[Senate Hearing 113-166]
[From the U.S. Government Publishing Office]
S. Hrg. 113-166
NOMINATION OF JACOB J. LEW
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
ON THE
NOMINATION OF
JACOB J. LEW, TO BE SECRETARY, DEPARTMENT OF THE TREASURY
__________
FEBRUARY 13, 2013
___________
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COMMITTEE ON FINANCE
MAX BAUCUS, Montana, Chairman
JOHN D. ROCKEFELLER IV, West ORRIN G. HATCH, Utah
Virginia CHUCK GRASSLEY, Iowa
RON WYDEN, Oregon MIKE CRAPO, Idaho
CHARLES E. SCHUMER, New York PAT ROBERTS, Kansas
DEBBIE STABENOW, Michigan MICHAEL B. ENZI, Wyoming
MARIA CANTWELL, Washington JOHN CORNYN, Texas
BILL NELSON, Florida JOHN THUNE, South Dakota
ROBERT MENENDEZ, New Jersey RICHARD BURR, North Carolina
THOMAS R. CARPER, Delaware JOHNNY ISAKSON, Georgia
BENJAMIN L. CARDIN, Maryland ROB PORTMAN, Ohio
SHERROD BROWN, Ohio PATRICK J. TOOMEY, Pennsylvania
MICHAEL F. BENNET, Colorado
ROBERT P. CASEY, Jr., Pennsylvania
Amber Cottle, Staff Director
Chris Campbell, Republican Staff Director
(ii)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Baucus, Hon. Max, a U.S. Senator from Montana, chairman,
Committee on Finance........................................... 1
Hatch, Hon. Orrin G., a U.S. Senator from Utah................... 3
Schumer, Hon. Charles E., a U.S. Senator from New York........... 6
CONGRESSIONAL WITNESS
Domenici, Hon. Pete, former U.S. Senator from New Mexico......... 8
ADMINISTRATION NOMINEE
Lew, Hon. Jacob J., nominated to be Secretary, Department of the
Treasury, Washington, DC....................................... 10
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Baucus, Hon. Max:
Opening statement............................................ 1
Prepared statement........................................... 63
Domenici, Hon. Pete:
Testimony.................................................... 8
Hatch, Hon. Orrin G.:
Opening statement............................................ 3
Prepared statement........................................... 66
Lew, Hon. Jacob J.:
Testimony.................................................... 10
Prepared statement........................................... 69
Biographical information..................................... 73
Responses to questions from committee members................ 79
Schumer, Hon. Charles E.:
Opening statement............................................ 6
(iii)
NOMINATION OF JACOB J. LEW,
TO BE SECRETARY,
DEPARTMENT OF THE TREASURY
----------
WEDNESDAY, FEBRUARY 13, 2013
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:10
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Max
Baucus (chairman of the committee) presiding.
Present: Senators Rockefeller, Wyden, Schumer, Stabenow,
Cantwell, Nelson, Menendez, Cardin, Brown, Bennet, Casey,
Hatch, Grassley, Crapo, Roberts, Enzi, Cornyn, Thune, Burr,
Isakson, Portman, and Toomey.
Also present: Democratic Staff: Amber Cottle, Staff
Director; Lily Batchelder, Chief Tax Counsel; Tiffany Smith,
Tax Counsel; and Jeff VanderWolk, International Trade Counsel.
Republican Staff: Chris Campbell, Staff Director; Mark Prater,
Deputy Chief of Staff and Chief Tax Counsel; Nicholas Wyatt,
Tax and Nomination Professional Staff Member; and Aaron Taylor,
Professional Staff Member.
OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR FROM
MONTANA, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The hearing will come to order.
Before we begin this morning, I want to recognize 6 new
members to the Senate Finance Committee: Senator Sherrod Brown;
Senator Michael Bennet; Senator Pat Toomey; Senator Robert
Portman; Senator John Isakson; and Senator Bob Casey. Welcome,
all.
We are honored to have you. I think you will find the
tradition of this committee is one that is very proud. We have
worked together. I am just very happy that you are here with us
to help move that tradition forward at an even deeper, faster,
greater rate. You are all very talented members of this
committee, and we deeply appreciate your attendance.
Less than 2 miles from where we sit today at the entrance
of the U.S. Treasury building stands a large bronze statue. One
would assume the figure cloaked in colonial garb is Alexander
Hamilton, America's first Treasury Secretary. Look again. This
12-foot tall statue is of Albert Gallatin, the longest-serving
U.S. Treasury Secretary.
In 1801, Thomas Jefferson asked Gallatin to serve. Gallatin
did not shy away from the role's challenges, but he did
recognize the enormity, and he said, ``The place of the
Secretary of Treasury is more laborious and responsible than
any other.'' As Treasury Secretary, Gallatin laid the policy
framework for the rise of the United States as an economic
engine. That is Albert Gallatin.
What did he do? He established fiscal discipline that was
necessary to transform a young country into a great world
power. Gallatin also helped orchestrate the Louisiana Purchase,
doubling the size of the United States and bringing my home
State of Montana into the young Nation.
His work is commemorated in Gallatin County, MT and the
beautiful Gallatin National Forest in Montana's northern
Rockies, as well as the Gallatin River, one of the tributaries
of the Missouri.
When Gallatin accepted the position, it was noted at the
time that he was placed in a situation of trust. Today we are
here to consider the nomination of Jack Lew to be the Nation's
next Secretary of Treasury. We are here to determine if he is
worthy of this situation of trust.
Jack Lew has a long and distinguished career focused on
public service, with experience in both academia and on Wall
Street. During one of his stints as OMB Director, he helped
guide our Nation through one of the greatest periods of
economic growth in America's history. We will learn more about
his record from Senators Schumer and Domenici in a moment, but
there is no doubt that he is experienced.
As Gallatin said, there is no more laborious or responsible
position than Treasury Secretary. Mr. Lew will have his work
cut out for him. Our economy today is on the road to recovery,
but it is a road with many twists and turns. Last week, CBO
released a report showing the deficit, as a percent of GDP for
2012 to 2015, will be cut in half, and the debt-to-GDP ratio
will be stable for the next 5 years.
The Budget Control Act of 2011 and the end-of-the-year
fiscal cliff arrangement, both bipartisan, have made a
difference. Nearly $2.4 trillion of deficit reduction has been
locked in for the next 10 years.
But, while progress has been made, the job is certainly not
over. We have many tough decisions ahead of us. The first
challenge is the sequester, the across-the-board cuts to
programs starting in just over 2 weeks. Then we quickly face
the threat of a government shutdown.
The sequester will cut critical programs, including
Medicare, rural development, and early education. We need to
work together, Republicans and Democrats, House and Senate,
with the administration, to prevent indiscriminate cuts and
lasting economic damage.
The state of the economy is still fragile. The unemployment
rate rose slightly in January and is projected to remain
stubbornly high: 8 percent in 2013, 7.6 percent in 2014. These
numbers are troubling. Combined with the more favorable deficit
numbers, the unemployment figures show that we cannot take our
eye off the ball, that is, the economy and job creation.
Mr. Lew, you need to concentrate on three areas to provide
greater economic growth and certainty for the Nation. First,
focus like a laser on job creation. Do not get distracted. As a
leader of the President's economic team, you must put in place
policies that create more jobs and spark economic growth.
Unemployment near 8 percent for the next 2 years is
unacceptable. Use your office to develop new ideas to produce
job creation and to relieve small businesses of needless
regulatory burdens.
Second, you must help return predictability and stability
to our Nation's capital. We have to get off this roller coaster
of crisis after crisis. These crises are frustrating the
American people and harming the economy. You need to help us
achieve stability in fiscal policy as the economy continues to
repair itself after the financial meltdown in 2008. That will
help give businesses and families certainty and confidence.
Finally, we must simplify our tax code for individuals, for
businesses. We need to make the system fairer and help make
U.S. businesses more competitive in the global marketplace. As
Treasury Secretary, you will be in a position to help make tax
reform a reality. We will need not only your leadership, but
your solid ideas and technical help. We are serious about this.
We will be counting on your deep experience to help us
achieve comprehensive tax reform. Over the past 2 years, this
committee has been moving steadily forward on tax reform.
America's tax code has become too complex for both individuals
and businesses, and the rules have not kept pace with today's
transactions. The last tax code overhaul was in 1986.
Our world economy has changed drastically in the past few
decades. Our tax code has not caught up and is now acting as a
drag on America's economy. This is not some academic exercise.
Tax reform is a real opportunity to spark the economy and
create more jobs. As Secretary, I expect you to be a partner as
we tackle tax reform.
Members of this committee are going to probably, Mr. Lew,
ask you some tough questions. That is our right, and that is
our responsibility. That is our role. In fact, I will ask you
to address my concerns that the administration is being
distracted from what should be the main focus, that is, job
creation. We will get to that in a minute.
I am confident that, in the tradition of this committee,
the questions of course will be respectful, and these questions
will focus on how we can best move our country forward,
representing the people whom we serve.
Mr. Lew, welcome. As you follow in Secretary Gallatin's
footsteps, I encourage you to embrace this challenge as you
chart your own path forward at Treasury, pending your
confirmation. Recognize the great responsibility you have to
ensure our government and finances are sound and help us remain
the great world power in this competitive economy.
[The prepared statement of Chairman Baucus appears in the
appendix.]
The Chairman. Senator Hatch?
OPENING STATEMENT OF HON. ORRIN G. HATCH,
A U.S. SENATOR FROM UTAH
Senator Hatch. Well, thank you, Mr. Chairman. Welcome, Mr.
Lew, and our old colleague Senator Domenici. We are so happy to
see you here, and remember all the great work that you did here
the whole time you were here. And of course, Senator Schumer is
one of our great leaders in the U.S. Senate.
I also want to welcome the new members of our committee on
both sides. I think you are going to enjoy this committee. It
is a very, very important one, and we look forward to working
with all of you.
Thank you, Mr. Chairman. I want to thank Mr. Lew for
joining us here today, and I look forward to hearing Mr. Lew's
testimony today and finding out more about his knowledge, his
background, and his qualifications for this important position
in the President's Cabinet. I agree with you: it is an
extremely important position. As we all know, the U.S. Treasury
Secretary is charged with a variety of responsibilities.
Mr. Lew, I know that you are well-versed in budget matters,
but those are not the main responsibilities of the Treasury
Secretary. I believe that I already have a good understanding
of your budget views, including your opinion that we need
higher taxes and much more revenue to address our Nation's
fiscal problems.
I also know about the Obama administration's reluctance,
which I assume you share, to engage in structural reforms to
our entitlement programs, even though they are main drivers of
our debts and deficits, although I was pleased with some of the
President's remarks in this area last evening.
I do not share your views on some of these matters and
neither, in my opinion, do the American people. And, as a
Social Security and Medicare trustee, the Treasury Secretary
cannot simply hope these problems will go away.
But the Treasury Secretary has responsibilities that extend
far beyond the budget. These responsibilities include:
implementation of financial regulations; oversight of financial
stability; debt management; tax collection; oversight of
economic sanctions; defense of the value of the U.S. dollar;
disbursement of payments; implementation of certain housing
policies; assisting Congress with its oversight
responsibilities; and, to finish with this one, an oversight of
entitlement trust funds.
So, while I admire your budget prowess and understand your
views on fiscal policy, I know far less about your knowledge
and experience in many of these other areas. I hope to learn
more today. There remains a large amount of uncertainty in
financial markets from the as yet unknown aspects of Dodd-
Frank.
Hundreds of Dodd-Frank rulemaking requirements are either
still in the works or have not even been proposed yet.
Meanwhile, lobbying continues, with hundreds of meetings having
occurred between banks and their lobbyists on the one hand and
Treasury and other regulators on the other. Whoever becomes the
next Treasury Secretary ought to have a firm grasp of financial
markets and risks to stability to our financial system.
Dodd-Frank assigns responsibility for assessments of, and
warnings about, threats to financial stability to the recently
created and largely non-transparent Financial Stability
Oversight Council, or the FSOC, which is chaired by the
Treasury Secretary.
In addition, the Secretary of the Treasury plays a key role
in the international financial sphere. This is an area where we
have seen a real lack of leadership, in my opinion, from our
administration. With no real U.S. economic leadership, the
world is left with a policy vacuum. If the United States does
not lead, other nations will. Recent analysis shows that China
has now surpassed the United States as the world's largest
trading nation.
Furthermore, the risk of international currency wars--at
least it appears to me--is rising, which could push the U.S.
back into a recession, or worse. Statements by U.S. political
leaders at international conferences about currency policy are
not enough. Without a clear policy and a coherent strategy to
advance that policy, the international monetary system will
continue to be adrift. Our future economic competitiveness
depends upon the United States leading efforts to establish a
fair, stable, and transparent global financial and currency
system based on market principles.
Now, I look forward to hearing your views about these
important matters before the Treasury and your plan of action
if you are to be confirmed. In addition, I understand you
worked as managing director and chief operating officer of two
units of Citigroup, but it is unclear what your exact roles and
responsibilities were there.
So far, you have indicated that you coordinated operations,
technology, human resources, and maybe legal and financial
activities, but we know very little about your knowledge of the
activities and practices of the units for which you were the
chief operating officer.
Some of the units' activities include proprietary trading,
along with sales and marketing of risky investments. If you
knew about the marketing and sales of these investments it
would be instructive for us to know, or to find out what you
knew.
If you did not know much about them, then it would be
instructive for us to find out why and to determine exactly
what your responsibilities were during your years at Citi when
you were well-compensated, including times when Citigroup was
being propped up by American taxpayers.
Now, these are important questions because, if you are
confirmed as Treasury Secretary, you will be responsible for
overseeing the implementation of regulations directed at some
of the very practices undertaken by the Citi units that you
once operated. For example, as Treasury Secretary you will be
responsible for coordinating implementation of the so-called
Volcker rule, which is intended to separate proprietary trading
from federally insured financial activities.
You have stated that you support the Volcker rule, yet you
were the chief operating officer over two units that engaged in
the sort of activities that the Volcker rule is meant to
prevent. Therefore, if you were to be confirmed, it could lead
to an awkward situation in which, in your role as chair of the
FSOC, you would be effectively saying to financial firms, do as
I say, not as I did.
Now, these are not trivial matters. Indeed, they bear
directly on your qualifications to serve as the next Treasury
Secretary. If the committee was given time to examine your
record more thoroughly before today's hearing, I am sure many
of these questions would have already been answered. As it is,
we will have to explore some of these matters here today.
Finally, I just wanted to mention that, when we met to
discuss your nomination, I told you that I was very
dissatisfied with the Treasury Department's level of
responsiveness to our letters here, both the chairman's and
mine, as well as letters from my colleagues. You pledged to me
to ``maintain frequent consultation with members of this
committee.'' I do appreciate that promise and want you, if
confirmed, to be responsive in a timely manner.
Once again, welcome to the committee. We are pleased to
have you here. I want to thank you for your willingness to
serve. I want to thank you for your past service. There is no
question in my mind you are a very bright and able person.
Mr. Chairman, I look forward to what I hope will be an
informative hearing. Thank you.
[The prepared statement of Senator Hatch appears in the
appendix.]
The Chairman. Thank you, Senator. Thank you very much.
Senator Schumer and Senator Domenici have asked to
introduce the witness, but before they do, Mr. Lew, I would
like to give you the opportunity to introduce your family.
Mr. Lew. Thank you very much, Mr. Chairman. I would like to
introduce my wife and my daughter, who are with me here today.
My wife Ruth, my daughter Shoshana. My son Danny and his wife
Zahava and my grandchildren could not be here today, but I am
very happy to have my wife and my daughter with me.
The Chairman. Well, stand up so we can all recognize you
and show our appreciation. [Applause.]
These jobs are a huge sacrifice. It takes a lot of
understanding and tolerance from the whole family, because they
are so time-
consuming.
Senator Schumer?
OPENING STATEMENT OF HON. CHARLES E. SCHUMER,
A U.S. SENATOR FROM NEW YORK
Senator Schumer. Thank you, Mr. Chairman. Thank you and
Ranking Member Hatch, members of the committee, for the
opportunity to introduce Jack Lew and for moving this
nomination in a timely manner.
I am delighted and proud to introduce to this committee my
friend and a great New Yorker, Jack Lew. No matter how many
years he spends in Washington, Jack, who grew up in Queens, the
neighboring borough from the one in which I live, and Ruth, his
wife, who grew up in my congressional district, will always
have New York in their bones.
I am delighted to endorse Jack's nomination to serve as the
next Secretary of Treasury. I do so wholeheartedly and without
any reservation. Jack is an accomplished public servant,
renowned for his economic acumen, managerial prowess, and his
common-sense approach to solving tough problems. He is uniquely
qualified to take the helm of Treasury in these precarious
economic times, as you so well outlined, Mr. Chairman.
Jack is no stranger to many of us in this room. He and I
first met 3 decades ago when I was a wide-eyed freshman
Congressman and Jack was a top aide to House Speaker Tip
O'Neill. We became friends. He and his colleague Ari Weiss took
me and our little group under their wings and taught us a whole
lot.
I know that Tip had a tremendous influence on Jack, and it
is clear that Jack shares the late Speaker's indefatigable work
ethic and sense of duty. He shares another thing with Tip
O'Neill: bipartisanship. Speaker O'Neill was renowned for
sitting down at 5 o'clock with President Reagan and trying to
work problems out, and Jack was heavily involved in that, and
continues to be a bipartisan person who wants to, and is
successful at, working with both parties.
You mentioned the issue of trust, Mr. Chairman. There is no
straighter shooter than Jack Lew. He is one of the most
honorable, honest, and decent men in Washington. When he gives
you facts, they are backed up with research; when he gives you
numbers, just the same.
From the time I knew Jack when he started in Tip O'Neill's
office, he would always outline both sides of the argument and
give each without bias. He would then tell you where he came
down, but he always let you make your own judgment. That has
propelled him to an extremely successful career that so well
qualifies him to be Treasury Secretary.
He joined the Clinton OMB in 1994 and distinguished
himself, not only as a knowledgeable policy wonk adept at
navigating the intricacies of the tax code and the Federal
budget, but also at the same time as an agile leader with a
knack for operations. He rose to become OMB's Chief Operating
Officer and then, in 1998, was named Director.
When Jack left OMB at the end of the Clinton
administration, it was the last time the Federal Government had
a surplus, an unprecedented surplus, of $236 billion. It would
not have happened without Jack Lew's leadership, knowledge, and
expertise.
In 2009, Jack once again answered the call to public
service and returned to DC to become Deputy Secretary of State
for Management and Resources, helping Secretary of State
Clinton transform the State Department and honing his skills in
the international arena, skills which I am confident will prove
useful as he works to address the myriad global economic
challenges he will be confronted with in his new role as
Treasury Secretary.
And, as we all know, Jack spent the last 2 years serving
the administration in a second stint as Director of OMB and as
White House Chief of Staff. During his tenure in these
positions, he has ably guided negotiations on a range of fiscal
issues.
Passage of the bipartisan Budget Control Act while he ran
OMB brought annual non-security spending to its lowest level as
a share of the economy since Dwight Eisenhower sat in the Oval
Office. The recent end-of-year agreement on the fiscal cliff
has kept taxes low on the middle class and at the same time
decreased our Nation's deficit by more than $700 billion.
