    [Senate Hearing 115-275]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 115-275

           REVIEWING THE OFFICE OF INFORMATION AND REGULATORY AFFAIRS

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

                                    HEARING

                                   BEFORE THE

                                SUBCOMMITTEE ON
                   REGULATORY AFFAIRS AND FEDERAL MANAGEMENT

                                     OF THE

                                  COMMITTEE ON
                             HOMELAND SECURITY AND
                              GOVERNMENTAL AFFAIRS
                              UNITED STATES SENATE

                         ONE HUNDRED FIFTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                                 APRIL 12, 2018

                                   __________

                       Available via http://www.fdsys.gov

           Printed for the use of the Committee on Homeland Security
                            and Governmental Affairs

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                                    __________

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            COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                        RON JOHNSON, Wisconsin, Chairman
    JOHN McCAIN, Arizona                 CLAIRE McCASKILL, Missouri
    ROB PORTMAN, Ohio                    THOMAS R. CARPER, Delaware
    RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
    JAMES LANKFORD, Oklahoma             GARY C. PETERS, Michigan
    MICHAEL B. ENZI, Wyoming             MAGGIE HASSAN, New Hampshire
    JOHN HOEVEN, North Dakota            KAMALA D. HARRIS, California
    STEVE DAINES, Montana                DOUG JONES, Alabama

                      Christopher R. Hixon, Staff Director
                   Margaret E. Daum, Minority Staff Director
                         Laura W. Kilbride, Chief Clerk

           SUBCOMMITTEE ON REGULATORY AFFAIRS AND FEDERAL MANAGEMENT

                       JAMES LANKFORD, Oklahoma, Chairman
    JOHN MCCAIN, Arizona                 HEIDI HEITKAMP, North Dakota
    ROB PORTMAN, Ohio                    THOMAS R. CARPER, Delaware
    MICHAEL B. ENZI, Wyoming             MAGGIE HASSAN, New Hampshire
    STEVE DAINES, Montana                KAMALA D. HARRIS, California
                         John Cuaderes, Staff Director
                              James Mann, Counsel
                      Eric Bursch, Minority Staff Director
                        Anthony Papian, Minority Counsel
               Mallory Nersesian, Subcommittee and Document Clerk

                               C O N T E N T S

                                     ------
    Opening statement:
                                                                       Page
        Senator Lankford.............................................     1
        Senator Heitkamp.............................................     3
        Senator Portman..............................................     7
        Senator Hassan...............................................    10
        Senator Harris...............................................    15
    Prepared statement:
        Senator Lankford.............................................    29

                                   WITNESSES
                            Thursday, April 12, 2018

    Hon. Neomi Rao, Administrator, Office of Information and
      Regulatory Affairs, Office of Management and Budget............     4
    Hon. Brent J. McIntosh, General Counsel, U.S. Department of
      Treasury.......................................................     6

                         Alphabetical List of Witnesses

    McIntosh, Hon. Brent J.:
        Testimony....................................................     6
        Prepared statement...........................................    36
    Rao, Hon. Neomi:
        Testimony....................................................     4
        Prepared statement...........................................    31

                                    APPENDIX

    Alliance for Competitive Taxation Letter.........................    39
    Responses to post-hearing questions for the Record from:
        Ms. Rao......................................................    41
        Mr. McIntosh.................................................   123

           REVIEWING THE OFFICE OF INFORMATION AND REGULATORY AFFAIRS

                                  ----------

                            THURSDAY, APRIL 12, 2018

                                     U.S. Senate,
                            Subcommittee on Regulatory,
                          Affairs and Federal Management,
                        of the Committee on Homeland Security
                                      and Governmental Affairs,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 10:21 a.m., in
    room 342, Dirksen Senate Office Building, Hon. James Lankford,
    Chairman of the Subcommittee, presiding.
        Present: Senators Lankford, Portman, Heitkamp, Hassan, and
    Harris.

