[Senate Hearing 113-437]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-437
 
                  PRESIDENT'S FISCAL YEAR 2015 BUDGET 

=======================================================================

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 5, 2014

                               __________
                                     

            Printed for the use of the Committee on Finance


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                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

JOHN D. ROCKEFELLER IV, West         ORRIN G. HATCH, Utah
Virginia                             CHUCK GRASSLEY, Iowa
CHARLES E. SCHUMER, New York         MIKE CRAPO, Idaho
DEBBIE STABENOW, Michigan            PAT ROBERTS, Kansas
MARIA CANTWELL, Washington           MICHAEL B. ENZI, Wyoming
BILL NELSON, Florida                 JOHN CORNYN, Texas
ROBERT MENENDEZ, New Jersey          JOHN THUNE, South Dakota
THOMAS R. CARPER, Delaware           RICHARD BURR, North Carolina
BENJAMIN L. CARDIN, Maryland         JOHNNY ISAKSON, Georgia
SHERROD BROWN, Ohio                  ROB PORTMAN, Ohio
MICHAEL F. BENNET, Colorado          PATRICK J. TOOMEY, Pennsylvania
ROBERT P. CASEY, Jr., Pennsylvania
MARK R. WARNER, Virginia

                    Joshua Sheinkman, Staff Director

               Chris Campbell, Republican Staff Director

                                  (ii)



                            C O N T E N T S

                               __________

                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Hatch, Hon. Orrin G., a U.S. Senator from Utah...................     4

                         ADMINISTRATION WITNESS

Lew, Hon. Jacob J., Secretary, Department of the Treasury, 
  Washington, DC.................................................     6

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Hatch, Hon. Orrin G.:
    Opening statement............................................     4
    Prepared statement...........................................    45
Lew, Hon. Jacob J.:
    Testimony....................................................     6
    Prepared statement...........................................    47
    Responses to questions from committee members................    54
Roberts, Hon. Pat:
    ``Connecting the Dots in the IRS Scandal,'' by Bradley A. 
      Smith, Wall Street Journal, February 26, 2014..............    97
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................   100

                                 (iii)


                  PRESIDENT'S FISCAL YEAR 2015 BUDGET

                              ----------                              


                        WEDNESDAY, MARCH 5, 2014

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:34 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. Ron 
Wyden (chairman of the committee) presiding.
    Present: Senators Schumer, Stabenow, Menendez, Carper, 
Cardin, Brown, Bennet, Casey, Warner, Hatch, Crapo, Roberts, 
Thune, Burr, and Isakson.
    Also present: Democratic Staff: Joshua Sheinkman, Chief of 
Staff; Jocelyn Moore, Deputy Chief of Staff; Michael Evans, 
General Counsel; Todd Metcalf, Chief Tax Counsel; and Adam 
Carasso, Senior Tax and Economic Advisor. Republican Staff: 
Chris Campbell, Staff Director; Mark Prater, Chief Tax Counsel 
and Deputy Staff Director; Nicholas Wyatt, Tax and Nominations 
Professional Staff Member; Jim Lyons, Tax Counsel; Preston 
Rutledge, Tax Counsel; Jeff Wrase, Chief Economist; and Caleb 
Wiley, Professional Staff Member.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. Good morning to all. The committee will come 
to order.
    Before we begin today, I want to assure everyone that you 
did not accidentally walk into a meeting of the Energy and 
Natural Resources Committee, which I used to chair. Our friend, 
Max Baucus, is off to do an outstanding job in China, and this 
is still the Senate Committee on Finance, with a storied 
history.
    Now, in the story department, I learned recently that 
Senator Hatch was an outstanding basketball player in high 
school, and I have learned through my sources that he had a 
great one-handed set shot. He is even in the Baldwin High 
School Hall of Fame for basketball.
    Now, I played a bit of basketball myself. So Senator Hatch 
and I may try to figure out a way to get a regular Finance 
Committee pickup game going, except we are going to probably 
try to see if we can find some arcane rules so that the young 
members do not make us look bad. [Laughter.]
    I also want to welcome Senator Warner to the Finance 
Committee. Senator Warner demonstrates continually that our 
government can have a head and a heart, and we are lucky to 
have his business expertise and bipartisanship on fiscal 
issues.
    Senator Schumer. Let the record show, Mr. Chairman, only 
Casey and I clapped.
    The Chairman. The record will so show.
    I am going to be brief this morning and, of course, state 
first that it is a tremendous honor to chair this committee and 
to work with all of you. This committee is the go-to place for 
tackling America's big domestic challenges, and Senator Hatch 
and I intend to preserve the committee's history of addressing 
these vital issues in a bipartisan way.
    In addition, the Finance Committee is the principal 
committee in the Senate with jurisdiction over international 
trade. Therefore, we are now looking at every possible economic 
lever to pressure Russia to step back from its unprovoked 
incursion into Crimea. The fact is, Russia has consistently 
used trade as a cudgel to bully its neighbors. The committee 
members will want Secretary Lew to tell us how the 
administration can best marshal our country's economic might in 
defense of the people of the Ukraine.
    Now, back on the domestic front, the committee has before 
it several issues with a date stamp on them. Those issues 
include repealing and replacing the badly flawed Medicare 
payment system for doctors, enacting bipartisan tax reforms 
that make the tax code more fair and more pro-growth, shoring 
up our transportation system, and helping American workers 
compete in tough global markets.
    And we are very pleased to have the Secretary here today to 
discuss the President's 2015 budget. This conversation on the 
budget is different than it has been in recent memory, because 
this year the Congress is actually operating under a bipartisan 
budget agreement, and the government is not closing down. So 
there is an opportunity to pivot from these budget battles and 
to focus on the big challenges before the country.
    I would submit that the top challenge is sustaining and 
expanding our middle class. Today, America has what I call a 
``Dollar Tree-Niemen Marcus economy.'' As has been noted in 
several publications, the bargain stores are doing well, and 
the high-end retailers cannot keep enough of the expensive 
items in stock. But stores that cater to the middle class are 
hurting.
    Every one of our big economic challenges depends on 
sustaining and growing the middle class. And, just briefly, I 
will tick off a few areas where we can boost that cause.
    The first is innovation. Whether it is through the tax code 
or other action, investment and innovation in research can help 
turn creative startups into thriving businesses with more good-
paying, high-skilled jobs. That is why I plan to move quickly 
to extend a number of expired tax provisions, such as the 
research and development credit. Over the long term, that 
credit, through comprehensive tax reform, could be made even 
more useful for American startups.
    The Obama administration's budget includes a proposal for 
business tax reform. I believe a broader approach that 
comprehensively overhauls our broken, dysfunctional code would 
do more to give all Americans, especially the middle class, the 
opportunity to get ahead, and we are going to work in a 
bipartisan way and with the administration closely on that 
matter.
    A second priority ought to be savings. The vast majority of 
savings are delivered through the tax system, and it is time 
for fresh policies that give all Americans the opportunity to 
accumulate wealth. The President offered one proposal to help 
workers save, myRA, during the State of the Union address, and 
the budget includes another called auto-IRAs.
    There is an additional idea that ought to be examined. As 
has been noted previously, establishing a savings account for 
every American child has had deep conservative roots and 
significant bipartisan support. The idea of helping young 
people, particularly ones of modest income, be part of the 
opportunity to accumulate wealth in this country is especially 
important, and such accounts could open doors to higher 
education, homeownership, and retirement security.
    Third, the committee is going to focus on education. This 
is another area where the tax code does not pass the smell 
test. There are 15 separate incentives to help defray the cost 
of an education, and each has its own set of mind-numbing rules 
and definitions. There are ways to improve those incentives, 
not just in the short term but for the long haul, through real 
tax reform, so that more Americans can secure the economic 
mobility that an affordable, high-quality education can give.
    Fourth, you cannot have big league economic growth with 
little league infrastructure. The committee is now working to 
provide fresh thinking that can pull some of the billions of 
dollars of 
private-sector capital off the sidelines and into 
infrastructure investments that spark new job growth.
    And America will soon need a solution to keep the Highway 
Trust Fund solvent. We are going to go prospecting, colleagues, 
for bipartisan ideas in both areas.
    In closing, this committee is going to focus on other 
issues outside our borders, besides Ukraine. One aspect of the 
international trade agenda that a number of colleagues have 
spoken about is currency manipulation. It is a major challenge 
confronting American workers and manufacturers. I look forward 
to working with Secretary Lew and the Department to ensure that 
our country is doing all it can to address misaligned 
currencies.
    And finally, Secretary Lew, to depart just for a moment 
from your portfolio, I would like to publicly thank the 
President for adopting a plan that Senators Crapo and Bennet 
and I from the Finance Committee and Senators Risch and Udall 
from the Energy Committee developed to reform Federal wildlife 
policy. Fires in Oregon and throughout the West have gotten 
bigger and hotter, but our policies have not kept up. And this 
new system is going to allow us to get more value out of this, 
in my view, also helping in a bipartisan way to address the 
challenge of these natural disasters.
    Let me turn now to Senator Hatch for his comments and, 
also, again express our thanks to Secretary Lew for his 
appearance.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]
    The Chairman. Senator Hatch?

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

    Senator Hatch. Thank you, Mr. Chairman.
    And, Mr. Secretary, we are very happy to have you here.
    I want to welcome our distinguished friend from Virginia, 
Senator Warner, to the committee. We are very pleased to have 
you on the committee. With your business background, I think it 
would be a great deal of help to us, to all of us, on this 
committee.
    But before I begin my statement, Mr. Chairman, I would like 
to take this opportunity to welcome you as the new chairman of 
our committee. Already you have hit the ground running, and you 
are, I think, setting a very good example for all of us, and I 
have really enjoyed the time that we have spent together up 
until now, and I look forward to a long-term working 
relationship with you. And, hopefully, we can do even better 
for this committee as the future occurs.
    And for those who do not know, Senator Wyden always plans 
ahead and thinks about future opportunities and challenges. For 
example, almost a decade ago, Senator Wyden selected the Senate 
office closest to our committee offices. [Laughter.]
    If you look down the hall, you will see the Oregon State 
flag. It is unique among our Nation's State flags in that the 
front and back parts are different from one another. On the 
front is the State seal, and on the back there is a depiction 
of a beaver. As this flag demonstrates, it is typical of 
Oregonians to think outside the box. Senator Wyden is no 
exception. I am quite certain that he will bring his unique 
talents to the big job of chairing this great committee.
    Mr. Chairman, I look forward to working with you in this 
new capacity. Right out of the gate, I want to thank you for 
holding today's hearing. And it is very, very important to have 
Secretary Lew here and to have this hearing on President 
Obama's Fiscal Year 2015 budget proposals.
    And again, thank you, Secretary Lew, for appearing before 
us today.
    To begin, I would like to note some problems with the 
process by which this proposed budget has been unveiled. First 
of all, we received this budget just yesterday, a full month 
past the statutory deadline. And what budget information we did 
receive yesterday is incomplete. For example, when you look at 
the appendix of the budget, there is often reference to a 
section called, ``Analytical Perspectives,'' but those 
perspectives are nowhere to be found.
    I assume that the rest of the budget information is 
forthcoming. Still, we can only wonder why it is being released 
a few pieces at a time. The administration appears to be 
approaching this hearing in the same way, as we did not receive 
Secretary Lew's written testimony until late last night, which 
was less than helpful.
    When we get past the process issues and into the substance 
of the President's budget, we see that the administration 
appears to be short on new ideas. Indeed, this budget consists 
largely of proposals from President Obama's past budgets, which 
is surprising, given that none of them has received a single 
affirmative vote in Congress.
    These proposals represent a continuation of three familiar 
themes. First, we see the administration's continued insistence 
that we can achieve prosperity by adopting more tax-and-spend 
policies that grow the Federal Government.
    Second, there are the proposals centered on the apparent 
belief that ever more income redistribution will somehow lead 
to economic growth and job creation.
    And finally, we see another attempt to define ``tax 
reform'' as a process of raising taxes in order to fuel more 
Federal spending, while closing whatever the administration 
deems to be a ``loophole'' in the tax code.
    Based in part on rosy economic assumptions, the 
administration believes that its proposals will reduce our high 
debt-to-GDP ratio, but to get there and to help fulfill its 
tax-and-spend objectives, the budget envisions well over $1 
trillion of additional taxes in the face of a persistently 
sluggish economy.
    I think that bears repeating. President Obama's latest 
budget contains more than $1 trillion in proposed tax hikes. 
The administration claims, as it has for years now, that these 
additional revenues are needed to restore fiscal responsibility 
and reduce the deficit as part of the ``balanced approach.''
    However, we need to look at the facts. Let us consider the 
deficit reduction that has occurred since the high deficit 
watermark achieved in fiscal year 2009. From the deficit of 
over $1.4 trillion in that year, the deficit fell to a still 
high $680 billion in fiscal year 2013. Of the $736 billion of 
deficit reduction, $670 billion came from increased revenue and 
only $66 billion came from reduced outlays.
    So in terms of budget realizations, rather than promises 
for the future, less than 9 percent of the deficit reduction 
between 2009 and 2013 came from reductions in spending. The 
vast majority came from increased revenue. Yet remarkably, in 
the face of that history, the administration's insatiable 
desire for higher taxes leads it to propose more tax hikes 
along with even more spending.
    Put simply, the tax hikes envisioned in the President's 
budget are not what our struggling economy needs. 
Unfortunately, while having pledged to focus like a laser on 
jobs, this administration decided, over the past 5 years, to 
focus on expanding government with a failed stimulus, the 
Affordable Care Act, and initiatives like the Dodd-Frank Act 
that is growing the big banks and shrinking community banks.
    None of these efforts laid a foundation for economic 
growth, and, sadly, the budget offered this week does not 
present a vision for such growth in the future. Instead, this 
budget proposal appears to be a political document designed to 
shore up support from the President's left-leaning base in an 
election year. Now this, needless to say, is disappointing 
given all of the real challenges our Nation continues to face.
    And as you can see, Mr. Chairman, we have a lot to discuss 
today when it comes to the proposals in this budget, and there 
are other issues at the Treasury Department that also warrant 
our attention today.
    For example, I find it incredible that even with all the 
challenges our Nation is facing, the Treasury Department has 
decided to place the singling out of 501(c)(4) organizations 
for scrutiny near the top of its administrative agenda. As with 
the budget, it appears that politics are driving the decision-
making when it comes to promulgating regulations for Treasury. 
In my view, it would be useful for the administration to focus 
more on growth in the economy and jobs than on how the 
President's party will fare in the next election.
    With those concerns in mind, I look forward to today's 
hearing, and I want to thank you, Mr. Chairman, and welcome 
you, again, as our leader on this committee.
    [The prepared statement of Senator Hatch appears in the 
appendix.]
    The Chairman. Thank you, Senator Hatch. And particularly, 
your focus on the bipartisanship that we have been talking 
about is especially helpful.
    Secretary Lew, we are glad to have you. We will put your 
prepared remarks into the record, and please proceed as you 
wish.