Now, there are many, many subjects a Treasury Secretary
must cover, and not any Treasury nominee can have expertise
immediately in all of them. But Jack has an uncanny ability to
delve into a subject, learn it, study it, and master it in a
factual and non-ideological way. So I look forward to working
with Jack and the rest of the President's economic team as we
continue to focus on protecting the middle class and combating
our Nation's long-term economic challenges.
Mr. Chairman, in conclusion, I am confident this nominee
possesses the expertise and work ethic necessary to excel as
the Secretary of Treasury. He will not be an ordinary or just
workmanlike Treasury Secretary, he will be a great one, in the
mold of Albert Gallatin and of Alexander Hamilton, another New
Yorker, one whom I never knew unlike, hopefully, this one.
I fully support this nomination and urge that we move as
quickly as possible so that the Senate can confirm this nominee
and Jack can get on with the important tasks necessary to
continue moving this country forward economically.
Jack, I congratulate you on your nomination.
The Chairman. Thank you, Senator.
Senator Domenici?
STATEMENT OF HON. PETE DOMENICI,
FORMER U.S. SENATOR FROM NEW MEXICO
Senator Domenici. Thank you very much, Mr. Chairman. I am,
likewise, very pleased to be here. I think most of you know I
left the Senate because I was told I should by an eminent
doctor, and I have outlived the doctor. [Laughter.]
In any event, it is very nice to be here and to feel good
enough to come and talk to you. Senator Schumer, it is nice to
be with you.
Senator Schumer. Thank you.
Senator Domenici. And it is also nice that you left me
enough time to express my views, and I thank you for that.
In any event, I want you to know that I was sitting up in a
little restaurant in Santa Fe, NM with some of the members of
the State House, and I got a telephone call from somebody whom
I could not understand; there was lots of noise. If he was not
such a wonderful guy, he probably would have dumped me
overboard, because I kept insisting, who are you? I can't get
it. What are you doing?
And finally, after three or four times and exerting
himself, he got it out that he was trying to tell me that he
would like me to come here today and introduce him. When it
finally came out, I said, why didn't we do this a long time
ago? I did not understand, I apologized, and he is still my
friend.
I want to say to all of you, Senator Hatch: Mr. Chairman,
first, that was an eloquent statement. I happen to be a fan of
Hamilton. The next gentleman after him probably did more in the
broad sense. He probably had problems. The second one that you
alluded to had problems like the ones our friend Jack is going
to handle. But I am honored. I am very honored to endorse his
nomination to serve as the next Secretary at this critical
moment in our Nation's history.
Currently, I am a senior fellow at the Bipartisan Policy
Center, established a few years ago by former Leaders Senators
Dole, Baker, Mitchell, and Daschle. It is bipartisan, not
nonpartisan. I am a proud Republican. I am also a former
chairman of the Senate Budget Committee, which many of you also
serve on. I completed my career here as chairman of the Senate
Energy and Natural Resources Committee.
I will say, moving away from my prepared remarks, and
saying to Senator Bennet, you may not think you are getting
old, but clearly I am. I remember that we had a Bennet who was
Chief of Staff of the Budget Committee, and I was very young
and on the bottom, bottom chair. Guess who that Chief of Staff
was? He had the same name you do. He happened to be your
father. What a terrific thing, to come here and see you today
after that experience. It is great to be with you.
This committee, as Senators know full well, has
jurisdiction over 50 percent of the Federal budget. If we are
to put the country on a sustainable fiscal path for the future,
this committee will play a critical role in achieving that
goal, working with the President and particularly with the
Secretary of Treasury.
So, as you confront the fiscal challenges ahead, I cannot
think of anyone more qualified or more ready for this job than
Jack Lew. He not only understands the challenges our country
faces, he has the experience and judgment to confront them. As
many here know, Jack has been a dedicated servant for many
years, a servant of the people.
But what many here may not know is where the dedication
that he has originates. I think it originated from Jack's
father, who was born in Poland and came to America at the end
of World War I. His mother's family made this journey from
Europe to America just a few years later. You would say that
Jack's parents were among the fortunate ones: they left Europe
before it was too late. With that good luck came a deep love
for the United States, a country that was for them synonymous
with freedom, hope, and opportunity.
The bulk of Jack's career has been spent in public service,
beginning here on Capitol Hill in 1973. I first encountered
Jack briefly when he was Speaker O'Neill's liaison to the
Greenspan Commission, which negotiated a bipartisan solution to
reform Social Security in 1983. Anyone who does not think that
was a major, major reform, just go back and read it, and go
back and look at the facts.
From that dedication, of which he was part of, a giant step
was taken to make Social Security solvent for 20, 30, 40 years.
That is something real, not something just to talk about. He
has earned the trust of two presidents. He has overseen the
budget of the entire executive branch in two administrations.
I know this firsthand. During long and difficult budget
negotiations in the 1990s, we worked together to reach an
honorable compromise and balance the budget. I can say without
equivocation that Jack was always willing to listen, to work
with members of both parties, to seek and find common ground.
As my friend and colleague in the Bipartisan Policy Center,
Alice Rivlin, has said, ``Jack is a very fair person.'' Former
Secretary of the Treasury Bob Rubin wrote me to say that Jack
has the ability to understand complex matters quickly and well,
very good judgment, and the ability to work effectively with
the administration, colleagues, and members of Congress.
That was told to me by Bob Rubin, qualities all that our
next Secretary of the Treasury is going to have to have if we
are going to pull our country out of the fiscal mess we are in.
We talk about job creation. It is clear to me that we will get
real job creation when we get real deficit reduction, but I am
not here for that. I am here on a personal note. I have found
Jack to be a man of integrity. He works hard and can be tough.
As a negotiator, he is awfully tough.
But when the time comes to settle, things are settled. He
believes in playing it straight. We have had differences of
opinion over policies, but we have always been able to work
through them. Again, quoting Alice Rivlin, ``The press keeps
asking me for funny anecdotes about Jack, knowing that I had
worked with him over many years.'' Alice continues, saying
this: ``The truth is,'' she says, ``Jack isn't a funny anecdote
guy.'' [Laughter.] ``He's just an able, dedicated, straight
shooter. I guess you can't be both.'' He definitely, of the
two, chose the right one. Congratulations on being a straight
shooter.
From my current position at the Bipartisan Policy Center,
we look forward to working with Jack in the months ahead and
share views on reigning in the health care costs in a fair way
and reforming our tax code to make it a growth-oriented
taxation.
Mr. Chairman and members of the committee, I know that Jack
is a decent man, a serious policymaker who has all the right
mixes of qualifications, knowledge, and vision to serve as the
next Secretary of the Treasury. It is my hope that you will
approve his nomination swiftly. It is a pleasure to be with you
all and with him. Congratulations. Thank you.
The Chairman. Well, thank you, Senator. Thank you, Senator
Schumer, thank you, Senator Domenici, very, very much for those
glowing statements. We all appreciate them. I am sure Mr. Lew
especially appreciates it. Thank you very, very much.
Mr. Lew, as you know, our usual practice here is for
statements to be submitted into the record but for persons to
summarize--briefly summarize--their statements for about 5
minutes or so. But if you want to speak a little longer than 5
minutes, take your time. This is a very important position. Why
don't you proceed?
STATEMENT OF HON. JACOB J. LEW, NOMINATED TO BE SECRETARY,
DEPARTMENT OF THE TREASURY, WASHINGTON, DC
Mr. Lew. Thank you. Thank you very much, Mr. Chairman,
Ranking Member Hatch, and members of the committee. It is a
real privilege to be considered by this committee as the
President's nominee to be Secretary of Treasury.
I would like to thank Senator Schumer and Senator Domenici
for their very gracious and kind introductions. It has been my
great fortune to work with both of them over many years, and I
am honored that they were here this morning.
I am especially thankful to my family: my wife Ruth and my
daughter Shoshi, who are here today; my son Danny, my daughter-
in-law Zahava, and my grandchildren. As you noted, public life
demands much from our families, and I deeply appreciate the
support and sacrifice over many years of long days and missed
family time.
While my parents are only with me in spirit today, I know I
sit here because they nurtured me in lasting values and an
enduring commitment to serve our country. I am grateful to
President Obama for asking me to lead the Treasury Department.
It has been my honor to serve in his Cabinet and as his chief
of staff, and I am humbled by his continued faith in me.
Finally, I want to thank the members of this committee for
meeting with me over the last weeks and for sharing your
insights. This committee plays a singular role in defining our
tax, trade, health care, and Social Security policies. With a
long history of collaboration, this committee is a clear
example that bipartisanship can thrive and produce real results
for all Americans. I pledge that, if confirmed, I will maintain
frequent consultation with you in accordance with that spirit
of respect.
Forging bipartisan consensus is not an abstract idea for
me. It is the fundamental thread that spans my professional
life. Early in my career when I worked for the great Speaker
Thomas P. O'Neill, Jr., I took part in negotiations that led to
the historic agreement with President Reagan to save Social
Security. Under President Clinton, I helped negotiate the
groundbreaking agreement with Congress to balance the Federal
budget. As Budget Director, I oversaw three budget surpluses in
a row.
My experience in senior leadership positions outside
government at New York University--where, I might add, the
highest honor the university has is the Gallatin Award, after
Albert Gallatin who also founded NYU, which is the largest
private university in the United States and its city--has
proven to me that working collaboratively to solve problems and
drive change is a universal challenge.
In my return to public service in this administration, I
worked alongside Secretary Clinton to promote our national
security and international economic policies around the globe
and to reinvigorate America's leadership abroad.
At the Office of Management and Budget, I pursued sound
fiscal policy by working with Democrats and Republicans to pass
the Budget Control Act, which has reduced Federal discretionary
spending to historically low levels.
Finally, as the White House Chief of Staff, I adhere to the
principle that we best serve the American people when we find
common ground to move the country forward. We saw that
principle in action most recently when the administration and
Congress acted together to protect the middle class from
sweeping tax increases that could have thrown our economy back
into recession.
Because of my experience, I approach the challenges that
lie ahead with a clear understanding of their complexity and
significance. That has also given me a profound respect for
Secretary Geithner and for the women and men of the Treasury
Department whose remarkable record of accomplishment I would
like to acknowledge today.
When President Obama came into office, economic conditions
were the worst our Nation had seen since the Great Depression.
The President moved quickly to break the back of the financial
crisis, to reignite growth, and because he, along with
Congress, responded with great speed and force, our economy is
in better shape today.
Over the past 4 years, the private sector has created more
than 6 million new jobs. Taxpayer money that saved the
financial system has been mostly repaid. Rules are in place so
that the financial system is safer and taxpayers are not
responsible if a big firm fails again. The housing market is
recovering, and home values are stabilizing.
We have isolated Iran from the global financial system and
established the toughest sanction regime in history. We have
signed a series of trade agreements to open the markets for
American goods and level the playing field for American workers
and businesses. Our auto companies are once again growing,
innovating, and creating jobs, and we have made substantial
progress reducing our deficit in a balanced way.
So we are in a better position today, but the work to
create a sounder economy and a safer world remains unfinished.
Our top priority is to strengthen the recovery by fostering
private-sector job creation and economic growth while we make
sure our economy remains resilient to the headwinds from beyond
our shores.
That means making it easier to sell American-made goods
abroad and expanding manufacturing in the United States. It
means working with our partners around the globe and through
the G-20 to bolster the international financial system and
promote global economic stability. It means moving forward on
financial reforms so that the system is less vulnerable to
crisis, with greater protections for investors and consumers,
and it means reforming the tax system so American businesses
can thrive and compete.
At the same time, we must put our Nation back on a path of
fiscal sustainability. Over the past 2 years, we have locked in
$2.5 trillion in deficit reduction through spending cuts and
revenue increases, and we can do even more to shrink the
deficit over the next decade through a balanced mix of spending
reductions and tax reforms and sensible reforms to Medicare
that will help the program stay sound in the future.
But even as we move forward with deficit reduction, we need
to make certain there is room for critical investments in
education, research, and infrastructure, things that we need to
grow and compete globally. We also have to avoid doing anything
to degrade our national security or derail the economic
recovery through abrupt moves in the short term. That is why we
cannot allow the series of harmful automatic spending cuts
known as the sequester to go into effect. These cuts would
impose self-inflicted wounds to the recovery and would put far
too many jobs and businesses at risk.
In closing, I would like to make one final observation. In
recent years, some have argued that Washington is broken, that
our government cannot tackle the Nation's most serious
problems, and that bipartisanship is a thing of the past. I
disagree. I have reached across the aisle to forge honorable
compromises my entire professional life.
I have been involved in almost every major bipartisan
budget agreement over the last 30 years, and I can honestly say
that the things that divide Washington right now are not as
insurmountable as they might look. We all share the same goals:
we want an economy that is expanding; we want a private sector
that is robust; we want a vibrant job market that gives anyone
who works hard the chance to get ahead; we want a financial
system that helps families save and channels investment to
support innovation and entrepreneurs; we want a strong housing
market; we want a global economy that is prosperous, inclusive,
and secure; we want a vigorous manufacturing base and a level
playing field for American companies; and we want a government
that lives within its means. It is going to take a lot of hard
work to achieve these goals. We have plenty of obstacles, but I
have no doubt that we will work together to find solutions to
today's challenges.
Mr. Chairman and members of the committee, I am grateful to
you for considering my nomination, and I look forward to
answering any questions you may have. Thank you.
The Chairman. Thank you, Mr. Lew.
[The prepared statement of Mr. Lew appears in the
appendix.]
The Chairman. I have several questions here that are
obligatory questions we ask of all nominees. First, is there
anything that you are aware of in your background that might
present a conflict of interest with the duties of the office to
which you have been nominated?
Mr. Lew. No, Mr. Chairman.
The Chairman. Do you know of any reason, personal or
otherwise, that would in any way prevent you from fully and
honorably discharging the responsibilities of the office to
which you have been nominated?
Mr. Lew. No, there are none.
The Chairman. Do you agree, without reservation, to respond
to any reasonable summons to appear and testify before any duly
constituted committee of the Congress, if confirmed?
Mr. Lew. Yes, I do.
The Chairman. And finally, do you commit to provide a
prompt response in writing to any questions addressed to you by
any Senator of this committee?
Mr. Lew. Yes, I do.
The Chairman. Thank you.
I would like your thoughts on tax reform. As I mentioned in
my statement, everyone knows the country, the world, has
changed dramatically since 1986. I believe that we must, and
this committee is going to, engage in substantive,
comprehensive tax reform. It is our duty, it is our obligation;
it is also our opportunity.
I would like your thoughts on the visions we should focus
on, actions we should take. I would like you also to tell us
how you are going to be working with this committee as we
reform the code. What would you focus on first and second? Your
thoughts on tax reform.
Mr. Lew. Mr. Chairman, I think tax reform is an extremely
important priority, and, if confirmed, I would look forward to
working with this committee on a bipartisan basis to help make
it happen. I was involved in 1986 tax reform; I know how hard
it is. I also know how important it is.
When one leaves Washington, you do not have to talk to very
many people to learn that the American people want tax reform.
They want a simpler tax code; they want it to be easier for
them to comply with the taxes on an individual basis and know
that it is fair and that everyone is treated in a similar way
in a similar position. As businesses, they want to be able to
go about the business of business without having to worry about
complicated tax accountant and lawyer consultations.
Now, it is hard, because the way to do tax reform is to
broaden the base and lower the rates. But broadening the base
means taking on a lot of very entrenched interests, and
lowering rates is a benefit to everyone but not concentrated
with anyone individually.
I think we can do it. I think it is important that we do
it. It is important for competitiveness; it is important for
manufacturing and job creation. It is important in terms of our
international competitiveness. I think it is something that
there is a bipartisan consensus that we need to do, but there
is an understanding of how hard it is. I would pledge to work
with this committee to try to get that job done.
The Chairman. Could you speak a little more about base
broadening? What areas do you think are areas that we should
focus on? Then you also mentioned that the base broadening
should be used to lower rates. If you could talk a little about
that, I would appreciate that--a little more detail.
Mr. Lew. Senator, I think that, on the individual side, it
is a very hard thing to do, to broaden the base, because it is
taking a look at things that are very much part of the fabric
of how people live right now. But, as in 1986, that is the way
you can go about tax reform. It is a little harder than in 1986
because we have not completed the work on the fiscal plan.
We need to have some more revenue as part of a fiscal plan,
so tax reform is going to have to be done in an environment
where, as we broaden the base, we both contribute to deficit
reduction and hopefully are able to lower rates.
On the business side, we have a contradiction in our
business tax system. Our statutory rate is very high. Our
effective rate is not as high. So, when you look at the United
States competitively against other countries, statutory rates
make it unattractive to look at the United States versus other
places, on some occasions.
For individuals, individual firms, their average tax rate
is much lower because of all the complicated provisions--
deductions, credits--that are part of the code now. It will be
a challenge to take on those individual deductions and credits,
but there is no other way to bring the rate down, which is
something that I think we need to do to maintain our
competitiveness abroad.
The Chairman. So, even though our effective rate might be
different than the statutory, you still believe it is good to
proceed, go down the road of corporate reform, reduce a lot of
those tax expenditures in order to get the rate down?
Mr. Lew. I do, Senator. I think that, when one looks at a
table of international tax rates, it stands out that the U.S.
statutory rate is very high. It is a much more complicated
story to tell that the average rate is lower. It does not
affect all businesses equally. In order to get that lower
average rate, one has to take advantage of complicated special
tax provisions. We can have a simpler tax code.
The Chairman. I do not have a lot of time here. But if you
could just briefly comment on something that has been in the
press, and that is your investment in the Cayman Islands. What
was it, how did that happen? Why did you choose that
investment? What benefits did you receive?
Mr. Lew. Senator, while I was an employee at Citigroup, I
had the opportunity to make an investment in a venture capital
fund, a private equity fund, that was designed to invest in
emerging economies around the world. It was an opportunity that
looked to me to be a bit riskier than other investments I had
made in the past. I have had a very conservative personal
investment philosophy. I thought it was an appropriate risk to
take, given the possibility of a higher return.
I invested in the fund as an employee, and I divested from
the fund when I was confirmed for a position in the Office of
Government Ethics and they recommended or directed the
divestment. My benefit was really very small, in the sense that
I took a loss when I sold the investment. I always reported all
income. I always paid any taxes that were due.
The Chairman. Why was the investment in the Cayman Islands?
Mr. Lew. Senator, I actually do not know how it was
organized. I was not involved in setting up the fund.
The Chairman. Did you know at the time it was the Caymans?
Mr. Lew. You know, at the time I invested, I was aware that
it was an international fund investing in emerging markets. I
knew that much of the personnel for the fund was based in
London. I actually did not know at the time what the address of
the partnership was.
The Chairman. And when did you divest?
Mr. Lew. I divested in 2010, when I became OMB Director.
The fund was disclosed in all of my prior confirmations and all
of my SF 278s. I am not aware of any tax benefits that I got
from participating in it. It was an investment.
The Chairman. But did you pay taxes on that investment?
Mr. Lew. I reported all income related to the investment on
my tax forms. I have paid all my taxes.
The Chairman. But did you earn taxes on that?
Mr. Lew. I lost money on the investment. In fact, I lost
money, so I did not have a great deal of income.
The Chairman. All right. Thank you.
Senator Hatch?
Senator Hatch. Well, thank you, Mr. Chairman. I appreciate
it.
