[Senate Hearing 114-481]
[From the U.S. Government Publishing Office]










                                                        S. Hrg. 114-481

                PRESIDENT'S BUDGET FOR FISCAL YEAR 2017

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 10, 2016

                               __________

                                     




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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

CHUCK GRASSLEY, Iowa                 RON WYDEN, Oregon
MIKE CRAPO, Idaho                    CHARLES E. SCHUMER, New York
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
JOHN CORNYN, Texas                   BILL NELSON, Florida
JOHN THUNE, South Dakota             ROBERT MENENDEZ, New Jersey
RICHARD BURR, North Carolina         THOMAS R. CARPER, Delaware
JOHNNY ISAKSON, Georgia              BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio                    SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania      MICHAEL F. BENNET, Colorado
DANIEL COATS, Indiana                ROBERT P. CASEY, Jr., Pennsylvania
DEAN HELLER, Nevada                  MARK R. WARNER, Virginia
TIM SCOTT, South Carolina

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)





















                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     3

                         ADMINISTRATION WITNESS

Lew, Hon. Jacob J., Secretary, Department of the Treasury, 
  Washington, DC.................................................     5

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    41
Lew, Hon. Jacob J.:
    Testimony....................................................     5
    Prepared statement...........................................    43
    Responses to questions from committee members................    48
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    59

                                 (iii)

 
                PRESIDENT'S BUDGET FOR FISCAL YEAR 2017

                              ----------                              


                      WEDNESDAY, FEBRUARY 10, 2016

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:31 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Crapo, Roberts, Thune, Portman, Coats, 
Heller, Wyden, Schumer, Stabenow, Cantwell, Nelson, Menendez, 
Carper, Cardin, Brown, Bennet, Casey, and Warner.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Sam Beaver, Professional Staff Member; Tony Coughlan, 
Tax Counsel; Jay Khosla, Chief Health Counsel and Policy 
Director; Jim Lyons, Tax Counsel; Eric Oman, Senior Policy 
Advisor for Tax and Accounting; Preston Rutledge, Tax Counsel; 
and Jeff Wrase, Chief Economist. Democratic Staff: Joshua 
Sheinkman, Staff Director; Michael Evans, General Counsel; and 
Adam Carasso, Senior Tax and Economic Advisor.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
              UTAH, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. The committee will come to order.
    Today's hearing is on President Obama's budget for fiscal 
year 2017. I particularly want to thank Secretary Lew for 
appearing before us this morning and providing his time for us.
    While there were some hints about some of the details in 
advance, Congress officially received the President's budget 
proposal yesterday. And as has too often been the case--
particularly under this administration--what we received was 
not a practical vision for the future but an ideological 
document designed more to satisfy political constituencies than 
to advance, at least in my opinion, serious policy proposals.
    For example, in his budget President Obama once again looks 
to raise taxes on hardworking Americans, including some special 
new regressive taxes that are being packaged as ``fees,'' with 
all the revenue going to fuel expanded government and spending 
that is being sold to the public as ``investment.'' No matter 
what terms people want to use, this budget once again taxes too 
much, spends too much, and never balances. It presents a vision 
for expanding government deficits as far as the eye can see, 
and an ever-growing national debt.
    That debt, by the way, currently stands at an astronomical 
$19 trillion as of last week, I believe it was--close to 80 
percent larger than when the President took office and at a 
level relative to the size of our economy not seen since the 
years surrounding World War II.
    I will also note that the budget contains provisions 
relating to Puerto Rico. The challenges facing Puerto Rico have 
received a lot of attention in recent months, and, 
unfortunately, much of the debate has been overly politicized. 
The President's budget calls for $6.6 billion intended to 
provide an Earned Income Tax Credit for residents of the island 
and roughly $30 billion for increased Medicaid funds, some of 
which are intended to offset what we are now being told was an 
inequity written into the so-called Affordable Care Act.
    Apparently, the authors of ACA wrote a Medicaid funding 
cliff for Puerto Rico into the law. Now we are being told--by 
some of those same authors, no less--that this funding cliff is 
unfair and must be undone. I would like someone--maybe 
Secretary Lew or perhaps any of the members of Congress who 
drafted and supported the health law--to explain why that was 
done in the first place.
    I have been working hard with a number of my colleagues to 
put together a package to help the people of Puerto Rico, who 
should be our real focus in this. I have a bill with Senators 
Grassley and Murkowski that offers assistance, along with more 
than $7 billion of fiscal relief to the island, without adding 
a penny to the Federal deficit or debt. And since last summer, 
I have been asking administration officials, as well as some of 
my Senate colleagues, just how much additional health funding 
they would like to see for Puerto Rico. In every case, specific 
details have been withheld, and Congress has simply been 
admonished to fix this problem in a fiscally responsible way.
    Yesterday, with the release of the budget proposal, we 
finally saw specific proposed numbers from the administration. 
Why it took until now for these details to emerge is beyond me, 
but at least they are here. In addition, while we are on the 
subject of Puerto Rico, I do not believe the administration has 
been straightforward about the nature of the debt restructuring 
authority it is seeking for the territory.
    While we keep hearing from our friends on the other side 
that Republicans are ungenerously denying Puerto Rico access to 
the bankruptcy protections offered to every municipality in the 
U.S., that is actually not what is being sought. Specifically, 
the administration is advocating to provide unprecedented debt-
restructuring authority to Puerto Rico, with an explicit 
preference for public pension liabilities over debt issued by 
the Puerto Rican Government, even though the territory's 
constitution gives preference to some of those latter debts.
    We need to be clear about what is actually being debated 
and proposed here, and, Secretary Lew, I hope to learn more 
about your thoughts on this today. And going forward, I surely 
hope to learn more about Puerto Rico's pension exposures. In 
fact, just this morning I wrote to the Governor of Puerto Rico 
asking for details, since, all told, Puerto Rico's debt and its 
unfunded pension liabilities amount to almost $120 billion.
    As we know, lurking behind the recent increase in ever-
larger municipal bankruptcies nationwide is a growing crisis of 
underfunded public pensions, and the underfunding of Puerto 
Rico's public pensions is striking.
    Another issue that I look forward to discussing today is a 
provision of the recently enacted FAST Act regarding the 
inactive debt collection program. As we will likely hear today 
from Senator Grassley, if not others, the conference report 
accompanying the law made clear that the intent of Congress was 
for Treasury and the IRS to expeditiously implement this 
provision by utilizing approved private collection contractors 
and debt collection centers. The law also requires that 
contracts be signed within 3 months after enactment. That 
deadline is March 4th, just over 3 weeks away. So I look 
forward to a status update today on the efforts to get the 
contracts signed and the cases released and to ensure that 
taxpayers are made aware of the program and how it is going to 
be implemented.
    Finally, and related to the large Federal debt that 
Treasury is supposed to manage, I want to make note of some 
disturbing revelations from the House Financial Services 
Committee about contingency plans formulated by Treasury and 
the Federal Reserve. Secretary Lew, as you know, for nearly 5 
years now, I have asked Treasury and the Fed for details about 
plans the agencies had to handle debt default, whether caused 
by a natural disaster, terrorist attack, cyber-attack, or debt 
limit impasse. I have asked for these details in writing, in 
public hearings, and in private conversations.
    And in response to my inquiries, you, your predecessor 
Secretary Geithner, Fed Chair Yellen, and former Chair Bernanke 
have all opted to cloak any contingency plans in secrecy, 
sharing them only in private discussions with financial market 
participants. All of you failed to provide specific answers to 
direct questions, choosing instead to obfuscate the issue. We 
know these contingency plans exist, yet officials at the 
highest levels of the executive branch have refused to share 
them with Congress or the American people.
    Now, I find this unacceptable. And because we have received 
virtually no voluntary cooperation on this issue, legislation 
to require such cooperation and provide accountability is now 
probably necessary so the American people can know as much 
about our debt management as those working at Treasury and the 
Fed and in financial markets.
    So as you can see, we have quite a bit to discuss today, 
and I look forward to a robust discussion of these and other 
important issues.
    With that, I will turn to my friend, the ranking member, 
Senator Wyden, for his opening statement.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

             OPENING STATEMENT OF HON. RON WYDEN, 
                   A U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you very much, Mr. Chairman, and thank 
you for holding this hearing. And, Secretary Lew, we appreciate 
your being here for what I believe will be one final time on 
this particular item of business.
    I would like to start, Mr. Secretary--and you and I have 
talked about this--by trying to put taxes, your principal 
focus, in what I think is the right context. Right now in 
America, there are two different tax systems. The one that most 
working people deal with is mandatory. Their taxes come 
directly out of their paycheck. And then there is another 
system for the well-connected, and under that system, it seems 
that you can often pay what you want when you want to.
    The fact is, most working Americans earn one or two 
paychecks a month. They may have a mortgage, a few kids. Those 
taxpayers interact with a very small portion of the American 
tax code. But there are far too many shadowy, cobweb-filled 
corners of the tax code that typical Americans never have to 
venture into. Those corners are loaded with byzantine rules 
that accountants and lawyers from white-shoe firms can use to 
pry open loopholes.
    As a result of all this complexity, you have increasingly 
slippery definitions of capital gains and income, and an array 
of tax-dodging strategies with names like ``wash sales'' and 
``swap contracts.'' It is a mind-numbing system. And it is no 
wonder why somebody who works the line at a factory or has a 
gig at a mom-and-pop business would believe the tax code is 
stacked against them.
    Now, I do not think anybody would make a huge bet on a 
complete rewrite of the American tax code this year so as to 
address the entirety of the unfairness in terms of how our tax 
system plays out for those working families. But I do see a 
major opportunity for Democrats and Republicans in the 
Congress, working with the Treasury and the IRS, to work 
together right now. And that major opportunity is to crack down 
on the tax avoidance schemes that have resulted in the 
corporate tax gap.
    Now, I am going to have a lot more to say about that this 
afternoon when Commissioner Koskinen comes before the 
committee. But the short story is that two-thirds of the $1 
trillion owed in corporate taxes goes unpaid every decade, and 
in my view, every policymaker ought to be doing more to figure 
out why and how you are going to fix this. And I also see this 
as an opportunity to free up resources so as to be able to take 
on a number of the big economic challenges of this time.
    And, by the way, there are a number of proposals that are 
in the budget that are clearly going to be of significant 
benefit for workers. Certainly the auto-IRA proposal would help 
a lot of workers start saving for the first time.
    As you know, Mr. Secretary, a number of us on this 
committee have proposed to expand the savers credit. We are all 
interested in helping those who are walking an economic 
tightrope. The community college proposals, in my view, are 
going to be quite helpful to students pushing to find that 
first high-wage, high-skill job. And you have a number of 
investments in children's health that I think are very 
constructive.
    So there are a number of smart proposals that could be a 
huge help to working-class families and small businesses across 
the country, and I look forward to working on a bipartisan 
basis with our colleagues here to pursue those issues.
    Mr. Chairman, I also want to wrap up by thanking you, 
because I think it is worth noting, here in the Finance 
Committee, Chairman Hatch has scheduled three hearings for us 
to come together on a bipartisan basis to examine the 
President's budget proposal. In my view, that is a major 
responsibility that we have and also a practical need to 
communicate with the administration. And that is true no matter 
which party controls the White House. And in fact, these 
debates that we are starting control much of the debate over 
the course of the year. Apparently, some other committees are 
not exercising this same responsibility this year, and I just 
want to say that I hope that does not become a precedent.
    Thank you very much, Mr. Chairman.
    The Chairman. Well, thank you, Senator Wyden.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Before we go any farther here, let me give an 
introduction to Secretary Lew.
    Secretary Lew was confirmed to his current position on 
February 27, 2013. Prior to his confirmation as Secretary of 
Treasury, Secretary Lew served as President Obama's White House 
Chief of Staff and, before that, Director of the Office of 
Management and Budget, a position Secretary Lew also held 
during President Clinton's administration, from 1998 to 2001.
    After leaving the Clinton administration and before joining 
the Obama administration as Deputy Secretary of State for 
Management and Resources, Secretary Lew served as executive 
vice president for operations at New York University and did 
teach as a clinical professor of public administration at NYU's 
Wagner School of Public Service until June 2006, when he was 
named chief operating officer of Citigroup's Alternative 
Investments Unit.
    In the middle of a long public-service career, Secretary 
Lew received an undergraduate degree from Harvard College and a 
law degree from Georgetown University Law Center. Detailing the 
rest of Secretary Lew's public service career would likely take 
the rest of this meeting, and as such, let me just say that it 
has been long and productive.
    I want to thank you for all you have done for our country 
in your current job and what you continue to do. We will just 
take your statement at this time. Welcome to the committee.

