[Senate Hearing 114-61]
[From the U.S. Government Publishing Office]





                                                         S. Hrg. 114-61

                PRESIDENT'S BUDGET FOR FISCAL YEAR 2016

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            FEBRUARY 5, 2015

                               __________


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            Printed for the use of the Committee on Finance

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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

Grassley, Hon. Chuck:
    Prepared statement with attachment...........................    41
Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    46
Lew, Hon. Jacob J.:
    Testimony....................................................     5
    Prepared statement...........................................    49
    Responses to questions from committee members................    70
Portman, Hon. Rob:
    Letter from Dave Mason and Tim Boes to Senator Portman dated 
      January 21, 2015...........................................   119
    Letter from Jeffrey Carrier and Tim Rowe to Senator Portman 
      dated January 27, 2015.....................................   120
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................   121

                             Communications

Family Business Estate Tax Coalition (FBETC).....................   123
Puerto Rico Manufacturers Association (PRMA).....................   128

                                 (iii)

 
                PRESIDENT'S BUDGET FOR FISCAL YEAR 2016

                              ----------                              


                       THURSDAY, FEBRUARY 5, 2015

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:04 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Crapo, Thune, Portman, Toomey, 
Coats, Heller, Scott, Wyden, Schumer, Stabenow, Cantwell, 
Menendez, Carper, Cardin, Brown, Bennet, Casey, and Warner.
    Also present: Republican Staff: Chris Campbell, Staff 
Director; Tony Coughlan, Tax Counsel; Everett Eissenstat, Chief 
International Trade Counsel; Jim Lyons, Tax Counsel; Mark 
Prater, Deputy Staff Director and Chief Tax Counsel; Jeff 
Wrase, Chief Economist; and Nicholas Wyatt, Tax and Nominations 
Professional Staff Member. Democratic Staff: Adam Carasso, 
Senior Tax and Economic Advisor; Michael Evans, General 
Counsel; Tom Klouda, Senior Domestic Policy Advisor; Todd 
Metcalf, Chief Tax Counsel; Jocelyn Moore, Deputy Staff 
Director; Joshua Sheinkman, Staff Director; and Tiffany Smith, 
Senior Tax Counsel.

 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 2016. I want to thank Secretary Lew for appearing before 
us today.
    I am not going to sugarcoat anything with this budget. 
Instead, I am going to cut right to the chase. The President's 
budget proposes to hike taxes by $2.1 trillion, seemingly not 
content with the $1.7 trillion in new taxes he and his allies 
in Congress have imposed over the past 6 years.
    The President, with this budget, wants to again raise taxes 
on savings, investment, small business, and more, somehow 
thinking that it will help the economy. Sadly, this insatiable 
desire to raise taxes is not intended to bring our budget into 
balance. Rather, the President's $2.1-trillion tax hike is 
accompanied by proposals to further expand the government to an 
even greater share of our economy.
    The proposed budget never balances. Deficits continue, 
which means that the debt as a share of the economy would 
remain at levels not seen in our Nation's history, outside of a 
few years surrounding World War II. That outcome would mean 
continuing risk of what the nonpartisan Congressional Budget 
Office has labeled a, quote, ``fiscal crisis.'' In fact, CBO 
has warned us repeatedly about potential fiscal crises under 
President Obama's tenure. They have also made clear that 
unsustainable entitlement spending is at the heart of the 
potential for a fiscal crisis.
    Yet, the President's budget proposes precious little in the 
way of reigning in spending on our health care entitlements and 
does virtually nothing to address Social Security. Despite 
having pledged in 2009 that he would not kick the can down the 
road on Social Security, that is exactly what the President is 
now proposing to do with his budget, even while the Disability 
trust fund is projected to be exhausted next year.
    Simply put, there are too many shortcomings in the 
President's budget to adequately address in my opening 
statement, but they include higher taxes that would stifle job 
creation, economic growth, savings, and investment; new wealth 
taxes; muddled thinking about distributional issues; a lack of 
significant reforms to our unsustainable entitlements; ongoing 
deficits and outsized, risky Federal debt; and a repackaged 
bank tax that nods to the ineffectiveness of the Dodd-Frank 
law.
    The budget even puts forward a tax on section 529 education 
savings, which suggests that the budget's authors are out of 
touch with the American people. Of course, we have heard that 
the proposal to tax 529 education savings has been withdrawn 
and labeled a distraction. But it is still supported on policy 
grounds by the administration, although I am happy to see it is 
withdrawn.
    This is unhelpful, and that is the kindest possible word I 
can think of to describe that particular proposal and others 
like that that are apparently founded on the notion that the 
American people's savings are not their own, but instead 
targets for more redistribution.
    Like I said, there is a lot I could complain about when it 
comes to President Obama's budget, but let us be honest. 
Rehashing these complaints over and over again is not going to 
be the best use of the committee's time.
    So, Secretary Lew, let us try to look at some areas in the 
budget where the administration seems willing to go in a 
positive direction, even if, in my opinion, it falls short on 
the substance. In those areas, let us try to work together 
toward what I believe is the shared goal of everyone here: to 
help Americans where we can and get out of the way when we 
should.
    For example, I believe that we share a desire to reform our 
tax code, which everyone agrees is severely broken, does not 
help American families, and harms American businesses. And by 
businesses, I mean businesses of all types, not just one 
particular organizational form.
    I believe we share a desire to renew Trade Promotion 
Authority, as you identify in your testimony. I believe we 
share a desire to promote productive investments in 
infrastructure. Of course, if we are going to effectively 
address these issues, the President and his administration owe 
it to the American people to suspend what often seems like an 
unending political campaign for enough time to at least explore 
bipartisan cooperation.
    I will close with a question for you, Secretary Lew. It is 
a question that you did not answer and evaded in testimony 
earlier this week. The IRS Commissioner evaded a similar 
question when he was here on Tuesday. Secretary Burwell did the 
same in our hearing yesterday. The American people deserve an 
answer to this question, and I hope you will be willing to give 
us one today.
    The question is: do you have contingency plans in place in 
the event the Supreme Court invalidates the current structure 
of the Affordable Care Act tax subsidies later this year? I 
would like you to address this question in your opening 
remarks, if you will, and I will note that it is a simple 
question, requiring only a one-word answer: ``yes'' or ``no.''
    Once again, I want to thank Secretary Lew for appearing 
here today.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]
    The Chairman. With that, I will turn it over to the ranking 
member, Senator Wyden, for his opening statement.

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

    Senator Wyden. Thank you very much, Mr. Chairman. And thank 
you, Secretary Lew, for being here on day 3 of what is 
essentially budgetpalooza here at the Finance Committee.
    While the committee examines the administration's budget 
proposal today, the underlying issue remains the health of the 
budgets of middle-class workers and families trying to get 
ahead. The fact is, too many middle-class Oregonians are 
hurting.
    Our job is to put America's middle class on solid economic 
ground, lift wages, and make sure that everybody benefits when 
the economy grows. The President's budget proposals go after 
that challenge in a number of ways, and many of them are 
designed to improve America's badly broken tax code. For 
example, the budget proposes to make incentives for education, 
child care, and retirement savings more generous. It would take 
several steps to address the unfair ways our tax system treats 
wage-earning middle-class workers compared to others. And I was 
pleased to see that the proposal would move towards ending the 
system of tax deferral that traps the profits of America's 
businesses overseas instead of reinvesting them here in this 
country.
    These are all strong ideas, but I see an opportunity to do 
something even bolder. When it comes to the tax code, 
colleagues, why keep bailing water out of the boat instead of 
fixing the leaks? The most effective improvements Congress can 
make to middle-class tax incentives are going to come through 
comprehensive tax reform. That is the best route to a modern 
tax system that is simpler and fairer for all, and it is the 
best way to end the uncertainty caused by our tax code and to 
address its most persistent issues.
    Through comprehensive reform, the Congress can ensure that 
incentives provide the biggest help to the people most in need. 
Too often that is not how the code works today. Comprehensive 
reform can do more than piecemeal changes to level the playing 
field for wage earners and make filing easier to manage. And 
there is one indisputable fact. A comprehensive approach to tax 
reform is the best option for middle-class families, not one 
that is focused exclusively on business taxes.
    A lot of Americans--and certainly there are a number in the 
administration--have advocated a corporate-only or business-
only plan for reform. I would not want to have to explain to a 
single parent in Oregon why the Congress overhauled the tax 
code for corporations but not for that middle-class person. The 
corporate side of our tax code undeniably needs reform. Tax 
reform can and should make American businesses more competitive 
in the tough global marketplace, but it would be a grave 
mistake to leave millions of middle-class families and small 
businesses out.
    Now, of course, the Finance Committee is going to be 
working with the Treasury Department closely over the upcoming 
year on a variety of issues in addition to tax reform. The 
Treasury Department is working hard to look at new approaches 
to make sure that American workers and American priorities are 
maintained in tough global markets.
    So I look forward to hearing about the administration's 
efforts to address misaligned currencies, particularly with 
respect to the ongoing discussions on the Trans-Pacific 
Partnership. And it is important not to forget that Treasury 
plays an integral role in managing economic sanctions against 
countries like Russia, Iran, and Cuba. We welcome, Secretary 
Lew, as you know, updates on how those sanctions are working 
and how the administration envisions them changing in the 
future.
    So there is a lot on your plate, Secretary Lew. We thank 
you for being here.
    Colleagues, I just want to note, as I tried to do 
yesterday, when it seemed, at some point, the Finance Committee 
looked like it was becoming a mock trial, kind of getting into 
a whole host of legal issues, I think there is something ironic 
about the fact that a number of our colleagues on the other 
side of the aisle have filed a Supreme Court brief challenging 
the law and then keep demanding various Cabinet Secretaries 
explain how they plan to avert the disaster that is going to 
occur if their brief is successful.
    So I hope that we can have a discussion on the important 
issues relating to the budget, taxes, and our competitiveness. 
I think we talked about this at great length yesterday. At some 
point, I admitted that Chairman Hatch is a real lawyer, he is a 
trial lawyer. I am a lawyer in name only, having run the legal 
aid program for the Gray Panthers, but yesterday felt like we 
were going back to the Socratic method here in the Finance 
Committee, and I hope we can tackle these major issues in the 
Treasury budget today.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. I think you are a good lawyer, and 
anybody who can do what you did with the Gray Panthers has to 
have some moxie, is all I can say, and I have a lot of respect 
for you.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Our witness today is Treasury Secretary Jacob 
Lew. Secretary Lew was confirmed to his current position on 
February 27, 2013. Previously, Secretary Lew served as 
President Obama's White House Chief of Staff, and before that 
he was the Director of the Office of Management and Budget, a 
position he also held in President Clinton's Cabinet from 1998 
to 2001.
    Before returning to OMB, Secretary Lew first joined the 
Obama administration as Deputy Secretary of State for 
Management and Resources.
    Secretary Lew also has broad-based private-sector 
experience. He served as managing director and chief operating 
officer for two different Citigroup business units and served 
as executive vice president and chief operating officer of New 
York University.
    Secretary Lew has a long history with the Federal 
Government, including the Federal budget and the budget 
process. It goes all the way back to the tax bill in 1986 and 
the 3 years before that.
    I am afraid, Secretary Lew, that if I detail your long 
history of public service, we will run out of time for this 
hearing. I am ashamed that you have had to work so long in the 
Federal Government, but I am really very proud of you for all 
the work that you have done all those years.
    Suffice it to say, Secretary Lew, that we genuinely 
appreciate your long history of service to our country. I want 
to thank you for being here today. I want you to proceed with 
your statement.
    I have to open the Senate, and I have to be in Judiciary, 
because one of my bills is coming up. So I have asked Senator 
Thune to take over until I can get back, or at least until 11 
o'clock. Then, if I do not get back by then, I will have others 
take over.
    So with that, let us turn the time over to you for your 
statement.