Following the financial crisis, many lessons were learned
by many financial firms, including Citigroup, that have taken
actions to improve their performance, operations, and
responsibilities.
My questions about Citigroup to you, Mr. Lew, relate to the
time you were there and not to current Citigroup operations.
Frankly, I do not believe that I have a good understanding of
your responsibilities as managing director and chief operating
officer at Citigroup units.
Now, you have said to our staff, I believe, that you were
not involved in investment-level decisions or portfolio
management. However, while you may not have selected assets
that Citi invested in or managed any portfolio, Citigroup
organization charts seem to identify that you were tied to
investment research, investment, and other such activities like
liquid and illiquid operations.
During your time on Wall Street, it was not clear to me
whether risky securities that were alleged to have been
misleadingly marketed and sold to investors were handled by the
units that you oversaw. Those securities include a
collateralized debt obligation, or CDO, called Class V funding,
which the SEC has alleged was a product that Citi
misrepresented, sold to collect fees, and then bet against.
Other risky securities that may have been marketed and sold
by a unit that you oversaw include funds called ASTA, MAT, and
Falcon, which some allege were misrepresented to have been far
safer than they were.
Now, Mr. Lew, you have said that you were responsible for
operational activities and management with little or no
knowledge of investment activities of the very units that you
staffed.
Now, I find that somewhat confusing. Some Wall Street
participants have--cynically, in my view--labeled your position
at Citi as a political trophy position, and I hope we can
provide some clarity here to disprove that view.
Now, I have four questions about your Citigroup role at the
time you were there. Perhaps you should get your pencil ready,
because I am going to go through all of them, and then you can
respond.
First of all, at Citi, did you have any discussions or
participate in any e-mail exchanges, including having been
cc'd, on any e-mail regarding the Class V funding CDO, or the
ASTA, MAT, or Falcon funds?
Second, did you get an understanding of bank risk-taking
activities from observing activities in the units that you
oversaw, or did you not know about any risky activities in your
units?
Third, did you have any oversight role with respect to
financial products that were marketed and sold by your units,
and, if so, did you do anything to curtail risky activities, or
did you not know about the marketing and sales products in the
units that you managed, in which case I wonder specifically
what you did do with regard to them?
And fourth, while managing to provide efficiencies at the
units that you oversaw, did you use any services of Citigroup
Global Services, which Citi's website calls ``one of the
largest providers of business process outsourcing services
within the banking and financial services sector?'' Those are
the four questions I would like to have you answer, if you
would take time to do so.
Mr. Lew. Thank you, Senator Hatch. Let me start with maybe
answering the part about my role, because everything, I think,
falls within that. I was chief operating officer, first of the
Global Wealth Management business--that was for about 2 years--
and then for about a year, the Alternative Investment Business.
As the chief operating officer, I was responsible for a
number of broad-ranging management-of-the-business kinds of
activities. I had substantial responsibilities in terms of a
large national and international field organization system. I
mentioned to Senator Baucus, one of the early trips that I took
was to Billings, MT to visit our financial advisors, because I
went around to make sure that our business was working on the
ground.
In New York, I was responsible for the budget of running
the business, which was a very large, as I say, national and
international operation. I was not in the business of making
investment decisions. I was certainly aware of things that were
going on. I was working in a financial institution. I learned a
great deal about the financial products, but I was not
designing them, and I was not opining on them.
I take away from that experience a deep understanding that
there are risks that we need to be very much on guard against,
and I would be delighted to discuss those policy considerations
as we go forward.
With regard to specific e-mails and phone calls, it is
quite a number of years. I do not recall specific
conversations. There was a very bad financial situation going
on in that year. There were products that were widely
understood to be troubled. So, yes, I was aware that there were
funds that were in trouble. I did not have responsibility for
the funds themselves, but I was aware that those difficulties
were going on.
Senator Hatch. My time is up, Mr. Chairman.
The Chairman. Following the early bird rule, the next
Senator on the list is Senator Schumer. He is not here.
Senator Grassley, you are next.
Senator Grassley. Already?
The Chairman. Yes. After Grassley, it is Stabenow, Crapo,
and Cantwell.
Senator Grassley. Mr. Lew, on January 16, 2009, Citigroup
announced losses of $18.7 billion, the same day Citigroup
received a $301-billion Federal bail-out through a loan
guarantee on its mortgage assets. One day later, you received a
bonus from Citigroup for over $940,000 for your work as chief
operating officer on the Alternative Investment Unit, which was
responsible for much of the loss. Were you aware that Citigroup
was about to receive a multi-billion dollar Federal guarantee
when you accepted your bonus?
Mr. Lew. Senator, I was aware of the condition of Citi and
of the TARP program, yes.
Senator Grassley. All right. Explain why it might be
morally acceptable to take close to $1 million out of a company
that was functionally insolvent and about to receive $1 billion
of taxpayer support.
Mr. Lew. Senator, in 2008 I was an employee in the private
sector. I was compensated in a manner consistent with other
people who did the kind of work that I did in the industry. I
was compensated for my work. I will leave it for others to
judge.
Senator Grassley. Now to something that President Obama has
made a big deal about. On May 4, 2009, President Obama said
about Ugland House, which is where you invested your money
overseas, ``On the campaign, I used to talk about the outrage
of a building in the Cayman Islands that had over 12,000
businesses. I have said before, either this is the largest
building in the world or the largest tax scam in the world.''
You invested more money there than the average American
makes in an entire year. Do you believe that the President was
accurate in referring to the building which housed your
investment as ``the largest tax scam in the world?''
Mr. Lew. Senator, I am happy to answer questions about my
own investments. I am also happy to answer questions about tax
policy regarding the sheltering of income from taxation. I
reported all income that I earned; I paid all taxes due. I very
strongly believe that we should have tax policies that make it
difficult, if not impossible, to shelter income from taxation.
Senator Grassley. Well, there is a certain hypocrisy in
what the President says about other taxpayers and then your
appointment, but let me move on.
You have told Finance Committee staff that you were unaware
of Ugland House and its association with tax scams. That makes
me wonder where you have been for the last 8 years. The
chairman of this committee, as well as a former Budget
Committee chairman whose chart is behind us, highlighted Ugland
House to the Nation several times. As I said, President Obama
preached about it. It is no wonder that maybe you and the
President have not proposed legislative solutions to what the
President considers a tax scam.
So my question: how can you be the President's top tax
enforcer if you have not heard of this offshore loophole?
Mr. Lew. Senator, this committee has reviewed my taxes for
many years. I think it is clear that I reported all income that
I have earned. I have paid taxes, as appropriate. I believe
very strongly that people should pay taxes on their income. I
have very strong views on how the tax code should be
constructed to encourage investment in the United States, and I
am happy to answer any policy questions you have.
Senator Grassley. Do you think Ugland House ought to be
shut down?
Mr. Lew. Senator, I am actually not familiar with Ugland
House. I understand there are a lot of things that happen that
are a problem.
Senator Grassley. All right. Let me move on then.
Mr. Lew. Yes.
Senator Grassley. A case filed in the New York State
Supreme Court in which NYU, New York University, is the
plaintiff, states that at the same time you were executive vice
president, ``New York University invested in the Ariel Fund, a
Cayman Islands open-ended investment company created to be used
for United States tax-exempt investors and foreign investors.''
Nonprofits sometimes seek to avoid paying taxes on unrelated
business income through offshore vehicles like funds in the
Cayman Islands.
So, question: while you were the executive vice president,
did NYU have investments in the Cayman Islands to avoid taxes
on unrelated business expense, and, if so, how many millions of
dollars did NYU have invested in the Caymans?
Mr. Lew. Senator, when I was at NYU, I was not aware of any
policy to invest in a manner that you describe. I was in no
discussions regarding the Unrelated Business Income Tax. I was
involved in discussions about making sure that the endowment
was invested to have as good a return as possible, and the goal
of the Investment Committee at NYU was to try to have a diverse
portfolio that would help the university get income from its
endowment.
Senator Grassley. Well, I will close then with this
conclusion since you are unaware of it. I take your word for
it, but it is certainly a poor reflection on your tenure there
if you did not know about these investments. You were paid over
$800,000 more than the actual president of NYU to know what was
going on, and I am surprised you did not know what was going
on.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Next, Senator Stabenow.
Senator Stabenow. Thank you very much, Mr. Chairman.
Mr. Lew, welcome back. I understand this is your sixth
confirmation hearing, so you are certainly a glutton for
punishment. But we welcome you, and we thank you very much for
your service. Mr. Chairman, I actually am optimistic, listening
to the concerns about closing offshore loopholes.
I think we may have something here that we could do
together to offset sequestration. I think it would be wonderful
to work together on something that would close loopholes that
clearly we are seeing bipartisan concern about today, which I
would love to work with members on.
I would like to talk to you about--no surprise--one of my
favorite subjects, which is growing the economy with
manufacturing. I was very pleased to hear the President's
comments last night. We all know that, while we would love to
have things go faster, manufacturing has been leading the
recovery in growth.
When we look at tax reform and what we need to do to be
competitive internationally and so on, I am very interested and
concerned to make sure that we continue to make things in
America and that we innovate in America.
So I wonder if you might speak to how we, in tax reform,
encourage making things in America, American manufacturing, and
things like the section 199 manufacturing deduction, how could
we make it more effective, as well as the R&D credit. What
would you see in terms of being able to continue to innovate
and make things in America and focus on that in tax reform?
Mr. Lew. Thank you, Senator. I think that one of the real
reasons for taking on tax reform--I would say the major reason
for taking on tax reform--is to help grow the economy, create
jobs, and improve the environment for manufacturing in the
United States.
Right now we have a tax code that has a lot of provisions
that benefit manufacturers of one kind or another, but they are
quite complicated, they are quite particularistic, and overall
we have a tax code which, when you look at it, suggests that we
have a very high statutory rate for income.
I think that if we approach business tax reform from the
point of view that our goal is to try to simplify the system,
that is immediately going to help businesses, because right now
businesses have to start by spending money on accountants and
lawyers just to get started. We can simplify it to lower the
bar.
Secondly, as the President outlined in his proposal last
year, we ought to have a preference for manufacturing in the
reformed tax code. I think that the challenge, as I mentioned
in my response to the chairman, is going to be that we all know
that a tax code which has a broader base and a lower rate is
going to be one that makes it more attractive to invest in
manufacturing.
But we also know that it is hard, that each of the
individual provisions in the tax code is very important to one
or another industry. It is going to require bipartisan
consensus; it is going to require working together to do. It is
in the greatest good of the economy and the American people,
even if it does mean taking away some of the particular
benefits that go to one or another part of the economy.
In particular, one of the things that we have focused on
is, we should take away the incentives for things that--oil and
gas exploration cannot move offshore. The resources are here.
We need to look at, what is it that enters into the business
decision when you choose between locating in the United States
or overseas, and have the tax code be helpful, not hurtful, in
terms of locating in the United States.
One of the things that has been very encouraging in the
last few years is that, even with the tax code as it is, more
and more businesses have been deciding they want to invest in
the United States. The quality of our workforce, the stability
of our system and our economy makes the United States a very
attractive place to invest. If we fix our tax code, there is no
limit to how much we can grow.
Senator Stabenow. Just to emphasize that, we have about 17
million people who work in this country because of
manufacturing, 16 million because of agriculture. If we focus
on making things and growing things, that really is the
foundation of the economy.
One final question on the foreclosure crisis. I believe
there is much more to be done, even though things are
improving. What would you like to see done?
Mr. Lew. Senator, we have worked very hard over the last 4
years, pursuing multiple paths to help homeowners either
refinance or modify their loans. One of the things that we very
much would like to do, which the President addressed last night
in the State of the Union address, is to enable homeowners who
are paying their bills, who are under water through no fault of
their own because of the financial crisis, to be able to
refinance their loans.
Right now, you have homeowners who are locked into 6, 7, 8
percent mortgages when they should be able to get 3.5 or 4
percent mortgages. We ought to be able to do that on a
bipartisan basis.
Senator Stabenow. Thank you very much.
Thank you, Mr. Chairman.
The Chairman. Thank you very much, Senator.
Senator Crapo?
Senator Crapo. Thank you very much, Mr. Chairman.
Mr. Lew, I appreciate having you here with us today. I want
to continue to focus on tax reform, as we did in our private
discussions. As I have shared with you, in my work with the
Bowles-Simpson Commission and in other areas of trying to
address putting together a comprehensive deficit reduction
package and debt reduction package, I view tax reform, as I
have heard you say today, to be a key part of that, not because
of the need to raise revenue, which is where you and I may have
some disagreement, but because of the need to generate growth
and have a pro-growth element in the recovery effort for our
country in dealing with our debt crisis.
That is, I think, the first part of the question I want to
ask you. I think you have already answered it, but I want to
get it very clearly on the record. To me, in the last few
months the discussion over tax reform has taken, in some cases,
a concerning turn.
I have heard the term ``tax reform'' used all too
frequently to mean a revenue-generating device. I understand it
can be utilized to generate revenue, but please tell me why,
again, you believe tax reform is needed in our economy.
Mr. Lew. Thank you, Senator. As I think we discussed in the
conversation we had, I considered it a lost opportunity in
December and January that we did not get to a final agreement
on our fiscal challenges so that we would be able to debate tax
reform after resolving the fiscal challenge. I think that there
is still more work to be done in terms of the fiscal path, and
we need more revenue to be part of it.
I think that, separate from that, there is a need to do tax
reform. In clearing out the tax code and broadening the base,
there is room to raise the revenue that we need. Just a few
months ago, there was a lot of discussion as to whether or not
we should raise tax rates or raise revenue by broadening the
base.
Well, we did the tax rates. We did not broaden the base. So
there is room in the conversation for both, and I would look
forward, on a bipartisan basis, to achieving the goal, both of
being on a sound fiscal footing and, equally importantly--
perhaps more importantly in terms of the long-term growth of
the economy--having a tax code that makes sense for individuals
and businesses so that we have a thriving investment
environment.
Senator Crapo. I agree with that. I think that we would
have been hard-pressed to create a tax code, if we tried, that
was more unfair, more complex, more expensive to comply with,
and frankly more anti-competitive to our own business
interests, than we have now. We need to correct that, and I
look forward to working with you in partnership on that.
I would like to get into a little bit more detail. If you
look at the corporate side--and you have discussed the need to
lower the statutory rate, and I agree--do you have a target
rate in mind? I know a lot of us have talked about 25 percent,
at least a level of 25 percent, that we need to reach.
Mr. Lew. The challenge, Senator, is how far we are willing
to go in broadening the base. We do not have the ability to
lose revenue as we go through business tax reform. I think it
is challenging to get all the way to 25, but I think the more
aggressive we are at broadening the base, the more progress we
will be able to make at lowering the rate.
Senator Crapo. Do you agree that, on the corporate side, we
should be revenue-neutral? My understanding is that in the past
we have focused on at least the corporate rate reform being
revenue-neutral.
Mr. Lew. I think the primary goal in business, corporate
tax reform, is to have the tax code be simplified and to be
consistent with a more robust investment environment,
particularly as we are in a competitive environment with other
countries. I think it can be done in a revenue-neutral way. I
do not believe we have the ability to raise the revenue that we
need to deal with our fiscal problem and have it cost revenue
as we go through business tax reform.
Senator Crapo. And with regard to business taxation, many
have made the argument--and I tend to agree with it--that we
need to pay very close attention to the individual code with
regard to its impact on business taxation. Do you think we can
do corporate reform without also doing individual tax reform?
Mr. Lew. Senator, I think we could, but I do not think it
would be the best way to do it. I think the best thing would be
for us to do both individual and business tax reform. We do
have a combination of different forms of business organization.
The closer we get to a place where the corporate tax system
is one that is open for more business, the more competitive we
will be, but we need to keep both in play. I mean, right now
the challenges are many, but I think, once we are doing tax
reform, we should do it right and we should do both.
Senator Crapo. I wanted to get into some Dodd-Frank issues,
but I see my time is running out. One last, quick question on
the corporate reform side. Are you open to negotiating a
competitive territorial system in the corporate code?
Mr. Lew. Senator, I think that, as we lower our rate, we
ought to be looking at having kind of a minimum world-wide tax
rate where we are trying to level the playing field. We
actually have a debate between whether we go one way or the
other. We have a hybrid system now, and it is a question of
where we set the dial. I think that there is room to work
together on this.
Senator Crapo. Thank you.
The Chairman. Thank you, Senator.
Senator Cantwell?
Senator Cantwell. Thank you, Mr. Chairman.
Congratulations, Mr. Lew, on your nomination. It is great
to see your family here today. I definitely have a lot of
fiscal/financial questions for you. But you spoke in your
opening statement about Medicare and getting the delivery
system right. The President, last night, mentioned that in his
State of the Union address, as well as focusing on quality as
opposed to frequency in tests. I was curious. Were you involved
as chief of staff in the discussion of implementation of the
Affordable Care Act?
Mr. Lew. Senator, both in my time at OMB and as Chief of
Staff, I did pay attention to the implementation of the
Affordable Care Act. Enacting the law was a critical step, but
implementing it is necessary in order for it to be in place.
Senator Cantwell. Do you think that if there is a provision
of the Affordable Care Act that is supposed to be implemented
in 2014, that it should be implemented in 2014?
Mr. Lew. We have been working very hard to be on schedule
with getting the exchanges set up and having the Affordable
Care Act in place in 2014. Many departments have been involved
in that in addition to the Department of Treasury: the
Department of HHS, Department of Labor, Office of Personnel
Management. It was not always easy, because we had to work
mighty hard to get the funding to implement on schedule, but I
feel we are in a pretty good place.
Senator Cantwell. Well, there is one provision that is not
being implemented, the basic health plan. I know the President
has tried to express an opinion to help push things along, but
I guess my question is, do you think if the Affordable Care Act
specifies that the basic health plan should be implemented in
2014, that it should be implemented in 2014?
I guess I am also asking, is there a bias somewhere in the
administration against lower-cost managed care delivery systems
that the Act calls for in exchange for the exchanges? Is there
a bias over there that somehow the Affordable Care Act means
implementing only those pages related to the exchanges and
punting everything else, even though they have been more cost-
effective delivery systems?
Mr. Lew. Senator, I am not aware of any such bias. I do
know that there has been an enormous amount of work to get the
exchanges set up and the various parts of the architecture. I
would be happy to follow up and work with you on that specific
issue and find out where it is in the queue and follow up on
that.
Senator Cantwell. I would greatly appreciate that. I think
there is a very big concern on my part, and several other
members', that somehow people may be asking States to forego
what have been more cost-effective solutions for that
population just above the Medicaid level and almost maybe even
making it more expensive and pushing that population onto the
exchanges as some Holy Grail. I can tell you that we think it
should be implemented and should be implemented now, so I
certainly will take you up on that.
I want to turn to financial issues. You and I have had a
chance to talk, and we could talk for hours, but just so
everyone understands your philosophy on the regulatory side of
things, do you believe in the reimplementation of Glass-
Steagall?
Mr. Lew. Senator, as we discussed when we had this
conversation, Glass-Steagall had, over the years, become
something of an anachronism. Much of the activity in the
financial world had gotten beyond it. I think the problems we
had leading up to the financial crisis were evidence that our
financial regulatory system did not keep pace with the growing
complexity of the financial system. I think Dodd-Frank was a
critically important step to reasserting proper regulatory
oversight of an industry that is critical to the health of our
economy.
