 
accomplishing the overall mission and goals of the Department.
    For fiscal year 2002 and 2003, many of Treasury's accomplishments 
in implementing the President's Management Agenda were in the area of 
expanded electronic government. Specific efforts included:
  --The Internal Revenue Service has made significant progress towards 
        achieving the Congressional goal of having 80 percent of all 
        tax and information returns filed electronically by 2007. In 
        fact, as of May 9, nearly 43 percent of all returns were filed 
        electronically. During 2002, IRS partnered with the Free File 
        Alliance, a consortium of private sector companies, to provide 
        free Internet filing of 2002 Federal tax forms for most 
        taxpayers. IRS has also provided functionality to allow 
        taxpayers to check the status of their refund on the web.
  --In fiscal year 2002, the Financial Management Service issued 73 
        percent of all payments (666 million of 919 million) by 
        electronic funds transfer. FMS also collected 79 percent ($1.8 
        trillion of $2.27 trillion) of all federal receipts 
        electronically.
  --In 2002, the Bureau of Public Debt introduced the Treasury Direct 
        system, by which retail investors can purchase electronic 
        Series I inflation-indexed savings bonds. This is the first 
        step toward the Bureau's goal to convert all savings bond 
        holdings to paperless form.
    Treasury has also set the standard as the best in the government 
for improved financial performance, with all of its bureaus now closing 
their financial statements within 3 days after the close of each month 
and issuing audited fiscal year 2002 consolidated financial statements 
within 45 days after the end of each year.

                               CONCLUSION

    Mr. Chairman, while I have served as Treasury Secretary for only a 
short time, I have already been deeply impressed by the intelligence, 
professionalism and dedication of the people with whom I have worked. 
This is especially true during these challenging times.
    I look forward to working with you, Mr. Chairman, as well as 
members of the Committee and your staff, as we move into fiscal year 
2004 to maximize Treasury's resources in the best interest of our 
country. I am hopeful that together we can work to make this Department 
a model for management and service to the American people.
    Thank you again for the opportunity to present the Department's 
budget today. I would be pleased to answer your questions.

    Senator Shelby. Thank you, Mr. Secretary.

                         RESTRUCTURING TREASURY

    Mr. Secretary, you are a new Secretary, relatively new--not 
new to Washington, though--at a Department that has undergone 
substantial institutional change since passage of the Homeland 
Security Department. With the transfer of the majority of 
Treasury's law enforcement missions, how has the Department 
reprioritized its other functions to better focus on its core 
missions? And how is that focus translating into the budget 
request and the DO modernization study?
    Secretary Snow. The restructuring of the Treasury 
Department as a result of the creation of the Department of 
Homeland Security and the transfer of so many of our 
enforcement functions has changed the Department in some 
fundamental ways, and those changes are reflected in our 
budget, Mr. Chairman. We have lost over 30,000 people, so we 
are a smaller Department. We have reduced the budget by over 
$3.5 billion. And while the Department is smaller as a result 
of the Homeland Security transfers and the transfer to Justice 
of a part of our functions, I think we are more focused. I 
think we have the ability because of this restructuring to put 
more concentrated effort on economic policy, which I think is a 
core part of what the Department does. That is really the 
central mission, as I see it.
    Secondarily, of course, the direct responsibilities of the 
IRS bulk are much greater now. This will give me much more 
opportunity to focus on the effectiveness and fairness of IRS 
implementation.
    Finally, terrorist finance, I see that as the third major 
area. I think our budget this year, Mr. Chairman, reflects 
those priorities very much.
    Senator Shelby. Mr. Secretary, I know you have lost a 
number of employees to Homeland Security, but you still have 
thousands of employees. Roughly, how many do you have?
    Secretary Snow. Well, we have a little over 100,000 
employees, most of whom are in the IRS. The IRS is about 90 
percent, I would say, of the people in the Department today.

                        PRESIDENT'S TAX PACKAGE

    Senator Shelby. I want to ask you a number of questions. 
The President's tax package included a proposal to eliminate 
the dividend tax, and the Senate followed suit by including a 
short-term elimination. What we have done, I think, overall has 
made investment a better choice for all Americans.
    Mr. Secretary, if investment is critical to our economy, 
which I think we both believe it is, does it make any sense to 
penalize investment with an unnecessary tax like the dividend 
tax?
    Secretary Snow. Well, not in my view.
    Senator Shelby. Not in mine either.
    Secretary Snow. I am a strong advocate of lowering the 
taxes on dividends.
    Senator Shelby. How does repealing the dividend tax help to 
restore investor confidence in our securities markets, which we 
desperately need to do? And what effect does it have on the 
ability of individuals to rationalize risk in the markets? And, 
lastly, what effect will that have on corporate governance? 
Because on the Banking Committee we have had testimony that 
that could change the way a lot of companies operate.
    Secretary Snow. I think the dividend proposal is one of the 
most far-reaching and significant in recent tax policy because 
it will lower the cost of using equity capital. Today, the Tax 
Code is tilted because of the lower cost of debt capital 
towards greater reliance on debt capital. As a result, the 
debt-to-equity ratios in American companies are higher than 
they otherwise would be. So a first effect of the proposal 
would be to lower the cost of equity capital, encourage greater 
use of equity capital, and, thus, change the debt-to-equity 
ratios to be more conservative.
    One major benefit of that is more conservative debt-to-
equity ratios makes our firms less vulnerable, less stretched, 
during periods of economic downturn.
    Senator Shelby. It makes them stronger in a way, doesn't 
it?
    Secretary Snow. It does, Mr. Chairman.

                        EARNED INCOME TAX CREDIT

    Senator Shelby. I just want to get into the Earned Income 
Tax Credit for just a minute. The earned income tax credit 
compliance effort has experienced problems since its inception. 
We know that. I am interested in making sure that the 
initiative works properly. We want to make sure that it works 
for the people that it was intended to help, but I see no 
rationale for not pushing reform to eliminate the errors in 
payments to people who don't qualify or if there is an 
overlapping qualification, you know, a double hit, because if 
we are going to have a program such as the Earned Income Tax 
Credit, it ought to be run right. And $9 billion, perhaps more, 
erroneous payments, there is no excuse for that in any 
situation, and I want to make sure that you have the money to 
put the software together or whatever you have to have to run 
this program right for the people who are receiving it but 
right for the taxpayers who are paying for it.
    Secretary Snow. Well, I appreciate that very much, and the 
numbers you cited in your opening statement are the very 
numbers that look to us to be about right; misapplication of 
funds are roughly one-third of the whole program.
    But this is not an effort to do anything other than make 
sure that the benefits are made available to the right people 
and made available in a way that doesn't have us coming back 
with post-audit assessments and after-the-fact reviews and 
withholdings.
    Senator Shelby. If there are people out there, as Senator 
Murray mentioned in her opening statement, that aren't getting 
it but would qualify for it, reaching out to them and letting 
them know about it would make sense. You could pay for that 
additional 25 percent of people who are not getting it, as I 
heard in her testimony, by eliminating the mistakes and the 
fraud in the program.
    Secretary Snow. Mr. Chairman, that is our approach: to 
avoid what must appear to many people to be after-the-fact 
harassment, because we got it wrong in the first place.
    I look at this in a very straightforward way: Get it right 
the first time, reduce the errors, and the system will function 
much better. People will have much more confidence in it if we 
get the criteria set right.
    Senator Shelby. I think this should be one of your top 
priorities. I hope it will be. That kind of money, it makes no 
sense to waste.
    Secretary Snow. Right.

     EXECUTIVE OFFICE FOR TERRORIST FINANCING AND FINANCIAL CRIMES

    Senator Shelby. Mr. Secretary, what is the mission of the 
newly created Executive Office of Terrorist Financing and 
Financial Crimes?
    Secretary Snow. This is to give us, Mr. Chairman, a more 
coherent and stronger point of attack on financial crimes, 
money laundering, and those sorts of things. We think that this 
new office will be organized to carry on these activities with 
more focus and be more effective.
    Senator Shelby. How does this interface with the other 
bureaus within Treasury that are tasked with similar missions?
    Secretary Snow. There is a close coordination between the 
Office of Foreign Asset Control (OFAC), which deals with the 
foreign assets and the designation of banks and financial 
institutions that are engaged in illicit activities, and the 
Financial Crimes Enforcement Network (FinCEN). They are 
coordinated.
    Senator Shelby. OFAC.
    Secretary Snow. OFAC and FinCEN and the IRS Criminal 
Investigations. It is sort of a matrix, but there is a 
coordination among them. And our General Counsel, David 
Aufhauser, serves as the sort of quarterback for these 
functions to make sure they are all well coordinated.
    Senator Shelby. Mr. Secretary, do you believe that the 
Department of Homeland Security has taken too much of what you 
have to fight financial crimes, investigating other crime? Or 
do you think you will have the resources?
    Secretary Snow. Mr. Chairman, I think we have all the tools 
that we had before in terms of the enforcement powers--the 
PATRIOT Act, other legislative tools, and OFAC--that we need. I 
think we will need to rely from time to time on other agencies, 
though, to do the actual on-the-ground enforcement and maybe 
some of the investigative work.
    Senator Shelby. Thank you, Mr. Secretary.
    Senator Murray.

                    EARNED INCOME TAX CREDIT (EITC)

    Senator Murray. Thank you, Mr. Chairman.
    Mr. Secretary, let me go back to the EITC because I have 
some questions on that. I understand that you are requesting 
$100 million and 650 FTEs in 2004 to launch this initiative. It 
is estimated that 25 percent of eligible families do not 
participate in this program, and only $13 million of the amount 
you are requesting is targeted on bringing those eligible 
families into the program.
    Your agency has claimed as much as $9 billion in the EITC 
overpayments annually, but there is likely to be between $10 
and $12 billion in payments that would be made if all working 
poor families were eligible.
    I am curious why your agency is requesting so much 
additional funding to eliminate the overpayments and such a 
paltry additional amount to address the underpayments.
    Secretary Snow. Senator, we are requesting the funds that 
we think are appropriate to put in place the sort of processes 
that will address all the problems and address them 
effectively. The biggest problem is this criteria problem.
    Senator Murray. It seems to me there are two problems. 
There is the problem in payments that are made that shouldn't 
have been, but there is also the problem in reaching out to the 
working families, 25 percent of the eligibles, who are not. 
Correct?
    Secretary Snow. Right. Let me ask Ms. Ressel, who has been 
working this issue very closely, to respond on that.
    Ms. Ressel. I think you are correct that there are two 
issues, and it is important to not overlook the first one. If 
you think about it in two parts, the first important part is to 
find eligible recipients. We have tried to work analytically 
with the people who are responsible for putting together this 
package; it is my understanding that this is the first year of 
a 2- or 3-year plan on what we need to do with EITC.
    Analytically, when you look at the investments of the $100 
million, the designers of the program tried to invest a certain 
amount of money into the infrastructure for the technology to 
make sure that the people who were eligible and didn't have an 
income problem could be matched through the technology and 
never have to audit them again.
    Then in parallel, it is my understanding that IRS was 
trying to work with the United Way and do an outreach program 
for military families.
    Senator Murray. Okay. Let me go into that, because there is 
only $13 million for the outreach part, and I want to try and 
understand, Mr. Secretary, what your strategy is in reaching 
out to these working poor families to advertise, in media 
outlets, I assume it is, that working poor families are likely 
to see.
    I have a copy with me this morning of CQ Today, which was 
from Friday, May 16th. It is Congressional Quarterly's online 
daily newsletter, and it has a nice picture of Senator Nickles 
on the front here talking about the dividend tax surviving the 
Senate. And in it is an ad on the earned income tax credit.
    Now, the CQ, to get it you pay a subscription of $2,430 a 
year. I think it is made free to some Capitol Hill offices, but 
it is mostly a newsletter that is targeted to lobbying firms 
and Government relations offices. And I don't understand how 
the use of money to advertise in this is going to help outreach 
to poor families who are devoting 20 percent of their annual 
income to subscribe to this.
    Ms. Ressel. We do not know when that happened, but we will 
ask the IRS to respond to you. We do know from our briefing in 
preparation for today that a number of the agencies included 
welfare-to-work, Health and Human Services, Annie E. Casey 
Foundation funds, that we have worked----
    Senator Murray. Well, is this part of the funds that you 
are using for outreach?
    Ms. Ressel. I don't know. We will find out and get back to 
you.
    Senator Murray. Well, if you could tell me precisely how 
much taxpayer money has gone into lobbying Congress----
    Ms. Ressel. For that one.
    Senator Murray [continuing]. As this appears to be, rather 
than to outreach of that outreach money, I would like to know 
the answer to that.
    Ms. Ressel. We will find out.
    Senator Murray. Okay. Let me also ask about the comment 
period, because 2 weeks ago IRS testified to our companion 
subcommittee in the House of Representatives that there would 
be a formal public comment period on this new process and draft 
forms would be required to be filled out by working poor 
families. And that makes sense since the IRS customarily has a 
public comment period for any major changes in procedures and 
forms.
    However, we are now told that you may be planning to send 
out these forms within a few months and that no formal public 
comment period has been announced in the Federal Register. So I 
need to know, Mr. Secretary, whether the agency is changing 
their mind, if there is going to be a public comment period, 
and how that will be done.
    Secretary Snow. Senator, that is really a matter for Mark 
Everson, the new Commissioner, to----
    Senator Murray. Doesn't your agency determine whether there 
is a formal comment period?
    Secretary Snow. Yes, but as I was saying, he will have the 
lead on this. At this point, to my knowledge, no decision has 
been made about the notice or its publication. The new 
Commissioner wants to have a little time on the ground to 
review the initiative before he moves forward or we move 
forward with the notice.
    I would say we would expect to have something fairly soon, 
but we have not set a date yet.
    Senator Murray. Will there be a formal comment period? That 
is a pretty important issue when we are dealing with thousands 
of forms that are going to families that have never been vetted 
before.
    Secretary Snow. I don't know that we have reached a 
conclusion on that yet. I would want to hear the IRS 
Commissioner's recommendation.
    Senator Murray. Could we get an answer back to the 
committee on that, please?
    Ms. Ressel. Sure. We will give you an answer. But I would 
like to talk to the IRS Commissioner first.
    Senator Murray. Okay. I understand.
    Well, I will tell you that last month the Acting IRS 
Commissioner assured me that your agency would be getting a 
thorough evaluation of the impact of this new process on EITC 
participation before you expand your effort to 2 million 
working poor households, and I want to ask again: Will your 
agency be getting a thorough evaluation on the impact of this 
process before we expand it to 2 million households?
    Secretary Snow. I think there is a major effort underway, 
an outreach program, to hear from taxpayers and taxpayer 
groups. Certainly we will want to draw broadly on taxpayer 
responses on this.
    Senator Murray. Mr. Secretary, what we want to know is 
whether there will be information on the impact to the working 
families before we broaden this out to 2 million families and 
have a complete disaster--or maybe a complete success. Are you 
going to look at it first, as we were told originally, or not?
    Secretary Snow. Senator, yes, this matter is being studied 
pretty carefully, and I understand there is a pilot program 
underway right now.
    Senator Murray. That was our understanding. There was a 
pilot program; we would look at the results of that before we 
expanded it to 2 million people. I am concerned now that before 
we ever look at the results, determine whether or not there was 
complete confusion on a sentence or a pause or a question or 
anything, that we then send it out to 2 million people and 
exacerbate a problem that we could solve by doing a pilot 
project.
    Secretary Snow. Senator, let me say, we are not going to 
put this out until we have great confidence that it will work.