                OPENING STATEMENT OF SENATOR LANKFORD\1\

        Senator Lankford. Good morning, everyone. Welcome to
    today's Subcommittee hearing on Reviewing the Office of
    Information and Regulatory Affairs' (OIRA) role in reviewing
    agency rulemaking. Today we will review Federal regulations
    primarily through the eyes of the ultimate regulator, that is
    the Office of Information and Regulatory Affairs, or as I like
    to say, the most important agency no one has ever heard of. In
    this hearing today, we hope to get a better understanding of
    OIRA's accomplishments during the first year of this
    administration.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Senator Lankford appears in the
    Appendix on page 29.
    ---------------------------------------------------------------------------
        We also have with us today the Treasury Department, who is
    here to discuss their longstanding exemption from OIRA's
    oversight and their obligations for basic regulatory practices.
        Created by Congress in 1980, OIRA performs the essential
    role of reviewing proposed regulations before they bind the
    American people. Over the years, OIRA's responsibilities have
    grown to include implementing numerous Executive Orders (EO) to
    ensure all Federal agencies comply with basic regulatory steps,
    such as cost benefit analysis, consideration of regulatory
    alternatives, and fair public consultation. OIRA's role
    continues to expand under this administration.
        Ten days after the President took office, he issued an
    Executive Order, directing Executive Branch agencies to remove
    at least two regulations for each newly issued regulation, and,
    most importantly, the order directed any added regulatory costs
    must be offset by the removal of existing regulatory costs. I
    look forward to hearing how agencies have fared during the
    first year of this Executive Order and the outlook going
    forward.
        Properly issued guidance is necessary and helpful in
    clarifying regulatory requirements, but when abused, agencies
    circumvent congressionally mandated procedure and pursue their
    agenda without the input of the American people. Under both
    Republican and Democrat administrations, OIRA has proven to be
    a neutral gatekeeper and a check on Executive Branch agencies.
    However, under a long-standing agreement, Internal Revenue
    Service (IRS) regulations have not gone through centralized
    review like every other Executive branch agency.
        In 1983, when this agreement was signed, OIRA was a new
    office with limited scope. Since then, the nature of both OIRA
    and the IRS has changed. OIRA's mission goes far beyond the
    review of information collection under the Paperwork Reduction
    Act (PRA) and the IRS does a lot more than simply apply the tax
    code. They determine issues as varied as religious exemptions
    to the implementation of the Affordable Care Act (ACA).
        All Executive Branch agencies must comply with OIRA review,
    Regulatory Flexibility Analysis (RFA), and the Congressional
    Review Act (CRA). But for decades the IRS has been exempted
    from these checks put in place to protect the American people.
        In 2016, the IRS proposed a rule regarding the valuation of
    interest in closely held partnerships or corporations for a
    estate gift and generation-skipping transfer taxes. As the
    Small Business Office of Advocacy outlined in a comment letter,
    the IRS failed to perform an Initial Regulatory Flexibility
    Analysis (IRFA) and they certified the rule would not have a
    significant economic impact on small businesses, despite
    applying almost exclusively to the small businesses.
        The rule was so deeply flawed that this administration
    withdrew the rule last fall. Absent a change in
    administrations, taxpayers would likely be bound by a
    regulation that did not receive economic analysis or input from
    those small businesses who would have been most affected by the
    rule.
        Another rule, issued in 2016, regarding corporate tax
    inversion, was labeled as ``temporary'' and completely ignored
    the Administrative Procedures Act (APA) notice and comment
    requirement because it was considered temporary. Last year, a
    Federal court found the rule to be legislative, and struck it
    down for being arbitrary and capricious.
        The point of the Administrative Procedures Act, the
    Regulatory Flexibility Act, and the Congressional Review Act is
    to ensure rules are thoroughly scrutinized and reviewed by a
    third party and Congress before they bind the American people.
    It is unacceptable for taxpayers to have to wait for a change
    in administration or judicial review to overturn a rule that
    could have been addressed by OIRA prior to it ever being
    promulgated.
        The Government Accountability Office (GAO), former OIRA
    Administrators, and administrative law experts have called on
    Treasury and OIRA to reconsider this agreement. I understand a
    new agreement has been reached to ensure IRS regulations are
    held to the same standard as other agencies. I look forward to
    hearing the details of the agreement, particularly how IRS
    plans to handle the requirements under the Regulatory
    Flexibility Act and the Congressional Review Act.
        With that I would recognize Ranking Member Heitkamp for her
    opening remarks.

                 OPENING STATEMENT OF SENATOR HEITKAMP

        Senator Heitkamp. Thank you, Mr. Chairman, and thank you
    for starting the hearing. I want to thank Mr. McIntosh and the
    Administrator for joining us today. I always appreciate our
    chance to check in with OIRA. OIRA has been called many
    things--a gatekeeper, a dispassionate and analytical second
    opinion, and even one of Washington's most powerful offices,
    and I would add to that that no one has ever heard of.
        OIRA plays a critical role in ensuring that Federal
    agencies develop rules the right way. Administrator Rao, I have
    a lot to ask about your first year on the job, but also would
    like to say I am very disappointed that the Department of Labor
    (DOL) did not decide to join us today. I was very much looking
    forward to hearing from Labor about the decisions they have
    made in developing the tip rule under the Fair Labor Standards
    Act. I have been assured that my questions on the subject can
    be answered today, and I very much hope that this is the case.
    I also have questions for the Administrator regarding OIRA's
    role in that development.
        Again, I look forward to your testimony. I thank you both
    for appearing today. I think that we always kind of point out
    that a lot of really important work gets done in these
    Subcommittee hearings, but yet not a lot of attention, and
    running government is really an important job, and
    understanding the nuts and bolts and making sure that that
    people are playing the right role is a critical component of
    that. And I want to thank the Administrator, I want to thank
    Mr. McIntosh for coming, and I look forward to the hearing.
        Senator Lankford. At this time we will proceed with
    testimony from the witnesses. The Honorable Neomi Rao is the
    Administrator of the Office of Information and Regulatory
    Affairs. Prior to her confirmation, Administrator Rao served as
    professor of structural constitutional law, administrative law,
    and legislation and statutory interpretation at the Scalia Law
    School at George Mason University (GMU), where she founded the
    Law School's Center for the Study of the Administrative State.
    She has served Associate Counsel and Special Assistant to
    President George W. Bush and is Counsel to the U.S. Senate
    Committee on the Judiciary. Thank you for being here.
        The Honorable Brent McIntosh is the General Counsel (GC)
    for the Department of the Treasury and serves as the head of
    the Treasury Legal Division. Prior to his confirmation, Mr.
    McIntosh was a partner in the law firm of Sullivan & Cromwell,
    where he was a member of the firm's litigation and financial
    services practice groups and co-led the firm's cybersecurity
    practice. From 2006 until 2009, Mr. McIntosh served as the
    Associate Counsel to President George W. Bush, first as Deputy
    Assistant to the President and as Deputy Staff Secretary.
        Thank you both for being here, and all the preparation and
    the work that has gone into leading up even to this
    conversation today.
        It is a custom of the Subcommittee, as I am sure both of
    you are aware, that we swear in all the witnesses before they
    appear before us, so if you would please stand and raise your
    right hand.
        Do you swear that the testimony you are about to give
    before this Subcommittee is the truth, the whole truth, and
    nothing but the truth, so help you, God?
        Ms. Rao. I do.
        Mr. McIntosh. I do.
        Senator Lankford. Thank you. Please be seated. Let the
    record reflect both witnesses have answered in the affirmative.
        We are using a timing system today, but this is a
    conversation between both of you and all of the Committee, so
    we will try to be able to honor that time. You will have a 5-
    minute countdown clock on it. If you go a couple of seconds
    past it we will not protest. But we do want to be able to leave
    plenty of time for dialogue and conversation in the moments
    ahead.
        Ms. Rao, you are first.

