[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]



 
                THE PRESIDENT'S FISCAL YEAR 2016 BUDGET
                  PROPOSAL WITH U.S. DEPARTMENT OF THE
                    TREASURY SECRETARY JACOB J. LEW

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

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            FEBRUARY 3, 2015

                               __________

                          Serial No. 114-FC03

                               __________

         Printed for the use of the Committee on Ways and Means
         
         
         
         
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                      COMMITTEE ON WAYS AND MEANS

                     PAUL RYAN, Wisconsin, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
KEVIN BRADY, Texas                   CHARLES B. RANGEL, New York
DEVIN NUNES, California              JIM MCDERMOTT, Washington
PATRICK J. TIBERI, Ohio              JOHN LEWIS, Georgia
DAVID G. REICHERT, Washington        RICHARD E. NEAL, Massachusetts
CHARLES W. BOUSTANY, JR., Louisiana  XAVIER BECERRA, California
PETER J. ROSKAM, Illinois            LLOYD DOGGETT, Texas
TOM PRICE, Georgia                   MIKE THOMPSON, California
VERN BUCHANAN, Florida               JOHN B. LARSON, Connecticut
ADRIAN SMITH, Nebraska               EARL BLUMENAUER, Oregon
AARON SCHOCK, Illinois               RON KIND, Wisconsin
LYNN JENKINS, Kansas                 BILL PASCRELL, JR., New Jersey
ERIK PAULSEN, Minnesota              JOSEPH CROWLEY, New York
KENNY MARCHANT, Texas                DANNY DAVIS, Illinois
DIANE BLACK, Tennessee               LINDA SANCHEZ, California
TOM REED, New York
TODD YOUNG, Indiana
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri

                       Joyce Myer, Staff Director

                  Janice Mays, Minority Chief Counsel


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of February 3, 2015 announcing the hearing..............     2

                                WITNESS

The Honorable Jacob J. Lew, Secretary, U.S. Department of the 
  Treasury, Washington, DC.......................................     6

                       SUBMISSIONS FOR THE RECORD

Family Business Estate Tax Coalition (FBETC).....................    96
Puerto Rico Manufacturers Association (PRMA).....................   102


                THE PRESIDENT'S FISCAL YEAR 2016 BUDGET



                  PROPOSAL WITH U.S. DEPARTMENT OF THE



                    TREASURY SECRETARY JACOB J. LEW

                              ----------                              


                       TUESDAY, FEBRUARY 3, 2015

                     U.S. House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to call, at 10:03 a.m., in Room 
1300, Longworth House Office Building, Hon. Paul Ryan [Chairman 
of the Committee] presiding.

    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                                                CONTACT: (202) 225-3625
FOR IMMEDIATE RELEASE
Tuesday, January 27, 2015
No. FC-03

                   Chairman Ryan Announces Hearing on

                the President's Fiscal Year 2016 Budget

                  Proposal with U.S. Department of the

                    Treasury Secretary Jacob J. Lew

    House Committee on Ways and Means Chairman Paul Ryan (R-WI) today 
announced that the Committee on Ways and Means will hold a hearing on 
President Obama's budget proposals for fiscal year 2016. The hearing 
will take place Tuesday, February 3, 2015, at 10:00 a.m. in Room 1300 
of the Longworth House Office Building.
      
    Oral testimony at this hearing will be from the invited witness 
only. The sole witness will be the Honorable Jacob J. Lew, Secretary, 
U.S. Department of the Treasury. However, any individual or 
organization may submit a written statement for consideration by the 
Committee and for inclusion in the printed record of the hearing.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
written comments for the hearing record must follow the appropriate 
link on the hearing page of the Committee website and complete the 
informational forms. From the Committee homepage, http://
waysandmeans.house.gov, select ``Hearings.'' Select the hearing for 
which you would like to make a submission, and click on the link 
entitled, ``Click here to provide a submission for the record.'' Once 
you have followed the online instructions, submit all requested 
information. ATTACH your submission as a Word document, in compliance 
with the formatting requirements listed below, by the close of business 
on Tuesday, February 17, 2015. For questions, or if you encounter 
technical problems, please call (202) 225-3625 or (202) 225-2610.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
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must conform to the guidelines listed below. Any submission not in 
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maintained in the Committee files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be submitted in 
a single document via email, provided in Word format and must not 
exceed a total of 10 pages. Witnesses and submitters are advised that 
the Committee relies on electronic submissions for printing the 
official hearing record.
      
    2. All submissions must include a list of all clients, persons and/
or organizations on whose behalf the witness appears. The name, 
company, address, telephone, and fax numbers of each witness must be 
included in the body of the email. Please exclude any personal 
identifiable information in the attached submission.
      
    3. Failure to follow the formatting requirements may result in the 
exclusion of a submission. All submissions for the record are final.

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TDD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      
    Note: All Committee advisories and news releases are available 
online at 
http://www.waysandmeans.house.gov/.

                                 

    Chairman RYAN. All right. The Committee will come to order. 
The hearing will come to order.
    Welcome to the Committee on Ways and Means hearing. This is 
not the Agriculture hearing. Welcome to the Committee on Ways 
and Means hearing on President Obama's budget proposal with our 
U.S. Treasury Secretary, who is sitting far away down there, 
Secretary Lew. Our hearing room is under construction. So these 
are the temporary quarters for us. So we are not necessarily 
used to the room.
    Before we get started, I want everyone to please be advised 
that Members may submit written questions to the Treasury 
Secretary to be answered later in writing. Those questions and 
your answers will be made part of the formal record.
    We also understand that Secretary Lew has a hard stop at 1 
o'clock. So I am going to run this tight so we can get to as 
many people as possible, but wherever we cut off, we will start 
with that Member in the queue the next time we pick up with the 
next hearing, just to make sure, just to try and play it fair 
like that.
    So Secretary, I want to say something. We got your budget 
yesterday. I have to say, as a former Budget Chairman, I am a 
little miffed. Four years in a row, which was when I was Chair 
of the Budget Committee, 4 years in a row, you are late with 
your budget, and the minute I leave, you produce it on time. 
What gives?
    In all seriousness, the one positive thing I would like to 
say is that the budget is finally on time. And to those of us 
in the budget world, that clock means a lot. It sets the tempo 
for Congress. It means a lot of things, and so congratulations 
on finally giving us a budget on time.
    That said, the irony wasn't lost on me that the 
Administration submitted their budget on Groundhog Day, because 
it is the same thing every year, even a little worse. You have 
raised taxes by $1.7 trillion over the past 6 years. Now you 
want to raise them again by $2.1 trillion. You want to tax 
savings and investment in small businesses. Sooner or later, 
you are going to start looking for money in the couch cushions.
    So I just want to take an opportunity here to make 
something really clear. We are not going to raise taxes on the 
American people. They are working harder and harder to get 
ahead and they are falling behind. Wages are stagnating. They 
deserve a break, not another tax increase. The last thing this 
economy needs is another whopping tax increase. The kicker is, 
with even all of these tax increases, you don't even balance 
the budget, not even in 10 years, because you don't get 
spending under control.
    So I am disappointed in this proposal, but as far as I am 
concerned, I would rather spend time not focusing on our 
differences. Let's instead try to find some time and a way to 
see if there is some common ground. I think there may be some 
opportunities to do that.
    The first thing that comes to my mind is trade. We all 
agree that trade is good for America, because more trade means 
higher pay. And so our top priority is to put in place Trade 
Promotion Authority. To get the best trade deals possible, we 
have to be in the best position possible, and that is what TPA 
helps us do. So I will be interested to hear how the 
Administration is helping us get TPA across the finish line.
    Next, we have to fix this broken Tax Code. We want to fix 
it for everybody, but with this Administration, in the past, we 
haven't had very high hopes, but you have gradually, grudgingly 
taken a few steps, in my opinion, in the right direction, 
though, in my opinion, you also need to move it a little 
farther.
    For years you talked about fixing the Tax Code for 
corporations but not for families and small businesses. More 
recently, after this Committee's constant insistence that tax 
reform cannot give an unfair advantage to big public companies 
over closely-held, family-owned businesses, the Administration 
is now finally talking about helping small businesses as well. 
Even though your specific proposals have been far from 
adequate, at least it is a step in the right direction.
    Now the Administration is taking a few more baby steps in 
the right direction by proposing a few ways to simplify the Tax 
Code for middle class families. So it is progress, not a lot, 
but we will take it. So I would be interested to hear what you 
have to say about tax reform. If we can find common ground, we 
need to explore it, but I will tell you right now, what the 
President is proposing for small businesses organized as pass-
throughs, you know, sole proprietorships, partnerships, S 
corporations, it just doesn't go far enough. It just doesn't 
cut it. Small businesses, they are the engine of our economy, 
and this Committee is not going to do just anything. This 
Committee is not going to leave them behind. This Committee has 
to make sure that they are part of the solution.
    The Tax Code has to work for everybody, especially families 
and small businesses. We need to make it simpler, we need to 
make it fair, and we need to make it flatter. We need to make 
it more globally competitive. We need to create more jobs. That 
is the way to create jobs and build a healthy economy. So we 
want to work with this Administration. We want to explore 
common ground. We have two big opportunities here potentially 
on tax and on trade, and so we would like to get this done. 
Let's see if we can find a way of working together, and with 
that I would like to yield to the distinguished Ranking Member, 
Mr. Levin.
    Mr. LEVIN. Thank you very much, Mr. Chairman.
    Welcome, Mr. Secretary. As the Chairman said, you are 
further away. We will try to make this more personal, though.
    I wanted to start on a personal note to recognize the fact 
that someone who has served as our staff director on Health, 
Cybele Bjorklund, this is her last hearing. I don't know where 
Cybele is. Are you here?
    Ms. BJORKLUND. I am here.
    Mr. LEVIN. You are back here. Cybele, thank you for all of 
your work.
    Again, welcome, Mr. Secretary. This Administration first 
presented a budget to Congress 6 years ago. Back then, in the 
months of February and March of 2009, just weeks after 
President Obama took office, the economy lost more than 1.5 
million jobs; the most in any 2-month period since World War 
II. Today the economy has experienced significant growth with 
58 consecutive months of private sector job gains. Over the 
past 4 years, the United States has put more people back to 
work than Europe, Japan, and all of the world's major 
advanced economies combined. That is hardly a ``stag- nant 
economy.'' Republicans try to minimize that dramatic 
turnaround, but are instructed to revisit what their party's 
Presidential nominee in 2012 promised to achieve by the end of 
his first term in office. Mitt Romney said, ``I can tell you 
that over a period of 4 years, by virtue of the policies that 
we put in place, we would get the unemployment rate down to 6 
percent and perhaps a little lower.''
    Today, nearly 2 years before that deadline, the 
unemployment rate has dropped to 5.6 percent. The ongoing 
challenge that we confront, a challenge that has persisted for 
the last three decades, dating back to the Reagan years, is how 
to ensure that middle class families are not left out of the 
growth of our economy that is now being experienced and will be 
experienced in the future.
    The President's budget takes direct aim at that challenge. 
It includes proposals to support working families by making 
child care more accessible, guaranteeing paid sick leave, and 
making permanent extensions of vital provisions, including the 
EITC, the Child Tax Credit, and the American Opportunity Tax 
Credit. It combines changes in the international tax structure 
and provisions for the long-term needs of our Nation's 
infrastructure. It closes tax loopholes that predominantly 
benefit a select few.
    These proposals are not envy economics. They are everyone's 
economics. They are not the economics of envy. They are the 
economics of working for all, not just the very wealthy. 
Through a fiscally responsible replacement for the sequester, 
the President's budget would allow us to invest in education, 
medical research, and other domestic priorities, as well as 
provide the resources that Social Security, Medicare, and the 
IRS need to serve the American people, and would provide for 
the ever-changing needs of our military as it confronts new 
challenges.
    I hope the Republicans give these and other proposals 
presented within the President's budget, Mr. Chairman, the full 
and serious consideration that they deserve.
    One of the many outstanding issues in the Trans-Pacific 
negotiations, currency manipulation, is mainly in the purview 
of Treasury. Over the past decade, currency manipulation by 
foreign governments has resulted in an increase in unfairly 
traded imports into the United States. It has made it more 
difficult for U.S. exporters to compete in foreign markets. It 
has cost us millions of middle class jobs. The TPP includes a 
number of former currency manipulators, such as Japan and other 
countries, including China, Korea, and Taiwan, who have been in 
the past manipulating their currencies. Each of these countries 
is party to the IMF, which already prohibits currency 
manipulation, and has developed deadlines to define when it 
occurs. The problem is that the IMF lacks any enforcement 
provision. That is why I propose taking the existing IMF 
guidelines and building on them so they can be addressed 
through the TPP.
    I have heard concerns that the U.S. monetary policy might 
be at risk if we put such a provision in the TPP. The IMF 
guidelines clearly spell out that U.S. monetary policy, 
including quantitative easing, is not currency manipulation. 
The first factor is protracted large-scale interventions in 
currency markets, and the United States has not engaged in 
that. The second factors have in it an excessive amount of 
foreign exchange reserves. I could go through each factor, but 
suffice it to say, that the IMF has explicitly supported each 
round of U.S. quantitative easement since the great recession. 
U.S. monetary policy would not be put at risk by addressing 
currency through the TPP.
    I look forward to discussing with my colleagues, Mr. 
Chairman, on a bipartisan and bicameral basis, and with the 
Administration, how to include a strong and enforceable 
currency manipulation provision as well as tackling the other 
major outstanding issues in the TPP that I outlined late last 
month in a document that I called A Path Toward an Effective 
TPP Agreement.
    Thank you, Mr. Secretary, for your dedication and your 
service to our Nation for many years, going back to the days 
when you were still much younger working for Tip O'Neill, and I 
am very happy to welcome you back before this Committee.
    Thank you, Mr. Chairman.
    Chairman RYAN. Thank you. Thank you, Mr. Levin.
    Secretary Lew, thank you for your time today. Your entire 
written testimony will be included in the record. If you could 
try to summarize it in 5 minutes so we can--because we know you 
have a hard stop at--try to summarize it in 5 minutes so we can 
get to our questioning, we would appreciate it. The time is 
yours.

   STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, U.S. 
           DEPARTMENT OF THE TREASURY, WASHINGTON, DC

    Secretary LEW. Thank you very much, Chairman Ryan, Ranking 
Member Levin, Members of the Committee. It is good to be with 
you here this morning to discuss the President's budget, and 
Mr. Chairman, I know this is the first time I have appeared 
since you have taken over the gavel of this Committee. I 
congratulate you and look forward to working together on a 
bipartisan basis to get things done.
    A year ago, President Obama said that 2014 would be a 
breakthrough year for our economy, and the evidence is now 
clear that over the past 12 months, America has made great 
strides. We are seeing real progress in job creation, economic 
growth, family wealth, energy independence, manufacturing, 
exports, retirement accounts, the stock market, healthcare 
costs, graduation rates, and the deficit. The fact is our 
businesses created nearly 3 million jobs last year, the most 
jobs in any year since the late 1990s. This capped off roughly 
5 years of jobs growth, the longest stretch of jobs growth in 
our Nation's history, and the creation of 11 million new jobs.
    In addition, the unemployment rate dropped to its lowest 
rate in 6\1/2\ years, and our economy continued to expand with 
healthy growth in the second, third and fourth quarters of 2014 
and forecasts projecting above-trend growth in 2015.
    From a global perspective, we continue to outperform our 
trading partners, many of which are still trying to climb out 
of the vast hole created by the global economic crisis. At the 
same time, with the Affordable Care Act in place, about 10 
million Americans now know the financial security of health 
insurance and healthcare prices rose at their lowest rates in 
decades.
    The automobile industry continued its rebound in 2014, even 
as we marked the official end to the auto industry rescue, and 
American taxpayers recovered more money than we invested.
    Finally, thanks to the Administration's all-of-the-above 
energy strategy, we moved closer to energy independence than we 
have been in decades, and gas prices fell, providing a shot in 
the arm for families and small businesses. So today our Nation 
has turned the corner on a number of fronts. As we know, this 
resurgence has not reached every American. For too many hard-
working men and women in this country, it is still too hard to 
get ahead and earn enough to raise a family, afford child care, 
pay for college, buy a home, and secure retirement.
    The President's budget meets these challenges by offering 
real solutions to grow the economy, strengthen the middle 
class, and make paychecks go farther.
    This budget is built around the basic idea that hard work 
should pay off. It is practical, not partisan, and it lays out 
clear steps to reign in spending and eliminate wasteful tax 
breaks so we can reduce taxes for working families as well as 
many businesses and manufacturers.
    What is more, this budget replaces the across-the-board 
cuts from sequestration and makes sensible investments to 
increase our economy's competitiveness while maintaining a 
responsible fiscal path.
    As we know, not long ago some were predicting that the 
President's policies would explode our deficits. A little 
history, though, makes clear the opposite is true. In the 
1990's, when I was Budget Director, I oversaw three budget 
surpluses in a row, and we were on a path to pay down our 
national debt, but when this Administration took office in 
2009, there was a very different reality. After years of 
runaway spending, including tax cuts for the most well off and 
two wars that were not paid for, and then the financial crisis, 
our deficits reached a post-World War II high. The President 
moved to right our Nation's fiscal shift. With his balanced 
economic approach, the agreements forged with Congress and a 
growing economy, the deficit has fallen by almost three-
quarters, the swiftest downward arc since the period of 
demobilization following World War II.
    The deficit is projected to decline even further in the 
next fiscal year, and today we are putting forward a plan to 
lower our deficits to about 2\1/2\ percent of GDP over the 10-
year budget window.
    Our Nation's improved financial footing has occurred even 
as Congress was able to undo a portion of sequestration in 
recent years, replacing these cuts with more sensible and 
balanced savings. Still nothing has been done to address these 
dangerous cuts in 2016. Without Congressional action, vital 
funding for our national defense and key priorities like 
education, infrastructure, and research will be severely cut 
back.
    The President's budget provides a path to eliminate 
sequestration while achieving the President's longstanding 
commitment to a responsible and balanced fiscal approach. In 
other words, it charts a specific way forward to not only keep 
our fiscal house in order, but to also create room for pro-
growth economic policies which are needed to keep our Nation 
stronger in the future.
    One pro-growth strategy of tax reform is to restore basic 
fairness and efficiency to our system. By scrapping loopholes 
and tax breaks that reduce the taxes for the most fortunate 
Americans but do not help our economy, we can provide critical 
tax relief for the middle class and those struggling to join 
the middle class. Our economy should work for everyone, and 
everyone should shoulder their fair share to maintain our 
Nation's fiscal health.
    This budget also places a serious focus on achieving 
bipartisan business tax reform so that America is the best 
place in the world for businesses to locate, grow, and create 
the kind of good high-paying jobs that support middle class 
families.
    This plan shows how Members of both parties can reach a 
common ground and realize the shared objectives of simplifying 
the system, removing wasteful tax preferences and distortions, 
and lowering tax rates so that we no longer have a system in 
which some businesses pay nothing while others pay the highest 
rates in the developed world. It is time to stop rewarding 
corporations and industries that have the best lobbyists and 
most creative accountants, and start strengthening businesses 
that build, hire, and invest here in the United States.
    It is also time to make inversions, a loophole that allows 
U.S. companies to lower their taxes after they buy foreign 
businesses, a thing of the past, and this budget does that. A 
more fair and efficient tax system will help create good middle 
class jobs and grow our economy.
    We know that with business tax reform, there will be one-
time transition revenues. The President wants to use some of 
these one-time revenues to make long overdue repairs to our 
Nation's roads, bridges, ports, and airports. The need to 
rebuild our infrastructure is irrefutable, and that is why this 
budget tackles our infrastructure challenges by creating an 
extended period of sustained funding for a 6-year Surface 
Transportation bill and starting an innovative new bond program 
that will ignite more public/private partnerships in cities and 
States across the country.
    Of course, keeping our comeback on track, building on the 
momentum we have made and making it possible for every Ameri- 
can to get ahead is going to require strategies that are both 
bold 
and effective, and that is what this budget is about. It 
proposes a 
series of targeted investments that have been proven to make a 
difference. It invests in education by expanding student loans, 
strengthening tax incentives, and making community college free 
for those who earn it. It invests in America's workers by 
starting apprenticeship grants, enhancing job-training 
programs, and boosting the Earned Income Tax Credit. It invests 
in working families by increasing the Child Care Tax Credit, 
providing tax relief for families when both parents are holding 
down jobs, and allowing more working Americans to earn paid 
leave. It invests in retirement security by making it easier 
for employees to automatically save for the future, and 
businesses to provide 401(k)s to their employees, and invests 
in innovation by creating more advanced manufacturing 
institutes, starting cutting-edge medical research initiatives, 
and bringing broadband access to more communities.
    In concert with these pro-growth strategies, this budget 
calls on Congress to send measures to the President's desk that 
will help our economy now and far into the future. This 
includes raising the minimum wage, fixing our broken 
immigration system, and passing Trade Promotion Authority.
    The strategies I have described are part of the President's 
plan to help improve the lives of millions of hard-working 
Americans while meeting our responsibilities to future 
generations. The task before us now is to put political 
brinksmanship aside and find areas of compromise and common 
ground, and I am certain that we can get this done.
    I look forward to working with each and every Member of 
this Committee so we can deliver for the American people, and I 
look forward to answering your questions today.
    Thank you very much.
    [The prepared statement of Secretary Lew follows:]
    