 STATEMENT OF HON. JACOB J. LEW, SECRETARY, DEPARTMENT OF THE 
                    TREASURY, WASHINGTON, DC

    Secretary Lew. Thank you very much, Chairman Wyden, Ranking 
Member Hatch, members of the committee. I thank you for this 
opportunity to appear before you today to testify on the 
President's budget.
    I want to add my personal congratulations to Chairman Wyden 
as we begin his first hearing as chairman of the Finance 
Committee. We have worked together for so many decades. It is a 
real honor to be the first witness----
    The Chairman. The days when I had a full head of hair and 
rugged good looks. [Laughter.]
    Secretary Lew. And it is also a pleasure to welcome Senator 
Warner here as the committee's newest member.
    Before I begin, let me say a few words about the situation 
in Ukraine. As President Obama has explained in no uncertain 
terms, the steps Russia has taken to violate Ukraine's 
sovereignty, Ukraine's territorial integrity, are a breach of 
international law.
    At this time, we are looking into a wide range of options, 
including sanctions and ways to increase Russia's political and 
economic isolation. Our ultimate goal is to deescalate the 
situation in Ukraine.
    As the Ukrainian government prepares for elections in May, 
it is critical that the international community support their 
efforts to restore economic stability. I have spoken with the 
Ukrainian Prime Minister a number of times now, and he has told 
me that his government is ready to adopt vital economic 
reforms.
    We have been working closely with the international 
partners and Congress to develop an assistance package that 
will help the Ukrainian government implement the reforms needed 
to restore financial stability and return to economic growth.
    As part of this international effort, the United States has 
developed a package of bilateral assistance focused on meeting 
Ukraine's most pressing needs. This package will include a $1-
billion loan guarantee and IMF quota legislation which will 
support the IMF's capacity to lend additional resources to 
Ukraine and help preserve continued U.S. leadership within this 
important institution at a critical time.
    While the United States will not increase our total 
financial commitment to the IMF by approving the 2010 reforms, 
it is important to note that for every $1 the United States 
contributes to the IMF, other countries provide $4 more. At a 
time when the U.S. is at the forefront of international calls 
urging the Fund to play a central and active first responder 
role in Ukraine, it is imperative that we secure passage of IMF 
legislation now so we can show support for the IMF in this 
critical moment and preserve our leading influential voice in 
this institution.
    I want to be clear that, even as we deal with the unfolding 
events in Ukraine, we continue to focus on our central 
objective: expanding opportunity for all Americans.
    Over the past 5 years, we have accomplished a number of 
important things to make our country stronger and better-
positioned for the future. In fact, since 2009, the economy has 
steadily expanded. Our businesses have added 8.5 million jobs 
over the last 47 months, the housing market has improved, and 
rising housing prices are pulling millions of homeowners from 
under water. At the same time, household and business balance 
sheets continue to heal, exports are growing, and manufacturing 
is making solid gains.
    The truth is, as the President said in the State of the 
Union address, we are more ready to meet the demands of the 
21st century than any other country on earth. Nevertheless, our 
economy was thrown against the ropes by the worst recession of 
our lifetimes, and, while we are back on our feet, we are not 
yet where we need to be. Everyone here understands that. The 
question is, what are we going to do about it?
    The President's budget lays out a clear path to move us in 
the right direction. It not only fulfills the President's 
pledge to make this a year of action, it offers a framework for 
long-term prosperity and competitiveness. This budget addresses 
the critical issues we face as a Nation.
    It recognizes that, while corporate profits have been 
hitting all-time highs, middle-class wages have hit a plateau, 
with long-term unemployment an ongoing challenge. It recognizes 
that, while the stock market has been vibrant, saving for 
retirement and paying for college is little more than a dream 
for millions of families. It recognizes that, while our 
national security threats are shifting and we are bringing the 
war in Afghanistan to a responsible end, soldiers, military 
families, and veterans struggle to succeed in our economy. And 
it recognizes that, while work is being done to put the final 
pieces of financial reform in place, reforms like the Volcker 
rule have made our financial system stronger and an engine for 
economic growth once again.
    The solutions in this budget flow from a frank assessment 
of these challenges. They are carefully designed to show the 
choices we can make to increase opportunity and bolster the 
middle class.
    For instance, a cornerstone of these proposals is to expand 
the Earned Income Tax Credit so it reaches more childless 
workers. We know this tax credit is one of the most effective 
tools for fighting poverty, and it is time to adjust it so it 
does an even better job of rewarding hard work. This tax cut, 
which would go to more than 13 million Americans, will be fully 
offset by ending tax loopholes that let high-income 
professionals avoid the income and payroll taxes that other 
workers pay.
    Another initiative that will make a difference for 
hardworking men and women is myRA. This retirement security 
program will be available later this year, and it will allow 
Americans to start building a nest egg that is simple, safe, 
and can never go down in value.
    While this budget puts forward essential pro-growth 
initiatives, it also calls on Congress to reinforce our growth-
enhancing strategies by passing measures like comprehensive 
immigration reform and trade promotion authority. But even as 
it does these things, make no mistake--this budget is also 
serious about building on the success we have made together to 
restore fiscal responsibility.
    The fact of the matter is, the deficit as a share of GDP 
has fallen by more than half since the President took office, 
marking the most rapid decline in the deficit since the period 
of demobilization following the end of World War II. The 
deficit is projected to narrow even more this year, and today 
we are charting a course that will push the deficit down to 
below 2 percent of GDP by 2024 and rein in the national debt 
relative to the size of the economy over 10 years.
    Last year, the President put forward his last offer to 
Speaker Boehner in his budget as part of a balanced compromise. 
This year's budget reflects the President's vision of the best 
path forward. While the President stands by his last offer, he 
believes that the measures in his budget are the best way to 
strengthen our economy now.
    As this budget demonstrates, the President is firmly 
committed to making tough choices to tackle our fiscal 
challenges, and our fair and balanced solutions represent a 
comprehensive approach to strengthening our Nation's financial 
footing.
    This approach shrinks the deficit and debt by making 
detailed, responsible changes to Medicare, while eliminating 
wasteful corporate tax loopholes and subsidies that do not help 
our economy and scrapping tax breaks for those who do not need 
them.
    Increasing basic fairness in our tax code is not just about 
improving our Nation's fiscal health, though. It is also about 
generating room so we can make investments that will strengthen 
the foundation of our economy for years to come.
    That means helping to create more jobs, by repairing our 
infrastructure, increasing manufacturing, boosting research and 
technology, and fostering domestic energy production. It means 
training Americans so they can get those jobs, by promoting 
apprenticeships and upgrading worker training programs. It 
means improving our education system by expanding access to 
preschool and modernizing high schools. And it means making 
sure hard work pays off by creating more Promise Zones, 
increasing college affordability, and raising the minimum wage 
to $10.10 an hour and indexing it to inflation.
    In closing, let me point out that this budget represents a 
powerful jobs, growth, and opportunity plan. It is carefully 
designed to make our economy stronger, while keeping our fiscal 
house in order. What is more, it offers Washington a real 
chance to work together. As everyone on this committee knows, 
for too long, brinkmanship in Washington has been a drag on 
economic growth. But we have seen a significant amount of 
bipartisan progress in recent months, and that has helped 
improve economic momentum.
    Some cynics say it is fleeting, some call it election-year 
posturing, but I do not agree. I believe this progress is real. 
I believe we can keep finding common ground to make a 
difference, and I believe we can continue to get serious things 
done on behalf of the American people by working together.
    Thank you very much, and I look forward to answering your 
questions.
    [The prepared statement of Secretary Lew appears in the 
appendix.]
    The Chairman. Secretary Lew, thank you, and we too look 
forward to working with you.
    Let us begin with Ukraine, if we might. It appears to me 
that Vladimir Putin's actions in the Ukraine represent a last 
gasp for grandeur. His efforts to expand Russia's footprint 
will only work to further isolate the country he calls home.
    Yesterday, Russia test-launched an intercontinental 
ballistic missile. But when was the last time a Russian company 
launched a new automobile line, an airplane, or an Internet 
company that could compete on the world stage? To me, his 
efforts to show power through 20th-century imagery only 
demonstrate the weakness that Russia is showing under Mr. 
Putin's leadership.
    Now, Senator Hatch and I have zeroed in on a number of 
areas, particularly in the trade domain, where we think we can 
promote sensible policies to hold Mr. Putin accountable, such 
as ensuring that Russia's World Trade Organization agreements 
are fully enforced. They are not now.
    So we can use trade tools at our disposal to help Ukraine 
and similarly situated countries.
    So what I thought I would do for the first question, 
Secretary Lew, is to ask what you think your best economic 
levers are at this point. And then give us, if you might, your 
sense of how we might have some guidelines to evaluate all of 
the proposals.
    I think, Senator Hatch, I have almost lost count of all the 
ideas that have been proposed for dealing with Russia.
    But if you might, start there, Secretary Lew. What do you 
think the best economic levers are? What do you think the 
guidelines are, particularly as they relate to timeliness--as 
you made the point--working with allies? What do you think the 
guidelines are that we might use?
    Secretary Lew. Mr. Chairman, I think that the President has 
been clear, we have been clear, that Russia has to be held 
accountable for the actions it has taken, and Russia also has 
to have a path to step back from what is dangerous escalation 
unless it stops. I think that the actions the President has 
announced illustrate serious attempts and, I think, effective 
ways to start this process of increasing Russia's isolation.
    The G-8 is a very important meeting to Russia. We have 
already withdrawn from participation in preparations for it, 
and we are on a path where I think it is clear that Russia 
cannot sit at a G-8 meeting while it is pursuing the policies 
that it is now pursuing.
    We have withdrawn a trade mission that was supposed to be 
working with Russia to continue making progress on a national 
investment treaty. We have withdrawn a presidential delegation 
that was supposed to be attending the Paralympics, something 
that we very much support, but it is not a time for a 
presidential delegation to be going to Russia.
    The President has made clear that he has asked us to 
develop further options. We will continue to develop those 
options. And I am going to reserve for the President the right 
to address future steps that we--he--might take, but we are 
clear that there need to be steps that hold Russia accountable 
for actions taken to date, and what we have to do has to be 
responsive and proportional as we go forward.
    The Chairman. If you could, Mr. Secretary, because of the 
urgency of the situation, let us say within 48 hours, if you 
could particularly give us some measures or guidelines in terms 
of how we would evaluate the proposals, and if you could get 
that to Senator Hatch, that would be helpful--Senator Hatch and 
I.
    The question I wanted to ask with respect to the domestic 
challenges is, I think we all know that, while the economy 
certainly has improved in a number of areas, we still have an 
enormous challenge in terms of dealing with the long-term 
unemployed. We have lots of folks out of work who, as a result 
of technological changes and a whole host of factors, have been 
unemployed for a long, long time.
    How does the President's budget, in your view, best address 
the needs of the long-term unemployed?
    Secretary Lew. Mr. Chairman, I think, in a sense, the 
entire budget is an answer to that question, because it is not 
just one thing that we have done. It is really the frame. We 
need to drive economic growth, because the engine for creating 
jobs in this economy is economic growth. In its entirety, that 
is what this budget is designed to do.
    Specifically, we have targeted areas, from extending 
unemployment benefits for the long-term unemployed to skills 
training to establishing manufacturing hubs to extending the 
Buy America bonds--which we are now calling America Fast-
Forward bonds--to continue to fund infrastructure spending, 
something that you were one of the champions of. These are the 
kinds of things we need to do.
    I think it is clear that if you look at the policy thrust 
of building our infrastructure and skills training--and by 
skills training, I think it is important to start at early 
childhood and go all the way to retraining when someone loses 
their job--those are the things we need to do to have a vibrant 
economy in the future, and this budget lays forth a vision of 
how to achieve that.
    The Chairman. Thank you.
    Colleagues, if we are going to stick to the 5-minute rule 
or get close to it, I had better start by setting an example. 
So my time has expired.
    Senator Hatch?
    Senator Hatch. Thank you, Mr. Chairman.
    Secretary Lew, I appreciate you appearing here today, and 
we appreciate what a difficult job you have.
    The nonpartisan Congressional Budget Office says that over 
the next 10 years spending on Social Security, Medicare, 
Medicaid, CHIP, and exchange subsidies will total over $21.6 
trillion. Moreover, that spending will grow at an average rate 
of 4.4 percent compared to growth in the size of the economy, 
which is projected to average 2.8 percent. Of course, that 
means that growth in the entitlement spending is unsustainable.
    Now, Mr. Secretary, I have two questions regarding the 
entitlements that I just mentioned.
    First, in light of the CBO projection of over $21.6 
trillion of spending in the entitlements--and that is just some 
of the entitlements--by how much does the President's budget 
propose to reduce that spending? And second, does the budget 
propose to reduce growth in the entitlement spending at all, 
and, if so, how?
    Secretary Lew. I think that the observation that you are 
referring to is one that we have seen for a long time. It has 
to do with the demographic aging of the baby boomers and the 
fact that people my age and older are retiring. So we knew that 
there was going to be an increase of spending on entitlement 
programs. The question was, would our fiscal house be in order 
to deal with that?
    What this budget shows is that, for the 10-year period 
covered by this budget, we reduce the deficit as a percentage 
of GDP to less than 2 percent. We are on a path that is 
sustainable, and it is a solid, firm foundation.
    In that period, we have instituted additional savings in 
entitlements. We have $400 billion of specified savings in 
Medicare. And obviously, these are challenges that we have all 