I think, as we go forward, we have to ask questions as we
complete the implementation of Dodd-Frank. Are there more
actions that are needed? They have to be actions that make
sense in 2013. So I think going back--while I am a student of
history, and New Deal history in particular is of great
interest to me--I do not think it is just a matter of
resuscitating a 1930s statute. It is a question of, what do we
need to do to manage the financial changes now?
Senator Cantwell. So I will take that as a ``no.'' To that
point, I do not see how you contain this issue, as we now see
the CFTC and the treatment of swaps and futures as having
different clearing measures. Are you not worried that that is
going to provide more systemic risk as well?
Mr. Lew. I think that if you look at the issues, things
like margin requirements for swaps, it is very important that
we get on top of regulating things that create system risk. I
did not mean to be answering the prior question ``yes'' or
``no.'' I think it is just a little bit more complicated.
I think the question of, is there a need for any further
consideration of financial regulation is one that just comes in
sequence after implementing Dodd-Frank. I come to the issue
open-minded, knowing that we cannot let what happened leading
up to 2008 happen again. We cannot let a regulatory system
become outstripped by the complexity and organization of a
financial system which our economic life depends on.
Senator Cantwell. Well, I will look for more discussion on
that point, then.
There are two other issues I wanted to bring up. I just do
not understand the administration's idea of capping the
municipal bond tax deduction at 28 percent if we want to
encourage more investment. One thing I do believe the Federal
Government does is provide cheap capital whichever way, and
when all these banks are putting all these monies into
derivatives, you cannot convince me that they are really
interested in the bottom line here. So to me, a policy on
capping the municipal bonds at 28 percent, tax-exempt bonds--I
am curious as to whether you are going to continue that policy.
Also, on the Foreign Investment and Real Estate Act, I am
curious whether you think the Treasury Department is going to
complete that IRS notice and take action that would help jump-
start private investment.
Mr. Lew. Senator, the administration's proposal, which
would have limited the value of deductions in the top tax
bracket to 28 percent, was designed to try to restore some
equity in the tax code and to generate revenue that we need for
meeting our fiscal targets. It was not specifically directed at
municipal bonds or at other specific areas of tax activity.
It was also meant to be a place holder, that we really
should have tax reform, and we should make specific policies
deciding what is in and what is out and what the proper tax
rates are. But we put it in as a fall-back, saying that, if tax
reform does not happen, this is something that would help us to
get to the revenue targets we need.
I would be happy to follow up with you on these issues of
the individual component parts of tax reform, but I would say,
as a general proposition, that the hard decisions in tax reform
will in many cases put us in places where there are things that
many of us are sympathetic to where we have to curtail tax
benefit if we are going to broaden the base. I think as a
general rule, if there were a lot of easy decisions, tax reform
would have happened a long time ago. I think there are going to
be hard choices to make.
Senator Cantwell. And so, on the foreign investment, is
that something you are going to take action on? Are we going to
have to act here?
Mr. Lew. My understanding is that those rules are
progressing. If confirmed, I would pay attention to them and
work on them and work with you to get them completed.
Senator Cantwell. Thank you, Mr. Chairman.
The Chairman. Thank you.
The next two are not here, so, Senator Thune, you are next.
Senator Thune. Thank you, Mr. Chairman.
Mr. Lew, welcome. I want to come back to an area where I
think there is room for Republicans and Democrats to work
together, and that is the issue of tax reform.
What I have on my right here are the 1,300 pages that, the
last time we did tax reform, the White House and the
administration put forward in terms of their recommendations.
In November 1984, May of 1985, it was Treasury I, Treasury II.
We talked about this; I think you are familiar with these
documents.
But contrast that with the paper that the White House, the
administration, put out. This is 25 pages, basically. It is a
corporate tax reform proposal. It is 25 pages, if you include
the title page and the table of contents.
But my point, very simply, is the administration, I think,
is going to have to do a better job of leading on the issue of
tax reform if we are actually going to get something done on
this issue. This goes into great detail of the myriad complex
issues that we deal with in the tax code.
The President talked about, last night yet again, tax
reform and the need for it, but he does not give us any
details. He said he supports lowering rates for businesses that
create jobs in America. I guess the question I would have for
you is, does the President, when he says that, agree that rates
need to be lowered across the board for all taxpayers? Because,
as you know, there are lots of small businesses that file on
individual tax forms and pay at the individual tax rates.
So should tax reform include the lowering of rates on
individual taxpayers as well as the corporate rate, which I
think you have already addressed with regard to Senator Crapo's
question?
Mr. Lew. Senator, I think that to proceed on tax reform, we
are going to have to work together, both the executive branch
and the legislative branch, and on a bipartisan basis. If
confirmed, it would be at the very top of my priorities to work
with you and this committee to do that. In terms of the best
way for an administration to engage, as we discussed in your
office last week, I remember Treasury I and Treasury II. I
still have the white books and the blue books. They, at the
time, were important.
Tax reform in 1986 did not exactly follow either Treasury I
or Treasury II. It was worked out by the two chairmen with the
Secretary of the Treasury in the conversation, in the kind of
regular-order process that I think we will need to follow again
if we are going to succeed.
I remember not that long ago, when I produced a pile of
paper roughly that size--and it was the Health Security Act in
the Clinton administration--it did not lead to health care
reform. When President Obama sent a much shorter document to
Congress, it ended up going the full distance and getting
enacted into law.
The goal is, how do we get something done? The means to the
end I am very flexible on and would be very open to suggestions
of how we could work constructively to both provide ideas and
technical support. I think it is very important.
On the question of rates, we will have to work very hard to
broaden the base, to lower the rates, and meet the revenue
targets that we have, but I think it is possible. I think if we
roll up our sleeves and we are willing to do the hard work, we
can both get our fiscal house in order and work on the rate
structure. It will all depend on how much we are willing to do.
Senator Thune. Well, I guess I would just say--and I
understand the whole issue of the health care reform
legislation and the concern about too much specificity, but
frankly this is not going to get done unless there is
leadership out of the White House. This is a big issue. This is
going to be very hard. There are lots of constituency groups
out there that are very attached to the current tax code. I,
frankly, am one who believes that we need to do away with it.
Start by doing away with everything and do what Simpson-
Bowles suggested, and that is, just come up with whatever those
three rates are--8, 14, 23--and then figure out what we want to
add back in and adjust the rates accordingly.
But I think the goal in all this should be getting the
rates down, promoting economic growth. I hear the President
talking about raising revenue through tax reform. To me, if you
get economic growth, you will get new revenue, but you will get
it the old-
fashioned way and at the same time create lots of jobs and get
this economy expanding again. So, that ought to be the goal.
But I am suggesting that there has to be, I think, more
leadership than this relative to this when it comes to this
issue.
Very quickly, one other question. I raised this with you as
well when we had our meeting last week. But the President, once
again, I think, talks about entitlement reform. We have talked
about the need to address what is the long-term driver of debt
and deficits, and that of course is our entitlement programs.
But again, there is just not the specificity there. The
President has talked about $400 billion. If you think about $10
trillion in deficits just in the next 10 years, $400 billion
looks like a drop in the bucket.
So I guess my question again is, where is the specificity
when it comes to addressing what I believe--and I think what
most of us agree--is a spending problem. I mean, revenues as a
percentage of GDP in 2015 are going to be back up to 19.1
percent, and over the next decade they are going to average
18.9 percent, which is almost a full percentage point higher
than the 40-year historical average.
We have revenue coming in. We have a spending problem.
There is just no proposal that, in any meaningful way,
addresses that. You look at the budgets that were submitted the
last 2 years that got voted on in both the House and the Senate
that did not receive a single vote, Republican or Democrat.
They are not serious.
I guess I am just asking you, I hope that you will engage
on this issue of trying to do something about what I think is a
very, very huge problem for our country's future, and that is
this massive debt.
Mr. Lew. Senator, I could not agree more that we need to
deal with our fiscal challenge. I may disagree that it is a
combination. We have a deficit problem, and we are going to
need to solve it with a combination of spending reduction and
restoring revenue. But that is the kind of thing where we can
have a discussion and figure out what the right balance should
be. The President said he thinks it should be 2:1, spending
cuts to revenue.
In terms of specific proposals on Medicare, the President's
budget that I worked on had $300 billion of specific savings
proposals. They were a mix of different approaches. Some were
on the providers, some were on beneficiaries, some were adding
a burden to those who can afford to pay for their Medicare if
they retire, and they can afford to pay for it. There is going
to be a difficult discussion at some point of what the right
mix between those different approaches is.
The President, in negotiations in December, offered to
increase to $400 billion the savings in Medicare, and we are
prepared to engage in very specific ways to do that. The sooner
we put the fiscal frame together, the better, to get certainty
in the economy and to be able to move on and create an economy
that is growing and creating jobs.
Senator Thune. I think my time has expired, Mr. Chairman.
Thanks.
The Chairman. Thank you, Senator.
Next, according to our early bird rule here, is Senator
Menendez.
Senator Menendez. Thank you, Mr. Chairman.
Mr. Lew, congratulations on your nomination. In your
previous confirmation hearing to be the OMB Director, there
were a series of questions raised about deregulation and the
approximate causes of the financial crisis. Some of the
responses that you gave raised some concerns as to your
commitment to stronger financial regulations. Clearly, there is
a difference between being the OMB Director and being the
Treasury Secretary in that regard.
The Wall Street reform law has given the Treasury Secretary
a much stronger role in oversight of financial regulation, and
you would play a very significant role in regulating our
financial sector, so I would like to give you the opportunity
to put some of those concerns to rest.
Do you believe that stronger regulation of our financial
sector was, and is, necessary? Moving forward, if you were to
be confirmed, do you support the full and robust implementation
of the oversight rules of the Dodd-Frank law?
Mr. Lew. Senator, I very much believe that Dodd-Frank was
necessary, that we needed to modernize the regulation of the
financial services industry. I think that the oversight
provisions in Dodd-Frank need to be implemented. If confirmed
as Chairman of the FSOC, it would be an extraordinarily high
priority of mine.
Senator Menendez. All right.
One of the other things that you will have in your
portfolio as the Treasury Secretary is the implementation of
sanctions. As the author of the Iran Sanctions Act, I am
obviously very interested in making sure that Treasury pursues
the law that the Congress passed nearly unanimously and that
the President signed as our last peaceful diplomacy tool to
prevent Iran from achieving nuclear weapons.
If you are confirmed, will you ensure the robust
enforcement of the sanctions provisions that we have given to
the President, seeing that a large universe of them are within
the Treasury Department?
Mr. Lew. Yes, Senator. If I might just elaborate on that a
bit. I think that our sanctions--our unilateral sanctions that
are bringing the world community together for multilateral
sanctions--have put in place the strongest sanctions regime in
history. Frankly, it is the only reason I have some hope that
we might be able to resolve the issues that we have with Iran
peacefully.
Sanctions are doing what they need to do: they are crushing
the Iranian economy. GDP is down, the value of their currency
is down, unemployment is up, inflation is up. What we have not
seen yet is whether that has changed the mind of the regime so
that it is ready to, in a diplomatic process, give up the
pursuit of nuclear weapons. That is the goal.
The President has made clear it is unacceptable for Iran to
have nuclear weapons. We will exhaust all diplomatic and
economic means we can, but all options are left on the table. I
firmly believe that these economic sanctions are far preferable
to war, but we must pursue them vigorously.
Senator Menendez. All right.
Now, with reference to the President's State of the Union
speech, a good part of what he talked about was a growing
economy, that growth is an essential provision of achieving
some of the deficit questions as well as the job opportunity
questions.
What do you see--I read through your testimony--for
yourself in the role as the Treasurer of the United States, in
being part of creating that growing economy?
Mr. Lew. Senator, the Secretary of Treasury is the senior
member of the President's economic team. I have worked on
economic teams from various perspectives. One of the things
that I think is most important for a Treasury Secretary to do
is to always ask, what can we be doing to get the economy
moving? What can we do to help create an environment where jobs
will be created? What can we do to create the possibility that
every family that is willing to work hard has the chance in
this country to get a decent life?
Now, I think there are many things we can do. I am an
optimist by nature, but I also believe you just have to keep
working at it. The President proposed, in the American Jobs
Act, a number of proposals. Last night, he thanked the Congress
for adopting a few of them, and he urged the Congress to enact
the rest. I believe that, in the short run, investments in
infrastructure make a lot of sense.
I think investments in keeping teachers and firemen from
being laid off make a lot of sense. I think, in the longer
term, we have to get our fiscal house in order, no doubt, but
we cannot short-change the investments that build the economy
for the future, things like infrastructure, things like
education, skills training.
We have the best workforce in the world. We have the most
vital economy in the world. In order to be there in the future,
we need the R&D, the people, and the infrastructure. That has
to be in conjunction with a fiscal policy that we can afford.
Senator Menendez. Well, I hope, in closing, Mr. Chairman,
that you will also put in that universe something the President
mentioned in his speech last night, which is mortgage
refinancing.
Mr. Lew. Absolutely.
Senator Menendez. Senator Boxer and I have legislation on
that. I cannot understand for the life of me why we would not
let thousands of American families refinance, lower their rates
to the historically low rates, and unlock, not only a universe
of solidified homeowners, but also unlock economic potential
for----
Mr. Lew. Senator, I could not agree more.
The Chairman. Thank you.
Senator Cardin?
Mr. Lew. The work, you have done that. It is very
important.
The Chairman. Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman.
Mr. Lew, thank you very much for your willingness to
continue in public service. We congratulate you on the
nomination. I thank, also, your family, because this truly is a
family sacrifice, and we very much appreciate that.
You come to this hearing with an incredible background of
public service. I just want to underscore one experience that I
think will be very helpful, and that is your work in the House
under Tip O'Neill, where you were a part of the efforts to
reform our Social Security system and our tax code, both of
which required bipartisan cooperation, where the White House
and Congress were under different parties. We need that
desperately today. I think you will be well-suited in that
regard to bring together Democrats and Republicans to solve our
national fiscal issues.
I want to touch on one or two points in the time that I
have. First, I would like to deal with the problems that have
been brought to our attention about small businesses and access
to capital. We have had several initiatives to try to help
small businesses gain easier access to capital to expand job
opportunities.
With the concerns of community banks--and we see a lot of
community banks being merged into larger banks--there is a real
challenge for a small company to be able to get access to
capital to expand our economy. Do you have thoughts as to how
you, if confirmed as Treasury Secretary, can help ease the
burdens that small businesses have in getting access to
capital?
Mr. Lew. Senator, in the aftermath of the financial crisis,
one of the big challenges has been to get capital flowing
again. We have two problems. One is, there are businesses that
have a lot of cash on their balance sheet that they are not
investing, and we have financial institutions that have been
slow to get back into the lending business.
I think we have seen some progress on the opening of the
spigots in lending. It is going to be a balance. We have to
make sure that financial institutions are sound and that,
particularly, larger financial institutions do not get back
into a position where they create risk to our entire system or
risk that the taxpayers will be left with a burden.
For community banks, I think that many of the new laws and
regulations, quite rightly, were written to treat them
differently, that small institutions do not have the same
regulatory burdens, the same reserve requirements that large
institutions do. I would look forward to working with you and
others on this committee to make sure that we implement the
laws in a way that does help get capital flowing.
Senator Cardin. I appreciate that. I think the laws are
well-
intended. I think, on the ground, they are not working exactly
as we all intended. And I am not blaming the administration or
Congress. I think collectively that we need to do a better job
to help small businesses get the access to capital that we
intended, that, in too many communities, is not taking place
that way.
I want to turn to a second subject dealing with the
national savings rates. Senator Portman and I worked in the
House on dealing with our national savings issues. During the
best of economic times, savings rates in this country were very
low. It is important for our economy to have private savings.
It is also important for individuals, for retirement security,
taking pressure off of a lot of the public plans.
One of our concerns is that, as we look at tax reform,
there are efforts being made to diminish the tax incentives for
individuals to save and companies to set up retirement plans.
That could be very counterproductive for many reasons, because
what you are doing is talking about the timing of tax revenues.
And, on a long-term basis, we are accelerating tax collections
and even making our long-term finances counter to what they
should be.
Will you work with us, and do you have suggestions as to
how we can improve opportunities for individuals to save,
particularly for their retirement?
Mr. Lew. Senator, I believe that it is very important that
we have policies that encourage individuals to save for their
retirement. We have long viewed our retirement system as being
something that depends on a combination of Social Security,
pensions, and savings. We are in a new world where pensions are
a smaller part for many people, which means that savings are
going to have to pick up more of the burden.
We have had rules that could have been simplified. There
are proposals that the administration has made, for example,
for people to have to opt out as opposed to opt in to
retirement savings. That is viewed as something that would
actually very much increase the likelihood of people saving for
retirement. I would look forward to working with you and others
on a bipartisan basis to think through these ideas.
Senator Cardin. Let me just say, lastly, Senator Stabenow
talked about delivery system reform in the health care system.
It has been very frustrating, because we know that we are
moving forward to a better, more efficient health care system.
The problem is, how do we get that scored, and how do we do
it in a way that we know we will get the savings that we need?
So, I just look forward to working with you, because your
experience at OMB, your experience in the White House, and as
Treasury Secretary, puts you in the unique position where you
can help as we try to deliver a more efficient health care
system for the American people.
The Chairman. Senator Cornyn?
Senator Cornyn. Thank you, Mr. Chairman.
Mr. Lew, good morning.
Mr. Lew. Good morning.
Senator Cornyn. Good to see you.
As you know, the Medicare Board of Trustees, on which the
Treasury Secretary serves as the managing trustee, must project
whether general revenue funding will exceed 45 percent of
Medicare outlays for the current fiscal year, or any of the
next 6 fiscal years. This is sometimes called the Medicare
trigger. I think you and I talked about this in our meeting in
my office.
These funding warnings have been issued since 2007.
President George W. Bush submitted a proposal pursuant to the
requirement of the statute which says that, when this funding
warning is triggered after two such consecutive determinations,
the President is required to propose legislation within 15 days
of submitting a budget to reduce spending below the 45-percent
threshold.
President Obama has never submitted a proposal pursuant to
that legal requirement, has he?
Mr. Lew. Senator, I am familiar with the report, and I know
that the acting OMB Director has written to you on it. The
view, as I understand it, in the Bush administration when the
prescription drug bill was signed, was that the report was not
one that was constitutionally required of the administration.
They voluntarily submitted it. When the Obama administration
came in, actually the budgets that we have submitted have had
specific Medicare savings proposals, but before I was at OMB
the decision was made not to voluntarily submit the report.
Senator Cornyn. So the administration is taking the
position it is unconstitutional?
Mr. Lew. Well, as I understand it, there was a signing
statement in the Bush administration that said that it is
inconsistent with the recommendations clause of the
Constitution.
Senator Cornyn. But they submitted the report. The Obama
administration has never submitted a report, correct?
Mr. Lew. Well, we have submitted specific Medicare savings
proposals which, if enacted, would resolve the issue. I would
also add that, in 2013, we will be out of that zone, so the
combination of the trajectory we are on with the savings from
the Affordable Care Act and specific proposals that the
administration put forward, have addressed the substance of the
issue.