    
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]    
    
    
    Chairman RYAN. Thank you, Secretary.
    There are basically four areas I wanted to get into. I just 
added one to it from your testimony.
    The sequester. As the author of the last agreement, 
bipartisan agreement to provide sequester relief, you know, I 
think the formula we reached in that bipartisan budget 
agreement in the last session was the right precedent, and so 
what was that precedent? It was that we understand that the 
mandatory side of the ledger book, the autopilot spending, is 
what is really not under control, is the source of our debt 
crisis coming in the future, and needs to be reformed.
    So what Patty Murray and I sat down to do was to find an 
excessive amount of savings on the mandatory side of the ledger 
book to pay for some sequester relief, and to fix the caps for 
the various concerns that I think on both sides of the aisle 
people have, but the precedence was you had more spending 
reductions through mandatory entitlement reforms resulting in 
net deficit reduction which also got us some sequester relief.
    So we all know it is a show stopper to say let's, you know, 
raise taxes to pay for some sequester relief. The precedent was 
set, which is we need to do mandatory reforms so that we can do 
two things: (1) Relief from the sequester through smarter 
spending cuts in other areas of government, and (2) contribute 
on the net to some deficit reductions. So I would just argue 
strongly, we have a good formula in place, we have a good 
precedent, it has bipartisan origins, let's try and stick with 
that formula.
    Secretary LEW. Mr. Chairman, if I might.
    Chairman RYAN. Yes.
    Secretary LEW. I think that the agreement that you and 
Senator Murray reached was important and it is one of the 
reasons that we have been operating in a more normal way these 
last 2 years and one of the reasons the budget could be on time 
this year.
    Chairman RYAN. Yes.
    Secretary LEW. So I think working together is important. We 
obviously present our view of the best way to do it in our 
budget, and we need to work on a bipartisan basis to try to 
reach agreement.
    Chairman RYAN. Yes, and my whole point is let's stick with 
the formula that we have because it worked before, and I think 
it is the best way to go forward.
    Second, I want to ask you about pass-throughs. I am glad 
you say business reform instead of corporate, which is a good 
step in the right direction. Mind you, that, and I know you 
know this, but 80 percent of American businesses aren't 
corporations. They are pass-throughs. They file their taxes as 
individuals, sole proprietorships, LLCs, you know, Subchapter 
S.
    The issue that I think is of greater concern these days is 
that, unlike the big public companies with a lot of cash on 
their balance sheets, the ability to borrow at historically low 
interest rates, the post Dodd-Frank closely-held businesses 
have found it really hard to obtain credit these days as banks 
have restricted lending. So we have a cash flow issue. They 
need cash flow from their current operations just to meet 
payroll, just to keep people working, but our current broken 
Code makes it harder for them to do that. Your budget takes 
some baby steps in the right direction. I note Section 179. I 
think there is some common ground there on expanding that. We 
will be doing that, marking this up tomorrow, but other 
proposals like expanded cash accounting are only right now 
helping small C corporations and don't do much for the vast 
majority of small businesses organized as pass-throughs.
    So will you work with us to explore more areas in trying to 
help these closely-held family businesses that we think of as 
pass-throughs, to help figure out their expensing issues? 
Because in this post Dodd-Frank world, they have even tighter 
credit.
    Secretary LEW. Mr. Chairman, I believe that our proposals 
reflect our commitment to making tax reform work for small 
businesses. We have called it business tax reform on purpose 
because we think of it as both corporate and small business tax 
reform. We have put into our plan a number of things to 
simplify taxes for small businesses to make it possible to take 
deductions more easily and more quickly, and to lower the tax 
burden for many small businesses.
    A lot of different kinds of companies organize as pass-
throughs. Some of them are mom and pop businesses. Some of them 
are very large companies that look more like corporations. We 
look forward to working on a bipartisan basis to see what we 
can do to help real small businesses get the kind of relief 
that they need.
    Chairman RYAN. Big or small, it is where most of the jobs 
come from, and so let's--all I am saying is I don't think there 
is enough in this proposal to do justice to what needs to be 
done. So let's keep working on that.
    Transition. I wanted to just get you down on the record on 
this idea of tax reform financing highways. Your point, just to 
be clear, is not to support a one-time repatriation holiday 
such as we did in, I think, 2004, 2005, but only as a means to 
permanent transition to a new, I think you call it a hybrid 
system, only under that kind of a scenario do you see tax 
reform as part of the solution to the highway trust fund 
issues. Is that correct?
    Secretary LEW. Well, Mr. Chairman, we have pointed out many 
times that we think that the one-time repatriation holiday 
created a kind of perverse incentive. It created an incentive 
for companies to keep their income overseas until the next 
repatriation holiday.
    We think that the right answer is to have real tax reform 
to change the structure so that companies bring their income 
home. Frankly, so they invest their income wherever it is most 
economically efficient. The idea of tax reform is to have the 
efficiency and economics of a business determine where you 
invest, not the Tax Code, which is skewing decisions in a way 
that is inefficient.
    We believe that what we have proposed in terms of the 
international hybrid system will create that. We think that the 
toll charge that we have put in is the right way to have a 
transition, and we do believe that the one-time revenue from 
the toll charge can fund the highway--the infrastructure 
program in a very effective way.
    When you talk to business leaders in this country, the two 
things--the three things that I hear most often are, one, we 
need to reform our Tax Code; two, we need to build our 
infrastructure so our economy can grow; and, three, we need to 
do immigration reform. We can take care of two of three at the 
same time here.
    Chairman RYAN. Yes. So I would take issue with probably the 
rate and the style of hybrid that you are doing, but putting 
that point aside, it is a move in a constructive way. We have 
these--obviously have it--see it differently, but it is for a 
permanent conversion to a permanent new system.
    Secretary LEW. Right. Right.
    Chairman RYAN. Okay. The last question I want to ask you is 
about EITC. I think the data is pretty clear that the EITC is 
effective. It is effective at moving people from poverty into 
the workforce. It is effective at lowering barriers that are in 
front of a person who wants to get into the workforce, but it 
is also a program that is known to have a high degree of fraud. 
It is known to have a high improper payment rate. A lot of 
people say: ``Well, just give the IRS more agents and they can 
fix that.'' I think that is an insufficient answer.
    Will you work with us to try to figure out how we can clean 
up the management and the structure of the EITC so that we can 
get at this exceptionally high improper payment rate, and are 
there ideas you have about how it could be restructured and 
reformed so that it truly goes to those who are really truly 
supposed to get it and not to others?
    Secretary LEW. Mr. Chairman, I totally agree with you on 
the importance of the EITC as a bridge to work and to get 
families back to work in a way that makes good sense. It has 
been a bipartisan commitment from its inception, and I look 
forward to working with you to strengthen the EITC. I also 
agree that compliance needs to be improved. We do have resource 
constraints. I don't think they can be dismissed. The 
underfunding of the IRS does make it very challenging in many 
areas to put the resources that are needed into compliance. So 
I hope we can work together to make sure the IRS gets the 
resources that it needs.
    You know, every year the IRS recovers or prevents about $2 
billion of improper EITC claims, and between $3 and $4 billion 
in total revenue through EITC-related compliance activities. We 
need to do better. We look forward to doing better, but it is 
related to the resources available. We hope there are the 
resources to do it properly.
    Chairman RYAN. Okay. So my point for asking, though, is I 
think we--many of us agree that there are other populations 
that this reform could be applied to, say childless adults. 
Let's see if we can make the reforms pay for these 
improvements. So if we can contain it within itself, I think 
that would be an enormous step in the right direction, and that 
too could perhaps lead to a bipartisan common ground success.
    Secretary LEW. Well, we very much look forward to working 
together on the childless adult provisions. It is something 
that I think would fill an enormously important gap in the 
current system. I don't know whether the cost would be covered 
by it, but I would be happy to look at it and work with you.
    Chairman RYAN. All right. Thank you.
    Mr. Levin is recognized.
    Mr. LEVIN. Thank you. Mr. Chairman, you and I have had a 
few discussions about these issues, and all of us want to do 
more of that. So if I might, I want to ask a broader question 
of the Secretary briefly, but let me just mention about pass-
throughs. I think it is one of the major challenges to tax 
reform, as you indicated, and I think it has to be looked at 
comprehensively. We are going to mark up 179 and other bills 
tomorrow, and I think it is a mistake to take that outside of 
tax reform, unpaid for, permanent.
    Mr. Secretary, you have expressed your view on this before. 
Do you want to just comment briefly on that approach?
    Secretary LEW. Congressman, we have consistently opposed 
taking these items one by one and making them permanent in an 
unpaid-for way, even provisions that we approve of and that are 
part of our plan. I think that Section 179 should be addressed. 
It should be expanded in the context of business tax reform, 
and I think that if we can have real progress on business tax 
reform, that would be a way to get it done in a way that takes 
the issue off the table for the future and removes the 
uncertainty that goes with short-term extensions, which is 
where we end up if we don't have business tax reform.
    Mr. LEVIN. Thank you. Mr. Chairman, also in terms of 
international taxation, the Secretary has mentioned how I think 
totally unsuccessful the repatriation was before, and what the 
Administration has come up with is kind of a hybrid system, and 
I think we need to get away from the labels and look at how it 
might work, and let me just say briefly, as we continue 
dialogue, I think we need to look at EITC in terms of its 
implementation. I think IRS help is not the only factor, but I 
think, as the Secretary said, cutting revenue appropriations 
for the IRS is not the way to go. You can't get tax enforcement 
when you cut down the IRS appropriation.
    Mr. Secretary, if you would, I have almost 3 minutes, would 
you use them? You talked in your statement about middle class 
economics. Just tell us, if you would briefly sum it up, what 
is the vision of this Administration when it presents its 
budget? What is it all about?
    Secretary LEW. Mr. Congressman, I appreciate the question. 
We have put a lot of thought into how to design a budget that 
would address the challenge of making sure that our economy 
works for middle class families, for families that are trying 
to break into the middle class. We have identified what we 
think the real obstacles and burdens are. It includes education 
opportunity, it includes child care burdens, it includes the 
challenge of saving for retirement. We have put in place a 
series of provisions that we think will make a real difference 
to make it possible for middle class families to get ahead.
    We have an economy that on the whole is growing at a much 
better rate than most of the rest of the developed world, but 
we are seeing within the United States that it is not an 
economy where there is broad opportunity as there should be. I 
think that the provisions in this budget provide a first step 
to solving that.
    You know, some of the characterizations of this budget 
have, I think, been a bit off. It is not about being against 
one group and for another group. It is about making the system 
work for everyone, and the truth is we have distortions in our 
tax system that allow those with the most wealth and the most 
income to avoid paying taxes on the same basis that all of us 
pay taxes on.
    Let me use an example of stepped-up basis and compare it to 
the way we pay taxes on IRAs and 401(k)s. For anyone who needs 
to use the assets that they have built up for their retirement, 
you pay income tax on that when you take it out in your 
retirement. If you never need to get access to your savings, to 
your accumulated earnings, you can pass it on to tax free. That 
is not right. Our system ought to treat all earnings in a 
similar way, and that is what our proposal does. It is not 
against anyone, it is for everyone.
    Mr. LEVIN. Thank you.
    Thank you, Mr. Chairman.
    Chairman RYAN. Mr. Johnson.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. As you know, you are also serving 
as the Managing Trustee for Social Security, and I would like 
to, if we can get a quote up on the screen, direct you to it. 
However, this is what Obama had to say when he was first 
elected. ``What we have done is kicked this can down the road. 
We are now at the end of the road and not in a position to kick 
it any further. We have to signal seriousness in this by making 
sure some of the hard decisions are made under my watch, not 
someone else's.'' That is President Obama in January 2009. You 
know, we have to signal seriousness, and my question to you is: 
Do you agree with what the President said then? Yes or no.
    Secretary LEW. You know, Congressman, I think that if you 
look at the condition of the Social Security Trust Fund, it is 
in stronger shape now. A strong economy helps drive that, and I 
think the President has many times said that we need to deal 
with the long-term problems in a bipartisan way, but we do have 
a little bit more time to do that. What we have proposed is a 
budget that will build a foundation that will actually help 
Social Security. Even our immigration policy, for example, 
would have the effect of lengthening the life of the Social 
Security Trust Fund. So we think that we have improved the 
conditions of Social Security----
    Mr. JOHNSON. Well, I am going to have to disagree with you 
because the shortfall has doubled from $5.3 trillion to $10.6 
trillion while you guys have been in office, and that means 
Social Security can't pay the promises it has made.
    My next question, just for the record, do you agree that 
Social Security finances have continued to deteriorate since 
Obama took office? Just yes or no.
    Secretary LEW. Well, Congressman, you know, I think if you 
look at what has happened in these years, as we all knew, the 
baby boom was going to hit retirement age, and the baby boom 
retirement is underway. So I think if you look at the trends in 
Social Security financing, one has to take account of the fact 
that it was an entirely predictable turn that the reserves 
would start getting used to pay benefits.
    Mr. JOHNSON. Well, if you know that, then why didn't you 
make a real plan to fix it?
    Would you agree that the disability program is in trouble? 
Yes or no.
    Secretary LEW. Well, Congressman, disability is a bit of a 
separate issue from the old age fund. I would just say that as 
someone who was involved in the 1983 Social Security reform, we 
did a lot to fix Social Security's foreseeable shortfall. The 
problem is that money was spent along the way because we ran 
deficits for other purposes. So I don't think it is a question 
of what happened in the window of time of this Administration. 
It is actually what happened before.
    The disability fund is approaching its exhaustion date. We 
have proposed a number of reforms in disability. I think there 
is a broad view that there is going to need to be some 
reallocation of trust fund--the taxes between the trust fund to 
deal with this issue in the intermediate term.
    Mr. JOHNSON. Well, let's talk about reallocation. You used 
that word. Reallocation is actually about taking money that 
would have gone to a retirement and giving it to the disability 
program. Is that true or false?
    Secretary LEW. Well, reallocation would move revenues from 
one part of the one trust--one trust fund to another.
    Mr. JOHNSON. Sounds like we are continuing to kick the can 
down the road. We have to work today to strengthen and preserve 
Social Security.
    Mr. Secretary, will the President actually follow through 
on the words he said back in 2009 and actually do something on 
his watch?
    Secretary LEW. Well, Congressman, I think that if you look 
at the history of the last several years, the President has 
been prepared on a number of occasions to have the 
conversations that have to happen on a bipartisan basis to deal 
with Social Security in the long term. They did not reach the 
kind of end that led to an agreement. I think right now we are 
looking at an economy that would benefit greatly from us 
working on the things where we can reach bipartisan agreement, 
and we do have a bit more time to deal with the long-term 
issues. I am not going to say they don't need to be addressed, 
but they need to be addressed in an environment where there is 
a bipartisan atmosphere that is, you know, conducive to it. 
Let's make some progress on the things----
    Mr. JOHNSON. So you are saying that the President will 
actually do something on his watch to fix this system?
    Secretary LEW. Well, I think if we do immigration reform, 
that would be a big step, and we look forward to working 
together on that.
    Mr. JOHNSON. You know, Americans depend on Social Security, 
and they are paying hundreds if not thousands of dollars a year 
into Social Security and want and need and deserve better.
    Mr. Chairman, thank you for holding this hearing, and I 
look forward to working with you on this important issue.
    Chairman RYAN. Thank you. Thank you.
    Mr. Rangel is recognized.
    Mr. RANGEL. Thank you.
    I understand Mr. Johnson said the President can do 
something by himself on his watch, and I am going to advocate 
that he be more aggressive in that area.
    Having said that, though, welcome. It is so difficult for 
me to look at you, Mr. Secretary, and not think of you as the 
kid that used to work for Tip O'Neill, but you certainly make 
those of us that serve the government proud of your service.
    I don't see how--I am so pleased to hear that the Chairman 
and you and most all of us agree that there is a possibility in 
the area of trade and the area of tax policy that there is a 
possibility that we can find some area that we can agree on.
    Now, both of these issues, as important as they are to the 
country, we need to get votes for these things, and it is 
difficult for some of us to go into the community and say we 
are for tax reform or we are for trade when people are really 
talking about what does it mean to me? How is this going to 
affect my future? What disposable income will I have? Will I 
have any pension benefits? Will I have something to send my 
kids to school? Can I get a house? Can I pay the rent? It would 
seem to me that we always allocate jobs with trade, and 
certainly we can negotiate the trade--the tax bill so that we 
can be fair as it relates to what used to be called the middle 
class, but I don't see the jobs in this bill, and it is 
probably difficult to pinpoint exactly who the winners and 
losers would be in a trade bill.
    It probably will improve the ability of all of the 
countries involved to improve their economy, but to find out 
where are these jobs going to be. Because if we can do this, 
Mr. Secretary, we get rid of all of this Republican and 
Democrat and free trade of business. People want to know if it 
is good for the country, how it is going to be good for me?
    It seems to me that if we do have a good trade bill, that 
we will need infrastructure in order to support that trade 
bill. I don't see how anybody, regardless of their party, can 
go to our mayors and our governors and not say that 
infrastructure is a part of trade.
    The other thing is also education. Whatever benefits we 
get, we have to have a workforce prepared to meet the new 
economic challenges, if not for the current workforce, for 
those that will be coming into being.
    Now, I wish the Administration would be able, and 
Republicans as well, to try to give some of us a package so we 
are not talking in theory, but we are talking about jobs, and 
if the Republican majority can see its way clear in the 
Congress to attach education, job training, infrastructure to a 
trade package, I can assure you that trade would mean a heck of 
a lot more to our constituents than just something that 
foreigners are dealing with with our President. If we can get 
that concept that the President accepts it and it is a part of 
the trade agreement, then, of course, I don't see any objection 