known were coming for decades.
    I think that keeping our fiscal house in order is of 
critical importance. How we do that reflects how we build an 
economy that is growing, and growth has a lot to do with our 
ability to tackle the demographic challenge.
    Unless we can get sustained growth into a healthy place, 
those fiscal challenges will only be more complicated. So I 
think this budget is a blueprint that deals in the right way 
with the next 10 years in laying a foundation for the future.
    Senator Hatch. Last year, the Social Security trustees, 
which include you, reported that the Social Security Disability 
Insurance Trust Fund will be exhausted in 2016. As a trustee, 
Secretary Lew, you urged that lawmakers act in a timely way to, 
quote, ``phase in necessary changes and give workers and 
beneficiaries time to adjust to them.''
    Now, Mr. Secretary, in the face of the impending exhaustion 
of the Disability Insurance Trust Fund, what does the budget 
propose, if anything, to address the exhaustion of that fund or 
to address the impending exhaustion of the Social Security 
Retirement Trust Fund a bit further down the road?
    Secretary Lew. Senator Hatch, obviously the time frame for 
the Disability Trust Fund is much more immediate--2016--versus 
decades away. I think that when experts look at what the 
options are for the Disability Trust Fund in the short term, 
there is a general agreement that there is going to need to be 
some kind of a reallocation of premiums that go into the trust 
funds for the short term.
    In the longer term, what our budget does is, it lays out a 
program of program integrity to make sure that people who apply 
for disability are eligible for it, and we would work together 
with the Congress to make the kinds of changes we need to to 
protect that critically important program and make sure it is 
sound in the long term, and we look forward to working together 
on a bipartisan basis on that.
    Senator Hatch. Page 33 of the budget document discusses the 
future unsustainable deficits and debt and alludes to a larger 
tax increase that is undefined in the document. Specifically, 
the budget identifies that, even with reforms to Medicare and 
other entitlements and tough choices on the discretionary side, 
we will, quote, ``need additional revenue to maintain our 
commitments to seniors.''
    Now, I have two questions for you, which I will read 
through and then you can respond.
    First, if you agree with that part of the budget, then, in 
addition to the tax increases in the budget, what tax increase, 
either in terms of dollars over the next 20 years or so or as a 
share of GDP, does the administration believe will be necessary 
to get what it identifies as needed additional revenue to 
maintain our commitments to seniors?
    And second, do you think that the entitlements will have to 
be financed, at least in part, through a value-added tax or a 
carbon tax or some other non-income-based tax added to our 
existing tax system?
    Secretary Lew. Senator Hatch, I think the budget lays out 
very clearly our tax policies for the next 10 years. For a 
number of years now, the President has laid out principles that 
should govern how we look at Social Security reform, and I 
would be happy to follow-up and work with you on that going 
forward.
    Senator Hatch. Well, we would appreciate that. My time is 
up.
    The Chairman. Senator Burr is next, and then Senator 
Stabenow.
    Senator Burr. Thank you, Mr. Chairman, and let me also 
welcome you to the chair.
    The Chairman. Thank you.
    Senator Burr. Mr. Secretary, welcome.
    Mr. Secretary, after Lois Lerner disclosed last summer that 
the IRS had been targeting conservative organizations for more 
than a year, both you and the President stated that you were, 
and I quote, ``outraged'' by that behavior.
    Do you stand by that comment today?
    Secretary Lew. Senator, I have stood by my comments that 
the actions taken reflected bad judgment and that they were 
unacceptable, that they could not happen again. We put in place 
an acting Director at the IRS who did a fine job to bring 
things into order. We have a new Commissioner of IRS who is 
equally first-rate. And we are committed to running the best 
IRS that we can possibly run.
    I am equally convinced that there was not any kind of 
malicious action there. It was bad judgment, and that bad 
judgment is unacceptable.
    Senator Burr. Well, I ask you because the contrition you 
expressed then seems at odds with the current attitude. Both 
you and the President have gone so far as to refer to the IRS 
persecution of those who disagree with you as ``a phony 
scandal,'' to quote. I would suggest you are even going further 
than that and attempting to codify that bad behavior in the 
law.
    How can we interpret this new rule as anything other than 
an attempt to achieve the same stifling of 501(c)(4)s that Lois 
Lerner was, in fact, doing?
    Secretary Lew. Well, Senator, I continue to believe that 
the attempts to turn this into a scandal do not reflect the 
nature of the bad judgment that was involved, and I think that 
the----
    Senator Burr. Well, Mr. Secretary, 100 percent of the 
501(c)(4)s that had ``Tea Party'' in their name were referred 
for extra scrutiny. The word ``progressive'' did not appear on 
the Be On the Look-Out list for extra scrutiny. And, of the 298 
political cases, only six had ``progressive'' in their name.
    Secretary Lew. Senator, I----
    Senator Burr. What do you conclude from that?
    Secretary Lew. Senator, I think bad judgment was equal 
opportunity. It addressed concerns of the right and the left. 
It was not good judgment, and it was unacceptable. But it was 
not politically motivated.
    Senator Burr. Two hundred and ninety-eight to six.
    Secretary Lew. You asked about the regulations. I want to 
point out the proposed changes in the regulations. After the 
situation was evaluated by the Inspector General at Treasury, 
there was a report that laid out actions to be taken.
    I made a commitment to keep all those recommendations, to 
follow through on all those recommendations. One of them was to 
clarify the rules, where the confusion in the policy was what 
was at the root of the bad judgment that caused the problem.
    In the proposed rule that we put out, it was actually a 
request for broad comment. It did not provide as detailed a 
policy as many people have said. And we have gotten, as you 
know, over 150,000 comments, and we are going through them, as 
we said we would.
    Senator Burr. Did you have any conversations prior to the 
10th of last May when Lois Lerner made her revelations 
concerning issuing a new rule restricting the political 
activities of tax-exempt groups----
    Secretary Lew. Well, the IG report that came out--I do not 
remember the date of the IG report--it was right after that 
that we said we would follow through on all the recommendations 
of the IG report. I would have to check the date.
    Senator Burr. Mr. Secretary, last June, I sent a letter to 
the IRS encouraging them to respect the controlling OMB 
guidance and suspend fiscal year 2013 performance awards to IRS 
employees.
    As a former Director of OMB, I know you must feel that 
following OMB's guidance is important. That is why I am sure 
you share my concern that the new Commissioner has decided to 
reverse that decision and to pay out a portion of the bonuses.
    Given that calamitous behavior of the Tax-Exempt Division 
and, I think, the damage that it has done to public trust in 
the agency's ability to perform its core functions, do you 
believe it was appropriate for those employees to receive a 
bonus?
    Secretary Lew. Senator, I have to start by saying that the 
overwhelming vast majority of employees at IRS are hardworking 
public servants who do a fine job and deserve respect and 
thanks, and that is something that I think is an important 
thing for all of us to remember.
    Secondly, there was a suspension of the bonus policy during 
the sequestration period, and there was a challenge under some 
of the collective bargaining agreements. I would defer to the 
Commissioner of IRS on how he has worked out the policy 
subsequent to that.
    Senator Burr. Did you pay bonuses last year at Treasury?
    Secretary Lew. I do not believe so. I would have to double-
check.
    Senator Burr. Do you intend to pay them this year?
    Secretary Lew. I am not sure that that decision has come to 
me yet.
    Senator Burr. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Burr.
    Senator Stabenow?
    Senator Stabenow. Well, thank you very much, Mr. Chairman. 
And first, I want to welcome you to your position. It is 
wonderful seeing you in that position, and I look forward to 
the basketball games between the two of you.
    Mr. Secretary, welcome, as always.
    And to the Senator from Virginia, we are happy to have you 
down at the end of the table. So we appreciate you being on the 
committee.
    A couple of things, in addition to my questions. I just 
want to start by saying that, given everything that has 
happened at the IRS, I am really pleased that you finally have 
the President's person on the job, since the IRS, just for the 
record, was operating under President Bush's IRS Commissioner 
through all of this.
    And realizing that there are legitimate questions and we 
all certainly want things to go well, I am glad that in the 
last couple of months, we have finally been able to confirm the 
President's team, and I am confident, going forward, that this 
will be addressed in a fair way.
    Secretary Lew. And we are grateful to the committee for 
handling that.
    Senator Stabenow. Secondly, I think we are always going to 
have this debate about how to move the economy and, just for 
the record, also, legitimate differences. But I am for whatever 
works. I am sure you would agree. I came in under President 
Clinton in 1997, into the House. And we balanced the budget 
within 6 months.
    I took full responsibility for that, Mr. Chairman. 
[Laughter.] But what was interesting is that what worked was 
asking those doing very, very well in our country, the 
wealthiest Americans, to contribute a little bit more to help 
balance the budget, making strategic cuts where we could on 
things that did not work, and making strategic investments in 
education and innovation, and we balanced the budget.
    Then we tried a different approach next with the Bush 
administration that reflected high deficit-spending on wars. We 
could debate the wars, but they were not paid for. At the same 
time, rather than paying for them, we gave tax cuts--a revenue 
loss--to those who were the wealthiest Americans, and then, 
unfortunately, we ended up cutting investments to middle-class 
families, opportunities for education, and so on. Deregulation 
went forward on Wall Street, and we lost 8 million jobs.
    So now we come to the Obama administration, again, back to 
trying to balance this, and I think it is pretty significant 
that we have seen the deficit more than cut in half and that 
you are saying we are on a path to create 2 percent of GDP in 
terms of the deficit. Jobs are coming back, not as fast as we 
would like them to, but they are coming back, and we are trying 
to rebalance by focusing on education, innovation, those things 
that will grow the middle class, because we know that we will 
never get out of debt with 10 million people out of work.
    So, just for the record, I feel like, Mr. Chairman, we have 
approaches that have worked and approaches that have not 
worked, and I think we ought to focus on what works.
    My question, Mr. Secretary: I chair the Agriculture 
Committee, overseeing the Commodity Futures Trading Commission. 
This is an agency, as you know, that is incredibly important as 
we strengthen our economy and create opportunities for 
investments, and the CFTC oversees markets that impact 
everything from the price of groceries to the cost of fuel, 
interest rates, home mortgages, and so on.
    When we look at the CFTC's increased responsibilities in 
the last number of years versus their budget, they barely have 
more staff than they did 20 years ago, and, as you know, their 
oversight has grown tremendously. The futures market has grown 
5-fold, increasing by roughly 10 times the size of the futures 
market's new responsibilities.
    They brought in $2 billion in fines last year alone, but 
received only about $215 million to operate. And I am very 
concerned about the ability of this agency to be effective in 
supporting our economy. So I wonder if you might just speak 
about the proposals by the administration and how the CFTC 
funding matches up with other funding mechanisms for other 
regulators.
    Secretary Lew. Thank you, Senator Stabenow.
    I must begin by thanking you for your comments about the 
1990s. I had the honor of being Budget Director during the 3 
years when we ran a surplus and could not agree more than we 
had a set of policies that worked. And we today have a set of 
policies that work, and we know how to do this.
    As far as the CFTC goes, very briefly, it has been a major 
issue that we have joined really since Dodd-Frank was enacted: 
that we need to have enough people at the CFTC both to 
implement the rules and have cops on the beat to enforce them.
    We got just enough money in the appropriations bill this 
time to start ramping up to the point that we need to to 
implement the rules, but we need to have a sustained level of 
funding, predictable and with the increases to reflect the 
extra work that is required to implement the new rules.
    We have suggested that it would be a good idea to explore 
the kind of self-funding mechanism that the bank regulators 
have so that our financial regulators do not have to worry 
about year-to-year ups and downs in funding, but they can make 
sure that their enforcement programs are there every year to 
protect American consumers.
    Senator Stabenow. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. If Senator Schumer is willing, Senator 
Isakson could go and then Senator Schumer. Is that acceptable?
    Senator Isakson?
    Senator Isakson. Thank you very much.
    I thank the Senator from New York.
    Mr. Chairman, welcome. Congratulations on your 
chairmanship. From my work with you over the last 9 years in 
the Senate, I am sure it will be an enlightening period of time 
under your leadership, and I look forward to serving with you.
    Secretary Lew, I call your attention to the bottom of page 
3 and the top of page 4 in your remarks, where I quote the 
following: ``The President has called for streamlining and 
accelerating the permitting process for infrastructure 
initiatives, and the budget includes funding for a new 
interagency infrastructure permitting improvement center to 
help with these efforts,'' end quote.
    Is that correct?
    Secretary Lew. I do not have the pagination in front of me, 
but that is our policy, yes.
    Senator Isakson. I will share it with you. It is exactly 
what I read.
    Secretary Lew. I trust it is correct.
    Senator Isakson. This is a little bit of a parochial 
question, certainly in my own self-interest and that of Senator 
Chambliss, but it belies everything your statement says, and I 
want to give you this information. You may not know it, and I 
would appreciate your following up on it.
    For 15 years, the Port of Savannah has been authorized for 
expansion. We have gone through 15 years of environmental 
studies, NOAA requirements, requirements by the Corps of 
Engineers, oxygenation requirements. The State has raised $248 
million to match Federal money to expand that port.
    I traveled with Vice President Biden to Panama, and with 
the Mayor of Philadelphia and the Mayor of Baltimore just 
recently, because of the Vice President's intent to expand 
infrastructure projects for the same reasons you state in your 
statement.
    On the 28th of February, just a few days ago, after 
everything had been done, 902 waivers were in both the House 
and Senate water bill. The President and the Vice President--I 
do not want to quote the President, and I cannot quote the 
President, but the Vice President, and I quote, said ``we are 
going to get his project in Savannah done come hell or high 
water.''
    Everybody in the Corps was prepared to sign the program 
partnership agreement. NOAA had signed off; EPA had signed off. 
The money is in the bank at the State. Everything was done.
    Then the Director of OMB called the Corps of Engineers and 