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

    Secretary Lew. Well, thank you very much, Mr. Chairman, 
Ranking Member Wyden, members of the committee. As Senator 
Wyden noted, this is the last time I will be presenting the 
President's budget, so there is kind of a nostalgic element to 
it. But we enter this final year with a great deal of energy, 
because there is still so much that we need to get done for the 
American people.
    As the President said in his State of the Union address, 
this is a time of extraordinary change, and to make this change 
work for the American people, we need to foster opportunities 
for all. We need to leverage new technologies to solve urgent 
problems such as climate change; we need to pursue a smart 
foreign policy that protects our national security; and we need 
to work together to improve our political discourse. What we do 
in each of these areas is crucial to our future as a Nation.
    Today, I will discuss the major aspects of the President's 
budget and how it lays out a vision for what we need to do as a 
country both now and over the next 5 or 10 years and beyond to 
create growth and make sure that opportunity is truly broadly 
shared.
    In the 7 years since President Obama took office at a time 
of the worst financial crisis since the Great Depression, we 
have seen a sustained economic recovery and an unprecedented 
decline in Federal deficits. Notwithstanding some of the recent 
volatility that we have seen and are seeing in financial 
markets, economic growth continues at a solid pace. Since my 
testimony a year ago, our economy has continued its record-
breaking streak of private-sector job creation, which has 
reached nearly 6 consecutive years and more than 14 million 
jobs.
    Over the last 2 years, we have experienced the strongest 
job creation since the 1990s. At 4.9 percent, the unemployment 
rate is half of its 2009 peak. Real GDP expanded 1.8 percent 
last year--a pace of expansion that exceeds many of our major 
trading partners, and we continue on a sound fiscal path. From 
fiscal year 2009 to 2015, the deficit as a share of GDP fell by 
almost three-quarters, to 2.5 percent.
    Despite this progress, we have much more to do to fully 
address the challenges associated with our new economy. The 
President's 2017 budget puts forward the building blocks of a 
social compact for the 21st century, creating the conditions 
for sustained economic growth while upholding the basic 
American belief that everyone who works hard should get a fair 
shot at success.
    It shows that investments in growth and opportunity are 
consistent with and contribute to putting the Nation's finances 
on a strong and sustainable path. And the budget substitutes 
more balanced deficit reduction and ends sequestration, while 
making other critical investments and addressing our fiscal 
challenges over the next 10 years.
    Today, I would like to briefly focus on three key areas of 
the President's budget, including our proposals to reform the 
tax code, invest in infrastructure, and support working 
families.
    First, fixing America's business tax system is essential to 
promoting long-term growth and broad-based prosperity. The 
budget includes a number of concrete tax reform proposals to 
make our system more strong and more fair, including a complete 
reform of our international tax system and a specific proposal 
to close the inversion loophole. While inversions may be legal, 
it is wrong for companies to take advantage of our 
infrastructure, our education, our support for research, our 
rule of law, and then avoid paying their fair share of U.S. 
taxes. I look forward to working with this committee and the 
Congress to close the door to inversions.
    Second, we need to invest more in modern infrastructure 
that will create middle-class jobs in the short term and meet 
the needs of a growing economy in the long term. To accomplish 
this, the administration has proposed a phased-in $10-a-barrel 
fee on oil production and import that will ensure that we 
better manage the costs associated with fossil fuel use, 
provide long-term solvency for the Highway Trust Fund, and 
offer new funding for clean energy investments. The budget also 
funds an expanded core infrastructure program and takes small 
steps to level the playing field for private investment in 
public infrastructure projects through the Financing America's 
Infrastructure Renewal, or FAIR, program.
    Third, we must support working families. This budget seeks 
to respond to the changing relationship between workers and 
employers. For example, it proposes expanded unemployment 
insurance and introduces a new wage insurance program to help 
families stay on their feet when underemployed as part of a job 
transition. This budget also proposes to expand access to 
workplace retirement savings opportunities, complementing our 
success with the myRA program launched last year to help those 
without savings or retirement options begin to save for the 
future.
    In conclusion, the President's budget will create a 
stronger, more inclusive economy today and in the future, while 
also maintaining fiscal responsibility. Of course, we must also 
work together to respond to more immediate events. As the 
chairman noted, in Puerto Rico there is work that we need to 
do, and I thank the chairman for working with us in December 
and since to try to think through an approach to dealing with 
this critical problem. Puerto Rico faces unemployment at 12 
percent, and it is experiencing an unsustainable debt crisis. 
The administration has proposed a comprehensive plan to address 
the Commonwealth's financial challenges, and I encourage 
Congress to act with the speed that this crisis requires. This 
must begin with legislation to permit a financial restructuring 
along with new oversight, neither of which costs any taxpayer 
dollars.
    This budget does not address every challenge we face. As 
the President said in the State of the Union address, progress 
is not inevitable but, rather, it is the product of choices we 
make together as a Nation. We face a number of big choices in 
the coming years. For example, we still must take actions to 
strengthen Social Security to keep true to our commitment to 
previous and future generations of workers. The decade of 
fiscal responsibility laid out by this budget gives us the time 
we need to address these long-term challenges. And the recent 
agreement on the debt limit and budget not only demonstrates 
that we have the capacity to find common ground on difficult 
issues, but it also lays a foundation to address the immediate 
challenges we face.
    I look forward to working with this committee to make more 
progress together over the coming year, and I look forward to 
answering your questions.
    [The prepared statement of Secretary Lew appears in the 
appendix.]
    The Chairman. Well, thank you, Secretary Lew.
    Puerto Rico's general obligation debt has specific 
repayment priority, according to the Constitution of Puerto 
Rico, yet your proposal, at least in my opinion, would blow 
right through that constitutional protection, even while you 
argue that Puerto Rico's autonomy must be respected. And as I 
understand it, your proposal would also give preferential 
treatment among unsecured claimants to obligations of Puerto 
Rico's public pensions and would, in effect, give those 
claimants preferential treatment relative to the general 
obligation bond holders.
    Of course, the issues here are very complicated. Among 
general obligation bond holders are retirees in my home State 
of Utah who, under your formulation, would be subject to less 
preferable treatment than Puerto Rico public pension claimants.
    Now, I wonder if you could explain your proposal a bit more 
and explain your proposal to provide preference for public 
pension obligations over others, where some of those others are 
retirees in places like all of our States, really, but in 
places like my State of Utah, who also have claims on Puerto 
Rico that they thought were protected.
    Secretary Lew. Senator, the financial picture that Puerto 
Rico faces is very complicated. They have 18 different series 
of bond issues. They are very complicated. There are different 
levels of priority, different constitutional protections.
    But the math is clear. With $72 billion of outstanding 
bonds, they do not have the capacity to support the debt 
service on that, and there is a need for a restructuring. And a 
restructuring needs to include all of the bonds or virtually 
all of the bonds in order to be effective because, if you do it 
on too small of a base, it does not work. And we have never 
said that all bond holders get treated equally, so certainly 
there is the space to reflect the differences between different 
categories of bond holders. Even the voluntary offer that the 
Commonwealth put forward reflects that principle.
    And with regard to pensions, I think if you look at what 
has been happening in the last few months, pensions are being 
shifted, pension contributions are being moved, to pay bond 
holders right now. So you have workers in Puerto Rico paying 
into a pension fund, but the money is coming out to pay bond 
holders. That is not going to be there for their pensions. That 
is not a tenable arrangement.
    The result in Puerto Rico's economy is clear. You are 
seeing thousands of people a month leave Puerto Rico. The 
economy of Puerto Rico cannot sustain the outmigration of the 
people who are capable of building the economic future. And I 
know that we have talked about this many times, Mr. Chairman; 
there is a crisis here that we agree needs to be addressed. The 
question is, how do we do it in a way that works, and how do we 
do it in a way that is fair?
    We have put forward a proposal that we think is 
comprehensive. What we have made clear is, the first steps have 
to be restructuring authority combined with oversight. That 
will not completely solve all the problems, but that is where 
the time urgency is. And we look forward to working with you on 
an approach to that that meets the standard of fairness that we 
can all defend.
    The Chairman. Well, thank you, sir. I often hear questions 
about why Congress will not grant Puerto Rico retroactivity, 
you know, the same chapter 9 bankruptcy tools that many 
municipalities across the country can access. Retroactive 
chapter 9 authority is what Senator Blumenthal's bill and a 
proposal in the House involve, but your proposal, which some 
have called ``Super 9,'' is far different. Representative 
Pierluisi has indicated lack of support for your Super 9 
proposal.
    Now, no one in Congress has filed legislation with a Super 
9 structure. State and territorial officials have expressed 
concerns about your proposal, including concerns about moral 
hazard and increased borrowing costs for States and 
municipalities across the country that could result from your 
proposal. So it seems that your broad restructuring authority 
has not received broad public support once the details are 
known.
    Now, I wonder if you feel that there is support for your 
proposal in Congress, and, if so, if you have any thoughts on 
why no one has introduced your proposal as a bill in Congress?
    Secretary Lew. Well, Mr. Chairman, I have talked to all of 
the office holders in Puerto Rico: the Governor, the 
legislative leaders, their Representative in the House. I think 
there is a broad understanding and shared view that they need 
to have restructuring authority that will work, that will 
encompass enough of the debt.
    The Chairman. No question about that.
    Secretary Lew. And I know there are concerns with how that 
is structured. Those are details we could work through. As we 
have gone through this at a technical level, both with your 
team and with others in Congress, we have aired issues where 
there is room to find ways to work through this.
    But what does not work is to say that Puerto Rico should 
somehow solve the fiscal dilemma that it faces without some 
very broad restructuring authority, because Puerto Rico's debt 
is principally the thing that is drawing down its ability to 
stay solvent. It is a case of insolvency where the debt is just 
beyond what they can support. And unless it is restructured in 
an orderly way, what will happen is, it will go through a 
decade of protracted litigation where different stakeholders 
with different bond holder interests will be suing the 
Commonwealth in court. You will have a lost decade where I do 
not know if the Commonwealth can recover from a 5-10 year 
period of litigation.
    So there is an urgent need to address this, and we would 
look forward to working with you and with others in Congress. I 
know I have had conversations probably with 50 members of the 
House and Senate, maybe more than that. There is a broad 
understanding that something needs to be done here.
    I guess what I just want to make clear is, when we act, we 
have to act in a way that works, or else the problem will be 
coming right back at us. And I do not think that will serve 
anyone's interest.
    So we share the concern that this be something that is 
perceived to be fair. We share the concern that there be 
oversight to make sure that the future is a path which is 
sustainable. And I would look forward to working with you and 
others to find a quick solution to get there.
    The Chairman. Thank you. My time is up. Senator Wyden?
    Senator Wyden. Thank you. Thank you very much, Mr. 
Chairman.
    Secretary Lew, as I indicated in my statement, you and I 
have talked about, when it comes to finding issues that 
Democrats and Republicans ought to be able to work together on, 
this corporate tax gap comes front and center. Two-thirds of $1 
trillion owed in corporate taxes goes unpaid over a decade. And 
I recently sent a letter to the IRS Commissioner concerning the 
agency's apparent lack of tracking of these corporate tax 
issues, and I think there are some questions. And I know we 
cannot in 5 minutes get into all of the details that I think 
would be very helpful to get on the record, because I think 
there are some questions about whether the agency really knows 
the sources, the major sources, of this corporate tax gap.
    Based on your current knowledge, what are the major sources 
of corporate tax avoidance contributing to this vast sum of 
money that goes unpaid?
    Secretary Lew. Senator, I think the challenge is, there are 
not just one or two causes. There are many aspects of our 
economy that are just not on the books. There are many aspects 
of our country where businesses are organized to avoid taxes. 
If they do it legally, that is a different issue than if they 
do it illegally. And one of the basic challenges we have had at 
the IRS over the last few years is that, by being deprived of 
resources, we lack visibility into things that we should have 
more visibility into.
    I think it is a very good thing that at the end of the year 
we saw some restoration of a recognition that, in order to have 
an effective tax service, you need to fund it so that you can 
do enforcement, you can do oversight, you can get the data you 
need to answer the kinds of questions that you are asking.
    I totally agree with you, we should be able to put more 
resources into working on identifying the sources of the tax 
gap, and if there are enforcement mechanisms to get at it, to 
use our enforcement tools to do that. But enforcement is 
people. You know, you do not enforce by turning on a computer. 
You enforce by having revenue agents; you enforce by having 
teams that can do investigative work. And I am grateful for the 
increase we got, but, frankly, it was not for those purposes. 
The increase we got was for very important things like dealing 
with cybersecurity, being able to answer our phones. We still 
have gaps in the IRS budget that just do not give us the 
resources we need to enforce as effectively as we should.
    Senator Wyden. Does the IRS, in working with the Treasury, 
have a modern database to track the major sources of the 
corporate tax gap? Because based on the letter and the 
communication we have had with the IRS, I do not think that is 
clear. I am going to get into it this afternoon, but I know you 
look at that very substantial sum of money, as I do, and say, 
not only is that not right, it is not fair to taxpayers who, as 
I indicated, just have their taxes pulled right out of their 
paycheck directly. But it also would be an opportunity to show 
that we can make tough choices. We can raise money, certainly, 
by collecting taxes owed and then make judgments about future 
priorities.
    So is there a database now, a modern database, to track the 
sources of corporate tax avoidance?
    Secretary Lew. Well, we do obviously have databases at the 
IRS, but as you know, they are old systems. They are systems 
that I think the team at the IRS does a very good job of making 
look more modern than they are by making them more accessible 
to taxpayers and others who are looking for information. But 
behind it all is a very old computer system.
    One of the things that we will be doing, mostly with a 
focus for cybersecurity and identity theft, is upgrading the 
computer system with some of the additional funds we have. But 
this has been an ongoing issue at the IRS, that it is an old 
computer system. I do not want to say it is a system that 
cannot give us the ability to do this analysis, but I would 
defer to Commissioner Koskinen on the details of what needs 
there would be in terms of the data processing capacities. But 
overall, it is a system that needs investment.
    Senator Wyden. One last question, if I might. As you know, 
there is a big difference between the tax on wages and the tax 
on investment income. And the gap, of course, has increased, 
and particularly it ought to be put in the context of the last 
major tax reform when Ronald Reagan decided, in conjunction 
with a lot of Democrats, Bob Packwood, a whole host of people, 
that he was going to have equal treatment in terms of taxes for 
somebody who makes a wage and somebody who has investments.
    In your view, what does the President's budget do to begin 
the effort to close this gap in taxation between taxes on a 
wage and tax on investment income?
    Secretary Lew. Senator Wyden, the budget does quite a 
number of things. Some are repeat proposals from the past, 
things like changing the capital gains tax rate, like dealing 
with stepped-up basis. And some are new, like our provisions 
that try to get at all forms of income no matter how it is 
structured so that you cannot avoid self-employment taxes or 
taxes that were put in place to pay for health care by 
categorizing your income a certain way.
    I think it is a real problem in terms of the concentration 
of income we see today at the very top and the fact that the 
income comes in a form that is taxed very differently. The 
system does not look fair to working people who just pay tax on 
every dollar that comes in.
    That does not mean we should have a punitive standard 
towards unearned income, but when you can convert earned income 
into unearned income to get a lower tax rate, it creates a real 
problem.
    Senator Wyden. My time is up. I just think it is worth 
noting that, in the last tax reform effort, Democrats and 
Republicans said there was an opportunity for everybody in 
America to get ahead, and one of the ways they did it was to 
treat wage income and investment income the same.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Roberts?
    Senator Roberts. Mr. Chairman, thank you very much for 
holding this hearing, and, Mr. Secretary, welcome back.
    I just want to register right off the bat my strong 
opposition to the proposal to place a new tax on oil. I know 
that is popular, certainly popular given the situation with the 
presidential race. I do not think it is an extraordinary 
opportunity; I think it is another blow to the oil and gas 
industry, which is hurting.
    Now, I have read and heard the economists talk about 
placing a tax on carbon in order to ``address market failures 
and to properly account for the alleged costs of carbon-based 
energy sources.'' The same economists contend that this would 
have little impact on the economy and that these costs, which 
they readily acknowledge will be passed through to consumers, 
can be implemented in a manner to minimize the impact on lower-
income taxpayers.
    I have also heard it said that with the price of oil so 
low, now is the best time to implement an oil tax, and this is 
a quote: ``Fewer people will notice this tax.'' Well, I know 
they may not see it, but they sure as heck are going to feel 
it. Just because the tax hit would be less visible under the 
current market conditions does not mean that its impact would 
be less severe.
    I want to take a quick look at how this proposal will 
impact my State of Kansas where we still endeavor to produce 
oil and gas, despite the war against oil and gas by the 
administration.
    The oil and gas industry is a major component of the Kansas 
economy. Our producers on average invest over $700 million 
annually in the State. Ten percent of the workforce is employed 
in oil and gas production, either directly or in downstream 
industries. That is 118,000 workers who would be affected. That 
amounts to about 12 percent of Kansas payrolls and over 15 
percent of the State's tax revenue. All told, this is about $3 
billion in family income in my State. It is no secret that 
global oil prices and supply-and-demand issues have hit the 
Kansas oil and gas industry hard, as well as many other States.
    Some of the State's oil and gas service companies have laid 
off as much as 50 percent of their workforce, and some 
producers have seen layoffs of 20 to 25 percent of their 
workforce. Kansas production has dropped about 5.5 percent, and 
State tax revenue from the industry has dropped by over 50 
percent.
    These are real impacts, very severe impacts, happening 
right now. This is just directly within the industry. Think 
about the related manufacturing and service industries. The 
administration has proposed a massive new tax, and make no 
mistake, it would significantly burden the economy, directly 
spilling over into gas prices and almost everything else 
produced or transported within our economy.
    The Kansas oil and gas industry is already hurting. I think 
this proposal would only make things worse. I find that 
unacceptable and hope that we certainly do not approve this.
    As described in your Treasury General Explanation, 15 
percent of the revenue from the tax would be dedicated for 
relief for households with particularly heavy industry costs, 
sort of like a new national LIHEAP program. I do not view this 
as an extraordinary opportunity. In Kansas, most of the oil 
exploration and production companies are considered by any 
standard small businesses. My question is, does your department 
propose to set aside any of the revenue from this tax to assist 
oil and gas industry workers or workers who lose their jobs or 
are otherwise harmed by the new oil tax?
    Secretary Lew. Senator, I think if you look at the price of 
oil over the last year, or even over the last days, you have 
seen movements that are far more dramatic than the impact of 
the $10 fee over 5 years. The $10 would be phased in over 5 
years. I think we all know that we are watching oil prices 
moving by much bigger amounts than that almost on an 
instantaneous basis every day now. So I do not think we should 
exaggerate what the size of the fee is.
    We do think it is important at a time, particularly when 
oil prices are low, to put in place a mechanism that will both 
help to capture the benefit of making the price signal one that 
contributes to better usage, but also to put in place a 
mechanism for us to invest in the technology and the 
infrastructure that we need going forward in this country. It 
would put our Highway Trust Fund in a more balanced, safe, 
sound place, and it would give us the renewable technologies 
and the new technologies of the future.
    It would apply to imported oil as well as to U.S.-developed 
oil, so it does not have a differential impact on----
    Senator Roberts. Are you going to set aside part of this to 
help the oil and gas industry with regards to small businesses 
that would be hurt by this tax?
    Secretary Lew. So we obviously have set aside resources to 
deal with those who are low-income who have no alternative but 
to face higher prices but no income to bear it. I am happy to 
take a look at a proposal that you would have along those 
lines.
    Senator Roberts. Well, I would think----
    Secretary Lew. I would be happy to get into a discussion 
about it.
    Senator Roberts. If it is low-income folks whom you are 
going to try to help with sort of a LIHEAP program, I think you 
ought to take a look at the harm that this tax will have on the 
oil and gas industry and maybe actually help those folks as 
well.
    Secretary Lew. Well first, you know, we do not know what 
the exact amount is that will be passed on to prices. That is 
going to depend on----
    Senator Roberts. Well, my time has expired. I really 
appreciate your response.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Schumer?
    Senator Schumer. Thank you, Mr. Chairman. My first question 
is on tax reform, international tax reform, and you and I have 
talked about that at great length over the last year. To 
summarize, I think we need it for two reasons.
    First, American multinational companies should pay the 
taxes they owe. Right now, our companies making profits 
overseas can keep that money stashed offshore, avoid taxation 
altogether. That is unacceptable.
    Second, we have to protect American jobs and the future of 
our Nation's economy. As you are aware probably more than 
anybody else, more and more of the Nation's multinational 
companies are leaving our shores altogether, partnering up with 
foreign companies to pay lower taxes in foreign jurisdictions, 
moving headquarters jobs and intellectual property overseas.
    So you, Secretary Lew, and the administration, the 
President, have put forward a very serious international tax 
reform proposal that would transition to a new form of 
international taxation. House Republicans have proposed similar 
solutions. I have been pleased to work with a bipartisan group, 
including on this committee Senator Wyden, Senator Brown, 
Senator Carper, and Senator Warner. And we are trying to bridge 
over, of course, the divide between existing proposals.
    There is common ground. I remain at the table ready to 
work. I assume that is the case for you as well.
    Secretary Lew. Absolutely, Senator.
    Senator Schumer. That is called a softball question. You 
are allowed to answer it. [Laughter.]
    Secretary Lew. We continue to believe that working together 
to get business tax reform done is absolutely a high priority. 
We got closer last year than people outside thought.
    Senator Schumer. Yes.
    Secretary Lew. There were very good conversations going on 
where there was a pretty broad sense that there might be an 
agreement on international business tax reform where we use 
one-time revenues to pay for infrastructure that we all want to 
be able to support without building future liabilities into the 
tax system that are unsustainable in terms of cost. It was 
disappointing that at the end of the year there seemed to be 
some pulling away from that. But we do not pull away from it. 
Our budget puts in place the proposal----
    Senator Schumer. What is interesting in your budget is, it 
is the same proposal as last year, but the number of revenues 
by Treasury's modeling increases from $205 billion to $350 
billion.
    Secretary Lew. That is for the international tax 
provisions.
    Senator Schumer. Correct, and that is because more 
companies are moving overseas and keeping their money overseas. 
Is that right?
    Secretary Lew. It is simply a technical estimate of how 
much we think money is being kept overseas and how much it is 
being subject to tax overseas and what would come here when the 
tax is put in place.
    Senator Schumer. Right. So that means----
    Secretary Lew. We need to deal with the problem.
    Senator Schumer. That increase in revenues also means lost 
jobs here, and it should be a warning signal, a shot across the 
bow to us.
    One final point, and this is for our Republican 
colleagues--and I have worked with Senator Portman and many 
others, you, Senator Hatch, on this proposal--and that is, I 
know the administration feels strongly, as do many of us on 
this side, that international reform must be coupled with 
investments in this country because that is the way to use not 
all of the money, but at least some of the money that we gain 
from getting these revenues, and without it, it is going to be 
hard to pass something. So has your view stayed the same, that 
we will not get a deal on international tax reform this year or 
forever without pairing it with some significant degree of 
investment?
    Secretary Lew. Senator, for several years, we have been 
advocating linking those issues for two reasons. One is, if you 
do not use that revenue for a one-time expenditure like an 
investment in infrastructure, you cannot cut rates with that 
amount, or it would be then losing revenue in the long run. So 
we think that that solves the structural problem of how do you 
deal with one-time revenue.
    Secondly, we have this enormous infrastructure need that 
there is broad bipartisan support for. If we are going to ever 
get a business tax reform bill that has real bipartisan 
support, it has to include the infrastructure investment.
    Senator Schumer. Agreed.
    Secretary Lew. So we are very much of that view.
    Senator Schumer. I agree, and now Speaker but then Ways and 
Means Chair Ryan understood that completely. I just hope people 
on the other side will not pull away from that, because that 
will make it much harder to pass it. My final question--go 
ahead.
    Secretary Lew. I was just going to say, while we are going 
to put every effort we can into getting full business tax 
reform done, I just want to underscore the urgency of dealing 
with inversions.
    Senator Schumer. Right.
    Secretary Lew. We are seeing more and more stories of 
companies going overseas, large companies. We cannot wait a 
year to deal with this.
    Senator Schumer. Agreed.
    Secretary Lew. We need to deal with it, and deal with it 
now. And you could, if you wanted to, deal with inversion on 
its own. I do not think that is ideal. We should deal with 
business tax reform. But I do not want to be leaving in a year 
watching more companies having moved overseas, and I do not 
think anyone on this committee wants to look at that either. 
And the answer is, you need legislation.
    Senator Schumer. I agree we need it. Can you answer this 
``yes'' or ``no,'' because my time has run out. Essential to 
getting Puerto Rico back on track is a broad bankruptcy 
provision. That is the view of many of us here on this side of 
the aisle. Is it the administration's view?
    Secretary Lew. Absolutely. The only thing I would say is, 
there are multiple ways of drafting it. It does not have to be 
drafted as a bankruptcy code amendment. It could be drafted in 
terms of legislation that applies to the territories. The 
effect would have to be broad restructuring authority.
    Senator Schumer. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Stabenow?
    Senator Stabenow. Thank you very much, Mr. Chairman and 
Ranking Member, and welcome, Mr. Secretary. It is always 
wonderful to have you before the committee, and let me start by 
thanking you for working with me and leaders in my State to 
help us in a number of different areas. We very much appreciate 
it.
    As I start, when you were talking about the unemployment 
rate when President Obama took office, in Michigan it was 15.7 
percent, and we were at the verge of losing the major 
foundation of manufacturing in the country. And with the 
administration's help, the President's help, we have turned 
that around. Unemployment is now 5.1 percent. So from 15.7 to 
5.1 is a huge change.
    The challenge, as you know all too well, is that not 
everyone is feeling the recovery. And so when people lost the 
equity of their home, the primary way that middle-class 
families save, or lost their job, or even in the auto industry, 
took major cuts to save the industry, for those who have been 
threatened on all sides, it is very, very difficult even though 
the broad aggregate numbers are incredibly positive. And I want 
to speak about one area and ask for your comments regarding one 
area of incredible insecurity for people, and that is around 
pensions. And I know that colleagues of mine as well have 
spoken with you--and I share the concern--about the United Mine 
Workers. I am particularly, from the standpoint of Michigan, 
concerned about the multiemployer pension plans and the reform 
legislation that passed at the end of last year, which, as you 
know, gave administrators of plans the ability to apply cuts to 
earned pension benefits for the first time since 1974. And it 
was, unfortunately, part of a must-pass appropriations bill to 
avoid a government shutdown at the time that did not give us, 
did not give Congress, time to debate the impact on retirees. 
And from my perspective, a pension is a promise. It is a key 
cornerstone of how we have had a middle class and the dignity 
and respect of work in this country. And I am deeply concerned 
about what we now face.
    On Monday, Treasury held a public meeting in Detroit to 
hear from retirees who would be directly affected. More than 
500 people showed up for that meeting. They went into great 
detail about how they would be hurt by huge cuts, in some cases 
50 to 70 percent of their proposed pension. These are folks who 
gave up annual increases in pay to have a secure pension for 
their future. And so this is incredibly concerning. I mean, it 
is really an outrage when I look at these numbers, and I would 
like to know what the administration would propose to address 
this incredibly serious issue and really broken promises for 
folks who have worked hard all of their lives and are trying to 
figure out how to go on in retirement.
    Secretary Lew. Senator, as you and I have discussed, it is 
a terrible problem, and there is no easy or good answer. And, 
as a result of the legislation you described, cosponsored in 
the House by Congressman Kline and Congressman Miller, that 
responsibility now falls to the Treasury Department to review 
the plans for working through multiemployer plans that are not 
able to make their payments.
    The challenge is, they all go to an underfunded Pension 
Benefits Guaranty Corporation fund, and, if there is not enough 
money in the fund to pay the benefits, the question is: do you 
drain that fund and then have nothing for anyone?
    We are in the process through the hearings you described--
we appointed Ken Feinberg to administer this for us. He is 
going around listening, and he is listening to heartbreaking 
stories. And in the end, we will have to review the proposals 
that come forward from the plans, as actions are taken, and the 
first one will come up for review I believe in May.
    We will continue looking at what options there are in terms 
of how to review them, but at the core is this tension between 
not enough money to pay the benefits and very, very difficult 
changes in benefit structure to make the plans last longer. And 
since we do not have additional money to inject into the 
system, it does not give us the option of just saying, you 
know, kind of continue as you are, because that would end up 
hurting even more people.
    So these are terribly difficult discussions, and they are 
wrenching decisions, and I appreciate Ken Feinberg taking the 
task to report to me on that, and I will continue to stay 
close, working with all of you.
    Senator Stabenow. Thank you, Mr. Secretary. And, Mr. 
Chairman, one of the things I hope we will look at in future 
hearings is the accounting changes, the laws that were changed 
in the last several decades that allowed overfunded pension 
plans to suddenly be available for various other purposes, and 
changes that had nothing to do with workers that have created a 
large part of this so that now we are talking about funding, 
but there is a lot more to it in terms of how pensions got to 
this particular point. And I think we have a lot of hard 
questions to look at and decisions that were made that were not 
in the best interests of working people.
    Thank you, Mr. Chairman.
    The Chairman. Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    Mr. Secretary, just a couple of general observations about 
the budget: $3.4 trillion in new taxes; revenues to GDP end up 
at 20 percent, which has only happened once in the last 50 
years--the 50-year average is 17.4 percent revenue to GDP--
spending goes up to 22.6 percent of GDP. That has only happened 
five times in the last half-century; the 50-year average there 
is 22.6 percent. And so spending is up, taxes are up, and, at 
the end of the decade, the debt goes from about $19 trillion 
today to $27.4 trillion.
    So the budget really is more spending, more taxes, and more 
debt. And it just seems to me that--you guys are on your way 
out. I mean, this was a chance to go big and go bold. And I 
just see it as another missed opportunity to do something that 
really matters about what we all know the fiscal crisis facing 
the country is, and that is mandatory accounts. It is the 