of giving the President the authority to negotiate a trade 
agreement, meaning that those things are going to be in it. But 
I find it very difficult for us to say we are giving the 
President the authority to negotiate, and when the negotiations 
are complete, all we have is up or down and no input.
    So I don't know how much time you have to respond, but 
whatever it is, I do believe that trade and tax reform could 
bring us together for the country, for our party, and certainly 
to improve the image of our Congress.
    Secretary LEW. Look, Congressman Rangel, the basic reason 
that we support Trade Promotion Authority and good treaties is 
because we think it grows the U.S. economy and it grows the 
middle class jobs in this country. You look at the growth in 
the future, the growth is in emerging economies. It is in the 
Pacific. It is in areas where other countries are going to be 
exporting into those markets. We need to be exporting into 
those markets too.
    TPP was designed to be an agreement that would drive 
standards up. The United States is already more open than most 
other countries. We already have higher labor standards and 
environmental standards and other important safeguards. By 
having an agreement where we make our high standards a mutually 
agreed set of high standards, and by having a world in which we 
have access to the growing markets, I think it will grow the 
U.S. employment base and create opportunities for middle class 
families to have a better future. None of this is a given. It 
requires negotiating hard. Trade Promotion Authority is 
actually something that puts guidelines on the Administration 
to help drive things in the right direction, and in the areas 
that I have just described, it presumably will address those 
issues.
    It is our job, then, to come back with an agreement that 
delivers, and we are not going to bring back an agreement that 
we can't defend as growing the economy and middle class jobs. I 
think that is the real reason to pursue them.
    Chairman RYAN. Thank you.
    Mr. Brady.
    Mr. BRADY. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. As you know, next month the Supreme 
Court is scheduled to hear arguments on whether or not the IRS 
overstepped its authority when the agency issued regulations 
extending Affordable Care Act Premium Assistance Tax Credit 
subsidies for coverage purchased through the Federal exchanges. 
The court is expected to announce its decision sometime before 
the end of June.
    Can you tell me if the Treasury Department or the IRS is 
doing anything to prepare for the possibility that the court 
might rule against the IRS?
    Secretary LEW. Congressman, let me start by saying that the 
Affordable Care Act is working and the tax credits are working. 
Millions of Americans now have access to affordable healthcare 
coverage.
    Mr. BRADY. But the court will not be ruling on that aspect, 
the ACA, beyond specifically the IRS ruling.
    Secretary LEW. We believe that we have--our lawyers have 
made the arguments, the Justice Department has made arguments 
that we think are compelling to the court, and we look forward 
to a positive ruling, but the thing that we just have to 
recognize is----
    Mr. BRADY. But, Mr. Secretary, I don't want to interrupt, 
but I want make sure we understand. I am not asking for a 
prediction on the court ruling, but in the possibility that the 
court will rule for the plaintiffs, what planning is the 
Treasury Department or the IRS doing to deal with that type of 
ruling?
    Secretary LEW. Congressman, there is no question but that 
an adverse ruling would strip millions of Americans of 
healthcare coverage due to the loss of the tax credits.
    Mr. BRADY. So you would be, based on that, starting the 
work now to prepare for that ruling. Correct?
    Secretary LEW. Congressman, what I am saying is the premium 
tax credits are an essential part of the Affordable Care Act.
    Mr. BRADY. Sure.
    Secretary LEW. That if they were removed, there would be 
serious disruption in health insurance markets in many States.
    Mr. BRADY. And to ensure that there is not serious 
disruption, is IRS or Treasury planning now to deal with the 
ruling in the other direction?
    Secretary LEW. What we are doing is we are continuing to 
implement the law, the law as it was written, which was to make 
sure that all American people had access to this.
    Mr. BRADY. Let me ask, as Treasury Secretary today, are 
you, in effect, guaranteeing the Supreme Court will rule for 
the IRS in this case?
    Secretary LEW. What I am doing, and what we across the 
Administration are doing, is implementing the law as it was 
written to provide health insurance for the American people.
    Mr. BRADY. Are you--I get the impression you are very 
confident they will--in effect, are you guaranteeing that they 
are going to rule for the IRS and therefore you have to do no 
planning----
    Secretary LEW. I leave to the Justice Department to make 
our legal cases in court. They have made, I think, a compelling 
case.
    Mr. BRADY. But you certainly would not guarantee that 
today?
    Secretary LEW. I am sorry. I would not guarantee what?
    Mr. BRADY. You certainly would not guarantee the Supreme 
Court ruling for the IRS.
    Secretary LEW. Well, I would never presume to speak for the 
Supreme Court.
    Mr. BRADY. No, no, and I agree because there is a 
possibility they may rule for the plaintiffs. I guess my 
question to you is that should that occur, Republicans are 
already working to develop a thoughtful plan and a thorough 
plan to offer these millions of Americans choices to have 
affordable high quality health care. We are doing that work 
ahead of time. Is Treasury or the IRS doing the same type of 
work?
    Secretary LEW. Congressman, this issue, as you know, is 
currently before the court. I can't comment on the pending 
litigation.
    Mr. BRADY. Well, I am not asking about the litigation----
    Secretary LEW. We are confident of our interpretation.
    Mr. BRADY [continuing]. Mr. Lew, I am asking about planning 
in the possibility they might rule otherwise because, as you 
admitted, you can't guarantee the outcome. So are you planning 
for that?
    Secretary LEW. We are confident that our interpretation 
that Americans in every State are eligible for premium tax 
credits will stand, and I have indicated that----
    Mr. BRADY. Sure. But a moment ago you admitted that you 
can't guarantee the outcome. So let me ask this: As Republicans 
work toward a thoughtful, thorough plan to address that ruling, 
will the White House work with us in that eventuality, or will 
you refuse to work with Republicans in dealing with that ruling 
and the millions of Americans that could be impacted?
    Secretary LEW. Congressman, the oral argument hasn't taken 
place. A ruling is months away. I have indicated that if there 
were a ruling that took away the premium tax credit from a 
significant number of people, it would be very disruptive.
    Mr. BRADY. Right. And in that case, will you work with 
Republicans in crafting a solution for those Americans so they 
can have high-quality affordable health care? This is simple. 
Will you work with us or refuse to work with us?
    Secretary LEW. I think that it is a mistake to think that 
there is a simple solution.
    Mr. BRADY. Oh, I am not suggesting there are simple 
solutions.
    Secretary LEW. The Affordable Care Act was designed to be 
based on premium----
    Mr. BRADY. Will you work with us or refuse to work with us?
    Secretary LEW. Well, I am indicating our view that it is--
it would be a serious disruption. You know, we obviously will 
look at what proposals are made, but I am not going to prejudge 
what the court does.
    Chairman RYAN. Thank you.
    Dr. McDermott.
    Mr. MCDERMOTT. Thank you, Mr. Chairman.
    Mr. Lew, I applaud the President's efforts to support the 
middle class. All through this bill, whether you are talking 
about sick leave or Social Security or Medicare or student 
debt, the President has made proposals.
    What my colleague from Texas is posing is that if your 
next-door neighbor takes a bulldozer and knocks down your 
house, do you have a plan to rebuild your house, and it is 
about as unreasonable a posit of an idea as I have ever heard. 
The Republicans, in 5\1/2\ years have not proposed any 
alternative to the ACA. In fact, this afternoon at 1:30, they 
are going to bring a bill out on the floor to repeal it for the 
55th time.
    Now, it seems unreasonable to put--to waste your time 
planning for something. If they have something they want to 
bring forward, they can lay it on the table in the Ways and 
Means Committee or in the Energy and Commerce Committee or 
somewhere else. They have never put anything on the table.
    Now, I want to talk a little bit about the proposal to the 
President to close the loophole that Gingrich put in the 
Subchapter S collection of Social Security taxes. Could you 
explain to me--my understanding is that if you have an S 
Chapter--or Chapter S corporation, you don't have to pay your 
employment taxes. So you don't pay for Medicare. You don't pay 
for Social Security. Now, when you get old, you turn 65, are 
you eligible then to go in and get Social Security and get 
Medicare on a program to which you haven't paid one single 
dime?
    Secretary LEW. Well, Congressman, first, if I can respond 
to the point you made about the bulldozer. I have tried to 
indicate that the degree of disruption would be enormous. I 
also think it is important for us to recognize that what we 
should be working together on is how to make it more affordable 
and more possible for Americans to get health care, and we have 
always been open to working on that. I think the American 
people are tired of the debate about repealing the Affordable 
Care Act and they want to hear more about how to make it work.
    Mr. MCDERMOTT. I agree.
    Secretary LEW. And on the question about eligibility for 
Medicare, there obviously is a significant issue. You know, the 
proposal that we have in our budget would tax all earnings of 
professional service Subchapter S corporations as labor 
earnings. The taxpayers would get Social Security and Medicare 
based on what they paid in. So we think that would address the 
underlying issue.
    Mr. MCDERMOTT. So those people are not now eligible for 
receiving benefits if they don't pay in?
    Secretary LEW. I believe they are. They pay in, but they 
don't pay in as much as they would. I mean, the question here 
is not whether they are eligible for benefits but whether they 
are paying in on a fair basis.
    Mr. MCDERMOTT. I think it raises $74 billion for the trust 
fund.
    Secretary LEW. I believe the issue is more a question of 
whether they are making the payments that are associated with 
the incomes that they have.
    Mr. MCDERMOTT. Yes. I would like to raise a question about 
student debt. Can you give me any reason why students can't 
renegotiate their loans? If they took a loan out at 9 percent 
from a bank, why does it have to stay at 9 percent for the rest 
of their life? On my house, I have renegotiated my loans three, 
four times, bringing it down to a lesser rate. Why can't 
students do that?
    Secretary LEW. Congressman, we have looked at this issue 
and worked with the Congress to come up with proposals that 
would give students more flexibility in terms of how to manage 
their student debt.
    Obviously, the student loan programs are designed to give 
very favorable access to credit, but the rates are not always 
at a level that feel competitive with what would be available 
if there were----
    Mr. MCDERMOTT. But the prime interest rate----
    Secretary LEW [continuing]. A different kind of 
creditworthy borrower there in the market.
    I think the challenge here is to work through these issues 
to make sure that students know all of the options that they 
have to repay their debt in a more affordable way, to 
consolidate their loans, to go through the process of having 
their payments----
    Mr. MCDERMOTT. Did you understand the financial system when 
you were 20 years old?
    Secretary LEW. Well, the financial system was simpler when 
I was 20 years old. But probably the answer is not as much as I 
should have.
    Mr. MCDERMOTT. Thank you.
    Chairman RYAN. Thank you.
    Mr. Nunes is not here. Mr. Tiberi. On to Mr. Reichert. Is 
he--oh, there he is.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Secretary, welcome.
    I think most of us are hopeful that the Administration is 
willing to work with us on tax reform, and I am hearing you say 
that you are. That is good news. From Mr. Brady's questioning, 
though, I took away from your lack of 
an answer to his question as to whether or not you will work 
with us depending upon the Supreme Court's decision--that lack 
of a ``yes'' or ``no'' answer indicates to me that there is an 
unwillingness there, and I am hoping that that doesn't transfer 
over into tax reform and other issues.
    I want to focus on the small-business passthrough question. 
And you made some comments that I find interesting compared to 
the language in the budget, so I just want to get to the bottom 
of it.
    Hard-working Americans deserve a Tax Code that works for 
them, not them working for the Tax Code. You would agree with 
that, I am sure. They need to have that consistency and that 
certainty in the Tax Code so they know and can plan for their 
businesses, which gives them the security in having that 
knowledge and hope for the future and their family and the 
success of their business.
    So when you say that you are willing to work with us in the 
179 expensing area, can you explain to me why in your budget 
you did so little in that area for passthrough entities? Why 
didn't you do something a little bit more bold to begin with, 
if really that is the way you and the President felt about 
passthroughs and small businesses?
    Secretary LEW. Well, Congressman, I think that we have done 
a number of things in the budget that will help small 
businesses and passthroughs, not just with 179----
    Mr. REICHERT. But my question, sir, is, why didn't you do 
more? I think you agreed----
    Secretary LEW. Well, we----
    Mr. REICHERT. Just a moment. You agreed with the Chairman 
when you said, yes, we could do more and we will work with you. 
My question is, why didn't you do the ``more'' part first?
    Secretary LEW. You know, Congressman, we put forward what 
we think is a good package. If there is a desire to do more, we 
are open to ideas that would do more. So I think that the 
challenge here is going to be to come up with ideas that 
actually work and that don't have unintended consequences----
    Mr. REICHERT. So the question that I asked you are not 
going to answer?
    Secretary LEW. Well, I----
    Mr. REICHERT. I asked you why you didn't----
    Secretary LEW. I will be perfectly candid. And I have said 
this privately to the Chairman. This is a complicated area. 
This is an area where I think it will actually benefit all of 
us----
    Mr. REICHERT. Okay. So----
    Secretary LEW [continuing]. To work together in a 
bipartisan way.
    Mr. REICHERT [continuing]. Can I get you to reaffirm that 
you will work with us to----
    Secretary LEW. Yeah. I have said that we will----
    Mr. REICHERT. Okay.
    Secretary LEW [continuing]. Work together on it.
    Mr. REICHERT. Great.
    So tomorrow, as Mr. Rangel and I think Mr. Levin referred 
to, seven bills will be marked up in the area of S corporations 
and making some of those tax extenders permanent. I don't want 
to talk about the permanency issue; I just want to talk about 
the policy.
    So you said you agreed with the policy. Can you give me an 
example of how these small-business measures and legislation 
could be expanded? Because that was your statement a little bit 
earlier; you said they should be expanded. Can you give me an 
example of how you might expand S corporation----
    Secretary LEW. Well, we have taken up to $1 million the 
amount that could be expensed in a single year. For most small 
businesses, that is an enormous benefit. It would put all of 
the----
    Mr. REICHERT. But could you give me an example of how----
    Secretary LEW. I just gave you an example.
    Mr. REICHERT. Further.
    Secretary LEW. Yes.
    Mr. REICHERT. You have already said that. Give me a little 
bit more.
    Secretary LEW. I am here to present our budget. You are 
asking me to present things that we will work on in the future. 
Obviously----
    Mr. REICHERT. I thought you might have some ideas.
    Okay. My last question would be: You know, recently, this 
year, we adopted a rules package that requires CBO and JCT to 
perform a macroeconomic analysis of major legislation. Does 
Treasury have a dynamic model?
    Secretary LEW. You know, both Treasury and JCT take account 
of economic factors that----
    Mr. REICHERT. Does Treasury have a dynamic model? Do you 
have one?
    Secretary LEW. I mean, our--yes.
    Mr. REICHERT. Yes. Okay. Thank you. Good. That was easy.
    I yield back.
    Chairman RYAN. Keeping it easy, that is nice.
    Mr. Lewis is recognized.
    Mr. LEWIS. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here today, and thank 
you for all of your great and good work over the years.
    Mr. Secretary, I want you to make it plain and crystal-
clear. If the Republicans today repeal the Affordable Care Act 
and later the Senate repealed the Act, the President is saying 
he is going to veto it, but maybe he has changed his mind and 
will not veto it, maybe he just says, I am not going to veto 
it----
    Secretary LEW. He has not changed his mind.
    Mr. LEWIS. Okay. What would happen--what would happen to 
the hundreds, thousands, and millions of people who have the 
Affordable Care Act now?
    Secretary LEW. Well, Congressman Lewis, because of the 
Affordable Care Act, we have millions of people, almost 10 
million people, who have health insurance coverage that they 
didn't have. And the challenge of providing the kind of 
security that a family only knows when it has health insurance 
has taken us decades to accomplish. We would take a step back 
to the time when those families do not have that kind of access 
to health insurance and the kind of security that flows from 
it.
    So I think it would be a very bad situation. It is why the 
President would veto a measure that would repeal the Affordable 
Care Act.
    Mr. LEWIS. Well, thank you very much, Mr. Secretary.
    Can you explain, what does the President's budget do to 
help more Americans prepare and save for their retirement?
    Secretary LEW. I am sorry. I couldn't hear your question, 
Congressman.
    Mr. LEWIS. What is in the budget--can you explain what is 
in the budget that would help more Americans save and prepare 
for their retirement?
    Secretary LEW. So, Mr. Lewis, one of the things we have 
done in our budget is created incentives for employers to cover 
their workers in 401(k) plans, made it easier for them by 
giving them tax benefits for the administrative cost of setting 
up a plan, for matching contributions that employees make.
    You know, we have built that on top of the proposal that we 
started last year, when we started the myRA program, where 
individuals will be able to start with a very safe, easy, 
starter retirement account.
    We, for years now, had proposals to go from a system where 
employees opt into retirement to one where they have to opt 
out. We know from behavioral economics that that would work to 
get many, many more people covered.
    So I think we have a quite robust set of proposals. And I 
think it is something that, if we could work together on a 
bipartisan basis, would make an enormous difference as we look 
ahead to a generation that is going to need retirement savings 
for a sound future.
    Mr. LEWIS. Well, are we saving more or saving less?
    Secretary LEW. Well, you know, I think as a country we are 
obviously--our savings rate is improving as our economy has 
improved, but we need to see middle-class workers saving more 
for their retirement. I think if you look at the distribution 
of retirement savings, the average amounts that most middle-
class workers have is not really enough for them to rely on. 
You have to kind of strip out of the averages what the very 
large retirement accounts do to the averages.
    And we are concerned about what working families are doing 
to take care of their own future. And we have tried to put in 
place the kind of tax incentives to move that process forward.
    Mr. LEWIS. Well, thank you, Mr. Secretary.
    I yield back, Mr. Chairman.
    Chairman RYAN. Thank you.
    Mr. Boustany.
    Mr. BOUSTANY. Thank you, Mr. Chairman.
    Welcome, Secretary Lew.
    You know, there has been a lot of talk about helping 
middle-class, working families, small businesses, affordable 
health care, and so forth. But I have a real concern about an 
action that Treasury took in September of 2013 when you issued 
a regulation penalizing the use of health reimbursement 
arrangements by employers as a means of financially assisting 
their employees to purchase health insurance plans on the 
individual market.
    I mean, why would Treasury institute this kind of a 
draconian penalty on small businesses that are struggling, as 
we have heard earlier?
    Secretary LEW. So, Congressman, we have obviously moved 
through the Affordable Care Act into a system where there is an 
established way for plans to be put forward and for workers to 
have access to coverage. And we are working hard to implement 
it, to make sure that it is easy for small businesses to take 
advantage of and for workers to participate in. I----
    Mr. BOUSTANY. But there are complications with this, and 