                     EXTRATERRITORIAL INCOME (ETI)

    Senator Murray. Okay. Well, we will be following this very 
closely. I agree with you we need to find tax fraud, but I also 
think we need to do it correctly; otherwise, we are going to 
create problems for a subset of people in this country that I 
don't think is very fair.
    Let me move to another question. On April 1st, I sent a 
letter to the United States Trade Representative Bob Zoellick 
expressing my serious concerns regarding the Administration's 
support for simply repealing the Extraterritorial Income 
Exclusion Act of 2000 in response to a dispute with the 
European Union. I could have sent this letter just as easily to 
you. I know that international tax policy is part of your 
Department's responsibility. And I am very concerned that the 
Administration is proposing to leave U.S. exporters and U.S. 
workers at a severe disadvantage to our foreign competitors.
    The Administration's position on the FSC/ETI issue is a job 
killer for my home State of Washington and the Nation, in my 
estimation. Given your background and your short tenure in the 
Administration, I would just like to hear your views on the 
issues and find out if the Administration is going to continue 
to support a full repeal of the ETI. Or do you have any 
comments on the various legislative proposals that are before 
us on this?
    Secretary Snow. Well, Senator, that is a matter we are 
beginning to get into with real earnestness. The President has 
made it clear that he would like to see legislation this year 
to deal with the World Trade Organization (WTO) issue. We are 
facing sanctions from WTO, sizable sanctions, unless we show 
progress on the issue. We are intent on trying to be helpful in 
moving a legislative vehicle. The cornerstone of it, though, 
must be something that is WTO-compliant, and from our point of 
view, doesn't prejudice American businesses. So we----
    Senator Murray. In your opinion, should we just back off? I 
am hearing some of the Administration just say we should just 
back off and surrender our export incentives. Is that your 
opinion?
    Secretary Snow. Senator, I don't want to offer a premature 
view on our position. What I want to do is see legislation that 
will protect the interests of American businesses and avoid 
anything that is prejudicial to American businesses, while 
getting legislation through so we are WTO-compliant.
    We have tried various things, two or three series of 
adaptations to try and get compliance; and they have all been 
found to be non-compliant. I think this time it is very 
important that we get compliance. But through our Office of Tax 
Policy, we are engaged in a serious and far-reaching set of 
discussions with American business to make sure we can come up 
with the very best set of proposals, and until we are a little 
further down the road with those discussions and those 
analyses, I think it would be inappropriate for me to say what 
precise form the legislation should take. But we are getting 
closer to the point where we are going to have to do that.
    Senator Murray. I thank you, Mr. Secretary. I know my time 
is up. I just think it is really important that we do not back 
off and surrender. I hear people saying they don't want a trade 
war. Well, I think it is the Europeans who have declared a 
trade war on this country, and I think we need to push back and 
find a solution because it is so important to so many people 
who have jobs in this country and depend on this.
    Thank you, Mr. Chairman.
    Senator Shelby. Senator Byrd.

                  STATEMENT OF SENATOR ROBERT C. BYRD

    Senator Byrd. Thank you, Mr. Chairman.
    Mr. Snow, we have had very good relations in the past.
    Secretary Snow. Thank you.
    Senator Byrd. And I look forward to working with you. I 
compliment you on being the new Secretary. You follow a line 
that goes back to the very beginning of the Republic, and, of 
course, the first Secretary was Alexander Hamilton, probably 
the greatest of all. And you will recall that he died on July 
11, 1904--he died on July 12, 1904--1804, as a result of a duel 
with Aaron Burr, which took place the day before, on July 11, 
at Weehawken, New Jersey. And he lived through the night with 
excruciating pain, with his dear wife and seven little children 
around him, crying. He died on the 12th. A great Secretary. A 
great Secretary of the Treasury.
    I just recall those things about Hamilton because I once 
wrote a paper on the great enigma, Aaron Burr. I won't go into 
that at this point except there was a good side of Aaron Burr. 
Of course, we know about the dark side. But there was a good 
side. He had a daughter named Theodosia, whom he revered, and, 
of course, she idolized her father, Aaron Burr.

                      PRIVATE COLLECTION AGENCIES

    But so much for that. The IRS seemed determine to hire 
private debt collection agencies to pursue delinquent 
taxpayers. Did you know that the Romans did that also? Yes, the 
Romans tried that. And you may recall the latafundia. The 
latafundia gathered up farms, and the little farmers in 
Appenines migrated into the cities and joined the mob seeking 
free bread and theaters. Anyhow, it didn't work so well with 
the Romans, nor did the letting out of the taxes, the tax 
collectors. You might do well to go back and review the 
experiences of the Romans, out of the Roman Republic.
    Two pilot projects--now we will get back to our own 
Republic, and this is a Republic. Two pilot projects in 1996 
and 1997 were authorized by Congress to test the private 
collection of tax debt. The 1996 pilot flopped so badly that 
the 1997 project was canceled. Contractors used aggressive 
collection techniques and failed to protect the security of 
sensitive taxpayer information.
    Even if privacy guarantees are built into the law, the IRS 
does not have enough personnel to monitor the work of 
contractors and to enforce privacy protections for taxpayers. 
In an age when private protections are under assault and 
identity theft is rising at a head-spinning rate, turning the 
duties of taxpayer collections over to private firms with 
limited accountability to the American people is just plain 
nuts.
    If the President's budget does not request adequate funds, 
Mr. Secretary, for the IRS to do what is inherently a 
governmental job, why is the Department not asking this 
subcommittee for more money? Why are you risking the privacy 
rights of the American taxpayers on a scheme that had already 
failed when the Department could simply request more money to 
hire additional IRS personnel to track delinquent taxpayers? So 
why is the subcommittee not being asked for more money for that 
purpose?
    Secretary Snow. Senator, I think the answer is that the 
Department felt that the resources of these very talented IRS 
agents could better be used on the more complex cases than the 
simpler cases that involve acknowledged obligations. That is 
what the private collection people will focus on. The so-called 
low-hanging fruit of the system will lead to a better use of 
the scarce resources of the Internal Revenue Service.
    Senator Byrd. So, in essence, you are suggesting, I 
suppose, that it is cheaper to contract out those services.
    Secretary Snow. More effective, I think is the way I would 
put it, Senator. We have a new Commissioner at the IRS. 
Actually, he has come from OMB. Prior to that, he had been in 
the private sector. Mark Everson----
    Senator Byrd. You won't hold that against him, will you?
    Secretary Snow. No, I won't. I have talked with Mark about 
this. He in a sense is being held by his own petard here 
because as an OMB person he helped to structure the budget of 
the Department of the Treasury. Now he is going to be forced to 
live with his own policies.
    But he is convinced, Senator, that the budget that has been 
requested will allow for more effective enforcement of the Code 
and more effective collection of the revenues and be fairer to 
the taxpayers.
    Now, Mark and I have scheduled a weekly meeting. We are 
going to continue to review this matter. We are going to 
continue to be open-minded and review this private collection 
activity. Ms. Ressel has told me about the mistakes that were 
made in the past that you have talked about here. If this isn't 
going to work, we will be the first to tell you that it doesn't 
work. The experience last time around was one that we need to 
benefit from, use to our advantage, and not make the mistakes 
of the past.
    But, Senator, if we need more resources, I will be the 
first to tell you. If this project doesn't produce results, we 
will be the first to tell you as well.
    Senator Byrd. The National Treasury Employees Union cites a 
cost analysis put together last September by former IRS 
Commissioner Charles Rossotti, and that analysis said that if 
the Congress would appropriate an additional $296 million to 
hire additional IRS compliance staff, the agency could collect 
$9.5 billion in tax debts annually. That is $32 for every 
taxpayer dollar spent compared to $3 for every $1 paid to a 
debt collection agency.
    This is a study performed by the Bush Administration, and 
if we are looking for the best value for the American taxpayer, 
why should the Administration be advocating a proposal that 
costs more and does less to protect the privacy rights of 
taxpayers?
    Secretary Snow. Senator, Ms. Ressel is much closer to this 
because she wrestled with these issues in coming up with this 
budget. She is the principal, the CFO of the Department. So, 
Teresa, I am going to ask you to give the Senator the response.
    Ms. Ressel. Senator Byrd, your comment about the ratio is 
correct: Mr. Rossotti had asserted that it was about 30:1 if 
the revenue collection is done inside the agency----
    Senator Byrd. Yes.
    Ms. Ressel [continuing]. And that if you use the collection 
agencies, that it would be a much different ratio.
    My understanding of this proposal is that it will be for 
the simpler cases. From listening to Commissioner Everson's 
testimony before you the week before last was that his big 
theme was that if you were to add additional resources to the 
IRS--and that might be something that Mark thinks he needs and 
he will work out with Secretary Snow for 2005--that they would 
not be used for this particular issue.
    And so it is my understanding that that is the rationale 
that they used. It may not make sense at all when you look at 
the ratios, but no matter how many resources you may add to the 
IRS incrementally, there will always be something that they 
can't cover. If you used that logic, then perhaps that is where 
the Commissioner and the IRS team basically look at this. They 
look at this as a very low-end issue relative to covering an 
item that, even if you added an additional $1 billion, that 
they wouldn't dedicate the money to this. That is my 
understanding of the situation and the way they looked at the 
resources, sir.
    Senator Byrd. Mr. Secretary, my time is up, but I have to 
say that I am very, very suspicious of the privatization 
scheme. It seems to be stretching pretty much across the board 
with the Administration. Congress needs to oversee it very, 
very carefully, and we will be watching and listening for the 
record that you intend to make here and for the information 
that you will follow up with to this subcommittee on this 
subject.
    Secretary Snow. Mr. Chairman, those are fair comments; we 
will keep you well advised on this. If it doesn't pan out the 
way we hope it will, we will be the first to acknowledge that. 
We have to acknowledge that in the past this didn't work out 
very well, and there are some reservations this time. We are 
hopefully going to make a success of it, and learn the lessons 
of the past. But if we don't, I commit to you we will 
acknowledge that.
    Senator Byrd. Very well. Thank you, Mr. Secretary.
    Senator Shelby. Senator Specter.