    TESTIMONY OF THE HONORABLE NEOMI RAO,\1\ ADMINISTRATOR, OFFICE
    OF INFORMATION AND REGULATORY AFFAIRS, OFFICE OF MANAGEMENT AND
                                 BUDGET

        Ms. Rao. Thank you very much. Chairman Lankford, Ranking
    Member Heitkamp, and Members of the Committee, thank you for
    the opportunity to appear before you today to discuss the
    activities of the Office of Information and Regulatory Affairs,
    and our efforts in implementing regulatory reform.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Ms. Rao appears in the Appendix on
    page 31.
    ---------------------------------------------------------------------------
        The administration's reform efforts have focused on
    developing a lawful, fair, and limited regulatory system that
    allows the economy to grow and innovation to flourish. We look
    first to private market solutions and trust in ordinary
    Americans to make decisions that will result in greater
    prosperity through ingenuity and hard work.
        The success of our economy depends, at least in part, on a
    regulatory system that does not stand in the way of progress.
    And, speaking of progress, just last night the Office of
    Management and Budget (OMB) and the Treasury Department signed
    a memorandum of agreement (MOA) for significant tax rules to go
    through the process of centralized regulatory review at OIRA.
        President Trump directed OMB and Treasury to reconsider the
    scope of an exemption for certain tax regulations that dates
    back to 1983. The Executive Order focused on reducing the
    burdens of tax regulations in order to provide tax relief and
    useful, simplified tax guidance. The agreement that we signed
    brings tax regulatory actions into the same framework for
    regulatory review as other agencies while also providing for
    some expedited review and a definition of economic significance
    that recognizes the revenue-raising function of Treasury.
        In this administration, OIRA has led the charge to
    eliminate unnecessary regulatory burdens. The process of
    centralized regulatory review provides an important check to
    ensure that agencies take actions that yield meaningful
    benefits to the American people and that impose the least
    possible burdens.
        Even tax relief regulations may be improved by
    consideration of the costs and benefits of alternatives, and
    the OIRA process is well suited to help Treasury promote, in
    the words of the President, ``a tax system that is simple,
    fair, efficient, and pro-growth.'' We look forward to working
    with Treasury on this transition to improve tax regulatory
    policy in a manner that provides timely guidance to taxpayers.
        With respect to the administration's broader regulatory
    reform agenda, one of the primary vehicles for reform has been
    Executive Order 13771, which addresses the problem of
    accumulated regulatory burdens. In administrations of both
    parties, regulations have piled on top of regulations, without
    a systematic consideration of which regulations are no longer
    effective. To reduce this burden, EO 13771 requires that
    agencies eliminate two regulations for each new one, and for
    fiscal year (FY) 2017, to keep new regulatory costs to zero.
    And as the administration's central regulatory office, OIRA has
    worked closely with agencies to meet the President's very
    ambitious goals in a manner that is consistent with legal
    requirements.
        Across the government, we have achieved very substantial
    success. Through the end of fiscal year 2017, agencies have
    issued 67 deregulatory actions and 3 significant regulatory
    actions, a ratio of better than 22 to 1.
        Moreover, these deregulatory actions have led to meaningful
    cost savings of over $8 billion in fiscal year 2017. This
    represents the first time an administration has imposed any
    type of regulatory budget. The regulatory budget provides an
    important backstop to make sure that deregulatory actions are
    not just paper revisions and repeals but actions that generate
    real cost savings for the American people.
        Looking ahead to fiscal year 2018, agencies have projected
    a ratio of at least 3-to-1 deregulatory-to-regulatory actions
    and cost savings of over $10 billion.
        OIRA continues to work with agencies to ensure that
    regulatory and deregulatory actions are consistent with law,
    have benefits that outweigh the costs, and that are promoting
    the President's priorities. Importantly, all deregulatory
    actions have to meet the same standards as regulatory actions.
    Deregulatory actions must result in net benefits for the public
    and so agencies are only repealing those regulations that are
    not working.
        While the reforms are new, OIRA continues to apply
    longstanding principles for regulatory review rooted in
    Executive Order 12866. In our already highly regulated society,
    the public can often realize substantial benefits from lifting
    unnecessary burdens in the form of outdated regulations,
    guidance documents, and paperwork requirements.
        OIRA's regulatory reform initiatives have also focused on
    promoting the rule of law through improving fair notice, public
    participation, and due process. In coordination with the White
    House Counsel's Office, OIRA has directed a regulatory policy
    that emphasizes the rule of law. At the outset, we carefully
    consider whether an agency has authority for a proposed action,
    in this respect, the law-making power of Congress. OIRA also
    ensures that agencies are following the correct statutory
    procedures for rulemaking, because, indeed, much of the
    legitimacy of the administrative action derives from notice and
    comment rulemaking that allows for meaningful participation by
    the public.
        In light of these principles, we have cabined the
    inappropriate use of guidance and stressed that agencies should
    not use guidance to impose new obligations on the public. As
    part of reducing burdens, OIRA encourages and incentivizes
    agencies to identify guidance that can be repealed, modified,
    or reissued through a rulemaking. By rolling back regulatory
    burdens and following the rule of law, the administration's
    reform benefits the American people by promoting individual
    liberty and by encouraging economic growth, job creation, and
    innovation.
        Thank you again for inviting me to participate in this
    hearing. I look forward to your questions.
        Senator Lankford. Thank you. Mr. McIntosh.