the penalty amounts to 10 times the fines that would be imposed 
on larger businesses. In other words, a large business under 
the employer mandate will be subject to a $3,000 annual fine 
per employee, but yet, if you totaled up the penalty of $100 
per day per employee for these small businesses, we are talking 
about $36,500 per employee for a small business. That seems to 
belie the sentiment that you are trying to help small 
businesses and working families.
    Secretary LEW. Well, Congressman, our objective and the 
objective of the Affordable Care Act is to make sure that 
affordable health care is available to all, and I believe that 
the provisions that you are referring to are not consistent 
with that. I would be happy to follow up with you.
    Mr. BOUSTANY. Why, thank you. This deserves serious 
attention, because I am hearing from small businesses that are 
seeing very high premium increases, up to 40 percent over last 
year's premium increases, in my district, and yet we have this. 
So we really need to work on this.
    If I can get back to the budget for a moment, the budget 
revives the Federal unemployment surtax. And in case Members 
don't recall, this was a temporary tax created in the 1970s, 
and it has outlived its purpose in the 1980s, and that was to 
recover the cost of UI extended benefits paid in the 1970s.
    This program, this tax, stuck around for a long time. We 
finally ended it in 2011. And yet the Administration now wants 
to revive this temporary tax in the--it is in the budget. Why? 
What is it going to be used for?
    Secretary LEW. Congressman, for a number of years now, we 
have been putting forward proposals to try to make sure that 
the unemployment system is on sounder financial footing. We 
have put forward our ideas of how to accomplish that. We think 
it is an important objective. And we would look forward to 
working together in a bipartisan way to know that the 
unemployment system is on sound financial footing going 
forward.
    Mr. BOUSTANY. Well, we will work with you on that, and I 
hope we can get to some resolution.
    And, finally, with the remaining time I have, you won't be 
able to answer the question I have for you, but it relates to 
Treasury's role in developing the model BIT with regard to 
our--and specifically with regard to our negotiations with 
China. This has to be a top priority.
    I would be very interested in getting a full understanding 
of what Treasury is doing with regard to that development and 
our negotiations with China and, likewise, with India. Because 
the President just announced with Prime Minister Modi that we 
will resume negotiations on a high-standard 
bilateral investment treaty. And we seem to be miles apart from 
India, even on basic definitions of ``investment.''
    So there is not much time left. Do you want to talk about 
it? But I would like a detailed answer in writing.
    Secretary LEW. I am happy to get back to you in more 
detail, but in the minute that I have let me just take a quick 
shot at it.
    I have been deeply involved in the discussions with China 
through our strategic and economic dialogues. It is a very 
important conversation because, if it concludes successfully, 
China will raise itself to standards that will help in a lot of 
ways in normalizing and improving trade balances and----
    Mr. BOUSTANY. Well, it empowers their reformers.
    Secretary LEW. It empowers their reformers to make the 
changes internally, and it stops them from doing things in 
international markets that cause----
    Mr. BOUSTANY. Right.
    Secretary LEW [continuing]. Unfair advantage.
    Mr. BOUSTANY. I understand the rationale, but what I would 
like is a detailed summary of where we are with this.
    Secretary LEW. Right. And they are just taking the very 
first step, very shortly, putting out their first cut at what 
is the list of industries that would not be open to foreign 
investment.
    Mr. BOUSTANY. The negative list, yes.
    Secretary LEW. The negative list. That will be an important 
indication of the seriousness. And we look forward to seeing it 
and taking a step forward from there.
    Mr. BOUSTANY. Well, I am following this very, very closely, 
and I would like to stay in contact as to the progress.
    Secretary LEW. I would be happy to.
    Mr. BOUSTANY. Thank you.
    I yield back.
    Chairman RYAN. Thank you.
    Mr. Neal.
    Mr. NEAL. Thank you, Mr. Chairman.
    Mr. Secretary, a word of congratulations on your EITC 
proposal. Mr. Ryan and I have spent some conversations already 
about this.
    And a reminder that much of the fraud that is determined in 
EITC has much to do with the lack of professional standards for 
tax preparers. We have had extensive conversations in the past 
with Mr. Camp's staff, and there seems to be at least some 
consensus on that, as well. And if we are to apply the logic of 
not paying for things based upon what we are to do tomorrow 
with 179, perhaps we should just expand EITC and not have it 
paid for.
    Thanks again, as you acknowledged the auto-IRA that Mr. 
Tiberi and I have worked on. I thought we were close in the 
last session. We almost got there. And I hope, when we consider 
that half the people that get up and go to work in America 
every single day are not in a retirement plan, that we could 
consider more opportunities to expand retirement savings.
    A word of congratulations on the New Markets Tax Credit 
program and expanding that. That is an inducement to sound 
investment in urban areas across the country. And Alan Krueger 
was a terrific advocate of that, along with Build America 
Bonds, which worked quite well during those years. There was 
not an airport that was expanded, for Members of this Committee 
who have one, that did not use Build America Bonds for that 
very purpose.
    Now, after pointing out that there are many avenues of 
agreement here and plaudits that the Administration deserves, 
given your history in Massachusetts and having worked for Tip 
and cheering for the New England Patriots, I think that we 
could also acknowledge that the proposal that the 
Administration has offered, Jack, on graduate medical education 
is a huge deal for us in Massachusetts.
    You do, I think, deserve some credit in the Administration 
for the lowest inflation rate as it relates to health care in 
the past 50 years. And ACA has to receive some acknowledgement 
for that. You obviously are attempting to preserve and improve 
Medicare for future retirees as well as those who are receiving 
it now.
    But I would carefully suggest on graduate medical 
education, that that is a huge plus for America. It helps to 
set us aside. The Pacific Northwest has Boeing and Microsoft. 
Those of us in Massachusetts, we have graduate medical 
education. And I hope the Administration will treat it with the 
same regard that they do other initiatives that have been 
proposed.
    I think $16 billion, in terms of a cutback, is a bit over 
the top, and I hope that you will have due consideration for 
the proposal that you are offering and review it and really set 
it aside. It is a big economic plus for those of us in New 
England.
    And I will give you the next 2 minutes to talk about the 
proposals as I have outlined them.
    Secretary LEW. Well, Congressman, let me start with the 
points you made about the New Markets Tax Credit and the Build 
America Bonds.
    We obviously agree very much that they have made a huge 
difference. We have a new form of Build America Bonds that we 
are proposing to take them forward to the next level. And we, 
obviously, would propose continuing the New Markets Tax Credit, 
which I will point out was also a bipartisan creation----
    Mr. NEAL. Exactly.
    Secretary LEW [continuing]. At the end of the Clinton 
Administration with Speaker Hastert. So we can do things 
together on a bipartisan basis to create real opportunity in 
this country.
    Obviously, the issues regarding Medicare savings are always 
difficult. Our budget has repeated the proposals from past 
budgets, where we have $400 billion of savings in Medicare. 
They are all hard, and, as always, we look forward to working 
with Congress to, you know, develop a path forward.
    You know, we put it in as part of a comprehensive approach 
to deal with our fiscal challenges. And I think that, you know, 
we would view the kind of entirety of the package as the way to 
see what we are putting forward.
    This is an issue that I know is of particular concern in 
Boston and Massachusetts and in New York, and we would look 
forward to continuing the conversation.
    Mr. NEAL. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman RYAN. Thank you.
    Mr. Roskam.
    Mr. ROSKAM. Thank you, Mr. Chairman.
    Mr. Secretary, thanks for your time today.
    You are here commenting on the President's budget, and the 
agency that will collect the money to enact our next budget is 
the Internal Revenue Service. They are tasked with collecting 
over $3 trillion, as you know.
    You made an argument that one of the things they need is 
more resources, and let's set that aside for a moment. The 
other thing they need is a reputation. They need a reputation 
as calling balls and strikes. They need a reputation as being a 
fair agency. So resources and reputation are at the foundation 
for any tax collection that is going to have integrity.
    I thought it was interesting that in your remarks and in 
your written testimony you didn't talk about the reputation of 
the Internal Revenue Service and the damage that has happened 
in the past couple of years.
    Back in the summer of 2013, when you were asked on national 
television, you dismissed it--that is my word, but you were 
fairly dismissive, in that you characterized it as a ``phony 
scandal.''
    Now, this Committee made a referral to the Attorney General 
last year, and I assume you have read the referral letter and 
the supporting documents, haven't you?
    Secretary LEW. I have seen it.
    Mr. ROSKAM. And, in light of that, you wouldn't 
characterize this as a phony scandal, would you?
    Secretary LEW. Congressman, I am happy to discuss the 
reputation of the IRS and these issues.
    I think the IRS is doing an extraordinarily effective job 
under very difficult circumstances, where they have been 
underfunded and not given the resources to do one of the most 
important jobs that any government does: running its revenue 
service.
    I have acknowledged from the beginning that the actions 
that took place with regard to the issues that are of concern 
there were very bad. And they involved a small number of people 
at the IRS. We took immediate action to discipline the people 
involved, to make sure that the supervisors who were 
responsible are no longer there.
    And I think if you look at the way the IRS is managed under 
very difficult circumstances, we are, with less resources, 
processing tax returns efficiently. We are using the online 
tools as much as possible to fill in for where we don't have 
people to answer the phones. And we are processing refunds in a 
timely way. I----
    Mr. ROSKAM. But, Secretary, to dismiss this down to, you 
know, just, ``There were some bad actors''--here is my 
question: What have you done to prevent a Lois Lerner 2.0 
situation?
    Think about it. Lois Lerner was the person who put together 
a panel of three senior career employees that had to be the 
threshold before an audit could happen. Lois Lerner was then 
the person that went around that very safeguard that she 
structured. She said in an email, where she really was quite 
aggressive with one of her employees--and this is after two 
times this three-person panel had said, ``Look, we are not 
going to pursue it.''
    She writes then, ``I reviewed the information and thought 
the allegations in the documents were really damning, so I 
wondered why we hadn't done something with the org. As I've 
told you before, I don't think your guys get it.''
    Mr. Secretary, what is it that you have done--other than 
calling this a phony scandal on national television, what have 
you done to make sure that Lois Lerner 2.0 is not possible?
    Because to simply say, well, it is just a small group of 
rogue employees, or, frankly, in your other interview, when you 
said, well, no political employees were behind this, that is 
just hiding behind an adjective. You know that there are only 
two political appointments at the Internal Revenue Service. One 
is the Director, and one is the GC.
    Secretary LEW. Congressman, I think if you look at the 
Inspector General report that came out, we followed all the 
recommendations of the Inspector General report. We have made 
clear that the behavior at issue there was unacceptable, it 
cannot happen again. We have a new Commissioner, new senior 
officials, who are very much aware of the fact that it is their 
responsibility to make sure things like that don't happen.
    So I actually take issue with the notion that we have 
dismissed it. We haven't dismissed it. It is one thing to take 
actions in response to what happens with a small number of 
people in a large agency. It is another thing to condemn the 
whole agency, which is what I believe many are doing, and that 
is wrong.
    Mr. ROSKAM. Well, I don't think there is a condemnation of 
the entire agency, Mr. Secretary, but I think that when the 
Administration essentially comes before this Committee for 
years and says there is no problem and then senior Members of 
the Administration are dismissive, don't you understand how 
that is----
    Secretary LEW. Yes. I don't----
    Mr. ROSKAM [continuing]. Corrosive and insidious?
    Secretary LEW [continuing]. Believe we are being 
dismissive. I disagree with that.
    Mr. ROSKAM. Oh, when it is characterized as a phony 
scandal, that is dismissive.
    Secretary LEW. I think it is----
    Mr. ROSKAM. That is: Off with you, be lively, we have this 
under control, we don't want to hear it anymore. There is 
nothing more dismissive than calling it phony.
    I yield back.
    Chairman RYAN. Thank you.
    Mr. Becerra is recognized.
    Mr. BECERRA. Thank you, Mr. Chairman.
    Mr. Secretary, it is great to have you with us. Thank you 
very much.
    And can I start by just saying, again, thank you. You have 
heard it already. The Earned Income Tax Credit, I think that 
many of us see that, right now, while the middle class and what 
I call the aspiring class, those that want to get to the middle 
class, as they continue to get squeezed, they see everything 
working well in the economy for corporate profits and at Wall 
Street, but they haven't yet seen their paychecks grow the way 
they would like.
    Thank you for speaking to those families in the middle who 
have been working hard. They have been more productive than 
American workers in the past. They just want to see their 
paychecks grow. And so the Earned Income Tax Credit for those 
working families is going to be helpful.
    Your proposal, the President's proposal, for an expanded 
child credit for working families who have kids, who aspire to 
see them go to college, that is going to help.
    And can I just applaud you and the President and the team 
for focusing on child care. I am fortunate. My three 
daughters--two of them are already in college, one on the way--
we are there. But I know there are a whole lot of families back 
home who are wondering how they are going to get there. They 
have to make sure their kids are first taken care of. So the 
dependent care credit for those who have kids and want good 
daycare, good ability to take care of their kids while they are 
working, that is critical. And so thank you for the work that 
you are doing there in that regard.
    How many families does the President estimate will be 
helped by these credits that are going to middle-class and 
aspiring families in America? I'm talking about the Child Tax 
Credit and the Earned Income Tax Credit. Are we talking 
thousands? Are we talking----
    Secretary LEW. No, millions. I don't have the exact number, 
Congressman, but it is many, many millions.
    Mr. BECERRA. Yes. And I think what we are saying to those 
millions of Americans who are striving to stay in the middle 
class and ultimately go beyond the middle class is, this is 
going to help you launch because you will get good child care 
if the two of you are going to work, you will have an 
opportunity to get some support if you are working but not 
making a whole lot of money but you are still working. You are 
doing it the way we want people to do it.
    I want to touch just briefly on something that was raised 
earlier with regard to Social Security because it concerns me. 
Today, there are about 160 million Americans who are paying 
into Social Security. They have what we call the FICA 
deduction, right, the Federal Income Contribution Allocation, 
that is deducted. It is part of another acronym, OASDI, the 
Old-Age, Survivors, and Disability Insurance.
    That is what Social Security is. It is all lumped together. 
If you work and you reach retirement age, you get Social 
Security. If you work, become disabled on the job, if you paid 
into Social Security, you get Social Security even though you 
are disabled, or your family does. You die, but you have paid 
into Social Security? Your survivors get Social Security. It is 
insurance for the family.
    I don't think any American works and pays into Social 
Security and says, ah, I only want my money to go into 
retirement, or, hey, I know I am in a risky job, I only want my 
money for Social Security to go into disability. In fact, 11 
times this Congress--not this Congress today, but Congress over 
the years, with the Administrations, whatever Administration it 
has been, we have worked to make sure that we always have the 
money allocated for the disability side of Social Security, the 
survivor side of insurance for Social Security, or the 
retirement side of Social Security.
    But all of a sudden, we see this crisis being manufactured 
by those who say that, of the $3 trillion that Social Security 
has in its Trust Fund, none of it can be made available for 
Americans who worked hard but became disabled or for their 
families. Eleven times over the years, Congress, with the 
Administration, has worked to make sure the money that is out 
there in the Trust Fund, it goes out to those Americans who 
worked and paid into the OSDI fund.
    And so I hope we don't tell the 59 million Americans who 
today are receiving Social Security, 11 million of them 
disability insurance under Social Security, that they are in 
jeopardy of losing their money because someone wants to 
manufacture a crisis and say, of the $3 trillion the Trust Fund 
has, that we can't make that available to Americans because 
some technical glitch here in Washington is preventing us from 
moving forward to do what we have done in the past 11 times on 
a bipartisan basis, to make sure Americans get their Social 
Security, whether it is retirement Social Security, whether it 
is disability Social Security, or whether it is because you 
died and now your survivors need their Social Security. I hope 
we don't play that game.
    And, finally, with the last moment I have, I just want to 
mention, Mr. Secretary, I hope this Administration, as we move 
forward in trade, don't leave out currency manipulation as 
something we attack. The last thing we need to do is send a 
signal that we are going to allow governments to cheat by 
manipulating their currency. If we are trying to get the 
companies in those countries to not cheat, the last thing----
    Chairman RYAN. The time of the gentleman has expired.
    Mr. BECERRA [continuing]. You can do is allow countries to 
cheat by manipulating their currency.
    Chairman RYAN. The time of the gentleman has expired.
    Mr. BECERRA. With that, I yield back. Thank you, Mr. 
Chairman.
    Chairman RYAN. Maybe with somebody else's questioning you 
can get into those issues, but in the interest of everyone's 
time, Mr. Buchanan is recognized.
    Mr. BUCHANAN. Thank you, Mr. Chairman.
    And I want to thank the Secretary for being here today.
    As I mentioned to you a little earlier, Mr. Secretary, the 
number-one issue in our district and I would say a lot of 
Florida is the idea of dysfunctionality. When we serve a lot of 
our constituents, that is the biggest thing they are passionate 
about and concerned about. So, that is one of the things I am 
hopeful in the next 6 months, this year, we can work together 
on in a bipartisan way for the importance of the American 
people.
    I am concerned with the budget where we are looking at 
raising taxes another $2 trillion, more debt of another $8.5 
trillion, and a budget basically that never balances. We are an 
aspirational society. You know, if you work hard and play by 
the rules, anything is possible in America. I don't want to 
punish one group over another group. I will also mention that 
President Kennedy stated, ``A rising tide lifts all boats.''
    And one of the questions I would have for you: When you 
talk to various experts, they talk about, if we could focus on 
growing the economy, instead of 2 percent, 2\1/2\, growing it 4 
or 5 percent--China is at 8 to 10 percent. But if we can get 
back to what we did in the 1990s, we could fix a lot of the 
challenges that we have in America, a lot of the problems we 
are talking about go away.
    Why can't we, or shouldn't we be asking ourselves, on any 
of these proposals, any of these policies we are putting 
forward, does this grow the economy? How would you respond?
    Secretary LEW. Congressman, I think that is the right 
question.
    First, on your point about working together in a bipartisan 
way, I couldn't agree more that it would be a good thing for 
the country and the American people would feel a lot better 