told them specifically not to sign the partnership agreement.
    Two weeks before we passed the Omnibus Appropriations Act--
and I was one of the nine Republicans who voted for it--we met 
with the Director of OMB, and the Director of OMB sent 
personnel from her office to meet with staff of mine and staff 
of Senator Chambliss to craft the language for the 
appropriations bill to ensure that she would have the 
authority, the right wording and the right authority, to move 
money in the budget for fiscal year 2015 from ``intended'' to 
``construction.''
    All of a sudden, Friday of last week, the phone started 
ringing, and the directions went to the Corps of Engineers, 
``Do not sign the project partnership agreement.'' I personally 
got calls from OMB saying there is no precedent to do what we 
are doing, just 3 or 4 weeks after we met with OMB staff to 
craft the language they asked us to get in the appropriations 
bill.
    So I cannot understand how the administration can say that 
it wants to accelerate projects, when we get a last-minute hold 
on a 15-year authorization in which every ``i'' has been dotted 
and every ``t'' has been crossed.
    Do you have an answer for that?
    Secretary Lew. Well, Senator Isakson, as Treasury 
Secretary, I am not deeply involved in the individual project 
decisions. So I cannot address the questions about the Port of 
Savannah. I will refer the question to our OMB Director. But I 
would say----
    Senator Isakson. I have already talked to the OMB. I would 
appreciate your looking into it personally.
    Secretary Lew. I will take the question back, but, 
obviously, it is not a Department of Treasury issue. So I am 
going to have to go to OMB with the question.
    I would say that, going back, we have made a lot of 
progress at streamlining the approval process for important 
projects.
    In my home State of New York, Senator Schumer's State of 
New York, the Tappan Zee Bridge was re-permitted for 
construction in 18 months, something that nobody believed was 
possible.
    So this is very important. It is something we are committed 
to, and I will take back your question.
    Senator Isakson. I would appreciate it very much.
    Mr. Chairman, can I ask you a question?
    The Chairman. Of course.
    Senator Isakson. I am correct that both the majority and 
minority side are still investigating the IRS situation with 
Ms. Lerner. Is that not correct?
    The Chairman. We are working together on the investigation 
that began under Chairman Baucus, and we intend to continue to 
work on it and do it in a thoroughly bipartisan way.
    Senator Isakson. The reason I mention that is, for your 
edification and your benefit, the last month, I have taken 
every Friday to do town hall meetings in Georgia. The number-
one thing that I am asked about is the IRS targeting of certain 
groups for audits--the number-one thing.
    It cannot be dismissed as an error in judgment until we get 
all the facts and find out if that is, in fact, what it was. So 
I would encourage you at Treasury, being responsible for IRS, 
to let them know they are the number-one topic of conversation. 
And when April 15th comes, they are going to be the number-one 
topic, for a lot of reasons we are all familiar with.
    But we need to get to the bottom of that. And Senator Burr 
is precisely correct: it is the public's number-one concern.
    Secretary Lew. Senator, we tried to be cooperative. We will 
continue to be cooperative with this committee's and the House 
committee's investigation, and the IRS Commissioner, John 
Koskinen, has made a similar commitment. And we understand you 
need to complete your investigations.
    I can just offer our judgment based on what we know.
    Senator Isakson. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Isakson.
    Senator Schumer?
    Senator Schumer. Thank you, Secretary Lew, and thank you 
for the wonderful job you are doing. We are very glad you are 
there. I am glad, as a New Yorker, but more importantly, as an 
American. And I want to applaud your commitment in this budget 
to really focus on the middle class like a laser.
    The deficit is a problem, no question about it. But we have 
made good progress on the deficit, and I would posit that the 
number-one problem facing America is the decline of middle-
class incomes.
    It affects our economy in so many ways. It affects our 
politics, it affects our whole way of being as Americans. And 
doing the kinds of things that you have done in the budget, 
both in terms of taxes--such as the American Opportunity Tax 
Credit, the provision that I helped author and worked with you 
to extend, making it permanent, is great, as well as the Child 
Tax Credit--and on the spending side, which I know is not your 
department, but doing investments in infrastructure and in 
education and in research, those are the ways to get the middle 
class moving again, and those at least have my highest 
priority.
    I have a couple of questions here on specifics.
    The first is on the ASPIRE Act.* I know the chairman 
mentioned it in his opening remarks. And it is so important, 
because one of the greatest barriers to financial stability for 
many young Americans is the lack of savings and assets.
---------------------------------------------------------------------------
    * The America Saving for Personal Investment, Retirement, and 
Education Act of 2013.
---------------------------------------------------------------------------
    Nineteen percent of New York households, 31 percent of 
households nationwide, have no savings account. That is sort of 
unheard of, but that is what is happening. I remember when I 
was in grade school, we put a quarter into the King's Highway 
Savings Bank every week, got a bank book, and it showed----
    Secretary Lew. The Ridgewood Savings Bank.
    Senator Schumer. There you go. Another fine New York 
institution.
    Anyway, that is not done anymore, and children from 
families face significant barriers to attending college and 
owning a home.
    So for several Congresses, I have introduced--Congressman 
Gingrich was a sponsor, Senator Santorum, so it has real 
bipartisan support--the ASPIRE Act, which would establish a 
universal child savings account with Federal seed funding and 
matching contributions.
    I, first, am appreciative of the chairman highlighting this 
issue as one of the issues that he wants to move this year, 
which I really appreciate, and he mentioned it in his opening 
remarks. But I hope we can count on your support and the 
administration's support for both technical guidance as we move 
forward with this proposal, but also support of the basic 
concept: creating a lifetime savings fund for every child when 
they are issued a Social Security number, teaching people to 
save, encouraging people to save.
    One of the great problems in America is we do not save 
enough the way we used to.
    Would you please comment?
    Secretary Lew. Senator Schumer, we totally agree that 
encouraging savings is a critically important objective. That 
is one of the reasons we have made the myRA proposal such a 
prominent feature, because it does not sound like much, but 
starting a retirement account with $25 and adding $5 a pay 
period, it starts the habit of saving for retirement.
    Senator Schumer. Yes.
    Secretary Lew. Which is really the same idea that you are 
talking about.
    Senator Schumer. Right.
    Secretary Lew. The ASPIRE accounts are something we are 
happy to look at and work with you on technically.
    Senator Schumer. That is at the other end.
    Secretary Lew. It is at the beginning----
    Senator Schumer. Young people as opposed to golden-agers.
    Secretary Lew. And we are happy to work with you on the 
proposal. Obviously, it is a question of, with limited 
resources, how do we optimize the decisions we make, and we are 
happy to work with you on this.
    Senator Schumer. Great. Well, thank you, and I look forward 
to--I am going to bother you until you end up supporting it. So 
it is now or later, take your pick. [Laughter.]
    The next issue is the AOTC. I was glad to see you made it 
permanent.
    One of the great problems the middle class faces is paying 
for college. It has become so much more expensive, and somebody 
at one of the little forums we had said that when he went to 
college, if he worked 40 hours a week on the minimum wage, he 
could earn tuition in a year. And now it takes something like 
30 years working at the minimum wage to pay for tuition, so it 
shows you both ends changing.
    It is a shame that America is declining in the percentage 
of people who graduate from college. We used to be number one. 
We always worried about our K through 12 system, but we did not 
worry about our higher ed system. And still, the number-one 
worry about our higher ed system is expense.
    So I think it is very important, and I did not understand--
I really like Paul Ryan. I think he is a fine, honorable man, 
and I liked working with him on many issues, but he attacked 
this provision in his War on Poverty report. I do not 
understand why our colleagues on the other side--this is a tax 
break to help middle-class families pay for college.
    And my question is, does it not seem to you to be the kind 
of thing--it used to garner bipartisan support. It was authored 
by Senator Snowe and myself when she was here on this 
committee. Does it not seem to you the kind of thing that 
should get both parties? That is the kind of thing we could 
come together on.
    Secretary Lew. Senator Schumer, I certainly would hope that 
that is the case. I applaud the work that you and Senator Snowe 
did on this. It is something we very much embrace.
    When you look at our system of higher education, we still 
have the best higher education institutions in the world. When 
you look at the pathways toward opportunity, there is a 
dividing line for those who get a higher education and those 
who do not.
    If we really want to make sure that we equip the next 
generation with the skills they need to grow the economy and to 
make sure that everyone who is willing to work hard has a 
chance, we have to open the doors to education, and we look 
forward to working on a bipartisan basis to extend the AOTC and 
make it permanent.
    Senator Schumer. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman. I, first of all, 
want to congratulate you and look forward to your progressive 
leadership of the committee. And I am also looking forward, 
having moved up the rostrum here, to no longer smashing my 
knees with that of my staff from the other end. [Laughter.]
    So let me, Mr. Secretary, talk about--I know you are here 
about the budget, and, of course, budgets are also about 
values, from my perspective. It reflects what we believe as a 
country.
    But as we talk about the budget, I also look at the draft 
of the House Ways and Means Committee chairman's tax reform 
plan that has a complete elimination of the State and local tax 
deduction. That is a proposal that would impose a significant 
and, from my perspective, unfair tax increase on millions of 
families in my home State of New Jersey and across a number of 
high-cost States in the country.
    Unfortunately for the reality of this bill's prospects, 
experiences from the 1986 effort show that, as most tax experts 
know, any serious tax reform effort cannot be built on such a 
shaky foundation.
    So my question, to get a sense from you, is, in order for 
tax reform to become a reality, do you think tax writers should 
take into account the regional impact of any tax change?
    Secretary Lew. Senator Menendez, I guess I should start by 
saying I think that Chairman Camp deserves a lot of credit for 
putting a detailed plan out there. There are a lot of things in 
it that reflect thinking that many of us have had. There are a 
lot of things in it that many of us disagree with. But I think 
it is important for there to be a full discussion of tax 
reform.
    I think on the question of regional impact, we always have 
to worry about whether or not the tax policy or the spending 
policy we put into effect is fair and affects the country in a 
way where the outcomes are something that we would want as a 
policy.
    I think on the specific issue of State and local deduction, 
we have, obviously, approached it in a different way from the 
administration. We have treated it in the same way as other 
deductions, where we think there is an argument to limit the 
availability of deductions for the very high-income, but not to 
remove it as the basic mechanism, to permit the deduction of 
State and local taxes.
    State and local finances are very important to the 
stability of our economy, and I think that the complete 
elimination of the State and local deduction would be something 
that would be a real challenge for many jurisdictions, and 
regionally it is not just the Northeast. It is certainly well 
beyond the Northeast.
    So I think it is something we would have to look very hard 
at, anything we did that went as far as that proposal.
    Senator Menendez. There is a difference between high wealth 
individuals who may have acceptable limitations and regular 
middle-class families that this would be an economic body blow 
to.
    Secretary Lew. Right.
    Senator Menendez. So I appreciate your thoughtfulness on 
that.
    I want to turn to something that I have been speaking to 
you about since your nomination hearing, and I know we recently 
had a conversation on this, and that is reform of the Foreign 
Investment in Real Property Tax Act.
    I just want to bring to your attention, again, that the tax 
on REIT shares owned by foreign pension funds was due to an 
administrative action, not a legislative one. So it seems to me 
that Treasury has authority to take some type of positive 
action here. As you may know, up until Notice 2007-55, a 
foreign pension fund had the ability to invest in a domestic 
REIT and have their shares treated similarly to a domestic 
pension fund.
    This is an area where the President has stated clearly that 
he wants to exempt foreign pension funds from this tax as a way 
to help restructure domestic commercial real estate debt and 
start building and creating jobs all over the country. And I 
have also heard from the President about his forceful 
statements that he wants to use executive authority on issues 
he deems are priority. This is one of those issues that was 
listed last year.
    So I hope you agree it makes sense for the administration, 
particularly Treasury in this case, to take some sort of action 
on FIRPTA reform, and I promised you that we were going to send 
some documentation. I want to call your attention to that--I 
mean, it will come to you specifically, but there are a number 
of distinguished tax experts who wrote to Treasury on October 
8th regarding their interpretation that Treasury has the 
authority to modify that notice to exempt foreign pension 
funds.
    And I am disappointed to find out that, despite the 
importance to both the administration and Congress--this is a 
bipartisan issue, by the way, our legislation--to deal with 
this legislatively, although we think it can be done 
administratively as a bipartisan effort, it remains unanswered.
    So I hope you will personally have an opportunity to ask 
for the letter, look at it, read it, and come to a conclusion 
with those who work with you at Treasury to get to a point 
where we might actually be able to pursue something that the 
President himself wants to see.
    Secretary Lew. Senator Menendez, I will follow up and get a 
response to that letter. We are in total agreement that there 
should be a change of policy here. We have proposed legislation 
to do it. We would like to work with the committee to get that 
done.
    Our view has been that we did not have the authority, but I 
am happy to go back and take another look at it again. It is 
something--we have so many infrastructure needs in this 
country. Our goal is to have an attractive place for foreign 
direct investment in the United States.
    This is a policy area that is a problem, and we will follow 
up and work with you to explore the question of what authority 
we have.
    Obviously, the most straightforward way to deal with it 
would be to change the law and make it clear, and I hope we 
have an opportunity to work together on that.
    Senator Menendez. Well, thank you.
    Mr. Chairman, I appreciate the Secretary raising the IMF 
issue, as we are dealing with it in the Foreign Relations 