Senator Cornyn. Well, the record will reflect that the
administration has never submitted a report, pursuant to that
statute. I hear you saying they have submitted other proposals
that you think are satisfactory, but it does not comply with
the statute.
As you know, the Congress has passed a no budget-no pay
bill which says if Congress does not do its job and pass a
budget, it does not get paid. I would just submit that maybe it
would be appropriate to say that the Office of Management and
Budget not get paid unless they comply with the statutory
mandate under the Medicare trigger.
Last night the President talked about energy production,
which I was actually very gratified to hear about. My State has
seen job growth go up 32 percent since 1995, compared to 12
percent for the Nation as a whole, in significant part because
of energy production. But I would like to ask you, do the
planned revenue proposals that the President has in mind
include tax increases on American energy producers?
Mr. Lew. Senator, the President has proposed eliminating a
number of targeted provisions for the oil and gas industry.
They are provisions that the administration does not believe
are necessary to continue having the industry go through the
process of extracting and using those resources. He has
proposed other incentives to develop new sources of energy, and
we would look forward to working with the Congress to have, as
we call it, an all-of-the-above energy strategy.
Senator Cornyn. So that would effectively raise the tax
burden on American oil and gas producers?
Mr. Lew. Well, it would take away a special provision that
now encourages activity in that area more favorably than in
other areas.
Senator Cornyn. So they would pay more in taxes?
Mr. Lew. It is going to be part of tax reform. There will
be some special provisions that have to be eliminated so that
everyone can get a lower rate.
Senator Cornyn. Well, Mr. Lew, I am amazed at your
unwillingness to answer a simple question, but let us move on.
We talked about the level of Federal spending, and we
talked about that in my office. The 40-year norm is that the
Federal Government spends roughly 20 percent of our Gross
Domestic Product. Actually, during the Clinton years, in which
you served, the average spending level was 19.8 percent.
Under the Obama administration, it has been 24.4 percent,
while revenue has been at 15 percent, hence the 9- to 10-
percent deficit, the difference between revenue that is brought
in and the amount of money that the Federal Government keeps
spending, which is obviously borrowed money.
In our meeting in my office, you declined to identify what
you would consider to be an appropriate target for Federal
spending. Are you prepared to do so today? Do you think the 40-
year average norm of 20 percent, roughly, is appropriate, or do
you think the new normal should be what it currently is under
the Obama administration, 24.4 percent?
Mr. Lew. Senator, I do not think the current situation is
the new normal. We are at the end of a recovery from a very
deep recession, where we have had extreme reductions in revenue
because of economic activity and more spending because of
economic conditions. What I do believe is that, as we look
ahead, we have to recognize what is driving costs.
What is driving spending is that there are 30 million more
people who are going to be eligible for Medicare and Social
Security because the baby boom is retiring. So we have a
reality that, even if we make sensible changes, there is going
to be more activity in those programs because there is going to
be a larger population of people eligible.
So I think to say that there is an exact number based on a
historical norm kind of misses the fact that there is this
large cohort moving through the system that we are going to
have to make some tough choices about.
I, for one, think we ought to pay Social Security and
Medicare recipients' benefits, and I think most members and
Senators do as well. But that is what is driving the number. We
are at a historically low level of discretionary spending as a
percentage of GDP. We are down to the levels of the Eisenhower
administration.
The Chairman. Thank you, Senator.
Senator Portman?
Senator Portman. Thank you, Mr. Chairman.
I would just say to the 24 percent, the Congressional
Budget Office, as former OMB Director Jack Lew knows, just told
us last week that we are quickly going to 25, and then 30, and
then 35, and then, in the year 2042, 40 percent of GDP, so
clearly this is not sustainable. CBO also made the point that
you simply cannot cache that level of spending with new taxes,
at least under the income tax code.
So, as Treasury Secretary, you are going to have the
opportunity to deploy all of those OMB skills. I would agree
with Senator Cornyn that we need to establish, what is the
right level of government, and then be sure that our budget is
balanced over time. CBO tells us that revenue is going to
exceed its historic average, as you know, in the next few
years, by 2015.
But let me back up on a question that I would like to ask
you today regarding corporate tax reform and individual tax
reform. Last night in the State of the Union address, the
President said a lot of things. Again, as a former OMB
Director, I hope you were at least a little uncomfortable with
his laying out what I counted as 10 new Federal spending
programs.
I will not ask you today how we are going to pay for those.
The President said not a dime in the deficit, which I guess
means higher taxes. But he did say some things I thought were
very promising about reform, and that was with regard to tax
reform and entitlement reform. He also said something that I
appreciated, which is, it is not going to be easy.
I think that is part of his role as President--and your
role should you become Treasury Secretary--to lay this out for
the American people in a way--as we just talked about, the
current spending level is unsustainable. We do have to reform
these important vital programs so that they are there for
future generations. With regard to tax reform, as you and I
have talked about, I believe it is a huge opportunity to give
the economy a shot in the arm.
Senator Hatch talked about it, Senator Baucus talked about
it in his comments and questions to you, Senator Crapo, Senator
Thune, and others. But I would like to dig a little deeper if I
could, because I really think this is an area where we can both
see strong economic growth and also, frankly, find a consensus
here between the administration and the Congress on a
nonpartisan basis almost, because I think it is one that we all
agree needs to be done.
In 1986, back when you were here on the Hill and Ronald
Reagan was working on tax reform, we lowered the corporate rate
from 46 percent to 34 percent 27 years ago. We did that very
deliberately to get our corporate rate below the average of our
competitors.
In the intervening 27 years, every single one of our
competitors, all of them, have not just lowered their rates but
reformed their corporate tax code except us. That puts us at a
clear competitive disadvantage. We are sitting on the sidelines
while investment in jobs and headquarters is going overseas. We
can talk more about that.
But here is a quote that I like. It is from the Secretary
of the Treasury equivalent, the Chancellor of the Exchequer in
the UK. He says, ``The headline rate of corporate tax remains
the most visible sign of how competitive our country is. By
2014, Britain will have a 22 percent rate, headline rate, that
is not lower than all of our competitors but dramatically
lower, 18 percent lower, than the U.S.'' So this is what is
going on. They are all lowering their rates, and they are all
reforming their code to make it more competitive, except us.
We talked earlier about our rate being 39.2 as an average,
that is the corporate rate, when you include the State and the
Federal rate, which is 14 points above the OECD average. You
made the point that, while that is really not the effective
rate, the effective rate is lower, but I will just put on the
record today, the effective rate is still eight points higher
than the OECD average.
So I do not want folks to misinterpret what was said
earlier when the point was made that our effective rate is
lower, because you could have inferred from that that it is
lower than the average. It is not. It is still higher. As you
have talked about today, and I think Senator Crapo discussed,
this is incredibly complicated. Therefore, we do not have an
efficient allocation of resources; therefore, it is hurting
jobs in this country.
So I would just ask you, given that the President's Jobs
Council has come out with a report that cutting the corporate
rate in a
deficit-neutral way would boost economic growth, given that
Simpson-Bowles also said that, given that the Treasury 2012
white paper advocated cutting the corporate rate because it
would ``put the United States in line with other major
competitor countries and encourage more investment in
America,'' given that the OECD has now concluded that a high
corporate tax rate is ``most harmful to growth,'' would you
agree that revenue-neutral tax reform that reduces our
corporate rate is a competitive necessity for our country?
Mr. Lew. Senator, I very much agree that business tax
reform where we broaden the base and lower the rate would be
very important to getting our economy moving again.
Senator Portman. And do you believe that reducing that
corporate rate is good for workers? Let me just give you a
little background from some of the studies I have seen on this.
The CBO has said that 70 percent of the corporate tax burden
falls on workers in the form of reduced wages and fewer job
opportunities.
There is a recent study by a Harvard economist saying that
corporate taxes depress both real wages and returns to capital,
most of the burden of corporate taxes being borne by labor.
Would you agree that the corporate tax system we have right now
is bad for the American worker and that a corporate rate cut
would be good for jobs and wages?
Mr. Lew. I think a reformed tax system with a lower rate
that encourages investment in the United States and the
creation of jobs in the United States would be good for
American workers who would fill those jobs.
Senator Portman. Great. Thank you, Mr. Chairman. I look
forward to talking about entitlement reform on the second
round.
Mr. Lew. I look forward to working together.
The Chairman. Thank you very much, Senator.
Senator Brown?
Senator Brown. Thank you, Chairman Baucus.
Welcome, Mr. Lew. Thanks for being here. One of the most
important jobs the Treasury Secretary does is serving as
Chairman of the FSOC. You did not mention it in your written
testimony, and I am going to ask you a little bit about it.
We know that the six or so largest mega-banks in our
country benefit from lower interest rates in the capital
market, some say 50, 60, 70, 80 basis points. Senator Vitter
and I have made a request of GAO to study what that
differential exactly is. Basically it is a subsidy through
reduced funding costs based upon the market's belief that these
banks are, in fact, too big to fail.
Don't you think it is unfair for these banks, $2-trillion
banks in at least a couple of cases, these mega-banks, to
receive government-subsidized funding advantages that community
banks in West Akron, or Palmyra, or Sycamore, OH do not get?
Mr. Lew. Senator, the administration has proposed a
financial responsibility fee that would fall on those large
banks, which is something that we think is the right way to
assess responsibility for past burdens put on taxpayers. In
terms of the access to different borrowing windows, I would be
happy to follow up with you on the differences between access
in community banks and large money center banks.
But in general, our view is that we have to distinguish
between the large banks that create risk to the system and
smaller institutions that are less likely to. We have tried to
put less burdens on the smaller banks. I am not familiar with
the specific issue you are raising.
Senator Brown. Well, I mean, you are familiar with the fact
that these mega-banks do get advantages in the capital markets
because they can borrow money at a less expensive rate. I mean,
I have kind of heard this from Treasury before--not your
responsibility yet, but I have heard this before.
One of the jobs of FSOC is to eliminate the market's
expectations that the government will serve as a backstop in
the event of failure. My question is fundamentally this: if
GAO, with Senator Vitter's and my request, finds these
subsidies exist, will you commit to working with Senator Vitter
and me to take further steps to eliminate that government
subsidy, that government support for these mega-banks?
Mr. Lew. I will be happy to follow up with you, Senator,
and understand the GAO report, and work on having a system that
appropriately encourages smaller banks to have the
opportunities that they should have.
Senator Brown. You have not quite said that----
Mr. Lew. I have not read the GAO report.
Senator Brown. I mean, the GAO report is not there yet.
Neither have we. But we also know that all evidence points to
the fact that the largest banks in the country, in the capital
markets, get interest rates lower when they borrow than do
medium-sized and community banks, and you acknowledge that.
Mr. Lew. I acknowledged that the market works the way you
have described, yes.
Senator Brown. All right. All right.
Now let me shift----
Mr. Lew. Just to be clear, the reason I am being a little
hesitant is that markets, unless they are creating systemic
risk or putting burdens on taxpayers, are not generally--we do
not intervene in markets on a regular basis. So I would want to
understand the issue, understand what Federal policy is behind
it, and work with you if there is an issue where Federal policy
is contributing to some unfair----
Senator Brown. I guess I think it is pretty clear that
Federal policy has contributed to this. I mean, really, it is
Federal policy that subsidizes the mega-banks by the implicit
``too big to fail'' policy, but we can debate that later.
Mr. Lew. That is why, Senator, I mentioned the
responsibility fee. We think that Dodd-Frank dealt with ``too
big to fail,'' and on top of that we think there should be a
fee on large money center banks to approximate the risk they
presented in the past.
Senator Brown. All right. I do not totally agree with you,
but that is fine.
Let me shift to China currency for the last minute or so.
It is clear that China's currency manipulation means jobs in my
State. There is no question it has cost us jobs. I spoke with
Randy Solganik the other day, who owns a company called City
Plating in Cleveland. They are doing just about everything
right, yet they face a competitive disadvantage on their
exports and unfair competition on imports because of the
currency manipulation.
There has been some movement in the right direction in the
value of the yuan, we know that, but it has been too slow, it
has been too little, especially when you consider the U.S.-
China trade deficit. When trade deficits generally moved in the
right direction, our trade deficit with China did not. It went
from 295 to 315.
Do you agree that currency manipulation is, in fact, an
export subsidy?
Mr. Lew. Senator, we have, over the last 4 years, pushed
back very hard on China in a whole number of areas. We pushed
back on our perception that the currency was under-valued. We
pushed back on unfair trading practices.
We engaged in the strategic and economic dialogues and
bilateral discussions over many occasions. I think we have made
progress. There has been a 15-percent improvement in the
valuation of China's currency. It is still under-valued, and
more progress needs to be made.
Senator Brown. The administration has been pretty good on
trade enforcement through Commerce and through ITC but has
fallen short when we asked the administration to include
currency in their filings. Are you willing to--or do you
support industries filing petitions to seek relief against
countries that actually manipulate their currency?
Mr. Lew. Senator, I would put a lot of energy behind
developing a relationship where I could push back on practices
in China that we think are unfair. We have done that as an
administration, and we will continue to do that.
The Chairman. Thank you very much, Senator.
Senator Brown. Thank you, Mr. Chairman.
The Chairman. Senator Toomey?
Senator Toomey. Thank you, Mr. Chairman.
Mr. Lew, thanks for coming. Good to see you again.
Mr. Lew. Good to see you.
Senator Toomey. I wanted to follow up a little bit on the
conversation we had in my office a week or so ago. As you know,
I am very concerned about the implications, the effects of this
huge new series of regulations, most of which emanate from
Dodd-Frank. As you know, we have seen over 9,000 pages of new
rules and regulations already, and they are not close to being
finished.
When Jamie Dimon famously questioned Chairman Bernanke
about the cumulative adverse effect of all of these new
regulations on the availability of credit and on job growth,
Chairman Bernanke acknowledged that they do not really know
what the cumulative effect is and do not seem to have a way of
analyzing and understanding that.
So, as Treasury Secretary, of course, and head of the FSOC,
you will be arguably the most powerful financial regulator in
the world and have a great deal of influence over this. My
question for you is, what are your thoughts about how we ought
to think about the unintended and adverse consequences of this
really massive new wave of regulations?
I am particularly concerned about small and medium-sized
banks, which are not at all systemically important, but
nevertheless are hiring more compliance officers and loan
officers because they have to afford this. Should we not
understand the implications that this has? What are your
thoughts on that?
Mr. Lew. Thank you, Senator. I think we need to be very
much attentive to the burdens of all regulations that we put
forward, particularly in an area as important to the economy as
the financial services area. I think we also have to be
attentive to the cost of failure to regulate appropriately.
We saw in 2008-2009 the enormous loss of economic power in
this country because of the financial crisis, the burden it put
on individuals and businesses, and the burden it put on
taxpayers. So, as we look at the costs and benefits, we have to
look at the systemic risks and what are the consequences of a
failure to regulate properly.
I know that each of the agencies that are working on this
are working in their areas, trying to get their hands around
that. It is complicated. It is something that, if confirmed as
chair of FSOC, I would urge all of the regulatory agencies
involved in implementing Dodd-Frank to pay close attention to.
Senator Toomey. I would hope so because, as you know, the
vast majority of financial institutions in America have no
systemic significance, because they are not big enough to. Yet,
they are often caught up in a whole lot of regulations that
impede their ability to extend credit. That is one of my
concerns.
The second issue----
Mr. Lew. Senator, I would look forward to working with you
to make sure that the provisions that were intended to not put
those kinds of burdens on those smaller institutions are being
implemented as intended.
Senator Toomey. Good. Terrific.
On a separate topic, you may be aware of a huge expansion
in a relatively new form of tax fraud. We have seen this in
Pennsylvania, where criminals steal a Social Security number,
they submit a tax return to the Treasury seeking a refund, and
they get it. The unsuspecting victim whose identity has been
stolen wonders why they never get their refund. It is because
someone else got an unrelated and fraudulent refund.
The IRS, I think, believes this could be on the scale of
tens of billions of dollars a year. They have made some
progress. I am glad that they included Pennsylvania in a pilot
program to work more closely with local law enforcement
authority. But I think a lot more needs to be done, and I think
it can be done. I think the technology exists to largely solve
this problem. Are you prepared to commit to making sure we get
this under control?
Mr. Lew. Senator, I am. My understanding is that the IRS
has put a good deal of resources behind this, has made a great
deal of progress. It is a pernicious kind of crime, identity
theft. The President spoke to this issue last night in the
broader context of cyber-security. We have a whole new level of
criminal activity where very clever and creative criminals are
trying to get a step ahead of systems that are going to need to
get a step ahead of them. If confirmed, I would work with the
IRS Commissioner to make sure the IRS was doing that. I think
we also need cyber-security legislation for the broader threat.
Senator Toomey. Last question. Understanding, as we all do,
that monetary policy is the realm of the Fed, the Treasury
Secretary is nevertheless responsible for managing our Nation's
debt, for borrowings. The value of the currency is necessarily
very important and integrally related in that.
But there are a number of countries that seem to be
inclined to deal with their fiscal problems by devaluing their
currency. Some might argue that the behavior of the Fed would
be consistent with one that was intended to, in time, devalue
our currency. I am just asking if you will be a vocal advocate
for a strong dollar policy and acknowledge that a strong dollar
that maintains its value is a necessary precondition of strong
growth.
Mr. Lew. Senator, Treasury has had a long-standing
position, through administrations of both parties over many
years, that a strong dollar is in the best interest of
promoting U.S. growth, productivity, and competitiveness. If
confirmed, I would not change that policy.
Senator Toomey. Thank you very much.
The Chairman. Thank you, Senator.
Senator Bennet?
Senator Bennet. Thank you. Thank you, Mr. Chairman, for
allowing me to join this committee. I am very pleased to be
here.
Mr. Lew, thank you for your public service. I want to ask
you a couple of questions. The first one is, as we have lurched
from manufactured crisis to manufactured crisis in this land of
flickering lights on Capitol Hill, people at home are doing the
best they can to try to build their businesses, support their
communities, educate their children, and get ahead.
The last 20 years has seen in this country a decline in
median family income that is quite significant over that period
of time, while the cost of health care has skyrocketed. The
cost of higher education has skyrocketed. It has made it
harder, harder, and harder for people working hard to get
ahead. It also has created massive income inequality we have
not seen since 1928 in this country.
I know there are a lot of things we can do to address this
with education and other kinds of things, and ultimately
government cannot solve this problem. But you mentioned that
tax reform was hard because of the interests that are fighting
to hold onto benefits they gained, sometimes deep in the 20th
century. But maybe, if we have an objective that people could
rally behind, it will make our work easier.
It would seem to me that an objective that said we would
like to recouple wage growth and job growth with economic
growth once again might be a useful way for us to think about
this. It is not just the economic growth for economic growth's
sake. It is economic growth that is building a middle class
again in this country. I wonder if you have thoughts about how
we might approach the discussions on the committee with that
objective in mind. Maybe it is not the right objective.
Mr. Lew. Senator, I think it is the right objective. I
think, in the President's speech last night, he called it the
North Star that we need to always keep before us as we go
through each of the component policy areas, and tax reform is
one of those. I think we have made some progress.
The tax bill that was passed in January did go a distance
to restoring some equity in the distribution of the tax burden.
I think the distribution of income has been a real problem. It
ought to be possible for somebody who works 40 hours a week to
earn a decent wage. It ought to be possible for anyone who is
willing to work hard to make it into the middle class. We have
a lot of work ahead of us, but there is no substitute for
growing the economy.