                   STATEMENT OF SENATOR ARLEN SPECTER

    Senator Specter. Thank you very much, Mr. Chairman.
    Mr. Secretary, welcome to this subcommittee on your first 
appearance since being sworn in.
    Secretary Snow. Thank you.

                                ECONOMY

    Senator Specter. Unanimously approved, that is a pretty 
good start with the United States Senate.
    Mr. Secretary, we are on the verge, as you know, of passing 
a tax cut, and one of the questions which is asked of me 
continuously as I travel through my State is the impact on the 
economy. What is the likelihood that there will be a 
significant benefit? And we know that we have a $10 trillion 
economy. Over a 10-year period with inflation, it comes to 
about $140 trillion. The President advocated a $726 billion tax 
cut. I supported that. The House came in at $550 billion, the 
Senate at $350 billion. And I supported the President because I 
think it is worth a try. And he has formulated the plan, and I 
think we ought to give his leadership a try at what he has.
    There have been a lot of contentions that there is a lot of 
posturing on all sides, one group playing to its base on one 
line, et cetera, and it has been one of the most contentious 
issues that I have seen in my tenure in the United States 
Senate.
    Vice President Cheney was on hand to break a 50/50 tie on 
one of the amendments, and then he had to sit around for 2 
hours while the managers' report was structured. This was the 
first time I saw a Vice President sit in a Senator's chair.
    Senator Byrd, I have to question--I should have come to 
you--whether that was appropriate. Anybody who sits in a 
Senator's chair besides the Senator would get a fast escort by 
the Sergeant-at-Arms out of the chair. A Member of the House 
was in last week, sat down, and it was almost as if he was in 
the electric chair, he got up so fast when he was prompted.
    But I mention the Vice President to demonstrate how close 
it is. You are a Ph.D. in economics as well as an L.L.B. and a 
corporate executive of great standing, and now Secretary of the 
Treasury. What is the best articulation that this tax cut at 
any figure--at the $350 billion figure, which it appears to 
be--will have a significant impact on lifting up the economy?

                                TAX CUT

    Secretary Snow. Senator, the economy is in a recovery, but 
it is a weak recovery. The tax plan that I hope comes out of a 
conference soon will, in my view, give the economy a lift for a 
couple of reasons:
    One, it will put more disposable income in consumers' 
pockets. As people have more money in their pockets, they tend 
to spend more.
    This has a particularly important effect on small business 
because so many small businesses pay their taxes through the 
individual tax return--23 million of them--and those 23 million 
businesses will become more profitable because of the tax plan. 
As businesses become more profitable, they become more inclined 
to make capital expenditures. Our economy is weak is on the 
capital expenditure side, yet we have consumers staying pretty 
strong. We have a strong housing market. It is the business 
expenditures for capital and expansion that have been weak. 
Small business is the principal engine. So I would say that 
more money in people's pockets and making small business more 
profitable will lead to more spending and expansion.
    There is also that provision immediately giving small 
businesses another $75,000 a year of free cash flow. That will 
be helpful.
    Then I would go to the dividend side and say that is 
important as well. To lower the costs on paying out equity 
capital makes equity capital more attractive, which should help 
the stock market. We are now an investor society with half of 
the American households owning equities. A rising stock market 
will buoy the spirits of the American consumers and businesses.
    I think this plan is well calculated to lift the growth 
rates of the economy by as much as one percentage point this 
year and another close to one next year, taking us from the 
sort of anemic 1.6 growth rates that we have today to growth 
rates that are up in the mid 3's. Once we get to the mid 3's, 
then we begin to move back up towards a full employment 
economy.
    Senator Specter. If the cut had been or were to be $726 
billion instead of $350 billion, what greater percentage 
increase would that project?
    Secretary Snow. The way the Congress has structured the 
provisions in the package, it seems to be moving through both 
the House and the Senate. It is front-loaded in the sense that 
it has a lot of the impact that the bigger package would but it 
has a shorter period of time, and there are sunsets, which will 
have early-year impacts. In fact, in some ways it has been 
front-loaded to have more impacts in the early years. So for 
2003 and 2004, the way it is structured, I think in both the 
House and the Senate, could have more impact in the early years 
than the initial package.
    Senator Specter. So you are saying the $726 billion would 
not necessarily have given a greater boost?
    Secretary Snow. I don't think it would have had a 
discernibly greater boost in the early years. I think it would 
have a greater boost for economic growth over the full period. 
Sure, the bigger, the better, as far as I am concerned, 
Senator. The way it has been structured, I think you will get 
most of the benefits, even though the numbers have come down. 
But I think to get the full benefits, it will be incumbent to 
come back in a couple of years and move those dates out. The 
tax provisions that sunset in 2005, and so on, I think should 
be made permanent, or at least added years to them.

                    PRIVATIZATION OF TAX COLLECTIONS

    Senator Specter. Mr. Secretary, I would pick up just for a 
moment on what Senator Byrd said about privatization of 
collection. I opposed an amendment which would have prohibited 
the Treasury Department from going to private collection 
agencies because I think it is a matter that you ought to 
decide. We ought not to micromanage your Department on that 
particular matter. But I have a concern that a private 
collection agency may engage in tactics which a governmental 
agency would not. It is analogous to a quasi-judicial function. 
Some private collection agencies do things which really ought 
not to be done. They may be within the letter of the law and 
sometimes they are not even there; whereas, a governmental 
agency is going to have a little different perspective, try to 
collect debts but do so in a fair way. So I urge you to keep a 
close watch on that particular aspect.
    I do share a concern with the power of the Federal 
Government and the Department of Justice and their Civil 
Division, and you have got a lot of lawyers in the Treasury 
Department, and you are a lawyer yourself, as some of us are on 
this panel. There would be good reason to think you would have 
enough muscle, skill, and expertise to do the collections. But 
if you are determined not to, take a close look at the 
practices the collection agencies use.
    Let me ask as my final question--I am under a minute now--
as to the $133 million to expand efforts to enforce fair 
compliance among high-income taxpayers and businesses. What do 
you expect there?
    Secretary Snow. Senator, this is a matter that I intend to 
spend a lot of time on with Mark Everson, the new IRS 
Commissioner. What we expect is that high-income people and 
businesses will be held to the same tough-minded enforcement 
standards that the populace at large is. Over time, the clever 
tax avoidance schemes have become more and more complicated, 
more and more involved, and require more skilled and dedicated 
efforts to penetrate them. This is an effort to make sure we 
penetrate those clever tax avoidance schemes that are used by 
corporations and high-income people in a purposeful way and 
make sure that they are paying their fair share of the tax 
burden as well.
    And on your prior point, I am in total agreement with what 
you and Senator Byrd said. We are going into the private 
collection activity wary of the risks, concerned about the 
potential problems that you and Senator Byrd alluded to, and 
committed to doing our very best to avoiding them. But if they 
are unavoidable, if they materialize, then we are going to be 
the first to say this doesn't work and this is the wrong way to 
go.

                                FLAT TAX

    Senator Specter. Mr. Secretary, let me ask you a question 
for the record, which is an involved question, which I would 
appreciate your study and response to, and that is on a flat 
tax proposal. The Senate passed a resolution to push ahead with 
our Finance Committee and our Joint Economics Committee with 
analysis of a flat tax. And the model most frequently cited is 
the Hall-Rabushka model, two professors at Stanford.
    Secretary Snow. Right.
    Senator Specter. And I believe the flat tax has never 
really been considered. I put a bill in back in the spring of 
1995, and others have proposed it, and I would be interested to 
see a study--I was about to say ``a serious study,'' but I know 
any study you do will be serious. And let us respond to this 
subcommittee with what you think, because there is an occasion, 
after all the problems we are having with the tax cut, and we 
are nibbling at the edges and barely doing that, it is time we 
really gave a serious line of analysis. And I would appreciate 
it if you would undertake that, Mr. Secretary, for your 
Department.
    Secretary Snow. We will do that, Senator, and get back to 
you on that.
    Senator Specter. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.

                                ECONOMY

    Senator Shelby. Mr. Secretary, I want to talk to you a 
little bit about the economy. We have the largest economy in 
the world. I believe the Japanese is second and the German 
economy is number three. Is that correct, sir?
    Secretary Snow. That is right, yes, sir.
    Senator Shelby. The Japanese economy is sputtering along. 
They have deep problems, as we both know, in the banking sector 
that they have not really addressed.
    The German economy is the locomotive of Europe, has been 
and probably will be. I saw the other day where it had gone 
into a recession, the numbers. Is that correct, sir?
    Secretary Snow. Yes, Senator, it is. They reported negative 
growth rates for two quarters in a row.
    Senator Shelby. What is the status of the Japanese economy? 
Is it growing or is it sputtering, but is it growing?
    Secretary Snow. It is growing, but modestly. I have just 
returned from meetings with the G-7 and had a bilateral 
discussion with Minister Shiokawa, the Finance Minister of 
Japan. He indicated that they would have positive growth for 
their fiscal year, which begins April 1, but that it would be 
in all likelihood less than 1 percent.
    Senator Shelby. Our economy seems to be uneven all across 
the country. It depends, in my State of Alabama, we have got 
counties with 3 percent unemployment, 3.5, 4, and then we have 
some much higher.
    Secretary Snow. Right.
    Senator Shelby. But I see that around America.
    Secretary Snow. Yes, I agree. It is uneven.
    Senator Shelby. How do you see our economy growing? We are 
in the second quarter of the calendar year now. Will it pick up 
in your estimation, in your judgment, remarkably so? And I am 
not talking about a hot economy. I am talking about a movement 
toward an economy where people are hiring again, where managers 
have confidence that they are going to sell their products and 
so forth. Do you think that we will pick up by the fourth 
quarter of this year?
    Secretary Snow. Senator, I think we are in a recovery with 
many elements of a stronger recovery in place: low interest 
rates and high productivity, evidence in the first quarter that 
corporate profitability is returning, and of a very good 
housing market, which has helped offset some of the adverse 
effects of the stock market.
    Senator Shelby. Without the housing market, without low 
inflation and low interest rates, the economy wouldn't be where 
it is today, would it?
    Secretary Snow. Absolutely. Those have been keys to our 
success, and the consumer who has stayed in the game continues 
to be quite engaged in spending money.
    I think, Senator, that the elements are there for a good 
recovery in the second half. I think the tax plan, if it gets 
adopted here soon, will be a real plus and will add to the 
growth rates. I would look to growth rates in the fourth 
quarter getting back up towards where they should be.
    Senator Shelby. Two and a half percent?
    Secretary Snow. Two and a half to 3 percent could well be 
the number.
    Senator Shelby. A 2.5 percent growth rate, although we 
would like it higher, would be an improvement.
    Secretary Snow. A very marked improvement--that is that 1 
percent pick up that I said I think is in the cards for us.
    Senator Shelby. I saw where the 10-year bond, I believe, 
closed yesterday at 3.50?
    Secretary Snow. Lowest in 40 or 45 years.
    Senator Shelby. Now, that bodes well for people who are 
refinancing their home, their businesses, and so forth, does it 
not?
    Secretary Snow. It absolutely does. Therefore, if we can 
get these low interest rates and some pickup in aggregate 
demand, I think the economy could begin to make a nice, strong 
recovery. I would also mention, Mr. Chairman, the fact that 
corporate America, which in the late 1990s was expanding a lot, 
growing, merging, and so on----
    Senator Shelby. Created a lot of capacity.
    Secretary Snow. Created a lot of excess capacity, and we 
have excess capacity hanging over a number of industries today. 
We have corporate America leaning out its costs and becoming 
much more productive, learning to do more with less. That is 
hurting us on the employment numbers. But when the aggregate 
demand picks up, I think our corporate sector is poised to have 
much higher profitability, and as they get higher 
profitability, then I think we are going to see the expansions 
begin.
    Senator Shelby. Mr. Secretary, we have talked about this 
before, with another hat on, as Chair of the Banking Committee. 
We are very concerned about investor confidence, the erosion of 
investor confidence in our capital markets.
    Secretary Snow. Right.
    Senator Shelby. We have a new SEC Chairman, Bill Donaldson, 
that I have great confidence in at this point in time. But I 
don't see the investor confidence returning to the marketplace 
yet, yet we know that approximately 100 million Americans, more 
or less, are investing, directly and indirectly, in our capital 
markets--bonds, stocks, and so forth, through pension funds, 
through 401(k)'s and everything else.
    If people don't have confidence in the corporate sector, in 
our accounting profession and so forth, how do you turn that 
around?
    Secretary Snow. Senator, I think that corporate behaviors 
are changing in a very positive way. With your work on the 
Banking Committee, and the new legislation that came through 
there in the wake of the corporate scandals--the changes in the 
New York Stock Exchange and in Nasdaq rules--the fact is that 
virtually every corporation in America has gone through a self-
analysis to determine whether it is living to the highest 
standards of corporate governance.
    I think the corporate sector is getting its own house in 
order. That needs to continue with the corporate sector taking 
the responsibility for making sure its conduct is of the 
highest order.
    Senator Shelby. That honesty and ethics matter, right?
    Secretary Snow. That honesty and ethics are at the core of 
things. I would add a thought on the dividend proposal. If 
something like the President's dividend proposal is adopted and 
we go to zero tax on dividends, I think it would have far-
reaching effects on corporate behavior.
    Senator Shelby. I asked you that question earlier.
    Secretary Snow. You did, and I am going to get back to it 
now. Companies that pay dividends have to earn cash, they can't 
pay dividends through financial manipulation. They have got to 
do it the old-fashioned way. We still have laws against 
counterfeiting. What will happen in a world in which dividends 
aren't taxed the way they are today is that companies will pay 
more dividends. As the investors see companies pay more 
dividends, they are going to reward dividend-paying companies. 
That will encourage companies to do the right things: to focus 
on free cash flow, to manage their businesses for the investors 
so they can pay dividends, and then dividends will become a 
much bigger part of the story of corporate America.
    As that happens, I think it will go a long way to restoring 
confidence in corporate behaviors. I think it could lead, Mr. 
Chairman, to a dramatic change in corporate behavior.
    Senator Shelby. And the way people look at stocks, right?
    Secretary Snow. And then the way people look at stocks, 
exactly.