Committee, but I think it is beyond Ukraine. It is a question 
of whether we want to be in a position in the world to be able 
to influence the economic issues that affect us here at home, 
but that stabilize opportunities abroad.
    Secretary Lew. And I would like to thank Senator Menendez, 
as chairman of the Foreign Relations Committee, for the 
leadership he has shown in putting together a package for the 
Ukraine and for funding the IMF, and, frankly, for the 
bipartisan support that that is getting. We very much 
appreciate it.
    The Chairman. I appreciate Senator Menendez's points as 
well, and look forward to working with him.
    Colleagues, we have three members here. In order of 
appearance, Senator Warner, Senator Bennet, and Senator 
Roberts. We can have each member get their 5 minutes in before 
the vote. We have Senator Cardin, and we will be able to get 
Senator Cardin in as well.
    So let us just begin, if we could, with Senator Warner.
    Senator Warner. Thank you, Mr. Chairman. And I want to join 
my colleagues in commending you on your chairmanship. And I did 
not know the dais went down this far. [Laughter.]
    But I heard and appreciate your comments and Senator 
Hatch's comments that this is going to be an inclusive 
committee, and, even if you are at the kids' table, your voice 
will be heard. So I am grateful for that.
    I want to echo what Senator Menendez said about FIRPTA. As 
we think about getting foreign direct investment in job 
creation, this one should be a no-brainer. And whether we can 
do it administratively or legislatively--I am on Senator 
Menendez's bill--I strongly support it.
    I want to move to a part of the President's budget that 
others have touched upon, Senator Isakson and Senator Menendez, 
on infrastructure. I want to commend the President for thinking 
about this in a more aggressive manner and for the $150 billion 
he has put in, whether that is through a proposal that I am 
working on--that Senator Bennet is taking the lead on, but that 
I am his supporter and ally on--in terms of repatriation, or 
other proposals.
    I would simply point out to my colleagues that we are now 
seeing, just as we want to get foreign direct investment in the 
United States, the real estate, we are now, as you are well-
aware, in a position where there is lots of private American 
capital that does not, cannot, invest in American 
infrastructure right now because we do not have an 
infrastructure financing authority.
    And the President, in his budget, proposed this approach, 
and I would point out that this is an approach where we have 
taken some of the ideas that were in the Infrastructure Bank 
that the President proposed earlier, made it slightly, 
candidly, more conservative, where we have taken out energy 
generation, we have guaranteed investment-grade investments, we 
have made sure that private dollar, first dollar loss applies. 
And the BRIDGE Act, which is infrastructure financing 
authority, now has five Republican cosponsors, five Democratic 
cosponsors, and a number of other members who are quite 
interested. It initially capitalized at $10 billion, but only 
scores at $7 billion.
    And I would just say, for my colleagues, when interest 
rates are at a record low, not to take advantage of trying to 
get that private capital into our infrastructure projects would 
be a great, great loss. The Transportation Infrastructure 
Finance and Innovation Act does a very good job. But we just 
received a TIFIA grant on our rail project at Dulles, and it 
took a year to process.
    So the idea of having a central point for project finance 
and infrastructure financing in the U.S. Government, I think, 
is terribly important. It does not replace the need for a 
permanent funding source, but financing is a key component.
    The reasons are quite simple. One, you need the place to 
get the long-term capital, patient capital, a place to invest 
in. Two, with the government backstop, you can save 200 basis 
points, which, on a multi-hundred-billion-dollar project, can 
be $30 million, $40 million, $50 million off the project cost. 
And third, while I commend the folks at TIFIA, you need to 
concentrate our expertise around road, rail, water, energy 
transmission, ports--something that is terribly important for 
Senator Isakson and me in Virginia--in one spot if we are going 
to have the expertise on the private-sector side to go against 
Wall Street.
    This is more commercial, but also I would make the point 
that I think particularly for smaller States, this is an asset 
that, for smaller projects that we have modified from previous 
proposals, would lower the minimum amount and actually increase 
the amount that goes to rural communities. They are not going 
to have the expertise at the local level to do this without 
some ability to draw upon some national expertise.
    So I just would like you to--and I do not want to overstate 
it. It is not a silver bullet. You have to have the permanent 
funding source, as well, the leverage to private capital, but 
this notion of an infrastructure financing authority or how we 
get private capital into our infrastructure needs, if you would 
like to comment on that.
    Secretary Lew. Senator, we are in total agreement. We do 
not think it is a choice. We need to have our conventional 
funding mechanisms, and that is why the highway bill 
reauthorization and a funding mechanism to have Federal 
infrastructure funding firmly secure are so important.
    We also need innovative funding mechanisms, like the 
Infrastructure Bank, and we need to look at things like----
    Senator Warner. Better if we call it a financing authority.
    Secretary Lew [continuing]. Financing authority, and things 
like the legislation to change FIRPTA so we can get foreign 
direct investment.
    I just came back from the G-20 meetings, which were 
concentrated on growth. And within growth, the question that we 
spent a lot of time talking about across the world was how to 
make private investment in infrastructure something that could 
happen more easily and more effectively.
    And the things that the whole world talks about are, how do 
we get things permitted--that is why our one-stop coordination 
is so important--and how do we eliminate some of the friction 
in the system, which is why the financing authority is so 
important.
    But there is no scenario that takes government out 
completely. It is necessary for certain risk-sharing. It is 
necessary to keep certain essential projects that do not have a 
revenue stream going.
    So I think it is kind of ``all of the above,'' and we are 
determined to really make progress on it. And I must say, my 
view of the last 3\1/2\ decades has been that there really is 
bipartisan support for infrastructure. It is not something that 
is a party-line issue.
    So we should be able to make progress on it.
    Senator Warner. Mr. Chairman, I just want to point out that 
our legislation starts with 10 original cosponsors: five 
Republicans, five Democrats. And I would also point out that I 
believe we are the only industrial nation in the world that 
does not have an authority or some ability to leverage private 
capital investment in infrastructure.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Colleagues, we are going to call some audibles here. We are 
just going to keep this going, because so many Senators are 
interested in it. In order of appearance, next is Senator 
Portman, 5 minutes.
    Senator Portman. Thank you, Mr. Chairman. Welcome to you. 
Also, welcome to Mr. Warner, joining us down here at the kiddy 
table at the end of the dais.
    And, Secretary Lew, thanks for coming before us again. You 
know my disappointment with this budget, and it is very simple. 
We do not address the big issue, which is mandatory spending.
    We were just told by the Congressional Budget Office 
witness, sitting in a chair just like that one, only a couple 
of weeks ago, that the mandatory side of the budget, which is 
the part we do not appropriate every year, is now two-thirds of 
the budget, and it is going to grow to over three-quarters of 
the budget in the next 10 years. And specifically, he said that 
health care entitlements are going to increase by about 115 
percent, more than double.
    And we know these trust funds are in trouble already, and, 
looking at the future, Social Security Disability is depleted 
in 2017. The other two trust funds, the old-age trust fund in 
Social Security and the Medicare Trust Fund, both will be 
depleted, and therefore bankrupt, within the lifetime of most 
people retiring today. So I am very concerned that we are not 
addressing it. I think the President had an opportunity to do 
so. In fact, he even backtracked from what he had in his last 
budget in terms of looking at these important, but 
unsustainable programs.
    So my general question to you, which I do not want you to 
answer now because I want to get into taxes, is, what are we 
going to do about this issue? And, if we do not address it, we 
will continue to squeeze the discretionary side of the budget, 
including infrastructure--and my colleague just talked about 
that--defense, and everything else and put more and more 
pressure on our economy.
    On the economic issue, revenue, you have over $1 trillion 
in new taxes in this budget after the $600 billion-plus and the 
new revenues in Obamacare and so on. And my concern, of course, 
is that economic growth is already incredibly weak, and that 
growth trumps tax increases by far in terms of how you get the 
right kind of revenue into the budget.
    In its new baseline, CBO has said we are looking at a 2.5-
percent growth. They have downgraded. They have actually said 
that is $1 trillion less in tax revenue over the next decade 
from their last report 9 months ago.
    And, by the way, every single one of their projections has 
been wrong. Their repeated decreases in projected economic 
growth do not translate into more than $2.2 trillion in reduced 
tax revenue through 2024. And keep in mind we are not talking 
about the bad economy the President inherited, because you 
might answer that way. These were additional downward economic 
projections that occurred after the President took office--
after he took office.
    So, we have to get the jobs back and get the growth back. 
And I would just say the President spent years fighting for a 
$600-
billion tax increase. In effect, America surrendered $2.2 
trillion in revenue from continued sluggish growth during that 
period, if you look at it as economists would.
    So $1.2 trillion in new taxes you have proposed here. 
Professor Romer, who is President Obama's former chairman of 
the Council of Economic Advisers, has said that an exogenous 
tax increase of 1 percent of GDP lowers real GDP by roughly 3 
percent. So, Mr. Secretary, I guess, does the White House 
believe that it can raise $1 trillion in new taxes for 
Obamacare, $620 billion in the fiscal cliff, $1.2 billion here, 
without significantly slowing economic growth?
    Secretary Lew. Senator, I think that if you look at the 
experience of the last several years, we are on a path of 
economic growth. It, obviously, took a long time to dig out of 
the recession from 2008-2009, but we are seeing better growth 
in the United States than in a lot of other economies, and we 
have put in place a number of important things. We, obviously, 
got our economy moving right away with the Recovery Act. We put 
in place financial reforms. But we also enacted the Affordable 
Care Act. So a lot of the policies you are talking about are in 
place, and we are growing.
    In this new budget, what we have proposed is an investment 
program that we think is what is necessary to build the economy 
in the future. We need infrastructure, we need skills training.
    Senator Portman. Let me just say, again, Secretary Lew, if 
I could, my question was about the impact of taxes on the 
economy.
    Let me give you an example, just to be sure you know what I 
am talking about. You have the Buffett rule in here again this 
year, and you say we need to increase taxes on what is really 
investment capital, and the latest Joint Tax Committee analysis 
of this says that it essentially creates a 30-percent minimum 
tax on income over a million bucks, raises $71 billion over 10 
years, and payroll taxes count toward the minimum, phased in.
    Most of the taxes, they say, are going to hit capital gains 
and dividend income--so that is basically what we are talking 
about here--which help fuel investment, which brings economic 
growth.
    Let me ask you this, just as an example. Is it possible 
that such a steep tax increase for these kinds of investment 
income could reduce economic growth by even 1/40th of 1 
percent; in other words, from 2.445 percent, which is 
projected, to 2.420 percent, 1/40th of 1 percent? Is that 
possible that those kind of taxes on investment income could do 
that?
    Secretary Lew. Senator, I am happy to go back and look at 
different estimates. On the back of an envelope, it is hard for 
me to----
    Senator Portman. Well, the reason I ask you that is 
because, if so, then the entire $71 billion that you are 
raising through that tax is negated by slower economic growth.
    Secretary Lew. I think if you look at----
    Senator Portman. And that is the issue, as you know.
    The Chairman. I just want to make sure that the other 
Senators get a chance.
    Senator Portman. I am sorry. I was not watching my time, 
Mr. Chairman.
    Let me just make this general point, if I could. I am, 
obviously, disappointed we did not deal with the mandatory 
side, and I know we are going to have to as a body, on a 
bipartisan basis, and you and I have talked a lot about this. 
There are ways that we can do it.
    I am pleased that there is some means-testing still in the 
budget. I know that has been controversial even, but you backed 
off on some other things. But we have to be careful on this tax 
code that we do reform that is pro-growth and that we do not 
put more taxes on this economy at a time when it is much weaker 
than any of us----
    The Chairman. We have to go to Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    Secretary Lew, welcome. The President's budget includes an 
important expansion of the Earned Income Tax Credit for workers 
without children. Thank you for that. That is reflective of the 
legislation that Senator Wyden and 30 of our colleagues 
introduced. It will matter for workers without children. It 
will make it permanent, that is particularly important, as is 
the cost-of-living adjustment for the Child Tax Credit. Thank 
you for that.
    This should be a bipartisan effort and a bipartisan issue. 
It started under President Ford. President Reagan said, I 
believe, if I could paraphrase, it was the best anti-poverty 
program that the Federal Government had. It was championed by 
Milton Friedman and the American Enterprise Institute. It is 
something we ought to be able to pass.
    Some have said, in response to your minimum wage proposal 
from the President, that $10.10 an hour with an increased 
tipped minimum wage and with the cost-of-living adjustment in 
it, that we should do the Earned Income Tax Credit instead. Let 
me just ask one sort of central question about this.
    Last week, I did a hearing on this committee, in the 
Subcommittee on Social Security, Pensions, and Family Policy, 
about people's retirement security, and it is clear there is a 
huge number of Americans, moderate- and low-income Americans, 
who have really only one leg of the 3-legged stool. They do not 
have--they certainly do not have a defined pension benefit. If 
they have a 401(k), there are just a few dollars, without much 
security, and they have very little or no savings.
    So the issue, in many ways, for retirement security is, 
what are we doing about wages in this country? We know that 
worker productivity has almost doubled in the last 35 years. We 
know profits are high. We also know wages have been stagnant 
for most Americans, and we know the minimum wage has 20 
percent, 30 percent less buying power than it did 2 or 3 or 4 
decades ago.
    Taking all of that together, talk to me about the 
importance of both a minimum wage increase and an Earned Income 
Tax Credit expansion in two ways. One, what does it mean to 
economic growth; and second, what does it mean long-term for 
those workers who are retiring 10 and 20 years from now after 
being in the lowest quartile or the two lowest quartiles of 