about Washington and the future of the U.S. economy if they 
could see us working well together. It has a lot to do with 
confidence.
    I saw it in the 1980s when we had a divided government. I 
saw it in the 1990s when we had a divided government. And you 
talk about the growth in the 1990s. We were making important 
policy decisions in a bipartisan way for much of that period of 
time.
    So I think that to focus on each of the individual items is 
important, but, ultimately, our goal has to be growth. Because 
if it becomes a question of, how do we cut our way to 
prosperity, there is no answer to cut our way to prosperity. 
There is no answer for any society. How do you cut the way to 
prosperity?
    Mr. BUCHANAN. Let me ask to be clear. You are committed and 
the Administration is committed to working with us this year to 
get tax and trade ideally done?
    Secretary LEW. Correct.
    Mr. BUCHANAN. Okay.
    The second thing I wanted to mention, because it was in 
your comments, about people need to pay--some people need to 
pay more of their fair share. The taxes now for medium or small 
businesses, many of them, when you add State and Federal 
together, it is almost 50 percent. I have seen it was 49.6 
percent, lower in Florida, but in California it is higher. Then 
you have additional taxes on there.
    Where is your sense of fair share? We are looking to take 
the cooperate rate, ideally, from 35 to 28 or 25 percent. But 
yet many of these businesses--that is the world that I have 
lived in--these are the folks that are growing the jobs. They 
might have 100 jobs, but you can't take 50 percent of what they 
earn because they would have nothing left because the balance 
of their money stays in to grow their inventory, to add 
employees, and to make additional investments.
    So what is your sense of what is fair?
    Secretary LEW. Well, you know, Congressman, one of the 
reasons we take up to $1 million, the amount that a small 
business can deduct in depreciation, right, when they make an 
investment, is exactly to encourage that kind of behavior, 
having it be advantageous to invest in your business, to invest 
in your workers.
    I think that----
    Mr. BUCHANAN. But if you have a business--let me just say, 
let's take it at the $1 million to $2 million range, with 
around 150 employees--we have a lot of those all over Florida--
are you saying that government should take half of the next 
million? Is that what you are saying?
    Secretary LEW. Well, look, it is hard to respond to a 
hypothetical. I don't know what the effective tax rate in the--
--
    Mr. BUCHANAN. Well, that is the tax rate. It is 49.6 across 
the country, I think.
    Secretary LEW. The effective tax rate for most businesses 
is lower than their marginal rate, and you have to look at the 
entire numbers----
    Mr. BUCHANAN. If you look at the number of businesses, you 
are right. But there are a lot of businesses that create a lot 
of jobs in the country that might have 300 employees, 200 
employees. I don't look at them as even a medium-sized 
business; they are still categorized as a small business. But 
to take half of their money is not right.
    Secretary LEW. To the extent that companies make the choice 
how to organize, either as a passthrough or as a C corp, you 
know, if it is economically advantageous to organize as a 
corporation, that is an option that is available. Companies 
that are choosing to be on the individual side obviously see 
benefit in being organized as an individual company. And we 
have to kind of look at----
    Mr. BUCHANAN. My point is I think----
    Secretary LEW [continuing]. What all the factors are.
    Mr. BUCHANAN [continuing]. We need to work on a bipartisan 
basis together----
    Secretary LEW. We do.
    Mr. BUCHANAN [continuing]. To address that.
    Secretary LEW. Yes. I fundamentally agree with the point 
that we want the burden on small businesses to be easier and 
lower. And, you know, we think we have put some ideas forward 
that advance that, and we are open to working together on this 
issue.
    Chairman RYAN. Thank you.
    Mr. Doggett.
    Mr. DOGGETT. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary.
    Am I correct that, while the Administration strongly 
supports a one-time mandatory tax of 14 percent on profits that 
corporations claim to have earned offshore only as a part of 
comprehensive corporate and business tax reform, the 
Administration continues to strongly oppose any stand-alone 
measure similar to the voluntary repatriation that was approved 
back in 2004?
    Secretary LEW. We don't believe that the 2004 voluntary 
repatriation worked. It ended up costing a lot of money, it 
didn't increase investment, and it put in place an incentive to 
store income overseas, waiting for the next tax holiday.
    We think we have proposed the right way to deal with this 
and think that we are now in a conversation where we can maybe 
do this the right way.
    Mr. DOGGETT. So a one-time repatriation of the type some 
have talked about really doesn't provide a good source for 
transportation or anything else. It is a revenue-loser, not a 
revenue-gainer, unless you do it, as you recommend, as a part 
of comprehensive business tax reform.
    Secretary LEW. Yes. I think if you have estimates that show 
that a provision loses revenue, it is hard to call it a 
revenue-raiser.
    Mr. DOGGETT. Exactly.
    And your written testimony refers to some of the 
manipulation that some of these multinationals have engaged in. 
Indeed, as you know, there are a number of studies that have 
been made of that. One in tax year 2008 suggested that, while 
five tax havens had half a percent of the world's population, 
almost half of American corporate earnings claimed to have been 
earned offshore were claimed for those five countries.
    Another in 2013 suggested that somewhere between $55 
billion and $133 billion of profits earned in the United States 
had been shifted abroad and that over half of these claimed 
offshore profits were located in six tax havens.
    Isn't it true that a substantial amount of these alleged 
offshore earnings were actually earnings of operations that 
occurred here within the United States?
    Secretary LEW. Well, Congressman, it is hard for me to 
comment on individual circumstances like that, but let me take 
it up one level and say that, globally, the issue of legal tax 
avoidance has led to the erosion of the tax base. And it is an 
enormous concern, not just to the United States but worldwide.
    I mean, it is wrong for countries to have a race to the 
bottom, with, you know, zero or close-to-zero tax rates to be a 
magnet for these kinds of activities. It is also wrong for us 
to have a tax system that has the highest statutory rate in the 
world that drives businesses to look for these havens.
    We need to reform our broken system to make it work, to end 
inversions, to end the push. Other countries need to change 
their system and raise their standards. It is hard for us to 
get other countries to do what they need to do if we don't do 
what we need to do.
    And I think the business-tax-reform discussion we have is 
something that will empower us on the world stage to try to get 
other countries to do the right thing, as well.
    Mr. DOGGETT. I hope that it will if all elements are 
actually adopted and strong anti-abuse provisions are included, 
as you suggest.
    Now, your selection of this 14-percent rate, I know that is 
considered onerous by some of those multinationals that don't 
believe they need to pay the Treasury any more than they pay 
their CEO or their lobbyist to ensure that the laws remain like 
they are and don't feel they have any real responsibility to 
pay for the cost of our national security from which they 
benefit so much.
    But it seems to me that telling corporations they pay less 
than a nickel and a dime on a dollar of profits that have 
really been earned in the United States is rather generous. It 
is better than the nickel that was done in 2004, a little 
higher than the 9 cents that Dave Camp recommended last year, 
but it ought not to be the opening bid. It ought to be the 
floor in looking at this whole issue.
    And, of course, all these corporations, if they really pay 
taxes abroad, under your proposal they are entitled to a credit 
for that.
    Secretary LEW. Right.
    Mr. DOGGETT. The stateless income to which you refer----
    Secretary LEW. Correct.
    Mr. DOGGETT [continuing]. That has been hidden from taxes 
everywhere, that is an example of corporate tax avoidance that 
we need to put a stop to and not reward.
    Secretary LEW. Congressman, I totally agree that we need to 
make sure we end up with a toll charge that is set at a 
reasonable level. We have proposed 14 percent. I know it is a 
little higher than some other proposals, but I think the credit 
for taxes overseas brings the effective rate down considerably.
    You know, we have proposed a pro rata credit because it is 
at such a reduced rate, so it would be roughly 40 percent of 
the taxes paid. If you use the example of a firm that has a 
billion dollars in accumulated earnings and has paid $100 
million in foreign tax, you know, they would get $40 million 
credit and they would end up paying $100 million, or 10 
percent. So even the 14 percent exaggerates the impact on most 
firms.
    Mr. DOGGETT. Thank you.
    Chairman RYAN. Mr. Smith.
    Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman.
    Thank you, Secretary Lew, for being here with us today.
    Let me begin with a very quick question. Do you believe 
that the estate tax is double taxation?
    Secretary LEW. No.
    Mr. SMITH OF NEBRASKA. No. Okay.
    Back in April of 2013, you and I had a constructive and, I 
think, a thoughtful exchange on business tax reform versus 
comprehensive tax reform. And, at the time, you said, ``We want 
to work together on tax reform on the individual side, as well, 
to make it simpler. The thing that I think we have universal 
agreement on is that it is just too complicated.''
    In light of what you said 2 years ago, I certainly want to 
raise for you some concerns I hear regularly from constituents 
about the stepped-up basis and the estate tax.
    It is obviously no secret that we have fundamental 
disagreement on the level of the estate tax. I believe it is a 
double taxation, and you disagree with that. That is fine. A 
lot of us would prefer zero estate tax, and we know the 
Administration would actually, I think, probably prefer a 
higher estate tax.
    But one thing I am consistently finding and certainly being 
told by farmers and ranchers and small-business owners is that, 
while dealing with the estate tax is certainly challenging, it 
isn't anywhere near the administrative nightmare removing the 
allowance for stepped-up basis would cause.
    And so, as an example, when a family passing on the 
agricultured land which has been held for decades has to 
calculate capital gains, the family could face multiple 
challenges, which only begin with finding the value of land 
bought so long ago, determining purchase values for multiple 
tracts purchased in different times, and determining whether 
any land was sold off prior to inheritance.
    And so such a proposal is certainly the opposite of tax 
reform. In fact, it only makes compliance more difficult.
    Have you or anyone at the IRS looked into what the added 
compliance time and costs of this provision would be?
    Secretary LEW. Congressman, I am happy to get back to you 
on what the estimates on the compliance would be. But I think 
that the design of the provision that we have put in our budget 
was really very much to make it easier for taxpayers, not 
harder for taxpayers, to comply with. There are exemptions that 
are quite generous. There are 15 years to make the tax payments 
that are due so that it would not result in a forced sale. And 
we think that for the vast majority of assets which, you know, 
are subject to stepped-up basis, things like stocks and bonds, 
those questions are a little bit simpler to answer.
    On real estate, obviously, we currently have a system where 
ultimately you have to know what your basis is in real estate. 
I don't know why it would be more complicated in stepped-up 
basis than it is in other contexts, but I am happy to follow up 
with you.
    Mr. SMITH OF NEBRASKA. Okay. Well, I appreciate that. And 
the feedback I get from constituents is that it would certainly 
add to the complexity.
    I would also like to touch on another provision in the 
President's budget, the financial fee on certain banking 
institutions. Has the Treasury or any other department in the 
Administration studied the effect that this proposed fee would 
have on the availability and cost of credit for families and 
businesses in the marketplace?
    Secretary LEW. Congressman, we have looked at what it would 
mean in terms of its percentage impact. It is obviously a 
fairly small fee, just in terms of the size of it on their 
total basis.
    And it is designed to have an effect that would be 
complementary with many of the reforms that we have made that 
make our system safer and sounder. Right now, we have a system 
that is heavily weighted toward leveraged exposure. This would 
make it a bit more costly to have leverage, but it would not 
make it prohibitively costly. And we think that will lead to a 
safer financial system.
    We also think that when you look in the context overall of 
tax reform, there are other benefits that would go to financial 
firms, and, net, it is a fair and a good policy.
    Mr. SMITH OF NEBRASKA. Shifting gears just a little bit, I 
have a question on extenders. The temporary extenders that have 
taken place extended roughly 2 years at a time unpaid for in 
the past. Is that accurate?
    Secretary LEW. It has sometimes paid for, sometimes not. 
Often not.
    Mr. SMITH OF NEBRASKA. Often not. That's correct. I agree 
with that.
    And could it be, I think, a good idea, as well, to extend 
those on a permanent basis? Would that not be more 
intellectually honest to take a few of those and make them 
permanent rather than just continually extend unpaid for on a 
so-called temporary basis?
    Secretary LEW. That is exactly what we propose.
    I mean, as somebody who has worked in tax policy in various 
ways for 35, 40 years, it is hard to defend provisions that 
come and go and that have deadlines that pass, and it makes it 
hard for businesses to know what to expect and how to plan. You 
end up enacting things retroactively that can't possibly affect 
the behavior that was made in a rational way.
    We do that, we pick and choose, and we pay for it in the 
context of tax reform.
    Mr. SMITH OF NEBRASKA. Okay.
    Secretary LEW. And that is what I think should be the basis 
of our bipartisan conversation.
    Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman.
    Chairman RYAN. Thank you.
    Mr. Thompson.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Secretary, thank you very much for being here.
    And I, too, want to add my appreciation to you and the 
President for submitting a budget that attempts to really focus 
on the middle class. While I agree with my friend from Florida 
that businesses across this great country are very, very 
important, they do a great service, they provide great 
products, the truth of the matter is it is those consumers, 
largely in the middle class, who are the job creators in this 
country. If there is no middle class, then there is nobody to 
buy all the great things that our businesses sell and 
manufacture. All the business stuff just goes out the door. So 
it is important that we do focus on the middle class.
    And there is no better place to do that than through 
investment in infrastructure. So we may disagree with how we 
get there. You have taken a very important first step in 
recognizing the need to invest in the critical infrastructure 
that keeps everything going across the country.
    I have a couple of questions I would like to ask, a little 
more specific stuff. One is on something that has come to my 
attention called a cash-rich split-off. And you are smiling, so 
I am assuming you know what it is that I am talking about. I 
think it came to light when Yahoo was going to buy Alibaba. It 
is where they take a low-basis asset and stock and exchange 
that for a line of business in cash to avoid any gain in 
appreciation.
    And that sounds a lot like that legal tax avoidance that 
you were talking about, or, using another term, a great, big, 
huge loophole. Is this something that you are looking at? Does 
it need legislation to close that loophole, or is it something 
that can be done administratively?
    Secretary LEW. Well, Congressman, I obviously can't comment 
on what a specific company may or may not do with regard to its 
tax planning or transactions. But, under current law, a company 
can split off component parts on a tax-free basis as long as 
there is an active business in each part. But if there is such 
a spin-off, the firm would be liable for capital gains if the 
firm sold the shares involved.
    So I would have to know more about the transaction. I don't 
know off the top of my head whether there is any administrative 
issue here, but I am happy to follow up.
    Mr. THOMPSON. Well, it is something I plan on looking into, 
and I would appreciate it if we could get your shop to help us 
better understand it and figure out how we in fact close that 
loophole.
    Also, I agree with my friend from Massachusetts that the 
New Markets Tax Credit is extremely important. And I would like 
to know if you have given any thought about including the BRAC 
status as a criterion in the 2015 applications?
    I think it is important to recognize that BRAC has been 
responsible for a lot of areas experiencing severe economic 
downturn. And there have been some examples of closed military 
bases that have really added to positive economic growth 
through creative means. And I would think that the New Markets 
Tax Credit would be a great place to go. So I would like to get 
you guys to look at that, as well.
    Secretary LEW. Congressman, I am not aware of any 
discussion regarding BRAC eligibility, but I am happy to take 
it back and look at it.
    Mr. THOMPSON. Thank you so much.
    And then, also, LIFO--and we have had this discussion 
before--last in, first out. The proposal in the budget is a 
little disheartening, not only because it is a LIFO, which is 
very, very disruptive in general, but, specifically, in this 
proposal, you have a retroactive provision in there, if I 
understand it correctly. So, if enacted, it would go back 
decades and take back money that was generated through a tax 
policy that was on the books and legal.
    This would devastate not only small family businesses but 
the employees that they employ today. This has shut businesses 
down, some of those in my district that you are very well aware 
of.
    And is there a reason for the retroactivity? I can 
understand a LIFO forward, but going back just seems terribly 
unfair and destructive.
    Secretary LEW. Congressman, there has been a discussion 
about the proper accounting standards for a long time. And, 
obviously, the attempt is to, as part of tax reform, come up 
with a better, more fair, efficient approach. I am happy to 
look at the impact of the retroactivity on the firms that you 
are concerned about, but the goal was to fix what is broken in 
our Tax Code. It is obviously not to cause undue burden.
    Mr. THOMPSON. Okay. Well, I look forward to working with 
you on it.
    Thank you.
    Chairman RYAN. Thank you.
    Ms. Jenkins.
    Ms. JENKINS. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for coming over today to testify 
on the President's budget.
    I would like to draw your attention to the proposal on page 
53 of the budget, where the President proposed----
    Secretary LEW. I don't have the budget in front of me, so 
if you could tell me what is on page 53?
    Ms. JENKINS. I would be happy to. It is where the President 
proposes a tax on future 529 college savings account 
distributions.
    When the President proposed this tax 2 weeks ago, I was 
shocked to see him target these very popular plans. I was 
equally relieved when he withdrew his proposal last Tuesday, 
but, apparently, he changed course too late to remove it from 
the budget proposal.
    Then, the next day, the Administration spokesman made a 
confusing statement that inferred that the President was only 
withdrawing the 529 tax provision due to political pressure and 
that he still stands behind the tax as good policy.
    So, Mr. Secretary, can you please clarify for our 
Committee, first, does the President still support the concept 
of a tax on 529 plans, and does he believe that this tax would 
be good policy? And, second, can Congress expect to see the 
President try to revive this 529 tax again?
    Secretary LEW. So, Congresswoman, just to be clear, the 
White House indicated quite clearly that the President is not 
going to be pushing for this provision. It was obviously 
already in the budget.
    And I think the comment on policy is not saying that--it is 
something they were pushing, that was causing a lot of 
distraction. There is an important discussion to be had here on 
many tax issues, some of them regarding education, that would 
provide real opportunity for middle-class families. Clearly, it 
wouldn't have gone in the budget if there wasn't a solid policy 
reason for it. And I think the comment was to say that it is 
something that really does, you know, largely benefit more 
affluent people. And it is something that, in the context of a 
plan to make middle-class college education affordable, there 
is a basis for.
    He is not pushing it. We are not pushing it. It was never a 