                  ACCOUNTING PROFESSION AND CAPITALISM

    Senator Shelby. How important, Mr. Secretary, is the 
accounting profession to all of us, the capital markets, the 
publicly traded stocks? How important?
    Secretary Snow. They are the bedrock foundation of our 
confidence and trust, and capitalism really rests on trust. 
Investors can't dig into the numbers. They have got to trust 
the people who do the numbers. Trust is absolutely at the 
center of a well-functioning market economy. There is a huge 
responsibility that the accounting profession has as the 
guardian of the numbers, the custodians of that fundamental 
trust.
    Senator Shelby. And once it is lost, it is hard to get 
back.
    Secretary Snow. Senator, that is what we are experiencing 
today. One reason I think our markets are suffering today, and 
are so much less buoyant, is that trust has been eroded. It 
takes time to build back trust. What you have done in the 
Congress I think is very helpful. What the Securities and 
Exchange Commission (SEC) is doing under Chairman Donaldson is 
very helpful. I think now what the corporate sector is doing 
and what the oversight board will do will help restore trust.
    But I think we need to be clear that trust has really been 
put in peril, been jeopardized. I am convinced one of the 
reasons this economy isn't performing better is just that. In 
fact, in Europe, the G-7 Ministers have some of these same 
problems in their corporate sector. Now they are beginning to 
look at what you did in the Banking Committee and say we need 
rules on corporate governance like those rules to restore 
trust, to create a foundation of trust.

                            GLOBAL ECONOMIES

    Senator Shelby. Secretary, lastly, for this round, if the 
Japanese economy is sputtering along, the German economy is in 
recession, and we are so interdependent on trade both ways, if 
they continue to sputter, that has an effect on us. How do you 
view their economies--I know you look at it; you have to--to be 
picking up? Or would you rather save that?
    Secretary Snow. No, I would like to answer that. One of the 
themes that I have been taking to the G-7 countries is the need 
for our interdependence. Our prosperity depends on yours, and 
yours depends on ours. We are working hard to get the American 
economy to grow faster, and you need to grow faster, too. Your 
growth rates are even lower than ours. Your growth rates are 
about half of ours and your productivity rates are much lower. 
Can't we come together in a consensus that promoting economic 
growth is in all of our interests?
    I am pleased to say, that in Germany, the Schroeder 
administration is now pushing some major tax reforms. In France 
they are pushing some significant pension reforms. In Japan, of 
course, banking reforms are a major theme and deregulation of 
some of their retail and other things. It is more than monetary 
and fiscal policy, as important as they are. Well-functioning 
economies also look at the microeconomic characteristics and 
create open and free flow of resources and make sure that 
things like their pension plans don't exact too large a burden 
on the total fiscal situation of the country.
    I am encouraged that Germany, Japan, and France are taking 
seriously this need for growth and are addressing these 
fundamental problems. But they are looking to us, too, Mr. 
Chairman.
    Senator Shelby. But isn't the U.K. economy one of the best 
in Europe?
    Secretary Snow. The U.K. economy is probably the best major 
economy. Canada continues to perform pretty well. But as you 
said, Japan is viewed as the engine of Asia and Germany as the 
engine of Europe, and they are both sputtering.
    Senator Shelby. Thank you.
    Senator Murray.

                    ECONOMIC SANCTIONS AGAINST IRAQ

    Senator Murray. Mr. Secretary, Iraq has been under 
international economic sanctions now for more than a decade. 
The sanctions have stopped numerous business deals from going 
forward. These business deals were negotiated by Saddam 
Hussein's government, and some of these deals were blatantly 
negotiated to undermine the sanctions regime.
    Can you tell us what the Administration's position is on 
these business deals that were negotiated by Saddam Hussein's 
regime? And does the Administration believe the new Iraqi 
Government should be bound by Saddam Hussein's commitments?
    Secretary Snow. Well, the Administration is very much of 
the view that the sanctions should be lifted, the oil sanctions 
should be lifted, and the general sanctions should be lifted to 
allow the Iraqi economy to get back on its feet. It is very 
important, I think, to recognize just how much damage the 
Saddam regime did to the people of Iraq. The economic 
institutions of that country were hollowed out and 
significantly undermined during that regime. The standard of 
living of the country fell. They had negative growth rates for 
nearly two decades. What we are dealing with in Iraq today, in 
terms of the rebuilding and reconstruction, are not the results 
of a 3-week conflict, but really nearly three decades of 
mismanagement and misrule.
    We are hopeful that our--and Treasury is very much, 
Senator, involved in this effort with a number of advisers over 
there right now looking at the question of setting up a central 
bank. Iraq has not had a central bank. Their central bank was 
really an apparatus of the dictator's regime. They haven't had 
a private banking system--they had a command-and-control 
banking system.
    They don't have a budget. They haven't had a budget in any 
number of years. They don't have a set of national account 
statements, and they have a fairly chaotic currency.
    There is an enormous amount of this foundational work to be 
done.
    Senator Murray. But what I specifically wanted to find out 
from you was whether the new Iraqi Government should be bound 
by Saddam Hussein's commitments, and let me give you an 
example. Saddam Hussein's government negotiated a deal with 
Airbus to purchase five aircraft, and they paid a $10 million 
deposit to Airbus for that aircraft. And I want to know whether 
the Administration believes that Iraq's new government should 
honor Saddam's Airbus purchase. And if not, will the 
Administration call upon Airbus to return the $10 million to 
Iraqi people?
    Secretary Snow. Senator, I think that is really a question 
that ought to go to the State Department. I am not really 
knowledgeable enough on the treatment of those issues.
    Senator Murray. Well, but I understand you were just at the 
G-8 conference in Europe, and I am certain you discussed some 
of these issues over there. Was there any talk about these 
commitments that had been made and how to--whether or not we 
should be demanding that that money be returned?
    Secretary Snow. There was discussion of the issue of the 
debt. There was a discussion of how to deal with the debt going 
forward. Iraq has very heavy debt obligations, estimated at 
$80, $90, to well over $120 billion in an economy that is, of 
course, very small relative to that. So those debt levels 
aren't sustainable.
    The G-7 Ministers decided that we needed to look at that 
situation. We recognized that debt repayments cannot be 
expected for some considerable period of time, and we agreed to 
take measures to quantify that debt. There is a group called 
the Paris Club, which is the significant creditor nations of 
the world, that meets in Paris and has a process for working 
through sovereign debt that is large relative to its 
sustainability. And the Paris Club has been asked to assess the 
situation and come up with suggestions on what should be done 
with regard to that debt.
    The Ministers asked the International Monetary Fund (IMF) 
to do an assessment of the non-Paris Club debt--debt that comes 
from parts of the world that are not members of the Paris 
Club--Central Europe, for instance. The IMF has begun that.
    The debt issue was clearly on the table. I think there is a 
recognition that a lot of that debt is going to have to be 
reworked one way or another.
    Senator Murray. Well, can you answer the question 
specifically about contracts that had been made? Airbus is just 
one example of a number of business deals that were negotiated 
by the regime, and I just think Congress would be very troubled 
to see U.S. funds to reward those who supported Saddam Hussein 
and worked to undermine economic sanctions.
    Secretary Snow. Senator, yes, I see where you are coming 
from. That issue did not come up at the G-7 Ministers 
conference.
    Senator Murray. Let me just ask you, can you assure this 
subcommittee that U.S. funds will not be used to honor business 
deals negotiated by Saddam Hussein's regime?
    Secretary Snow. Senator, I think that really is a question 
for Colin Powell, the Secretary of State. I am not in a 
position to respond. I am sorry.

                            REBUILDING IRAQ

    Senator Murray. All right. Well, again, let me go back to 
some of the other issues that you must have discussed at the 
Ministers meeting. One of the issues of concern to the 
Appropriations Committee is the anticipated long-term costs of 
rebuilding Iraq. We have been told that there will not be 
another supplemental request for Iraq this year. And if you 
could, share with us what the Administration's latest thinking 
is on the participation of the United Nations and other 
countries that did not join the coalition in the Iraqi 
rebuilding efforts. And did you discuss this issue with your G-
8 colleagues over the weekend?
    Secretary Snow. Well, as I mentioned, we discussed the debt 
issue, which is an important issue for the rebuilding of Iraq. 
We did discuss a donor conference and set in motion some steps 
to set up a donor conference later this year, which I think can 
be important.
    We also talked about the vesting of the assets of the 
Saddam regime so that they could be made available for the 
benefit of the Iraqi people. Assets of Saddam and the regime 
are found in the banking system and financial system of a 
number of countries around the world. The United States has 
taken a lead in getting countries to go after those assets, and 
in effect, seize those assets, and then make those assets 
available to the Iraqi people for the rebuilding process.
    The United States vested, pursuant to a Presidential 
Executive order, about $1.7 billion of Iraqi assets that had 
been held in our banking system. By vesting, I mean we seized 
them in the name of the Iraqi people for the rebuilding of 
Iraq, and for the benefit of the Iraqi people.
    There are maybe another couple of billion dollars around, 
maybe more, and we would like to make sure that money is seized 
and made available for the benefit of the Iraqi people as well. 
So that subject was discussed, and there was broad agreement on 
the part of the Ministers that they would pursue that same 
strategy that we have pursued.
    Senator Murray. Can you give this committee any estimate of 
what the Administration hopes the international community will 
contribute to Iraq?
    Secretary Snow. I don't think we have an estimate of that. 
I think that, just as in Afghanistan, there will be a good 
response. I think the response there was close to a billion 
dollars, $900 million. Iraq is bigger and has bigger problems, 
so I would hope the donor fund would be even larger.
    But I think we have to recognize that the principal source 
of funding for Iraq for the future will be the Iraqi oil 
monies. The sooner that the oil flows can resume, the better. 
Iraq, unlike Afghanistan, is an inherently very wealthy country 
if those oil resources are put to good uses.
    So I am hopeful that the oil will flow soon and that the 
volumes will come up back to the old levels.
    Senator Murray. The estimates on the oil flow are that it 
is going to take a while.
    Secretary Snow. I think it will take some time. I am not an 
expert on that, but I see no reason from what I know about it 
that it can't get back up to 2.5 million barrels a day.
    Senator Murray. So in your discussions over the weekend, 
did you sense that the donor conference was something that 
would be accepted and we would see contributions from----
    Secretary Snow. Yes, I did, very much so.