mandatory spending. In fact, the budget shifts more spending 
over into the mandatory account. So just some general 
observations--again, I am expressing my frustration and 
disappointment.
    I do have a question. This comes back to, slightly changing 
gears here for just a moment, how the U.S. financial services 
companies are treated under our trade agreements. My 
understanding is that the Treasury Department opposed the idea 
of providing U.S. financial services companies the same 
protections with respect to ensuring cross-border data flows 
that most other U.S. companies will benefit from under the TPP 
agreement. So I am just wondering if you might be able to 
clarify Treasury's position on the issue. Do you believe that 
U.S. financial services firms should be protected from foreign 
laws that impose restrictions on where they can transfer or 
process customer data?
    Secretary Lew. Senator, this is a provision in TPP that we 
have been working on, talking with the financial services 
community about, but also with our own regulators. One of the 
issues here is the requirements of our regulators in terms of 
how they view what they need in order to have their prudential 
reviews of financial institutions. So, as we are in an 
international space, we cannot give away something that our 
financial regulators would need here in the United States. But 
we are working with industry and with the regulators as we go 
through this. We are sensitive to the concerns. It is certainly 
not something that is designed to, was meant to, put a burden 
on U.S. financial institutions. We bargained very hard in TPP 
to get terms that are very favorable generally to U.S. 
financial institutions on a global basis. This is actually a 
case where what we in the United States--``we'' meaning not 
Treasury but our independent regulators--require in terms of 
data availability is one of the issues we have to work around.
    Senator Thune. I know generally on cross-border data flows, 
the agreements I thought were things that we really 
prioritized, but it seemed with financial services it was a 
different standard. What you are telling me is that that is 
actually something that you are working on with the industry 
and the regulators to----
    Secretary Lew. Yes, and we have, in other aspects of TPP, 
been very aggressive to make sure that local data requirements 
are not put in place, for example, to restrict the ability of a 
global system like a credit card system to work effectively, 
because we have big industries in that area. This is kind of a 
sub-issue because of the regulatory requirements here in the 
United States, but we are working through it and are sensitive 
to the concerns.
    Senator Thune. Okay.
    Secretary Lew. If I might, Senator, just back to your 
observation, and I do not mean to take your time----
    Senator Thune. But you will.
    Secretary Lew. If I could take 30 seconds of it?
    Senator Thune. Go ahead.
    Secretary Lew. It is true that the budget would trend back 
up in the end to 20 percent of GDP. I remember well when we 
were at 20 percent of GDP. I was Budget Director at the time. 
We had a surplus in the United States, and we were on a path 
towards paying down our national debt, and it was a period of 
great economic growth.
    I think when you look at the growth of spending, you have 
to recognize that Medicare and Medicaid, for demographic 
reasons, will grow, and, as a unified budget, we have to look 
at, are we doing what we need to do? I think that some 
decisions that were made between 2000 and 2009 made it harder. 
I think that our budget puts it in the right place, and we do 
not spend any money that we do not offset, so fiscally it is 
balanced. And I think these are important conversations for us 
to have going forward this year and beyond.
    Senator Thune. Well, I would just say, though, the tough 
choices are with regard to those parts of the budget that we 
all know are growing dramatically. And in a matter of a few 
years it is all going to be entitlements and interest on the 
debt that eat up all of our revenue that comes in, and 
everything that we spend for defense and discretionary is going 
to be borrowed money, which is why we end up with a huge debt 
at the end.
    So I mean, part of it, of course, is we have to figure out 
how to meaningfully rein in, reform those programs so that they 
fit the demographics of the future. And then we have to get 
growth up to a higher level, which obviously I think comes back 
to some of the issues which--I am out of time--I will not have 
a chance to get into, but I think tax reform goes squarely at. 
So you know, when you are growing at 1 to 2 percent or slightly 
more--I think you were saying 2.3, 2.6 over the course of the 
next decade--it just does not get us there fast enough.
    So thank you, Mr. Chairman. My time has expired.
    The Chairman. Thank you.
    Senator Coats?
    Senator Coats. Thank you, Mr. Chairman.
    A little bit of what I am going to do is vent. Senator 
Thune laid the precedent for being able to do that.
    When you said that this is your last presentation here 
before the committee----
    Secretary Lew. Presentation of a budget. You are welcome to 
have me for other purposes. [Laughter.]
    Senator Coats. Well, particularly related to the budget, I 
would think you would say you are relieved not to have to come 
back, because every budget you came to present has been soundly 
rejected by the Congress, and both parties. I think last year 
it got one vote. I am not sure who that was. In previous years, 
it has gotten zero votes. So I mean, you must think that at 
some point, what a waste of time and effort goes into coming up 
here, presenting a budget, and not having any support from 
either party. That is just an observation of mine.
    You state on your first page here that this is a vision for 
the future, and I look at this as something that is totally 
disconnected with the reality of where we are. Senator Thune 
talked about the big gorilla in the room that we have not been 
able to deal with, and that is mandatory spending. And as you 
know, over the last 5 or 6 years, the Congress together with 
the President has tried to come to some solution to put in 
place some long-term reforms that would keep us from becoming 
insolvent and so debt-laden that our children and grandchildren 
simply are not going to begin to have the opportunities that my 
generation has had. So that is a failure on all of our parts, 
not without trying, but the bottom line is, it is a failure, 
and it is going to continue to put us in a very, very difficult 
situation.
    So I guess one of my questions is, why do we go through 
this charade? Speaking for my constituents--who I think are 
being reflected in these primaries as simply saying, you guys 
are spending stuff that we no longer accept. And whether it is 
the Democratic Party or the Republican Party, there are 
messages being sent out there saying, we have caught on to this 
shell game that goes on in Washington. They sit there and talk 
about how to fix the future, and the future looks ever more 
dim.
    So why can we not sit down here and talk about the real 
problems that we face and offer some solutions instead? And you 
said, do not worry, because everything we are going to spend in 
the future is offset. Well, it is offset by $3 trillion of more 
taxes. And I do not know of an economist out there who says the 
way to prosperity and creating innovation and creativity and 
supporting, not only our businesses and innovators but 
supporting our middle-class families and lower-income people, 
is to raise taxes $3 trillion over the next 10 years.
    So I guess I am using most of my time here to vent, but I 
would like to get your respons to some of this, because I just 
think, based on what we watched last night, the public is 
saying, ``This is a bunch of gibberish going on up here in 
Washington, and we want something different.'' And obviously, 
radically different, from both sides. I mean, both of our 
establishment candidates got shellacked in Iowa and shellacked 
last night. They are frustrated with DC--I am not talking just 
Ds or Rs or Independents--they say, these people have failed 
and why can we not get on to something that is more related to 
reality?
    Secretary Lew. Well, Senator, I recognize that we have 
different views of how we should address the future, but I 
think this budget is a very clear picture of how we believe we 
should address the future. I think we have also shown over the 
last couple of years that, when we sit down and engage on 
difficult issues, we find pathways to work together and make 
real progress. We made real progress last year on a number of 
important issues.
    So I actually think it is quite relevant to present a 
coherent vision. It is part of our system that there are 
different approaches to what the answer for the future is. And 
if we could get back to the place where you take those 
differences and you figure out where you can work together, we 
ought to be able to do business tax reform. There is a lot of 
overlap between the two sides of the aisle here and between the 
administration and Republicans in Congress on how to think 
about it. We should just sit down and do it. I think people 
would feel better if we had a tax system where we did not have 
inversions anymore. I actually think there is a lot in the 
budget that we should make progress on.
    Senator Coats. We might be better able to do it if you 
would bring forward a budget that gets at least a majority of 
support on a bipartisan basis. When you bring forward a budget 
year after year after year and it gets zero votes from 
Democrats or Republicans, does it ever give you pause that 
maybe your vision for the future is not selling with the 
American people?
    Secretary Lew. I have been working on budgets for most of 
the last 40 years, and I have not known a year when there has 
not been that kind of a difference between parties beginning 
the year. And then you go to work on the things where you can 
get work meaningfully done----
    Senator Coats. But regarding the major issue that we all 
face, both sides, mandatory spending, over the last 40 years we 
have not addressed that.
    Secretary Lew. Well, we actually have over the last 40 
years done a lot of things on mandatory spending that have made 
a difference. I mean, I was part of Social Security reform in 
1983 that made a real difference.
    Senator Coats. That is legitimate, and that is 1983.
    Secretary Lew. And I think if you look at the Affordable 
Care Act, while we may not agree on the policy, it is pretty 
clear that it has helped reduce spending on health care in 
Medicare. It has extended the life of the trust fund. It is the 
most important turning of the corner on spending on health care 
in decades.
    That does not mean we do not have more work to do, but I 
actually think when we have an environment where we can work 
together on the things where there is room to make progress, we 
can give the American people something that they should be 
proud of. When it is just shutdowns and fighting and crisis, it 
is not hard to understand how people get fed up with that.
    Senator Coats. The chairman has been very generous with my 
time. I yield back, Mr. Chairman, but thank you, Mr. Secretary.
    The Chairman. Thank you.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for your good work. I want to talk 
about Puerto Rico: 3.5 million American citizens, and I 
underline that, American citizens who have fought in our armed 
forces in just about every conflict this country has had for 
the last century. And if you come take a walk with me to the 
Vietnam War Memorial, you will see a disproportionate number of 
their names on that wall.
    Now, due to a multitude of issues, American citizens living 
on the island of Puerto Rico are now in dire straits. They have 
an economic and debt crisis that threatens to explode into a 
full-force humanitarian calamity, and that is not politics. 
That is the reality on the island. It is the reality that I 
hear from many Puerto Ricans living in the State of New Jersey 
who have loved ones there, who tell me about the challenges of 
their families on the island.
    Now, there are those who contend that Puerto Rico should 
not be able to restructure its debt, even though it had that 
right in the law at one time, and it was surreptitiously 
stripped out and no one knows why--but it had that right--and 
instead that it should simply raise taxes and cut spending to a 
degree to get its books in order.
    The problem with that is that the debt payments in Puerto 
Rico are 36 percent of Puerto Rico's annual revenue, a rate 
that is six times the U.S. average. So it seems that any 
solution that does not include restructuring authority will be 
woefully inadequate. And, you know, I know some people say this 
is being politicized. I think it is being politicized for the 
hedge funds, the bottom feeders who bought cheap and now want 
to maximize their profits. That has nothing to do with the 3.5 
million American citizens in Puerto Rico. And it has nothing to 
do with the exodus that we are seeing of Puerto Ricans coming 
to the mainland, where they will enjoy all the rights and 
responsibilities of any other U.S. citizen--which, by the way, 
will be far more costly.
    So I want to get the administration on the record to make 
this clear. And, in fact, if Puerto Rico did not have to make 
its debt payments, it would actually run a $1-billion surplus 
this year--a $1-billion surplus.
    So do you agree that providing Puerto Rico with the tools 
to restructure the debt is a necessary component of any 
successful recovery package?
    Secretary Lew. Senator, I totally agree. I think there are 
other things that need to be part of a comprehensive plan in 
the long run, but there is an immediate crisis in Puerto Rico. 
I was just in Puerto Rico a couple weeks ago. I met with 
business leaders. I met with working people. I met with all the 
public officials. It is not a future crisis. It is a current 
crisis. They talk about hospital wards being shut down, schools 
being closed, pensions that are being drained of money, people 
paying into pension funds that are being emptied out to pay for 
bond payments. This is not sustainable. People are leaving the 
island. And the economy cannot recover if the economy shrinks 
because people leave.
    When you are insolvent, it is by definition what you said: 
your bond payments just cannot be supported any longer, and you 
have to restructure. That is what happens in the private sector 
when companies become insolvent. It happens when cities become 
insolvent.
    Puerto Rico has a unique package of debts. It is 
complicated. There are 18 different series of debt. They could 
be in court for 5 to 10 years with litigation. I do not think 
Puerto Rico's economy could recover from 5 to 10 years of 
protracted litigation. There will not be an economy to talk 
about. And so I feel it is a real crisis.
    Senator Menendez. So, if it was good enough for Trump, it 
is good enough for the people of Puerto Rico?
    Secretary Lew. Well, I am going to leave the comparisons to 
others, but I do think that 3.5 million Americans who are going 
to be in chaos if Congress does not act----
    Senator Menendez. Let me ask you this very briefly. The 
chapter 9 authority open to municipalities, that really does 
not meet----
    Secretary Lew. It does not really work. It addresses about 
a third of the debt, and that is not----
    Senator Menendez. And with large debt payments due in May 
and July, is there not going to be a point where we will face 
the consequences if we continue to delay to act?
    Secretary Lew. You know, they have only managed to be in 
default on small bond issues by doing things that are almost 
unthinkable in terms of financial management. I mean, when you 
talk about prematurely emptying out pension funds to pay bond 
holders, that is not something you do if you are not already 
bankrupt. And, when you talk about taking money that is 
dedicated to one bond holder and shifting it to pay another 
bond holder, that cannot go on for very long.
    So I cannot tell you at what point they run out of those 
extraordinary and very unhealthy kinds of tools. But it cannot 
go on forever, and restructuring authority has to be in place 
enough in advance that they can actually restructure to meet 
May and July as they come.
    So I think the first quarter is a meaningful period. The 
deadline the Speaker set for the House to act in the first 
quarter is very important. We are willing to work with anyone 
and everyone who approaches this with the intention of solving 
the problem. We know that there is going to have to be 
oversight along with restructuring. I do believe that doing 
something on the Medicaid reimbursement and EITC is important. 
But I totally agree with you: without restructuring, there is 
not a solution.
    Senator Menendez. Well, Mr. Chairman, there is a fierce 
urgency of ``now'' on this issue, and I just do not get the 
sense that many of my colleagues understand that. And I hope we 
can awaken them to that fierce urgency of ``now'' and the 
rights that 3.5 million American citizens have and would have 
if they were living here in the United States. It is just 
fundamentally wrong. And so when you ask people to don the 
uniform, shed their blood, risk their lives, and at the same 
time you cannot treat them with the same dignity and respect 
that they would have here on the mainland, something is 
fundamentally wrong about that. And I hope we can prick the 
conscience of the Senate to move on this issue, Mr. Chairman, 
because this is really consequential to millions of people.
    The Chairman. You raise a lot of good points, and to be 
honest with you, we are in the process of doing that. I am 
going to come up with a different bill than the one we filed 
which would do the job to a large degree, or at least get us 
started on it in time to do it even more thoroughly. So I hope 
I can enlist your support when we finally get this--there is no 
politics, as far as I am concerned. I want to get it done, and 
I will do my----
    Senator Menendez. Mr. Chairman, you will have my support 
if, at the end of the day, what we are going to do is give the 
people of Puerto Rico the same opportunity that any United 
States citizen has here. So I am happy to work with the 
chairman towards that goal. I just have a real fierce sense of 
urgency, and I cannot, you know, elaborate on that enough to 
drive that point home. I appreciate the chair's----
    The Chairman. Well, I am trying to get this done before the 
end of March, and we will see what we can do.
    Senator Brown, you are next.
    Senator Brown. Thank you, Mr. Chairman. I want to throw in 
with the words of Senator Menendez about the 3.5 million 
citizens of Puerto Rico--again emphasizing these are American 
citizens--and that this should be done quickly and the fierce 
urgency of ``now'' that Senator Menendez talked about.
    Secretary Lew, thank you for the work you are doing. I have 
in my State and Senator Portman's State the city of Lorain, the 
city of Cleveland. Lorain at one point had a higher percentage 
of Puerto Ricans than any city in America. Right after World 
War II, 500 men from Puerto Rico came to Lorain to work at U.S. 
Steel, and their girlfriends and families followed to the point 
that there is a vibrant community there, and so many of them 
are still very connected to the island of Puerto Rico as 
American citizens.
    I want to talk for a moment, Mr. Secretary, about something 
this committee did, Mr. Chairman, that was so very, very 
important. As part of the bipartisan tax extenders package, we 
made permanent the temporary extensions of the Earned Income 
Tax Credit and the Child Tax Credit. Whether measured in terms 
of the number of people lifted out of poverty or in terms of 
the additional money they have placed in low-income families' 
pockets, this is the largest anti-poverty advance since the 
1993 Budget Act, save the Affordable Care Act. So other than 
the Affordable Care Act, what this committee did bipartisanly 
last year on the EITC and CTC was the most important anti-
poverty advance that this country has had.
    I want to focus, of the two, on the Earned Income Tax 
Credit. In 2013, the most recent year for which complete data 
is available, some 27 million families and individuals earned 
and claimed the EITC; 6.2 million people were lifted out of 
poverty; half of those were children. But a glaring hole 
remains in the program. Workers who do not claim children, as 
you know, Mr. Secretary, on their tax return are the only 
workers who can be taxed more deeply into poverty, which is 
ironic considering we always brag about rewarding work when we 
make our speeches around here. It is wrong. Nobody who works 
full-time should live in poverty. That is a fundamental--should 
be a fundamental tenet of American values, and I think it is.
    Forty-three of my colleagues and I, including many of us on 
this committee, introduced a proposal to correct this problem. 
Speaker Ryan has offered similar proposals, as has the 
administration. Give us thoughts, if you would, on the 
proposal, the need it would address, and particularly its 
impact on the economy.
    Secretary Lew. Well, Senator, first, I agree with your 
assessment of the significance of making the refundable credits 
permanent. I do not think that there is anything more important 
that we could have done to deal with poverty in this country 
and to create an incentive to work, which is why there has 
historically been bipartisan support for the EITC. I think that 
this is one of those areas where there ought to be a way for us 
to work in a bipartisan way to get something done. I have 
talked to Speaker Ryan when he was chairman of the Ways and 
Means Committee and since about this many times. He has talked 
with the President about it, as has been reported.
    I think that this is an area where, if we could put some 
other issues aside and concentrate, we could create a model for 
how you deal with problems of shared concern that both help 
deal with an inequity and help get people back into the 
workforce. If you tax people into poverty, you cannot then 
complain that people are not becoming part of the workforce. I 
mean, one of the reasons the EITC was created was to make work 
pay, to make it so that people would not have this kind of 
perverse taxation when going to work at very low wages.
    So I do not know that there is any more elaborate economic 
response to it. I think you put a pretty accurate point on it. 
If you have a tax that is taxing people into poverty, it is not 
a good tax. And if you have a solution, it is one that there 
ought to be broad bipartisan support for because everybody 
supports work. And the Earned Income Tax Credit was created in 
a Republican administration. It has been supported in 
bipartisan budget agreements for many decades that I have been 
involved with. I hope this can be the next chapter, and I hope 
we can do it this year.
    The Chairman. Senator Bennet?
    Senator Bennet. Thank you, Mr. Chairman, and, Secretary 
Lew, thank you so much for your leadership and for your service 
over so many years.
    I want to start with an unrelated issue, which is, I wonder 
whether you could describe for the committee--we have a vote 
tomorrow on the Customs bill--the enforcement provisions in 
that bill and their importance.
    Secretary Lew. Yes, Senator, thank you. I think that the 
enforcement provisions are very important because, while it is 
critically important to have trade agreements that open borders 
for free trade, it is equally important that we have meaningful 
tools to enforce fair trade and that we use those tools. I 
mean, antidumping and countervailing duties are important 
tools, and the Customs conference report comes after we had 
taken some action at the end of last year, where we added to 
the resources we have in our departments to implement the 
antidumping and countervailing duty laws. So, when the 
conference report on Customs is passed, it will be another 
round of enforcement tools.
    It would create accountability for future administrations--
this administration and future administrations--for the 
prosecution of cases of duty evasion. The bill creates 
deadlines by which the Customs and Border Patrol will have to 
notify U.S. companies of actions taken to investigate 
allegations of antidumping and countervailing duty. It gives 
the Border Patrol extra tools to protect intellectual property. 
It streamlines operations to facilitate the flow of legitimate 
trade. And it gives us tools on an issue that you helped to 
craft to bring currency issues into sharp focus so we can be 
even more effective pushing back on any unfair practices in 
that area.
    Senator Bennet. I appreciate your help on that provision. I 
want to go back to the line of questioning that Senator Thune 
was talking about, because we are at the moment cutting, across 
the board, domestic and defense spending. And from the point of 
view of the next generation of Americans, that is certainly not 
what we ought to be doing. And, simultaneously, we now have $19 
trillion of debt on the balance sheet, which from the point of 
view of the next generation of Americans is a lousy deal. That 
combination is toxic for the people who are coming after us.
    And I wonder--I would like to give you the opportunity to 
tell us what advice you are going to give your successor for 
how they could lead this Congress in a bipartisan way to 
actually begin to address this staggering imbalance that we are 
proposing to place on the next generation of Americans. The 
time has come for us to actually get this work done. So what is 
your advice for how we can do it? Lead us out of the 
wilderness.
    Secretary Lew. Senator, I think whoever takes my place will 
be coming into a very different situation than my predecessor, 
and I stepped into----
    Senator Bennet. I should point out--I am sorry--that the 
last time we did have a balanced budget, you were the Budget 
Director. So that is another reason I am asking.
    Secretary Lew. Well, thank you, Senator, and I am proud of 
that. You know, we had a deficit that was 10 percent of GDP, 
and it was climbing, and it was looking like the debt would 
cross 100 percent of GDP. We had a full-blown crisis that we 
had to get our hands around. We had to steady the economy. And 
then we had to start moving towards deficit reduction, both as 
the economy recovered and as we could reach political 
consensus.
    We are delivering an economy in a very different place. You 
know, we have a budget which is stable. We have the deficit 
below 3 percent of GDP. The projections of the deficit as a 
percentage of GDP stabilized in this 10-year window, around 75 
percent of GDP. I am not saying that that is something that we 
should have for all time, but it is not like a hockey stick 
going off. And I think that whoever takes my place will be 
coming into a situation where hopefully there will not be 
crisis management but the kind of long-term planning where you 
can say 10 years, 20 years, 30 years down the road, where do we 
want to be?
    Our budget actually is something of a blueprint for how to 
think about it. We have to invest in the short and medium term 
to get the kind of economy that gives people a chance to have a 
stake and a future that is bright. And I think to have the 
debate about what do you do about long-term entitlements will 
be a very different debate if we can turn the corner on the 
sense that so many people feel left out of the economy today.
    So I think to jump right into dealing with what do we do 10 
and 15 years from now, when there are real needs in 
transportation and infrastructure, real needs in education and 
training, real needs in research that we are not meeting, we 
have to fill that space. I think the budget agreement at the 
end of last year gives us a period of time where we can make 
progress there. The budget lays out a lot of ideas. Let us get 
progress done on the ones that we can agree on, and then 
whoever comes in will hopefully be able to take the debate 
forward. It is not a debate that begins and ends. It goes on.
    As I said to Senator Thune, we have to be realistic about 
what the mix of revenue and spending is. When we balanced the 
budget in the 1990s, when we ran a surplus, we had 20 percent 
of GDP revenues, as was pointed out. That was consistent with 
running what was projected to be a $5.5-trillion surplus the 
day I left office.
    Now, if you are looking at a period where we have the Baby 
Boomers retiring, it should not be a surprise to anyone that 
the demographics are a little rougher. You know, when my 
generation was born, everybody knew that 65 years later people 
were going to be 65. So that is not a surprise. What we could 
have done in the 2000-10 period was carry forward the fiscal 
position we were in in 2001. We did not do that. Then we had a 
financial crisis. Then we had a recession. But we are now in a 
more stable place.
    So if we are going to make progress in the short and medium 
term, we are going to have to work towards the politics that 
permit the kind of civil debate to deal with these issues on a 
bipartisan basis, which is the only way they can really be 
dealt with.
    Senator Bennet. Thank you, Secretary Lew.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman.
    Secretary Lew, I will just ask one question, and I will be 
brief because I have to run, but I want to commend you for your 
public service. This is your third or fourth chapter of 
significant public service, and we are grateful. It is a hard 
job in any environment, but especially the current climate in 
Washington. So we commend you for that.
    I was talking to you earlier today about an issue that I 
know you work on every day and the administration does as well 
and probably does not get enough attention: the strategy to 
focus on terrorism financing or our efforts to cut off 
financing to terrorists, and especially now the challenge that 
ISIS presents.
    I would ask you just to answer one question, if you could 
update us on your current efforts; and, number two, is there 
anything you hope we would do in addition to the obvious thing 
the Senate has not done, which is to confirm Adam Szubin? You 
cannot talk tough on terrorism and not confirm Adam Szubin, who 
is the leader on this issue in your department. So, in addition 
to putting an important focus on Adam Szubin, whom we should 
confirm, could you give us an update on what is going well in 
terms of cutting off ISIS financing and what more we can do?
    Secretary Lew. I appreciate your calling attention to the 
urgent need to confirm Adam Szubin as Under Secretary for this 
critical set of responsibilities. Our department and our 
government are the leaders in the world in dealing with threat 
financing, and we have to provide help and technical support 
and information to countries around the world to be effective. 
And we should have an Under Secretary who has been confirmed to 
do that job as effectively as possible, and I appreciate your 
support.
    Let me just give you a little bit of a background and 
current state of where we are in the counter-ISIL effort in 
terms of finance. ISIL has evolved over the last couple of 
years. They started by conquering territory and taking bank 
vaults and using the money. They then developed oil resources 
and extortion--``taxes'' they would call them, but we consider 
the methods they use to be extortion--to get renewable sources 
of funding.
    As they have changed, we have changed. So we have worked 
with the Government of Iraq to close 90 branches of banks in 
ISIL-controlled territory. We have worked with our military to 
target vaults so that they could literally be blown up to 
destroy money that is in their control. We have worked to close 
the energy resources so that it is much harder, if not 
impossible, for them to sell that oil in most parts of the 
world, though obviously there is trade with Syria in particular 
that is very troubling.
    When you look at what we are doing now in terms of what is 
called ``Tidal Wave II,'' we are not just striking the oil 
refineries. We are striking at the oil tanker trucks which they 
use to move the oil to the border, and we have been very 
effective. We have worked with the Government of Iraq to shut 
down payments into the system. So there are employees and 
retirees who are not getting paid because they live in ISIL-
controlled territory. These things are very hard on the non-
ISIL people in that territory, but it is what you have to do to 
deprive them of an evergreen source of funding.
    Now, I cannot say that we are done. They are always 
evolving, but what they have also done is they have grown so 
that they need more money than they can raise, and that means 
they cannot continue to grow, and we have to keep cutting back 
on their sources of renewable funding, make it harder and 
harder for them to grow and force them to shrink. And 
obviously, there are other military efforts, but I am just 
talking about what we can do on the finance side.
    We had a meeting at the United Nations, at the Security 
Council, in December, the first time in history that finance 
ministers from around the world met in the Security Council. 
And together with Russia, I sponsored a resolution that had the 
whole world agree to treat ISIL the way we treat al Qaeda for 
the purpose of threat finance and sanctions.
    So we have an aggressive effort. It has diminished their 
ability to keep their financial flows up to their needs. We 
have turned, I think, a corner in terms of making it hard for 
them just to stay where they are, and they have to make hard 
choices. And we need to do more, and we have powerful tools to 
do it. But they are not the kinds of tools we used with Iran. 
It is a different entity. There is a lot of work we need to do 
bilaterally with countries in the region, so we do not just 
shut down oil trade but we shut down cement trade. And it is 
not like trucks come with banners saying that they are ISIL 
trucks. Everything goes through middlemen. And one of the 
things we did at the UN was to make middlemen liable to 
sanctions, so that it is not just the ISIL forces themselves 
that can be sanctioned, but it is anyone who deals with them.
    So we have a lot of work to do, but we are working very 
hard at it, and Adam Szubin is leading the effort for us.
    Senator Casey. Thank you very much.
    The Chairman. Senator Cardin?
    Senator Cardin. Thank you, Mr. Chairman.
    Secretary Lew, I join my colleagues in thanking you for 
your extraordinary career of public service and the effective 
manner in which you have handled Treasury. I am very proud of 
your work.
    We are here on the budget. We are here on some of the tax 
proposals that are in the budget that is under the jurisdiction 
of this committee. And I certainly support what you are trying 
to achieve in higher education to make it more affordable for 
American families, to make pensions easier for individuals to 
accumulate funds for retirement security. Senator Portman and I 
are working on some of these ideas and hope to work with you.
    Some of your energy proposals, particularly making 
permanent the 179(d) provisions dealing with energy efficiency 
and expanding it to retrofits--all that I think is good. New 
Market Tax Credits, thank you; permanency and expanding the 
limits, very important in the State I represent. Low-Income 
Housing Tax Credit expanded--there are a lot of good things in 
here. I just want to use my time to talk about the fundamental 
issue of the competitiveness of our tax code globally.
    You are making certain recommendations that you made in the 
last budget. They certainly deal with parts of the problem. But 
they do not deal with the fundamental issues. The two 
fundamental problems we have are, one, we have two tax codes--
one for the wealthy and one for the rest of us, and the wealthy 
figure out ways to get around the changes we make, and they are 
always two steps ahead of us. You have some proposals in here 
to deal with that, but if we pass them, they will figure out 
something else.
    And the second is, we have high marginal rates compared to 
the countries we have to compete with: the 35-percent corporate 
rate that you deal with and you try to get lower, the 39.6-
percent individual rate. And what is amazing about that is that 
this Nation, among the nations we compete with, relies less on 
the governmental sector, so why should we have the largest 
marginal rate?
    So I want to know why we are not considering something 
fundamentally different where we could have the lowest marginal 
tax rates in the industrial world by 5 percentage points on 
both income and consumption. We could get a corporate rate down 
to 17 percent, an individual rate down to 28 percent, and we 
could do this in a revenue-neutral way so you are not going to 
lose any revenues--it is all paid for within the tax code. You 
are not trying to take it from one sector to the other. It is 
all within the tax code itself. It rewards savings. It is very 
efficient. You do not use the tax code as much as it is used 
today for policy, but use it to collect revenue. That may seem 
a little strange to use the tax code to collect revenue. It is 
progressive, more progressive than the current tax code. I 
would say that is not necessarily a high bar, but it is more 