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

    Secretary Lew. Thank you, Mr. Chairman, for that very 
gracious introduction and welcome. Thank you, Ranking Member 
Wyden, members of the committee, for having me here today to 
testify on the President's budget.
    A year ago, President Obama said that 2014 could be a 
breakthrough year for our economy, and the evidence is now 
clear that over the past 12 months, America has made great 
strides. We are seeing real progress in job creation, economic 
growth, family wealth, energy independence, manufacturing, 
exports, retirement accounts, the stock market, health care 
costs, graduation rates, and the deficit.
    The fact is, our businesses created nearly 3 million jobs 
last year, the most jobs in any year since the late 1990s. This 
capped off roughly 5 years of job growth, the longest stretch 
of job growth in our Nation's history, and the creation of 11 
million new jobs. In addition, the unemployment rate dropped to 
its lowest rate in 6\1/2\ years and our economy continued to 
expand, with healthy growth in the second, third, and fourth 
quarters of 2014 and forecasts projecting above-trend growth 
for 2015.
    From a global perspective, we continue to outperform our 
trading partners, many of which are still trying to climb out 
of the vast hole created by the global economic crisis. At the 
same time, with the Affordable Care Act in place, about 10 
million Americans now know the financial security of health 
insurance, and health care prices rose at the lowest rate in 
decades.
    The automobile industry continued its rebound in 2014, even 
as we marked the official end of the auto industry rescue, and 
American taxpayers recovered more money than we invested.
    Finally, thanks to the administration's all-of-the-above 
energy strategy, we moved closer to energy independence than we 
have been in decades, and gas prices fell, providing a shot in 
the arm for families and small businesses.
    So today our Nation has turned the corner on a number of 
fronts. Yet, as we know, this resurgence has not reached every 
American. For too many hardworking men and women in this 
country, it is still too hard to get ahead and too hard to earn 
enough to raise a family, afford child care, pay for college, 
buy a home, and secure a retirement.
    The President's budget meets these challenges by offering 
real solutions to grow the economy, strengthen the middle 
class, and make paychecks go further. This budget is built 
around the basic idea that hard work should pay off. It is 
practical, not partisan, and it lays out clear steps to rein in 
spending and eliminate wasteful tax breaks so we can reduce 
taxes for working families, as well as many businesses and 
manufacturers.
    What is more, this budget replaces the across-the-board 
cuts from sequestration and makes sensible investments to 
increase our economy's competitiveness, while maintaining a 
responsible fiscal path.
    As we know, not long ago, some were predicting that the 
President's policies would explode our deficits. A little 
history, though, makes clear the opposite is true. In the 
1990s, when I was Budget Director, I oversaw three budget 
surpluses in a row, and we were on a path to pay down our 
national debt.
    But when this administration took office in 2009, there was 
a very different reality. After years of runaway spending, 
including tax cuts for the most well-off and two wars, neither 
of which were paid for, and then the financial crisis, our 
deficits reached a post-World War II high.
    The President moved to right our Nation's fiscal ship. With 
his balanced economic approach, the agreements forged with 
Congress, and a growing economy, the deficit has fallen by 
almost three-quarters, the swiftest downturn since the period 
of demobilization following World War II.
    The deficit is projected to decline even further in the 
next fiscal year. And today we are putting forward a plan to 
lower our deficits to about 2.5 percent of GDP over the 10-year 
budget window.
    Our Nation's improved financial footing has occurred even 
as Congress was able to undo a portion of sequestration in 
recent years, replacing these cuts with more sensible and 
balanced savings. Still, nothing has been done to address these 
dangerous cuts in 2016. Without congressional action, vital 
funding for our national defense and key priorities like 
education, infrastructure, and research will be severely cut 
back.
    The President's budget provides a path to eliminate 
sequestration while achieving the President's longstanding 
commitment to a responsible and balanced fiscal approach. In 
other words, it charts a specific way forward to not only keep 
our fiscal house in order, but to create room for pro-growth 
economic policies which are needed to keep our Nation stronger 
for the future.
    One pro-growth strategy is tax reform to restore basic 
fairness and efficiency to our system. By scrapping loopholes 
and tax breaks that reduce the taxes for the most fortunate 
Americans but do not help our economy, we can provide critical 
tax relief for middle-class families and those struggling to 
join the middle class.
    Our economy should work for everyone, and everyone should 
shoulder their fair share to maintain our Nation's fiscal 
health.
    This budget also places a serious focus on achieving 
bipartisan business tax reform so that America is the best 
place in the world for businesses to locate, grow, and create 
the kind of good, high-paying jobs that support middle-class 
families.
    This plan shows how members of both parties can reach 
common ground and realize the shared objectives of simplifying 
the system, removing wasteful tax preferences and distortions, 
and lowering tax rates so that we no longer have a system in 
which some businesses pay nothing while others pay the highest 
rates in the developed world.
    It is time to stop rewarding the corporations and 
industries that have the best lobbyists and the most creative 
accountants and start strengthening businesses that build, 
hire, and invest here in the United States. It is also time to 
make inversions, a loophole that allows U.S. companies to lower 
their taxes after they buy foreign businesses, a thing of the 
past, and this budget does that. A more fair and efficient tax 
system will help create good middle-class jobs and grow our 
economy.
    We know that with business tax reform, there will be one-
time transition revenues. The President wants to use some of 
these one-time revenues to make long overdue repairs to our 
Nation's roads, bridges, ports, and airports. The need to 
rebuild our infrastructure is irrefutable, and that is why this 
budget tackles our infrastructure challenges by creating an 
extended period of sustained funding for a 6-year surface 
transportation bill and starting an innovative new bond program 
that will ignite more public-private partnerships in cities and 
States across the country.
    Of course, keeping our comeback on track, building on the 
momentum we have made, and making it possible for every 
American to get ahead is going to require strategies that are 
both bold and effective, and that is what this budget is about. 
It proposes a series of targeted investments that have been 
proven to make a difference.
    It invests in education by expanding student loans, 
strengthening tax incentives, and making community college free 
for those who earn it. It invests in America's workers by 
starting apprenticeship grants, enhancing job training 
programs, and boosting the Earned Income Tax Credit. It invests 
in working families by increasing the child care tax credit, 
providing tax relief for families when both parents are holding 
down jobs, and allowing more working families to earn paid 
leave.
    It invests in retirement security by making it easier for 
employees to automatically save for the future and businesses 
to provide 401(k)s to their employees. And it invests in 
innovation by creating more advanced manufacturing institutes, 
creating cutting-edge medical research initiatives, and 
bringing broadband access to more communities.
    In concert with these pro-growth strategies, this budget 
calls on Congress to send measures to the President's desk that 
will help our economy now and far into the future. This 
includes raising the minimum wage and fixing our broken 
immigration system.
    The President's trade agenda is another important component 
of our strategy to grow the economy and strengthen the middle 
class, and I look forward to working with all of you to pass 
Trade Promotion Authority to expand the reach of America's 
exports and create a level playing field for businesses and 
workers.
    The strategies I have described are part of the President's 
plan to help improve the lives of millions of hardworking 
Americans while meeting our responsibilities to future 
generations.
    The task before us now is to put political brinkmanship 
aside and find areas of compromise and common ground. I am 
certain we can get this done, and I will work with each and 
every member of this committee so that we can deliver for the 
American people.
    I thank you and look forward to answering your questions.
    Senator Thune [presiding]. Thank you, Mr. Secretary.
    [The prepared statement of Secretary Lew appears in the 
appendix.]
    Senator Thune. I am going to start with a couple of 
questions here, and hopefully the chairman will return soon. I 
will use 5-minute rounds and see where it goes from there.
    I am particularly concerned about the administration's 
proposal to raise the capital gains tax and apply the tax when 
an asset is transferred at death or by gift, not when the asset 
is sold, as is the case today. That proposal, if enacted, would 
have a devastating impact on family farms and small businesses 
in my State of South Dakota, and I want to give you an example.
    According to the South Dakota State University Agricultural 
Land Survey published last year, land values in South Dakota 
have more than doubled since 2010 and gone up 7 times since 
2000. So, if you take a typical family farm in South Dakota 
that bought a section of land, which would be 640 acres, back 
in 2000 for $640,000, which would have been roughly the price 
at that time in certain areas of my State--and I would note 
that in South Dakota, that would be considered a small farm--
today that same farm land is probably worth somewhere between 
$3.5 million and $4.5 million, depending on where it is 
located.
    So, under the current estate tax law, which excludes assets 
up to $5.43 million, that family farm is not taxed when it 
passes from one generation to the next. Now, under the 
administration's proposal, that family farm would be hit with a 
significant tax when it is transferred to the next generation 
of family members.
    Now your proposal, as I understand it, exempts $100,000 in 
capital gains or $200,000 per couple and raises the gains rate 
to 28 percent. So in that example, this South Dakota family 
would suddenly find themselves facing a tax bill of $1 million 
or more. So most farms of this size would not have liquid 
assets to deal with that large of a tax bill. The only way that 
they would be able to pay Uncle Sam would be to break up the 
family farm and sell off portions of it.
    So I know the President likes to talk about loopholes and 
trust funds and the like, but this capital gains proposal that 
you all put forward, we really need to talk clearly about what 
it would do. It is a very punitive death tax on America's 
family farms and family businesses, especially in places like 
South Dakota, where we have seen significant price appreciation 
for land.
    So the question, Mr. Secretary, very simply is, what is the 
administration's intent with regard to this tax? If it is to 
break up family farms, obviously, it is going to have that 
effect. Or is it simply an unintended consequence of your 
interest in imposing yet another layer of taxation at death, 
which I think, again, would be very unfortunate?
    Secretary Lew. Senator, let me step back and go to the 
reason for stepped-up basis and then get to the specific 
question about farms.
    Stepped-up basis is really meant to make our system work in 
a way that is more fair. Right now, if any of us take savings 
in 401(k)s or IRAs for our retirement, we need to realize the 
income and pay income tax on that. For families that are able 
to accrue enormous fortunes that never need to realize the 
income, they are able to pass on, in stocks and bonds and other 
assets--without any taxes paid--the appreciated value.
    Stepped-up basis would treat those families the same as it 
treats all of us in middle-class families. We were very 
concerned that it not have an impact that was unintended on 
small businesses and family farms. So we do have exemptions 
that apply for the first $100,000 for an individual, $200,000 
for a couple. We also have an exemption that applies if there 
is a modest income, and we also have provided 15 years for the 
payment of any of the capital gains so that it would not 
require a forced sale.
    And we would look forward to working with you and the 
committee on trying to refine this in any way we could to make 
this proposal, which we think is fundamentally fair, something 
that works well.
    Senator Thune. Well, I guess the way that I look at this, I 
mean, these are non-liquid assets. This is not like somebody 
who is selling stocks or bonds. We are talking about--farmers 
tend to be land rich and cash poor, and you are talking about 
shifting the point, the time the gain is realized. You are 
talking about raising the rate, and what you are talking about 
is just a huge tax liability for a lot of people who, at a time 
when you want to see some of these assets transfer to the next 
generation--if you want to maintain family farming and ranching 
operations, most of those require intergenerational transfers. 
I mean, that is how we keep that economy sustainable in States 
like South Dakota.
    It strikes me at least that this is just a very punitive 
tax on family farms and small businesses.
    Secretary Lew. Senator, I would say, on the capital gains 
rate, what we have proposed is returning to the capital gains 
rate that was in effect under President Reagan, at a time when 
we went through a period of economic growth with that capital 
gains rate.
    So I do not think the capital gains rate is something that 
is an untested one.
    In terms of the impact on illiquid assets, we designed it 
so that it would not require a forced sale, and we would look 
forward to working with you to deal with issues that arise in 
the design of a provision----
    Senator Thune. Even if the rate goes back to the 28-percent 
rate, which it was before, I mean, you are still talking about 
shifting the time at which the gain is realized and hitting 
people--essentially, I mean, it is a death tax.
    Normally, for a gain to be realized, somebody has to sell 
the asset. In this case, that does not happen. I mean, this 
just seems like a really strange proposal, particularly if you 
represent a constituency like I do in a farm-based part of the 
country.
    Secretary Lew. The problem with stepped-up basis under 
current law is that gains go untaxed forever in many cases, and 
I do not think that that is something that we would design the 
tax law to do.
    If you were talking about stocks and bonds and not a family 
farm, it would be very hard to defend having tens of millions 
of dollars of gains that effectively go untaxed from generation 
to generation.
    I understand the issue in terms of illiquid assets. We did 
put in the 15-year term to make it something that, for a 
working farm or a working business, would be something that 
could be managed in the normal conduct of the business.
    I would just point out that in the case of the estate tax, 
CBO did a study that concluded that only 65 farms in a given 
year would have been subject to the estate tax. So I think a 
lot of the concerns about the imposition of burden have been 
out of line with the actual impact, and if there are issues 
here that we need to fine-tune, we would look forward to 
working together.
    Senator Thune. Again, you have a triple shot. You have an 
increase in the rate, you have a change in the time of 
realization, and you do away with stepped-up basis, all at the 
same time.
    Again, these are pretty dramatic changes. And I understand 
what you are getting at, under a normal circumstance, to try to 
ensure that like transactions are taxed in a like manner, but 
we have always treated farm land and assets that are 
transferred at death in a very different way.
    Anyway, my time has expired.
    Senator Wyden?
    Senator Wyden. Thank you very much, Mr. Chairman.
    Let us talk about the middle class for a few minutes, 
Secretary Lew. You all put in a number of proposals--the $500 
second earner tax credit, tripling the child care credit, 
expanding the American Opportunity Tax Credit--and all of them 
are going to be well-received.
    As you know, there has been pretty solid debate here that 
has already emerged, with people like the Tax Policy Center, 
about whether this is going to put more money broadly--
broadly--into the pockets of middle-class wage earners or if it 
will be select groups like those with young children or 
college-aged children.
    I am of the view that we grow the economy from the middle 
out, that you have to get the relief to a broad spectrum of 
middle-class Americans. Did you all consider a proposal such as 
significantly expanding the standard deduction? Not only does 
this put a significant amount of money into the pockets of 
middle-class people, it has bipartisan support. Senator Coats 
has been interested in that; former Chairman Dave Camp was 
interested in that.
    I want to know what you think is in the budget that would, 
for example, grow the paycheck for a 50-year-old auto worker 
whose children are already out of the nest.
    Secretary Lew. Senator Wyden, we designed a budget that was 
obviously very much intended to provide meaningful relief and 
support for middle-class families. I think that, from the 
education provisions that we have in the budget to the 
retirement provisions and the minimum wage proposal, we have 
shown that we want people who are in the middle class and who 
are aspiring to be in the middle class to have more 
opportunity.
    The proposal to increase the standard deduction obviously 
would be of help to filers who do not have a lot of itemized 
deductions and, in the context of individual tax reform, is 
something that we would think is something to be looked at. So 
we were taking the view that we needed to target the specific 
things that are the steps on the ladder to opportunity, and our 
budget was designed around that.
    Senator Wyden. Let us continue this discussion, because, 
make no mistake about it, those kind of efforts, particularly 
in terms of education, they are absolutely key to repairing 
this pretty tattered ladder of opportunity.
    I just want us to keep in mind somebody like a 50-year-old 
auto worker whose kids are out of the nest, because a lot of 
those families are hurting too.
    Let me now turn to something you and I have talked about, 
and that is the question of tax simplification. The National 
Taxpayer Advocate--and, again, we are talking about the middle 
class--said that this year Americans are going to spend $168 
billion and spend 6.1 billion hours trying to comply with the 
American tax code.
    You have over 160 proposals in the Treasury Green Book, but 
to me, a lot of them look like add-on credits, deductions, new 
preferences, and it seems to me that, again, while I support 
very much this idea of getting relief to middle-class people, 
it looks like it is going to take taxpayers more time and more 
hassle.
    So tell me, if you would, what, in your view, is in the 
budget that would simplify taxes for middle-class people? And 
then I would like your thoughts on an approach I am looking at. 
I would like to see middle-class people get their March and 
April back rather than spending all this time and money, and I 
would like your thoughts on whether or not we ought to be 
looking at a tax reform system where many Americans could fill 
out a tax return on something that fits on a postcard.
    So what is in the budget that simplifies the tax system for 