                                TAX BILL

    Senator Murray. Let me ask just one final question, Mr. 
Chairman, on the Republican tax bill in the Senate that just 
passed last week. There is a provision that taxes Americans who 
are working overseas by $35 billion, and I supported the Breaux 
amendment that tried to strike that provision from the bill 
because I think that when American workers go abroad, they are 
ultimately followed by exports from the United States to the 
benefit of our workers who are here at home. And I wanted to 
find out from you whether you supported that $35 billion tax 
increase on Americans working abroad. And do you believe this 
provision will reduce U.S. exports?
    Secretary Snow. Well, that was not in the original proposal 
that we sent to the Congress. It found its way into the Senate 
Finance bill, I am told, to create an offset. The offset 
allowed the legislation to move forward within the $350 billion 
budget constraint that was established through negotiations 
among the various Senators.
    Senator Murray. I know how it got there. I was just 
wondering whether you supported it.
    Secretary Snow. I don't think we have taken a position on 
it. We saw it as an accommodation to make possible the passage 
of the legislation. I am told that there is very little 
prospect of it surviving a conference.
    Senator Murray. Thank you very much, Mr. Secretary, Mr. 
Chairman.
    Senator Shelby. Senator Byrd.

                                DEFICITS

    Senator Byrd. Thank you, Mr. Chairman.
    Secretary Snow, during your recent appearance on May 11 on 
``Meet the Press,'' you differentiated between deficits during 
times of full employment and deficits during times of under-
employment. You suggested that, depending on the state of the 
economy, deficits are sometimes good, sometimes bad.
    On the other hand, the Administration has advocated a 
belief that tax cuts are good no matter what the state of the 
economy or the Federal budget may be.
    In 2001, the Administration said that we need tax cuts 
during times of full employment. In 2003, the Administration 
said we need tax cuts during times of under-employment. In 
2001, it said we need tax cuts because of budget surpluses. In 
2003, it said we need tax cuts because of budget deficits.
    How do you sleep at night?
    Under what economic and budget conditions would this 
Administration not advocate tax cuts?
    Secretary Snow. Well, Senator----
    Senator Byrd. I understand we are going to have them every 
year now. It is going to be a perennial thing.
    Secretary Snow. I think, Senator, that given the level of 
the tax bite in the United States, that a good case can be made 
for tax rates that are lower than the tax rates that will 
result from this round of tax relief.
    Senator Byrd. You are not answering my question.
    Secretary Snow. Well, I am getting to it, though, Senator.
    Senator Byrd. It takes a long time.
    Secretary Snow. I don't mean to do that. The tax rates, as 
I recall, back in 1992 were about, on the high end, 31 percent; 
in 1986, they were 28 percent. I don't see anything wrong with 
trying to get tax rates somewhat lower and somewhat flatter. 
Obviously, there is a point at which further lowering of taxes 
will not serve the long-term interests of the economy, but we 
are a long way from that, I think.
    Senator Byrd. But in the context of news reports that this 
Administration will seek new tax cuts every year, are there any 
circumstances, as far as you can envision, in which the 
Administration would view tax cuts to be risky or unwise?
    Secretary Snow. Well, Senator, what I think the news talked 
about was the fact that some of the tax relief that has been 
provided will be expiring. Therefore, there will be a need to 
go back and address that in the out-years. I think even under 
the Senate proposal that is being talked about now, some of 
those tax reductions will expire in 2005 and 2006. If they are 
good tax policy--and I think they are--then it is important to 
come back and make sure they are a permanent part of the Tax 
Code.
    So I think clearly there is going to be need for further 
tax legislation in the years ahead.
    Senator Byrd. But not necessarily tax cuts?
    Secretary Snow. Well, the legislation that would deal with 
those problems would be legislation to avoid tax increases, 
because there would be a series of tax increases going into 
effect. I am not aware of any proposals that are currently 
being contemplated by the Administration for tax cuts. I think 
we are focusing all our attention now on getting this package 
through the Congress.
    Senator Byrd. Temporary tax cuts are being advocated by the 
President. It results from using reconciliation. But is there 
any level of deficit that this Administration would view as 
excessive? The Administration has said there is no particular 
line in the sand with regard to how high the Nation's budget 
deficits can grow before they would begin to worry the 
Administration. The OMB Director reiterated this belief last 
January when he said that budget deficits at 3 percent of GDP 
were nothing to hyperventilate about. Yet the European Union 
not only requires its member states to keep their budget 
deficits below 3 percent of GDP, but the European Union 
Ministers can punish member states for breaking those deficit 
limits. Either the European Union places too much emphasis on 
budget deficits, or we place too little.
    To what level would the deficit have to grow before the 
Administration would begin to hyperventilate? His word. The 
person who used that word, he is not necessarily the author of 
it, but he is not going to be around very long.
    Secretary Snow. Well, Senator, obviously, our view is that 
deficits are unwelcome. We don't like deficits. We want to get 
back into balance, and the sooner the better.
    But these deficits are manageable in the sense that they 
are not large relative to our earning power. They are not large 
relative to our Gross Domestic Product (GDP). Importantly, they 
are coming down with time. They will be around 3 percent this 
year, 3.5, coming down over time to well under 1 percent. I 
think if the receipts that would come back into the Treasury 
were properly accounted for, you would be in balance within 
this budget cycle.
    Senator Byrd. So you don't see hyperventilation as 
something that is imminent?
    Secretary Snow. No, I don't, Senator.
    Senator Byrd. Too bad. I don't know what my little 
granddaughter and great-granddaughters will think about this. 
But you and I will probably not be around.
    Secretary Snow, in recent weeks, the President has 
reiterated his belief that the best way to address the deficit 
and move toward a balanced budget is to encourage economic 
growth. I believe you said on ``Meet the Press'' that ideal 
growth would be 3.5 to 4 percent. But even though the OMB is 
projecting economic growth for 2004 at a healthy 3.6 percent, 
budget deficits over $300 billion are still projected for that 
year.
    Assuming the President's policies are enacted into law, how 
fast does the economy have to grow, would you say, in order to 
finance the President's budget and tax cut proposals?
    Secretary Snow. Senator, if we can get the economy up to 
the 3.5, 4 percent level, we will put millions of people back 
to work. That is, I think, the first priority. We have a fiscal 
deficit, but we also have a jobs deficit today. I think the 
immediate priority is focusing on that jobs deficit--that 
growth deficit.
    I am confident as we get this economy rolling again that 
the fiscal deficit will come down. It will come down because 
there will be more government tax receipts as more workers pay 
income taxes, as small businesses expand and pay additional 
income taxes, and as corporate profits rise. But we also have 
to watch spending. It is a combination of good economic 
policies to keep the economy strong that brings in more 
government receipts and good, reasonable tight spending 
controls. If we do that, Senator, I am convinced that we will 
have deficits that are modest, which will recede with time, and 
will not cause any adverse effects on interest rates or private 
capital formation.
    We can never be indifferent to deficits. They really do 
count. But the real concern about deficits is that they will 
raise interest rates, crowd out private capital, and slow long-
term growth rates. In all honesty, Senator, I don't think that 
is a current concern. Our interest rates are at their lowest 
level in 40 or 45 years. But I am with you 100 percent on the 
need to be extraordinarily watchful of long-term deficits that 
get built into the financial fabric of the country. That we 
have to avoid at all costs.

                               DEBT LIMIT

    Senator Byrd. My time is past expiring. During your May 11 
appearance on ``Meet the Press,'' Tim Russert asked you if the 
Congress should vote to lift the debt ceiling before approving 
any new tax cuts. And you responded, ``No, no, the two are 
really different.'' And yet with a $340 billion to $400 billion 
deficit projected for the current fiscal year and an even 
higher deficit projected for the next fiscal year, the United 
States will have to borrow money to pay for any new tax cuts. 
That is a budgetary fact, a kind of very, very plain one.
    Unless we raise the debt limits, how can the Treasury 
Department borrow the money to pay for the President's proposed 
tax cuts?
    Secretary Snow. Well, Senator, lifting the debt ceiling is 
an immediate and important issue. It is something that I really 
urge the Senate to do, and do before the recess because we are 
running up against the limits that we have. But my point to Mr. 
Russert was that the debt of the United States is the product 
of a number of decisions that have been made in prior years 
having to do with our entitlement programs, spending programs, 
and so on. It is not directly connected with this year's tax 
proposal.
    Senator Byrd. Finally, if I may just end this line of 
questioning, and my time is running out. You said during your 
May 11th appearance on ``Meet the Press'' that the recession 
would have been a lot deeper, it would have been a lot harsher, 
it would have been a lot worse but for those 2001 tax 
reductions that the President was behind.
    Absent a Dickensian ``Ghost of Christmas Future'' that 
visits the Treasury Department in the dead of night and shows 
you the future of tax cuts past, how does the Administration 
know what would have happened had there been no 2001 tax cuts? 
With so many unknown variables to which you refer in an $11 
trillion economy, how do we know that those tax cuts had any 
real effect at all?
    Secretary Snow. Senator, the best answer I can give you is 
my own experience in business and seeing where the economy was 
heading in the last half of 2000 and in 2001. I will never 
forget sitting in my office in Richmond, Virginia, when the 
reports of the CSX transportation subsidiaries came in: the 
railroad car loadings way down, the barge loadings way down, 
the truck loadings way down, ocean container shipping way down, 
the logistic business way down. I called the heads of these 
businesses and I said, ``There must be something wrong, and we 
need to meet and talk about this.'' ``No,'' they said, ``these 
are the numbers.'' They were confirmed in August and they were 
confirmed in September.
    I remember going, Senator Byrd, to a business summit 
meeting that the President-elect called with business leaders 
and economists and academics in Austin, Texas, in January of 
2001. There was a roundtable discussion about the economy and 
the outlook, and when it was my turn, I was very 
straightforward. I said, ``Mr. President, you are inheriting a 
recession, and it is going to be a deep one unless action is 
taken soon to deal with it.''
    So, Senator, I really do feel that the action that the 
Congress took in 2001 headed off what could have been a very 
serious, very deep-seated recession.
    In fact, the industrial sector fell to 20- or 30-year lows 
in terms of output levels during that period. It was a deep, 
deep fall-off in economic activity, and the industrial sector 
is still working its way through those issues.
    I recognize what you are saying. Economics isn't an exact 
science, but my own personal experience complements what little 
I know about economics to suggest that those 2001 tax 
reductions were very important.
    Senator Byrd. And helped to lead to gargantuan deficits.
    Secretary Snow. Senator, if the economy hadn't begun to 
come back as it did, government receipts probably would have 
been even lower. Government receipts have really been down from 
where they were back at the end of the 1990s. There has been a 
dramatic fall-off in government receipts, tied to, I think, 
primarily the weakening of the economy.
    Senator Byrd. Thank you.