progressive than our tax code, which I would think most people 
would want.
    One of the complaints we hear about it is that, well, that 
is visionary, it is long-term; what can we do in the short 
term? We have been talking about this for 30 years. This is 
your last opportunity to give us good advice, and I would hope 
you would be visionary.
    And one last point, if I might, before I give you your time 
to respond. There are now Democrats and Republicans both 
proposing this type of tax reform, so this is not something 
that cannot happen. It can happen. And the more and more people 
look at it, they start to say, gee, why are we not doing this? 
Why is America sticking out as the only industrial nation in 
the world that does not use consumption taxes?
    So I understand the political hurdles. I would tell you 
this: your proposals have political hurdles. Some of them are 
so common-sense, but everything has political hurdles. So why 
not try to correct the problem?
    Secretary Lew. So, Senator, obviously the question of 
income tax versus consumption tax is a very serious theoretic, 
analytic one. We have never endorsed a consumption tax. Many 
other countries do, and their overall tax burden may not be 
lower than ours. It is just that the way it is paid is through 
different mechanisms. So their income tax is lower, but their 
total tax may well be higher.
    We do, as you know well, have sales taxes at the State and 
local level in many parts of the country, so this is an area 
where there has been a Federal income tax and State and local 
authorities have tended to use sales taxes.
    It is not by the basic nature that a consumption tax is 
more progressive. By its basic nature it actually could 
potentially be less progressive. One would have to design it 
very carefully in order to make it progressive.
    Senator Cardin. The two design factors--and we have 
introduced a bill to do this, so this is not hypothetical. The 
two design factors are, first, that it will be revenue-neutral. 
It will not grow revenue, it will not lose revenue. It will be 
revenue-neutral. And the second is, it will be more progressive 
than our current tax code because you cash out the benefits 
that we have under our current system to make our tax code 
progressive.
    Secretary Lew. So I understand that those are the 
objectives that would be behind a proposal that you have 
designed. I am just saying that inherently in the design of 
consumption taxes, people at low income levels consume 100 
percent of their income; people at high income levels do not. 
You have to overcome that by design.
    So it is not something we have supported or we are working 
on a proposal for. Obviously, it is an area of intellectual 
inquiry that anyone working on tax policy pays attention to and 
thinks about, and I would be happy to have conversations about 
it, but it is not an area where we are currently looking to put 
proposals forward.
    Senator Cardin. I did not expect you to embrace it. That 
was not the purpose of the question. The purpose is this: that 
we are going to have hurdles getting any of this done, and we 
have been arguing about this for a long time. And it is no 
longer theoretical. The fundamental problem we have is that we 
are not competitive, and there is no reason why we should not 
be competitive. We should have an advantage in our tax code. As 
you point out, when you add up the tax burdens of the countries 
we compete with, they have a higher tax burden than we do. So 
why are we losing companies to Great Britain, for example?
    Secretary Lew. Yes. I think, Senator, that our business tax 
system is the reason we are losing companies, not our 
individual tax----
    Senator Cardin. Over 90 percent of our businesses pay a 
personal rate.
    Secretary Lew. But those are not the companies that are 
moving overseas.
    Senator Cardin. Some are.
    The Chairman. Senator, your time is up.
    Senator Portman?
    Senator Portman. Thank you, Mr. Chairman. And, Secretary 
Lew, good to have you back with us. As former OMB Director, you 
are probably having nightmares about the budget hearings that 
you have had in the past, and this is relatively easy.
    Secretary Lew. Many fewer notebooks as Treasury Secretary 
than as OMB Director.
    Senator Portman. Yes. I always hated those hearings.
    Senator Cardin talked about the competitiveness of our tax 
code, and you and I have talked a lot about this. Senator 
Schumer talked about it earlier. I agree with Senator Cardin 
that we have to have a broader reform of our tax code in order 
to be competitive, including those companies that are pass-
throughs. But in the meantime, we know, as you have said today, 
that we have a real problem with regard to our business tax as 
it relates to C corporations, and they are not competitive. And 
my one concern about what you said today, as you know, is you 
are focusing a lot on these inversions. I do not think 
inversions are the biggest problem. I think the biggest problem 
is just that companies are not competitive, and, therefore, 
even when you cannot invert because we put some regulations out 
there, we continue to have the problem.
    I would reference Shire. As you recall, AbbVie was going to 
do an inversion with Shire. These are two huge pharmaceutical 
companies, Shire an Irish company. They did not move forward 
because they did not want to go through the hoops that you 
required in your regulations. And so what has happened? Over 
the last 13 months, Shire has bought now four U.S. companies. 
They have said, fine, you guys put these regulations out, we 
will just start buying, gobbling up U.S. companies. The last 
one was a couple of weeks ago, a $32-billion acquisition, their 
fourth one. And as you know, they take investments and jobs 
with them when they do this.
    So we have to get at the underlying problem, and I know 
Senator Schumer talked about it. He and I have worked together 
on this. We have our working group. You have worked well with 
us. I am trying to come up with a framework. As you know, I am 
happy about some parts of the budget and not others as it 
relates to this issue, and I think we need to keep an open 
mind.
    I am maybe the last one on this committee who really 
believes we can get something done this year, but I think we 
have to. It is not so much that it is the right thing to do. It 
is that we have to, because if we do not, we are going to 
continue to lose more people overseas. And it is workers, it is 
wages, it is benefits. That is what gets affected, based on all 
the studies I have seen. So I would just ask you if you could 
talk a little about that.
    Secretary Lew. I did not mean to suggest that inversions 
were the only problem. I think inversions are a big problem, 
and it is indicative of the competitiveness concerns. And I am 
totally with you that we ought to get something done this year. 
We had conversations last year where reasonable people could 
see a pathway forward. I do not think that any of us should 
feel comfortable just watching more American businesses leave 
the United States, be purchased by foreign companies, because 
we fail to make the effort.
    Senator Portman. Yes, I appreciate your comments, and I 
think, you know, let us be honest. A lot of people are saying, 
well, the leadership in Congress and the White House has kind 
of put this off. And what you just told me is that you are not 
putting it off. You are prepared to roll up your sleeves, get 
reengaged in this with us, and try to do something this year. I 
think if we wait a couple years, which is what a lot of people 
are saying, we are going to lose so many more businesses. In 
fact, about every week or so, we are going to lose one, 
particularly when people figure out we are not going to deal 
with it, because in these board rooms, with activist 
shareholders out there pushing and these investment banking 
firms and others offering these big proposals that make the 
owners of the company and the board members well-off but hurt 
the workers, I think there is going to be more pressure.
    Let me ask you about something else, if I could: the 
Hardest Hit Fund. You have worked with us on ensuring at the 
end of the year that we had a better allocation for the Hardest 
Hit Fund. We put more funding in. You got $2 billion now of 
Hardest Hit Funds that you have to allocate. Senator Brown and 
I and Senator Stabenow and I have worked on this issue. This is 
something that affects Ohio a lot, Michigan a lot, some other 
States. Ninety-one percent of our allocation has now been drawn 
down. We have so many blighted properties out there, and these 
are abandoned homes that are not just a magnet for crime, but 
they are also reducing the value of everybody else's homes in 
the neighborhood.
    So could you just tell us today what you are doing with 
regard to distributing these funds? We would like them to be 
directed to the States with the highest need and made available 
specifically for blight elimination purposes, of course. But 
could you tell us a little about the allocation formula and how 
you intend to distribute the funds?
    Secretary Lew. Thanks, Senator, and thank you for the work 
that you, Senator Brown, and Senator Stabenow did to make this 
funding available. And we are working as quickly as we can to 
make sure that we get it allocated. We are looking at a 
combination of approaches to get some money out quickly, as 
quickly as possible, through an automatic formulaic approach, 
but also to keep a mechanism to target based on where the need 
is the greatest on specific applications.
    We are very close to completing the process of putting that 
together. It is obviously only a few weeks since the provision 
was enacted. I have made it clear to my team that I view this 
as an urgent issue, because I would like to be able to commit 
the money and get it out there in use this year. That was the 
intention of the legislation. And I am very proud of the work 
that has been done on blight removal using Hardest Hit Funds. 
It was something that was, at the time, an innovative 
interpretation of the Hardest Hit Fund, but I totally agree 
with you. If you have a house on a block with blighted housing 
on it, if you do not remove the blighted housing, your chances 
of staying above water are really tough----
    Senator Portman. Exactly.
    Secretary Lew [continuing]. Because blighted housing brings 
down all the values. So the economics of it are very strong----
    Senator Portman. Well, thank you----
    Secretary Lew [continuing]. Communities are very strong. We 
are doing our best to get it out quickly.
    Senator Portman. We appreciate your commitment to that, and 
let us know if we can help you. All I will say is that we have 
100,000 homes in Ohio that we believe are vacant and abandoned, 
based on the Cleveland-based Thriving Communities Institute, 
that need help now and are ready to be demolished. And we 
appreciate your commitment to that, and we hope this funding 
will go toward blighted communities and toward those States 
that have----
    Secretary Lew. Well, it will be a national program, 
obviously, but we are very much keeping in mind how to be 
consistent with the purposes that Congress had in the 
legislation, and we are, as I say, very close to being ready 
to--I mean, time is of the essence. We do not want this to 
become a March, April, May issue.
    Senator Portman. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman. And, Mr. 
Secretary, thank you for being here. I had a chance to talk to 
you earlier, but I want to just reiterate my concern with the 
budget on the $190-million cut, 19.2-percent cut, to the 
Hanford cleanup. It is very important that we do not miss 
cleanup deadlines and that we make sure that technically 
difficult aspects of this project are met, and that the 
challenges of the River Corridor remediation continue to have 
great focus. I know that everybody always looks at the budget 
and thinks there are ways to get money, the big numbers, and 
they look at cleanup, but this is the largest cleanup project 
in the world, and it has taken a long time and needs to happen, 
and we need to have the continued support.
    So I appreciate hearing your comments on that, and I know 
you will tell me that you are going to get back to me because 
of your position, but I want to put the administration on 
notice that this is something that we have grave concerns about 
in the budget, and we want to work with you on it.
    I also would like it if you would comment on where we are 
with the TPP bill. I supported Trade Promotion Authority 
because I believe in a global economy. The number of bilaterals 
that were being done without us was not where we needed to be, 
and we should allow a lot of different ideas to come before the 
Congress with different proposals.
    So I want to hear where you think we are for the rest of 
the year with that, because I hope that we are not going to 
have a delay by our colleagues on the Republican side of the 
aisle on moving forward on that legislation. I know some people 
would like to put it off until the next election, but if we 
truly believe that this is about an effort of the United States 
making sure that China does not become the dominant player in a 
developing economy, what are we going to do to make sure that 
there is market access to U.S. products and goods that are 
important in the Asian market?
    And last, not to throw all this complexity at you on a 
variety of subjects, this issue of Puerto Rico--because of my 
other responsibility as ranking member on the oversight of 
territories--to me it seems like Congress needs to really act 
on the restructuring. Your budget proposal reflects comments 
that the administration made before the Energy and Natural 
Resources Committee that, again, has oversight over 
territories. So we appreciate that the budget reflects a 
restructuring plan, but if you could also comment on why it is 
so important that the restructuring plan take place 
immediately--I know people think, oh, we might have more time, 
June, July. We really need to act now, and if you could address 
that, I would so appreciate it.
    Secretary Lew. So, Senator, let me try to quickly cover all 
three questions.
    On Hanford, I will take back the comments you made and 
share them with OMB. When I was OMB Director, I paid close 
attention to this, but it is, as you noted, not currently 
something that is directly mine. But I will take back your 
comment.
    On TPP, the signing of the agreement was an important step. 
The Customs bill being taken up tomorrow is another important 
step. And we are going to continue to press forward to have a 
vote on TPP. Obviously, we are working very hard to make sure 
that when the vote comes up, we have the support to pass it.
    If I could take one step back and look at where we were in 
early December or the middle of last year and where we are now, 
we have done a lot of important things to promote U.S. economic 
leadership in the world and U.S. economic strength. We are not 
looking at an Export-Import Bank that is unfunded. That is 
hugely important. We are not looking at IMF quota reforms that 
are creating friction with the United States and the rest of 
the world. We have done our part. We have kept our commitment. 
And we have TPP signed and now queued up for a vote this year.
    So we are going to keep pressing forward, but I think that 
U.S. leadership in the world economically is part of what makes 
our country strong, and the trade agreements that provide 
opportunities for the U.S. to participate in the future global 
growth are a critical part of that TPP.
    On Puerto Rico, I have to begin by thanking you for the 
efforts that you have been making for months now to try to make 
sure this issue gets the kind of attention it deserves. I 
believe it is a crisis. I believe there is a need for action 
immediately on restructuring authority and on oversight. I 
think there are other aspects, which we address in our plan, 
where if we can get them done, they are urgently needed. But we 
cannot put off restructuring and oversight, and we look forward 
to working with you in your other committee or in whatever 
committee Congress chooses to address this. But I think the 
people of Puerto Rico need us to act. That is 3.5 million 
American citizens who are going to be plunged into chaos if 
Congress does not act.
    Senator Cantwell. Are we not at the point now where this 
could cost the U.S. economy billions of dollars if more and 
more people migrate from Puerto Rico to the U.S. because we 
have left this issue unresolved? And the notion that they can 
restructure on their own just is not there. They do not have 
the authority.
    Secretary Lew. We are seeing thousands of people leave 
Puerto Rico for the mainland, and they are American citizens. 
They do not need any permission. They have rights to come 
anywhere and should have those rights because they are American 
citizens.
    What is terrible is that it is further hurting the economy 
of Puerto Rico when people who are part of the economic future 
leave the island, and it does shift the cost burden to wherever 
those people go if there are costs that fall either on health 
care systems or public authorities.
    So the only pathway to a stable future for Puerto Rico has 
to involve them restructuring their debt. There are a variety 
of ways that authority could be legislated. We look forward to 
working with you and others to do it in a way that can meet 
with bipartisan support. But we just have to remember that at 
the core, if they do not get to restructure their debt, they 
are insolvent. They cannot keep making those payments without 
having the economy grind into a place that it could possibly 
not bounce back from. And without restructuring authority, they 
are just going to default on one after another series of debts. 
They will be locked up in 5 or 10 years of ugly litigation, and 
that is something that will set the economy back even more.
    So the deadline the Speaker set for the House Committee to 
act in the first quarter of the year was very important. We are 
going to work with them, with you, with everyone willing to 
engage, with the chairman, to get something done that will 
work. It has to be effective. We cannot just call it a 
solution. It has to work.
    Senator Cantwell. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Heller?
    Senator Heller. Mr. Chairman, thank you. I will take my 30 
minutes now. [Laughter.]
    First of all, thank you very much for holding this hearing, 
and thank you also for your commitment to tax reform. And I 
want to thank the Secretary for being here also, and thank you 
for your patience to get where we are now.
    The comments made by Senators Schumer and Portman are very 
reflective of some of the thoughts that I have had. And you and 
I have had some pretty good conversations in this committee, 
just a year ago when we were talking about the highway bill and 
the use of repatriation, those revenues, for a fundamental 
change in the way we deal with infrastructure in this country.
    With the passage of the 5-year highway bill that was 
supported by the administration, is there a different use now 
for those revenues? You keep talking about infrastructure, but 
is there another use for it?
    Secretary Lew. So, Senator, as you and I have discussed, 
the 5-year reauthorization was important because going year to 
year is terrible, but it did not have sufficient funding to 
provide for the kinds of expansions of infrastructure that we 
need in so many parts of our country, including the West. So 
for us to be able to have opportunities to build the 
infrastructure we need for the 21st century, we are going to 
need more funding.
    We think that using the funds associated with business tax 
reform are a win-win. First of all, the biggest advocates for 
infrastructure investment are the businesses of the United 
States. They need us to have better roads----
    Senator Heller. I agree with you.
    Secretary Lew [continuing]. And there is a bipartisan basis 
for agreement. So we are still very much of the view that 
bringing them together is essential.
    Senator Heller. And I am pleased that you continue to have 
the view that perhaps we could get something done this year. I 
do not know what the possibilities of that are. That is 
probably up to the chairman more than it is up to me, but I 
certainly do hope that we keep open minds in this process.
    I want to turn to another subject, and that is the IRS. The 
GAO reported, and I will say the quote, ``the lowest level of 
telephone service during the fiscal year of 2015.'' You have 
oversight. Only 38 percent of the callers were able to reach an 
IRS agent.
    Secretary Lew. That is terrible.
    Senator Heller. What is the new threshold? I mean, you 
oversee the IRS. What is the threshold that you want to meet?
    Secretary Lew. Senator, my goal would be for everyone to 
get their phone call answered.
    Senator Heller. I would agree. What is realistic?
    Secretary Lew. If you have visited an IRS call center, you 
have seen empty seats where there should be people answering 
the phones. It takes people during tax season to answer the 
phones. At the end of the year, we got an increase in 
appropriations that gave us the ability--we are hiring people. 
You know, we worked as quickly as we could. This tax season, we 
will have more people in place to answer calls. It will not be 
perfect. We did not get enough money to completely solve the 
problem, but we are going to dramatically improve----
    Senator Heller. What should be the expectation?
    Secretary Lew. Commissioner Koskinen will be here this 
afternoon----
    Senator Heller. Right. I am going to ask him the same 
questions.
    Secretary Lew. He probably will be in a better position to 
give you a pinpoint estimate. You know, we want to 
substantially reduce the wait time and the drop rate because, 
frankly, I believe it is unacceptable for taxpayers to call 
their government and not get an answer. But that was not 
because we did not want to answer the phones. We were not given 
the money to hire people to answer the phones.
    Senator Heller. Is that your responsibility or Commissioner 
Koskinen's responsibility?
    Secretary Lew. Well, he manages the IRS on a day-to-day 
basis----
    Senator Heller. Right. I know that.
    Secretary Lew [continuing]. And reports up to me. He and I 
talk about this issue. I advocated for the funding that we got 
in December, so I very much am engaged in making sure that we 
do better here. But what neither he nor I can say is that we 
can get the phones answered if we do not have enough people.
    I will tell you the truth. We started in----
    Senator Heller. So what is the expectation? I guess that is 
what I am trying to get at.
    Secretary Lew. I do not have at this time a number off the 
top of my head.
    Senator Heller. We all have the same goals, but what is the 
expectation?
    Secretary Lew. The expectation is, it will be approaching 
70 percent.
    Senator Heller. All right. All right.
    Secretary Lew. Approaching 70 percent. Whether it will hit 
70 percent, Commissioner Koskinen can maybe give you a little 
bit more. I mean, I will tell you the truth, they were 
recruiting people before the appropriation passed in the hope 
that the appropriation was passed. But they could not hire 
anyone until they had the money. So we are talking about from 
the end of the year until now standing up new personnel to be 
in place, trained to answer questions. So----
    Senator Heller. All right. Let us change topics really 
quickly, because I do not have a lot of time here. He is not 
giving me my 30 minutes.
    On the Omnibus, as you know, there is a 2-year delay on the 
Cadillac tax. In your budget, you talk about a geographic 
adjuster. Can you explain the geographic adjuster?
    Secretary Lew. The idea behind the Cadillac tax was always 
to just hit the top, most expensive plans, and say that this is 
a way to bend the cost curve and a way to make sure that----
    Senator Heller. But that affected 1.3 million Nevadans.
    Secretary Lew. Right, and it had geographical disparities 
because of cost differences in different areas, and there was 
concern, fairly broad concern, that it was getting beyond the 
highest-priced plans.
    The proposal that we have addresses the concern about 
geographical disparity and it also makes it clear that it 
applies to the most expensive plans. And we continue to believe 
that it is very important that, if we are going to get our 
hands on the entitlement problem we have all talked about, part 
of that is bending the cost curve on health care, and the 
Cadillac tax helps you do that.
    Senator Heller. Is there any other tax that has a 
geographical adjuster to it?
    Secretary Lew. I am not sure. I am looking at my tax 
counsel. Yes, I would have to go back and check if there are 
others, but----
    Senator Heller. Here is my concern. It may affect 
California, it may affect New York, but I have a feeling that 
it is not going to affect Nevada. And you know, our unions, our 
public employees, they are all going to be affected. Our senior 
citizens are all going to be affected by this Cadillac tax in a 
couple of years. And if this geographical adjustment does not 
affect Nevada, I have some issues with it.
    Secretary Lew. But, Senator, the way this will work is that 
the threshold will be set at the gold plan level by States, so 
States with higher costs will get a higher threshold. I would 
have to check where Nevada fits on the series----
    Senator Heller. Can you get back to me?
    Secretary Lew. We can get back to you.
    Senator Heller. Okay. I would like that.
    Secretary Lew. It was meant to address in a fair way, 
across the country, that the gold plan reflected local costs. 
But we can get back to you.
    Senator Heller. Mr. Secretary, thank you for being here.
    Secretary Lew. Thank you.
    Senator Heller. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator, for your patience.
    Senator Carper?
    Senator Carper. Thanks, Mr. Chairman.
    Mr. Secretary, I want to just follow up. I had not planned 
to raise this, but Senator Heller has raised the issue of a 
Cadillac tax. I remember 5 or 6 years ago, when we were 
debating the Affordable Care Act, having economists arrayed 
here to your left, Mr. Secretary, and to your right, from all 
across the ideological spectrum, and they said, if you do 
nothing else on health care reform, the one thing you need to 
do is to make sure that at some point in time, when the cost of 
health care coverage for a person, for a policy, reached a high 
level, at some point in time it should not entirely be treated 
as a tax-free benefit--there has to be some consequence.
    And they all agreed on that. They all agreed on that. We 
ended up with a jury-rigged, Rube Goldberg kind of approach, 
the Cadillac tax, to try to scratch that itch. But I applaud 
your efforts to try to do something geographically in the 
President's budget. But----
    Secretary Lew. We have the support of those economists 
still. They all signed a letter----
    Senator Carper. They sure have. They sure have. We have 
their names.
    I think Senator Heller also mentioned infrastructure and 
whether or not the repatriation money for international tax 
reform should be used for that purpose. I said to the 
President, and I would certainly say to you, that I would 
support international tax reform, as part of the working group 
led by Senator Schumer and Senator Portman. But I said, if we 
could actually pass that, use that money, at least for a while, 
for infrastructure, that would be fine by me--although it runs 
counter to what we have done for 50 years, and that is for the 
people, the businesses, that use the roads, highways, bridges, 
to actually pay for them. And it is not a wild, crazy idea. It 
seems to have worked out pretty well for about half a century.
    I was intrigued by the $5-per-barrel oil fee that I think 
the administration is proposing. I have not drilled down on 
it----
    Secretary Lew. Ten dollars over 5 years.
    Senator Carper. There you go. I have not drilled down on it 
too much yet, but I am intrigued by it. I bought gas last 
weekend for my minivan, a Chrysler Town and Country minivan 
with 413,000 miles on it, and I filled it up for--God only 
knows how many times it is--but it was the cheapest gas I have 
bought for a long time for my minivan: $1.73. And I was just 
standing there thinking, while I was pumping gas, I was 
thinking, you know, if we would raise the gas tax 4 cents a 
year for 4 years, that would be 16 cents. Add that $1.73, and 
gas would still only be $1.89. Maybe we should have done that. 
But we did not.
    So just make the case for me for this proposal, if you 
would.
    Secretary Lew. I think the fee makes sense for two reasons: 
first, it does reflect the costs associated with fossil fuel 
use, which is something that makes good sense, and it would, at 
a time when we particularly have low oil prices, give us the 
ability to phase in gradually a fee that gives us the ability 
to invest more in infrastructure, to give a boost to the 
Highway Trust Fund, and to invest in new technology, which we 
need to have energy independence far into the future.
    So we view it as being something that will serve multiple 
objectives. We understand it is not a proposal without 
controversy, but it also meets a number of very important 
policy objectives.
    Senator Carper. All right. Thank you. I am just coming from 
a hearing on the Environment and Public Works Committee, and we 
are focused on the work of the Army Corps of Engineers. As you 
know, they do a lot of important infrastructure work, mostly 
along our coasts, but also on rivers and so forth. We were 
bemoaning--one Senator after another--the fact that there is 
not enough money for the Army Corps of Engineers to do the 
work. There is a huge backlog. And as it turns out, there is 
this huge backlog that you referred to and that I have talked 
about many times in the transportation realm. And we do not 
have enough folks at the IRS there to answer questions, be good 
on the phone, help taxpayers with their concerns, because we do 
not provide enough money. We provided some money, a bump-up, 
but it is not nearly enough money. And we could actually--
correct me if I am wrong on this, but we are always looking for 
pay-fors around here, you know, to pay for tax cuts in terms of 
offsets or to pay for spending. And I will ask John Koskinen 
this when he comes in later today to testify, but I think a 
pretty good pay-for could actually be to provide some 
additional resources for the IRS. Does it actually more than 
pay for itself? Any idea what the multiplier----
    Secretary Lew. It pays for itself many times over.
    Senator Carper. Yes, there is a multiplier. It is not just 
dollar for dollar.
    Secretary Lew. It pays for itself many times over, and it 
also creates a stronger tax system where people have a sense of 
fairness, that everybody is treated the same way. And so I have 
been a big advocate of more funds for taxpayer enforcement from 
many different seats of government.
    Senator Carper. Good. Well, Mr. Chairman, I am Tom Carper, 
and I approve that message. [Laughter.]
    We made a good start last fall, but we need to do more. And 
it is a fair thing to do for all these folks who are calling 
our offices telling us that they are not getting the kind of 
service that they want.
    Secretary Lew. Right.
    Senator Carper. And it is the right thing to do for our 
country.
    Secretary Lew. I remember in the 1990s when the problem was 
at the Social Security Administration, and at the time I 
considered it critically important that if you called Social 
Security, you had to get your phone call answered. It is like 
the point of contact with the Federal Government that people 
would most frequently have. The IRS is right up there, and it 
is just not acceptable to have a system where people, citizens, 
cannot get through to the two parts of the government that they 
actually touch in their lives.
    Senator Carper. And by doing this, if we actually provide 
some more resources for IRS, it actually helps us reduce our 
budget deficit in the end. So that is a win-win.
    Thanks, Mr. Chairman, and thank you, Mr. Secretary.
    Secretary Lew. Thank you.
    The Chairman. Thank you, Senator Carper. We appreciate you.
    Mr. Secretary, with regard to inversions, I doubt seriously 
that you are going to be able to get through, before the end of 
the year, the territorial recovery of monies, for many reasons, 
some of which are political, some of which are just time 
concerns, and some of which come from it being difficult to get 
both sides together. But we are working on a corporate 
integration program that may very well put a stop to inversions 
that really, if we could go on a bipartisan basis, could make a 
real dent in those problems this year.
    Now, we are stuck right now because we have to wait until 
Joint Tax comes up with its analysis. So far it looks good. And 
I hope that you will keep an open mind with regard to that, 
because it is something that I think is doable. And it would 
put a real crimp in the inversions that have been going on in 
our society, corporate inversions. And I think we would get 
companies back once we do it.
    Now, we all know that the best way to solve that problem is 
to cut the corporate tax rate so that we are competitive, and 
that is another matter that is very, very difficult to do under 
current circumstances, with the problems between both of the 
parties here in the Senate. I am looking for ways to bring 
people together with the administration to see if we can solve 
these problems.
    So, when we get a little farther down the line, I want you 
to come up and go over with me this corporate integration 
program that I think might very well be something that would 
help you, help the administration, and help this country to 
resolve these inversions that have been going on. You are 
willing to do that, I know.
    Secretary Lew. Well, Mr. Chairman, I am not familiar with 
the details of the proposal, and it is hard to see how it 
addresses inversions without looking at it. But I would be 
happy to look at it, and, as we have that conversation, I also 
hope we can talk about whether the anti-inversion provisions 
and the earnings-stripping provisions might be doable even if 
we cannot do all of business tax reform.
    The Chairman. Well, I am afraid of those, because I think 
that they will cause more inversions rather than solve the 
problem. This would solve a lot of the problem. It would not 
solve it all, but it would give us time to do what really needs 
to be done. I think you and I could agree on that.
    I would ask you to look through the JCT analysis of the 
Earned Income Tax Credit for Puerto Rico that I have made 
public just this morning. So, if you will look at that----
    Secretary Lew. I have not seen it yet. I am happy to look 
at it.
    The Chairman. I know you will, and I would appreciate if 
you would. In the meantime, I wonder whether you have given any 
thought to difficulties of administering what you propose and 
the very real concern about improper payments that can easily 
arise under your proposal.
    Secretary Lew. I think that we have a great deal of 
experience dealing with the Earned Income Tax Credit, and----
    The Chairman. And 25 percent of the payments are wrongfully 
made.
    Secretary Lew. I think we would be able to work with the 
Commonwealth to implement it in a way that was designed to have 
the compliance rate be higher. One of the things that Congress 
enacted last year was a provision giving Treasury the ability 
to provide technical assistance in a more robust way to Puerto 
Rico, and we have people working with them. So we would 
endeavor to work with them to set things up so that it is run 
in a very sound way. I would be happy to follow up with you on 
any concerns you have on that.
    The Chairman. Thank you. Well, I am going to do everything 
in my power to solve that problem. I think we ought to get it 
out of politics and get it solved. There are good people down 
there, and we are quite a bit to blame too. When we took the 
tax credit away, it cost them 100,000 jobs, as I estimate it. 
So I think we have to resolve this problem, and I hope we can 
keep it out of politics.
    Secretary Lew. I agree. I have been trying to deal with it 
as a crisis that we need to deal with on a bipartisan basis.
    The Chairman. Well, let us hope we can do it before the end 
of March. That is the goal here.
    Secretary Lew. That would be my goal too, Mr. Chairman.
    The Chairman. Well, we will work with you.
    Let me just say I would like to thank my colleagues and 
you, Mr. Secretary, for participating in this hearing. I think 
we have had a good discussion here today, and I hope that we 
can continue working together in the future.
    I will just make this point. If any member wishes to submit 
written questions for the record, please do so by the close of 
business on Wednesday, February 17th.
    And so, Mr. Secretary, you have been very patient to go 
through this long, arduous hearing, and I just want to thank 
you for your patience.
    With that, we will recess until further notice.
    Secretary Lew. Thank you, Mr. Chairman.
    [Whereupon, at 12:40 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a hearing examining 
the Obama administration's Fiscal Year (FY) 2017 budget request for the 
Department of Treasury:

    Today's hearing is on President Obama's budget for Fiscal Year 
2017. I want to thank Secretary Lew for appearing before us this 
morning.

    While there were some hints about some of the details in advance, 
Congress officially received the President's budget proposal yesterday. 
And, as has too often been the case--particularly under this 
administration--what we received was not a practical vision for the 
future, but an ideological document designed more to satisfy political 
constituencies than to advance serious policy proposals.

    For example, in his budget, President Obama once again looks to 
raise taxes on hardworking Americans, including some special new 
regressive taxes that are being packaged as ``fees,'' with all the 
revenue going to fuel expanded government and spending that is being 
sold to the public as ``investment.''

    No matter what terms people want to use, this budget once again 
taxes too much, spends too much, and never balances. It presents a 
vision for expanding government, deficits as far as the eye can see, 
and an ever-growing national debt.

    That debt, by the way, currently stands at an astronomical $19 
trillion, close to 80 percent larger than when the President took 
office, and at a level relative to the size of our economy not seen 
since the years surrounding World War II.

    I will also note that the budget contains provisions relating to 
Puerto Rico. The challenges facing Puerto Rico have received a lot of 
attention in recent months. And, unfortunately, much of the debate has 
been overly politicized.

    The President's budget calls for $6.6 billion intended to provide 
an Earned Income Tax Credit for residents of the island, and roughly 
$30 billion for increased Medicaid funds, some of which are intended to 
offset what we are now being told was an inequity written into the so-
called Affordable Care Act.

    Apparently, the authors of ACA wrote a Medicaid funding cliff for 
Puerto Rico into the law. Now, we are being told--by some of those same 
authors, no less--that this funding cliff is unfair and must be undone. 
I'd like someone--maybe Secretary Lew or perhaps any members of 
Congress who drafted and supported the health law--to explain why that 
was done in the first place.

    I have been working hard with a number of my colleagues to put 
together a package to help the people of Puerto Rico, who should be our 
real focus in this. I have a bill with Senators Grassley and Murkowski 
that offers assistance, along with more than $7 billion of fiscal 
relief to the island without adding a penny to the federal deficit or 
debt.

    And, since last summer, I have been asking administration 
officials, as well as some of my Senate colleagues, just how much 
additional health funding they would like to see for Puerto Rico. In 
every case, specific details have been withheld and Congress has simply 
been admonished to fix this problem in fiscally responsible way.

    Yesterday, with the release of the budget proposal, we finally saw 
specific proposed numbers from the administration. Why it took until 
now for these details to emerge is beyond me.

    In addition, while we're on the subject of Puerto Rico, I do not 
believe the administration has been straightforward about the nature of 
the debt restructuring authority it is seeking for the territory.

    While we keep hearing from our friends on the other side that 
Republicans are ungenerously denying Puerto Rico access to the 
bankruptcy protections offered to every municipality in the U.S., that 
is actually not what is being sought.

    Specifically, the administration is advocating to provide 
unprecedented debt-
restructuring authority to Puerto Rico, with an explicit preference for 
public pension liabilities over debt issued by the Puerto Rican 
government, even though the territory's constitution gives preference 
to some of those latter debts.

    We need to be clear about what's actually being debated and 
proposed here, and, Secretary Lew, I hope to learn more about your 
thoughts on this today, and, going forward, I hope to learn more about 
Puerto Rico's pension exposures. In fact, just this morning I wrote to 
the Governor of Puerto Rico asking for details since, all told, Puerto 
Rico's debt and its unfunded pension liabilities amount to almost $120 
billion.

    As we know, lurking behind the recent increase in ever-larger 
municipal bankruptcies nationwide is a growing crisis of underfunded 
public pensions, and the underfunding of Puerto Rico's public pensions 
is striking.

    Another issue that I look forward to discussing today is a 
provision of the recently enacted FAST Act regarding the inactive debt 
collection program. As we'll likely hear today from Senator Grassley, 
if not others, the conference report accompanying the law made clear 
that the intent of Congress was for Treasury and the IRS to 
expeditiously implement this provision by utilizing approved private 
collection contractors and debt collection centers. The law also 
requires that contracts be signed within 3 months after enactment.

    That deadline is March 4th, just over three weeks away. So I look 
forward to a status update today on the efforts to get the contracts 
signed and the cases released, and to ensure that taxpayers are made 
aware of the program and how it will be implemented.

    Finally, and related to the large federal debt that Treasury is 
supposed to manage, I want to make note of some disturbing revelations 
from the House Financial Services Committee about contingency plans 
formulated by Treasury and the Federal Reserve.

    Secretary Lew, as you know, for nearly 5 years now, I have asked 
Treasury and the Fed for details about plans the agencies had to handle 
debt default, whether caused by a natural disaster, terrorist attack, 
cyberattack, or debt limit impasse. I have asked for these details in 
writing, in public hearings, and in private conversations.