middle-class people, and then, what do you think of this idea 
of our working together, again, on a bipartisan basis, to get 
the tax filing system for most people down to a postcard?
    Secretary Lew. Senator, we have tried, in areas like 
education, to simplify some of the provisions--there were 
multiple provisions--combining them to be easier for taxpayers 
to understand and take advantage of.
    I think the whole effort on individual tax reform is one 
where simplification is something that we very much aspire to. 
We obviously also think it is important to provide strong 
incentives for things like education and retirement savings and 
the like.
    So there is a bit of a tension between the total 
simplification and having incentives for things that are very 
important for working, middle-class families. We would very 
much look forward to working together to try to make the tax 
code as simple as possible.
    Senator Wyden. Would postcard-size be okay?
    Secretary Lew. I wish I could say that I thought that we 
could get it on a postcard.
    Senator Wyden. Let us work for that.
    Secretary Lew. Not a bad goal, but it will be tough.
    Senator Wyden. Well, you have the W-2s, so you have a lot 
to work with right there. So I think if we bear down--and I 
also want to note that Senator Stabenow, and I think colleagues 
on the other side, are going to be working on the individual 
portion of the tax code.
    There has to be a way to help the middle class who are 
hurting, like that auto worker, and get people out from under 
the bureaucratic water torture, which is what filling out all 
these forms is all about, as the Taxpayer Advocate noted.
    Thank you, Mr. Chairman.
    Senator Thune. Senator Heller?
    Senator Heller. Mr. Chairman, thank you. I look forward to 
the continuation of this particular hearing.
    Mr. Secretary, thank you for taking time.
    I want to just follow up briefly on what my colleague from 
South Dakota's question was. Obviously, being from Nevada, we 
have similar concerns and problems with some of these small 
family farms and ranches. But in my State, there are over 
230,000 small businesses.
    It is my understanding, and correct me if I am wrong, that 
generally no tax would be due on small family-owned businesses 
until sold. Can you clarify to me what that business threshold 
would be that defines what a small business is?
    Secretary Lew. Senator, there is a provision in our 
proposal that would exempt very small businesses, really small 
businesses.
    Senator Heller. Right. Right. What is that threshold?
    Secretary Lew. The exemption, I believe, is $1 million in 
the proposal, and it was designed to ease the burden on family 
businesses, mom-and-pop stores.
    I think that, for larger businesses that are still medium-
sized, the 15-year provision that I described for a working 
business is a way to take the incidence of the stepped-up basis 
and spread it over a very long period of time, which we think 
is a way of addressing the needs of a small business.
    Senator Heller. Mr. Secretary, thank you. I do not believe 
people are always right--or always wrong for that matter--and 
when the President is right, I support him, but when he is 
wrong, I do not.
    But you made some comments in your opening statement that I 
appreciate, and they concerned the efforts for infrastructure 
and their priority for this administration.
    Obviously, I care quite a bit about infrastructure. Among 
the working group, with my colleague Senator Bennet, I look 
forward to moving forward on tax reform. I, like the chairman, 
believe that our tax code is too costly, too complex, and too 
burdensome.
    But I still would really like to tackle this issue of 
infrastructure. I think that is good for the State of Nevada. 
We would bring more people in to portions of our State, and I 
think it is a core function of this government.
    I am sure that you are aware that Chairman Dave Camp--
former Ways and Means chairman--introduced a tax reform 
discussion draft, and one of the proposals that he had was a 
repatriation proposal that was composed of two rates: one for 
cash and one for assets.
    Was there any reason why the administration did not look at 
this and impose two different rates?
    Secretary Lew. Senator, there are a lot of similarities 
between the approach that we have and the approach that former 
Chairman Camp had. We think that the rates we have put in in 
our international proposals make good sense.
    We have two rates. One would be a permanent rate of 19 
percent and the other would be what we call a toll charge for 
earnings that have built up over years, and that would be 14 
percent. In each case, there would be a credit for taxes paid 
overseas, calculated in an appropriate way. And we think that 
it would create a tax burden that would be very reasonable and 
would make it attractive for businesses to bring their taxes 
home.
    Senator Heller. How were those rates decided?
    Secretary Lew. Excuse me?
    Senator Heller. How were the rates decided?
    Secretary Lew. Well, the 14-percent rate is half of our--we 
have proposed a 28-percent rate, and we set the toll charge at 
half of it, 14 percent. I do not want to overstate the 
scientific nature of it.
    Congressman Camp, when he put his proposal in, had a rate 
of 8.5 percent. There are rationales for a number of different 
levels.
    The 19-percent number was in the zone of where we think it 
should be, and it was at a level that was revenue-neutral in 
our proposal.
    So I think that, if you look at the structure of our 
proposal and the structure of the Camp proposal, it shows that 
there is a lot of room to work together. And the important 
thing about the toll charge, with your interest in 
infrastructure, is that we use it to pay for a 6-year 
reauthorization with a higher level for our surface 
transportation program. We think that would be enormously 
important.
    If that toll charge were used for anything other than a 
one-time expenditure, for example, if it was used to lower 
rates permanently, it would not be revenue-neutral over time. 
So we think that it is a perfect combination of things that are 
important to American business and the future of our economy.
    Senator Heller. One quick question, because my time is 
running out. Would the administration support voluntary 
repatriation to fund infrastructure?
    Secretary Lew. The experience in 2004 with a one-time 
voluntary repatriation holiday was not very good. It turns out 
to be a bad incentive because, after a repatriation holiday, 
you start to build up overseas with businesses waiting for the 
next holiday.
    Secondly, we did not see the reinvestment come from it. We 
think what we have proposed is the right way to do it, to have 
a transition to a new system where, going forward, businesses 
will bring their earnings home and they will make their 
investments based on where they are most economical, not where 
the tax advantage is greatest.
    Senator Heller. Mr. Secretary, thank you. Thank you, Mr. 
Chairman.
    Senator Thune. Thank you, Senator Heller.
    Senator Schumer?
    Senator Schumer. Thank you, Mr. Chairman. And thank you, 
Secretary Lew.
    I want to applaud the good work you and the President and 
all your crew have done on the budget. I think its focus on the 
middle class is really excellent. I think in your efforts to 
find some common ground and yet stay true to your principles, 
you thread the needle extremely well. I was very impressed with 
the budget, and I thank you for your hard work on that budget.
    Obviously, one of the things you are all focused on, we are 
all focused on, is infrastructure. One of the ways you talk 
about paying for it is the one-time 14-percent tax on 
previously untaxed foreign income that comes back. I am very 
interested in that idea, with some variation of it. I think it 
makes a great deal of sense. It is something I have been 
talking about for a while, and I think you have refined it in a 
much better way than just about anybody has.
    But here is my question. Do you believe it is feasible to 
consider the toll charge deemed repatriation by itself or in 
coordination with other international tax reform, even if we 
cannot reach an agreement on a broader reform package? It is my 
view, probably different than some here, that it is going to be 
really hard to get to real reform, particularly getting the 
rate below 28 percent, which may not make too many people 
happy.
    But the idea of some kind of deemed repatriation for a 
broad infrastructure proposal, I think can get broad support on 
both sides of the aisle. So tell me what your thinking is on 
this.
    Secretary Lew. Senator Schumer, I would say that the best 
way to do it would be through broad business tax reform, 
because, if we do not do something about our high statutory 
rate, which is the highest in the developed world, if we do not 
eliminate the incentive for companies to move overseas, if we 
do not close the loophole for inversions, we are going to see a 
lot of the problems that we still have. That cannot all be 
fixed just with the international provisions.
    It is always hard to do broad tax reform. It was hard in 
1986. It is going to be hard now because there are interests 
that very much value the deductions and credits that they have 
right now.
    Theoretically, could you separate out the international 
piece? You could----
    Senator Schumer. I know that is not your preference.
    Secretary Lew [continuing]. But it would not solve the 
whole problem.
    Senator Schumer. I understand. Although, by the way, I have 
to say on inversions--and you guys do not get enough credit or 
take enough credit--the reforms that you have made internally 
have stopped most inversions in their tracks, and the financial 
people in New York I talk to say, in most cases, it is not 
worth it anymore. So you have done an excellent job on that.
    Secretary Lew. Thank you. We went--I am sorry.
    Senator Schumer. I am sorry. We only have a short time, and 
I want to go to a less happy topic, at least one between you 
and me, which is the trade bill and currency manipulation.
    Look, overall on trade, my views have shifted some. I think 
the decline of middle-class incomes is the greatest problem 
America faces, bar none. We will have a different country if it 
keeps going for another 10 years.
    Obviously, it will be disputed by members on both sides, 
but if these trade agreements--even though they might increase 
GDP and even though they might increase corporate profits--
serve to decrease middle-class wages--because a company makes 
money whether it makes the product here or in China, so they 
will make profits, and you might even get some GDP gain for a 
lot of reasons--I cannot support trade agreements like that 
anymore. I just cannot because of my value system, when middle-
class decline in income has become so great.
    So I am looking--and I have talked to you about this, I 
have talked to the President about this--for something where we 
can counterbalance many of the things that you want to do in 
TPP, many of which are good. And the geopolitical stuff is 
indisputable that you want to do, and currency is the most 
logical one because it has broad support. A currency bill that 
I authored, along with Senator Brown, Senator Stabenow, Senator 
Graham, Senator Collins, and Senator Sessions, got 60 votes a 
while ago.
    And so what I am asking you is--now, we have heard some 
talk from the administration that currency is not going to be 
part of TPP, whether against Japan, which is part of TPP, or 
more important to me--although Japan is important to me--China, 
which takes more jobs away, does not play fair, steals our 
intellectual property.
    When America has a good product, 80 percent of the time or 
so, they do not let it in, and we just shrug our shoulders. And 
it is estimated that millions of jobs have gone away.
    So my question is, because I know my time is running out, 
will you, will the administration, support some kind of 
rigorous controls on currency manipulation aimed at China 
alongside this bill, if not in the bill, and in the bill aimed 
at Japan?
    I have heard that we have said that currency should not be 
part of TPP, and that would be, I think, a really wrong move. 
Tell us about currency and its relationship, in your view, to 
TPP and TPA. When I say TPP, I mean both.
    Secretary Lew. Senator, may I respond?
    Senator Schumer. Yes. You get the last word. My time is up.
    Secretary Lew. I was asking the chairman if I could take a 
couple of minutes.
    Senator Schumer, let me start by strongly agreeing with you 
that if countries do things to intervene in a way that is 
designed to gain unfair advantage in trade, it is wrong and we 
oppose it. We do not just oppose it, we take very strong action 
in international bodies: in the G-7, in the G-20, in the IMF, 
and, most importantly, bilaterally.
    I can tell you that when I meet bilaterally with countries 
where there is any question, it is the number-one topic that we 
raise. And when we push back, there is a response where we 
have, I think, been quite successful in the time that we have 
been here pushing back on even the hints of interventions that 
have those characteristics.
    I think the challenge in the context of a trade agreement 
is how to address the issue in a way that helps and does not 
hurt. I would be concerned that the effectiveness we have 
dealing through the existing channels could be diminished in 
some ways if some approaches were taken.
    I think that we need to make sure that we use every tool 
that we have to make sure that countries do not take the steps 
to intervene in ways that are unfair. And I think if you look 
at recent years, we have been quite successful.
    I mean, the G-7 agreement----
    Senator Schumer. That is where we disagree.
    Secretary Lew. Well, I think if you--there certainly are 