                          TERRORIST FINANCING

    Senator Shelby. Thank you, Senator Byrd.
    Mr. Secretary, the Office of Foreign Assets Control (OFAC) 
is the Department's lead agency for identifying terrorist 
financing and denying terrorist groups access to financial 
markets. What efforts have been made to garner the commitment 
of other nations to participate in this effort, in other words, 
to get a handle on the terrorist groups' access to financial 
markets?
    Secretary Snow. Senator, we are engaged in extensive 
efforts to do just that, led primarily under the broad 
direction of David Aufhauser who I mentioned earlier. But we 
have a major outreach program with dozens and dozens of 
countries with whom we share intelligence, coordinate 
information, and work in a coordinated way to try and interdict 
these flows. OFAC has done a number of designations of foreign 
banks. Once those designations are made, the bank can no longer 
have dealings with the United States banking system. We 
coordinate those activities with the foreign finance ministries 
and enforcement people. There have been a significant amount of 
assets seized from bank accounts of people who we suspect of 
terrorist activities or supporting terrorist activities.
    So it is a major and a full-time effort.
    Senator Shelby. The French, are they cooperating?
    Secretary Snow. Yes, Senator----
    Senator Shelby. And to what extent?
    Secretary Snow. We have had discussions with the French 
about the need to be part of this. They have committed to using 
their official banking system and enforcement authorities to 
trace and track the illicit funds that finance terrorism.
    Actually, Senator, we have good, broad-based support for 
these initiatives.
    Senator Shelby. Does that include Cyprus?
    Secretary Snow. I would have to check the list.
    Senator Shelby. And a lot of the Middle Eastern countries, 
including Jordan.
    Secretary Snow. Right.
    Senator Shelby. Mr. Secretary, a lot has been written about 
seized Iraqi funds. You recently called upon all nations, Mr. 
Secretary, to join the U.S., and your words were ``find, 
freeze, and return Iraqi money for the Iraqi people and their 
future.''
    Given that Saddam Hussein's wealth has been estimated to be 
anywhere between $2 billion and $40 billion, recovering this 
money will certainly help in the rebuilding of Iraq. However, 
given that a number of countries and private entities around 
the world have laid claim to a portion of those assets, if not 
all, how is your request to return this money to the Iraqi 
people being received overseas?
    Secretary Snow. I think it depends a lot on who we are 
talking to. But among the G-7, it has been very well received, 
and I will submit to you for the record an assessment----
    Senator Shelby. We would like that.
    Secretary Snow. Yes, I will submit to you our assessment of 
the levels of cooperation and the obstacles we are running 
into.
    Senator Shelby. Obviously, you are trying to marshal the 
assets, right?
    Secretary Snow. Exactly.
    Senator Shelby. So what role are you playing from Treasury 
in trying to stabilize the economy there and assist in the 
rebuilding of the country? And I will start with the monetary 
system.
    Secretary Snow. Right. Mr. Chairman, there is a far-
reaching effort underway involving the Treasury Department. We 
have a team of people over there right now, headed up by Peter 
McPherson, a former Deputy Secretary of Treasury and a former 
head of USAID.
    Senator Shelby. A very able man.
    Secretary Snow. A very able fellow, took a leave of absence 
from Michigan State University where he is the president. He 
has assembled a good team of people from the Treasury 
Department. We have also asked the IMF for assistance on these 
monetary and financial issues, and the World Bank to do 
assessments of needs as well.
    I think the first task is to get a banking system up and 
going, a payment system. Mr. McPherson is in regular contact 
with us on those efforts: a payment system, a banking system, 
and a sound currency.
    Senator Shelby. How is your $20 bill program working?

                              NEW $20 BILL

    Secretary Snow. That $20 bill program I think is going to 
be a great success. It is going to make counterfeiting a lot 
harder. I was pleased to be able to unveil that $20 bill here 
with Chairman Greenspan a week or so ago. It got a lot of 
attention. It is really going to be an advance in our currency.
    Senator Shelby. Are the merchants there accepting it with 
open arms in the souks and so forth? That is important.

                   U.S. CURRENCY CIRCULATION IN IRAQ

    Secretary Snow. It is. Mr. Chairman, the U.S. dollar is 
playing quite a role in the Iraqi world now. The Saddam dinar, 
which we hope can be eliminated soon----
    Senator Shelby. Why has it not been eliminated?
    Secretary Snow. Well, because there isn't an alternative 
currency yet, but I hope it can be eliminated soon. Mr. 
McPherson and his team, with local Iraqi finance advisers, are 
looking at that question. Ultimately the currency really ought 
to be determined by the Iraqi people. But it would be our view 
that the sooner they can end the Saddam dinar, the better.
    There are also so-called Swiss dinars in circulation that 
come from the north.
    Senator Shelby. How does that work? Are they denominated or 
tied to the Swiss franc or what?
    Secretary Snow. No. They took the name because apparently 
the person who got the contract was Swiss, although it was a 
British company.
    Senator Shelby. That prints the money?
    Secretary Snow. That prints the money. An English company 
got the contract to print the money, but the person who 
negotiated it was a Swiss, so they called it a Swiss dinar, 
apparently.
    We have the Swiss dinars in circulation, and we have the 
Saddam dinars, which have depreciated enormously. Their 
official exchange rate, if you are a member of the Saddam 
family, was something like 5 or 6 or 7 or 8 to the dollar. 
Their current market exchange rate is 3,000 to the dollar.
    Senator Shelby. But the fact that they are even still 
circulating or have some value is interesting, isn't it?
    Secretary Snow. Well, as I said, I am not happy about that. 
I think the sooner the new currency is put in place, the 
better. In the interim, the U.S. dollar is playing an important 
role. It is found in lots of shops and is being used quite 
readily.

                ESTABLISHMENT OF A CENTRAL BANK IN IRAQ

    Senator Shelby. Are you going to be involved, directly or 
indirectly, as the Treasury Secretary in recommending the 
formation of a central bank, an independent central bank for 
Iraq?
    Secretary Snow. Yes, we will.
    Senator Shelby. That will be independent of the political 
arena?
    Secretary Snow. Yes, yes. In fact, Mr. McPherson and his 
team, working with John Taylor, the Under Secretary for 
International Affairs, and others in Washington, are giving 
close attention to the question of what the new central bank 
should look like, what a private set of banking institutions 
would look like, what the national accounts should look like, 
what the budget should look like, and what the currency should 
look like.
    But, ultimately, Mr. Chairman, I think those decisions need 
to be made by the Iraqi people. In the interim, we can get 
these institutions set up and going and, hopefully, create a 
good, strong financial foundation for the country going 
forward.
    Senator Shelby. Would the strong, financial foundation 
obviously be predicated on the underlying assets of the country 
such as the oil?
    Secretary Snow. Yes, it would. I think the management of 
the oil operations of Iraq is absolutely critical to their 
long-term economic well-being.
    Senator Shelby. Mr. Secretary, I know it will take 
investment and modernization of the oil fields, which are vast, 
huge there, but some people have been talking about how Iraq 
could pump 5 or 6 million barrels a day of oil--maybe not yet, 
but down the road, after a lot of investment, of course.
    Secretary Snow. Right. Exactly. Well, next to Saudi 
Arabia----
    Senator Shelby. Second largest oil reserves in the world.
    Secretary Snow. Second largest oil reserves in the world, 
with huge potential.
    Senator Shelby. And a relatively small population.
    Secretary Snow. Yes. It is a wealthy country if its 
resources are managed well.
    Senator Shelby. And allocated.
    Secretary Snow. And allocated properly.
    Senator Shelby. Senator Murray.

                                ECONOMY

    Senator Murray. I don't have any other questions at this 
time. I just want to say I was--I don't know if I share your 
rosy scenario on the economy. My State is really reeling. We 
have lost 70,000 jobs in the last 2 years. Our unemployment is 
at over 7 percent. Our State legislature has a $2.7 billion 
deficit they don't know how they are going to deal with, and 
one out of nine Washingtonians don't have health care today. 
And I am not sure this tax cut is going to help too many of the 
people I represent. So I would love to say you are right on the 
rosy economy scenario that you presented to us, but I tell you, 
I hope this Administration is looking west because we are 
really struggling.
    Secretary Snow. Well, Senator, I don't want to sound too 
rosy. I recognize that with our unemployment rate rising, with 
so many fewer people working today, we have some serious 
economic problems to deal with. But I do think the foundations 
have been put in place, with low interest rates, no inflation, 
high productivity, and lower costs of production for a pretty 
good recovery once demand comes back. I would dearly love to 
see those growth numbers get up to those higher levels that I 
talked about so that your unemployment rate can come down and 
the unemployment rate nationally can come down. The clear fact 
is we are way underperforming the potential of this economy. 
The consequence of that is lots of people's lives are adversely 
affected; lots of people who would have work don't have work.
    Senator Murray. I just hope you pay attention to the West 
because we are hurting.
    Secretary Snow. Thank you. I will do that. Thank you.
    Senator Shelby. Senator Byrd.

                             BYRD AMENDMENT

    Senator Byrd. Thank you, Mr. Chairman. And thank you for 
being so patient and fair. And thank you, Mr. Secretary and Ms. 
Ressel.
    Well, Mr. Secretary, you know my concerns about what is 
happening in the steel industry. American steel companies have 
been devastated by wave after wave of unfairly subsidized and 
below-cost foreign steel imports. Just yesterday, I believe it 
was, these waves claimed another victim as Weirton Steel filed 
Chapter 11 bankruptcy protection.
    I hope, as everyone does in the northern panhandle of West 
Virginia, that Weirton emerges from bankruptcy in a stronger, 
more competitive position. But two of the programs that the 
company may rely on to get back on its feet--namely, the 
emergency steel loan guarantee program and the Continued 
Dumping and Subsidy Offset Act--have been targeted for 
elimination by the Administration.
    The Administration has sought to eliminate the steel loan 
guarantee program, rescinding $97 million in available fund 
from fiscal year 2003 and requesting zero dollars for fiscal 
year 2004.
    Moreover, the Continued Dumping and Subsidy Offset Act, 
which I created in 2000, was found to be in non-compliance with 
World Trade Organization rules. That ruling by a WTO panel is 
shortsighted, wrongheaded, and dumb. When it ruled against the 
Byrd amendment, the WTO challenged the right of the United 
States Congress to distribute Government funds as the Congress 
sees fit.
    National unemployment figures for April showed 
manufacturing jobs continuing to decline. Factory payrolls have 
fallen for 33 consecutive months. Listen to that. Factory 
payrolls have fallen for 33 consecutive months. Over 3 years. 
Many of those industrial jobs have disappeared forever. We need 
to take steps now to protect those jobs that we have left and 
to encourage new growth in manufacturing, and steel jobs are at 
the core of this effort.
    Now, you know my concerns, as I said. When we met in 
January, we talked about the steel industry and how it was 
important to so many other sectors of this economy. This 
Administration continues to advocate policies that would pull 
the rug from underneath the steel industry as it works to 
restructure again and to regain its market share. It wants to 
eliminate the emergency steel loan guarantee program, which I 
created. Actually, it is giving me a bad cramp in my leg right 
now. It got me out of bed this morning, that cramp in my leg. I 
wouldn't be a very good swimmer.
    But it wants to eliminate the emergency steel loan 
guarantee program. It wants to repeal the Byrd amendment and 
exempt product after product from the Section 201 tariffs. It 
seems that the only thing that American industrial workers can 
count on receiving under this Administration is a pink slip.
    Now, here is my question. With regard to the Byrd 
amendment, last February the President recommended the repeal 
of the continued dumping and subsidy offset--that is the Byrd 
amendment--in his fiscal year 2004 budget request. This is the 
law with overwhelming bipartisan support--overwhelming 
bipartisan support that allows import duties to be distributed 
to U.S. producers who are injured by unfair trade to help them 
invest in their companies and workers.
    On May 6th, the U.S. Trade Representative said in its 
statement on the Byrd amendment before a WTO arbitrator, 
``Unlike other elements of the budget, the repeal of the Byrd 
amendment is not tied to the end of the fiscal year and, in 
particular, it is not intended to be included in the 
appropriations act.'' This recent statement by the U.S. Trade 
Representative is flatly inconsistent with the President's 
budget request of February 3.
    Now, contrary to its earlier proposal, the Administration 
has made a 180-degree turn and declared that the repeal of the 
Byrd amendment was never intended to be included in an 
appropriations bill.
    If the Administration's position is that the Byrd amendment 
should not be repealed, why has the Administration not 
submitted a budget amendment to the Congress that reverses its 
earlier recommendation?
    Secretary Snow. Senator, I do not know.
    Senator Byrd. That is an honest answer.
    Secretary Snow. Yes. But I will seek to get an answer to 
that question for you, quickly.
    Senator Byrd. Well, it is my understanding that the 
Inspector General of the Department of Homeland Security is 
completing a report which will show that the U.S. Customs 
Service has failed to collect approximately $90 million under 
the Byrd amendment. U.S. law requires the Federal Government to 
collect those duties, and yet, reportedly, it has failed to 
collect $90 million.
    Up until a short time ago, that responsibility was part of 
your Department. Why has the Customs Service been unable to 
comply with these laws enacted to provide legitimate remedies 
against unfair trade? Why didn't the Treasury Department pursue 
those lost revenues?
    Secretary Snow. Senator, I am not really familiar with this 
whole issue. I understand that the study is being completed. 
Treasury has lost that enforcement responsibility under the 
transfers to the Department of Homeland Security. I am not on 
top of that issue in a way to be able to give you an informed 
answer.
    Senator Byrd. Well, the Treasury Department retains control 
of many of the key provisions of the Tariff Act of 1930, of 
which my amendment is a part. With all respect, you are the 
Administration's point man on economic and fiscal policy. 
Everyone else has been shown the door. The erosion of the 
Nation's manufacturing sector, including steel, is one of the 
key elements of our economic weakness. Playing a bureaucratic 
shell game is simply unacceptable.
    As the Administration's voice on economic policy, would you 
tell the committee whether the Administration believes that it 
is important to provide support to our manufacturing businesses 
through this key initiative?
    Secretary Snow. Senator, as you know, I have had a long 
involvement with steel and served on the board of one of these 
companies, who very much supported your efforts on behalf of 
steel, applauded you for doing so. Given that service, I am 
told that I need to recuse myself from direct answers to 
questions like that. But Ms. Ressel will respond for us. 
Teresa? She didn't know that was coming.
    Ms. Ressel. I need to apologize. I was working hard on 
making sure that we were correct on the last answer, so I need 
you to repeat the question. I apologize.
    Secretary Snow. Do we support manufacturing in steel?
    Ms. Ressel. We have to get back to you. I am sorry. I don't 
know.
    Senator Shelby. Mr. Secretary, could you do that for the 
record?
    Secretary Snow. Yes, we will.
    Ms. Ressel. We do have an answer to your previous question, 
sir, about the uncollected antidumping--the $90 million 
question. Basically, the original people who were supposed to 
do that audit were the Treasury IG, and now that responsibility 
has been transitioned to the Homeland Security IG.
    It is our understanding that, for example, in 2002, $48 
million of one particular case is under protest. Basically what 
we have got is a reconciliation system set up where Treasury's 
Inspector General will turn that information over to Clark Kent 
Ervin, who is the Acting IG for Homeland. He is doing a 
complete reconciliation. We can have those numbers ready for 
you within a very short period of time. They are closing that 
out.
    I don't know that you will ultimately get a complete 
reconciliation this year because Customs is saying that they 
are not going to continue to do collection until all of the 
open issues have been cleared relative to the protests that the 
actual importers are eligible to do. That is our understanding 
of that one. If you want a briefing or any additional 
information, we would be happy to provide that, sir.
    Senator Byrd. Very well. Mr. Secretary, the subcommittee 
will welcome further responses on this matter, and as you have 
indicated, you will have something further to report to the 
committee.
    Thank you.
    Secretary Snow. Yes, we will, Senator.
    Senator Byrd. Thank you, Mr. Chairman.
    Senator Shelby. Thank you, Senator Byrd.