    And, in response to my inquiries, you, your predecessor Secretary 
Geithner, Fed Chair Yellen, and former Chair Bernanke have all opted to 
cloak any contingency plans in secrecy, sharing them only in private 
discussions with financial market participants. All of you failed to 
provide specific answers to direct questions, choosing instead to 
obfuscate the issue.

    We know these contingency plans exist, yet officials at the highest 
levels of the executive branch have refused to share them with Congress 
or the American people.

    This is unacceptable.

    And, because we've received virtually no voluntary cooperation on 
this issue, legislation to require such cooperation and provide 
accountability is now probably necessary so the American people can 
know as much about our debt management as those working at Treasury and 
the Fed and in financial markets.

    So, as you can see, we have quite a bit to discuss today. I look 
forward to a robust discussion of these and other important issues.

                                 ______
                                 
          Prepared Statement of Hon. Jacob J. Lew, Secretary, 
                       Department of the Treasury
    Chairman Hatch, Ranking Member Wyden, Members of the Committee, 
thank you for the opportunity to appear before you today.

    As President Obama said in his State of the Union address, this is 
a time of extraordinary change and, to make this change work for us, we 
as a country must focus on the future by confronting head-on some of 
our biggest challenges. The President concentrated on four key areas to 
which we must attend in the coming years, specifically: (i) fostering 
economic opportunities for all Americans; (ii) leveraging new 
technologies to solve urgent problems such as climate change; (iii) 
pursuing a smart foreign policy that protects our national security; 
and (iv) working together to improve our political discourse. What we 
do in each of these key areas is crucial to our future as a nation. As 
Treasury Secretary, I focus most of my time in the area President Obama 
addressed first, namely how to spur growth and opportunity in our new 
economy. Today, I will discuss the major aspects of the President's 
Budget and how this Budget lays out a vision for what we need to do as 
a country both now and over the next 5 or 10 years and beyond to create 
growth and make sure that opportunity is broadly shared.

    Before turning to what we need to do for our economy over the long-
term, let me first note the progress we have made over the course of 
the Administration.
                          how far we have come
    In the 7 years since President Obama took office amidst the worst 
financial crisis since the Great Depression, we have seen a sustained 
economic recovery and an unprecedented decline in the federal budget 
deficit. Since my testimony a year ago, our economy has continued its 
record-breaking streak of private sector job creation, which has 
reached nearly 6 consecutive years and 14 million jobs. Over the last 2 
years, we have experienced the strongest job creation since the 1990s. 
At 4.9 percent, the unemployment rate is half of its 2009 peak. 
Consumer confidence is strong and small businesses are planning further 
increases in their payrolls. Rising home prices have restored trillions 
of dollars in home equity to homeowners.

    Last year, we celebrated the 5-year anniversaries of two major 
pieces of legislation--the Affordable Care Act (ACA) and the Dodd-Frank 
Wall Street Reform and Consumer Protection Act (Dodd-Frank)--that have 
had an important impact on the economic security of American households 
and the stability of our financial system, an essential prerequisite 
for long-term growth. As the coverage provisions of the ACA have taken 
effect, nearly 18 million more Americans have gained coverage. The ACA 
has also improved coverage for those who already had health insurance, 
and changed the incentives for hospitals, doctors, and other providers 
to encourage higher quality, more efficient care. Health care inflation 
has been notably slower over the past 5 years, and, for the first time 
ever, more than 90 percent of Americans have health care coverage. And 
Dodd-Frank has put in place protections that ensure that the financial 
system today is better capitalized, less leveraged, and far safer than 
it was prior to the crisis. It also created the Financial Stability 
Oversight Council, a body that looks across the entire financial system 
to identify future threats to financial stability, and the Consumer 
Financial Protection Bureau, an agency whose sole purpose is to protect 
Americans from unfair, deceptive, or abusive financial practices.

    The administration has also worked hard to make our tax system 
stronger and fairer. Legislation enacted since early 2009 has decreased 
average tax bills by several hundred dollars for those in the lower 
third of the income distribution, while ensuring that those at the top 
pay a fairer share, especially among families in the top 1 percent and 
top 0.1 percent. Through policies like the Recovery Act expansions of 
the Earned Income Tax Credit, the Child Tax Credit and the American 
Opportunity Tax Credit (recently made permanent); ACA subsidies for 
purchasing health insurance; higher tax rates on dividend and long-term 
capital gains income; and reinstating the top rate on the highest 
earners to the level that prevailed in the 1990s, after-tax income 
increased substantially for lower-income families and the overall tax 
system became more progressive during this administration. We have also 
made the Tax Code more stable and predictable by making major 
individual and business provisions, such as the Research and 
Experimentation (R&E) Tax Credit and enhanced small business expensing, 
permanent in last year's agreement, providing the certainty businesses 
need for effective planning.

    Notwithstanding some of the recent volatility we have seen in the 
financial markets, economic growth continues at a solid pace. Real GDP 
expanded 1.8 percent last year. Private domestic demand--the demand 
generated by American households and businesses--was the principal 
driver of growth, expanding at a solid 2.7 percent. Both private sector 
forecasters and the IMF expect the underlying strength in domestic 
demand to continue this year, with real GDP growth picking up to around 
2.5 percent. This pace of expansion substantially exceeds that of many 
of our major trading partners, and, in fact, soft demand from abroad 
for our exports has been, and will continue to be, a significant drag 
on U.S. growth. While a widening trade deficit is natural in these 
circumstances, the rest of the world cannot depend on the United States 
to be the sole engine of growth. That is why this Administration has 
consistently worked with our international counterparts to encourage 
the implementation of strong and comprehensive policies to support 
growth.

    Meanwhile, we continue on a sound fiscal path. The deficit for 
fiscal year 2015 was roughly $150 billion or three-quarters of a 
percent of GDP lower than we anticipated in our Budget 1 year ago. From 
fiscal year 2009 to 2015, the deficit as a share of GDP fell by almost 
three-quarters to 2.5 percent. Only the period of demobilization 
following the end of World War II saw a faster pace of fiscal 
consolidation. Since 2011, four fifths of the deficit reductions we 
have achieved have been from spending cuts.

    And over the past 3 years, we have seen real progress in returning 
to fiscal policy that boosts our economy. The administration began with 
bipartisan efforts to stabilize and restore growth to our faltering 
economy with targeted investment, but subsequent fiscal policy choices 
hurt, rather than helped, the economic recovery. In March 2013, 
sequestration cuts that were never intended to take effect were 
implemented, reducing GDP by 0.6 percentage points and costing 750,000 
jobs. But later that year, following a series of damaging and 
unnecessary debt limit stand-offs and a protracted government shutdown, 
policymakers finally began to turn away from manufactured crises and 
austerity budgeting. The President worked with Congress to secure a 2-
year budget agreement that replaced a portion of the harmful 
sequestration cuts with more balanced and sensible deficit reduction 
measures. This allowed for higher investment levels in 2014 and 2015, a 
significant contribution to the improvement in the labor market over 
the past 2 years. Between its peak in 2009 and the end the 2015, the 
deficit dropped by almost 1 trillion dollars, or over 7 percent as 
share of GDP. An increase in revenues as a share of GDP and a decrease 
in spending as a share of GDP played roughly equal roles in the decline

    Again for 2016, when harmful sequestration cuts were scheduled to 
return, the President worked with congressional leaders from both 
parties to secure another 2-year budget agreement (the Bipartisan 
Budget Act of 2015 or BBA), showing that the right results for the 
country can be achieved when we work together. The BBA will create an 
estimated 340,000 jobs in 2016 alone, while supporting middle-class 
families, investing in our long-term growth, protecting Social 
Security, and safeguarding our national security. Finally, the year-end 
FY 2016 omnibus appropriations act included a bipartisan agreement to 
extend expiring tax provisions that will, among other things, boost 
support for research and development and clean energy investment in the 
private sector, provide permanent tax relief to working families, and 
simplify and cut taxes for small businesses.

    Still, more needs to be done. Non-defense discretionary funding in 
2017 will be at its lowest level since 2006, adjusted for inflation, 
even as the need for pro-growth investments in infrastructure, 
education, and innovation has only increased due to the Great Recession 
and its aftermath. Inflation-adjusted defense funding will also be at 
its lowest level since 2006. And without further action from Congress, 
the sequester will come back into effect in 2018 and put at risk the 
economic progress we have made.

    We must also not leave behind our communities in distress. Nowhere 
is this more evident than with the 3.5 million Americans living and 
working in the Commonwealth of Puerto Rico. While the economic health 
of our nation has improved dramatically since President Obama took 
office, Puerto Rico's economy continues to suffer. Their unemployment 
remains above 12 percent. Outmigration continues to accelerate. And the 
Commonwealth's debt is unsustainable. As a result, the administration 
proposed a comprehensive plan to address Puerto Rico's financial 
challenges and we encourage Congress to act with the haste this crisis 
requires. This must begin with legislation to permit a financial 
restructuring along with new oversight, neither of which cost any 
taxpayer dollars.
               the fy 2017 budget and where we are going
    Despite the significant progress we have made over the past 7 
years, we have much more to do to address fully the challenges 
associated with our new economy. As the President indicated in the 
State of the Union address, the most significant and most pressing of 
our economic challenges is how we ensure that the benefits of our 
growth are shared by all Americans. While more Americans have jobs than 
ever before, millions of Americans are still searching for work and 
millions of part-time workers are still searching for full-time 
opportunities. We are still not seeing enough growth in household 
income and wages, and too many American families still have limited 
savings, impairing their ability to cope with an economic shock such as 
job loss, let alone retirement.

    The President's FY 2017 Budget is designed to address these and 
other pressing problems. It puts forward the building blocks of a 
social compact for the 21st century, creating the conditions for 
sustained economic growth while upholding the basic American belief 
that everyone who works hard should get a fair shot at success.

    The President's FY17 Budget shows that investments in growth and 
opportunity are compatible with putting the nation's finances on a 
strong and sustainable path. The Budget substitutes more balanced 
deficit reduction and ends sequestration, while making other critical 
investments and addressing our fiscal challenges over the next 10 
years. It keeps deficits below 3 percent of GDP while stabilizing debt 
and putting it on a declining path through 2025--key measures of fiscal 
progress.

    The Budget accomplishes these goals by more than paying for all new 
investments and continuing to achieve significant deficit reduction. 
The Budget includes roughly $375 billion of health savings that grow 
over time and builds on the ACA with further incentives to improve 
quality and control health care cost growth. It also includes smart tax 
reforms that promote growth and opportunity, while strengthening tax 
policies that help middle-class families afford child care, higher 
education, and a secure retirement.

    The Budget also shows that responsible deficit reduction can be 
achieved without cuts in critical aid to poor Americans and without 
undermining our commitments to seniors and workers. The Budget puts us 
on sound fiscal footing even as it modernizes benefits for workers, 
invests in evidence-based efforts to reduce poverty and promote 
opportunity, and protects Social Security and Medicare.
                         reforming the tax code
    In 2012, the President first laid out his Framework for Business 
Tax Reform, and the President's Budget continues to put forward a 
robust business tax reform plan to support economic growth, encourage 
businesses to create good, high-paying jobs in America, and expand 
opportunity so our nation's economic gains support a strong middle 
class. Fixing America's business tax system is essential to promoting 
long-term growth and broad-based prosperity. Over the three decades 
since we last rewrote it, the tax system has become heavily burdened by 
loopholes and inefficiencies. Businesses are forced to focus too much 
attention on tax planning and financial engineering rather than growing 
the top line of their businesses.

    One clear indication of the need for reform is the pace at which 
companies are pursuing corporate inversions to avoid paying U.S. income 
taxes. While inversions may be legal, it is wrong for these companies 
to take advantage of U.S. infrastructure, education, support for 
research, and rule of law, and yet avoid paying their fair share of 
U.S. taxes. While the administration has used its administrative 
authority to reduce the economic benefits of these transactions and to 
limit them to some extent, the only real solution is for Congress to 
enact business tax reform that addresses the root inefficiencies that 
cause these problems and specifically closes the inversion loophole. 
The growing bipartisan consensus in Washington on how to achieve 
business tax reform creates the opportunity to take this key step 
sooner rather than later. In the meantime, Congress should act this 
year to change our tax laws to stop corporate inversions.

    The Budget again calls for a fiscally responsible business tax 
reform, and makes a number of concrete tax reform proposals, including 
a complete reform of our international tax system. Last year's 
permanent extension of several important business tax provisions, 
including the R&E Credit, advanced important components of our tax 
reform agenda. But that legislation did not offset the budgetary impact 
of those cuts and leaves the job of reforming our business tax system 
undone. Though the end-of-year legislation on certain business tax 
extenders was a first step, we need to take further steps to enact a 
comprehensive business reform plan, that, taken together with the 
extenders legislation, is deficit-neutral in the long run.
                 building a 21st-century infrastructure
    While last year's surface transportation reauthorization bill, the 
Fixing America's Surface Transportation (FAST) Act, will help address 
our nation's crumbling infrastructure, we should not be content with 
merely repairing aging roads, bridges, rail, and transit systems. 
Transportation infrastructure has been a key ingredient of economic 
growth in this country nearly since its inception. And infrastructure 
investment provides a double return: in the short-term, it creates 
middle-class jobs across a range of skills and sectors; in the long-
term, it provides assets that meet the needs of a growing economy and 
make our towns and cities more attractive to new business investment. 
Investments in our transportation network can also help us tackle the 
threat of climate change. Today, the transportation sector contributes 
nearly 30 percent of U.S. carbon emissions. We will need to move to a 
cleaner, low-carbon transportation system that is also more resilient 
to the impacts of climate change.

    To help make this transition, the Budget proposes to invest $20 
billion per year to shift Federal investments towards cleaner 
transportation options like rail and transit; $10 billion per year in 
new and innovative grant programs that partner the Federal Government 
with local and state governments to accelerate the move towards 
smarter, cleaner, and more integrated communities; and $2 billion to 
accelerate development and deployment of clean vehicle technology.

    To fund these investments, the administration has proposed a $10.25 
per barrel fee on oil, which would be gradually phased in over 5 years. 
There are many costs associated with fossil fuel use, and given our 
highly oil-dependent transportation environment, an oil fee will ensure 
that we better manage our resources to reflect those costs. These 
resources would also provide for long-term solvency for the Highway 
Trust Fund, renamed the Transportation Trust Fund in the President's 
Budget to reflect its multi-modal nature, beyond the current extension.

    The private sector can play a valuable role in helping to maximize 
limited public resources for infrastructure. Effective public-private 
partnerships are a growing procurement alternative for state and local 
governments; these arrangements may accelerate the delivery of complex 
projects, leverage the resources and expertise of the private sector, 
mitigate construction and operational risks, and reduce the likelihood 
of deferred maintenance. The Budget includes a number of proposals to 
take small steps to level the playing field for private investment in 
public infrastructure projects where appropriate, including renewing 
our proposal to create Qualified Public Infrastructure Bonds, which 
would extend tax-exempt benefits to certain public-private 
partnerships, and introducing the Financing America's Infrastructure 
Renewal program, which would provide direct loans to U.S. 
infrastructure projects developed through public-private partnerships.

    Finally, the Budget maintains its support of our long-standing 
infrastructure bank proposal, which would help target and manage the 
complexity of implementing economically and regionally significant 
infrastructure investments. There are a number of creative ideas in 
Congress about how to boost our infrastructure investment, and I look 
forward to continuing to work with Congress to build a 21st-
century infrastructure.
                providing opportunity through education
    The United States was one of the first countries to provide public 
high school education, and as a result we were one of the most highly 
educated populations in the 20th century. Now it's time to ramp up our 
workforce for the 21st century by ensuring broad access to high quality 
education, starting with pre-K, as well as training for those who are 
already out of the education system. And we must make sure that once 
they complete their schooling, our students are not burdened with a 
mountain of debt that they cannot repay.

    The Budget recognizes that changes in our economy make it more 
essential than ever that workers have the right education and training. 
It thus includes policies that enhance educational opportunities from 
pre-K through college. We propose to provide pre-K for all; offer every 
student hands-on computer science and math classes; and make community 
college and career and technical schools free for responsible students. 
Furthermore, this year's Budget introduces a tax credit to incentivize 
employers to join consortia with community colleges. This will help 
drive development and resourcing of career training programs that train 
for real employment needs in the region and provides a hiring tax 
credit when consortia employers hire new workers out of the program. In 
addition, for those already in the workforce who are struggling with 
the rapid change in the economy, the Budget also provides for job 
retraining so they can bring new skills to bear. Finally, the Budget 
provides funding to implement the administration's ongoing efforts to 
ensure that student loan contractors provide high-quality loan 
servicing to students. This funding will also allow the Department of 
Education to provide enhanced oversight and strengthen enforcement 
activities, such as pursuing schools that engage in deceptive or 
misleading practices toward students, including veterans.
              providing a safety net for working families
    The Budget again proposes a set of policies that will raise the 
incentives for working, including raising the minimum wage and reducing 
taxes on working families. For example, it proposes to strengthen the 
Earned Income Tax Credit for workers without dependent children--the 
only group that the Federal tax code taxes into poverty or taxes deeper 
into poverty. The Budget also addresses some new needs of working 
families, given changes in the relationship between workers and their 
employers over time. For example, it proposes expanded unemployment 
insurance and introduces a new wage insurance program to help families 
stay on their feet when their wage earners are underemployed as part of 
a job transition. The President's plan would ensure that workers have 
access to wage insurance that would replace half of lost wages, up to 
$10,000 over 2 years. Displaced workers making less than $50,000 who 
were with their prior employer for at least 3 years would be able to 
leverage these resources to help them get back on their feet and on the 
way to a new career.

    Similarly, the Budget addresses holes in our unemployment insurance 
system, including by expanding coverage to many part-time, low-income, 
and intermittent workers, and workers who leave work for compelling 
family reasons. It would also ensure that states provide 26 weeks of 
coverage. This is coupled with a plan to make it easier for companies 
to avoid lay-offs through work-sharing, while incentivizing states to 
offer and allow retraining for workers on unemployment insurance or to 
provide relocation vouchers or subsidized employment. In addition, it 
would expand intensive career counseling to long-term unemployed, 
discouraged, and part-time workers.
                     encouraging retirement savings
    While the vast majority of people understand the benefits of saving 
for retirement, it is a fact that many Americans have very limited 
savings, and some have no retirement savings at all. Low- and moderate-
income households have especially low levels of accumulated assets, and 
as many as 78 million working Americans do not have a retirement 
savings plan at work. To help people start saving, late last year 
Treasury launched the MyRA retirement program. It is free to get 
started, there are no minimum balances or fees, and there is no risk of 
losing money because savings are invested in risk-free U.S. Treasury 
securities. MyRA fills a crucial gap in the retirement savings system 
by providing an option for people who do not have access to a 
retirement savings plan at work. It helps people get started saving by 
allowing people to contribute any amount, no matter how small, and it 
does not conflict with private retirement options since the balance is 
ultimately rolled over into a private-sector IRA after 30 years or once 
it reaches $15,000, whichever comes first.

    But, this just scratches the surface. The Budget proposes to expand 
access to workplace retirement savings opportunities by encouraging 
more employers to offer plans and making it easier for workers to 
participate by enabling small businesses to come together and create 
pooled 401(k) plans at lower cost and with less burden than they would 
have on their own, automatically enrolling workers without access to a 
workplace plan in an IRA, providing tax credits for small businesses 
that begin offering retirement plans or choose to automatically enroll 
workers in existing plans, and allowing long-term, part-time workers to 
participate in their employer's plan.
                               conclusion
    The policies in this Budget will create a stronger, more inclusive 
economy today and in the future, while also maintaining fiscal 
responsibility. Of course, this Budget does not address every challenge 
we face in the long term. For example, we must strengthen Social 
Security to keep true to our commitments to previous and future 
generations of workers. And while business tax reform would 
significantly boost the economy, there are also significant challenges 
and inefficiencies on the individual side that we must address.

    Our problems will undoubtedly not all be solved in the next 11 
months--far from it. But there is still much we can accomplish. As the 
President said in his State of the Union address, progress is not 
inevitable but rather is the product of choices we make together as a 
nation. We face a number of big choices in the coming years. And though 
responsibility for addressing our nation's biggest problems will soon 
pass from this administration to the next, we all have a stake in our 
country's future. Whether you hold public office, run a small business, 
serve in the military, or are struggling to find a job, we all have 
duties as citizens--to vote, to engage, to speak out for what we 
believe in--that we must exercise to foster an America of the future 
that reflects our shared goals and values.

                                 ______
                                 
        Questions Submitted for the Record to Hon. Jacob J. Lew
               Questions Submitted by Hon. Orrin G. Hatch
                              puerto rico
    Question. Secretary Lew, the President's budget proposes that 
certain tax credits be applied from the federal personal income tax 
code to residents of Puerto Rico who do not otherwise participate in 
the Federal personal income tax system. As you know, in my legislation 
with Senators Grassley and Murkowski, tax relief is provided through a 
payroll tax cut. Such a provision would be relatively straightforward 
to implement given that residents of Puerto Rico already pay the 
federal payroll tax.

    In an analysis of application of the Federal Earned Income Tax 
Credit and Child Tax Credit to residents of Puerto Rico, the Joint 
Committee on Taxation identifies a number of administrative issues to 
consider. Of course, it is difficult to take only part of the Federal 
personal income tax system and apply it to Puerto Rico, and issues of 
improper payments, which already plague the federal system, would be a 
concern.

    In the meantime, I wonder whether you have given thought to 
difficulties of administering what you propose, and the very real 
concerns about improper payments that can easily arise under your 
proposal.