       TESTIMONY OF THE HONORABLE BRENT J. MCINTOSH,\1\ GENERAL
                COUNSEL, U.S. DEPARTMENT OF THE TREASURY

        Mr. McIntosh. Chairman Lankford, Ranking Member Heitkamp,
    Members of the Subcommittee, thank you for the opportunity to
    discuss Treasury's role in advancing one of the
    administration's chief policy priorities, regulatory reform.
    ---------------------------------------------------------------------------
        \1\ The prepared statement of Mr. McIntosh appears in the Appendix
    on page 36.
    ---------------------------------------------------------------------------
        Let me begin, though, by touching on another of the
    President's chief policy priorities, tax reform. Treasury has,
    of course, played a leading role in advancing the once-in-a-
    generation tax reform pass late last year. The new law contains
    hundreds of provisions to provide relief to American families
    and make American businesses more competitive. Swift and
    successful implementation of tax reform, through prompt,
    straightforward rules and guidance is critical to unlocking the
    full benefits of the law and carrying out the will of Congress.
        Consistent with the President's regulatory reform agenda,
    Treasury's goal in implementing tax reform is to provide timely
    and necessary clarity that alleviates the burden of uncertainty
    for taxpayers without imposing needless regulatory costs or
    delays.
        Yesterday, Treasury and OMB adopted a new framework for
    review of proposed tax regulations that will allow us to
    continue doing just that. We are extremely pleased with this
    new framework, which brings the review of tax regulations back
    in line with the original intent of the Reagan era agreement.
    Our new framework enhances review and analysis of the subset of
    tax regulations most likely to impose undue costs, while fully
    preserving Treasury's ability to issue clear, timely rules and
    guidance that taxpayers need.
        Any tax regulation that adds major new compliance costs
    will now undergo cost benefit analysis as well as centralized
    review, exactly as it should be. On the other hand, tax
    regulations that do not meaningfully alter the cost of laws
    they implement will not undergo this time-consuming analysis.
        Critically, all of this will be done in an efficient
    timeframe, as American taxpayers demand. OMB has committed to
    review most proposed tax regulations in 45 days or less, and
    when expedited review is appropriate, OMB will complete its
    review in 10 business days or less.
        Because this new framework is smartly tailored to tax
    regulations, Treasury is confident that it will enable us to
    continue to successfully implement the historic tax reform
    legislation enacted by Congress while advancing the President's
    regulatory reform agenda.
        Tax reform is far from the only regulatory reform effort
    Treasury has undertaken to advance the President's priorities.
    Under Secretary Mnuchin, Treasury has identified more than 300
    regulations to eliminate, in whole or in part. On the other
    side of the ledger, Treasury has issued exactly zero regulatory
    actions within the 1-in, 2-out framework set forth in the
    President's Executive Order 13771.
        Treasury has also produced reports setting forth more than
    250 specific recommendations for reducing regulatory burdens
    and advancing the administration's core principles for
    regulation of capital markets, banks and credit unions, and the
    insurance and asset management industries. Those
    recommendations have addressed issues ranging from alleviating
    the burdens on community banks, simplifying the extraordinarily
    complex Volcker Rule, and bringing much-needed accountability
    to the Consumer Financial Protection Bureau (CFPB).
        Thank you for the opportunity to testify today, and I look
    forward to members' questions.
        Senator Lankford. Thank you, and thank you both for your
    preparation on the work leading up into this. I recognize
    Senator Portman. Senator Heitkamp and I are going to defer our
    questions to the end.