income earners?
    Secretary Lew. Senator Brown, I think that my answer to 
your question is, in a sense, the answer I would have given to 
Senator Portman if we had had more time.
    So I am going to kind of combine a couple of ideas in 
answering. We need to focus on growth in this country, and we 
have had no lack of income at the high end over these years, 
when we have seen a leveling off and shrinking of income in the 
middle and entry level of the workforce.
    I do not think there is anyone who doubts that when you 
raise the minimum wage, every dollar people earn is spent. It 
does not answer the question about saving for retirement, but 
it certainly does answer the question about getting that money 
back into the economy and stimulating economic activity.
    The EITC has been the most powerful engine to get people 
out of poverty and get them to work. Young people who are 
trying to work their way through college at low income ought to 
have the benefit of an EITC. Again, they are going to spend the 
money that they have disposable.
    Our challenge in terms of retirement savings is to get 
people started saving and to do it in a way where it is a habit 
that develops early and builds as people's disposable income 
grows. That is why, even though it is a small number, the myRA 
is so important. Almost anyone can put away $5 a pay period. 
When you can put away $100, all the better. But you have to get 
started, and too many people wait too long.
    I think that we have to be kind of honest with ourselves 
about the tradeoffs within the system. If we are going to have 
a fiscal policy that is fair and balanced, if we are going to 
meet our deficit targets, we are going to have to focus on the 
areas that are really critical to growth. And we think that the 
tax proposals in this budget put burdens where they can be 
borne--and in a way that is consistent with economic growth--
and invest in the things we need to do as a country to make 
sure the engine of economic growth picks up speed, and 
infrastructure and skills training are part of that.
    Though that was not what you asked about, it is on a 
continuum. So I actually think one has to look at these 
proposals in the whole and look back not just to 2008-2009, but 
over the last several decades. What are we going to do to 
change the direction of middle-class income in this country? 
And I think our budget does that.
    Senator Brown. Thanks. I would add, for my last 20 seconds, 
a higher minimum wage, as you said--if you raise it to $10.10, 
it does not mean they are going to put $25 a week into savings. 
But it does mean a couple of things. It means that others get 
raises a little higher than that. They may be able to save a 
little bit under myRA. It also means their Social Security 
benefit will go up a little bit, because the lowest-wage 
workers, obviously, have the lowest Social Security benefits 
too.
    Secretary Lew. And look, at a very fundamental level, 
anyone who works full-time in this country ought to take home a 
paycheck that is at least at the poverty level.
    The Chairman. The clock is running in our favor. The vote 
has not started.
    Senator Cardin then Senator Bennet.
    Senator Cardin. Thank you, Mr. Chairman.
    First, I want to welcome Senator Warner to our committee. 
It is great to have him here, and I know that he will be a 
great addition to the committee. So welcome.
    Mr. Chairman, it is nice to have you as our chairman, and I 
congratulate you on your elevation, and we look forward to 
working together as a team for our country.
    I particularly appreciate your initial questions to 
Secretary Lew in regard to the Ukraine and tools that are 
available. It is a very dangerous situation, not just for 
Ukraine, but globally.
    I had a hearing yesterday on the East Asia and Pacific 
Subcommittee, and we were talking about the security issues in 
the South China Sea and China's reaction to what is happening 
in the Ukraine and what options they may use if there is not a 
robust response to what Russia has done in Ukraine.
    I had a hearing just this morning, which is the reason I 
was late, with the Helsinki Commission on the Western Balkans, 
and, clearly, what is happening in the Ukraine affects the 
attitude of countries to respect borders around the world. So 
every tool we have at our disposal needs to be utilized to make 
it clear that Russia cannot violate its international 
commitments in regard to Ukraine's legitimate borders.
    Let me also comment just very briefly on the budget. Mr. 
Secretary, I know you had a very difficult choice. The budget 
numbers are compromise numbers. They are not what we all would 
like to see, and we all would like--and the administration has 
been very clear about this--a long-term budget agreement that, 
yes, deals with tax reform and revenue, so we have some 
predictability in our tax code to help businesses, and 
continues the progress made in bringing down health care costs, 
which will bring down entitlement spending.
    And that is what we need, to get that predictability in our 
budget. And that is the thing I hear most from the private 
sector on at least job growth: predictability is key to making 
decisions. And the administration has worked very hard and been 
very bold about putting forward suggestions in that regard, and 
I applaud you for that, because it does lead to job growth, as 
Senator Warner has been talking about, and Senator Brown and 
others.
    Yes, we need to do a better job at job growth. We have to 
have a budget that allows us to invest adequate money in 
education and research and infrastructure. That is how we 
create jobs. But let me, in the few minutes I have, raise a 
question where we have some agreement and disagreement, and 
that is retirement savings. We have talked about this before.
    In the best of times, we did not save enough as a Nation, 
and we did not put enough away for retirement. In tough times, 
it is even more difficult. And Senator Brown is absolutely 
right in regard to the minimum wage and in regard to the EITC. 
These are valuable tools that give stronger ability to workers 
to be able to put money away for their retirement, and myRA, I 
think, is a good first step. I think that is a good idea.
    I remember when I was in school, we put a little bit away 
every week for U.S. savings bonds. I think it makes sense to 
get people as early as possible putting money away.
    But we have shown what works and what does not work. And 
things that work, like the Saver's Credit, let us build on 
that. Automatic enrollment, that works. But we also know that 
low-wage workers are not inclined to put money away just 
because there is a tax advantage. They need money on the table, 
and that is where the Saver's Credit comes in, but that is also 
where employer-
sponsored plans come in.
    My concern is that you, once again, have put a cap on tax 
benefits to limit what you can put away in preferred retirement 
options, which could have unintended consequences of 
terminating more plans, allowing less people to be covered by 
retirement savings.
    So, Mr. Secretary, I want to work with you, because I think 
there are ways that we can, obviously, work together. There is 
broad interest on both sides of the aisle to have more robust 
opportunities for people to put money away for retirement and 
savings. And I know that you are open to that, but I wanted to 
give you a chance to comment.
    Secretary Lew. Senator, we are in total agreement about the 
need to create more savings opportunities to get people 
started, to get them on a path toward having a strong amount of 
personal savings to look forward to in their retirement.
    The proposal we have on limiting the availability of tax 
benefits for savings is very narrow. We do not say that there 
is any limitation on the amount that one can save. We just say 
that once there is $3.1 million in an account, additional 
contributions are not eligible for preferred tax treatment.
    So for most Americans, $3.1 million in retirement savings 
is more than they can even dream of. If we can get everyone to 
the point where they are hitting that limit, we will have 
succeeded in our goal.
    Senator Cardin. I think you are also limiting the 28-
percent deductions on some, and I think there are some 
additional----
    Secretary Lew. The 28-percent limitation applies to a very 
broad range, and that is really just saying that people in the 
highest income bracket should get the same value for their tax 
deductions and credits as people who earn $250,000 a year. It 
does not take away a tax deduction. It just caps it at the 
amount that is benefiting people who are kind of at the 
beginning of the high end.
    Senator Cardin. We will continue the discussion.
    Secretary Lew. We will continue the discussion.
    The Chairman. Thank you.
    The very patient Michael Bennet.
    Senator Bennet. At long last.
    Mr. Chairman, first, I would like to welcome my friend, 
Senator Warner from Virginia, to the kids' table. It is nice to 
be sitting at the big kids' table, but that will happen in 
time.
    Senator Warner. I am feeling younger and younger in this 
committee.
    Senator Bennet. Thank you.
    And, Mr. Chairman, congratulations to you. We are all 
delighted that you are chairing the committee, and my hope for 
you and for all of us is that this committee can become the 
model of bipartisanship that this Senate and this Congress 
needs.
    I met before I came here this morning with my county 
commissioners in Colorado, and it is the most diverse array of 
people you could imagine. Every political party was 
represented, urban and rural areas were represented, people 
with very strong convictions and disagreements who very easily 
came together on the six priorities they have for the State of 
Colorado. And the discussion we had suggested that the next 15 
things on the list, if there were room for them, we could all 
agree on.
    And I think one of those things, Mr. Secretary--welcome 
back, by the way--really is infrastructure. You have heard that 
throughout the committee's questions today. Mark Warner has a 
bill; I have a bill called the Partnership to Build America 
Act. It has seven Republicans, five Democrats, and an 
independent on it. That is pretty good. And I know of the 
chairman's interest in it.
    But I would ask, first, that you take a look at that bill, 
and, if there are ways in which we can improve it, I would love 
to hear about it. I do not know whether you have followed it at 
all, but I would just encourage us to imagine that we can 
actually do something on infrastructure in this committee. And 
I do not know if there is anything else you would like say 
about it.
    I guess I have one last thing, and then I will shut up. I 
had the occasion recently to visit Union Station in Denver, 
where we have built a passenger rail station, a heavy rail 
station, a light rail station, a bus station. I was working for 
the Mayor of Denver when all this started.
    It has a bunch of local money, and $1 billion in Federal 
money. You cannot find another example of what we have built in 
Colorado unless you go abroad. And I am really proud of what 
people did there because, when you stand there, what you say to 
yourself is, ``This is too big an asset for what we have right 
now.'' But what you realize is that, 50 years from now, 
somebody is going to stand there and say, ``You know what? It 
was really good that somebody 50 years ago thought about us.''
    I think that is what our parents and grandparents thought 
when they built the infrastructure that we are not now 
maintaining, much less building the infrastructure we really 
need in the 21st century for our kids.
    So there is a little bit of a question in there, but I am 
going to turn it back over to you, Mr. Secretary.
    Secretary Lew. Well, Senator, I could not agree more on the 
need and the gratitude that we have to past generations, and 
that we should hope future generations have to us.
    The infrastructure that was built in this country in the 
1930s, the infrastructure that was built in this country in the 
1950s and 1960s, is what has built the economic foundation for 
growth in the United States. That is not going to last forever, 
and we have to be on the job, and we have to make sure that we 
leave behind infrastructure that can mean a 21st century and 
beyond of sustained growth and leadership in the United States.
    We have looked at the legislation that you have put in, and 
I think there are a lot of points of overlap between that 
approach and ours. We have, obviously, proposed taking the 
business tax reform debate and moving it aside, doing business 
tax reform and infrastructure together while we pursue broader 
comprehensive tax reform.
    I think that the obstacles to broader comprehensive tax 
reform will bring us back to some of the divisive issues on 
fiscal policy. On the business side, there is a lot more basis 
for consensus, and I hope we can make progress.
    Senator Bennet. I guess I would suggest, on that point, and 
I hear you and understand it, I do not think we need to get 
tangled up on all that.
    We obviously do need to do comprehensive tax reform, but 
God knows when that is going to happen. And this is a modest, 
in some sense, amount of money, $50 billion we are talking 
about, to capitalize. We do not have to reform the whole tax 
code to get it back.
    But in any event, let us keep working on it.
    Secretary Lew. We are happy to work with you. Let us do 
something now.
    Senator Bennet. Speaking of taxes, when I look at the code, 
I often think what is embedded here is really a fight between 
the future and the past, and you have a bunch of incumbent 
interests that are protecting those incumbent interests, and 
what it threatens is the innovation in our economy, and that is 
important to me because of all the questions we heard today 
about median family income continuing to fall.
    I do not think we solve that problem without educating our 
people and without having the most innovative ecosystem on the 
planet, because it is the jobs that are created next week and 
the businesses that are created next week that matter.
    The budget contains several tax proposals, I think, that 
are consistent with that. It strengthens the research and 
development tax credit and makes it permanent. It also 
permanently increases the amount of startup expenses that small 
businesses may deduct.
    I wonder if you would take your last seconds here to tell 
us how else this budget is intended to support, or the tax 
provisions in particular, support innovation in this country.
    Secretary Lew. I think you have put your finger on the 
primary drivers. Obviously, what has made our economy the 
cutting-edge economy is our innovation and our ability to 
translate technical and scientific breakthroughs into 
commercial endeavors.
    We should have a tax code that encourages that on a 
predictable basis, where it is not changing constantly. We have 
tried to make some structural changes in how we would provide 
the tax credit for research and experimentation to make it meet 
the needs of businesses today and not looking back 20 years.
    I think we always have to look forward. We cannot have a 
tax code that was designed to deal with the challenges of 
either 1960 or 1980. We need a tax code that deals with the 
challenges of the 21st century, and we have tried to put 
proposals together that do that, and I look forward to working 
with this committee to get that accomplished.
    Senator Bennet. Thank you. Thank you for your testimony.
    Thank you, Mr. Chairman. I was talking about my county 
commissioners earlier, and I would say that, speaking of 
predictability, not a single one of them said that they had 
ever passed a continuing resolution as a way of resolving their 
budget issues.
    With that, I will yield the floor.
    Senator Hatch [presiding]. Thank you, Senator.
    We will turn to Senator Roberts now.
    Senator Roberts. Well, thank you, Senator. I had some 
glowing remarks about the chairman, and, of course, we are 
talking to an empty chair here. [Laughter.]
    I did not mean that to reflect poorly upon the chairman. 
But at any rate, he is originally from Wichita, KS, and they 
are now discovering his chairmanship. They are very proud, and 
they are going to besiege the chairman with the milk of human 
kindness and humble requests, maybe a little frankincense and 