    Answer. Yes, we have considered how best to administer these types 
of credits in Puerto Rico. Our recommendation is to provide funding to 
allow the Commonwealth to administer an earned income credit through 
its own income tax system. Puerto Rico would design an earned income 
tax credit that best meets the needs of its workforce and best fits its 
tax system. Subject to Treasury oversight, Puerto Rico would be 
responsible for certifying that payments were correct. We think this 
will result in a lower level of improper payments and lower 
administrative burdens for IRS and Puerto Rico taxpayers, than a system 
in which Puerto Rico taxpayers would file separate U.S. income tax 
returns just to claim the Federal Earned Income Tax Credit.
                      ttip and financial services
    Question. Secretary Lew, as you know, the 12th round of 
negotiations on the Trans-Atlantic Trade and Investment Partnership, or 
TTIP, agreement begins February 22nd. Over the past several years, I 
have called upon the administration to ensure that TTIP includes a 
comprehensive financial services framework, encompassing both market 
access and regulatory cooperation.

    You and I both know that TPP fell short of achieving strong market 
access outcomes and effective rules for U.S. financial services 
providers. You simply cannot repeat that mistake when it comes to TTIP. 
In fact, if you do, it will likely further weaken support for approval 
of TPP.

    Can you commit to me that TTIP will be comprehensive when it comes 
to financial services, including in areas of regulatory cooperation?

    Answer. The Administration shares your view that financial services 
are a critical part of any trade agreement, and we strive to secure the 
strongest possible market access commitments ensuring that U.S. 
financial institutions have effective, non-
discriminatory access to foreign markets. Additionally, we seek 
protections for investors in financial institutions and that binding 
arbitration is available for related disputes.

    In TTIP, as in previous trade agreements, the Administration is 
seeking robust market access commitments in financial services. 
However, our trade objectives with respect to financial services are 
wholly independent and separate from the norms and modalities of 
prudential regulation. This separation is a feature of all agreements 
to which the United States is a Party (including the WTO General 
Agreement on Trade in Services). We believe that financial regulatory 
cooperation should continue to make progress in existing and 
appropriate global fora, such as the G20 and international standard-
setting bodies, and bilaterally through the Financial Markets 
Regulatory Dialogue.
                 beps and country-by-country reporting
    Question. Secretary Lew, there were reports in just the last week 
suggesting that the EU may try to force public disclosure of at least 
some parts of country-by-
country, which you agreed to as part of the OECD Base Erosion and 
Profit Shifting--or BEPS--project.

    As I understand it, in the BEPS negotiations, Treasury took the 
position that the Federal Government should be involved in these 
country-by-country tax reports, to assure taxpayer confidentiality. And 
I think that is the right position.

    However, now that I hear about the EU attempting to force public 
disclosure of these country-by-country tax reports, I am concerned.

    What are your thoughts on this, and how do you think the U.S. 
should respond to calls for any forced public disclosure of country-by-
country tax reports?

    Answer. Implementation of the BEPS country-by-country reporting 
outcome is being undertaken by many countries around the world, 
including the United States. A country-by-country (CbC) report 
submitted by U.S. multinational firms to the Internal Revenue Service 
pursuant to the final regulations covering this submission will be tax 
return information protected by the strict confidentiality rules under 
the Internal Revenue Code (Code). The Code allows the Internal Revenue 
Service to exchange a CbC report with a competent authority of a tax 
jurisdiction to the extent provided in, and subject to the terms and 
conditions of, an information exchange agreement (including tax 
treaties and tax information exchange agreements). All of the 
information exchange agreements to which the United States is a party 
require the information exchanged to be treated as confidential by both 
parties, and disclosure and use of the information is limited to tax 
purposes. The United States will not exchange return information, 
including any country-by-country reports, with any country that fails 
to protect the confidentiality of that information. We have not yet 
seen any specific details of the EU initiative you refer to, but once 
that legislation is made public, we will be happy to provide to you our 
views about it.

        treasury fiscal agent and financial agent appropriations
    Question. Secretary Lew, Treasury spends well over $1 billion per 
year out of permanent, indefinite appropriations for the Federal 
Reserve to act as a ``fiscal agent'' of the government, and to hire 
private-sector financial firms to act as ``financial agents'' of the 
government.

    I believe that Treasury has not been appropriately responsive to 
congressional inquiries about how it uses those appropriations, and 
believe that legislation is required to ensure accountability.

    I also believe that Treasury, in a secretive alliance with the Fed 
regarding Federal debt contingency planning, has been disturbingly 
reluctant to share information and to answer direct questions from 
Congress.

    Secretary Lew, why has it taken since the summer of 2011 for 
Treasury and the Fed to begin, under pressure of subpoena, to provide 
information about your contingency planning for interruptions in debt-
service payments?

    Answer. Treasury has addressed the Committee's questions on this 
topic, and we remain committed to working with the Committee to address 
any needs that it has. As the Chair of the Council of Inspectors 
General for Financial Oversight wrote in 2012, Treasury found no option 
other than Congress acting to increase the debt limit that could 
reasonably protect the full faith and credit of the United States, the 
American economy, or individual citizens from very serious harm.
                       tpp and data localization
    Question. Secretary Lew, among my concerns with the recently 
concluded Trans-Pacific Partnership, or TPP, agreement is the fact that 
it does not prohibit local data storage requirements in the financial 
services sector. This outcome is inconsistent with the clear Trade 
Promotion Authority negotiating objective to prevent countries from 
requiring local storage of data.

    These types of localization requirements are a serious problem for 
U.S. financial services companies, who often face pressure to store 
their data overseas. This increases costs, reduces data security, and 
in some cases, makes entering markets unfeasible.

    It is remarkable to me that the TPP agreement would permit these 
types of requirements. I would like your assurance that the 
administration will work with Congress and the affected U.S. 
stakeholders to ensure that all industry sectors receive the same 
protections against data localization requirements, in both TPP and in 
future trade agreements.

    Answer. The significant increase in data localization barriers to 
trade around the world is of serious concern to the Obama 
administration. We are advancing efforts to reduce and prevent the 
proliferation of localization barriers to trade, including restrictions 
on data flows and requirements to establish infrastructure 
domestically, through the full range of bilateral, regional and 
multilateral fora, including the WTO, APEC, and the OECD.

    With respect to financial services, over the last few months, 
Treasury and USTR have worked to develop a new approach for addressing 
concerns about the treatment of financial services under data 
localization obligations in our trade and investment agreements through 
extensive consultation with U.S. financial regulators, as well as 
feedback from Congress and stakeholders. Treasury and USTR have been 
working to achieve two important policy objectives: eliminating 
protectionist and trade-
distorting data localization measures imposed by foreign governments in 
the financial services sector and ensuring that U.S. financial 
regulators have access to the information they need for regulatory and 
supervisory purposes.

    We believe we have reached a good path forward and are looking to 
address concerns about data localization in the financial sector 
through a comprehensive multi-pronged approach. For ongoing and future 
negotiations, including the TiSA negotiations, we would propose an 
obligation that broadly prohibits all forms of data localization when 
financial regulators have access to information stored abroad. We would 
also propose obligations that provide companies with the opportunity to 
address potential access concerns before regulators impose data 
localization requirements.

    The TPP needs to be handled differently than ongoing and future 
negotiations because the TPP negotiations are closed, and reopening 
them would cause the agreement to unravel. Most TPP Parties are also 
party to the TiSA negotiations, and we expect to table our new approach 
with those Parties this month. For the remaining TPP Parties--Brunei, 
Malaysia, Vietnam, and Singapore--we will work closely with 
stakeholders and Congress on a path forward for addressing any specific 
concerns.

                           covered agreement
    Secretary Lew, the Department of Treasury and USTR recently 
announced your intention to negotiate a Covered Agreement with the 
European Union. As you know, one of the key goals of negotiating 
covered agreements is to ensure a balanced playing field among U.S. and 
European Union based insurers and reinsurers.

    I understand that, under the EU's Solvency II Directive, European 
insurers and reinsurers with U.S. affiliates are permitted to rely on 
U.S. State-based capital requirements to meet their European Solvency 
Two requirements. Conversely, the EU will not allow U.S. insurers and 
reinsurers to rely on the very same standards when seeking to provide 
insurance or reinsurance in the EU market. This is at best unfair and 
at worst blatant discrimination against U.S. service providers. It may 
even violate the EU's World Trade Organization obligations.

    Will you work to eliminate this discriminatory treatment under the 
Covered Agreement negotiations?

    Answer. I appreciate your interest in this topic and share you 
concern that, without an agreement between the United States and 
European Union (EU), U.S. insurers and reinsurers conducting business 
in the EU could face an unlevel regulatory environment under Solvency 
II. Treasury and the Office of the United States Trade Representative 
(USTR) will not enter into a covered agreement with the EU unless the 
terms of that agreement are beneficial to the United States. Treasury 
and USTR notified the Committee on November 20, 2015, of our 
negotiating objectives for a covered agreement with the EU. One of 
these objectives is to obtain treatment of the U.S. insurance 
regulatory system by the EU as ``equivalent.'' This treatment would 
allow U.S. insurers and reinsurers to operate in the EU on the same 
regulatory terms as insurers and reinsurers domiciled in the EU or in 
other jurisdictions deemed equivalent by the EU under Solvency II.

    These negotiations remain in the early stages and it is too early 
to predict the final substance of any potential final covered 
agreement.

    Additionally, in recognition of the important role of state 
insurance regulators, Treasury and USTR have engaged extensively with 
representatives of the state insurance regulators during the covered 
agreement process and will continue to do so as negotiations with the 
EU advance.
                       corporate debt vs. equity
    Question. Secretary Lew, for many decades, corporate profits have 
generally been taxed twice--once at the corporate level, and then again 
at the shareholder level. According to the President's Council of 
Economic Advisor's Chairman Furman, citing Treasury statistics, under 
corporate tax laws, equity-financed investment is taxed at a 27 percent 
rate, while debt-financed investment has an effective rate of negative 
39 percent. That's right, negative 39 percent.

    I wonder whether you agree that something ought to be done to 
address such a distortion; do you have any ideas on how to address it; 
and will you work with us on this committee as we explore ideas to 
address the distortion?

    Answer. The President's approach to business tax reform is intended 
to reduce a number of tax-induced distortions including distortions in 
the choice of financing. A tax system that is more neutral towards debt 
and equity reduces incentives to overleverage and produces more stable 
corporate finances, making the economy more resilient in times of 
stress. A lower corporate income tax rate by itself would reduce but 
not eliminate the bias toward debt financing.

    The President's Budget also proposes a financial fee that would 
impose a charge on leverage used by the largest financial firms as 
another way to address concerns with over-leverage. Finally, the 
President's Budget proposes to limit the ability of multinational firms 
to saddle their U.S. operations with disproportionately large amounts 
of debt which then generate large interest deductions in the United 
States. This proposal, if enacted, would ensure that a firm's leverage 
is spread relatively evenly across its worldwide operations.

    The administration would be willing to explore ideas that would 
reduce the tax preference for debt-financed investment even more, such 
as by ``haircutting'' interest deductions by a specified percentage. 
Various approaches to limiting interest deductibility could finance 
lower tax rates and do more to encourage investment in the United 
States than many other ways to pay for income tax rate reductions.

    Question. The U.S. film industry is one of our crown jewels which 
generates jobs across the country and is a major export of the U.S. 
However for years, China has erected barriers to importation and 
distribution of U.S. films. In June of 2012, after a successful 
challenge of China's practices before the WTO, the U.S. entered into an 
agreement with China, which included China's commitment to open up 
theatrical distribution of U.S. films to independent producers, rather 
than having it under the control of a government controlled entity. 
Yet, almost 3 years later, there has been no movement by China to 
implement these provisions. Can you assure me that this issue will be 
taken up again at the 2016 S&ED which you will lead?

    Answer. In February 2012, the United States and China reached an 
alternative solution with regard to certain rulings relating to the 
importation and distribution of theatrical films in a WTO case that the 
United States had won. The two sides signed a memorandum of 
understanding (MOU) providing for substantial increases in the number 
of foreign films imported and distributed in China each year, along 
with substantial additional revenue for foreign film producers.

    Significantly more U.S. films have been imported and distributed in 
China since the signing of the MOU, and the revenue received by U.S. 
film producers has increased significantly. However, work remains with 
respect to certain MOU commitments, including with regard to 
commitments to open up film distribution opportunities for imported 
films.

    The United States made recent progress on this important issue. At 
the June 2015 S&ED meeting, China committed to ensure that any Chinese 
enterprise licensed to distribute films in China can distribute 
imported flatfee films on its own and without having to contract with 
or otherwise partner with China Film Group or any other state-owned 
enterprise. The United States is monitoring China's actions. 
Furthermore, the United States has been pressing China to take similar 
steps with regard to films that are distributed in China on a revenue-
sharing basis.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
    Question. I noticed that while the newly released budget references 
the ``Administration's Framework for Business Tax Reform'' released in 
2012, it does not specify a target corporate tax rate as part of 
business tax reform.

    Does the administration still support a 28-percent corporate tax 
rate as the goal of business tax reform? And, if so, do you think this 
rate target is aggressive enough, considering that the average 
statutory tax rate in the European Union in now around 22 percent?

    Answer. In 2012, the President first laid out his Framework for 
Business Tax Reform, which describes the administration's overall 
approach to reform. The President's plan would close loopholes and 
broaden the tax base to facilitate lowering the maximum statutory 
corporate income tax rate to 28 percent; improve the international tax 
system by moving toward a hybrid system with a global minimum tax on 
the earnings of foreign subsidiaries that prevents base erosion; 
strengthen key incentives for important investments in the U.S.; 
simplify and reduce taxes for small businesses; and maintain fiscal 
responsibility so that reform does not add to long-run Federal budget 
deficits. At 28 percent, down from 35 percent, the statutory U.S. 
corporate income tax rate would be generally in line with other large 
OECD economies. A reform that reduced the corporate income tax rate to 
28 percent, in conjunction with the other improvements described in the 
framework would improve both the quantity and quality of U.S. 
investment, enhancing economic productivity and increasing output. 
Moreover, a reduction in the corporate tax rate to 28 percent could be 
achieved without permanently reducing corporate tax revenues by 
broadening the corporate tax base. Hence, the administration's proposed 
reform improves the corporate tax system but without adding to the 
Federal Government's long-run budget deficits.

    Question. As you know, the OECD's Base Erosion and Profit Shifting 
(BEPS) proposals have generated substantial controversy and concern 
from U.S. enterprises that conduct business around the globe. How will 
the Treasury Department ensure that U.S. businesses and investors are 
not subject to double taxation as a result of the OECD BEPS project?

    Answer. One of the basic goals of the OECD BEPS project is to 
reduce instances of stateless income--earnings not taxed by any 
country. In addressing that goal, it is important to recognize the 
various existing components of the international tax system that limit 
the instances of double taxation. For instance, the United States 
offers a foreign tax credit to offset the effects of foreign income 
taxes imposed on the earnings of a foreign subsidiary, to eliminate 
double taxation. In addition, the bilateral income tax treaties we have 
in force with our trading partners include provisions by which the IRS 
and partner foreign tax administrations endeavor to resolve instances 
of double taxation that may arise. Additionally, we are working within 
the G20 to promote initiatives to enhance tax administration around the 
world in a way that minimizes tax uncertainty and the potential for 
double taxation.

    Question. I noticed that once again the administration is proposing 
a limitation on the value of itemized deductions as well as a so-called 
``Buffett Rule,'' both designed to raise taxes on certain Americans. As 
you know, many charitable organizations have voiced concerns that these 
proposals would have a damaging impact on charitable giving. Why did 
you take the concerns of the charitable community into account in 
designing one proposal but ignore them in the other?

    Answer. Charitable organizations play an important role in 
communities throughout the country, and tax incentives to make 
charitable contributions are retained under both the ``Buffett Rule'' 
and the proposal to limit the value of certain tax expenditures. The 
treatment of charitable contributions under the two proposals is 
equivalent. Under the ``Buffett Rule,'' taxpayers would receive a tax 
credit of 28 percent of the value of their charitable contributions. 
Under the proposal to limit the value of tax expenditures, the tax 
value of the deduction would also be set at a maximum of 28 percent of 
the contribution. We do not believe that either proposal would have a 
large effect on charitable giving, for several reasons. First, giving 
is motivated by many reasons other than tax savings. Second, only a 
small fraction of taxpayers would be subject to either of these 
proposals. Third, taxpayers who are affected would still have a 
substantial tax incentive to make charitable contributions. For 
example, a taxpayer in the top rate bracket will still receive a tax 
benefit of 28 percent of each dollar donated (the same incentive that 
taxpayers in the 28 percent tax bracket have now).

    Question. One element of your tax reform proposal--the 19 percent 
minimum tax on foreign income of U.S. companies--has increased 
dramatically in the amount of revenue it is estimated to raise. The 
proposal was estimated to raise around $200 billion when proposed last 
year, but is estimated to raise roughly $350 billion in this year's 
budget.

    What does this substantial increase tell us about the need for tax 
reform and also about how much revenue the U.S. is currently losing due 
to our outdated corporate tax system? What do you believe is driving 
this increased revenue projection?

    Answer. The minimum tax proposal included in the administration's 
broader business tax reform plan raises revenue to the extent that the 
foreign earnings of U.S. companies are taxed at rates below 19 percent 
(before accounting for foreign tax credits)--rates that are generally 
well below those which apply in large OECD economies. This global 
minimum tax, then, is aimed at slowing the global ``race to the 
bottom'' in corporate income tax rates. The upward revision in the 
revenue effect of this proposal reflects, to some extent, the fact that 
a rising level of multinational firms' earnings is reported in low-tax 
foreign jurisdictions, and to a larger extent, that the effective 
foreign-tax rate actually paid by U.S. multinational corporations to 
foreign governments is lower than previously estimated. Reductions in 
foreign taxes paid reduce foreign tax credits available to be credited 
against the minimum tax, and thus increase minimum tax revenues almost 
one for one.

    The fact that U.S. multinational corporations face extremely low 
foreign effective tax rates on their foreign earnings and that 
effective rates paid have continued to trend downward even in the post-
recession era illustrates the ongoing efforts by U.S. multinationals to 
shift profits to low-tax jurisdictions and the porousness of our 
current international tax system, which allows such shifting to occur. 
These tax-
induced distortions to businesses' decisions regarding where to locate 
activities and where to report profits impose costs in the form of tax 
planning and foregone domestic investment. An important objective of 
the administration's minimum tax proposal is to reduce opportunities 
for firms to engage in such tax planning and to improve their 
incentives to locate real economic activity in the U.S.

    Question. As you know, the President's budget request would 
increase premiums paid to the PBGC by multiemployer plans with the aim 
of raising $15 billion to protect pension benefits for workers and 
retirees. Can you speak to the current state of the PBGC, particularly 
in light of the proposed rescue plan for the Central States Pension 
Fund?

    Answer. The Pension Benefit Guaranty Corporation (PBGC) insures the 
benefits of approximately 40 million people, 10 million of whom are 
multiemployer plan participants. The PBGC insurance is an important 
backstop to private pensions in the U.S. However, according to PBGC 
analysis, PBGC's multiemployer insurance fund is more likely than not 
to exhaust its funds in the next 10 years. While the projected 
insolvency of the Central States Pension Fund contributes to the PBGC's 
multiemployer deficit, it is expected to go insolvent after the PBGC 
exhausts its multiemployer fund. PBGC will provide updated projections 
when it publishes its 2015 Projections Report along with a report of 
the adequacy of multiemployer premiums required under the Kline-Miller 
Multiemployer Pension Reform Act of 2014.

                                 ______
                                 
               Questions Submitted by Hon. Johnny Isakson
    Question. Georgia is third in film production in the country, which 
provides direct jobs related to the content produced and indirect jobs 
in the construction, restaurant, hotel, and service industries. Film 
production and the content produced represent a large American export 
sector. Thus, the United States needs to ensure that global markets are 
open for these products. Last June, the Strategic and Economic Dialogue 
with China included a discussion of the implementation of the China 
Film Agreement. China committed to allow independent producers to 
distribute U.S. films in China.

    What is the status of China's implementation of the China Film 
Agreement?

    Answer. In February 2012, the United States and China reached an 
alternative solution with regard to certain rulings relating to the 
importation and distribution of theatrical films in a WTO case that the 
United States had won. The two sides signed a memorandum of 
understanding (MOU) providing for substantial increases in the number 
of foreign films imported and distributed in China each year, along 
with substantial additional revenue for foreign film producers. 
Significantly more U.S. films have been imported and distributed in 
China since the signing of the MOU, and the revenue received by U.S. 
film producers has increased significantly. However, work remains with 
respect to certain MOU commitments, including with regard to 
commitments to open up film distribution opportunities for imported 
films.

    The United States made recent progress on this important issue. At 
the June 2015 S&ED meeting, China committed to ensure that any Chinese 
enterprise licensed to distribute films in China can distribute 
imported flatfee films on their own and without having to contract with 
or otherwise partner with China Film Group or any other state-owned 
enterprise. The United States is monitoring China's actions in this 
regard. Furthermore, the United States has been pressing China to take 
similar steps with regard to films that are distributed in China on a 
revenue-sharing basis.

    Question. What action is the U.S. Treasury Department taking to 
ensure that China complies with the agreement in this growing market?

    Answer. See answer to question 1.

                                 ______
                                 
                Questions Submitted by Hon. Dean Heller
    Question. To begin, I sent you a letter January 21st of this year, 
addressing my concerns about our outdated international tax code, and 
have yet to receive a response. I look forward to receiving your 
response and respectively request a response by March 2nd, 2016, on the 
January 21st letter, as well as the following questions. Should you not 
be able to meet this date, please reach out to my staff to provide a 
timeline for when we should expect a response.