key part of our plan. It is not a huge dollar impact on the 
whole budget. And I don't think there should be any confusion 
on the issue.
    Ms. JENKINS. Okay. So he still thinks it is good policy, 
but for political reasons he is going to withdraw----
    Secretary LEW. No----
    Ms. JENKINS [continuing]. The proposal.
    Secretary LEW. There is a lot of things that one can 
justify on policy grounds that don't go forward.
    Ms. JENKINS. Okay. Thank you for somewhat of a 
clarification on that confusion.
    Now I would like to just briefly discuss H.R. 529, which I 
introduced on a bipartisan basis with Congressman Ron Kind from 
Wisconsin last week.
    And I have been a champion of 529 plans for a very long 
time, since I was a State treasurer back in Kansas. And this is 
the third Congress that we have introduced this legislation. It 
strengthens 529 plans in order to make them more attractive to 
middle-class folks across the country who simply want to save 
for their kids' college education.
    And this bill, in particular, makes some commonsense 
enhancements to 529 plans that will allow students to purchase 
a computer with their 529 plans. It allows funds to be 
redeposited without penalty if a student withdraws from school 
for any reason. And it removes some outdated administrative 
paperwork requirements.
    So, Mr. Secretary, what is your take on this legislation? 
Do you agree with us that these 529 plan improvements will help 
middle-class folks save for their college expenses? And will 
the Administration support the bill?
    Secretary LEW. Congresswoman, I am happy to look at the 
proposal and get back to you. Obviously, with 529s on the 
books, we would look forward to making sure that they work as 
effectively as possible. I am not familiar with the details of 
the legislative proposal but would be happy to look at it and 
get back to you.
    Ms. JENKINS. Okay. Well, I look forward to working with 
you. Thank you.
    I yield back.
    Chairman RYAN. Thank you. Mr. Larson.
    Mr. LARSON. Well, thank you, Mr. Chairman, and thank you, 
Mr. Lew, for your service to the country, and thank you, Mr. 
Chairman, for this very productive hearing. On a spontaneous 
note in observing my colleagues that meet today on this 
Committee, and we all know that Congress operates at about a 9-
to-11 percent approval rating, we have one of the icon figures 
in American industry, the most ambitious gentleman. I propose 
in the spirit of what Mr. Camp did last year and, Mr. Chairman, 
your initiatives in keeping with keeping this Committee open 
and on pace that we continually have Johnson and Lewis forums 
where not only are they there for the Committee, but we invite 
other Members of Congress who would be interested as a way to 
restore what we all know individually is the great strength of 
this Committee and the opportunity for us to work across the 
aisle with one another.
    We had several issues that were explored today, and in 
rapid order, I think first with respect to infrastructure, Mr. 
Chairman, we had several letters that were sent last year with 
respect to making sure that we had hearings on infrastructure 
and discussed the tax aspects of this as well. Separately, Mr. 
Blumenauer also sent a letter, and I know that that is at the 
core of putting people back to work in this economy. I hope we 
can continue down that line. Maybe that could be the start of a 
Johnson/Lewis discussion and forum on infrastructure.
    Also, on Social Security, as was brought up by Mr. Johnson, 
there is a proposal out there that provides a tax cut and tax 
relief for seniors that is paid for. I hope all Members will 
consider this proposal as a way in which we can solve this 
problem into the next century.
    Third, on the Affordable Care Act, you know, with respect 
to whatever is going to come on the floor tomorrow, I think it 
is long overdue that we recognize a proposal put forward by the 
Heritage Foundation and adopted successfully by Governor Romney 
as something that we all can work together on for the benefit 
of the American people.
    And, of course, with respect to currency and trade, I know 
that the Administration will adhere some of the concerns that 
were raised there.
    Lastly, Mr. Lew, I believe you were asked a question 
earlier about dynamic scoring and didn't have an opportunity to 
fully answer the question. I wanted to provide you with a few 
moments if you could to expand upon your thoughts on dynamic 
scoring.
    Secretary LEW. Thank you very much, Mr. Larson. You know, 
the question of how we score legislation is obviously 
inherently a technical and complicated one. We have established 
practices that are meant to be as accurate as possible, and the 
risk of going from something that is known to be the most 
accurate to something that has all kinds of uncertainty in it 
is something we worry greatly about because I think there is a 
shared concern that we not blow a hole in our budget because 
our estimates are wrong.
    So there is some element--I was asked if there is any 
dynamic scoring in the Office of Tax Policy and Joint Tax 
Committee scoring today. There is some, but if one goes further 
and uses assumptions that drive the numbers in a way that may 
not turn out to be correct, we will all regret it after the 
bills actually get added up, and I didn't want there to be--I 
don't want there to be any misunderstanding of what our 
position is on--we agree with current scoring rules. We have 
always been open to alternative measures and to understanding 
what the kind of up side and down side risks are, but to use 
those to make decisions that have real consequences is very 
different.
    Mr. LARSON. Well, thank you, Mr. Chairman. I know that Mr. 
Neal also makes the point on several different occasions where 
we apply dynamic scoring, and if we are going to look at 
dynamic scoring, we have to make sure that we are willing to 
apply that, and it may be that it is a very sound practice. I 
am not an economist, but what do we apply it to? And I think it 
can be applied equally across the board to have the same 
effective results. And, lastly, to the Chairman as well, the 
last couple of weeks have been painful with Green Bay and 
everything else, but I wanted you to know that I didn't take it 
personally, you know, and I wanted to--we got this picture that 
we wanted to provide to you, and I will give it to you, Mr. 
Chairman. It is a----
    Chairman RYAN. I can't see it from here. Describe it.
    Mr. LARSON. It is a picture of Tom Brady, and I think once 
we----
    Chairman RYAN. With objection, it shall not be included in 
the record, so at least the Seahawks now know how Packer fans 
feel.
    Mr. LARSON. But we will pass this up.
    Mr. LEVIN. I think his time has expired.
    Chairman RYAN. Yes, his time has expired.
    Mr. Schock is recognized.
    Mr. SCHOCK. Thank you, Mr. Secretary. Thank you for being 
here.
    As you know, the Federal debt limit will expire on March 
15th. Do you know roughly what our debt limit will be on or 
about March 15th when our debt limit is set to expire?
    Secretary LEW. Well, I don't have an exact estimate right 
now. Obviously, we are several--two months' of data away. I 
think that the challenge of funding our government is one that 
we fundamentally make when we make decisions on what our tax 
and spending policy is.
    Mr. SCHOCK. Do you know roughly----
    Secretary LEW. Not when the debt limit is----
    Mr. SCHOCK. Sure. When March 15th rolls around, have you 
and your staff begun looking at how long you will be able to 
use extraordinary measures beyond that point?
    Secretary LEW. Yes, we have obviously started looking, but 
I won't be able to answer that question with clarity until we 
get through tax season and we know what our cash balances are 
in tax season.
    Mr. SCHOCK. Well, that is going to be a problem, because 
March 15th is the deadline. Tax season is April 15th.
    Secretary LEW. Yes, I--there is--you know, all----
    Mr. SCHOCK. Are you saying you are not going to know until 
April or March?
    Secretary LEW. All the public estimates, you know, CBO's 
estimates, show that we have some period of time. You asked me 
how long it goes? I don't think we have any kind of a crisis on 
March 15th. I can't tell you exactly how long it goes, and that 
is what I thought you were asking.
    Mr. SCHOCK. Okay. Yes.
    Secretary LEW. It is the outer limit, not the initial 
period where the question comes in.
    Mr. SCHOCK. Okay. Can you get back to us with a rough 
estimate?
    Secretary LEW. Yes. We will, as we always do, stay closely 
in touch with the Committee as our understanding develops of 
what the projections look like. We think it is important for 
Congress to have clarity on this and we will remain----
    Mr. SCHOCK. Likewise. Thank you.
    Following up on a letter that I sent to you last January, 
it was co-signed by 17 Members of the Ways and Means Committee, 
dealing with FATCA, I am still having trouble understanding why 
Treasury wants FATCA to regulate non-financial, non-cash value 
insurance. Can you update Members of the Committee, at least 
the 17 of us here that signed that letter, on the status of 
your agency's deliberations regarding the 
relationship between non-financial prod- ucts and FATCA?
    Secretary LEW. You know, Congressman, our goal in FATCA, 
and really now an international goal, because FATCA has been 
adopted pretty much as an international norm, is to make sure 
that there is the kind of transparency that permits tax 
authorities to see where there is behavior that is evading tax 
systems and to get accurate reporting on offshore accounts.
    You know, we believe that the proposals we have made, the 
law and the proposal we have made advance that. I would be 
happy to follow up with you on the specific issues with regard 
to the entities you have described.
    Mr. SCHOCK. Okay. I look forward to doing that.
    Finally, year in and year out the Administration comes 
forward with a budget, and part of the framework is always the 
desire to make our corporate tax reform more competitive. You 
have laid out a benchmark of I think 28 percent, ideally 25 
percent for manufacturing. But I will tell you when I am back 
in my district, the frustration is not just among employers 
with the Tax Code and the complications--complexity of the Tax 
Code, it is really with individuals, and if there is one 
message I heard from my constituents after the Camp draft came 
out last year, it was that they, as individual taxpayers, were 
excited at the prospect that 9 out of 10 of them would be able 
to do their own tax return on a single piece of paper, take a 
standard deduction, and be done.
    Why is the Administration not equally energized, motivated, 
and deliberative about ensuring that not just our Tax Code is 
simplified and made easier for corporations and manufacturers, 
but also for individuals? Is the Administration willing to work 
with us on creating a competitive individual tax reform?
    Secretary LEW. We very much agree with the goal of 
simplifying the Tax Code. A number of our proposals were 
designed to take provisions like the education provisions and 
simplify them. There is always a tension between things being 
simple and them not being reflective of the complexity of the 
different situations that the provisions apply in. You don't 
want to have cliffs in the Tax Code. The way you avoid cliffs 
is through provisions that tend to be more complicated. So 
there are good reasons for some of the provisions not being 
totally simple, but the goal of simplifying as much as we can 
is one that we share.
    Mr. SCHOCK. Okay. I look forward to that.
    I would just offer up as we both share the goal of helping 
those who have been left out of an economic recovery, the 
Administration continues to talk the minimum wage, and I would 
just point to the President's home State, where I am a 
Congressman, we have now raised the minimum wage four times in 
the last 10 years. Each year we have raised the minimum wage 
the percent of people living in poverty has gone up. The 
percent of people unemployed has gone up, and Illinois now 
leads the Midwest in percent of people in poverty and percent 
of unemployment, and I think we need to look at a different 
strategy here at the Federal level, and I would harken back to 
the days of JFK when he cut taxes and the percent of people 
living in poverty went down and the percent of people making a 
living wage went up, and I hope that we can embrace a JFK 
strategy with this Congress and this President.
    Thank you.
    Chairman RYAN. Thank you.
    Mr. Blumenauer.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    Mr. Lew, thank you for being here. I appreciate your 
reference to Congress not hollowing out the IRS so that we can 
actually administer programs and save taxpayer money and give 
them better service. I think that is something we need to focus 
a little attention on.
    I also appreciate the fact that you are here as somebody 
who knows what a balanced budget looks like. If memory serves, 
you were at OMB when we had three consecutive years of budget 
surpluses. So you have some unique authority as an 
Administration spokesperson in being able to help guide these 
conversations and give some perspective.
    I think you were also on the staff of Speaker O'Neill back 
at a time when there were some interesting policy initiatives 
where you played a key role where we were able to come 
together, look for some long-term perspective, and make a 
difference, even bridging the gap between President Reagan and 
Speaker O'Neill famously working together.
    I have appreciated your offering up some, I think, complex 
and timely series of proposals, many of which I find appealing 
and look forward to a deeper dive, and I appreciate that the 
Administration continues to call for infrastructure investment.
    Based on my limited contact with the President and 
watching, I sincerely believe he is investing intellectually, 
politically in rebuilding and renewing America.
    Some of the policies that have come forward to try to 
support that have been difficult to achieve. I was struck--
actually I read an op ed by my colleague from Ohio, Mr. 
Renacci, that really talked about approaching this in a 
comprehensive fashion. Something that needs to be sustainable. 
It needs to be adequate to cover the job. It needs to revisit 
the user pay principle. That has been something that is--that 
provides us with sustainability.
    Now, President Reagan in 1982 called out a challenge to 
Americans in his Thanksgiving Day address calling on Congress 
to come back and actually more than double the gas tax, because 
we hadn't raised the gas tax in 23 years. The President pointed 
out that this was a user fee that would be able to deal with 
deteriorating American infrastructure and move us forward in 
the future. It is a speech I think almost any of us could give 
today. Members of Congress, the President, I wish we--only it 
is 22 years since we have raised the gas tax instead of 23.
    I was curious if, based on your experience with Speaker 
O'Neill and Ronald Reagan, who were able to come forward to 
deal with the serious problem with American infrastructure on a 
bipartisan basis and raise the user fee, if, by any chance your 
proposal is not embraced unanimously by Congress and it moves 
forward and is enacted into law, if you have some thoughts 
about what we might be able to do moving forward to support the 
coalition that ranges from business to labor, truckers to AAA, 
environmentalists, local government, contractors, who all 
agree, as expressed in The Washington Post editorial again 
today, amidst the crying need and falling gas prices, if there 
isn't something that could be done to deal with a user fee 
adjustment?
    Secretary LEW. Congressman Blumenauer, I know that you and 
I have discussed infrastructure for many years, and you have a 
passion for rebuilding this country that we share. I think if 
you look back at the 1980s, we found a pathway for bipartisan 
agreements on important issues; 1983 Social Security reform, 
1986 tax reform. And it was also during the Clinton 
Administration in 1997 we had the balanced budget agreement, 
bipartisan balanced budget agreement.
    I think that what we have put forward in our plan to use 
the one-time savings from tax reform to fund infrastructure has 
all of the ingredients about being something that could become 
a basis for a bipartisan agreement. We deliberately came up 
with an approach that we thought would provide that 
opportunity.
    Obviously, if Congress has other ideas, we will look at 
ideas that come forward, and we will work with Congress to find 
a way. What we have to do is meet our needs to invest in 
infrastructure in this country, because it is doing a 
disservice to future generations to leave behind a crumbling 
infrastructure. The way to build a better future is to think 
ahead and build it today.
    Mr. BLUMENAUER. Great. I hope you will consider that as a 
fallback in case your proposal----
    Chairman RYAN. Thank you. The time of the gentleman has 
expired.
    We are not going to do two to one. So for the people on the 
Republican side of the aisle, we will do Paulsen, Marchant, 
then we will go over to Mr. Pascrell.
    So Mr. Paulsen is recognized.
    Sorry. He is gone. No, he is not.
    Mr. Marchant is recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    Secretary, I would like to discuss a couple of issues with 
you that I hear about every time I go back home and have a town 
hall meeting.
    In reading the Congressional Budget Office projection of 
The Budget and Economic Outlook: 2014 to 2024, it appears that 
we will end up this 2014 with about a $492 billion deficit, and 
then about a $469 billion deficit, a little less than that, in 
2015, but in 2022 through 2024, we will be back to $1 trillion 
a year deficits, and this is very upsetting to the people that 
I represent. It is very upsetting to all of us on this panel.
    Does this budget that the President has prepared and 
presented to us change the trajectory of that debt? Does it 
change the trajectory of the size of government? Does it do 
anything to return us to a balanced budget, or does it end up 
in 10 years being back at a trillion dollars a year?
    Secretary LEW. Congressman, if you look at the deficit as a 
percentage of our economy, it is a percentage of GDP, we 
maintain it through the period 2025 in the mid 2s. At 2\1/2\ 
percent is where it ends up.
    Obviously, our economy is growing and 2\1/2\ percent of a 
larger number is a larger number, but the measure of whether we 
are making progress and maintaining the progress, I believe, is 
looking at the deficit as a percentage of GDP.
    Mr. MARCHANT. So the goal of the Administration and the 
Treasury is to not balance the budget or diminish the debt that 
we already have, but to maintain a percentage of GDP?
    Secretary LEW. No. Look, I think our goal is to grow the 
economy and to find the right balance between fiscal policies 
that keep us on a sustainable path and give us the ability to 
invest in the future and make sure that we have a growing 
economy. The real answer is to have a growing economy.
    I believe we have presented a plan, a framework, for doing 
that. I think that if you look at when we hit what is called 
primary balance when the only deficit is related to servicing 
past debt, it happens, you know, in this period, and then there 
is still need to focus on the future. I am not saying that this 
is the end of the discussion on fiscal policy.
    I think if you look over the last few years, we have done a 
tremendous amount to reduce the deficit as a percentage of GDP. 
It is a fraction--it is a quarter of what it was.
    Mr. MARCHANT. Define primary balance for the people that 
are out there listening to this.
    Secretary LEW. The question is what is driving whatever 
deficit you have, and if the only deficit is interest on past 
debt, that is different than if you are building up new 
expenses by buying new things or paying for new things, and we 
hit that point in this window where the only deficits we have 
are attributable to servicing prior debts.
    I am--that is not the same as balance. I would not suggest 
that it is balance, but it is something that is used as a test 
of fiscal sustainability because the situation is under control 
if you are in primary balance.
    Mr. MARCHANT. The other thing I want to discuss with you, 
as you know, I am from Texas, and we in Texas and in the entire 
West believe that the oil and gas industry was one of the most 
critical things in industries that took us out of this last 
recession, provided good jobs, and now we open this budget up 
and find out that the oil and gas industry, which admittedly 
has had some setbacks in the last 2 months, is going to have a 
$9\1/2\ billion--a $95 billion additional tax bill in this 
budget.
    Can you give me an explanation for why the Administration 
would feel like that would be a great reward for this industry 
for its performance in this economy, and how it could possibly 
handle that kind of additional tax burden in the current 
scenario?
    Secretary LEW. Congressman, the energy revolution has done 
a tremendous amount to drive our economy forward, and energy 
prices go up and down and there will be, you know, natural 
tendencies for the industry to grow in some periods more than 
in others.
    We don't believe that the Tax Code should be driving 
activity in a way that makes investment in energy as specially 
treated as it is right now under current law. We don't think 
that it is necessary for there to be profitable businesses in 
the energy area. Obviously, this is a moment where lower energy 
prices are creating special pressures which we are very 
sensitive to. There is going to be a regional impact, but over 
time we have seen that, you know, letting the market forces 
work is better than having a Tax Code that drives investment.
    Chairman RYAN. That is very enlightening. Thank you.
    Mrs. Black.
    Mr. MARCHANT. You probably misspoke.
    Chairman RYAN. Yes. Did you mean you don't think there 
ought to be profitable businesses in this area?
    Secretary LEW. No. I said I don't think that we need to 
change current tax provisions for there to be profitable 
businesses.
    Chairman RYAN. Okay. I think you did misspeak.
    Secretary LEW. If I misspoke, let me correct that. I was 
speaking to the tax provisions not to--we support----
    Chairman RYAN. It didn't come out the right way.
    Secretary LEW. We support a strong and thriving energy 
industry, and we wish them to be profitable.
    Chairman RYAN. Mrs. Black.
    Mrs. BLACK. Thank you, Mr. Chairman, and thank you, Mr. 
Lew, for being here, and we always have to watch when we say 
something and get a little tongue twisted, because we will 
obviously have that come back to us.
    Secretary LEW. I appreciate the opportunity to clarify.
    Mrs. BLACK. I want to come back to 2 years ago when you 
were before this Committee and we were talking about the budget 
and about the balance, and I want to go back to a couple of 
things that were said in here, my colleague from Texas talking 
about balancing the budget. As a matter of fact, we see in this 
budget that we are going to increase our spending by $2.4 
trillion over the next 10 years. We are going to add $8.5 
trillion in debt to our current debt, and I know that you 
cannot tell us what that might look like here as we look at the 
debt limit, but I will be very interested to see what that is 
going to turn out to be, and then we are going to increase 
Federal spending by $240 billion in just this next year.
    You talk about in both your written comments and your 
verbal comments that you gave us, you talk about this being a 
balanced fiscal approach. In my life with my parents teaching 
me that a balanced fiscal approach is not to have a lot of 
debt, and when I look at what we are leaving for the future of 
our children, not having a lot of debt is also very important.
    So I am very concerned about us not getting to balance, and 
that was a big part of the conversation we had 2 years ago is 
that the President's budget did not ever come to a balance, and 
you mentioned about growing the economy, but if we see the debt 
that we owe and there is an increase in interest rates, we are 
not going to be able to sustain, no matter how much growth we 
have, in paying back our debt. So I am very concerned about 
that.
    I want to go to one other thing that you said in your 
opening comments about the economy increasing job creation, and 
I want to do like Paul Harvey says, the rest of the story, 
because the rest of the story is more than just looking at 
unemployment.
    I want to read to you a clip that is out of MarketWatch 
which was published on January 9th, and it says, ``The U.S. 
added 252,000 jobs, which is absolutely great that we are 
adding jobs in December, and the unemployment rate fell to 5.6 
from 5.8, but the hourly wages declined and more Americans 
dropped out of the workforce.'' So when we talk about 
unemployment rate, that really is not the true number that we 
should be looking at. As a matter of fact, they end their 
article by saying, ``Yet the labor workforce participation rate 
dropped by .2 percent in December to 62.7 percent, matching the 
post recession rate and the lowest level that we have seen 
since 1978.''
    So when we talk about having a good economy, and as you 
report, I think we do have to be very careful about how we use 
numbers, because these policies that are being set forward 
don't show us that we are having an increase in the middle-
class value of their life by having decreased wages, a third of 
the people who could potentially be working not in the 
workforce, and this is very disturbing.
    There are policies that are set by this Administration that 