myrrh and a little bonus depreciation for the aircraft 
industry, if that works out.
    But I have a lot of pride that a good friend and a 
colleague has now become chairman of this committee. People ask 
me how I get along with Ron Wyden, and I say, everybody gets 
along with him. You might not agree with him, but everybody 
gets along with him. That is rare in these times.
    Mr. Secretary, one of the issues--like Senator Burr has 
referred to, and Senator Isakson--I am always asked about on my 
visits home is whether anybody will ever be held accountable 
for the scandals at the IRS.
    Let me just say that I have introduced legislation, along 
with Senator Flake--let me get to that here. The bill would 
stop the IRS from intimidating or targeting groups for their 
beliefs. Forty other Senators have cosponsored this bill. Last 
week, the House passed very similar legislation.
    I hope this is on the fast track, and it would simply halt 
further action on the IRS's proposed regulations until ongoing 
investigations are completed by the Justice Department, the 
House Ways and Means Committee, and this committee, the Finance 
Committee. I do not think it is controversial. Just let the 
full light of day shine on these practices before allowing the 
IRS to move to new restrictions on any political activity.
    So the bill freezes further IRS action for 1 year and would 
make it clear that the IRS can only enforce the regulations 
that were in place before all this mess began.
    Mr. Secretary, do you think it is appropriate to propose 
more regulations before the relevant committees, including this 
committee, have completed the investigation of the IRS actions?
    Secretary Lew. Senator, I think that your characterization 
of no one being held accountable is something that does not 
reflect what we have done. We brought in a new IRS 
Commissioner. He replaced all of the intermediate levels of 
leadership in the chain to the incident that we have said was 
unacceptable and had to be something that was fully 
investigated and never done again.
    Policies were put in place to change the practices, and, as 
I think we all know, the Inspector General report had a 
recommendation--all the things that I described were 
recommended, but it had an additional recommendation that the 
rules need to be clarified, because part of the problem is 
unclear rules.
    We have put out for comment a preliminary approach which, I 
might add, does not even provide all the detail, because we 
said in order to develop the detail, we needed comment from all 
parties.
    Senator Roberts. I know it does not have all the details. I 
am concerned about that. Let me just----
    Secretary Lew. Well, that reflects----
    Senator Roberts. I know your clarification argument with 
regard to all this.
    Let me ask another question. In developing these 
regulations, why did the IRS limit the new rules to (c)(4)s and 
not apply them to other regulated not-for-profit organizations, 
such as unions?
    Secretary Lew. Well, the proposed rules went out and asked 
for comments on a broader range of areas. The final rules have 
not been written.
    I think one of the reasons for going out was to get 
comment, and we have gotten it from right and left. There are 
over 150,000 comments. It is going to take a while to go 
through the comments. I am not sure that any rule has gotten 
more comments, and we are going to go through them as quickly 
as----
    Senator Roberts. Why do we not just wait until the 
investigations are over, and then you could take a look at 
that? I think only one person was fired. Everybody else retired 
without any sanctions, and that was voluntarily.
    Let me just ask you the basic question here, because I 
talked to Mr. Fix-It, which is how I refer to the new man 
there. He indicated that he was just going to try to fix things 
at the IRS and that he did not have anything to do with the 
investigation, other than trying to get things behind 
everybody.
    But is the Internal Revenue Service equipped to regulate 
political activity? Should we not reduce or eliminate the 
agency's role in this area and keep regulations and politics 
where it belongs, that is, with the Federal Election 
Commission?
    I do not know why on earth we had to go down this road.
    Secretary Lew. Senator, the rules in this area have evolved 
over a long period of time. The clarification proposed is 
intended to start a process of clarifying it so that there will 
not be any kind of ambiguity, and we look forward to working 
with Congress going forward as we review the extensive amount 
of interest that is reflected in the comments.
    Senator Roberts. I am 24 seconds over time. I do not see 
anybody else. I would say to the acting chairman, I just have 
one other request, that the article by Bradley Smith back on 
February 26th in the Wall Street Journal be put in the record 
at this point.
    Senator Hatch. Without objection.
    [The article appears in the appendix on p. 97.]
    Senator Roberts. It really gets to the heart of the matter. 
Everybody asks, how did this happen, how did this start?
    On February 16, 2012, seven members of the majority wrote 
to the IRS asking for an investigation of conservative 
organizations. I am not saying that is where it started to 
begin with, but that surely gave it a push, and I think that is 
pretty obvious, and I really regret that that happened.
    My time is up, although you know, I would tell the acting 
chairman, if that is the appropriate term, that Senator Wyden, 
when I was chairman of the Intelligence Committee and we were 
trying to confirm General Hayden as the CIA director, asked for 
20 minutes--we had 20 minutes at that time, not 5, not that I 
am saying we should subject you to 20 minutes, sir. But at any 
rate, then he asked for another 20 and another 20. Now, that is 
an hour.
    So I am probably over here about 1 minute and 40. Maybe I 
could have an account or something. I could sort of bank on 
that or something.
    Senator Hatch. I think what I am going to do is ask one 
last question, if I can.
    Senator Roberts. I appreciate that.
    Thank you, Mr. Secretary, for coming.
    Secretary Lew. Thank you, Senator.
    Senator Roberts. I appreciate it.
    Senator Hatch. We are kind of ping-ponging. I went over to 
the first vote, and Senator Wyden will be back, but hopefully 
this will not be much longer.
    In one of the darkest moments in modern political history, 
President Nixon sought to use the IRS to target his political 
enemies, and, thankfully, for the sake of our Nation and our 
democracy, the IRS Commissioner at the time stood up to the 
President and the White House and refused to allow the IRS to 
be used for political purposes.
    And just as the IRS Commissioner decades ago had a clear 
role in rejecting or approving President Nixon's 
recommendations to target Americans based on their political 
views, the IRS Commissioner of today, John Koskinen, has a 
clear role in rejecting or approving the current proposed IRS 
regulations that, if finalized, will make it more difficult for 
Americans to speak out against bad public policies.
    Treasury regulations make clear that the IRS Commissioner 
can block proposed regulations prior to those regulations 
moving up the chain to the Treasury Department to become final. 
In other words, if Commissioner Koskinen is opposed to the IRS 
regulations and truly committed to restoring the credibility 
and the reputation of the IRS, as he claims, he can block the 
regulations from moving forward.
    Now, Secretary Lew, if you approve of those regulations, 
then I must say you are wrong, but can you at least confirm 
that--and I am not saying you do--but can you at least confirm 
that the IRS Commissioner has the authority to choose to not 
approve making the IRS targeting regulations final and that he 
may exercise that authority free of influence or pressure from 
Treasury and/or the White House?
    Secretary Lew. Senator Hatch, I think you and I agree 100 
percent that the IRS should be totally apart from politics, and 
I think we all learned in the 1970s of the danger of crossing 
that line.
    I also know that the investigations that we have done in 
terms of information available to us--and I hope this is 
confirmed by the investigations that you conduct--is that there 
was no political activity behind the very bad judgment that was 
exercised in the case of the 501(c)(4) reviews.
    I think the development of regulations between the IRS and 
Treasury is a well-established practice, where there is a 
policy discussion that goes on and Treasury plays a lead role 
in developing tax policy, but IRS plays a critical role in the 
implementation of it, and one has to inform the other.
    So I can guarantee you that the process here will be full 
and fair and open. The 150,000-plus comments are going to take 
a while to go through, but everything will be reviewed. That is 
what should happen on an important policy matter.
    Senator Hatch. Sure. Sure. But I think what I am asking is, 
do you agree with my view that Mr. Koskinen can stop this, if 
he wants to, just like the IRS Commissioner during the Nixon 
administration?
    Secretary Lew. Yes. In the role of approving policy as 
opposed to enforcement actions, enforcement actions are totally 
in the domain of the IRS Commissioner, as is appropriate. 
Policy is signed off on jointly by the IRS Commissioner and the 
Assistant Secretary for Tax Policy, and both have a role to 
play there.
    Senator Hatch. Now, let me get this straight. We have had 
this situation arise where it looks like the IRS is being 
misused and that some people have acted improperly at the IRS. 
We are in the middle of an extensive investigation on that, a 
bipartisan investigation, by this committee.
    All I am asking is that, if Mr. Koskinen decides to resolve 
this matter, he has the authority to do so. That is all I am--
--
    Secretary Lew. Well, I tried to answer the question. If I 
was not clear----
    Senator Hatch. You are going back and forth and all around. 
Answer it ``yes'' or ``no.'' Does he have the authority to say, 
we are going to stop this?
    Secretary Lew. He does sign off on policy regulations, as 
does the Assistant Secretary for Tax Policy. So both have 
signoffs. It takes both.
    Senator Hatch. In other words, if he decides that they have 
gone too far and that this is improper, he still has to get 
your approval on the regulations.
    Secretary Lew. When we publish rules, both the IRS 
Commissioner and the Assistant Secretary for Tax Policy sign 
off on them. So what I am saying is, those are the two 
approvals that go in. And I am not going to characterize for 
what reasons he would or would not exercise that judgment. That 
is, obviously, something that is his judgment to make. But he 
does sign off as IRS Commissioner. All IRS Commissioners sign 
off on regulations.
    Senator Hatch. Well, let me just ask it a different way. 
Yes or no: can the IRS Commissioner choose to stop the rule 
absent your or the White House's pressure?
    Secretary Lew. Well, I am trying to respond to your 
question, Senator, and it----
    Senator Hatch. Well, I think the answer is clear. He ought 
to be able to.
    Secretary Lew. He does have the authority to either sign 
off or delegate to his deputy the right to sign off. He also 
has the right not to sign off.
    Senator Hatch. No. But if he does decide to----
    Secretary Lew. I am just not going to speculate on what 
motivation goes behind the decision----
    Senator Hatch. Well, you cannot decide what he is going to 
do.
    Secretary Lew. Yes.
    Senator Hatch. But the thing I am trying to establish is, 
he has the right to stop this type of stuff.
    Secretary Lew. He either decides to sign off or not, yes,
    Senator Hatch. Right. All right. I think that is all I 
need.
    Could I ask one other question?
    The Chairman. Yes, you can. As it happens, I am getting 
ready to ask another one as well. So, please.
    Senator Hatch. Let me just ask one more question.
    Secretary Lew, I have been watching with deep concern 
Russia's use of economic and trade measures against the new 
Ukrainian government. Now, this is part of a larger pattern, it 
seems to me, of Russian economic coercion, certainly against 
its neighbors, for nothing but political reasons.
    In a letter I sent yesterday, I raised my longstanding 
concerns with Russia's actions and its continuing refusal to 
meet its international economic obligations. In that letter, I 
urged the administration to use all tools at its disposal to 
demonstrate to Russia the importance of complying with its 
international obligations and offered to work with the 
administration to put more tools at its disposal, if necessary.
    Now, Mr. Secretary, do you have any views about the 
administration's efforts to improve Russia's compliance with 
its international obligations, which existing policy tools are 
not being fully utilized, and what further tools can be used to 
bring pressure to bear on Russia and to bolster our friends and 
allies in the region?
    Secretary Lew. Senator, as I tried to make clear at the 
beginning of this hearing, it is a very important matter for us 
to be clear that Russia's actions are unacceptable and that 
there have to be consequences, but there also has to be a path 
for Russia to take to step back, and we are going to respond in 
a way that is responsive and proportional.
    And we have already taken actions with regard to the G-8 
meetings, which are very important to Russia. We have taken 
action with regard to a trade delegation that was supposed to 
be negotiating the binational investment treaty, which has been 
called back. We have taken action by keeping a presidential 
delegation from attending the Paralympics--again, very 
important. Russia put a huge amount into the Olympics and the 
Paralympics, and not participating is a clear sign.
    Our policy is clear that they have to politically and 
economically feel the isolation that comes from acting in a way 
that is inconsistent with international law. The President has 
made clear that he has asked for other options. We are 
developing those options. I am going to leave it to the 
President to decide what options to exercise. But we are, 
obviously, looking at what other steps would be appropriate.
    Senator Hatch. Mr. Secretary, the parts of the budget that 
have been made public so far do not seem to have much, if 
anything, to say about promoting growth through trade, 
including the Trans-
Pacific Partnership, or TPP, and the Transatlantic Trade and 
Investment Partnership, or TTIP.
    Now, I noted that in the page-and-a-half section of the 
budget titled, quote, ``Cuts, Consolidations, and Savings,'' 
the President calls for a grant of authority to him to submit 
proposals to organize the executive branch via a fast-track 
procedure. However, I am not aware of any call by the President 
in the budget for fast-track authority to negotiate our trade 
deals, called Trade Promotion Authority, or TPA.
    Now, Mr. Secretary, given the potential for trade deals to 
grow the United States economy and create domestic jobs, is TPA 
simply not a priority for this administration?
    Secretary Lew. Senator, I think the President made clear in 
the State of the Union address that Trade Promotion Authority 
and the two agreements, the Pacific agreement and the Atlantic 
agreement, are both important priorities, and we want to work 
with this committee on a bipartisan basis as the chairman takes 
a look at how to move TPA forward.
    Most importantly, we want to move forward on both TPP and 
TTIP so that we can bring the kind of high-quality agreement 
that will help promote U.S. economic growth, world economic 
growth, back to the Congress.
    It is an area where I hope we can have bipartisan 
cooperation.
    Senator Hatch. I hope so too.
    Secretary Lew. We agree.
    Senator Hatch. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Hatch.
    Secretary Lew, on this matter of the 501(c)(4)s--and I was 
out of the room, and thank you, Senator Hatch, for your 
graciousness so I could make the votes. But we have had a 
number of colleagues raise this issue, and, of course, I am 
sort of parachuting into this matter, because, as you know, 
Chairman Baucus and Senator Hatch and the Finance Committee 
staff, on a bipartisan basis, have been working on this.
    They have interviewed 28 IRS employees and received 
approximately 500,000 pages of documents. It is my hope and 