historical problems if we go back, but I am talking about the 
immediate present. Two years ago, there was an agreement at the 
G-7 that we drove forward, which is that countries can only use 
domestic tools for domestic purposes.
    We had quantitative easing (QE) policies in the United 
States. The United Kingdom had QE policies. QE policies have 
been critical to getting economies moving after the Great 
Recession.
    I do not think any of us think that those kinds of policies 
should in any way be equated with unfair intervention. We have 
not seen the kinds of intervention that I think you are 
describing as much in recent times, and we have actually made 
progress pushing back on it.
    With that said, we want to work together as we go through 
the discussions on trade legislation to see if there is a way 
for us to build a bridge between the tools that we have and the 
trade discussion, and I would look forward to having that 
conversation.
    Senator Schumer. I would just say one sentence. We have not 
been very successful against China. I totally disagree with 
you. We need much more.
    Secretary Lew. Can I just say one thing, Senator, in 
response on China? I mean, since 2010, we have actually seen an 
appreciation in China's currency that bounces around day to 
day, but is roughly at 10 percent. We have pushed hard to have 
China stop intervening in ways that they had been. They have 
agreed to limit their interventions to macroeconomic 
circumstances.
    We have pushed hard for transparency policies. They have 
agreed to subscribe to the IMF's transparency policies.
    I am not going to say that there have not historically been 
issues. Our currency report makes it clear. But we have 
actually made progress working through these issues.
    Senator Thune. All right. You guys can carry on this 
conversation outside the room.
    Senator Stabenow?
    Senator Stabenow. Thank you. To continue this 
conversation--welcome, Secretary Lew. And I do want to say, not 
to debate it but just for the record, before talking about 
another issue, that I appreciate your efforts to address 
currency manipulation in international forums like IMF and the 
G-20, but these actions have not kept pace with increasing 
adverse impacts of currency manipulation and the impacts on 
U.S. businesses and workers, and we are seeing this.
    Economists across the political spectrum--the Economic 
Policy Institute, the Peterson Institute, former advisor to 
President Reagan Arthur Laffer--all agree that currency 
manipulation has cost the United States millions of jobs.
    And specifically on TPA and TPP, you know what is coming 
before us: Japan with the most closed auto market in the world 
and the importance to the middle-class economy in America of 
the auto industry--and I appreciate very much this 
administration standing with us in the auto industry.
    But as you know, the top financial executive at one of our 
U.S. automakers, Ford Motor Company, said recently that a weak 
yen gives Japanese competitors as much as $11,000 more profit 
per car per year. So $11,000 per car is a big deal in a very 
sensitive marketplace.
    I want to actually talk about something else. I know your 
concerns about this. I disagree that quantitative easing in 
domestic policy is the same as intervening in foreign currency. 
We will debate that more later, but this is a big deal. And 
with 60 of us in the Senate, in that bipartisan letter Senator 
Graham and I led, saying we want currency addressed in any 
trade agreement, I hope you understand that we are very serious 
about this.
    Secretary Lew. Senator, as we have discussed, we would look 
forward to working together to see if there is language that we 
can work through that would address the concern in a way that 
is consistent with our legal obligations and policy.
    But if I could just say one word about Japan. For 15 years, 
we had the view that it was bad for the U.S. economy and the 
global economy for Japan to be in an economic rut. They 
initiated monetary policies that were similar to those that our 
Fed put in place and they initiated fiscal policies, and they, 
for the first time, gave the Japanese economy a bit of a boost, 
which was good for the global economy and good for the U.S. 
economy.
    They are not growing as fast as they should be. They need 
to use all the tools. They need to use fiscal policy tools. 
They need structural reforms. But I think if you look at the 
monetary policy that they have put in effect, it does not meet 
the criteria of unfair practices in these last few years.
    That is different from what might have happened in the 
1970s. I am not going to say that there was not bad behavior in 
the past. But I think that we just have to be careful not to 
define a standard that would lead to a set of rules that would 
make it impossible for monetary authorities to get economies 
out of recession.
    Senator Stabenow. And I appreciate that. But let me just 
say that, since they agreed through the IMF that they were not 
going to do this, they have done it like 300 times, something 
like that; I have seen the number. And all I will say is, we 
are an open market. Japanese companies benefit by everything, 
including what we have done in our monetary policy and 
quantitative easing, and yet they have the most closed market.
    We cannot get into it. We cannot sell at an auto dealership 
in Japan. You cannot see an American-made vehicle. So this is a 
big deal. This is a big deal.
    Secretary Lew. We totally agree that barriers need to come 
down.
    Senator Stabenow. I want to change the subject for just one 
second to something that we agree more on, and just simply ask 
you to respond again to the big structure in terms of how we 
move forward in the economy, because I think we ought to talk 
about what works, and not just in theory.
    So when you look at the Clinton years, we actually raised 
the top two rates on Americans, asking them to pay a little bit 
more to help balance the budget, created 22 million jobs, and 
actually saw a robust economy, asking folks at the top to do a 
little bit more.
    The Bush years, which everybody seems to want to go back 
to, President Bush's years only helped those at the top, left 
everybody else waiting and holding their breath--will it 
trickle down? You wage 2 wars, do not pay for them, have a 
reckless speculation going on on Wall Street, do not regulate 
it. We saw what happened: the Great Recession.
    Now, we are back. Again, in 2012, we asked those at the top 
to do a little bit more. Our friends said the world would end. 
It did not end. Not only that, we have reduced the annual 
deficit by two-thirds and added 11 million jobs.
    So I wonder if you might just very briefly speak to the 
macroeconomics of actually putting money in people's pockets, 
paying down the debt the right way, and growing the economy 
through a strong middle class.
    Secretary Lew. Well, Senator, I think we had an experiment. 
We saw what the tax rates and policies of the 1990s did, and we 
had the longest period of uninterrupted growth in history. And 
we saw what happened in 2001-2004, where we had policies that 
cut taxes, particularly at the top and, as you say, had wars 
and other things that we did not pay for, and we ended up with 
a financial crisis on top of that, producing the biggest 
deficits that we have had in history and the economic hole that 
we have been digging ourselves out of.
    So I think we have actually had a test of the two theories, 
which is why I am confident that the tax proposals that we put 
forward are good for the economy.
    Senator Stabenow. Thank you. Thank you, Mr. Chairman.
    Senator Coats [presiding]. I have only been on the 
committee 3 weeks, and I have been sitting out there in the 
left field bleachers with my friend from Nevada, and I noticed 
Senator Warner in the right field bleachers had other things to 
do, and all of a sudden I am here at home plate with a gavel in 
my hand. Ron Wyden leans over and says, ``I have been working 
10 years to get to this spot. You have been here for 3 weeks.'' 
And now I am in control.
    I feel like recognizing myself for a long speech, but they 
would never ask me back if I did that. [Laughter.]
    Senator Cantwell, you are up.
    Senator Cantwell. Thank you, Mr. Chairman. [Laughter.]
    Mr. Secretary, thank you for your comments this morning and 
your focus on the economic strategy moving forward, and for 
your emphasis on exports.
    My views are a little different than some that have been 
expressed by my colleagues, but we have a more integrated 
trade-dependent economy in the Pacific Northwest.
    So I want to get your views on a couple of things that I 
believe are critical for this opportunity. Given that 95 
percent of consumers live outside of the United States and that 
the doubling of the middle class around the globe in the next 
15 years is a great economic opportunity for the U.S., what are 
the policies that we need to pursue to take advantage of that?
    So things on our agenda--I mean, I almost feel like our 
economic agenda should just have the word ``export'' on it--
include freight mobility, improving our freight infrastructure 
so we can get product to market quicker, the State export 
assistance program, which is a key tool for small businesses to 
become exporters.
    But one of the stumbling blocks we are facing right now is 
the reauthorization of the Export-Import Bank. And if you could 
talk a little bit about what you think the importance of that 
structure is in this context, how important it is for the U.S. 
to not only have financing tools, but also the fact that if you 
actually have an export credit agency, then you can participate 
in a world dialogue of credit agencies around the globe for 
policies that are fair and transparent. If we do not have that, 
we also will not be participating in this international 
discussion.
    Secretary Lew. Senator Cantwell, I think you are totally 
right that exports are key to our economic future, and that is 
why we are pursuing Trade Promotion Authority. It is why we are 
negotiating the TPP.
    We are looking at where the markets are growing, and we 
want American companies to have access to those markets. That 
will be a way to create good middle-class jobs in the United 
States. That is the only reason that we are focused so much on 
this trade issue.
    The Export-Import Bank is a critical component of our 
export strategy. In a world where nobody had export subsidies, 
one could have a conversation about whether or not we should 
have one. But in a world where our competitors have export 
programs and we might not, that is putting a burden on our 
exporters that is just not fair.
    In Washington State, I know aircraft are a big issue. If 
you are selling aircraft against companies that have export 
financing because of programs like the Export-Import Bank and 
we do not, that is something that you cannot make up for just 
by running a tighter operation.
    Now, we have discussions going on on an international basis 
to see whether we can, on a global basis, lower the export 
subsidy programs. In that kind of an environment, it would be a 
different question. But we cannot unilaterally put our 
companies in a position where exporters from other countries 
have export support and they do not. So I think the 
reauthorization of the Export-Import Bank is critical.
    Senator Cantwell. And what would the administration like to 
see as Congress--we are moving towards a period, I think it is 
May 31st or something, to get that----
    Secretary Lew. We have for a long time advocated a 
reauthorization that would provide longer-term certainty around 
the program. And I think the sooner it is enacted the better, 
because uncertainty is not a good thing.
    Senator Cantwell. Thank you. Thank you, Mr. Chairman.
    Senator Coats. Thank you, Senator.
    Senator Menendez arrived just in the nick of time to secure 
the next spot.
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Secretary, I want to raise an issue with you that has 
huge bipartisan support in the Senate and also the support of 
the administration, which is reforming the Foreign Investment 
in Real Property Tax Act so that foreign pension funds can put 
much-needed capital into the U.S. commercial real estate 
market.
    We have talked about this before and how bringing this 
needed equity to the U.S. can create jobs right here at home. 
As you know, the current tax on real estate investment trust 
shares owned by foreign pension funds was due to an 
administrative action, not a legislative one. And indeed, up 
until Treasury issued a notice in 2007, foreign pension funds 
investing in REITs were treated equally with their domestic 
counterparts. So it seems to me that since Treasury made this 
change in the first place, it could also undo this policy and 
eliminate a barrier to private infrastructure investment.
    I am pleased to see that, once again, the President agrees 
with me on the need for FIRPTA reform, as illustrated in his 
budget. So since we all agree that this is a bad policy and 
Treasury clearly has the authority to reverse this ruling, I 
hope that you would look at taking some sort of action on 
FIRPTA.
    So my question is, one, does it make any sense to create 
obstacles for foreign investment in the U.S., particularly 
considering our dire need for infrastructure investments, and 
will you commit to working with me and the bipartisan group of 
members of this committee and beyond who support this effort?
    Secretary Lew. Senator, we have discussed this before, and, 
as you acknowledge, we agree that this should be fixed. We 
believe it needs to be fixed through legislation.
    I actually hope that in the discussions we are having about 
business tax reform, it provides an opportunity for us to do 
this in a bipartisan way. And we have obviously put forward a 