do affect this, and I think we have to be careful as you 
chronicle what is happening and what sounds to be such a cheery 
thing to really say what the truth is.
    Now I am going to get to my final question here, and I know 
I am not leaving you a lot of time, but there is so much to 
talk about, and that is what I hear in the frustration of the 
people back in my district. In particular, in their savings for 
their children's future in education and also their retirement. 
And, as you know, we had an opportunity to work across the 
aisle. Congressman Davis and myself worked on the tax breaks--
the loophole--or, excuse me, the complicated Tax Code having to 
do with education taxes, 15 different education tax breaks in 
the Code, 90 pages in the IRS manual for the instructions. We 
put out a plan that was passed here in the House. It did not 
move forward in the Senate, and in the very little time that I 
am leaving you to respond, will you assure us that the 
President will work with us in this particular area, because 
education is becoming much more expensive, and we would love to 
have a conversation to have him consider the proposals that we 
put forward that we think are very commonsense and very good 
proposals that allow the middle class to actually use the Tax 
Code to help them in educating their children. I am leaving you 
with 30 seconds. I apologize.
    Secretary LEW. I am not sure how to address all those 
issues in 30 seconds, but I will talk fast.
    We have tried to be very prudent in our assumptions about 
interest rates in our budget. We are assuming that between 2020 
and 2025, interest rates will be, you know, roughly 4\1/2\ 
percent. They are now much lower than that. So we have built 
into our forecast the assumption that interest rates will go up 
over this period of time.
    The challenge of paying down our debt is one that is going 
to take a long time. As long as we are maintaining the current 
deficit projections and we can invest in a growing future 
economy, we think we have the best chance of having that kind 
of strong future. And then the Chairman is telling me I am out 
of time so I can't get into the other issues.
    Mrs. BLACK. Could Mr. Chairman just have him acknowledge 
that he will work with us on this education tax?
    Secretary LEW. Yes.
    Mrs. BLACK. I would appreciate it.
    Secretary LEW. We obviously have a robust set of proposals 
in here in education.
    Mrs. BLACK. Thank you.
    Secretary LEW. We hope you will work with us and we will 
work with you.
    Chairman RYAN. I am doing this for your 1 o'clock.
    Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman, and thank you, 
Secretary, for your service.
    As you know, the budget does talk about a lot of 
investments. It is a proposal. The investments I am talking 
about like the Child Care Tax Credit, we have introduced 
legislation along those lines, as well as the new Second Earner 
Tax Credit, improvements in our education tax incentives.
    So you propose paying for these middle-class investments by 
closing tax loopholes and--which primarily benefit the more 
wealthy Americans who have been doing pretty well for 
themselves.
    Now, just during this current recovery, not just during 
this current recovery, but over the past 30 years, while the 
average Americans wages have been stagnant, think of where it 
would have been if we didn't have a stimulus package or the ACA 
as an example.
    Now, my friends on the other side, and I don't use that as 
being a wise guy, despite their recent newfound commitment to 
the problem of income inequality, have predictably cried class 
warfare. They are up to it again.
    Our Chairman, Mr. Ryan, who we are counting on to bring us 
together in this Committee, said this Sunday on Meet the Press 
regarding the Administration's budget, ``What I think the 
President is trying to do here is to again exploit envy 
economics. This top down redistribution doesn't work. We have 
been doing it for 6 years. Look, it may make for good politics. 
It doesn't make for good economic growth.''
    Now, Secretary Lew, you served in the Clinton 
Administration back in the early '90s. Do you remember that big 
fight over the tax increase? We have had some big fights over 
that policy. Ultimately taxes on the wealthy were increased. 
Meanwhile, at the beginning of the Bush Administration, we 
tried trickle down through huge tax cuts for the folks at the 
very top of the income spectrum.
    Can you compare the economic growth in the performance of 
our country in those time periods following the implementation 
of the respective tax policies? And what I am specifically 
talking about is the GDP between 1993 and 2002 in which the 
average was 3.68 percent----
    Secretary LEW. That was the longest period of uninterrupted 
growth in American history.
    Mr. PASCRELL. Thank you. And between 2003 and 2007 in which 
the average was 2.79 percent. Would you just give us a quick 
synopsis?
    Secretary LEW. Yes. Congressman, I think we have seen 
through experiments testing these policy theories and we saw in 
the 1990s that the tax policies that were put in place with 
the, you know, charges that it would destroy the economy had 
the opposite effect. We saw the economy boom.
    In early 2000 we saw--2001, 2004 we saw huge tax cuts that 
were promised to have the benefit of driving economic growth. 
We ended up on the edge of an economic--in an economic disaster 
with those tax policies in place.
    Mr. PASCRELL. And the party of austerity didn't pay for any 
of this. Did it?
    Secretary LEW. It didn't pay for it.
    Mr. PASCRELL. Okay. Let me ask you a second question.
    Secretary LEW. I was going to say we had one more 
experiment, and it was January 2013. We agreed to go back to 
the tax rates that were in effect in 1990, and our economy is 
growing now.
    Mr. PASCRELL. Do you believe the Administration's policies 
over the past 6 years have exacerbated income inequality in 
this country, or would income inequality be worse if it were 
not for the policies like the Affordable Care Act and the 
Recovery Act and the stimulus package, et cetera?
    Secretary LEW. I think that the problems of income 
inequality have been developing for decades. If you look at the 
actions taken since 2009, if our economy was still in 
recession, it would be way worse for working people. We have a 
recovery that has created 10 million jobs. That is good for 
working people. We have seen the Tax Code revised so that some 
of the inequity in terms of the top rates has been fixed. We 
have seen benefits extended to working families through things 
like the Earned Income Tax Credit and the Child Care Credit. So 
I think we have taken important steps, but with that said, we 
still have a very deep underlying set of challenges to deal 
with, which is why the President's budget this year embraces 
these issues and comes forward with a program that won't solve 
all the problems. It will put things in the right direction, 
and I think it is a very important time for us to make 
decisions to----
    Chairman RYAN. Thank you. Thank you.
    Mr. Reed.
    Mr. REED. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here.
    And to open up I want to recognize the work that we have 
done together in regards to revitalizing the American 
Manufacturing Innovation Act that was signed into law at the 
end of the year. We worked in a bipartisan manner to get that 
done, and I did that working with the other side and with you 
in the White House, because there are millions of hard-working 
families that are going to benefit from that legislation.
    So I offer my line of questioning along that vein, and I 
think my colleague from California, Mr. Becerra, articulated 
something that I have a lot of trouble with. When he talks 
about the Social Security Disability Trust Fund, something you 
and I talked about a year ago, and he says that we are trying 
to contrive a manufactured crisis to split Americans apart in 
regards to this crisis that truly is a crisis, the bankruptcy 
of the Disability Trust Fund, I find that offensive.
    I also find his comments to be representative of the old 
guard, the old school mentality, that there is $3 trillion of 
Social Security money that is supposedly the Federal 
Government's to raid, to bail out a failing Disability Trust 
Fund. I think that is wrong, because you are taking from Social 
Security retirees the money that they put into the Social 
Security Trust Fund that is to go to them, and I think you and 
I both agree, reading your budget, as you said in your budget, 
``The Administration will oppose any measures that weaken the 
Social Security system.''
    How does taking Social Security retiree money from one 
trust fund that is already distressed and bailing out the 
Disability Trust Fund somehow strengthen the overall Social 
Security retiree trust fund? Does that not weaken it? Yes or 
no.
    Secretary LEW. Well, Congressman, over the years there have 
been many transfers. I remember in the 1980s when old age----
    Mr. REED. Mr. Secretary, over the years, that is old 
school. There is a new generation of leaders down here in 
Washington, D.C. that say we cannot do old school, because you 
have already raided the trust funds. You have already taken 
from the trust funds, and you have put them in the position 
where they are on the path to bankruptcy. We need to do better 
than that, and I think you are committed to it. I will give you 
the benefit of the doubt. When I read your budget and you are 
talking reforms in regards to getting the disability community 
back to work, when you talk about continuing disability reviews 
to make sure that those that are truly catastrophically 
disabled get the benefits that the Disability Trust Fund is 
designed to go to, I think there is sincerity here that you 
want to get to a solution. Is there not?
    Secretary LEW. No, it is very sincere, but, Congressman, if 
I could just answer your question, there are no policies that 
could take effect fast enough to deal with the disability 
insurance shortfall other than an interfund transfer, and it is 
the way we made sure that Social Security's old age fund didn't 
go bankrupt when we were working on Social Security----
    Mr. REED. I so appreciate that. So you are putting on the 
table, if I am hearing you correctly, that there are other pots 
of money other than Social Security retirees' money that is in 
the Social Security Trust Fund that are available through an 
interfund transfer that could be utilized to take care of the 
Disability Trust Fund----
    Secretary LEW. Well, you have the Old-Age, Survivors, and 
Disability Insurance Trust Funds. Those are kind of your 
options.
    Mr. REED. So the White House is not aware of any other 
funds that are out there that could be tapped into in order to 
bail out the Disability Trust Fund?
    Secretary LEW. Well, if you are just going to reallocate 
the tax rate, that is where the allocation----
    Mr. REED. I understand that is the payroll tax rate 
reallocation, and that is the status quo. That is the old 
school. Are there not new ideas that could be put on the 
table----
    Secretary LEW. Look, I think there are new ideas in our 
budget in terms of making sure that the review process is done 
properly, making sure that we have program integrity. I do 
believe that we have to look at the short-term needs of the 
Disability Trust Fund and have a short-term solution and not 
expect things that will have perhaps long-term benefit that 
could solve the problem that is much closer.
    Mr. REED. Well, I appreciate it. Is one of those solutions 
that you talk about getting the disabled community in a 
position maybe to potentially get back in the workforce? It is 
in your budget. I think we share that commitment. Is that fair 
to say?
    Secretary LEW. Yes, but we also have to accept that there 
is a large number of people who are disabled who are not able 
to work, and we have to have a system that is there for those 
people that----
    Mr. REED. And I think we would agree for the 
catastrophically permanently disabled, the Trust Fund, that is 
what the intention is, and I would agree with that sentiment on 
it.
    So when we talk about potentially getting the disabled 
community in a position to harmonize the goals of getting 
people back into Main Street, back to work, I am interested 
also in your budget proposal that says, ``Using evidence and 
evaluations to drive innovation and outcomes.'' So on that 
workforce development component of getting people from the 
Disability Trust Fund that are capable of working back to work, 
Mr. Secretary, what would you propose as the evidence and 
evaluation criteria we could utilize to achieve what is a 
mutual goal of working together to achieve that outcome?
    Secretary LEW. I think that we need to have the system set 
up to encourage people to go back to work. We also have to have 
a system that is there for people who are not able to go back 
to work, and I would look forward to following up with you. In 
2 seconds I can't do much more than that.
    Mr. REED. All right. I look forward to that. I would be 
interested in your criteria in judging that type of reform.
    Chairman RYAN. Thank you.
    Mr. Davis.
    Mr. DAVIS. Thank you, Mr. Chairman.
    Mr. Secretary, let me thank you for being here.
    Chairman RYAN. Danny, turn your mic on.
    Mr. DAVIS. All right. I applaud the President's budget for 
its focus on supporting working families through the expansion 
of the Earned Income Tax Credit, improvements to the EITC, and 
substantial assistance to cover costs of caring for children.
    When I cochaired the Education and Family Tax Working Group 
with Representative Black, both conservative and progressive 
policy experts agreed that the EITC has strong evidence of 
encouraging work and alleviating poverty. The central 
recommendation from stakeholders for improving the EITC was to 
address the limited utility of the credit for childless workers 
and noncustodial parents which I promoted strongly through my 
fatherhood deal. These programs helped Chicagoans, Illinoians, 
and Americans.
    I also commend the budget for strengthening depressed 
communities by permanently reauthorizing the New Markets Tax 
Credit, and exemplar of public/private partnership, as well as 
by investing in promise zones and critical infrastructure 
efforts.
    A vital element of the budget is the restoration of a small 
amount of the sequester cuts which experts predict will 
strengthen our economy through hundreds and thousands of jobs.
    I also want to take a moment to support the increased 
funding for the Internal Revenue Service. Republicans have 
insisted on cutting its funding by about a billion dollars in 
the last few years. However, these funds are needed to provide 
services to taxpayers such as critical tax help to low-income 
families and to ensure that tax cheaters pay their fair share.
    As many of us are, I am seriously concerned about 
protecting and strengthening the middle class, but I am also 
concerned about another category of individuals called the 
poor, the working poor. These are individuals whose economic 
boats are perennially stuck at the bottom, and for generations 
in their family they remain.
    Can you tell us what this budget will do to help lift those 
individuals out of poverty and into the coveted middle class 
that we all value so greatly.
    Secretary LEW. Congressman, we entirely share the goal of 
making sure that the ideal of the middle class remains 
available to all and becomes available to all, and it is not 
one policy. It is a combination of things, obviously starting 
with the minimum wage. Raising the minimum wage is very 
important, but making sure that families have access to things 
like the child credit, to the Earned Income Tax Credit is 
equally important, and making sure that there is access to 
education so that young people grow up with the tools to have 
the kind of opportunity that can get them the kind of middle-
class jobs in the future.
    So I don't think there is one simple solution. We put 
together a variety of proposals that together we think will 
make a big difference. We have proposed a way to pay for it in 
a way that is consistent with a responsible fiscal policy, and 
we think that the time is now for debate on these issues.
    Mr. DAVIS. I seriously agree with much of what I find in 
this budget, and, again, I commend you and your colleagues and 
the President for working on it, and, Mr. Chairman, I yield 
back.
    Chairman RYAN. All right. Thank you.
    Mr. Kelly.
    Mr. KELLY. Thank you, Mr. Chairman. Mr. Secretary, thanks 
for being here.
    What I want to address, and I know we have been talking 
about different aspects of the budget, but let's talk about a 
budget in general. You have done a lot of budgets. Did you 
have----
    Secretary LEW. More than I care to count.
    Mr. KELLY. And I understand that. In the private sector we 
always have to put budgets together every year, but it is 
increase--it really--there is a lot of weight on us to make 
sure they balance, and that somehow we have revenue to cover 
what our intended expenses are.
    When you are--have discussions with the President, and I am 
not suggesting that the President has a lot of fingerprints on 
this budget, have you ever discussed with him the growing 
deficit?
    Secretary LEW. Well, first of all, the President is deeply 
involved in the development of this budget and in all budgets, 
and I think that is appropriate. It is his policy. You know, he 
has I think over the years shown a determination to fix a very 
broken fiscal path. We have an enormous amount of progress that 
we have made, and we are making more progress in the 10-year 
window of this budget. I think that the----
    Mr. KELLY. But in your position, the deficit, we--you 
talked today about how we have been able to cut the deficit.
    Secretary LEW. Yes.
    Mr. KELLY. This year the President is projecting a $4 
trillion spend. Right? And in revenues they are going to come 
in somewhere around $3 trillion. Now, back home where I come 
from, you start to use figures like that, the zeros go off the 
chart. So I tell them, listen. It is like somebody who makes 
$30,000 a year spending $40,000 a year, going home and saying: 
``Honey, no problem. Go out and spend 40 grand this year 
because I am going to make 30 grand.'' And she says: ``Well, 
gee, you told me last year to go ahead and spend more than you 
were bringing in and it would be all right.''
    The annual deficit is adding to our long-term debt at a 
rate that is totally unsustainable. As a person that has done 
budgets all your life, you can't look at this and think of this 
as a really--as a real budget. This is a Christmas wish list 
that nobody could possibly fill.
    Secretary LEW. Well, Congressman, I actually don't agree. I 
mean, I----
    Mr. KELLY. Well, Mr. Lew, listen. I am not going to get 
into a debate whether you agree or not. There is no way in--
there is no way in heck anybody can sit back and say that 
deficit spending year after year after year makes sense. There 
is just no way. No. There is no way you can defend that. Nobody 
that ever looked--took an economy course or economics course 
would say: ``Yeah, just keep spending money you don't have and 
somehow it is going to be all right.''
    Do you know that by 2025 just the interest on our debt is 
going to be $785 billion. That is billion with a B. There is no 
way anybody would look at this model and say: ``Makes sense to 
me.''
    Now, we talk about how well we are doing as a country. We 
are the healthiest person in the sick ward. There is nobody in 
the world that can look at the way we have been spending money, 
I am talking collectively, globally, and say: You know what? We 
are on the right path, and I don't care if you are Greece or 
you are in the United States. The only difference is the number 
of zeros in deficit spending that add to long-term debt that 
make us unsustainable. There is just no argument for that, sir.
    My question is, when you talk to the President with your 
background, and certainly with his acumen, and I don't know how 
much business acumen is there because nobody would present this 
budget with a straight face, and say: This is the path forward. 
That just can't be done.
    Have you had that discussion?
    Secretary LEW. So, Congressman, I think if you look at the 
improvement in our fiscal position over the last 6 years, it is 
tremendous.
    Mr. KELLY. When compared to the rest of the places around 
the world. I understand that.
    Secretary LEW. No. Compared to ourselves.
    Mr. KELLY. No, it is not. It is not. Listen. You and I both 
know that if it wasn't for the energy----
    Chairman RYAN. Order. Order. I would encourage the 
gentleman to let the Treasury Secretary answer the question.
    Mr. KELLY. Listen. I would like to have order, Mr. 
Chairman, but let me tell you this. We continue to have this 
ring-around-the-rosie conversation that somehow things will get 
better if we just keep spending more money and have no way to 
actually raise the revenue to pay it. We can't even get to the 
point we can pay down the principal. All we are doing is making 
interest payments. There is just no logic to doing that. It is 
totally illogical, sir.
    Secretary LEW. I am happy to try to offer an answer if 
you----
    Mr. KELLY. I would appreciate it because I have been 
sitting here for 5 years and----
    Chairman RYAN. And you have a minute and 16 seconds to do 
it.
    Secretary LEW. Having presented three balanced budgets with 
surpluses actually in my time as OMB Director, no one is going 
to--I am not going to take second seat to anyone in terms of 
caring about responsible fiscal policy. I think if you look at 
where our budget was, where our economy was when this President 
took office, it was in terrible shape, and it is now in healthy 
shape. I think that we have to look now at what do we do to 
build a foundation for future economic growth, and I agree 
there is a need to continue----
    Mr. KELLY. Okay. I just want to point something out.
    Secretary LEW. But we now have a----
    Mr. KELLY. Excuse me. Listen. I want to point something 
out. Since the President took office, household incomes--now, 
please, we should stop using the term ``middle class'' because 
it kind of reflects that we have a higher class and a lower 
class. Middle-income families have taken--they are making 
$2,380 less than when the recovery started. That is a drop of 
4.4 percent. When you get into the Hispanics, the Blacks, the 
female-headed families, and families with three or more 
children, they fare far worse under the Obama plan than anybody 
else. Black households' median income has plunged 11 percent 
since the recovery. Hispanic households are off 4.5 percent. 
For single moms, median household incomes have dropped 7.5 
percent. For those households with three or more children, it 
fell even more to 9.2 percent. We keep using this talking to 
point to how we are going to help the middle class. Let's talk 
the real thing. It is middle-income people. They have to have 
more money. We cannot continue to drive this debt higher and 
think that somehow there is a rosy picture at the end.
    I thank you for your time. I appreciate your service, but 
honest to God, we have to get this thing fixed.
    Chairman RYAN. Thank you.
    Mr. Renacci.
    Mr. RENACCI. Thank you, Mr. Chairman, and thank you, 
Secretary Lew, for being here.
    You know, I was thinking, when my colleagues were talking 
about you working with Tip O'Neill and that timeframe, I was 
actually thinking about the facts of my life. I had just 
graduated from college. I was from a blue collar, union family, 
and I decided that as someone in the middle class I was going 
to work toward upward mobility, and I started my own company at 
a very young age.
    The one thing I can tell you back then that was very 
important is that I realized if you worked hard and did the 
right thing you could achieve the American dream, but I also 
realized back then the government wouldn't get in your way, and 
I look back at the days when Tip O'Neill and the President were 
working together to get some things accomplished, and I hope at 
some point in time we can do that going forward, because I do 
want to look at that 24-year-old some day and say: You can do 
the same thing. You can work toward upward mobility, because we 
talk so much about it, but factually we get in the way too 
often, and that is one of the problems I have with some of the 
budgets.
    Now, I will say there are some things in the budget that I 
am glad to see there, and I am hoping that we can work 
together, but we talk so much about middle class--middle-class 
economics, and the President uses that term to describe his 
approach to tax policy changes. You know, the idea, of course, 
is that his proposal was designed to benefit hard-working 
middle-class Americans, which I always look back and say that 
was me at one point in time. The idea behind this approach I 
really believe is a good one.
    As the Committee has addressed just a few weeks ago, many 
middle-class Americans are still struggling. While the economy 
has shown some signs of recovery, too many continue to find 
that their paychecks are shrinking while costs are rising. 
Considering the focus the President claims to put on reducing 
taxes for the middle class, I was surprised by a study on the 
distributional effects of the President's proposal published by 
the Tax Policy Center.
    Mr. Chairman, I ask that the study titled Distributional 
Effects of the President's New Tax Proposals published by the 
Tax Policy Center be included for the record.
    Mr. Lew, according to the Tax Policy Center analysis----
    Chairman RYAN. Without objection.
    [The submission of The Honorable Jim Renacci follows:]
    