expectation that this report will be ready for release next 
month or in early April.
    Senator Hatch and I have agreed, and I thank Senator Hatch 
for his thoughtfulness, that we are going to meet every week, 
and it is my intent to work with him in a thoroughly bipartisan 
way on it. And it just seems to me that it is not appropriate 
for this committee or for the Senate to take action until this 
bipartisan investigation is completed, and, obviously, we are 
going to have a big debate when it is over.
    For example, for the long term, I feel very strongly about 
the legislation. It is the only bipartisan campaign finance 
bill now on the table here in the Senate, the bill I have with 
Senator Lisa Murkowski. And Senator Murkowski puts it very 
eloquently. She says it is time to apply the ``even Steven'' 
rule: the same thing that you do for the NRA is what you do for 
the Sierra Club.
    And so, for the longer term, I think there are a host of 
opportunities for Democrats and Republicans to get together and 
get on top of this issue. But for the immediate situation, with 
respect to the debate that you have heard this morning--and I 
have not heard all of it--with respect to the 501(c)(4) issue, 
I just do not believe it is appropriate for this committee or 
for the United States Senate to take action until the 
bipartisan investigation, which, in my view, Senator Hatch and 
Chairman Baucus began in a very thoughtful way, is completed.
    So you do not have to comment on that.
    Secretary Lew. I would just like to thank you for 
acknowledging the enormous amount of document production that 
has gone on. We have tried to be cooperative and to provide the 
committee what it needs, and we are looking forward to the 
committee completing its work so we can all see the results and 
then move forward.
    The Chairman. Let me talk a little bit with you about tax 
reform. I think we have a couple more minutes before the vote, 
and you have been very thoughtful to talk to me about some of 
the approaches for the future.
    As you know, I have about 9 years' worth of sweat equity 
into all of this and really began it with Rahm Emanuel when we 
could not get a Republican sponsor. Then Senator Gregg sat on a 
sofa with me every week for almost 2 years to get what still is 
the first bipartisan Federal income tax reform bill since the 
1986 reforms, and then, fortunately, Senator Dan Coats, our 
colleague from Indiana, was willing to step in when Senator 
Gregg retired.
    And as you and I have talked about, there are certainly 
differences between the parties at this point. Revenues would 
be one in particular. But I think there are also some areas for 
common ground that we ought to stake out early, and that is 
what I really want to talk to you about for just a couple 
minutes, and then I want to recognize Senator Thune for his 
questions.
    By the way, I want to thank Senator Thune for another 
bipartisan effort you are going to hear a lot about, and that 
is our effort in the digital goods area, where, in areas like 
cloud computing, America has a strong economic advantage, and I 
thank Senator Thune for being willing to work in a bipartisan 
way on it.
    Secretary Lew, what brought 1986 together was Democrats 
said, we have really seen all of these special interest tax 
breaks clutter up the code. There have been thousands and 
thousands of them. And Republicans said, okay, we are concerned 
that the tax code is incredibly inefficient. It is not doing 
what is necessary for growth. And in effect, both sides said 
they could support the other. In other words, right at the get-
go, there was a major opportunity for common ground.
    I think we have found another one. Given the fact that 
consumers drive about 70 percent of the economic activity in 
the country, we ought to do something to help the middle class.
    Now, Senator Gregg and Senator Coats and myself and Senator 
Begich have been able to come up with a paid-for middle-class 
tax cut, paid for by, in effect, eliminating a host of the 
other special interest breaks and tripling the standard 
deduction.
    Give me your thoughts, if you might, for a minute before we 
recognize Senator Thune. What are other areas where there is 
opportunity for common ground? In other words, we know that 
there is a difference of opinion on revenues. Do you have any 
thoughts on some other areas that we might stake out early on, 
given the fact that this tax code is a dysfunctional mess? I 
call it a rotten carcass of an economic system. It clearly does 
not work. What are the other possibilities for some common 
ground early on as we tackle this in a bipartisan way?
    Secretary Lew. Well, Mr. Chairman, I know that you have 
worked for years trying to put together bipartisan approaches 
here, and we have talked about some of the technical issues in 
there and what it takes to have bills that truly are revenue-
neutral.
    I think that, on the individual side right now, we have 
seen for several years the challenge of getting beyond the 
fiscal debate, and I think the notion of doing revenue-neutral 
individual tax reform is something that would be very 
challenging without doing a broader fiscal agreement, because 
it is not likely that, in a generation, you do major tax reform 
and then you come back and you address the tax code again.
    So that led the President to the view in July that, while 
he wants to pursue comprehensive tax reform and hopes that we 
are in an environment where we can have a fiscal frame that 
would permit us to make progress there, on the business side, 
there is much more of a coming together of views. There is kind 
of a convergence of general approaches, where, if we were able 
to succeed, we would do something very good for the economy by 
having the business tax rate, the statutory tax rate, come 
down.
    Our average tax rate is already lower because of all the 
loopholes that are bringing many companies special benefits, 
but our statutory rate is one of the highest in the world. That 
is an extra burden for companies when they want to have their 
headquarters in the United States. It is an issue in terms of 
base erosion and our international conversation about making 
sure that we do not have stateless income.
    And I think it has the added benefit that there are one-
time savings where you really have two choices. You can either 
use that money to reduce the deficit, which is a laudable 
objective, so we do not discredit that as an objective, or you 
could use it for one-time expenses. What you cannot do is lower 
rates as if the one-time saving is gone forever, because then 
you would, in the next period of time, be losing revenue.
    That is why the President proposed pairing business tax 
reform with an infrastructure initiative. I think there is the 
basis there where you have seen proposals on both sides that 
have elements of agreement, and I think that it is something 
that, the more we talk about across party lines and with each 
other, the more we have an opportunity to get something 
important done.
    The Chairman. Very good.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    Secretary Lew, nice to have you here. Welcome back.
    I also want to welcome our new chairman and really look 
forward to working with him. As Chairman Wyden mentioned, we 
have worked together on a number of issues: digital goods, 
digital trade; most recently, a letter that we spearheaded, 
signed by 33 Senators, in support of maintaining the charitable 
deduction in tax reform, because we believe it is very 
important in encouraging charitable contributions.
    I noticed again that the budget this year did have the 28-
percent limitation on itemized deductions that many of us think 
is going to negatively impact charitable giving. And I am just 
wondering about the rationale for doing that. Should we not do 
everything we can to increase charitable giving in order to 
reach those that government cannot or has not been able to 
assist?
    Secretary Lew. Senator, I think we totally agree that we 
ought to provide incentives for charitable giving, and the 
limitation actually does not take away the incentive for 
charitable giving. What it does is, it says that the value of a 
deduction should be capped at 28 percent, which is roughly 
where a $250,000-a-year income puts the value of your tax 
deductions right now.
    I would point out that we have seen tax rates higher and 
lower. We have not seen the small changes on the margin lead to 
a decline in charitable giving.
    Most people give because they want to give, and there is a 
tax benefit that goes with it. So I do not think we have seen 
historically that when tax rates went down, we saw a decline in 
charitable giving. So I actually do not believe our proposal 
would have the adverse effect that some have worried about.
    We have also expressed an interest in working with Congress 
on this, because we do share the goal of making sure that there 
is a strong encouragement to charitable giving. There is so 
much important work in this country that goes on, not through 
government or through commercial activity, but through the not-
for-profit sector.
    So I think we are in total agreement on the importance of 
it. We perhaps do not have exactly the same view of what the 
impact of the limit is. I actually think the history of 
experience with different tax rates supports our analysis.
    Senator Thune. And I have seen a lot of analysis that 
suggests--I do not think people give because of the tax 
deduction, but I think it does affect the amount they give. I 
think that it does have impacts, and I have seen a good amount 
of analysis that suggests that capping it would, in fact, 
reduce the amount that people are giving.
    I think people are still going to give to those causes, but 
I just do not think it is going to be on the same levels.
    Secretary Lew. And the only point I would make is, we did 
not see the amount of giving go down when rates came down. So 
it just argues that it is not quite as much, not as variable.
    But we are happy to continue this conversation, because we 
really do have the same goal.
    Senator Thune. I wanted to ask too--I know you have 
probably answered many questions on this already, but I get 
questions from my constituents and I think people across the 
country about the whole issue of the bonuses that went out to 
the IRS employees and whether or not it is appropriate that 
bonuses be paid out at an organization that has so brazenly 
betrayed the public trust. And even if you do not agree--and I 
do not think you probably do--that the targeting of 
conservative groups was politically motivated, it is hard to 
deny that there was a gross incompetence there and negligence 
with regard to how the agency processed the applications of 
these social welfare organizations.
    So, do you think that these employees associated with that 
decision, whether it was politically motivated or not, to 
target these Tea Party groups, deserve bonuses?
    Secretary Lew. Senator, I think it is really important not 
to describe such a large agency as the IRS as if everyone was 
involved in one activity. We have made clear that what happened 
in the (c)(4) experience was unacceptable. We believe it was 
bad judgment. You will reach your own conclusion when you 
complete your investigation. We have seen no sign of political 
interference in any of the reviews we have done.
    I think that the policy on compensation for the IRS broadly 
has to reflect the fact that we have an enormous number of 
people who are tireless, hardworking public servants who do a 
fine job under very difficult circumstances, and we are not 
seeing the level of funding for the IRS to make it possible for 
them to do everything that we really need them to do.
    In that world, making sure that we have proper compensation 
and fair compensation is an important thing, and I would just 
note that there was a pause in those payments. There were some 
collective bargaining issues that arose. And in resolution of 
it, there is a new policy in place.
    Senator Thune. Well, I would just say, I mean, I know there 
is a law suit and the union issue that you referenced, the 
collective bargaining thing, but there were an awful lot of 
bonuses paid out to executives who were not a part of that 
lawsuit, too.
    And I just think it is awfully hard to justify to the 
American people that, in an agency whose credibility has been 
so badly damaged, that somehow you could pay out bonuses. I 
mean, I think it just flies in the face of everything that is 
logical to the American people.
    To have the American people have to see what has happened 
with this whole episode, which has reflected, I think, very 
badly on the IRS, and then find out that they are being 
rewarded with bonuses, I mean, this is----
    Secretary Lew. Senator, I guess I would point to some other 
things happening at the IRS that we, I think, on a bipartisan 
basis, applaud over this same period of time.
    We have implemented the Foreign Account Tax Compliance Act, 
which was a law that passed with bipartisan support, to make 
sure that we would have transparency across country lines so 
that illegal tax evasion could be stopped. The work done by our 
IRS on this has become the world standard. I go to 
international meetings, and what I hear other finance ministers 
saying is, we want FATCA for all.
    So we have people who have done fine work during this 
period, and I just think we have to recognize that it is a 
large agency doing a lot of things.
    Senator Thune. And if that is true, and I do not--I mean, I 
am sure there is a big mission, big agency, but we know for 
sure there are certain folks in certain offices who were 
associated with these actions that have, I think, reflected so 
unfavorably and so negatively upon the agency.
    And I guess the last comment I will make is perhaps a 
follow-up question. Is there a way that you can selectively 
figure out, though, how not to reward the people who are doing 
these sorts of things? Reward the people who are doing the good 
things that you just alluded to, but, please, do not reward the 
people who are responsible for this behavior.
    Secretary Lew. Senator, obviously, the IRS Commissioner 
would be better-equipped to address that than myself. But I 
would note that the senior managers who were anywhere in the 
chain of command who exercised bad judgment in running the 
program are no longer there, and I think that reflects the 
seriousness with which we took the bad judgment and the 
consequences of it, and the fact that we had an acting 
Commissioner who took quick and decisive action.
    So we very much share the view that anyone who was 
responsible for doing things that they should not have done 
does have to be held accountable.
    Senator Thune. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    The Chairman. Thank you, Senator Thune.
    I have a couple of business matters to deal with, and then 
we can wrap up.
    On the question of hearing from you with respect to the 
Ukraine, Secretary Lew, all we are interested in is getting a 
sense from the Department what kind of guidelines and 
principles we ought to be using in evaluating the host of 
proposals that have been advanced by Senators in terms of 
holding Russia accountable for the incursion into the Ukraine.
    Obviously, matters like timeliness, their effectiveness, 
are what we want to hear from you on. If you could get that to 
Senator Hatch, that would be great.
    Also, I expect that Senators may want to submit some 
questions to you in writing. We will hold the record open until 
Friday on that.
    Also, just because I know members and staff have some 
questions with respect to the business meeting that had been 
noticed for this morning, we, obviously, do not have a quorum 
at this time. We do have some organizational issues to work 
through, and it is my intent to consult with Senator Hatch and 
find an appropriate time to convene the business meeting off 
the floor.
    Secretary Lew, we thank you. We thank you for your 
patience. It has been a long morning, and we did not expect all 
of these votes.
    And on a personal level, I want you to know how much I look 
forward to working closely with you.
    Secretary Lew. Thank you very much, Mr. Chairman, and I 
look forward to the same.
    The Chairman. The Finance Committee is adjourned.
    [Whereupon, at 12:40 p.m., the hearing was concluded.]



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