legislative proposal again, and I would look forward to working 
with you on it.
    Senator Menendez. So you are not going to deal with it 
administratively, obviously. But you do support--the 
administration supports--FIRPTA reform?
    Secretary Lew. We have a legislative proposal. Yes.
    Senator Menendez. Let me ask you, in the same light, one of 
the main themes in the President's budget is the need for 
extensive investments in roads, bridges, and other critical 
infrastructure.
    One of the most effective ways to help local 
municipalities--and I say this as a former Mayor--make these 
critical investments is the private activity bond program. 
Unfortunately, the caps on water and wastewater infrastructure 
projects make it extremely difficult for local communities to 
take advantage of the program for these critical needs, and 
that is because, for example, water projects are often 
multiyear ventures, making them complex and difficult to fit 
under the annual caps.
    Now, I have legislation I plan to reintroduce that actually 
passed through this committee that would remove the caps for 
water and wastewater infrastructure projects, and I am pleased 
to see the President, in his budget, included positive reforms 
in this regard.
    Would removing the caps help local communities upgrade 
their antiquated infrastructure?
    Secretary Lew. Senator, we did put the new proposal in our 
budget to try to accomplish the same goal. Obviously, raising 
the caps would provide more room for local authorities. We 
think that what we have proposed really has a very similar 
theory behind it, and we would look forward to working together 
to get something enacted into law to enable local projects to 
go forward more easily.
    Senator Menendez. And finally, we have record job growth, 
and the administration has done, I think, economically a great 
job: lowest unemployment in some long period of time, private-
sector job growth for a long period of time, deficit as a 
percent of the GDP probably the lowest in 50 years, and a whole 
host of positive economic factors. But we still have a stagnant 
middle class, which you referred to in your opening statement.
    The long-term unemployment rate is still, however, far too 
high, leaving millions of Americans out of the recovery. They 
are stuck on the sideline. And while they do that, their skills 
and networks become out of date, which hurts them in trying to 
get back into the economy.
    I have introduced legislation, called the Better Education 
and Skills Training for America's Workforce, that would provide 
a robust tax credit for businesses that pay for training for 
long-term unemployed workers and would create a competitive 
pool of tax credits for business clusters who come together to 
set up training programs at community colleges--and I see the 
President's initiative on community colleges.
    Do you believe that designing a job training program 
focused on providing the long-term unemployed with skills in 
demand would help reduce the disproportionately high rate of 
long-term unemployed people in our country?
    Secretary Lew. Senator, we have, through the policies we 
have put in the budget, I think embraced very strongly the idea 
that we need to make sure training is available to help people 
get into or get back into the workforce.
    That is where our community college proposal comes in. It 
is where other training proposals come in. There are multiple 
ways one could accomplish it. We put in our budget the ways 
that we think would be most effective, but we would look 
forward to working together.
    Senator Menendez. I will close by saying that we would like 
to work with you. I understand and support the President's 
broader initiative. But how we deal with and focus on the long-
term unemployed is a critical element.
    Secretary Lew. I totally agree. And if you look at the kind 
of potential GDP in the medium term, getting people back into 
the labor force is not just something that is right for the 
individual, but it is a way to make sure our economy is growing 
more.
    Senator Menendez. Well, I am thrilled to find at least 
three places where we can largely agree.
    The Chairman. Senator Carper?
    Senator Carper. Thanks, Mr. Chairman.
    Welcome. It is good to see you. I just want to start off by 
thanking you and the administration for working so hard with us 
last year to try to find common ground on expatriate health 
insurance. If we can work that out, we can probably work out 
some of these issues as well.
    You mentioned when you started off, Mr. Secretary, the 
strength of the economic recovery. I will acknowledge it is not 
everything we would like, but for us, it is encouraging, even 
today. Today we received from the Department of Labor the 
latest unemployment filings. The numbers are averaging right 
around 280,000. The week that President Obama and Vice 
President Biden were inaugurated, that number was 628,000 
people filing for unemployment insurance, and right now we are 
running around 280,000. What that is going to do is, as we 
know, it is going to tighten up the labor market and hopefully 
is going to have a positive effect on wages for a lot of people 
who have not had much of an increase in wages for a while.
    One of the things that I sought to do, coming out of the 
election, was to figure out what are some areas that we can 
agree on, and a number of those were touched on in your 
testimony and in the President's State of the Union address. 
Although we on this committee are not 100-percent in agreement, 
my hope is that we can move forward on trade, including TPA. My 
hope is that we can move forward on cyber-security to better 
protect our intellectual seed corn and a lot of R&D work that 
is being done by companies, by colleges.
    And comprehensive tax reform--I would like very much to do 
that. You mentioned the need to do that. It is a tough nut to 
crack, but it is still important. Immigration reform--we need 
to take up immigration reform. It reduces the deficit. It 
raises, I think, the GDP very substantially over the next 5 to 
10 years. We ought to just do that. Workforce--I like the 
President's proposals with respect to community colleges and 
trying to encourage folks to continue their education coming 
out of high school.
    The last one I want to mention is transportation. Several 
of my colleagues have mentioned it. Senator Heller mentioned 
it. And we have jurisdiction over that. Environment and Public 
Works, as you know, is the authorizing committee, and we are 
the committee that has to figure out how to pay for these 
improvements. But we very much need to make them.
    I am intrigued by what the President has proposed, what the 
administration has proposed, and I am not an advocate of 
repatriating money. If we simply repatriate--lower the rates 
and repatriate money every 10 years--companies will 
continuously leave money parked overseas until we lower the 
rate again and give them a free pass. I do not think that is a 
very good idea.
    I think the administration's idea is intriguing. I think it 
will be difficult to achieve. But I am interested in exploring 
it with you and my colleagues.
    Over the last 6 months, I think I have talked with just 
about everybody on this committee, a lot of Republicans in the 
Senate and in the House, Democrats in the Senate and in the 
House. This is what I say: ``What do you think we should do for 
transportation funding?'' And I have gotten a number of 
interesting ideas that I have gathered, and I just want to 
mention them today.
    One of those is a user fee, 3 or 4 cents a year, 4 years 
indexing. It is essentially Bowles-Simpson and basically is a 
barebones approach that gives us about $100 billion, which is 
the minimum of what we need--$16 billion a year, $100 billion 
over 6 years.
    In talking to my Republican colleagues, a number of them 
say, why do we not open some additional areas for oil or gas 
exploration, and some of the revenues that could flow from that 
could go into a transportation trust fund? Well, as it turns 
out, the President has proposed that the areas off of Virginia, 
North Carolina, South Carolina, and Georgia be opened for 
exploration, and that could actually marry an administration 
idea with some ideas I have heard from our Republican 
colleagues.
    I have heard from a number of our Republican colleagues--
and Democrats too--why can we not figure out how to do 
transportation projects less expensively? What are some ways we 
can get a better result for less money? As it turns out, USDOT 
last year entered legislation that outlined a number of ways. 
They have some new ideas to share with us this year. So that 
might be something the administration and Democrats and 
Republicans could agree on.
    Those are just some of the ideas that I have heard. I like 
to talk about energy policy. We like to talk about energy 
policies, an 
all-of-the-above approach, and I think there might be sort of 
an 
all-of-the-above, more comprehensive approach on transportation 
funding that I had a year or so ago.
    Your reaction, please. Thank you.
    Secretary Lew. Senator Carper, we obviously very strongly 
share the sense of urgency to get a long-term surface 
transportation bill enacted. There is no way to effectively 
plan infrastructure going 6 months at a time or even a year at 
a time. You need to have the time to plan complicated projects.
    We put in our budget a proposal that I think has the basis 
for bipartisan support. We genuinely want to pursue it, and we 
think it is the best approach. If that were to turn out not to 
be the approach that could muster bipartisan support, we would 
work together to look at other creative options.
    But I actually think that there is a reason to be 
optimistic that we can get the President's proposal or a form 
of it enacted into law. It draws on principles that are shared 
on both sides. It is in the best interest of the country, it is 
good for the economy, and it will create good middle-class 
jobs.
    So we are going to roll up our sleeves and try to get it 
done.
    Senator Carper. Thanks so much.
    Mr. Chairman, I would just say to you and to our ranking 
member, States are beginning to shut down construction projects 
in the spring and in the summer because of the lack of 
certainty and predictability. I think the President's idea has 
merit.
    I think it is going to be hard to do. Sort of the question 
for us is, if we are not able to do that for a while, what are 
we going to do in the meantime? And the answer cannot be 
``nothing.''
    Thanks so much. Thanks, Mr. Chairman.
    The Chairman. Let us go to Senator Cardin.
    Senator Cardin. Thank you, Mr. Chairman.
    Secretary Lew, thank you for your service. I very much 
appreciate your longstanding commitment to public service and 
the effective job you are doing as Secretary of the Treasury.
    I first want to talk about an area that I talked to you 
once before about, and that is our community banks. We are 
still seeing community banks in Maryland being challenged to be 
able to survive, not because of their viability individually, 
but because of the new regulations, et cetera.
    They were not the speculators that brought about the 
financial collapse, and they are trying to figure out a way to 
remain relevant in today's banking world. One area where we 
could help is, since the TARP period, the preferred stock of 
community banks is held by Treasury, and they want to buy back 
that preferred stock, but there are certain obstacles in the 
way.
    I would just ask that you get that on your radar screen to 
see whether we cannot facilitate the viability of community 
banks through considerations at Treasury to make it easier for 
them to recoup their preferred stock.
    Secretary Lew. Senator Cardin, we share the view that 
community banks play a critical role in local economies in 
creating an engine for small business growth and local economic 
activity.
    We have, in the TARP program, worked with community banks. 
We will continue to. We obviously have certain constraints in 
the TARP program in terms of how we can dispose of assets, but 
I am happy to look into it again.
    Senator Cardin. I appreciate it very much. I was very 
interested in your exchange with Senator Wyden in regard to the 
U.S. harmonizing with the international community on tax rates 
and the fact that we have high corporate tax rates.
    I also was interested in the exchange on simplification 
where Senator Wyden wants to get the code much more simplified, 
and I agree. So I would just at least put in a plug that you 
take a look at the progressive consumption tax that I filed. 
Taxpayers, joint taxpayers under $100,000, would not have to 
file any income tax, and we would have the lowest marginal tax 
rates in the industrial world, both on income and consumption.
    If we are going to harmonize, then let us take a look at 
where the rest of the OECD countries are receiving their 
revenues if we want to be competitive. I just urge you to take 
a look at it, because I think it would answer some of your 
questions.
    I want to get your comment in regard to the 
administration's position on doing business tax reform. Along 
with Senator Thune, I will co-chair a working group that will 
be looking at the business tax issues, and we have concerns as 
to how small business is treated. If you deal just with 
corporate tax rates, then those who have pass-through entities 
or use S corporations would be at a competitive disadvantage if 
that is all we do, because of the high individual rates.
    So I would ask, how can you really just do corporate tax 
reform and be fair to small businesses in our country?
    Secretary Lew. Senator Cardin, we have always talked about 
business tax reform, not corporate tax reform, because we think 
it is important that when we do business tax reform, we look at 
small businesses as well as the corporate side.