                     ADDITIONAL COMMITTEE QUESTIONS

    Mr. Secretary, I have a number of questions that I would 
like to submit to you for the record dealing with your office, 
the Secretary of the Treasury, and we would appreciate that 
they be in promptly.
    Secretary Snow. We would be happy to respond, Mr. Chairman.
    Senator Shelby. Senator Murray, do you have any other 
questions?
    Senator Murray. No, Mr. Chairman. Thank you.
    [The following questions were not asked at the hearing, but 
were submitted to the Department for response subsequent to the 
hearing:]
            Questions Submitted by Senator Richard C. Shelby
                          departmental offices
    Question. The Inspector General and Tax Administration has 
traditionally been a watchdog over the IRS--an agency in need of 
constant oversight. The budget proposes to consolidate this office with 
the Office of Inspector General (OIG) at the Department of Treasury. 
What benefits will be derived from the proposed consolidation and what 
will the impact be if the consolidation does not happen?
    Answer. The benefit derived by consolidating the Office of the 
Inspector General (OIG) and the Inspector General for Tax 
Administration (TIGTA) would be a reduction in overall cost of 
Inspector General operations. In the post Homeland Security divestiture 
environment, Treasury incurs duplicative overhead by maintaining both 
offices which are being paid by the taxpayers with little added 
benefit. Thus the impact of not consolidating the offices would be the 
inefficient use of taxpayer money.
    The OIG was established in 1988 and TIGTA was created 10 years 
later to provide dedicated independent oversight to the Internal 
Revenue Service and related entities. Both offices have the following 
responsibilities:
  --Conduct and supervise audits and investigations.
  --Provide leadership and coordination.
  --Promote economy, efficiency, and effectiveness in programs and 
        operations.
  --Prevent and detect fraud and abuse in programs and operations.
  --Provide a means for keeping the Secretary and the Congress fully 
        and currently informed about problems and operations.
    Last year, upon the creation of the Department of Homeland Security 
(DHS) a significant amount of the OIG's responsibilities and budget was 
transferred to DHS and the Department of Justice (DoJ). This coincided 
with the transfer of the U.S. Secret Service, the U.S. Customs Service, 
and the Federal Law Enforcement Training Center's move to DHS and most 
of the bureau of Alcohol, Tobacco and Firearms' move to DoJ.
    Since a substantial portion of OIG was transferred to DHS and DoJ 
respectively, it makes good business sense to consolidate the balance 
of the Office of the Inspector General with the Office of the Inspector 
General for Tax Administration, eliminating duplication by creating a 
more efficient and effective operation in accordance with the mission 
of both offices.
    Question. The fiscal year 2003 Treasury bill established a fund for 
a Treasury-wide Financial Statement Audits Program. Why are these funds 
requested in the Departmental Offices' budget rather than the Inspector 
General's budget?
    Answer. The funds are in the Departmental Offices budget because 
the Inspector General looks to the Department or its bureaus to pay for 
financial statement audits performed by contractors. That is, the audit 
costs should be by the entity being audited (i.e., the Department and 
its bureaus), not by the Inspector General. The Inspector General only 
funds the audit work it actually performs; much of the audit work is 
performed by contractors.
    Prior to fiscal year 2003, audit funding for the appropriated 
Treasury bureaus was decentralized and funding needs varied from year 
to year depending on who was conducting the audit (i.e., IG, GAO, or a 
private firm). This resulted in contracting delays and a fragmented 
approach to the overall financial statement audit. For fiscal year 
2003, Treasury obtained the centralized funding, which has greatly 
alleviated the funding and contracting problems experienced in previous 
years.
    Centralizing the funding and procurement responsibility for these 
audits has streamlined the process, consolidated the audit work with 
fewer contractors, enabled greater audit efficiencies, and enhanced the 
timeliness and consistency of awarding financial statement audit 
contracts throughout the Department. Further, it has eliminated audit 
funding uncertainties we previously experienced from year-to-year 
caused by the mid-year shifting of audit funding responsibilities from 
the General Accounting Office to the Department and from the Office of 
Inspector General to the Department's bureaus. These enhancements also 
help the Department to maintain its leadership role in accelerated 
financial and performance reporting.
    Question. The Office of Foreign Assets Control is the Department's 
lead agency for identifying terrorist financing and denying terrorist 
groups access to financial markets. What efforts have been made to 
garner the commitment of other nations to participate in this effort?
    Answer. Since September 11, 2001, the Office of Foreign Assets 
Control (OFAC) has worked with other nations and the United Nations to 
garner their commitment to participate in efforts to identify terrorist 
financing and deny terrorist groups and their support networks access 
to financial markets and from having dealings with persons in U.N. 
member states. Over the last 2 years, OFAC has led or participated in 
more than 20 trips, held bi-lateral meetings with delegations from a 
dozen countries and representatives from the United Nations and has 
responded to more than 100 requests for terrorist financing information 
from more than 50 countries.
    OFAC's effort to garner international support to combat terrorist 
financing has:
  --Encouraged several countries, particularly in the Middle East 
        region, to adopt new measures and/or strengthen existing 
        legislation to increase regulatory oversight over charities, 
        other charitable fundraisers and domestic financial 
        institutions in order to prevent their exploitation by 
        terrorist fundraisers.
  --Laid the groundwork in several countries for the creation of an 
        OFAC-like administrative sanctions implementing agency and the 
        adoption of new legal authorities to implement administrative 
        freeze and blocking orders pursuant to U.N. obligations.
  --Increased compliance efforts by international banking authorities 
        and assisted more than 50 nations with implementing and 
        maintaining asset freeze orders pursuant to U.N. obligations.
  --Negotiated international procedures and guidelines which have been 
        adopted by the G-7 working group on terrorist financing and the 
        U.N. 1267 Committee.
  --Provided investigative and analytic assistance to countries in 
        Europe and the Middle East to pursue known supporters of 
        terrorism and to exploit new leads to identify and isolate 
        terrorist financiers and financial networks.
  --Worked with countries in Europe, Southeast Asia and the Middle 
        East, including Saudi Arabia, to jointly designate terrorists 
        and their support networks.

                                 FINCEN

    Question. The USA PATRIOT Act requires FinCEN to implement a number 
of regulatory requirements.
    What is the current status of the implementation of these various 
provisions?
    Answer. Because the Patriot Act not only requires the issuance of 
rules, but also provides new tools for combating new threats as they 
arise, and establishes ongoing processes for sharing information, there 
is no one terminal point for Patriot activities--rather, full 
utilization of the Patriot Act is an ongoing process (i.e., Sections 
311, 314, 361). In terms of reports, FinCEN has issued all the required 
reports to date; there are reports due in the future relating to 
whether there are gaps that need to be filled (i.e., Section 324). In 
terms of rules, FinCEN has to complete the issuance of anti-money 
laundering program rules, and the final correspondent banking rules.
    Question. One of the crucial concepts behind many of these 
requirements is that the right people see the right information at the 
right time to prevent terrorists from attacking us again. What steps 
are you taking to ensure that this is indeed happening and that this 
vigilance is sustained over the long haul?
    Answer. FinCEN is very actively following trends and patterns in 
the movement of illicit funds and publishes advisories and reports to 
alert law enforcement and the financial and regulatory communities. In 
addition to the requests FinCEN receives from law enforcement for 
assistance in researching and analyzing data to support investigations, 
it is providing law enforcement with proactive cases. FinCEN also 
established a new program under Section 314 of the USA PATRIOT Act that 
allows law enforcement to query financial institutions, through FinCEN, 
regarding subjects of money laundering or terrorist financing 
investigations. This program is providing law enforcement with timely 
and valuable information about investigative subjects, as well as 
providing opportunities for coordinating investigations. Lastly, 
FinCEN's Office of Intelligence Liaison (OIL) was established in late 
1999, with the goal to identify, through BSA data, clues or leads for 
law enforcement on possible terrorist-related finances and activities. 
The analytical products of this office, since its establishment, have 
contributed to numerous intelligence and law enforcement efforts both 
proactively and in support of investigations already in progress.

                        INTERNAL REVENUE SERVICE

    Question. The Earned Income Tax Compliance effort has experienced 
some problems since its inception. What is your suggestion on how to 
solve this perennial problem?
    Answer. Although the Earned Income Tax Credit (EITC) has been 
successful in lifting millions of low-income taxpayers and their 
children out of poverty, the EITC program has experienced persistent 
noncompliance. The IRS attempts to balance enforcement activities with 
education and outreach programs so that only those taxpayers entitled 
to the EITC receive it.
    The President's Fiscal Year 2004 Budget requested an additional 
$100 million to begin a new strategy for improving the EITC program. 
The IRS will address potential erroneous claims by identifying cases 
that have the highest likelihood of error before they are accepted for 
processing and before any EITC benefits are paid. A key part of this 
strategy is to begin certifying taxpayers in advance for the EITC.
    The IRS recently announced additional details and refinements of 
this initiative. The initiative will specifically:
  --reduce the backlog of pending EITC examinations to ensure that 
        eligible taxpayers whose returns are being examined receive 
        their refunds quickly,
  --minimize burden and enhance the quality of communications with 
        taxpayers by improving the existing audit process,
  --encourage eligible taxpayers to claim the EITC by increasing 
        outreach efforts and making the requirements for claiming the 
        credit easier to understand,
  --ensure fairness by refocusing compliance efforts on taxpayers who 
        claimed the credit but were ineligible because their income was 
        too high, and
  --pilot a certification effort to substantiate qualifying child 
        residency eligibility for claimants whose returns are 
        associated with a high risk for error.
    Below is a press release from the Commissioner:
Taxpayers to Receive Advance Child Tax Credit This Summer
IR-2003-68, May 28, 2003
(Revised June 30 to change mailing dates for notices to check 
recipients)
Related Fact Sheet: FS-2003-13

    Washington.--Beginning the last week of July, eligible taxpayers 
who claimed the Child Tax Credit on their 2002 tax returns will 
automatically receive an advance payment of the 2003 increase in this 
credit, the Treasury Department and Internal Revenue Service announced 
today.
    Taxpayers will not have to take any action to get this advance 
payment of up to $400 per qualifying child. The Treasury Department and 
IRS will perform all the calculations and automatically mail a notice 
and a check to each eligible taxpayer.
    ``The only thing the taxpayer needs to do is cash the check,'' said 
Mark W. Everson, IRS Commissioner. ``If you qualify, we will send you a 
notice. There's no need to call, no need to apply, no need to fill out 
another form. The IRS will do all the work. A few days after the 
notice, you will get the check.''
    The checks--an advance payment of the 2003 increase in the Child 
Tax Credit--will be based on the child tax credit claimed on the 
taxpayer's 2002 tax return. The Jobs and Growth Tax Relief 
Reconciliation Act of 2003 increased the maximum child tax credit for 
2003 to $1,000 per child, up from $600 for tax year 2002. The law 
further instructed the Treasury Department to provide the difference--
up to $400 per child--as an advance payment to each eligible taxpayer 
this summer.
    The Treasury Department will issue about 25 million of these checks 
this year, beginning with three principal mailings on July 25, Aug. 1 
and Aug. 8. Taxpayers who filed returns after April 15--for example, 
those with automatic extensions--will receive their advance payments 
after the IRS processes their returns. They should not make any change 
to their 2002 returns or remittances based on an expectation of an 
advance payment check.
    The IRS will send notices to taxpayers on July 22, July 29 and Aug. 
5, informing them of their advance payment amount. The IRS urges 
taxpayers to hold on to these notices for their 2003 tax returns. They 
will need to take the advance payment into account when determining the 
amount of their child tax credit on the 2003 tax return.
    Taxpayers who are not eligible for the advance payment may still 
qualify for the increased child tax credit of up to $1,000 when they 
file the 2003 tax return next year. For instance, a taxpayer who did 
not have a child in 2002, but had one in 2003, would not receive an 
advance payment but may qualify for the full $1,000 credit on the 2003 
tax return.
    More information is available in answers to frequently asked 
questions on the IRS website at www.irs.gov.