If we grow the economy, that is going to create jobs. If we
create jobs and we have people with the skills for those jobs,
there is going to be a better future for people to enter and
stay in the middle class. I think there is no more important
undertaking for a Treasury Secretary than to keep that in mind
every day, because that is what it is about. That is what the
goal is.
Senator Bennet. Well, let me ask you this then, because I
do not think there is anything that is creating a greater drag
on this economy than our own dysfunction. That is certainly
what I hear from the business people whom I talk to, from
farmers and ranchers in the State. That is what is dragging us
backward.
On the other hand, there is huge, pent-up energy too. There
is $2 trillion sitting on balance sheets in this country that
cannot be invested because they have no idea what interest rate
environment we are going to be in, because they have no idea
how to calculate the political risk in Washington.
You have been here during times when both parties were able
to come together and craft long-lasting, not 2- and 3-month
deals, but deals that endured over time and helped bring us
back from the brink to get us where we need to be. What are
some of the conditions that we need to rally around here so
that we can see that kind of work again in the U.S. Congress,
in your view, based on the experience that you have had?
Mr. Lew. Senator, I share your concern that the short-term
crisis, deadline-driven practices that we have seen over the
last couple of years are undermining the economy.
Senator Bennet. It makes matters worse.
Mr. Lew. It does. It is the first time in my nearly 30
years in public life that I have felt that the actions of
government were actually working against the goal of getting
the economy moving.
Now, I actually take some heart in the fact that there is a
solution. There is a solution that we have gotten close to a
couple of times and we, by going through the regular order,
could get done if we can bring, on a bipartisan basis, parties
together to do that. I think that we have an obligation to the
American people to get that done.
Senator Bennet. Well, sign me up for that. I hope we will
be able to work on that. Part of what you are going to be is
chair of FSOC. Other than things outside of our control, like
Europe, I cannot actually think of anything that is creating
more systemic risk to this economy than this Congress. It is
time for us to start working together to solve this problem.
Mr. Chairman, thank you. My time is up.
The Chairman. Thank you, Senator.
Senator Casey?
Senator Casey. Mr. Chairman, thanks very much. I join
Senator Bennet and others in expressing gratitude. It is an
honor to be on this committee, and we are grateful for this
opportunity. We are also grateful for the effort that the
chairman and others have made to bring folks together on this
committee, and therefore to bring forth a more bipartisan
approach to a whole range of difficult issues, economic and
fiscal in nature.
Jack Lew, I am grateful to see you back, putting yourself
forward for yet another position of public service. We are
grateful for that commitment. I will not read the list of
positions you have held in the Federal Government, but every
one of them was difficult and many of them required
confirmation, or at least total engagement by you and by your
family. We are grateful that your wife and daughter are here to
join you today and to make their own statement of solidarity
with you to serve the public again. We are grateful for that.
I will begin with just a historical note, where the
chairman began this morning talking about Albert Gallatin, who
happened to be a Pennsylvanian. What is little-known, or
little-remembered, I guess, is that, before he achieved acclaim
as a Treasury Secretary, he was a candidate for the U.S.
Senate, was elected by the legislature of Pennsylvania, the
general assembly, tried to be seated, but, because he lived
here only 7 years, according to the assertion made against him,
he was thrown out of the Senate. So, he did not have a good
experience with the U.S. Senate, but he became a great Treasury
Secretary.
So for you today, my wish is that you have a better
experience with the U.S. Senate and then go on to a great
career in the Treasury, leading the Treasury Department.
I wanted to begin with maybe two areas to explore in the
time I have. One is the basic challenge we face as it relates
to the impact of global currency policy. I want to step back,
because sometimes, when we talk about things in global terms,
it does seem far away from communities in Pennsylvania and
States like it.
The reality is such that--and this is my point of view, and
I know some disagree with this--when it comes to just China's
currency policies, that has a real impact, a tremendously
adverse impact, on communities in Pennsylvania. We have lost a
lot of jobs because China has cheated, and I would argue
continues to cheat on the currency policy.
In light of the exchange you had with Senator Brown, I hope
that you would keep an open mind as Treasury Secretary, not
simply to having a good engagement with the Chinese and
therefore to have a better policy as it relates to their
currency policy, but I hope that you would seek new ways, maybe
ways that are consistent with the bill we passed in the Senate,
to have real consequences, to designate misaligned currencies,
then to have priority actions, as the bill speaks to, which
have real teeth and real consequence.
But I ask you, not just in the context of China currency
and other currency policies, but just generally, if you had to
walk into a manufacturing plant in Pennsylvania that has been
stressed by a tough economy, stressed by currency policies,
stressed by trade policy as well, what would you say to the
head of a manufacturing company that you are going to try to do
as Treasury Secretary, that the administration is doing, to
give them a level playing field, albeit a playing field that
has to come about based upon a number of policies?
Mr. Lew. Senator, I think that there are many things we
have to do. We have to vigorously insist that the laws and
international agreements be honored and, where they are not,
that there be consequences. We have done that in the area of
trade with China over and over again. We have done it in auto
parts, we have done it in tires, we have done it in rare
earths.
I think on the currency question, we work through the
international bodies, the G-7, the G-20, to advance the view
that it is not just the United States, but the organized
nations of the world that insist on having currency policies
which are market-
determined. In our bilateral relations, we push back very hard.
I would look forward to working with you and the members of
this committee so that we can assure manufacturers in the
United States that we are doing everything we can to make the
United States an attractive place to invest and to insist that
these kinds of laws and norms be honored.
Senator Casey. Well, I am the newest member of the
committee, so I did not have a chance until today to talk to
you, but we will get together and talk about some other issues.
Thank you very much.
Mr. Lew. Thank you, Senator.
The Chairman. Thank you, Senator.
I think, Senator Roberts, you are next. Oh, Senator Burr.
Sorry. Senator Burr, you are next.
Senator Burr. Thank you, Mr. Chairman.
Mr. Lew, welcome. Thank you and your family for serving you
up in public service so much. [Laughter.]
Mr. Lew. If I might, Senator, just apologize. My wife has a
class to teach at New York this afternoon, so she had to run to
catch a train.
Senator Burr. That is quite all right. I want you to know
that my family's differences with Alexander Hamilton do not
extend to other Secretaries of the Treasury. [Laughter.]
Mr. Lew. Well, I appreciate that. I am not going to
Weehawken.
Senator Burr. You said in your testimony that we cannot let
sequestration take effect. In Bob Woodward's book, ``The Price
of Politics,'' Woodward credits you with originating the plan
for sequestration. Was he right or wrong?
Mr. Lew. Well, Senator, it is a little more complicated
than that, and even in his account it was a little more
complicated than that. We were in a negotiation where failure
would have meant the default of the Government of the United
States.
Senator Burr. And I hate to speed it up. Did you make the
suggestion?
Mr. Lew. Well, what I did was, I said that, with all other
options closed, we needed to look for an option where we could
agree on how to resolve our differences. We went back to the
1984 plan that Senator Gramm and Senator Rudman worked on and
said that that would be a basis for having a consequence that
would be so unacceptable to everyone that we would be able to
get action.
Senator Burr. So is it unfair that the President says the
blame is on House Republicans, that they originated it, is what
he said?
Mr. Lew. Senator, the demand for an enforcement mechanism
was not something that the administration was pushing at that
moment. Our preferred outcome would have been to have there be
something on taxes and something on spending. It was
unacceptable to the other parties for taxes to be part of it.
The only spending--the only alternative that anyone could think
of that could be agreed to was sequestration, precisely because
it is so objectionable that nobody could imagine it----
Senator Burr. I heard your testimony today that it should
not take effect. On November 21, 2011, let me quote the
President: ``Already some in Congress are trying to undo these
automatic spending cuts. My message is simple: no. I will veto
any effort to get rid of these automatic spending cuts to
domestic and defense spending. There will be no easy off ramps
on this one.'' What has changed?
Mr. Lew. Well, the rest of what he said was that Congress
should work on putting in place policies that make sense to get
our fiscal house in order. That is consistent with what he said
last night. It is consistent with what I believe. This is not
an impossible problem to solve. It would be better for the
country if we have an agreement on a framework for solving our
fiscal problems instead of going into sequestration.
Senator Burr. Do you regret suggesting sequestration?
Mr. Lew. Senator, I look back at a time when a lot of
people thought we were going to default. That was not an
acceptable option. I think that it should not have been the
case that the good faith and credit of the United States was at
issue, but that is what was at issue. I think we had a solution
that frankly should still work. Sequestration is so
objectionable that we ought to just do our work and solve the
problem.
Senator Burr. Back in the Armed Services hearing last week,
Secretary Panetta testified that, following his and General
Dempsey's 5 o'clock meeting on September 11th after the
Benghazi attack, they had no further contact with the White
House, and it was their understanding that you, as Chief of
Staff, were the individual briefing the President. Is that
accurate?
Mr. Lew. Well, Senator, I did speak with the President that
evening. The national security staff was working on the issue
on a nonstop basis.
Senator Burr. But who was actually briefing the President?
Were you?
Mr. Lew. I was not. I was in the room when the President
was briefed, but I was not briefing the President.
Senator Burr. All right. Because John Brennan testified
yesterday that it was not him. Secretary Panetta said it was
not him. In hearings, the ODNI Clapper said it was not him.
Acting DCI Mike Morell said it was not him. Ambassador Kennedy
said it was not him, and the FBI said it was not them. Now, we
have eliminated a lot of people who had contacts within the
intelligence community who knew firsthand what was going on in
Benghazi.
Let me ask you again: who briefed the President on actually
what was happening throughout this 7-hour period?
Mr. Lew. Well, in the conversations that I was in, the
national security staff was present, and some of the people----
Senator Burr. Would John Brennan have been included in
that?
Mr. Lew. You are asking who did a briefing, and that is
different from who is in a conversation. I think if you ask
people, were they in conversations, there might have been a
different answer.
Senator Burr. Who was your primary point of contact in the
intelligence community?
Mr. Lew. As Chief of Staff, I did not usually reach out
directly to the intelligence community. I worked through the
national security staff.
Senator Burr. Was there anybody from the intelligence
community in that briefing session on a continual basis, to
your knowledge?
Mr. Lew. The intelligence community was in close touch with
the White House, with the national security team, on a near-
constant basis.
Senator Burr. Last question. If the Affordable Care Act is
the panacea some suggest it is, why did the executive branch
exclude themselves from coverage under the Affordable Care Act?
Mr. Lew. Senator----
Senator Burr. Congress is included, staff is included,
members are included, but nobody in the executive branch is
included under the Affordable Care Act.
Mr. Lew. Senator, that is actually a provision I was not
involved in the creation of. I would have to go back and check.
But I----
Senator Burr. Do you think they should be?
Mr. Lew. Well, I assume it has something to do with the
fact that the Federal system is something that is going to be
accessible, in a sense, if there is a Federal exchange. But I
would have to go back and check and get back to you. I do not
want----
Senator Burr. In fact, my understanding is, every member of
Congress and every staffer who works for a member of Congress
is under the State exchange program. They are no longer part of
FEHBP. My point is simple. If it is that good, why would we not
include all branches?
Mr. Lew. Yes. Senator, that is a detail that I am just not
familiar with. I would have to go back and check and get back
to you.
Senator Burr. Great. Thank you.
Mr. Lew. Thank you.
Senator Burr. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Roberts?
Senator Roberts. We will get back to you. That is the song
I hear from an awful lot of people in the regulatory business,
and it is a pretty tired country and western theme, it seems to
me.
Mr. Lew, welcome to what some in the press have described
as the ``Grand Cayman Ugland House Rehab and Restoration
hearings.'' In the Grand Caymans, they are very joyous about
this hearing. I am not going to split the shingle on that with
the exception to say the bottom line is, hopefully through tax
reform we can lower the corporate tax rate, and this will not
be a problem. You have indicated repeatedly that you did not
know of this situation with regard to these investments, so I
am not going to bother you with that.
Senator Burr is a stickler in regards to the over-
regulation problem. It is even more of a problem, or at least a
challenge to us, in that I think the President last night said
that, if in fact his agenda is hindered by Congress or high
water, he is going to have the ability, or will take on the
issue with more executive orders, which means more regulations.
I have a whole series of questions on the four things that
you have to achieve in regards to regulations under the
President's own executive order, and all four, according to
staff, when we meet with folks from Treasury or from the
Department of Health and Human Services or IRS, whomever it is,
to try to merge these regulations, we are not getting any
answers.
Now, we talked about this in my office. You said, we do the
best job that we can. I understand that: we will get back to
you. But the ``get back to you'' stuff is getting a little bit
old, more especially in the view of the people who are on the
receiving end of regulations. But I am going to save that one
too. I will submit it for the record. You will have a long time
to go over those questions.
[The questions appear in the appendix.]
Senator Roberts. But over the past 4 years here, this
administration has repeatedly brought up the issue of business
aviation, general aviation, and the proposal to change the
depreciation schedule for jets, agriculture aircraft, piston
engine aircraft, from 5 to 7 years. The estimates I have seen
allege this will raise $200 to $300 million a year, but it does
not take into account the loss in tax revenue and jobs that
will result from this change.
Now, if you take into consideration the list of the
projections of the Federal deficit for this year, which could
end up being $1 trillion, $850 billion to $1 trillion, the
changes that you have proposed would reduce the fiscal year
2013 deficit by about two-millionths of a percent.
Now, based on this calculation, I think you can understand
why someone like me gets a little bit hot under the collar,
someone who is seeing our general aviation manufacturers in my
State already lose 50 percent of their workforce during very
difficult times, and why we would object to the seemingly
unending attacks this administration continues to direct at the
essential aviation industry, i.e., general aviation.
We are not talking about fat cat corporate jets, which has
been used over and over and over again. The general aviation
industry has become the pinata in regards to tax reform by this
administration. I am more than a little tired of it.
Now, I have a ``yes'' or ``no'' question. If the
administration continues attacking these hardworking, largely
unionized American workers, which we can show has had a direct
negative impact on sales, will we even have a U.S. general
aviation manufacturing base in the next 10 years, or are we
going to be flying Brazilian or French aircraft?
Mr. Lew. Senator, I know you asked for a ``yes'' or ``no''
answer. I have to say that the purpose of the policies that we
proposed was to try to create a more fair tax code, and it was
not aimed at trying to do any damage to the general aviation
industry.
I think a number of the kinds of aircraft that you are
describing would not be covered by the policy that we proposed,
and I would look forward, if confirmed, to working with you to
understanding if in fact that is not the case.
Senator Roberts. I appreciate that. It is just the
adjectives that we use in the political system here that a
particular industry is designated as being, as I said, a pinata
or a target, and I know that is convenient. But we have a sales
force out there that has already been cut in half, as I have
indicated. We have good workers, we produce excellent product.
If we make this change, we are going to be hurt.
Mr. Lew. The objective of the policy was not to hurt the
general aviation industry, it was to look at what was an
inequity in the tax code where the users of the jets had
preferential tax treatment, regardless of whether they bought
U.S. or foreign-made aircraft. If it has an effect that I am
not aware of that is disproportionate, I would look forward to
working with you on it.
Senator Roberts. Good.
The Chairman. Thank you, Senator.
Senator Schumer?
Senator Schumer. Thank you, Mr. Chairman. I apologize to
the witness. We had an immigration hearing, and Lord knows----
Anyway, first question. As you know, unless Congress acts
before March 1, sequestration will roughly impose $85 billion
of across-the-board cuts. Now, rather than seek to replace the
sequester with a balance of smart spending cuts and reforming
tax loopholes, many of our friends on the other side are
settling for letting the job-killing cuts take effect. Their
only idea is to preserve the cuts but spread them out
differently.
This strikes me as a little bit like rearranging the deck
chairs on the Titanic rather than steering away from the
iceberg. So, first question: does the administration agree the
Republican proposals to merely move spending cuts around will
not solve the problem? Second, economist Mark Zandi said
sequestration would cause a 0.5-percent reduction in GDP for
the entire year.
Do you believe the Republican proposals would reduce the
hit to GDP caused by the sequester at all, or would the
reduction in growth be the same?
Mr. Lew. Senator, first, thank you again for the very kind
introduction this morning. I think that the analyses of the
impact of such a dramatic and rapid reduction in Federal
spending would hurt the economy at a time when the economy does
not need a kick. It needs a little help, not a kick.
I think that if you look at the question of, should the
sequester just be redistributed, in 2011 we agreed to reduce
discretionary spending by $1.2 trillion. That is already
putting a burden on all areas of government, including defense
and all non-defense areas, and it is quite significant. I think
it is the right challenge. We need to tighten our belt. We need
to spend less. But I do not believe that the sequester can just
be rearranged. We are already----
Senator Schumer. It would not change the reduction and the
estimates of reduction in growth if we just did all cuts?
Mr. Lew. The economic impact would be the same. I think the
damage it would do to important investments, from defense to
education, would be wrong. I think what we need is a balanced
approach which combines mandatory savings and revenues and
finishes the job. We did $2.5-trillion of deficit reduction. We
need to do another $1.5 trillion. We can get this done.
Senator Schumer. Great. Thank you. It makes sense. I mean,
if you are just going to switch cuts from one place to the
other, it is not going to change the reduction in growth that
would occur. Probably the greatest reason--there are many--to
avoid the sequestration, or just rearranging, is our economy is
finally beginning to recover a little bit. This would snuff
that out in a significant way. Zero-point-five-percent GDP is
no small number.
Mr. Lew. It is not a small thing. One could certainly have
something more rational than across-the-board cuts, but it
would have the same economic impact, and it would do a lot of
harm. So, it is not the right policy.
Senator Schumer. Right.
Mr. Lew. It was meant to not happen. It was not meant to be
rearranged.
Senator Schumer. Right.
Here is another question I have which you will be involved
with should you, and I believe when you, become Treasury
Secretary. That is, TRIEA, the Terrorism Risk Insurance
Extension Act. I worked with your predecessor and President
Bush's Treasury Secretaries on this. It was last extended in
2007.
But it is the nature of insurance that you cannot wait for
the last minute, because businesses who need to renew their
policies may find the insurance companies either are not
willing to provide terrorism coverage if the future of the
program is in doubt or will raise the price so high that, in
effect, they are not offering coverage, and then you cannot get
new building refinancing and all the things that keep an
economy going.
It is not just in New York, but in many areas with tall
buildings that might be targets of terrorism. When TRIEA was
last extended, there was some debate about the scope of the
program or whether it was still necessary. The program was
reformed, the need for it was reaffirmed, and the program was
extended 7 years. If you talk to my constituents, I assure you
that you would agree the program remains vital to obtaining
insurance, regular insurance, to build and even to get
financing.
Terrorism is just something that the private sector is not
willing to do on reasonable terms. It is a little like flood
insurance, but probably worse because we have less of a record
about terrorism. We do not know when it comes, and, if it does
come, it could come in such a horrifying amount nobody wants to
insure against it.
What is your view on extending TRIEA for 5 more years?
Mr. Lew. Senator, I am very familiar with TRIEA. I was
chief operating officer of NYU on September 11th. I would not
have been able to have had a university with insurance during
the time I was there without TRIEA. I am less familiar with
where it stands right now in the extension process and would
look forward to working with you and exploring options.