                  OPENING STATEMENT OF SENATOR PORTMAN

        Senator Portman. First of all, I thank the Chair for doing
    that. It is his style and I always appreciate it, and I try to
    reciprocate. We have got three hearings going on at once in
    this place, but this is a really important one and I thank you
    for holding the hearing on OIRA, and specifically on this issue
    of tax regulations being subject to OIRA review.
        It is a tricky issue, and, you know, I come at this as
    someone who believes in regulatory reform. In fact, Senator
    Heitkamp and I are co-authors of the Regulatory Accountability
    Act, which goes right at some of these regulatory reform issues
    that were talked about broadly, and the Chairman has been very
    involved in these issues. But also as someone who was a strong
    advocate of tax reform and understands the need for us to give
    guidance quickly, and so that the pro-growth aspects of tax
    reform are actually implemented, as you have noted.
        In my role at OMB, I found that OIRA was a critical agency
    to try to avoid problems, you know, by giving agencies a heads-
    up as to potential issues, and so I do think there is a
    appropriate role there. And, by the way, I am told that
    Treasury Department does subject a lot of what they do to OIRA.
    I think the average, in the agencies, is about 8 percent of
    their rules that have come in for OIRA. I think your average
    is, what, Mr. McIntosh, about 5.7 percent?
        Mr. McIntosh. It is between 5 and 6 percent, as long as you
    do not include Office of Comptroller of Currency, whose
    regulations we at main Treasury do not control.
        Senator Portman. Yes. So it is not that nothing gets to
    OIRA, but there is a difference, and this memorandum or
    understanding (MOU) that was put together back in the 1980s,
    has been the guidance we have all used. I do think it needed to
    be updated. And I want to thank you all, because my
    understanding is despite the fact that you are sitting far
    apart this morning--I think your chairs were placed before they
    knew you were going to come together--you can now be closer.
        And to Mr. McIntosh and to Administrator Rao, thanks for
    rolling up your sleeves and trying to figure this out, because
    it is complicated. I see Brian Callanan is behind you, too,
    your deputy. I know he played a big role in this. We talked a
    lot about it. And it sounds like you have come up with
    something that I can support, and that does walk that fine line
    between having the oversight but also being able to get things
    out.
        I would like to, if I could, Mr. Chairman, submit for the
    record a letter by the Alliance for Competitive Taxation
    (ACT).\1\ This is a group of businesses and employees, millions
    of people, probably, overall, but certainly thousands in each
    of our States, and they were critical to getting tax reform
    across the line. Without objection, I would like to have that
    submitted to the record.
    ---------------------------------------------------------------------------
        \1\ The Alliance for Competitive Taxation letter appears in the
    Appendix on page 39.
    ---------------------------------------------------------------------------
        Senator Lankford. Without objection.
        Senator Portman. This letter states that they are concerned
    about being sure that any changes to the MOU recognize the need
    for immediate interpretive guidance implementing the Tax Cuts
    and Jobs Act (TCJA), and I think that is a legitimate concern.
    They sent it to Secretary Mnuchin, your boss, and they sent it
    to OMB Director Mulvaney, and I think probably the line that is
    most important is ``the growth impact of the legislation will
    not be fully realized if businesses are uncertain about how the
    tax cut legislation will be implemented, thus delay in issuing
    guidance would impose a cost on taxpayers and the American
    economy.''
        So I think there is a balance here to be reached.
    Obviously, important for regulations, implementing a tax reform
    to be implemented as soon as possible for the pro-growth
    elements of the bill to actually work, particularly the
    regulations surrounding the international provisions, which are
    incredibly complicated, and companies have to respond very
    quickly, and that we made the tax reform legislation
    immediately applicable and enforceable.
        And I would say the second one probably is the small
    business deduction. That is one that is very difficult for some
    companies to understand.
        So I guess my first question would be to Mr. McIntosh. Can
    you guarantee that the revised MOU will not lead to any
    unnecessary delays in the regulations that are implementing the
    tax reform legislation?
        Mr. McIntosh. Senator, thanks for that question. It is
    obviously an urgent one for us and a terribly important one for
    us.
        We do not believe it will lead to undue delays. There will
    obviously be some amount with regard to some of these
    regulations, that there will be some amount of additional
    analysis. But we have committed, in the memorandum of
    understanding, or memorandum of agreement, as we phrased it, to
    expedited review on a particular set of regulations. So, for
    example, we would expect that those you discussed, that are
    necessary to implement the tax reform bill, would be subject to
    designation as expedited and a 10-business-day review at OIRA.
        Senator Portman. Let me be specific. Right away you got the
    withholding tables out. More accurately, I guess the IRS got
    the withholding tables out, which was very helpful to my
    constituents, because they were hearing all these different
    things about how this was going to affect them. The proof is in
    the paycheck, and until you see actually what happens to your
    own paycheck you really do not know. And I think it was
    important for human resources (HR) executives all over the
    country and small businesses to be able to have that
    information. That is one example.
        Another would be deemed repatriation, because, as you know,
    that went into effect and companies, including Apple, was one
    that has been before this Committee. You know, they had to make
    decisions right after the passage of the legislation. With
    those two, deemed repatriation and the withholding tables being
    altered, would those have been able to have been done as
    quickly as they were if the new MOU that you all now put
    together were in effect?
        Mr. McIntosh. Senator, I think we probably could have
    gotten them out as quickly as we did, assuming that OIRA would
    have worked with us to expedite the review. Obviously, those
    were things, in particular on the deemed repatriation, that had
    to be done very rapidly, and I believe the guidance came out
    something like 7 days after the law was passed. Obviously, I am
    confident OIRA would work with us very carefully to expedite
    those, and I know Administrator Rao is committed to that.
        On the withholding tables those were obviously important to
    get those out quickly and they were very well received, and
    businesses and individuals were very happy to see them get out,
    and I believe that under the MOU that they could have been put
    out very substantially about the same time that they came out.
    I believe that OIRA would have expedited its review on those as
    well.
        Senator Portman. So Administrator Rao, how would you answer
    those two questions? Do you agree or disagree?
        Ms. Rao. Yes, I would agree, Senator Portman. Part of the
    compromise that was struck in the memorandum of agreement is
    that we would have an opportunity to review and add value to
    make sure that the regulations were going in the right
    direction and consistent with law, and meeting our standards.
    But, when appropriate, we can do that very quickly. We have
    committed to a 10-business-days turnaround for subsets of rules
    that are particularly important or sensitive. So we believe
    that we can accomplish that goal.
        Senator Portman. We look forward to seeing more about the
    agreement you all reached last night. Again, I commend you for
    that, and it sounds like we have reached, from what I
    understand from the briefing that I got this morning, a balance
    in, again, a tricky area, but a really important area.
        And thank you, Mr. Chairman, for your indulgence. Thank
    you, guys, for being here.
        Senator Lankford. Thank you. Senator Hassan.