    We have in our proposal, for example, an expansion of the 
section 179 provision that allows for the taking of 
depreciation, so that, if you spend $1 million a year as a 
small business, you can take a full deduction in the year you 
make an investment. You do not have to do it over time.
    We have done an enormous number of simplifications to make 
it easier for small businesses. I think that we have designed 
provisions that are going to help small businesses. We are open 
to ideas. If there are ideas that come out of the conversations 
you and Senator Thune have, we would look forward to working 
with you.
    I would just point out that, one of the reasons businesses 
choose to file as individual businesses as opposed to 
corporations is that it is better for them to do. If it becomes 
advantageous, they can also switch back.
    Senator Cardin. But it changes the current competitive 
situation, and small businesses are already challenged today. I 
understand they can make that choice back and forth.
    I want to get one last point in, if I might, and that is on 
retirement and savings. Once again, a progressive consumption 
tax would help reward savings and retirement. But one of the 
things that I have learned, working with Senator Portman when 
we were both in the House, is that the tax incentives alone are 
not enough for working middle-income families, and that is why 
the Saver's Credit is important; that is why employer-sponsored 
plans, when they put money on the table, are important.
    I would just urge, as you look at your proposals for 
retirement securities, that we do not have the unintended 
consequence of adversely affecting employer-sponsored plans, 
where they have money on the table, where we would only be 
using the tax deferral as an incentive, because I do not think 
that is enough.
    Secretary Lew. We agree, and we actually have a proposal in 
our budget to make it more advantageous for firms to 
contribute, for small businesses especially to make a 
contribution into an employee's retirement plan, and we look 
forward to working with you on that.
    Senator Cardin. Thank you. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Brown?
    Senator Brown. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. It is good to see you again. Just 
first a short statement. I know that Senator Schumer and 
Senator Stabenow asked you about currency. I want to echo their 
remarks.
    I also want to remind you and Ambassador Froman that there 
is strong, strong support in the Senate for real currency 
provisions, both in TPA and TPP, better and stronger than 
negotiating objectives--real enforceable currency standards.
    I do not need you to comment on it now. I have heard your 
comments before. But I am hopeful that, as we move forward on 
that, we can bring you in our direction a little bit more.
    I want to walk through the country-by-country global 
minimum tax that you and the President have proposed--just a 
series of questions, because I think that it is often difficult 
to sort of process this.
    The global minimum tax you are proposing is 19 percent, 
correct?
    Secretary Lew. That is correct, Senator.
    Senator Brown. So if corporations--again, corporations get 
a credit that is 85 percent of the effective tax rate that they 
have paid for the last 5 years in every country where they do 
business, correct?
    Secretary Lew. That is correct as well.
    Senator Brown. So that means if a corporation shifts its 
profits to Bermuda, where the corporate tax rate is zero, that 
they would now owe 19 percent to our government on those 
profits, correct?
    Secretary Lew. Correct.
    Senator Brown. But if the same corporation booked profits 
in South Korea, where the tax rate is slightly over 24 percent, 
or in India, where it is higher, or Germany, where it is in the 
high 20s, the corporation would potentially not owe a single 
dollar more in U.S. taxes, correct?
    Secretary Lew. That is also correct.
    Senator Brown. So this is a proposal that fundamentally 
shuts down tax havens, as we have discussed before, and 
prevents a global race to the bottom. What is your opinion on 
that?
    Secretary Lew. I think that is a very accurate description, 
and when we are in international meetings, there is huge 
discussion of what is called base erosion and profit shifting, 
and there are two halves to that problem.
    One problem is the tax havens that have a race to the 
bottom. The other half is broken tax codes like ours that have 
these ridiculously high statutory rates.
    We put in a proposal that we think does what we need to do 
to solve the problem that pushes companies to tax havens, and 
we are going to be vigorous in the international setting to 
push against the tax haven race-to-the-bottom rates. I think we 
have an enormously better argument if we have done our part.
    Senator Brown. So, to what do you ascribe the opposition to 
your proposal in Congress, among some in the business community 
here, not nearly all, but to what do you ascribe that?
    Secretary Lew. Look, I think that there will always be an 
argument for a lower rate if there is the possibility of 
getting a lower rate. So it is not surprising that we are 
hearing an argument that it should be lower than 19 percent or 
lower than 14. We have not heard arguments that undermine the 
basic integrity of the approach, and I actually do not think 
that we have heard arguments that suggest that there is not the 
basis for a bipartisan discussion to work through this.
    We do not think that the numbers that we have picked have 
kind of an absolute truth to them. We could have gone a little 
higher; we could have gone a little bit lower. This is the kind 
of thing that we ought to be able to work out, and it would fix 
a broken tax system and keep American jobs here.
    Senator Brown. Let us speak of something that we can work 
out--thank you for that--and that we have worked out 
bipartisanly for decades, and that is the Social Security 
Disability Insurance.
    The President's budget supports a routine accounting 
measure called reallocation. We have had hearings on this. We 
had hearings last year when Senator Wyden was the chair and 
Senator Hatch was ranking member. We have had discussions with 
pretty much everybody on this committee on the issue of 
reallocation.
    It does not cost taxpayers money. It has been done 11 times 
before bipartisanly. Walk us through what you suggest, what the 
administration suggests, on reallocation and tell us, one, what 
will happen if we refuse to do it, and, two, why we should do 
it.
    Secretary Lew. Senator, we have a two-part proposal. One 
is, we do have proposals that would do things like continuing 
disability reviews and incentives to get people back to work, 
and pilot programs to help people get back to work from 
disability.
    But I do not think there are any experts who believe that 
any approaches that you could design would fix the Disability 
shortfall in the short-term. We saw a huge increase in the 
disability rate during the economic crisis, for a variety of 
reasons.
    The only short-term solution is a reallocation of the 
rates. I have been doing this long enough that I remember when 
we had to reallocate from Disability to the Old-Age and 
Survivors Trust Fund in order to get to the 1983 reforms.
    So it is many times that there have been reallocations, and 
they have gone in both directions. I think we do need to work 
together on kind of a longer-term solution, but I do not see 
any alternative but to have there be a reallocation to deal 
with the upcoming challenge.
    Senator Brown. My recollection is, we have known for some 
time, actuarially, about a fairly accurate prediction, right, 
of when this would happen?
    Secretary Lew. Yes.
    Senator Brown. We have known this for some time.
    Secretary Lew. The exact month shifts as you do updated 
projections, but we have known it was in the zone of the next 
year for some time.
    Senator Brown. Thank you. Mr. Chairman, thank you.
    The Chairman. Thank you, Senator.
    Senator Bennet?
    Senator Bennet. Thank you, Mr. Chairman. Thank you for 
holding the hearing.
    Mr. Secretary, thank you for being here. Just when things 
could not possibly get worse, the Congress distinguished itself 
at the end of the last Congress by passing a tax extenders bill 
that, among other things, included an extension of the wind 
production tax credit for 2\1/2\ weeks.
    In that context and understanding that context, in your 
answer to Senator Brown, you, the Secretary of the Treasury of 
the United States of America, described our tax code as broken 
and ridiculous. And there is not any thinking person on this 
committee who does not agree with that characterization of the 
tax code.
    And you have been around here for a long time and I think 
have acquired a lot of wisdom over that period of time, and I 
think the people of Colorado would like to know what are the 
conditions that are required to actually fix this tax code, to 
reform the tax code. What do we have to do to put this 
committee in the position to actually do the people's business, 
to not do this insanely minor and ridiculous legislating, but 
actually get to a place where we can fix this code and allow 
the private sector to compete in this global economy?
    Secretary Lew. Senator, I could not agree more that short-
term extenders are a terrible way to do business. For a company 
that, at the beginning of 2014, wanted to know what their tax 
status would be, waiting until the last week of the year does 
not help you plan your business.
    So it is all retroactive for decisions that were made when 
people did not know what the tax code would be. So it could not 
possibly have the incentive effect that it would have if it was 
a permanent tax law.
    We have proposed dealing with the extenders in the context 
of tax reform so that we pick the ones that should be made 
permanent and make them permanent, pay for them in the context 
of tax reform, and have a tax code that has stability and 
certainty to it.
    I think the answer of what we have to do--we learned in 
1986 what the answer on tax reform is. We have to work 
together, and we know there are going to be interests that 
oppose losing whatever special privilege they have, but on a 
bipartisan basis, we have to say it is worth broadening the 
base, closing loopholes, lowering the rate, having an 
international system that makes us competitive, and, if we do 
it together, we can get it done.
    I am more optimistic than many because it just makes such 
profound sense to do it, and I also think that if we do not do 
it, it is going to lead to an economy where we see more 
companies doing things we do not like, and that is not a good 
outcome.
    Senator Bennet. I want to thank the chairman for putting us 
in these working groups, because I think that at least presents 
a bipartisan start for our efforts.
    I remember a principal of a charter school in my school 
district. I once asked him--you could hear a pin drop in this 
place--and I said, ``How do you create these conditions where 
you can actually get this done?'' And he said, ``I visualize 
the conflict in advance and then, when it comes, I know it is 
going to be there, and we can get through it.'' And I think 
that is what we need to do on this issue.
    It is not going to be easy to do, but we can do it.
    Secretary Lew. And, Senator, I have offered to both the 
chairman and to Senator Wyden that we look forward to working 
with the bipartisan working groups to help, technically and 
with our ideas, and we look forward to working with you.
    Senator Bennet. I think there are a number of us on both 
sides of the aisle, my colleagues here today, who feel the same 
way.
    I wanted to ask you an education question--actually, two. 
The GAO found that in 2009, 1.5 million students failed to take 
a credit or a deduction for which they were eligible, and 
another study found that one in four taxpayers failed to take 
the maximum education tax benefit when they were eligible for 
multiple credits.
    So I was really pleased to see that the budget simplifies 
our system of education tax expenditures and makes the American 
Opportunity Tax Credit more refundable.
    I wonder whether you could discuss some of the limitations 
of the current patchwork of credits and deductions in more 
detail, and also describe how simplification and better 
targeting might actually increase overall college 
affordability.
    Secretary Lew. Senator, we share the concern that the 
current patchwork of benefits--tax benefits and grants--makes 
it very difficult for a family to take full advantage of 
everything that is available to them. One of the reasons that 
we put together this approach was to simplify it, to make it so 
that families would understand what it is that they have 
available and to take it into account.
    We have consolidated the education tax credits into an 
expanded AOTC. We have simplified taxes for Pell Grant 
recipients. We have improved reporting of tuition and related 
expenses for scholarships. Part of this is that, if the 
reporting is more straightforward, it will be easier.
    We have repealed the student loan interest deduction for 
new students but allowed debt forgiveness to be excluded from 
income, and we have reduced the tax benefits of education 
savings accounts that--well, we have actually said we are not 
going to do that, so I take that back.
    Senator Bennet. I am out of time, Mr. Chairman. But I also 
want to call your attention, Mr. Secretary, to a bill that 
Senator Alexander and I have that would reduce the questions on 
the financial aid form, the FAFSA* form, from 108 questions to 
2 questions. I think that would align with the work that you 
are trying to do, and I hope you are paying some attention to 
that.
---------------------------------------------------------------------------