Senator Schumer. Could you see the argument that you still
need it, even though we are 10 years after 9/11?
Mr. Lew. I certainly understand that it was very much
needed at the time. I have no reason to believe that it is not
important, but I would want to become current in my
understanding.
Senator Schumer. Thank you. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Rockefeller?
Senator Rockefeller. Thank you, Mr. Chairman.
Mr. Lew, I welcome you and your family. I welcome my
opportunity to vote for you.
The chairman of this committee once called me ``utterly
predictable,'' and he is utterly correct. I have a focused
mission in life, and I stick by it. You are one of the people
who could help me make progress.
I have never really understood why it is that the
Republicans are so adamant against raising revenues, because it
does make sense. I do not know if it is Grover Norquist, I do
not know if it is a Wednesday breakfast meeting they have every
week to make sure that they--I just do not understand it,
because, if you want to get things done in this country, you
have to have revenue. You just have to have revenue.
So, one, I would like to know that you are on that side and
that you would encourage, in the development of the budget and
tax proposals, that there be more revenue.
Mr. Lew. Senator, I very much believe that we need to have
a balanced approach to getting out of the fiscal hole we are
in. I think that revenues are part of the solution. Nobody
likes to raise taxes, but the choice is always between being
able to pay our bills or not. If the choices are to cut more
deeply into things like education and research or health care,
I think that we need the right balance.
Senator Rockefeller. All right.
Mr. Lew. The President's ratio of 2:1 seems about right to
me.
Senator Rockefeller. All right. Second question. You and I
have talked about this before; we did in my office. It is
something I care passionately about. It turns out, in fact,
that the Earned Income Tax Credit is the greatest anti-poverty
program in the U.S. Government, and it has an unbelievable
effect in my State of West Virginia.
The Earned Income Tax Credit on the one hand, and the Child
Tax Credit on the other--there are other tax credits which help
balance out the inequality and help people to live, just
frankly to live. I would hope that, as those are up for
reauthorization, they would be part of a 5-year reauthorization
that the administration would support.
Mr. Lew. Senator, I have supported the Earned Income Tax
Credit for many years and was proud to be part of the effort
this year to extend the refundable credits again. They have a
proud bipartisan history from the Nixon administration until
today, and they are intended to encourage work and to make work
pay. I think they do an important job.
Senator Rockefeller. Great. The next--and maybe I will make
it my final question just to please my chairman so he will give
me some credit for efficiencies here. No, I guess I will not.
[Laughter.]
Income inequality is a vast problem for this country, and
there are a variety of ways that that can be attacked. But what
were we, ranked 31st out of 34 developed countries in income
equality? It is a disgrace. I would just hope that the
administration would be strongly embarrassed by that as indeed
I am, and that they would take that into account one way or
another to effectuate a change in our standing in the globe.
Mr. Lew. Senator, I mentioned earlier, and I believe
strongly, that it was important in the tax bill that was
enacted in January that we took a step towards having the tax
system play less of a role in contributing to inequality. The
President made some announcements last night that also
contribute to that. This has been----
Senator Rockefeller. I have two more questions.
Mr. Lew. This has been decades in developing, and we need
to address the problem.
Senator Rockefeller. I have two more questions and a
hostile chairman here.
You and I have talked about Medicaid. One of the things
that I like about you is that you feel very strongly about
Medicaid, and I think you have experienced Medicaid in your own
life.
Medicaid is not only sustenance for all of long-term care,
if you can spend yourself down low enough to qualify for it,
but it is one of the great funders of child help, and it is
also the easiest thing to attack. I am pretty sure that you
feel very strongly about Medicaid and would fight for its
protection as much as possible.
Mr. Lew. Senator, I do believe strongly in the Medicaid
program. We do have to be careful in the Medicaid program to
make sure we are not overpaying. Over the years there have been
issues on that.
I have defended the program strongly, that it needs to be
protected, but I have also been willing to take out a sharp
pencil when there were practices that needed to be addressed
either on the reimbursement side or in terms of the way the
State programs were working. I think if we care about a
program, we have to run it well.
Senator Rockefeller. I agree with that. I am over on my
time, and I apologize, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Isakson?
Senator Isakson. Thank you very much, Mr. Chairman. Thank
you.
Congratulations on your nomination.
Mr. Lew. Thank you, Senator.
Senator Isakson. Thank you for your service to the country.
You have repeatedly said that the administration addressed
``too big to fail,'' that we needed to expand credit, that it
is critically important that we complete the implementation of
Dodd-Frank.
If you are confirmed, very shortly the first problem you
may have as the Secretary of the Treasury is the implementation
of a Dodd-Frank rule known as Qualified Residential Mortgage
(QRM). Mr. Cordray just issued a QM ruling which I commend him
on. I was scared to death they were going to overreach, but
they did not, and they defined QM in such a way as to avoid
predatory lending in housing but to protect traditional
housing.
But Dodd-Frank also had a QRM requirement, and the pending
rule, which has been circulated twice and pulled by the 6-
member committee, would have required for risk retention the
exemption of a 20-percent or greater down payment.
If that took place from the conventional mortgage market,
you would withdraw fully 60 percent of the people buying
housing from the marketplace, because nobody is going to hold
risk retention against loans for that length of time.
Will you engage, as Secretary of Treasury, with HUD, with
FDIC, with OCC, and the others on the committee, to come up
with a reasonable approach for risk retention and exemption
from Dodd-Frank?
Mr. Lew. Senator, I think that, if confirmed, I would very
much, as the chairman of FSOC, engage in the issues of rules
implementing Dodd-Frank. In terms of the relationship between
the Department of Treasury and the Department of Housing and
Urban Development, I would continue, as Secretary Geithner did,
to work closely on those issues.
The QM rule and the QRM rule were obviously designed to
address different issues. I appreciate the comments you have
made about the QM rule. It is really designed to protect
borrowers against institutions that fail to exercise proper due
diligence, so they would hold accountability for their
failures.
The QRM rule is really designed to make sure that we do not
get back into a situation where institutions create risk to the
system or create the risk that taxpayers will have to come in
and bail out failed institutions. I would work on these issues
going forward to make sure that the goals are achieved with the
least burden possible.
Senator Isakson. Well, I understand this: Dodd-Frank
exempted Freddie Mac, Fannie Mae, and FHA. If you end up with a
conventional mortgage that cannot sustain the risk retention
requirement, you will put the entire burden of financing
housing in America on 2 institutions, Freddie and Fannie, and
FHA.
FHA is in a difficult solvency position right now, and
Freddie and Fannie owe the taxpayers $171 billion. So, it is
critically important we get it right, and I would hope you
would exercise leadership on that.
Mr. Lew. Senator, I think it is very important that we get
private capital back into housing. Our goal is not to have the
heavy presence of either Federal programs or federally backed
programs, and I would look forward to working with you on these
issues.
Senator Isakson. Well, thank you very much.
Second, Senator Schumer made the statement in his
introduction that you have the unique ability to learn about a
problem, study it for solutions, and implement those solutions.
That is quite a compliment. We have a serious problem with
spending, with the budget, with being out of process. It is
broken in Washington.
On March 6th and February 15th of 2000, when you were in
the administration of President Clinton, you testified before
the House Rules Committee on the biennial budget. There were 40
members of the House and Senate in a bipartisan fashion.
Jeanne Shaheen and myself as the principal sponsors
recommended the biennial budget process to change the paradigm
where we appropriate in odd-numbered years and do oversight in
election years, which are even-numbered years.
You have been very supportive of that, all the way back to
1993. But once again, like in the last question, can you really
help exercise some leadership to get the administration to come
on board, and let us try to work together to do that?
Mr. Lew. Senator, I have supported biennial budgeting for a
long time and testified on a number of occasions in support of
it. I have had my work on this cited by international figures
in terms of following policies in their own countries to
implement policies like that.
It has not been something we took a position on, I believe,
in this administration, though there has never been any
opposition to it. I would look forward to following up with
you. It is fundamentally a matter of congressional decision-
making. I understand that there has been resistance to the idea
over the years, but I think that the record of the last 10
years only strengthens the case.
Senator Isakson. Well, I think also our inability to do
budgets and appropriations on the Senate side and some of the
difficulties we have had, demanded of us to change the paradigm
and change the structure in which we make these considerations.
Last question on behalf of a constituent. Treasury has
dictated, by March 1st of this year, everybody receiving
benefits will get them either through direct deposit or through
express cards. Is that correct?
Mr. Lew. I believe that is correct.
Senator Isakson. And I understand 90 percent of people have
complied, but there are 10 percent out there, some of them
veterans, some of them people who are in poverty, who do not
have a checking account and do not have access to the direct
express card.
Mr. Lew. I would actually have to follow up on that,
Senator. I am not sure.
Senator Isakson. On behalf of my constituent, please do,
because they want to know how they are going to get their money
after March 1st.
Mr. Lew. All right. I will follow up on that, Senator.
Senator Isakson. Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Wyden?
Senator Wyden. Thank you, Mr. Chairman.
Mr. Lew, welcome. I was interested this morning--staff came
in and said that they had done a count, and since 2001 the
Congress has passed 137 laws changing the tax code. Now, as you
know, almost always these laws have helpful provisions. Nobody
disputes that. But, with each one of these changes, the tax
system gets more incomprehensible, more dysfunctional, and more
byzantine.
So my question to you is, do you support the idea that it
is now time for the Congress to make a break with this idea of
just passing these piecemeal changes, actually put a hold on
these piecemeal tax changes, and actually move to the kind of
long-term bipartisan tax reform that Senator Baucus, Senator
Hatch, and Chairman Camp are talking about? Should we put a
hold on these piecemeal approaches?
Mr. Lew. Senator, I definitely agree that we should do the
big job of tax reform, and I think we should do it now.
Senator Wyden. But the question is, should we put a hold on
the piecemeal approaches? Because, as long as we keep passing
them, I think it is going to be tough to get the long-term
reform.
Mr. Lew. I had not actually thought about whether there was
an approach like the one you described. I would be happy to
have a discussion with you about it. My own predisposition is
we should just get the big job done, and anything that makes it
easier to do is worth considering.
Senator Wyden. All right.
You are going to have a large role in determining whether
health care coverage is affordable for workers and families,
because the IRS determines who is eligible for tax credits for
health care and how much they would be eligible for.
Now, the IRS has already determined that affordability is
going to be based on the cost of a worker's individual
coverage, not the cost of family coverage. So we are going to
have millions of workers, spouses, and dependents in a kind of
regulatory no-man's land.
Now, in the Affordable Care Act, a provision was added that
would have allowed an employee to take their employer's
contribution, either the individual or the family, and shop for
a policy that best fit their needs at a price that they could
afford.
As we talked about in the office, that provision is no
longer there, so we have millions of people, these working-
class, middle-class people, who are pinched. They are in the
middle. They are unable to afford the family coverage offered
through their employer and ineligible for the subsidy that
could be used by dependents on the exchanges. What do you think
ought to be done to help them?
Mr. Lew. Senator, I think that, in getting the Affordable
Care Act in place, there are a lot of hurdles between now and
2014. Job number one is to get it up and running. I would look
forward to working with you and the members of this committee
to ask and answer the questions about, are there gaps that need
to be addressed, after that.
There are many things in the Affordable Care Act that
require a lot of work to get in place. I must say, my first
focus would be on making sure that we implement the law, but
then I would be delighted to pursue with you looking at
solutions to remaining problems.
Senator Wyden. The New York Times and others in the press
said that millions of low- and moderate-income families are
going to be affected by this IRS decision, so this is not an
abstract question. I appreciate your saying that you are going
to work with me and others on it. This is an urgent matter.
These are not people who ought to get hammered. They have done
nothing wrong. We had a provision that would have made a real
difference to those families. It is not there anymore. I think
it has to be a priority.
Let me ask you about one other area. We talked about it in
the office. That is the electioneering that now takes place by
tax-
exempt social welfare organizations. This stems from the wake
of the Citizens United case. There has been a proliferation of
these entities that are organizing under 501(c)(4) provisions
in the Internal Revenue Code, and they are really doing
politics.
They get a tax break as social welfare organizations, but
they are really ripping off the tax code because they are not
social welfare organizations, they are doing politics. I think
some of my colleagues had a little bit of a taste of how
outrageous this has gotten.
Now, Senator Murkowski and I are going to be introducing
bipartisan legislation to stop this, to take away that tax
break when these organizations do not disclose. But I was very
troubled by the fact that the IRS, in what is called the
priority guidance plan, basically does not make cleaning this
abuse up a priority.
My question to you is, when confirmed--I believe you will
be; I am certainly supporting you--will you make it a priority
to drain the swamp here? This is not a partisan issue; this is
an abuse, a flagrant abuse, of the tax code. These are not
social welfare organizations, they are electioneering, and they
are doing it with the taxpayers' dime, and they are not
disclosing. Will you make it a priority to fix this?
Mr. Lew. Senator, as a general proposition, I believe that
the tax laws should be enforced and enforced fairly. If there
is something wrong here, it should be looked at. There is
appropriate distance between the Treasury Secretary and the IRS
on enforcement matters, but on policy matters I think it is
entirely appropriate to ask that question.
Senator Wyden. This is something that is way wrong.
My time is up, Mr. Chairman. Thank you.
The Chairman. Thank you.
Senator Nelson?
Senator Nelson. Thank you, Mr. Chairman.
Mr. Lew, I just want to make a statement before I ask you a
couple of simple little questions. First of all, when Leon
Panetta was nominated to be CIA Director, I talked to a number
of our CIA personnel in various parts of the world, and they
were concerned because Leon did not have a background in
intelligence.
My response was, anybody who has been Chief of Staff to the
President of the United States can handle any job in the U.S.
Government. Of course, Leon went on to prove that, so much so
that then, for his next position, he was confirmed 100 to
nothing as Secretary of Defense. Therefore, that is by way of
saying to you, obviously, I support your nomination. You have
handled that job of Chief of Staff very well.
The other thing I wanted to say was that there was a
problem when you were Chief of Staff with OMB, in that OMB was
continuing to try to run this country's space program. I went
to you, and you started ``massaging,'' perhaps is the best way
to say it, that the NASA administrators got to administratively
run the space program without OMB folks saying, you do this,
you do that, pursuant to the directives given by the Congress
in the NASA Authorization Act by the Commerce Committee, which
Senator Rockefeller chairs.
I want to thank you for that, because what you did was, you
smoothed it out so that Senator Kay Bailey Hutchison and I
could bring unanimity, and we got direction for the space
program 3 years ago that otherwise was in turmoil. That is in
no small measure to what you did. I want the folks to know that
is what you did, and I want you to know how much this Senator
appreciates it.
Mr. Lew. Thank you, Senator.
Senator Nelson. Now, I want to ask you, we have all of this
international finance stirring, and a lot of that is going to
run under your bailiwick. Give me your thoughts on it.
Mr. Lew. Well, Senator, the international financial
situation is one that we do have to watch very closely. As much
as we try to do our own business, we cannot separate ourselves
from the world entirely. We can make sure our financial
institutions are sound, we can make sure we run our policies
appropriately. But look at Europe.
Europe is our largest export partner. If Europe has an
economic or a financial crisis, that is something we have to
worry about. It is something that, if confirmed, I would work
on. But frankly, I have been working on it, even as Chief of
Staff, because, in addition to worrying about the U.S. economy,
we have been worrying about the exposure to the U.S. economy
from risks overseas.
There are questions of demand overseas where that is
directly going to determine the ability of U.S. exporters to
have markets. There are issues of the financial
interconnection, particularly with sovereign risk. If
confirmed, I would work with this committee to give the
President the best independent advice I could and to play a
leadership role in the world economic community to advance U.S.
interests.
Senator Nelson. Do you think, given the extremes of
situations of the economies in countries like Greece, that they
can right their ship?
Mr. Lew. I think that Europe has shown a resolve to deal
with its problems, both as a union and individually in
countries. But these are tough fiscal solutions that have to be
put in place to fix the situation in some of these countries,
much tougher than the choices we face.
I think that it is going to take some time. It is
encouraging that there has been more of a willingness on the
part of the broader European community to give some time,
provided that there are assurances that progress is being made
and risk is not just being shifted.
This is a fundamentally European problem, but it is one
that has such an enormous impact on the United States' economy
that the President and Secretary Geithner were deeply involved,
I was deeply involved as Chief of Staff, and it is something
that we cannot take our eye off of, because the risks that are
potentially in the future are not just within our borders, but
there are external risks that we have to safeguard against.
Senator Nelson. Thank you, Mr. Chairman.
The Chairman. Thank you. Thank you, Senator.
Mr. Lew, Senator Schumer, in his introduction, mentioned
your extraordinary talents and abilities. They have been
referred to here a couple of times. We face extraordinary
times. You mentioned yourself, it has been 3 decades in the
making, but the American middle class has deteriorated. We face
globalization. It is a far different world today than it was in
1986. The challenges facing the United States are far greater
economically than they have been in the past.
What can you tell us today to show that you have the
courage to step up and tackle this and be a great Treasury
Secretary?
Mr. Lew. Well, Senator----
The Chairman. I mentioned before to you how, somewhat as an
analogy, not quite the same, that the U.S. Solicitor General
represents the U.S. Government before the Supreme Court, but
the Solicitor General plays another role as well, as an advisor
to the court.
I believe the Treasury Secretary has a dual role as well.
That is, to perform the functions that the Treasury Secretary
would ordinarily perform and do well, but I think there is
another role. It comes down to stature and gravitas, courage,
and stepping up, after pursuing your analytics, abilities,
skills, and solutions, and having the courage to do something
about it publicly, as well as privately within the
administration.
So what can you say to us here today to show us that you
are going to be, not just an ordinary Treasury Secretary, but
that you are going to be a great Treasury Secretary, so that
when your term is up you can look back and see that Secretary
Lew was terrific, he got this country back on the right
economic track? That includes tax reform, it includes all the
multi-national issues, the globalization issues, that we all
face. The world is changing so much.
I think there are three major changes. One is demographics.
Most countries are finding an aging population with huge
pressures. Second is globalization. It tends to have downward
pressure on wages, one of the main reasons why U.S. jobs are
hard to find, and it probably has some effect on middle-class
globalization. Third is increases in productivity, which are
inexorable. You cannot turn back technology. You can go
forward, but technology has a cross-current effect on jobs.
So what can you tell us today to show us that you are going
to be a great Secretary, that you are going to take on these
issues?
Mr. Lew. Mr. Chairman, I have the highest regard for the
roles of Treasury Secretary and Solicitor General as the kinds
of positions in government where, while you work for the
President, you have a responsibility to represent some values
that may go beyond the administration you are in, and to have
the requirement that you have to be able to go in and give the
President your honest view, even if you disagree, and you have
to be able to build support outside of the administration for
difficult decisions.
I think that, if you look at my career from an early age, I
have proven that I am not daunted by the challenge of going in
before authority figures and speaking my mind. When I was in my
20s working for the Speaker of the House, it was not easy to
look Dan Rostenkowski in the eye and tell him I thought he was
doing something that he needed to rethink.
He said something to me once, and I agreed with him when he
knew I did not. He lost his temper, and he said, ``Don't waste
the air in this room if you tell me you agree with me if you
think I'm wrong.'' It liberated me at the age of, like, 24, to
never again hesitate, whether it was with a Speaker or with the
President of the United States or a world leader, to speak my
mind.