                  OPENING STATEMENT OF SENATOR HASSAN

        Senator Hassan. Well, thank you, Mr. Chair, and Ranking
    Member Heitkamp, and thank you both for being here today and
    for your work. I know it takes a lot to prepare for a hearing
    like this, in addition to everything else you do, so thank you.
        Administrator Rao, I wanted to start with a couple of
    questions for you.
        As public officials, we often have disagreement about
    policy issues, but I would like to think that we are all
    committed to making sure we have the best information available
    to us when we are evaluating and discussing those issues. That
    is why I was concerned to read reports about the process by
    which the Department of Labor rolled back the 2011 tipped wage
    rule last year.
        Fortunately, Congress has largely blocked the worst effects
    of this rollback, but I still have concerns about the agency
    process. The Department provided the public with no
    quantitative economic analysis of its proposed changes, stating
    that it actually lacked data. But reports have since come out
    that the Department of Labor did conduct this quantitative
    analysis and found that the proposed change would result in
    workers losing billions of dollars. Instead of making that
    information public, the Department reportedly chose to bury the
    analysis and propose the changes to the 2011 rule while stating
    that the uncertainties were too great to conduct such an
    analysis.
        My understanding is that OIRA was a part of that process.
    Can you explain how this happened?
        Ms. Rao. Thank you, Senator Hassan, for that question. So
    we were reviewing the tip pooling rule from the Department of
    Labor, and it was always our view that should that rule be
    finalized that there would be a full quantitative analysis in
    the final rule.
        Senator Hassan. OK. So reports I have seen suggest that
    you, yourself, tried to stop the Labor Department from
    proposing these changes without those quantitative estimates,
    but that you were overridden. Can you speak to that?
        Ms. Rao. I cannot speak to the internal deliberative
    process surrounding the rule, but at OIRA we are, you know,
    very committed to having quantitative analysis, whenever
    possible, for a rule. Secretary Acosta has said, in some of his
    hearings to Congress, that he believed that the data that was
    available was not sufficient, it might be misleading to be put
    forward in the proposed rule. And he was also committed to
    having a full quantitative analysis in the final rule.
        Senator Hassan. Well, I understanding your point about the
    deliberative process. I am concerned, because I think the
    public, in a proposed rule, deserves to understand what
    information the Department has and what happened here.
        So let me ask you something more general, and I think you
    have begun to answer it. Do you think it is important to
    include quantitative analyses when issuing regulations, if it
    is possible to conduct them?
        Ms. Rao. Yes, I do.
        Senator Hassan. Then why would not the Labor Department
    issue these proposed changes without including that
    quantitative analysis that it had?
        Ms. Rao. I believe that the Secretary made a determination
    that the data that was available was not sufficient, as part of
    that process, and was concerned about releasing information
    that might be misleading. And I think they were also hampered
    by the fact that the 2011 rule that was proposing to be
    repealed also lacked a quantitative analysis, so there was not
    really a starting point for this new rule.
        Senator Hassan. And I have a couple of more questions that
    I want to get to. I understand that point but I actually do not
    think it is particularly relevant whether the 2011 had enough
    quantitative analysis. We are talking about money in the
    pockets of people who really need it, of working people who
    often are working at very low-level wages, sub-minimum wage
    because they are expected to get tips, and I think it was a
    real mistake, and I think it showed a disregard for
    quantitative analysis. And I hope very much that OIRA will
    continue to stand up for the importance of quantitative
    analysis, which I hear you commit to. But in this particular
    instance I am very concerned that what seems to many of us
    political considerations overtook appropriate quantitative
    analysis, in a really important regulation to millions of
    working people in our country.
        So I look forward to continuing to work with you on that,
    and I hope OIRA will stand up for quantitative analysis, even
    in proposed rules, where appropriate.
        I wanted to move on to another issue, which, again, goes to
    kind of what kind of information we are basing our regulations
    on. Do you think it is important to have the best available
    evidence inform decisions that agencies make about regulatory
    and deregulatory actions?
        Ms. Rao. Yes, I do. I think having proper scientific and
    other economic analysis is very important to the rulemaking
    process.
        Senator Hassan. Do you think that during your time as
    Administrator agencies have used the best available evidence to
    make these kinds of decisions?
        Ms. Rao. We have certainly sought to work with agencies to
    ensure that that occurs.
        Senator Hassan. Environmental Protection Agency (EPA)
    Administrator Scott Pruitt is reportedly considering a proposal
    that would prevent the EPA from using a scientific study unless
    it is perfectly replicable and all the underlying raw data is
    released to the public. That is problematic for a whole host of
    reasons. For example, it could require the release of
    confidential medical information, which, in turn, may reduce
    participation in studies. But it would also prevent the EPA
    from considering some of the best evidence we have available to
    us when making regulatory and deregulatory decisions.
        Have you and your office provided any input to
    Administrator Pruitt on this proposal?
        Ms. Rao. Thank you, Senator. The questions about
    information quality are very important to us, and that is
    something that my staff has been working with EPA on, to
    develop best practices in that area.
        Senator Hassan. Thank you. Do you think such a proposal, as
    the one I just described, the one from the EPA, that would
    limit the information agencies can use by preventing them from
    considering best available evidence makes sense?
        Ms. Rao. Well, I think we want to make sure that we do have
    the best available evidence. I think it is also important for
    the public to have notice and information about the types of
    studies which are being used by agencies for decisionmaking. So
    I think that there is a balance to be struck there, and I think
    that is something that the EPA is working toward.
        Senator Hassan. Would you generally support agencies
    changing their procedures in ways that prevent them from using
    the best available evidence when making these decisions?
        Ms. Rao. No, I would not.
        Senator Hassan. I am very glad to hear that, because one of
    the concerns about the EPA proposal is that it seems like basic
    common sense to use best evidence that make decisions. But what
    we are looking at is the agency really describing a move away
    from the scientific process. There is not perfect data or
    perfect science. Scientific evaluation and data and analysis is
    an ongoing process.
        As you know, we have talked about one of my priorities is
    the response to the opioid crisis in my State and across this
    country. If we wait for so-called perfect science we are not
    going to have evidence-based practices out there that are
    saving lives. And so I think it is critically important that we
    continue to honor scientific process and make sure that we are
    using best available data when we make policy.
        Thank you, Mr. Chair, for letting me go over.
        Senator Lankford. Thank you. Ranking Member Heitkamp.
        Senator Heitkamp. Thank you, Mr. Chairman. Administrator,
    let us just kind of go back to what you said. Is there any
    opportunity for the public to comment after a rule is final?
        Ms. Rao. After a rule is final, no.
        Senator Heitkamp. Well, then, why would we wait until a
    rule was final to provide quantitative analysis?
        Ms. Rao. Well, while we definitely believe that it is the
    best practice to provide the quantitative analysis with the
    proposed rule there may be circumstances in which an agency
    determines that that information is not available.
        Senator Heitkamp. Do you think that you can give a proper
    notice without giving that quantitative analysis on the front
    end? Because I would like to comment on it if I were an
    interested party. I would like to see all the evidence that
    went into it. It does not help me to get it at that stage, does
    it?
        Ms. Rao. Well, I do think it is better if reliable