    * Free Application for Federal Student Aid.
---------------------------------------------------------------------------
    The Chairman. Thank you, Senator.
    Senator Bennet. Thank you, Mr. Chairman.
    The Chairman. Senator Scott?
    There is a vote that just started. Senator Wyden is headed 
over so he can come back to continue. We would like to finish 
it so you do not have to sit around, Mr. Secretary.
    Senator Scott. Thank you, Mr. Chairman. I promise not to 
take more than 30 minutes. I appreciate it. [Laughter.]
    The Chairman. You are the only one who could get away with 
that I think right here right now.
    Senator Scott. And I am smart enough not to try.
    The Chairman. You sure are.
    Senator Scott. Secretary Lew, I will say this. You have 
done something that I am very surprised at, and it almost 
bewilders me. You have actually answered questions, which is a 
remarkable experience for a new Senator from a witness. So, 
thank you very much. I have not liked your answers 
consistently, but at least you have provided true and clear 
direction for this committee, and I really appreciate that.
    I want to go back to a question that you heard from Senator 
Thune and Senator Heller related to the inheritance tax. I 
started a small business a number of years ago and grew that 
business from zero accounts, no cash, to being worth some real 
money, from my perspective.
    And let us say that business ended up being worth $2 
million. So I know there is a $1-million threshold where, if 
you are a small business owner, you do not pay taxes or 
inheritance on that. So I pass that business on to my 
nonexistent child. They get that business, a $2-million value. 
What is the tax that is owed?
    Secretary Lew. Senator, we do have the $1-million 
exemption.
    Senator Scott. So the first $1 million is gone.
    Secretary Lew. I am sorry. Are you asking about the estate 
tax or stepped-up basis?
    Senator Scott. Stepped-up basis.
    Secretary Lew. So for stepped-up basis, we have a $1-
million exemption.
    Senator Scott. Yes.
    Secretary Lew. And then we also have----
    Senator Scott. The 15 years.
    Secretary Lew [continuing]. A 15-year payment period.
    Senator Scott. Yes.
    Secretary Lew. And it would be taxed at the rate of the 
individual's income. So, if they were not earning a lot, they 
would pay a very low rate. If they were earning more, they 
would pay a higher rate.
    Senator Scott. So a couple hundred thousand dollars, 
likely.
    Secretary Lew. Over 15 years, yes.
    Senator Scott. Right. The real challenge is, anytime that 
you have a non-liquid asset that you are required to sell and/
or leverage in order to get the resources to pay the 
government, you reduce the actual value of that asset. For 
small business owners, and specifically minority business 
owners, the way that you create wealth in this Nation is by 
being in a position to create a profit. Creating a profit only 
happens a couple ways through the market that we talked about: 
through business ownership and the real estate.
    So, in the area of business ownership, when you are in the 
position to create that profit, you have to be able to pass it 
on generation to generation, hence the Fords and the Chevys and 
all these big businesses. Well, the proposal from the President 
actually impedes the ability for small and minority business 
owners to transfer wealth so you actually create wealth.
    I would love to see you guys go back to the drawing board 
and be at least a little malleable in this area, because a $1-
million threshold on a non-liquid asset really is worth about 
$600,000, in my experience.
    Secretary Lew. Senator, we obviously, through the 
exemptions we put in, tried to be sensitive to the issue 
through the long period of payment. We tried to make it not be 
overly burdensome.
    I think if you look not at the illiquid assets, but things 
like stocks and bonds, it is much harder to make the case, and 
most of the money that is involved in stepped-up basis is in 
those kinds of assets, because that is where substantial wealth 
is transferred from generation to generation.
    Senator Scott. I am trying not to take the 30 minutes I 
promised not to take. I will tell you that perhaps there is a 
part of the narrative that is factual. There may be only 65 
farms that are impacted by this conversation, but there are 
hundreds and thousands of small and minority business owners 
who would be impacted severely and negatively by this 
conversation.
    But let me ask you a separate question in a different 
direction. I think it is section 165 of the Dodd-Frank Act that 
really gives the Fed unlimited discretion to make sure that 
banks and financial institutions are not taking on too much 
risk. Yet the President, in his budget, includes a new tax or a 
fee on banking liability supposedly designed to curb excess of 
risk-taking. I believe that any new tax on banks ultimately 
finds its way to the consumer.
    Mr. Secretary, does the request for this new bank tax or 
fee suggest that the President believes that the Dodd-Frank 
Act, a law that was passed entirely, it seems, on party lines, 
does not provide ample tools for reining in excessive risk?
    Secretary Lew. Senator, we think that the Dodd-Frank Act is 
working very well and has very much reduced the risk in the 
system. We think the tax proposal we put forward is entirely 
consistent with the Dodd-Frank Act. It is designed to make it a 
bit more expensive for firms to be highly leveraged, and that 
is one of the factors that contributes to risk.
    I think that if you look at our overall tax proposals, by 
reducing the corporate tax rate, that is going to also have a 
benefit for financial institutions and those other companies. I 
think, if you look on balance, we treat financial institutions 
quite fairly.
    Senator Scott. I will tell you that the seven basis points 
that you increase it by may mitigate risk, but at the same 
time, it really passes on a greater burden to the consumer, 
which makes it even more difficult for small business owners to 
borrow money.
    I am looking at, as my time is running out, the proposal on 
the corporate tax restructuring. I would note that a 28-percent 
rate would be a positive rate, and it would put us in a 
position to be globally competitive.
    However, for us to get there, the 14-percent repatriation 
deemed rate is, you must know, a non-starter in a conversation 
about actually bringing home--I guess you do not even have to 
bring it home. You are going to get taxed on it whether you 
bring it home or not.
    You must know that that has to be a non-starter on our side 
of the aisle. So it would be helpful to go back to the drawing 
board and have a conversation that actually has a realistic 
expectation and/or opportunity to make progress.
    Secretary Lew. Senator, I would just say that the structure 
of it is similar to the proposal put forward by the former 
Republican Chairman of the House Ways and Means Committee. So 
we view it very much as being in the realm of an issue that we 
could have a good constructive, bipartisan conversation on.
    Senator Scott. Conversation, yes----
    The Chairman. Senator, thank you.
    Senator Scott [continuing]. Progress, probably not. Thank 
you.
    The Chairman. Senator Portman?
    Senator Portman. Thank you, Mr. Chairman. I appreciate the 
fact that tax reform gets so much notice here today, because I 
do think it is an opportunity in this budget for us to try to 
make progress. I think Senator Scott is right. I think it is 
one where we have differences in terms of what the deemed 
repatriation rate is and, for that matter, the prospective 
international rate, which would be a minimum tax, but I do 
think the structure is consistent with what many of us have 
talked about on this side of the aisle.
    Look, we need to do it. In Ohio, as you know, we just had 
another company choose to invert, meaning buy a small company 
overseas and move the domicile from Ohio to one of our global 
trading partners in developed countries. And this is happening 
all over the country. More importantly, I think a lot of 
companies that are U.S. companies cannot compete, U.S. workers 
cannot compete, so foreign companies are buying them.
    There is a study coming out from Ernst and Young soon that 
says that over 9,000 U.S. companies have been acquired by 
foreign companies in the past 10 years alone. And finally, it 
is just tougher to compete. So, even if you are not taken over 
by a foreign company, you tend to have a difficult time 
expanding, and I have heard this testimony from all kinds of 
Ohio companies.
    One small business came in recently and said they completed 
a deal, all the negotiations in Korea, to buy a subsidiary 
there, and a German company walked in and said, we will pay 19 
percent more, because they can afford to--their after-tax 
profits are higher--and they lost the ability to expand.
    So this is happening, and it is American workers who are 
taking the brunt of it. So I want to commend you for putting 
into the budget--I have big concerns about the budget, as you 
know. Both of us used to be in the budget job, and I do not 
think it takes on the challenge of our time, which is the 
mandatory side of the spending.
    But with this particular provision, I think it gives us a 
chance to try to do something that will help American workers 
and, therefore, not just increase economic growth but actually 
create those middle-class jobs that we are always talking 
about, because these jobs are the very ones that are at stake 
right now, and that is who loses out if we do not lower the 
rate.
    There is a great study done by the Congressional Budget 
Office that shows that. This is not about the boardroom. It is 
about the workers. So we need to work on this.
    I guess the one question I would have for you today--just 
to be sure that we understand where we are on this notion of 
helping the highway trust fund, because this came up with a lot 
of the different members. There has been discussion of saying, 
why do we not just do a tax holiday, in other words, as we did 
10 years ago and 20 years ago, tell folks, you can bring money 
back to this country at a lower rate and then, therefore, we 
will be able to fund the highway trust fund.
    Have you looked at that issue, if we did not do tax reform 
but rather just did a tax holiday, what would be the impact on 
revenues?
    Secretary Lew. Senator, we have looked at it with both the 
Joint Tax Committee and our estimators at the Office of Tax 
Policy and have determined that it costs money, it does not 
save money.
    Senator Portman. So it would not create additional revenue 
for the highway trust fund?
    Secretary Lew. Not through conventional scoring. And I 
think as a structure, as we were discussing a little bit 
earlier, a one-time tax holiday, a voluntary tax holiday, does 
not solve the structural problem. What it does is, it tells 
companies, keep all your earnings overseas until the next tax 
holiday. It does not regularize the tax treatment in any 
meaningful way.
    By putting in place a new structure with a minimum tax and 
a toll charge, I think we accomplish the goal of having our tax 
system work properly so that business decisions will be made on 
economic terms, not on tax-determined terms. And I think that 
it will create a better climate for creating jobs in the United 
States.
    So, while I do not think the one-time voluntary tax holiday 
works well and accomplishes the goal, I do think that the 
proposal we put in structurally does. And, as you and I have 
discussed, the question of where you set the rates is something 
that people can disagree about.
    If you start with the structure making sense, I think there 
is a basis for a bipartisan conversation.
    Senator Portman. Well, I hope you will reiterate today for 
the record what you have said publicly and at some of our 
meetings, that this is a starting point for you all in terms of 
the rates, because I do think--Senator Scott mentioned this--we 
are going to have some differences in terms of the rate.
    We want to be sure this actually works to make our workers 
more competitive, and, if we end up with a rate of 19 percent, 
for instance, some would argue that we have not accomplished 
that, because, when you look at the comparable rates around the 
world now, the effective rate has to be, in my view, in the mid 
20s in order for us to be competitive.
    If you look at the tax rate here plus the 19-percent 
minimum, the average rate actually is above the average of the 
OECD countries. So we hope you will work with us on the rate 
and also to ensure that we do have the ability to help on the 
highway trust fund. I think we have to come to some 
understanding on how we are going to deal with the extenders. 
As you said earlier, maybe those could be part of this, which 
would make all the sense in the world, and let us be sure that 
we are working together to find a baseline that works.
    If you did do the deemed repatriation, which is part of 
overall tax reform, do you think there could be some revenue 
for the highway trust fund?
    Secretary Lew. Yes. I do think there could be revenue for 
the highway trust fund. And just to be clear, we think that as 
we deal with the expiring provisions, we need to deal with the 
individual provisions that expire as well, not just the 
business provisions.
    Senator Portman. Mr. Chairman, I would like to put in the 
record----
    Senator Wyden [presiding]. Without objection, so ordered.
    Senator Portman [continuing]. Two letters I got recently 
from the UAW and from the Ford Motor Company back in Ohio, two 
different plants. They are about this issue of currency.
    [The letters appear in the appendix on p. 119.]
    Senator Portman. I do think that currency manipulation does 
affect trade. I hope that you, Mr. Lew, in your work on this 
issue, will help us to try to put in some enforceable standards 
on currency. I think it makes a lot of sense, because it does 
affect the way American workers can compete globally.
    Thank you, Mr. Chairman.
    Senator Wyden. Senator Grassley, are you ready, or would 
you like me to go? I am happy to have you go.
    Senator Grassley. No. If we are limited to 5 minutes, you 
go ahead.
    Senator Wyden. Great. Secretary Lew, let me kind of walk 
through what look like the transportation choices we have, 
because I think that is an important part of this debate. To 
me, there are sort of three entrants in the discussion.
    There is the gas tax issue, and we got a sense last year 
that it would be hard to build significant bipartisan support 
for a major hike in the gas tax.
    Then there is the repatriation issue, and I am certainly 
open to looking at this. As to the question of taxes and 
transportation infrastructure, there is clearly a nexus there 
because we have, of course, trust funds and we have excise 
taxes. So there is a clear nexus there. I think we also have 
learned from the 2004 experience that there is no repatriation 
rainbow out there, and, in fact, my sense is that, if you make 