    The Committee held a hearing late last year on the European Union's 
(EU) State Aid investigations. I, like a number of my colleagues, are 
deeply concerned with the trend of these cases. Just recently, the EU 
Commission concluded that 35 multinational companies benefited from 
Belgium's ``excess profit'' tax structure. And this is in addition to 
outstanding cases that are already targeting American companies, such 
as Starbucks, McDonalds, Amazon and Apple. I am pleased to see that Bob 
Stack recently met with EU representatives to discuss some of these 
concerns. What specifically is the Treasury doing to protect our U.S. 
multinational companies and the American jobs that could be 
detrimentally impacted as a result of some of these rulings?

    Follow-up: As you are also aware, these back-door tax increases on 
American companies could also result in American taxpayers footing the 
bill through foreign tax credits. Given the rise in EU state aid 
investigations and lawmaker's concerns over reduced revenue, what steps 
are the Treasury taking to address retroactive tax increases?

    Answer. We have continued to make the EU Commission (EC) aware of 
our concerns and have strongly urged the EC to reconsider its approach 
in a letter to EC President Jean-Claude Juncker. My letter urged 
President Juncker to reconsider these unilateral actions and to focus 
instead on our cooperative work through the OECD-G20 Base Erosion and 
Profit Shifting project. In addition, I and other Treasury officials 
have discussed these issues extensively with Commissioner Margrethe 
Vestager, her staff, and other key representatives of the EC. Finally, 
I raised this issue with European counterparts during the recent G20 
meetings in Shanghai. We are continuing to consider all modes of 
engagement to convey our strong view that the EC should reconsider its 
approach in these cases.

    Question. As you are likely aware, Chairman Brady has announced his 
intention to move international tax reform through his committee later 
this year. With a 5-year highway bill completed, deemed repatriation 
paying for a highway bill seems to be off the table in the short term. 
Could the administration consider supporting international tax reform 
with the revenue from deemed repatriation used for lowering the 
corporate tax rate?

    Answer. A key principle of the President's Framework for Business 
Tax reform is that it not add to the Federal budget deficit--either in 
the short term or in the long term. Using one-time, transition revenue, 
such as from a deemed repatriation, to permanently lower the corporate 
rate provides the illusion of being revenue-
neutral within the 10-year budget window, but would in fact be revenue-
losing in the long run, adding to the fiscal pressures faced by future 
generations. The administration's plan instead calls for using that 
one-time revenue to make much-needed investments in the nation's 
infrastructure, which benefits businesses and the economy overall by 
providing good middle-class jobs in the short run and increasing the 
efficiency of our transportation networks in the long run.

    Question. I, like a number of my colleagues, are waiting to receive 
a response from your colleague, Bob Stack, who was a witness at a 
Finance BEPS hearing last year. I commend the chairman and ranking 
member for their efforts to address the concerns BEPS can cause 
American businesses. To be clear, in what ways did the Treasury consult 
Congress as the BEPS plan was taking shape?

    Follow-up: If nothing is legally binding in the BEPS process, why 
has the Treasury decided to implement country-by-country reporting?

    Answer. The Treasury Department has engaged with Congress 
throughout the course of the BEPS project, primarily through numerous 
briefings by Deputy Assistant Secretary Stack.

    Regarding country-by-country (CbC) reporting, the Treasury 
Department and the IRS have determined that the information required 
under the proposed regulations will assist in better enforcement of the 
Federal income tax laws by providing the IRS with greater transparency 
regarding the operations and tax positions taken by U.S. multinational 
firms. In addition to this direct benefit from collecting U.S. CbC 
reports, pursuant to income tax conventions and other agreements 
relating to the exchange of tax information (collectively, information 
exchange agreements), a report filed with the IRS may be exchanged by 
the United States with other tax jurisdictions in which the U.S.-based 
firm operates. The ability of the IRS to receive reciprocal CbC reports 
will provide information that will assist the IRS in performing risk 
assessment of foreign multinational firms operating in the United 
States.

    The country-by-country work at the OECD achieved a global, uniform 
approach to the reporting and dissemination of CbC information through 
tax administrations. In the absence of such agreement, countries around 
the world might well have imposed their own reporting obligations on 
the multinationals doing business in their jurisdictions, and such 
reporting requirements could vary from jurisdiction to jurisdiction, 
thereby increasing the compliance burden on U.S. multinationals. The 
U.S. Treasury Department worked closely with the business community and 
other stakeholders on virtually all aspects of the drafting and 
implementation of CbC reporting.

    Question. Many of my fellow colleagues are concerned about TPP. 
Thousands of Nevadans, including Shawn from Reno, have written me 
expressing their deep concerns with the trade deal the administration 
negotiated. As you know, I wrote a letter to Ambassador Froman and 
yourself to reiterate my strong desire that TPP uphold the strong 
standards laid out by TPA. Do you believe TPP upholds the strong 
standards of TPA?

    Follow-up: What steps are you personally taking to address 
lawmakers concerns?

    Answer. TPP upholds the strong standards laid out by TPA. Treasury 
has worked closely with USTR and Congress to meet the objectives of 
TPA. We will continue to work with congressional leadership, and we 
hope that Congress will approve this agreement as soon as possible. 
It's the right thing to do for our economy and for American leadership 
in the strategically important Asia-Pacific region.

    TPP is a high-standard trade agreement that will benefit the U.S. 
economy and level the playing field for American workers and 
businesses. TPP countries will cut 18,000 tariffs on Made-in-America 
products. Also, TPP puts in place historic labor and environment 
standards that will ensure trading partners play by high standard 
rules.

    Regarding currency, for the first time in the context of a trade 
agreement, the macroeconomic policy authorities of the TPP countries 
have adopted a Joint Declaration that addresses unfair currency 
practices by promoting transparency and accountability. In the 
Declaration, countries commit to avoid unfair currency practices and 
refrain from competitive devaluation, to provide transparency in their 
foreign-exchange intervention and foreign reserves data, and to meet 
regularly for comprehensive macro and exchange-rate discussions.

    The Joint Declaration addresses the objectives on currency set out 
by Congress in the Trade Priorities and Accountability Act passed in 
June 2015.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
           business investment simplification through pooling
    Question. Today there are $40 trillion in capital assets in the 
U.S. economy, with more than $2.5 trillion in new investment every 
year. While we know capital investment is an important aspect of 
economic growth, our cost recovery system is stuck back in the 1980s. 
CBO has found it is one of the largest sources of bias in our tax code, 
with computer and technology companies one of the biggest losers. And 
while current tax free reinvestment rules may soften the blow, these 
so-called like-kind exchanges are so complex that many small businesses 
can't use them.

    Meanwhile, creative tax consultants and brazen taxpayers can 
manipulate a raft of complex cost recovery rules by parting-out 
buildings or changing around line-items on their accounting books to 
cut millions of dollars off their tax liability.

    Do you think there are things we can do to simplify our cost 
recovery rules? The Business Tax Reform Working Group, co-chaired by 
Senators Cardin and Thune spent a lot of time discussing a simplified 
pooled cost recovery system. Is that a place to start?

    Answer. Except for certain limited expensing and bonus depreciation 
incentives, cost recovery rules for capital assets have remained 
essentially unchanged since 1986. We are aware that the current rules 
can require burdensome record keeping and may introduce computational 
complexity. We are also aware of concerns that the current rules are 
outdated, resulting in uncertainty and disputes between taxpayers and 
the IRS. In undertaking business tax reform, a thorough review of the 
cost recovery provisions of the Tax Code should definitely be part of 
the policy discussion, with an emphasis on simplicity where possible. 
The work done by Members of the Senate Finance Committee to think these 
issues through is a good start.
            barriers to multi-employer pension plans (meps)
    Question. Secretary Lew, I'm pleased that the administration 
included a legislative proposal to expand multiple employer plans in 
the President's budget. Senators Hatch, Brown and Nelson also are 
working on legislation to address the issues under current law with 
open MEPs. Open MEPS would enable small employers to sponsor high-
quality, low-cost plans, with fewer administrative burdens than plans 
sponsored by a single employer. And so I'm pleased with the joint 
interest in this topic.

    However, as you know, we don't need to wait for legislation, as 
Treasury today could address a big problem when it comes to MEPs. In a 
letter dated November 17, 2014, I, along with some of my Democratic 
colleagues, asked you to address the so-called ``one bad apple rule'' 
that creates a disincentive for small businesses to join MEPs.

    Under current Treasury regulations, if one employer participating 
in a multiple employer plan violates the tax qualification rules 
applicable to retirement plans, the entire plan can be disqualified, 
with potentially devastating tax consequences for all of the 
participating employers and their employees. This not only seems 
unfair, but it is also materially impeding the growth of multiple 
employer plans among small businesses.

    As I stated in my letter, this is a problem that can be addressed 
by Treasury today, since the position in the Treasury regulations is 
not required by the statute. And I urge you to revisit this regulatory 
position, which discourages MEPs.

    Secretary Lew, can I have your commitment that you'll address this 
problem administratively?

    Answer. We appreciate your continued interest in this important 
topic of how to bring more working Americans into the tax-favored 
retirement system, including through expanding participation options in 
multiple employer plans (MEPs). As you note, stakeholders have raised 
concerns that the ``one bad apple'' or ``taint'' rule can be a 
disincentive for small businesses to join MEPs. Office of Tax Policy 
and IRS staff have been actively considering possible ways, including 
potential changes to Treasury regulations, to eliminate or reduce that 
disincentive without unintentionally increasing noncompliance with 
Internal Revenue Code requirements in the MEP community. Through these 
efforts, we have recognized that any changes to the current rules 
should address, among other things, whether there would be situations 
in which the responsibility for noncompliance should be allocated 
between the MEP provider and a participating employer and, even more 
importantly, what processes can be put in place to afford protection to 
the retirement benefits of the employees of a noncompliant 
participating employer in a MEP. Work in this area is ongoing, and any 
regulatory change would be subject to the usual notice and comment 
process.

                                 ______
                                 
            Question Submitted by Hon. Robert P. Casey, Jr.
    Question. Access to affordable childcare child is essential for all 
working Americans, which is why I am glad to see the President re-
proposed a policy I have championed in the Senate to increase the Child 
and Dependent Care Tax Credit, and make it available to more American 
parents and families. Secretary Lew, can you speak to the importance of 
having high-quality childcare, from both an education perspective, and 
an economic perspective.

    Answer. Access to affordable child care is a barrier to employment 
or further schooling for many individuals. Although the child and 
dependent care tax credit partially offsets these costs, the value of 
the credit has eroded over time because income level at which the 
credit begins to phase-down and the expense limit are not indexed for 
inflation.

    Child care costs are particularly high among families with children 
under age 5 because these children are generally too young to attend 
elementary school and because care for very young children can be more 
expensive. In addition to imposing a financial burden on working 
families, these additional costs are an impediment to reentry into the 
workforce by parents. Empirical evidence suggests that mothers of 
children under age 5 have lower rates of labor force participation and 
employment than mothers of older children, suggesting that child care 
costs may delay employment for mothers who would prefer to return to 
market work. Expanding child care assistance to taxpayers with children 
reduces obstacles for these parents to participate in the labor force 
or in education programs. And importantly, helping families afford the 
rising cost of quality child care promotes child development, with 
long-term benefits for children and our society.

    For these reasons the administration proposes to increase the child 
and dependent care credit and create a substantially larger credit for 
taxpayers with children under age 5. In 2017, about 5.3 million 
families would receive an average of about $930 from these proposed 
changes to child care tax incentives. We appreciate your continued 
efforts to improve the Child and Dependent Care Credit and look forward 
to working with you to enact an expansion.

                                 ______
                                 
               Questions Submitted by Hon. Mark R. Warner
    Question. The international tax reform proposal included in the 
President's Fiscal Year 2017 Budget imposes a 19-percent minimum tax on 
foreign earnings, and is estimated to raise $350 billion over 10 years. 
Last year, you estimated that the same 19-percent minimum tax on 
foreign earnings raised $205 billion over 10 years.

    At the same time, the Congressional Budget Office estimates that by 
2026, increasing erosion of the corporate tax base will lower corporate 
income tax receipts by 5 percent compared with collections in 2016. 
Half of that difference is attributable to the shifting of income out 
of the United States. I know that many of my colleagues on this 
Committee share my concern over the significant amount of base erosion 
we are facing.

    What factors contribute to this significant increase in revenue 
raised by your minimum tax proposal?

    Answer. The minimum tax proposal included in the administration's 
broader business tax reform plan raises revenue to the extent that the 
foreign earnings of U.S. companies are taxed at rates below 19 percent 
(before accounting for foreign tax credits)--rates that are generally 
well below those which apply in large OECD economies. The global 
minimum tax is aimed at slowing the global ``race to the bottom'' in 
corporate income tax rates. The upward revision in the revenue effect 
of this proposal reflects, to some extent, the fact that a rising level 
of multinational firms' earnings is reported in low-tax foreign 
jurisdictions, and to a larger extent, that the effective foreign-tax 
rate actually paid by U.S. multinational corporations is lower than 
previously estimated. Reductions in foreign taxes paid reduce foreign 
tax credits available to be credited against the minimum tax, and thus 
increase minimum tax revenues almost one for one.

    The fact that U.S. multinational corporations face extremely low 
foreign effective tax rates on their foreign earnings and that 
effective rates paid have continued to trend downward even in the post-
recession era illustrates the ongoing efforts by U.S. multinationals to 
shift profits to low-tax jurisdictions and the porousness of our 
current international tax system, which allows such shifting to occur. 
These tax-
induced distortions to businesses' decisions regarding where to locate 
activities and where to report profits impose costs in the form of tax 
planning and foregone domestic investment. An important objective of 
the administration's minimum tax proposal is to reduce opportunities 
for firms to engage in such tax planning and to improve their 
incentives to locate real economic activity in the U.S.

    Question. Fully leveraging the potential of the Digital 
Accountability and Transparency (DATA) Act of 2014 presents an 
opportunity for agencies to facilitate better management, and the 
Department of the Treasury, along with the Office of Management and 
Budget, must provide leadership in issuing critical guidance for 
agencies to move forward. To that end, please answer the following 
questions.

    The DATA Act requires that the financial data standards issued by 
Treasury and OMB incorporate widely accepted elements, to the extent 
reasonable and practicable. A recent Government Accountability Office 
report (GAO-16-261) evaluated the 57 issued standards in light of 13 
leading practices developed by the International Organization for 
Standardization (ISO), and found that most adhered to leading 
practices. However, GAO also found that several of the standards 
require additional clarity, in order for agencies to report data that 
can be aggregated or compared. How does Treasury plan to further 
clarify these standards?

    Answer. In GAO's recent report (GAO-16-261), they recommended that 
OMB, in consultation with Treasury, provide agencies with additional 
guidance to address potential clarity issues on several data standards 
that were finalized last year. While Treasury worked closely with OMB 
in developing the data standards, OMB is leading this effort, and we 
defer to OMB to update you on the status of this recommendation.

    Question. The GAO report found that final versions of the technical 
schema and intermediary broker system have been delayed, leaving 
agencies without sufficient time to develop appropriate plans. For 
example, Treasury has issued several beta versions of the technical 
schema, but the final version was expected in December and agencies 
cannot move forward without the final schema. Likewise, Treasury's 
pilot at the Small Business Administration of the broker was limited in 
scope. When does Treasury plan to release the final schema and broker 
system?

    Answer. On April 29, 2016, Treasury released the DATA Act 
Information Model Schema (DAIMS) v 1.0 that will further clarify the 
reporting specifications for agencies based on the 57 data definition 
standards. The DAIMS v 1.0 was revised over the past year based on 
hundreds of comments provided by the public and Federal agencies. It 
includes artifacts that provide technical guidance for Federal agencies 
about what data to report to Treasury including the authoritative 
sources of the data elements and the submission format. The DAIMS also 
provides clarity on how the public can better understand the inherent 
complexity of the data and an overall view of the hundreds of distinct 
data elements illustrating how Federal dollars are spent.

    The DATA Act Broker is a tool that Treasury is developing to allow 
agencies to submit the required data in a standardized format. The 
Broker will accept data submitted directly from agencies and it will 
also pull data from existing data sources when needed. The Broker will 
validate agency data, allow agencies to certify the data, and complete 
the data submission and uploads to the DATA Act operating 
infrastructure. Treasury created a prototype Broker last year and used 
it to test agency data. Treasury is in the process of updating the DATA 
Act Broker based on the DAIMS v 1.0 release in April 2016 and will 
continue to test it with the agencies before finalizing it later this 
year.

    Question. High-quality data retained by agencies is essential to 
facilitating better governance. What steps is Treasury taking to ensure 
that data is of the highest quality, including taking a least-
burdensome and data-centric approach to implementation?

    Answer. Treasury established a transparent and interactive process 
for DATA Act implementation to ensure that Federal agencies and 
external stakeholders can participate in the process to improve data 
quality and meet the data consumer's needs. Two key principles that 
Treasury is following are the Agile Development Methodology and User-
Centered Design. These principles will help contain implementation 
costs and provide the greatest chance of success in meeting the 
transparency objectives to improve data quality.

    Treasury remains committed to the data-centric approach for DATA 
Act implementation. Last year, Treasury conducted a pilot to explore 
the feasibility of leveraging industry data exchange standards to map 
Federal financial data to a standard taxonomy and format. This is a 
critical component to DATA Act implementation because much of the 
Federal financial data resides in non-interoperable systems that cannot 
be readily retrieved. The DAIMS v 1.0 released in April 2016 adheres to 
these principles. It collects financial data directly from agency 
systems when required and also pulls award data from existing systems 
to reduce agency burden.

    Question. Treasury's budget proposal includes $19.8 million for 
implementation efforts at Treasury itself and a new, $3 million 
initiative to build out cross-agency support services at Treasury's 
Administrative Resource Center to implement the law. However, the lack 
of a line item for DATA Act implementation at most other agencies in 
the President's budget is concerning. What shared services does 
Treasury anticipate building out, and how would this enable other 
agencies to better leverage the potential of the DATA Act?

    Answer. Nineteen-point-eight million dollars in multiyear funding 
was previously approved in FY 2016 for the Bureau of the Fiscal 
Service's government-wide implementation. For the FY 2017 request, ARC 
will use its funding to upgrade ARC's financial management system 
platform to meet DATA Act reporting requirements for ARC's shared 
services customer agencies. This funding will also support ARC in 
improving business processes supporting FPDS reporting and other award 
reporting to USASpending.gov in preparation of the new DATA Act 
reporting. ARC will also prepare for and provide ongoing DATA Act 
reporting services to Federal agencies using ARC's system platform.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    Thank you, Mr. Chairman, and thank you, Secretary Lew, for 
appearing before the Finance Committee to outline President Obama's 
budget proposal one final time. Here's where I'd like to begin today. 
There are, in America right now, two different tax systems. The one 
most people deal with is mandatory--their taxes come directly out of 
the paycheck. Then there's another system for the well-connected, and 
under that system, you pay what you want, when you want to.

    The fact is that most Americans--people who earn a few checks a 
month, and who may have a mortgage and a few kids--those taxpayers 
interact with a very small portion of the tax code.

    But there are far too many shadowy, cobweb-filled corners of the 
code that typical Americans never have to venture into. Those corners 
are loaded with byzantine rules that accountants and lawyers from 
white-shoe firms can use to pry open loopholes.

    As a result of all this complexity, you have increasingly slippery 
definitions of capital gains and income, and an array of tax-dodging 
strategies with names like wash sales and swap contracts. It is a mind 
numbing system. And it's no wonder why somebody who works the line at a 
factory or has a gig at a mom and pop business would believe the tax 
code is stacked against them.

    Now, I don't think anybody would bet on there being a complete 
rewrite of the tax code this year that addresses this fundamental 
unfairness or the many other ways our tax code is broken. But I see a 
big opportunity for Democrats and Republicans in Congress, the Treasury 
Department, and the IRS to work together now. And that's by cracking 
down on the tax avoidance schemes that result in the corporate tax gap.

    I'm going to have a lot more to say about this later this afternoon 
when Commissioner Koskinen comes before the committee. But the short 
story is that two-thirds of a trillion dollars owed in corporate taxes 
goes unpaid every decade, and in my view, policymakers ought to be 
doing a lot more to figure out why and how to fix it. I see this as an 
opportunity to free up some dollars to take on the big economic 
challenges of this era, many of which are reflected in proposals in the 
President's budget.

    For example, the auto-IRA proposal will help a lot of workers start 
saving for the first time. The second-earner tax credit will help a lot 
of families who are walking an economic tightrope every day. The 
community college partnership tax credit will help students who are 
looking for that first high-wage, high-skill job coming out of school. 
Investments in early education and children's health will help 
guarantee that kids start life with security and opportunity. And there 
are many other smart proposals that will be a big help to millions of 
families in Oregon and across the country. I'm looking forward to 
working on a bipartisan basis with my colleagues in Congress to pursue 
those issues.

    Mr. Secretary, thank you again for being here today. And thank you 
again, Mr. Chairman--particularly for scheduling three hearings this 
week for the Finance Committee to come together on a bipartisan basis 
to examine the President's budget proposal. In my view, we have both a 
responsibility and a practical need to communicate with the 
administration as effectively as possible--no matter which party 
controls the White House. This practice informs the debates that come 
over the course of the year on Capitol Hill. It is disappointing that 
some other committees this year are not exercising this same 
responsibility. I hope that does not become a precedent.

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