    quantitative analysis is available at the proposed rulemaking
    stage. I think there is a balance between providing that
    information and ensuring that it is robust enough to support
    the comments.
        I mean, one of the utilities of having a proposed
    rulemaking process, of course, is that the agency brings in
    information from the public which will help inform their
    analysis going forward, and if they receive a lot of comments
    that affect their analysis they could go out with another
    proposed rule.
        Senator Heitkamp. Yes. Great. And one of my great
    criticisms of the Waters of the United States rule was that
    they did not take into consideration that additional
    information, reissue a proposed rule, and allow for comment.
        Ms. Rao. Yes.
        Senator Heitkamp. I think, back to Senator Hassan's point,
    this is the difference of whether people can put food on the
    table.
        Ms. Rao. Yes.
        Senator Heitkamp. This is not some ethereal academic study
    that we are talking about here. This is about what goes into
    the purse at the end of the night, that helps people live. And
    yet the attitude seems to be fairly cavalier about this rule.
    And, we understand, and, I said in my front comment, the
    Department of Labor did not want to come today, for whatever
    reason. I am pretty sure I know why they did not want to come
    today. So you are stuck sitting there, defending what the
    Department of Labor did. I get it.
        But this is not any way to run the railroad, and we need to
    lay down a marker right now, that we are going to be watching
    for this kind of backhanded, ham-handed, irresponsible kind of
    rulemaking process, especially when it hits some of the
    hardest-working Americans that we know. And so I am deeply
    concerned.
        And, you and I have had long discussions about the
    administration's attitude toward rulemaking, and I have been
    probably one of the most interested people in the Democratic
    caucus in reforming that process, getting rid of unnecessary
    regulation. But I have assured my colleagues that this is going
    to be done professionally, and it is hard to take a look at
    this rule and say this was done professionally. And it is hard
    to say this is not a political rule, this was not a political
    process. And I know you are cut in the middle of it, and I
    regret that for you because I know this is not how you would do
    it.
        But we need to make a statement right now, and you need to
    be able to go back to other agencies that want to take this
    kind of shortcut, and tell them, ``I do not want to go in front
    of that committee unless you are going to be with me. Do not
    try and do it.''
        Ms. Rao. Well, I appreciate that sentiment, Senator
    Heitkamp, and I can tell you that I am very committed to having
    full notice to the public in rulemakings and providing as much
    analysis as possible for the rulemaking process to be as robust
    as it can be.
        Senator Heitkamp. So I understand that we are kind of
    through this now, there was some corrective action taken by
    Congress. It should not take Congress to take that corrective
    answer. But I am not going to belabor this point any more.
        But I do want to ask you about the policy of OIRA when it
    comes to productions of cost benefit analysis that does not
    comport with deregulation goals. And by that I mean I believe
    there needs to be a robust cost benefit analysis for any major
    rule, or any major deregulation, and I tend to see if you are
    going to promulgate a rule, we want this robust process, but if
    you are going to deregulate, just throw up your hands and not
    go through the process. I mean, how are you impressing up on
    agencies that, when they are amending or engaging in a
    deregulation process, you expect the same kind of robust
    analysis that you would expect had they been proposed a new
    rule?
        Ms. Rao. Yes, thank you, Senator Heitkamp. We have been
    very clear in our guidance and our interactions with the
    agencies that the deregulatory rules need to meet the same
    standards. I think that is one of the reasons that some of the
    most significant deregulatory actions are still underway,
    agencies are working on developing robust analysis, gathering
    data following the appropriate notice and comment rulemaking
    period.
        And so we have really been working with agencies to ensure
    that those standards are met for deregulatory as well as
    regulatory actions.
        Senator Heitkamp. Yes. And one thing you and I have also
    talked about is transparency, and I think we have maybe a
    little different perspective, because you understand that your
    ability to work with agencies, if everything that you tell them
    becomes public it may limit your ability to do your job. I
    think at a time when there is an incredible amount of distrust
    about what is happening, especially in the regulatory
    environment, transparency is better than no transparency.
        Can you talk a little bit about the role of transparency
    here, to the regulated community and to the American public,
    and where you think those boundaries are?
        Ms. Rao. Thank you. So I consider transparency to be very
    important and really an essential part of good regulatory
    practices. I think the centralized review process at OIRA is
    one of the most transparent processes currently in the
    Executive Branch. At the end of a rulemaking process, members
    of the public are able to obtain a copy of the rule as it was
    proposed by the agency, as well as the final rule. They can
    compare the difference and understand that the review process
    is what happened in between. So I think that is very
    transparent.
        We have also, with respect to our regulatory reform
    efforts, sought to be very transparent. On our website,
    Reginfo.gov, we have listed all of our deregulatory and
    regulatory actions. We have listed how the agencies have done
    their cost allocations. So we have really sought to be as
    transparent as possible in our reform efforts.
        Senator Heitkamp. And that leads to maybe another area that
    is not as comfortable, and that is the Bloomberg stories under
    the tip rule. Basically the administration's position was that
    that was false reporting, fake news once again. But yet I think
    it is pretty fair to say that if it was, indeed, a false news
    story we would not have had to have an agreement in the omnibus
    to fix it.
        And so according to their series on this proposed rule,
    you, your agency, attempted to stop the publication of the
    notice of proposed rulemaking without the quantitative data. In
    all seriousness, I would say, thank you. But I want to say I
    appreciate your willingness to stand up and say this is wrong,
    and I respect your courage, but it does not help when one
    agency is saying, look, we put the brakes on this. We tried to
    stop this. Bloomberg is not exactly known for a bias in news
    reporting. And the answer to that kind of reporting on a rule,
    which is critical to transparency, is fake news, nothing to see
    here, walk away.
        And so I think it is really important that we look at
    transparency not only in terms of what is available but also
    commenting and being honest with our First Amendment friends in
    the press, to make sure that we are telling the public exactly
    what is happening. And so I am curious about any comment you
    have about the Bloomberg story, about the reporting that this
    was somehow fake news or false reporting, and what role you
    think the press has in all of this.
        Ms. Rao. Thank you, Senator. It is hard for me to comment
    on the deliberative process that takes place around a
    rulemaking, but I can tell you that I, in my role as the OIRA
    Administrator, am very committed to ensuring that this type of
    analysis is available to the public, and I will continue to
    endeavor----
        Senator Heitkamp. But the truth--when issues are raised
    about the process, and issues are raised about how did this
    happen----
        Ms. Rao. Yes.
        Senator Heitkamp [continuing]. The public has a right to
    know that this is maybe where it went across the rails. And
    that public accountability leads to a greater accountability,
    and that is the concern that I have, and the reason why I am
    focused on the tip rule, in part, because you guys came to an
    agreement on the rest of this. But the reason why I am focused
    is that this is the first kind of major examination of this
    relationship that you have with other agencies, or in the
    process of doing things, that I might agree with, as a
    substantive matter. But that process has to be accountable, and
    the media has to have access to information so they can fairly
    report to the public. And it does not help us to say it is
    false reporting or fake news.
        And so I just want to make that point. I know that did not
    come from you, but I wanted that point on the record.
        Thank you, Mr. Chairman.
        Senator Lankford. Thank you. Senator Harris.