it voluntary with respect to the whole process, the Joint 
Committee on Taxation or the scorekeeper will not score it. So 
that is certainly a path worth debating.
    The path that we know works, because we have done it, is 
the bond question--the question of getting some of this vast 
sum of money off the sidelines and into infrastructure--because 
it is a good investment and bonding works.
    It was in this room close to 6 years ago, after a decade's 
worth of bipartisan efforts, Chairman Baucus talked about Build 
America Bonds. People wanted to know what might happen, and I 
told people we might sell $3 billion to $5 billion worth of 
Build America Bonds. And in a year and a half, $183 billion 
worth of Build America Bonds were sold all up and down the 
eastern seaboard. And Senator Casey, Governor Rendell, and 
others are major supporters of Build America Bonds.
    You can debate what kind of bonds they ought to be as well. 
In other words, there are different types, and I think we 
understand that. But to me, (A) because it has actually worked 
and helped us get more revenue, and (B) because there is a 
bipartisan history there, I think it would be very helpful.
    You all have been interested in something that you call 
Qualified Public Infrastructure Bonds. As you are aware, I have 
a great interest in a variety of new approaches here that will 
draw more private investment into the country's infrastructure. 
Give us your thoughts on how the approach that you all are 
talking about would lend itself to a bipartisan alliance to get 
more private funding into infrastructure.
    Secretary Lew. Senator, as you and I have discussed, this 
is an area that we violently agree on.
    Senator Wyden. Violent agreement. Oh, my goodness.
    Secretary Lew. Yes, violent agreement. Your leadership in 
the design of bond provisions here has been extremely 
important. We have worked with you on these. I hope we can work 
on a bipartisan basis to get either the Qualified Public 
Infrastructure Bonds or you can name it any number of things, 
whether you call them Build America Bonds or America Fast 
Forward Bonds or Qualified Public Infrastructure Bonds.
    The idea is to create opportunities for private capital to 
be invested in infrastructure. One thing we know for sure is 
that, even if we are successful in extending our surface 
transportation bill for 6 years at a higher level, that will 
only meet a fraction of the infrastructure needs that we have 
in this country. So this is not a case where we should do an 
either/or. We need to do both. And we also need to pursue 
public-private partnerships as a third avenue. Our 
infrastructure deficit is one of the really serious economic 
challenges for us to deal with in order to make sure that the 
future of our economy is as bright as it has been in the past.
    We cannot have ports that are not adequate to take the deep 
draft ships that are going to be coming through. We cannot have 
airports that are subpar and behind their international 
competitors. We cannot have roads that make it take hours 
longer to get from one place to another than it should. That 
costs time, it costs money, and it is a drag on economic 
growth. So we believe that, obviously, there are short-term 
benefits of job creation in infrastructure. Long-term, for the 
entire history of our country, it has been one of the keys to 
our economic success that we build the infrastructure we need 
for the future.
    Senator Wyden. My time has expired.
    Senator Casey is next, Senator Grassley, both in order. I 
know colleagues have been very patient, and I appreciate it.
    Senator Casey. I want to thank the ranking member.
    I want to apologize that I was not here earlier, Mr. 
Secretary. I did not have a chance to hear your testimony. It 
was one of those conflicted mornings. But we are grateful that 
you are here.
    Secretary Lew. If you cannot sleep tonight, you will 
probably get another chance. [Laughter.]
    Senator Casey. That is right. So maybe we can watch the 
video later. But we are grateful you are here and certainly 
grateful for your work at a difficult time.
    As you know, we had Ambassador Froman here just a number of 
days ago. And one of the parts of his testimony, and then the 
back-and-forth of questions, clearly indicated that an issue 
that you and I have talked about a lot over the years, as well 
as others, currency manipulation, has not been addressed in the 
TPP negotiations.
    He directed questions to you, and that is the reason I 
raise it, first and foremost. I raise it as well, obviously, 
because of the concern I have, and that concern is rooted in 
the economic and often devastating economic impact of currency 
manipulation.
    As you and I have discussed, my main concern has been about 
China. But with these negotiations, of course, some of our 
potential TPP partners, including Japan, cause us concern as 
well. The other concern, of course, is down the road, were 
China to be a part of the TPP. That is of great concern on 
currency manipulation.
    Just in terms of some data--and then I just want to ask you 
maybe two questions about this. Just as it relates to Japan, 
the Economic Policy Institute recently found that currency 
manipulation was the main driver of our growing deficit with 
Japan and that this growing deficit displaced 896,000 jobs 
nationwide in 2013, including 40,100 jobs in Pennsylvania. Now, 
not every one of those is directly attributable only to 
currency manipulation. It is the broader measure of the trade 
deficit. But they did find that currency manipulation was a 
driver.
    So it is very frustrating, when we have raised this issue a 
number of times--and I know that you have worked on this--that 
in the negotiations this does not have a primacy or a priority 
that I would argue that it should.
    I think currency manipulation is both unfair and very 
damaging, and it is kind of a double insult if it is not raised 
and then TPP goes forward and TPA goes forward, and we have not 
addressed it.
    I just want to get your response to that, the first part.
    Secretary Lew. Senator, first of all, I want to agree with 
you that if countries pursue policies that are designed to gain 
unfair advantage on exchange rates for the purpose of trade 
advantage, it is wrong. We should push back. We do push back in 
the current international forums--the G-7, the G-20, the IMF--
but even more importantly, bilaterally.
    I think that the EPI study on Japan is not entirely 
accurate. There is no evidence that in the last several years 
Japan has intervened in a way that would meet the standard that 
you are describing. I think that the activity that that report 
is pointing to is not government activity, but it is the 
investment of funds in the private pension fund.
    Private pension funds in the United States, as well as 
other countries, have mixed portfolios. I think if you did the 
analysis, the United States invests in other countries as much 
as other countries invest in the United States. And I do not 
believe that there is any evidence of any manipulative 
investment.
    I will say that I have raised the issue of currency with 
our Japanese counterparts more times than I can count. We do 
not just hold them accountable for their actions. We hold them 
accountable for their words. If their language even suggests 
that they are deviating from using domestic tools for domestic 
purposes, we come down very hard. And I must say, in all the 
bilateral engagements I have had, if we do that, we see change 
in language and a restraint on policy.
    I do think that the question of kind of looking at 
macroeconomic tools is a very important one. If you look at our 
QE policy, to other countries, it was very disruptive, but 
without QE, we would not have been able to dig ourselves out of 
the recession.
    I think Japan has the right to use quantitative easing as 
well. So we cannot compare situations that are macroeconomic to 
unfair manipulative practices.
    Senator Casey. I would just say this in response. I think 
both of us agree that whether there is a dispute, whether you 
raise a dispute about one particular study, we can agree that 
currency manipulation has been damaging to our economy. I do 
not think there is any question about that, number one.
    Number two is, I am not willing to kind of let Japan off 
the hook on this. We can debate that. But the broader question 
goes even beyond Japan. I get the sense--and this is one of my 
real frustrations--that it is raised, it is prioritized. I 
remember talking to your predecessor, Secretary Geithner, about 
it. And I understand that it is raised, I understand that it is 
asserted in bilateral discussions or even negotiations.
    But the problem I see is, we never seem to get something 
tangible, a result that would put our workers at least on a 
level playing field or our companies on a level playing field. 
That is the frustration, and I get the sense that the 
administration does not place the priority that I place on the 
issue.
    Secretary Lew. Well, I actually think that we are second to 
none in terms of pushing back on what are unfair practices. And 
I know I have raised it, not in just an occasional, offhanded 
way, but I make it central to our relationship with another 
country, and I have seen it have effect.
    So I think we have been aggressive, and, as I said earlier, 
we are open to a discussion of how to build a bridge between 
trade discussions and trade legislation and the processes for 
dealing with currency through the current authorities, and I 
would look forward to that conversation.
    Senator Casey. And I would as well. I am sorry, we are over 
our time, but thank you.
    Senator Grassley [presiding]. I want to start out by 
telling you that I agree with Senator Casey, and I probably 
would have not ever gotten around to asking that question. But 
this is how I will phrase the question that I was going to ask 
along that line, and I will give you my opinion. I do not 
expect you to--I do not even want you to take time to answer 
it.
    Following our meeting a week or two ago with Ambassador 
Froman, he said, like Senator Casey did, that it was up to the 
Secretary of Treasury, who was negotiating this or dealing with 
this subject. My question would have been, specifically: is the 
administration doing anything of consequence to address the 
currency manipulation by our trading partners around the world?
    And my feeling is, not just watching the Obama 
administration but previous Republican and Democratic 
administrations, that everybody is afraid to tackle it. And I 
do not know why, because, if there are not consequences, there 
is not going to be any change of behavior. And particularly it 
is frustrating for me that we do not take on China, because 
they are such a--they are not involved in TPP, but they are 
involved in this whole business of currency manipulation.
    I think we are afraid to take them on, because, every time 
you mention something about it, they say, you are interfering 
with our internal affairs.
    Secretary Lew. Well, Senator, I know you did not want me to 
respond, but we have taken China on. The President has taken 
the President on. I have taken on the Senior Vice Premier and 
the President and the Finance Minister on this issue.
    They have actually responded to our pressure. They have 
changed their policy, and I think we have--I am not saying that 
there is not a need for ongoing vigilance and pressure, but we 
have taken it very seriously, and I think we have made 
progress.
    Senator Grassley. I would not want to say that you are 
not--I know that those steps have been taken. But you know what 
the Chinese say. They would never admit that you had anything 
to do with it.
    Secretary Lew. But they have actually said this year that 
they would refrain from intervening. They did not used to admit 
that they intervened. They now say they will refrain in many 
circumstances, most circumstances, from intervening.
    They have never been willing to abide by the transparency 
requirements of the IMF. In response to repeated pressure, they 
have now said that they are going to abide by the IMF 
transparency so we can see what they are doing in intervention.
    I am in no way saying it is not a serious issue. It is a 
very serious issue. But we are very actively engaged, pushing 
very hard on China on this issue.
    Senator Grassley. Well then, let me say ``thank you'' if 
you are doing more than what I perceive you are doing.
    I want to follow up on something that you discussed with 
Senator Thune and then more specifically with Senator Scott. 
You spoke about a $1-million issue as far as the way the 
President's plan was going to work. When speaking with Senator 
Scott, you mentioned that $1-million threshold.
    Now, specifically, is this an exemption, or is it a 
dividing point between determining what is or is not a small 
business? Then more specifically, if the business is over $1 
million, are they taxed on the whole gain or is it a $1-million 
exemption?
    Secretary Lew. It is a dividing point. So it is 
definitional. And as I now think of Senator Scott's question, I 
may have to revise my response, because I think I may have 
treated it as if it were the other, and I apologize if I did.
    Senator Grassley. So then to clarify, there will be a $1-
million exemption.
    Secretary Lew. No. It is the dividing line. It is 
definitional.
    Senator Grassley. So if you are over $1 million, then the 
first $1 million is taxed too.
    Secretary Lew. So the $1 million gets to the size of the 
business, not the size of the gain. And for a larger business, 
the provisions would apply. For smaller businesses, they would 
not.
    Senator Grassley. So you have to be under $1 million. If 
you are over $1 million, then the first $1 million is taxed. 
That is my question.
    Secretary Lew. Well, you still get the--for a couple, there 
is a $200,000 exemption; for an individual, a $100,000 
exemption. And you still get the 15 years to pay any taxes that 
are due.
    Senator Grassley. Yes.
    Secretary Lew. And you are only taxed on the gain, not on 
the base value. So if the gain were $500,000, you would be 
paying on the $500,000 gain, not on the value of the whole 
property.
    Senator Grassley. I think, rather than take any more time, 
I will put a statement I have on this issue in the record. But 
I think it is very detrimental to family farming. That is the 
summation of it.
    I think that if you want to keep a family farm in the 
family, it is going to be very destructive.
    [The prepared statement of Senator Grassley appears in the 
appendix.]
    Senator Grassley. So, for the committee, I want to thank 
Secretary Lew for appearing today. I also want to thank all the 
Senators who participated. It has been a good hearing.
    Any questions for the record should be submitted by no 
later than Thursday, February 12th.
    The hearing is adjourned. Thank you, Secretary Lew.
    Secretary Lew. Thank you, Senator.
    [Whereupon, at 12:04 p.m., the hearing was concluded.]
    
    
    
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