    Question. The IRS is planning to use private debt collectors to 
collect billions of dollars owed in taxes. What steps will the IRS take 
to oversee private collectors as well as safeguard taxpayers' privacy?
    Answer. The IRS would establish an oversight group with 
responsibility for managing case referrals, monitoring and evaluating 
PCA performance, monitoring interactions with taxpayers, and reviewing 
and approving PCA invoices. The oversight group would be required to 
monitor a statistically valid number of taxpayer contacts by each PCA 
to evaluate taxpayer treatment and adherence to IRS approved 
procedures. A manual review of PCA activity on taxpayer accounts would 
be performed to ensure compliance with approved IRS procedures and 
overall quality of case handling. A full on-site audit of each PCA by 
the IRS oversight group would be performed on a regular basis and would 
be in addition to ongoing quality-control and taxpayer protection 
monitoring.
    The PCA would be responsible for ensuring that each employee who 
has access to taxpayer account information has completed the 
appropriate background investigation and non-disclosure forms. The PCA 
would be required to submit verification of the required background 
investigation and copies of the non-disclosure forms to the IRS at 
least 20 days before the employee is permitted to access taxpayer 
information. In addition, the IRS would adopt tracking procedures 
developed during the 1996-1997 pilot program to ensure that no PCA 
employee would be granted access to the IRS work site or taxpayer data 
until he/she successfully completed a satisfactory background 
determination. These procedures were very successful during the pilot. 
The IRS' oversight of PCAs would be similar in many respects to the 
IRS' oversight of its own employees. For example, the IRS audit system 
logs for indications of improper accesses to taxpayer information. The 
IRS also performs oversight of employee work for quality and 
appropriateness of taxpayer interactions.
    PCAs would be required to provide a large amount of information to 
the IRS, as well as access to various systems, to facilitate IRS 
oversight. This would include:
  --detailed Operational Management Information Systems (MIS) reports,
  --telephone Service Level reports,
  --audits of employee access to IRS taxpayer data,
  --access to PCA collection system for auditing purposes,
  --remote telephone monitoring access to authorized IRS personnel,
  --PCA employee tracking information,
  --PCA employee quality review monitoring evaluations,
  --PCA Operational Plans, and
  --PCA Business Continuation Plans.
    To make certain the IRS promptly hears, evaluates and addresses 
taxpayer complaints, a PCA would be required to provide to taxpayers, 
orally and in writing, information on how to report a complaint with 
the IRS. Any complaint received by the IRS from a taxpayer would 
immediately be provided to the PCA. If a PCA were to receive a 
complaint directly from the taxpayer, the PCA would be required to 
immediately forward the complaint to the IRS.
    Upon receipt of a complaint from the IRS or directly from a 
taxpayer, a PCA would be required to immediately cease collection 
activity on the account in question and provide to the IRS, by the 
close of business on the following business day, a copy of its records 
on the account and any other information relevant to the complaint. The 
PCA would not be permitted to resume collection activity on the account 
until IRS resolved the problem and provided the PCA written 
authorization to resume work. Failure by the PCA to cease collection 
activity on the account would result in IRS recalling the account from 
the PCA and, if appropriate, the termination of the PCA's contract.
    A PCA also would be required to investigate the complaint and 
provide a complete report to the IRS within 10 business days of 
receiving the complaint. The report would include a description of all 
actions taken to resolve the situation and steps put in place to ensure 
there are no future occurrences of similar situations.
    If a complaint is validated, the PCA would be required to remove 
the offending employee from the IRS account and take all necessary 
steps to ensure the employee no longer has any access to taxpayer 
information. In addition, the PCA's bonus and inventory would be 
reduced, and the PCA would be subject to a penalty. The IRS could 
choose to suspend all contract activity for the PCA either permanently 
or until the IRS has determined, at its discretion, that the PCA had 
taken appropriate corrective actions to prevent further complaints.\1\ 
The IRS' determination that a complaint was valid would not be subject 
to review.
---------------------------------------------------------------------------
    \1\ In determining whether to suspend a contract, the IRS would 
consider the severity and frequency of valid complaints for a PCA 
(whether related to one or more employees).
---------------------------------------------------------------------------
    If a potential statutory violation is identified, the IRS also 
would notify the Treasury Inspector General for Tax Administration 
(TIGTA). TIGTA may investigate the complaint, depending on the 
circumstances and seriousness of the complaint. If TIGTA initiates a 
formal investigation of the complaint, the PCA would be required to 
cooperate fully with the investigation and coordinate its own 
management efforts with the IRS and TIGTA. TIGTA would provide a report 
of its investigation to the IRS Contracting Officer after concluding 
the investigation.
    Question. A Treasury Inspector General for Tax Administration 
report states that IRS deposited some tax refunds into unauthorized 
bank accounts.
    Explain how this mistake could have happened.
    Answer. Several factors contributed to the control weaknesses we 
identified.
  --Instructions for completing the United States Individual Income Tax 
        Return (Form 1040) do not require taxpayers to take any 
        preventive steps.--Specifically, the instructions do not 
        require taxpayers to void the direct deposit fields if they do 
        not use the fields (e.g., lining through the direct deposit 
        fields on the tax return rather than leaving them blank) to 
        ensure the fields cannot be manipulated subsequent to the 
        filing of the tax return. Furthermore, IRS reports indicate 
        that approximately 48 percent of paper filed tax returns are 
        prepared on a computer using tax preparation software packages. 
        When these tax returns are printed, the direct deposit fields 
        are left blank for those taxpayers who elect to receive a paper 
        check tax refund. As with the hand-written paper Forms 1040, 
        the direct deposit fields on these tax returns can be altered.
  --Tax return processing controls are inadequate.--There are no 
        controls in place to minimize the risk of, or identify 
        potential instances of, employee impropriety via direct deposit 
        in the areas that receive and open tax returns, review the tax 
        returns for completeness, and input the information from tax 
        returns into IRS computers.
  --Procedures do not provide IRS employees with sufficient guidance.--
        Procedures were not developed and distributed to those 
        employees who work in the areas that receive and open tax 
        returns, review the tax returns for completeness, and input the 
        information from tax returns into IRS computers informing them 
        of the need to identify and refer cases with potentially 
        unauthorized direct deposits to the TIGTA Office of 
        Investigations.
  --When working refund inquiries, IRS employees did not consider the 
        possibility of this type of employee impropriety.--Employees in 
        those functions that assist taxpayers who do not receive their 
        refunds were not required to consider the possibility of 
        employee impropriety when evaluating tax refund inquiries that 
        involve direct deposits.
    Question. How many checks were deposited into these unauthorized 
accounts?
    Answer. TIGTA has identified one case to date whereby an employee 
altered paper filed tax returns to divert, via direct deposit to 
personal bank accounts, approximately $32,600 in tax refunds from 
multiple taxpayers for 2 tax years. The tax refunds stolen ranged from 
$2,252 to $8,133.
    This employee worked at a Submission Processing Site. From on or 
about February 28, 2000, to and including April 28, 2000, and again 
from on or about February 20, 2001, to and including April 30, 2001, 
this employee altered tax returns to include direct deposit account 
information that was not requested or authorized by the taxpayers. The 
purpose of the alterations was to divert the taxpayers' refunds to bank 
accounts belonging to and controlled by the employee.
    The employee was successfully prosecuted.
    Question. What steps has the IRS taken to make sure this does not 
happen again?
    Answer. TIGTA alerted IRS executives on June 25, 2002, to the 
control weaknesses in the processing of paper filed tax returns that 
provide opportunities for tax refunds claimed on paper filed tax 
returns to be directly deposited to bank accounts that were not 
authorized by the taxpayers. As a result of this alert, IRS management 
added this risk as a reportable condition to the tax processing Annual 
Assurance Process memorandum. In addition, IRS management implemented a 
number of corrective actions including developing and issuing guidance 
in response to audit recommendations made during the course of our 
review.
    IRS management agreed with the recommendations presented in our 
report and is planning to take corrective action. Specifically, the 
2003 instructions for completing Form 1040 will be changed to tell 
taxpayers to line through the direct deposit fields on the tax return 
if they are not requesting a direct deposit of a refund check. In 
addition, Submission Processing procedures will be changed to instruct 
Code and Edit function employees to line through this section if a 
taxpayer fails to follow the instructions. Also, the IRS will contact 
the software developers and request that they modify their programs so 
that the fields do not appear or cannot be altered if a taxpayer wishes 
to receive a paper refund check. These changes will be effective for 
Tax Year 2003.
    Question. The IRS has an obligation under Title 31 (i.e., 
compliance and enforcement of non-bank financial institutions). Is the 
IRS adequately funded for its Title 31 functions and operations and the 
critical support that the Detroit Computing Center provides to FinCEN?
    Answer. The Small Business/Self-Employed (SB/SE) operating division 
of IRS is responsible for the non-bank financial institution (NBFI) 
compliance examinations for Title 31. In fiscal year 2003, SB/SE 
expanded the Anti-Money Laundering (AML) program to include over 30 AML 
groups across the country. Significant training resources were expended 
to ensure that the newly reassigned Revenue Agents (RAs) were properly 
trained to conduct the Title 31 compliance examinations and to refer 
potential criminal cases to IRS-Criminal Investigation, if warranted. 
IRS efforts to incorporate increased compliance responsibility due to 
the numerous regulations prompted by the USA Patriot Act more than 
doubled the number of NBFI compliance examinations conducted during 
fiscal year 2003. However, the Achieving Balanced Levels of Enforcement 
(ABLE) initiative under the Fiscal Year 2004 Budget Submission, if 
funded, would allow IRS to increase Title 31 compliance examination 
coverage and enforcement responsibilities. This initiative would 
provide additional Revenue Agents to implement selected provisions, 
i.e., section 352, of the USA PATRIOT Act and to expand overall Title 
31 compliance examination coverage given the increasing focus on money 
laundering within the related non-bank financial institutions.
    The Business Systems Development (BSD) staff at the Detroit 
Computing Center (DCC) performs programming and maintenance for the 
Currency and Banking Retrieval System (CBRS). CBRS is a large database, 
encompassing all Bank Secrecy Act (BSA) forms, the CBRS query system, 
sub-systems, and various other entities. There is an overall need to 
retool the CBRS to provide flexibility to meet the increasing complex 
research and data analysis needs of law enforcement. Treasury, FinCEN, 
and IRS are in discussion on the best approaches to this modernization. 
Regardless of the future retooling, IRS must keep pace with the new 
regulations issued under the USA PATRIOT Act. Form revisions and new 
forms required by the USA PATRIOT Act must be added to the current 
database for immediate use. These changes may require changes to the 
magnetic or electronic systems or building new systems to handle the 
additional volume.

                           SUBCOMMITEE RECESS

    Senator Shelby. Mr. Secretary, we appreciate your 
appearance here today. We know you are busy, and we appreciate 
your candor with the committee and look forward to working with 
you in the future.
    Secretary Snow. Thank you very much.
    Senator Shelby. Our meeting is in recess.
    [Whereupon, at 12:23 p.m., Tuesday, May 20, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]
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