    
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    Mr. RENACCI [continuing]. The middle quintile of the 
earners with a household income of about $60,000 would actually 
face an average Federal tax increase of about $7. In fact, the 
middle 60 percent of earners would see almost no effect on 
their Federal taxes as a result of the President's middle-class 
economics.
    Considering the results of this independent study, can you 
explain the claim that these policies are really aimed at 
providing relief to the middle class?
    Secretary LEW. Well, Congressman, you know, I look at the 
work of the Tax Policy Center frequently. I think that over 
time, they have done a lot of good work. I think in this case, 
their analysis is just not based on the best data available, 
and I think the analysis that we have done at Treasury is 
better.
    I think that they are looking at a few provisions like the 
financial services fee and stepped-up basis incorrectly in 
terms of tracing how it is going to flow through to families 
that are middle-class families. I think technically it is not 
correct, and I think in terms of the data, we have data that 
shows that it is not correct.
    Mr. RENACCI. So you are disagreeing with----
    Secretary LEW. I disagree with the analysis here. 
Obviously, when you put policies in that have demonstrable 
benefit to middle-class families, that is what reflects what 
you are trying to accomplish. I don't think the financial 
service fee or stepped-up basis is going to end up flowing down 
and hurting those middle-class families the way that analysis 
suggests.
    Mr. RENACCI. Okay. I know my time is limited. I want to 
switch over to something that is important.
    Treasury issued anti-inversion rules in the fall. As a 
result, Medtronic announced that instead of using foreign cash 
to acquire Covidien, it would borrow and take on more debt to 
finance the acquisitions, meaning more leverage and more 
interest deductions in the United States and actually less 
profits. Chiquita Brands had to scrap their planned inversion 
and instead got acquired by Brazilian investors, closing down 
their North Carolina headquarters and eliminating hundreds of 
U.S. jobs.
    These are consequences of an ill-conceived inversion--the 
ill-conceived inversion rules, and now this budget doubles down 
with even more inversion proposals that will just make the U.S. 
companies less competitive and more attractive acquisition 
targets for foreign companies and competitors.
    Is this what you intended to happen and did you consider 
these success stories of the new rules?
    Secretary LEW. You know, Congressman, I think the real 
answer is tax reform. We have a broken Tax Code that is driving 
companies to do things that we think may be legal but they are 
wrong. It is wrong to change your address just to avoid paying 
taxes while you get all the benefits of doing business in the 
United States.
    We made clear at the time that we did not have 
administrative capacity to completely address the inversion 
issue. It would require tax reform to take away the incentive 
and also anti-inversion provisions. We look forward to working 
with Congress to accomplish tax reform to really address this.
    Mr. RENACCI. I appreciate that. I know, I am running out of 
time, and I do agree tax reform would correct this, but are you 
saying that the anti-inversion rules are not working?
    Secretary LEW. No. I think the anti-inversion rules we put 
in are working partially, which is what we knew they would do. 
They don't completely solve the problem.
    Chairman RYAN. Thank you.
    Mr. Meehan.
    Mr. MEEHAN. Thank you, Mr. Chairman, and, Mr. Secretary, 
thank you for being here, and I also want to express my 
appreciation for the Administration's attention to graduate 
medical education. I think it is not just a question of what it 
may do for regional economies, but the idea of us being able to 
train this next generation of medical professionals.
    We are talking about the cost of education here, and it is 
just--it is mind-boggling to think about people graduating $3 
and $400,000 in debt, and it goes back to another issue, and I 
think this is something that I am seeing when I am talking to 
people in my district consistently, and you talk about 
increasing the ability for people to be able to pay for 
education, and we keep trying to find ways to redistribute 
dollars to do this, but let me ask you a question, because 
there is a significant investment in education by the Federal 
Government and by the policies of the Federal Government, 
nonprofit institutions for the most part, tax incentives of 
various sorts. So with such a critical role, what is it that 
you are doing to hold down the increasing cost of education?
    Secretary LEW. You know, Congressman, most of that is not 
in my purview as Treasury Secretary, but I do have a deep 
interest in this and have worked across the Administration. So 
I can tell you that there are things that we are doing to make 
it clear to families and to students what the cost of education 
will be, what their choices are, what the track record of 
schools is in terms of giving the kind of education that is 
likely to lead to the kind of options that we all want for our 
children to have, and I think it is very important that we not 
just deal with the student loan piece of it, but we also deal 
with the structure of how education is marketed and made 
available to students. Students should see what their choices 
are. They should understand what the benefit of different 
options is, and they should also understand the cost of getting 
deep in debt. We have too many schools that are enrolling 
students and not keeping them in even to finish their degree, 
and those students end up in debt with no degree.
    Mr. MEEHAN. Yes, but we have a great deal of schools which 
are stretching families who appreciate the very great 
difficulty which you identified in almost a market-based 
economy in which people are trying to get the best education 
they can for their children. I mean, you know yourself, you are 
a Harvard University graduate. It could be about $225, $230,000 
for a family, and that is pretax income. So I go back again. 
Here is one of the problems. Those very same institutions, you 
are talking to me about the responsibility on the parents and 
the families to be looking at these and making decisions. I am 
asking about what responsibilities you are putting on the 
institutions themselves. I was trying to look 
for factors that may be influencing the cost of education, and, 
you know, the cost for a private university has more than 
doubled since the 1970s when I went there, and I suspect 
somewhere around the time you may have attended college. For 
public universities proportionately, it has tripled.
    Now, at the same time, and I was just looking at a 
statistic, the amount of staffing has grown exponentially. In 
1975, there were 446,000 college professors and 268,000 
administrators of all types. In the middle of the last decade, 
there were 675,000 professors and 750,000 administrators of 
their various types. We have seen a dramatic explosion in this 
educational complex in which this bureaucracy has become a food 
frenzy, and the American families are paying for it. The very 
same people who you are looking at right now about--who are 
making those investments oftentimes they are the ones that are 
dipping into their retirements to meet these exorbitant fees.
    So what are we doing with the leverage that we have to 
begin to compel these institutions which already benefit as 
nonprofit institutions to say that there is--if you want to 
have the benefit of government-subsidized tuition and other 
kinds of things, then you must demonstrate the capacity--you 
are doing it in health care. Why aren't you doing it in 
education?
    Secretary LEW. Well, Congressman, by starting with 
transparency and empowering families, individuals, to make 
decisions, that actually puts pressure on the university system 
to take that very seriously.
    I agree with you, costs have been rising too rapidly. I 
think that it is not an easy thing to address because there is 
a kind of irreducible minimum of the number of people it takes 
to teach groups of 20 and 30 people, and even with the move 
toward, you know, high technology, ultimately the contact with 
teachers still matters. Universities have become more 
complicated places. They have a complicated variety of things 
they do. It is not my area, obviously, of current expertise. 
The Department of Education is looking hard at these issues, 
and I am sure they would be happy to follow up.
    Mr. MEEHAN. Thank you.
    Chairman RYAN. Thank you.
    Mr. Smith.
    Mr. SMITH OF MISSOURI. Thank you, Mr. Chairman.
    Mr. Secretary, as I have been sitting here listening to 
your presentation and also a lot of questions, I am reminded of 
a Congressman from Missouri, of a speech he gave in 1899. It 
was Congressman Willard Vandiver, and he said, ``I come from a 
State that grows corn and cotton, cockleburs and Democrats. 
You're frothy eloquence neither convinces me nor satisfies me. 
I am from the Show Me State and you have to show me.''
    And I am asking in this budget that you presented to us how 
the policies that are implemented in this budget help rural 
America? Whenever you look at the statistics of rural America, 
where less than--well, 97.9 percent of all the counties in the 
United States have not rebounded from the recession, and you 
are seeing that 60 percent of rural counties have decreased in 
population in the last year, what policies in your budget help 
rural America rebound from this economy?
    Secretary LEW. Well, Congressman, obviously agricultural 
policy is not primarily my responsibility, but our Department 
of Agriculture has been working with Congress to put in place 
programs that we think are very beneficial to rural America. I 
know that the efforts that the Department of Agriculture has 
made to bring investment into rural America have been very 
successful. I have collaborated with the Department on some of 
their business efforts. You know, I actually think if you look 
at the economic performance of rural areas, they have done 
considerably better than your description. Again, it is not my 
core area, but I would be happy to follow up with you and look 
at the data that you are looking at and the data that I have 
seen, because it has been, I think, for a lot of rural 
communities a better period than you just described.
    Mr. SMITH OF MISSOURI. I would love to compare that. But 
let's talk about a policy that has been discussed, one that you 
have proposed and that is increasing the estate tax and the 
death tax. This is something that is extremely detrimental to 
the farmers and small businessowners, at least in my 
congressional district.
    If you look at the Bootheel of the State of Missouri, those 
seven counties are the--have some of the best farmland in the 
entire State of Missouri and in the country. Those seven 
counties produce more than a third of all agriculture 
production for our State. The average per acre of a farm there 
is roughly $8,000. The average family farm is 441 acres.
    Do you realize that underneath the policies that you are 
proposing that every one of those average family farms in the 
Bootheel of Missouri would be devastated by your proposal of 
the estate tax that would almost--almost count to about 57 
percent of a tax on their inheritance, which as you--maybe you 
don't know this, but almost 85 percent of all the values of 
farms is within their equipment and their farmland. They don't 
have a lot of--a lot of liquid assets. So, if they have a 57 
percent tax increase, they are going to have to sell their 
farm, which is eliminating a small business, which is 
destroying heritage. Would you explain that to me?
    Secretary LEW. Well, Congressman, as we have looked at the 
estate tax over the years, we have agreed to have high 
thresholds so that real family farms would be large--many would 
be exempt.
    Mr. SMITH OF MISSOURI. So the average family farm, I said, 
is 441 acres. Now, 441 acres times $8,000 would go over your 
$3.5 million exemption. So I am saying that an average family 
farm does not even qualify underneath your proposal right now.
    Secretary LEW. So, Congressman, I think that the goal of 
both our estate tax and our stepped-up basis proposals are to 
make sure that we don't have large appreciation of assets that 
essentially go untaxed for all time.
    Mr. SMITH OF MISSOURI. So they need to pay taxes double and 
triple and basically----
    Secretary LEW. No. Not double and triple.
    Mr. SMITH OF MISSOURI. This is why the statistic I said 
earlier about 60 percent of counties in rural America are 
decreasing in population, because they experience a Tax Code 
that promotes them to sell their family farm to move to the 
city. And I believe this is so unfortunate. These policies have 
to be stopped. This is a war on rural Americans. It is a war on 
the middle class.
    Secretary LEW. I would be happy to follow up with you, 
Congressman, and look at some of the numbers you have described 
and numbers that we have----
    Mr. SMITH OF MISSOURI. I would love that.
    Secretary LEW [continuing]. Reviewed. I actually don't 
think the impact is as broad as you have described it. I am 
happy to follow up.
    Mr. SMITH OF MISSOURI. Let's get together. Thank you, 
Secretary.
    Chairman RYAN. Thank you.
    Mr. Holding.
    Mr. HOLDING. Thank you, Mr. Chairman.
    Mr. Secretary, America is a great country because of our 
people. Our people are aspirational, entrepreneurial, and 
intuitive. And I am sure we could agree on that.
    Secretary LEW. I think we can.
    Mr. HOLDING. But when the American people see a budget 
which proposes more than $2 trillion in spending, more than $2 
trillion in additional tax, more than $8 trillion in additional 
debt, a budget that never balances and, at the end of the day, 
you end up with bigger government and bigger debt, I don't 
think the intuition of the American people says that that is a 
success. And I don't think they look upon it as, you know, this 
is the way forward to ensuring that America is the greatest 
Nation for our next generation.
    I believe I am the last person, so I am going to follow up 
on a couple of other Members' queries. First, following up on 
Dr. Boustany's query, the question to you about the theft of 
intellectual property in China. I know that you have been 
involved and take an interest in this, and you raised it with 
the Chinese. Obviously strong intellectual property rights are 
incredibly important to our economy. It is perhaps one of our 
largest and most productive assets as Americans.
    If you could just take a brief moment and talk about what 
the Administration is doing to address theft of our 
intellectual property by the Chinese. I was in China recently, 
and I can tell you that I was singularly unimpressed with their 
efforts to prevent theft of intellectual property.
    Secretary LEW. Congressman, I have raised this issue at the 
highest levels of the Chinese government. I think they 
understand that they need to take more action in this area. 
They have certainly indicated that they understand it is an 
issue. You know, the reality is they, for a long time, denied 
that they had a problem. And, you know, now they have a system 
that is, at least, starting to deal with it. We have to be 
relentless in pushing our view forward on this. We have to make 
clear that if China wants to be the world leader that it 
aspires to be, it has to play by the basic rules that the rest 
of the world plays by. And it is not limited to intellectual 
property. I make the case to China on currency. I make the case 
to China on market access. I make the case to China on 
competitiveness.
    I think it is in our interest for there to be a healthy 
China, and it is in China's interest for there to be a healthy 
United States, but it has to be on fair terms. It can't be----
    Mr. HOLDING. Right.
    Secretary LEW. This pertains to the question on the bid 
that came up. One of the places for us to pursue these issues 
is in the context of the bid discussion. Because if they can't 
get to meet the world standard, they can't get a bid.
    Mr. HOLDING. All right. And you would also agree that, you 
know, the United States--our intellectual property laws are 
probably the gold standard----
    Secretary LEW. Yes.
    Mr. HOLDING [continuing]. Around the world and that is why 
innovation is such an important part of our economy----
    Secretary LEW. Absolutely.
    Mr. HOLDING [continuing]. The companies, what we innovate 
here.
    Secretary LEW. And, in fact, if I could interrupt, 
Congressman, I have said to them, if you want your economy to 
do well in the future, you need to encourage innovation and you 
can't do that unless you respect intellectual property rights.
    Mr. HOLDING. Right. So you would also agree that, in the 
current TPP negotiations, and as we consider TPA, we should be 
very mindful of addressing intellectual property protections 
when we negotiate with other countries and don't dumb-down our 
own standards here in the United States to meet standards of 
countries where innovation and advancement in things like 
biologics, you know, are nowhere in comparison to the 
standards--the innovation that we have in this country. 
Correct?
    Secretary LEW. Congressman, I think we have to pursue a 
high-standard discussion in a number of areas, intellectual 
property is one. But worker standards is another. Environmental 
standards is another.
    And I heard a number of questions earlier about currency. 
And let me just say we take the issues of currency very, very 
seriously. We do it in the G-7, in the G-20, in our bilateral 
discussions. And we look forward to working with Congress to 
figure out how to talk about it in the context of----
    Mr. HOLDING. Good. I have a few other quick hits.
    Congressman Smith of Nebraska asked you if you thought that 
inheritance tax was a double taxation, and you said that you 
didn't think it was. So I assume that you agree with me that it 
is actually a triple taxation. Would I be correct in that 
assumption?
    Secretary LEW. No, sir.
    Mr. HOLDING. Okay. For the record, I am going to send you a 
followup question or two on FATCA, the----
    Secretary LEW. I would be happy to look at that.
    Mr. HOLDING. With the renunciation rates going through the 
roof, really at the highest levels we have ever seen, I believe 
it is abhorrent that the American government is pursuing 
regulations and policies that would encourage Americans to 
renounce their citizenship. So I want--I will submit a followup 
question.
    Secretary LEW. Thank you.
    Mr. HOLDING. Thank you.
    Chairman RYAN. Well----
    Secretary LEW. Mr. Chairman, you run a tight ship.
    Chairman RYAN. We really try. It is 12:57.
    Does anybody want to talk for a few minutes?
    Mr. LEVIN. No, thank you, Mr. Chairman. We have to eat 
lunch.
    Chairman RYAN. We have to eat lunch.
    Thank you, Secretary Lew, for appearing with us today.
    I want Members to be advised that they may submit written 
questions to be answered later in writing and that they will 
also be reflective and included in the record for this hearing. 
We kept a tight ship. We got you out on time. The hearing is 
adjourned.
    [Whereupon, at 1:00 p.m., the Committee was adjourned.]
    [Submissions for the Record follow:]
    
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