I do it respectfully. I try to do it without unnecessarily
breaking china, but I do not believe that I have ever withheld
my honest view from the President. As Secretary of the
Treasury, I would be called upon in more circumstances to
sometimes come in with hard messages. As Chief of Staff, it
turns out you do not get to go to the President with a lot of
good news.
The good news finds its way to the President pretty easily.
I, for a year, had to walk into that Oval Office every day and
tell the President there were tough choices and here is what I
think, never mincing my words, never not saying what I thought.
As Treasury Secretary, I would follow that kind of a path, and
I would hope to work with this committee on a bipartisan basis
to have the kind of relationship where we could talk to each
other that way.
The Chairman. I appreciate that, but I was really getting
at something else. It is clear that you can be a great staffer.
I am not talking about being a great, courageous staffer and
telling the President what you think and do not think. I am
talking about something else.
I am talking about the public perception, the public
demeanor, representing the United States around the world--
across the country and around the world--being able to
influence policy in a way that makes sense that most of us tend
to agree with. We may differ around the edges, but most
everybody in this room agrees what needs to be done. That is
what I am getting at. What can you tell us about that?
Mr. Lew. Mr. Chairman, in the years I was at the State
Department, I met with world leaders one-on-one. As White House
Chief of Staff, I met with both world leaders and heads of
major interests in this country. I think the position that you
are in and the way you carry yourself in that position is where
gravitas comes from.
I feel like, in the business dealings that I have had, it
is about building trust, it is about having credibility, it is
about speaking clearly and saying what you think. I have done
more than my share of public speaking and appearances on
television. I am not afraid of taking issues public and
expressing complicated ideas in terms that people can
understand.
I am not sure how to put a specific behind the question of
gravitas, but I think the career path I have had--very few
people leave the role of staff and become a member of the
Cabinet. I have had a career path that is not the norm, and I
think that that lends itself to the kind of gravitas that you
are looking for.
The Chairman. Well, I wish you well, because the challenges
are tremendous. Thank you very much.
Senator Hatch?
Senator Hatch. Well, thank you, Mr. Chairman.
Mr. Lew, do you need a break?
Mr. Lew. I am fine, thank you. Thank you for asking.
Senator Hatch. All right. I just want to make sure,
because, unfortunately, this is one of the most important
positions in the country, and this will go on a little bit
longer, if you do not mind.
Mr. Lew. Do you need a break?
Senator Hatch. I have taken my break. When I need one, I
will take one.
Mr. Lew. It depends if we are talking about 20 minutes or 2
hours.
Senator Hatch. Well, if you need one, just let us know.
Mr. Lew. Thank you.
Senator Hatch. Because we understand.
Senator Rockefeller raised the issue of why Republicans
have such a tough time raising revenue. Well, the reason we
have a tough time raising revenue is because we know that the
Democrats will just spend it. They will not use it to pay down
the national debt, which is astronomical. We also know that, if
we taxed every dime that millionaires make, it would raise less
than what the deficit is this year.
We have seen that time after time after time. We do not
have any faith that these funds would be used to help get our
spending under control and get our government under control.
That is one of the reasons why I think that the Republicans are
so loathe to raise taxes.
We know that fiscal calamity is primarily driven by the
exponential growth in entitlement spending. We know that is a
problem. You know it is a problem. Second, there are economic
costs to tax increases: tax something--labor, capital,
entrepreneurship--and you are going to get less of it. Third,
there are practical limits to the politically designed tax
increases on whatever the unpopular group is that is targeted.
So like I say, these are problems that we as Republicans have,
and they are legitimate concerns. I am sure you have legitimate
concerns about these things as well as we do.
Frankly, I think you have done really well today. I have a
great deal of respect for you. It is not easy to give a
lifetime of service as a staffer and then a Director of OMB, a
top staffer in the White House. My gosh, I have nothing but
respect for people like you who give yourself to our
government. I really have great respect for your wife and your
daughter, your family, too.
Mr. Lew. Thank you.
Senator Hatch. Because it is tough.
Mr. Lew. That is something we agree on, Senator.
Senator Hatch. That is good. Well, I think we do not give
our spouses nearly the credit that they deserve.
But some of these questions we do need to ask, just to make
sure the record is clear. Now, let me ask one that hopefully
will help make the record more clear. American taxpayers
provided over $45 billion to Citigroup in late 2008 and early
2009.
Taxpayers backed hundreds of billions of dollars of
Citigroup assets. Meanwhile, Mr. Lew, you reportedly received
over $940,000 of compensation in early 2009, mostly comprised
of ``discretionary'' compensation for work performed in 2008,
and you received that a day before Citi received about $7
billion of taxpayer backing.
On January 29, 2009, President Obama remarked on Wall
Street bonuses at the time and said, ``That is the height of
irresponsibility. It is shameful.'' He went on to say that,
``There will be a time for them to get bonuses. Now is not the
time.'' Elsewhere, he referred to Wall Street bonuses as
``obscene.''
Now, Mr. Lew, you wrote in a 2010 letter to Senator
Grassley that ``my compensation was in line with other
management executives at the firm and in similarly complex
operations.'' Now, that seems a little bit to me like saying,
gee, dad, everyone was doing it. Unfortunately, that type of
reasoning is exactly what I think led to this financial crisis.
Now, I have three questions related to your compensation.
Let me just give them to you, and then you can respond to all
three.
First, could you explain what you did in 2008 for Citi that
warranted payment to you of close to $1 million, most of which
was a bonus?
Second, what was it about your performance that merited
your bonus from a company that was being propped up by taxpayer
money, and are there any records of your performance
assessment, or are there any assessments of your performance?
Third, your employment agreement included a clause stating
that your ``guaranteed incentive and retention award'' would
not be paid upon exit from Citigroup, but there was an
exception, that you would receive that compensation ``as a
result of your acceptance of a full-time high-level position
with the U.S. Government or a regulatory body.''
Now, is this exception consistent with President Obama's
efforts to ``close the `revolving door' that carries special
interest influence in and out of the government?'' I think that
is a question that has to be asked, and I would appreciate
hearing your response.
Mr. Lew. Senator Hatch, the work that I did in 2008 was
running, as I said earlier, the business of the business in a
year when the financial products of that part of the firm were
not doing very well. I think I actually performed quite well in
managing the business operations, shedding real estate and
parts of the operation that were not necessary, reducing the
costs in a very considerable way.
I am not familiar with records that were kept, so I do not
have access to things that I do not know about. The experience
that I had in the private sector has given me a perspective
that I think enhances my ability to perform, both in the role
that I am nominated for and in the roles I have had.
I have practiced law. I have worked at a university. I have
worked at a financial institution. I think that if I had not
had a set of experiences like that I would not be sitting here
today speaking with confidence that I could undertake the
responsibilities of Secretary of the Treasury.
As far as my 2008 compensation goes, it was for my work in
2008. I do believe that it was comparable to compensation for
people in positions like mine in the industry. As a broader
discussion on compensation, I do not think there is anything
that has not been fully transparent about both what I did and
what I earned.
Senator Hatch. Could you tell us how much money you made in
2008 before you got the bonus?
Mr. Lew. My base salary, I believe, was $350,000.
Senator Hatch. All right. Well, thank you, sir. That is a
question I felt had to be asked, and I appreciate your answer.
Go ahead, Mr. Chairman.
The Chairman. Thank you, Senator.
Senator Portman?
Senator Portman. Thank you, Mr. Chairman. I thought the
question posed by Senator Baucus earlier was very interesting,
and I am glad I was not on the other side of the table to have
to answer it. But I have been before this committee for a
confirmation hearing, and they were much tougher on me, that is
all I can say. [Laughter.]
But that is sort of the ultimate question. Senator Hatch
has posed it earlier in his reference to Gallatin and what kind
of Secretary of the Treasury he was. There are different roles.
Having been a staff person in OMB and USTR--and I have had the
same balance that you will be facing, but Treasury is
different.
I think it is a different job than Chief of Staff or in OMB
in the context of what both the ranking member and the chairman
were talking about, and it does have to do with taking public
positions. It is not about meeting with foreign leaders or
meeting with the President and being frank in the Oval Office,
it is about being willing to have the courage of your
convictions and to talk about these issues at a time when our
country is in trouble.
I think we are truly in trouble with our debt and deficit
at record levels and the weakest recovery we have had in our
history, in terms of getting out of our economic doldrums. I
think it requires a Secretary of the Treasury, because I think
this is--Gallatin is quoted as saying, from Senator Baucus,
``no more responsible position.'' It is true. I mean, this is
it.
We talked about tax reform and entitlement reform earlier.
I have just three quick questions for you, all of which may be
the kind of questions where sometimes you need to break some
china to do the right thing. But on entitlement reform, Senator
Hatch has talked about the importance of it.
CBO, which is, again, the nonpartisan group here in
Congress that gives us our information on what is going to
happen in the future, they have said that over the next 10
years Social Security, Medicare, and Medicaid will double in
their costs.
So you have about a 100-percent increase, about $1.5
trillion to $3 trillion in these programs over the next 10
years. During that time, other entitlements are going to go up
39 percent, discretionary spending only 10 percent. So it is
very clear where the spending problem is. It is not only the
biggest part of our budget now, it is the fastest-growing part
of our budget. They are incredibly important programs, but they
are not sustainable in their current form.
By the way, another thing that is causing a problem in our
deficit and debt is the interest payment. They have told us
that in the next 10 years our interest payment is going to go
up 284 percent, the bulk of which of course relates to the
increase in spending on the entitlement side, which requires us
to borrow more.
So my question to you is the obvious one, which is, are you
willing to take this on? The President has talked about it a
lot. He has even said he refuses to pass this problem on to
another generation of Americans. But so far, that is what the
administration has done, because the few changes that you have
proposed in your budgets, which as you know have not gotten
votes from Democrats or Republicans, really just are around the
edges.
So my question to you is, are you willing to step forward
on this and show the kind of leadership that Senator Baucus is
talking about? He may be talking about other kinds of
leadership. I know he agrees that this is a huge challenge that
we face. If you could answer that question with regard to
entitlement reform----
Mr. Lew. Senator Portman, I agree that we need to tackle
entitlement reform, and health programs are a big part of that.
I think that we look at the trajectory and the gap between the
revenues that come in in a program like Social Security--it is
not the entirety of the program, but it is a gap. Social
Security is 75-percent funded by the payroll tax forever, but
it leaves a gap. We need to deal with that.
Senator Portman. Like, $9 billion this year.
Mr. Lew. Yes. We need to deal with it in a way that
protects Social Security in a balanced, fair way. I think that
if you look at the arc of my career, whether it was in 1997
going and presenting the agreement that Senator Domenici and I
worked through together on the Balanced Budget Act, going into
the Democratic caucus in the House and the Senate, presenting
it, advocating it, winning support for it, that was not easy.
That was the courage of my convictions.
Senator Portman. Yes. It is not easy.
Mr. Lew. You know it is not easy. You have been OMB
Director.
I think if you look at the current debate, and Senator
Baucus knows this, I have gone before the Senate Democratic
caucus many times, telling people what I thought needed to be
told, even if it was not the popular thing at the time.
I believe in a certain set of things, and we may disagree
on some policy, but on the things that I believe in, I have
never, never withheld my judgment and have always driven as
hard as I could to get the job done. I would continue to do
that. It would be a broader set of issues, a different playing
field, that is clear.
Senator Portman. A different audience.
Mr. Lew. But the thing I would say that is different about
Treasury is, it is a job that requires one to transcend
politics in many respects. That is what Senator Baucus was
getting at in the comparison to the Solicitor General's Office.
I understand that, and I am looking forward to that.
Senator Portman. Before the chairman tells me my time is
up, because it just about is, quickly, TPA. Not to have the
ability to negotiate trade agreements makes it difficult to
take the President up on his challenge last night for us to
have a European-U.S. free trade agreement of some sort, and
also to complete the Trans-
Pacific Partnership, because, without the ability to be able to
up-or-down vote here in Congress, in my experience other
countries are not willing to put their last and best offer on
the table.
This is the first administration since FDR, of course, not
to ask for Trade Promotion Authority. Why? One and two, are you
willing to ask us to give you and to work with this committee
and the Ways and Means Committee on Trade Promotion Authority
so we can indeed make good on the President's commitments last
night?
Mr. Lew. Senator, I have, for 30 years, worked to try to
advance free trade and fair trade at times when it was
extremely unpopular. I worked to make sure that we did not have
protectionist policies in a Democratic House in the late 1970s,
early 1980s.
I worked in the Clinton administration and the Obama
administration. I am proud of the work I did helping to shape
the TPP when I was at the State Department. I think it was a
great announcement that the President made yesterday about
Europe, and I would look forward to working with you and the
members of this committee to have fair and free trade that
expands markets to----
Senator Portman. Will you be requesting Trade Promotion
Authority?
Mr. Lew. I would defer to the discussion that still has to
take place on that. I would certainly engage on it.
Senator Portman. I will ask my last question as a written
question, since I am over time.
Thank you, Mr. Chairman.
The Chairman. If you want to take more time, go ahead.
Senator Portman. Well, the final one is on retirement
savings; we had this question posed generally earlier by
Senator Cardin. This committee has worked over the years, along
with the Ways and Means Committee starting in 2001, to expand
retirement savings.
The theory has always been, if you can get more businesses,
particularly small businesses, to offer a 401(k) plan and get
more people to take up an IRA, that you can expand people's
ability to save for their retirement privately to help take
some of the pressure off Social Security. Some of us are
concerned that sometimes the administration seems less
committed to that going forward. In 2006, as you know, Congress
chose to make that part of the 2001 Act permanent, so the
expansions that occurred then are in place.
Our question for you today would be, are you committed to
the private retirement savings approach? Specifically, do you
think that 401(k)s work, and do you think that they should be
an important part of the 3-legged stool--savings, 401(k)s and
IRAs, and Social Security--for people's retirement?
Mr. Lew. Senator, I think that they work better for people
at the higher end of the income scale than people in the low to
the middle end of the scale. I think we need to look at ways to
get people to participate more in savings plans.
It is obviously harder, when you are spending all of your
disposable income, to save, no doubt about that. But there are
things that we can do to make it easier, more attractive, and I
would look forward to working with you and other members of the
committee on that. I do believe we need a 3-legged stool.
Senator Portman. Both of these men have been leaders on
that. We want to work with you on it. But just one point,
quickly. Unless you provide that incentive to that small
business owner to provide a plan, then those workers who are
concerned about it are not going to have the alternative to be
able to save for their private retirement, plus the matching
contribution is key, as you know.
So we just hope the President would work with us on that to
expand retirement savings in a way that gets more small
businesses, not fewer, involved in providing that great
opportunity for peace of mind in retirement.
Thank you, Mr. Chairman.
Mr. Lew. Thank you, Senator.
The Chairman. Thank you, Senator.
Mr. Lew, I appreciated your comments, I think in your
opening statement and also in answer to questions, that you
want to pursue regular order in pursuing comprehensive tax
reform, which essentially, certainly on the business side, is
base broadening and rate reduction. On the individual side, you
were a little vague there, but certainly we need base
broadening and also potentially rate reduction there depending
upon the degree that it is necessary.
I just want to say that this committee is going to act very
forthrightly in pursuing tax reform in the regular order. That
is, the committee itself will mark up legislation. I am sure I
can speak for the House Ways and Means Committee, and say that
is their preference too. I think I can speak for both sides of
the aisle, that both parties, those on the Finance Committee
and the Ways and Means Committee, and many other members of the
Congress, want to pursue tax reform the same way, in much the
same way we did back in 1986. That was wide open, freewheeling,
amendments offered.
It is true that, to some degree, 1986 began with the
administration with Treasury I and Treasury II, but it is also
true that both bodies got very engaged and very involved and
found a solution. I can remember in this committee--Senator
Packwood was then chairman--we reported out the 1986 bill
unanimously. All members of the committee supported it, which
was not expected earlier on.
So, I appreciate not only your willingness, but your
enthusiasm in working with the Congress and, under the regular
order, where the committees are doing their work, to pursue the
tax reform. I do think that is a good vehicle as well to
address growth and jobs and the other goals that are just so
important.
Mr. Lew. And Senator, if I might add, I do not think there
is any other way to accomplish it. It is too complicated. It
has to be done by the people with expertise and responsibility.
If confirmed, I would look forward to being a partner in that
effort.
The Chairman. Thank you very much.
Senator Hatch?
Senator Hatch. Well, thank you.
Mr. Lew, I agree with the chairman that we need to do tax
reform. We are going to need you to weigh in rather heavily.
Hopefully we can do it in such a way that really does increase
growth and pulls us out of the mess that we are in.
I would just make one other comment. I think you have to
weigh in on TPA. It is ridiculous that this is the only
President who, in my memory, has not asked for that power.
Trade is going to be one of the best ways we have to pull us
out of the mess we are in and to create the manufacturing jobs
that the President suggested he would like to last night.
So, I think you are highly respected in this administration
and by many of us, and I believe that, if you will weigh in,
that is something that really has to be done or we could get
into a massive mess here that is not going to be solved easily.
We would like to see free trade move much faster and much
better than it is. Other nations throughout the world are
entering into these free trade agreements, and we are being
left out in the cold at a time when we need the jobs, we need
the opportunities, and the unions need the jobs. Getting more
and more jobs gives them more and more chances to organize. So,
all of that fits together.
I would just encourage you to weigh in, because I know the
President thinks very highly of you or he would not have put
you in this position. That would be my counsel to you. I just
want to thank you again for appearing and being willing to
answer these questions. Frankly, I think you have done really
well.
Mr. Lew. Thank you very much, Senator.
Senator Hatch. You bet.
The Chairman. Thank you, Senator.
I want to just emphasize, Mr. Lew, what Senator Hatch said.
I do not think this administration has been as aggressive in
pursuing trade agreements as it should be. To be honest, I had
to twist some arms to get this administration even to agree to
pursue TPP. They were not in favor of it at the beginning at
all. I thought that was just totally short-sighted. We need TPP
to engage in the Pacific.
Mr. Lew. I totally agree with you, Senator.
The Chairman. We are doing it. But anyway, this
administration was dragging its heels at best.
Mr. Lew. I was on the side of the administration pushing
for it, so I am glad you----
The Chairman. I appreciate that very much. Also, recently,
when I was in Europe, I was very heartened to see the degree to
which European countries want to pursue a trade agreement with
the U.S. I might also add that TPA is a good opportunity to
write a kind of trade authority with some provisions in it that
would move us into the 21st century, move us forward, rather
than just the old standard, garden-variety TPA. So, there are
lots of opportunities here. Lots of opportunities here. I know
you agree.
I would say that I know you are going to pursue them all,
but I just urge also that you work mightily to find ways for
both ends of Pennsylvania Avenue to work together. It is not
just the Congress, it is both ends of Pennsylvania Avenue,
because that is the way our Founding Fathers set this
arrangement up. We just have to make it work.
Mr. Lew. I look forward, if confirmed, to doing that with
you, sir.
The Chairman. Thank you. I wish you great luck. I mean,
this is a tough job. I mean, Albert Gallatin said it was, and I
agree with him. Good luck.
Mr. Lew. Thank you, Senator.
The Chairman. The hearing is adjourned.
[Whereupon, at 1:27 p.m., the hearing was adjourned.]
A P P E N D I X
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