                  OPENING STATEMENT OF SENATOR HARRIS

        Senator Harris. Thank you. Administrator Rao, I want to
    discuss with you the Paperwork Reduction Act, and it stipulates
    that OMB, as you know, must review and approve Federal
    collections of information before they are conducted. So,
    specifically, I want to discuss with you the 2020 Census. We
    had a separate hearing regarding that.
        After reviewing the agency request, OMB, as you know, may
    approve or disapprove a request or define conditions that must
    be met for approval of any question that goes out.
        Ms. Rao. Yes.
        Senator Harris. The Census Bureau submitted to OMB a
    proposal to combine race and ethnicity, to combine the two
    questions on the 2020 Census, which years of testing and
    research have showed would likely increase an accurate count of
    minority populations with a specific emphasis on Latino
    populations.
        Were you involved at all in the review of this proposal?
        Ms. Rao. The End-to-End Test for the Census was submitted
    to our office for approval, yes.
        Senator Harris. And on this specific subject?
        Ms. Rao. Well, that was one of the questions in the test
    that was proposed by the Department of Census.
        Senator Harris. And was there an affirmative decision by
    you or Director Mulvaney or any other OMB official to not
    include a combined race-ethnicity question on the Census?
        Ms. Rao. Well, Senator Harris, the race and ethnicity
    collections by the government are governed by a 1997 OMB
    directive----
        Senator Harris. Yes.
        Ms. Rao [continuing]. Statistical directive on race and
    ethnicity standards, and the End-to-End Test, the format of
    that question followed those long-standing standards. So it was
    consistent with existing policy for how race and ethnicity
    questions would be worded on government collections.
        Senator Harris. And so on this issue, was there an
    affirmative decision by you or Director Mulvaney or any other
    OMB official to not include the combined race and ethnicity
    question?
        Ms. Rao. No. I mean, the Census used the format that is
    required under the current directives on race and ethnicity
    standards.
        Senator Harris. So is it your opinion, then, that OMB did
    not have to review the decision and affirm the decision or deny
    it?
        Ms. Rao. Well, we reviewed the End-to-End Test but that
    particular question is just consistent with the existing
    standards so there was no need to make a specific determination
    on how that question was phrased.
        Senator Harris. So you made a decision, then, that it did
    not need to be changed. Is that it? I am a bit confused. What
    is the decision that you made on the issue of the race and
    ethnicity?
        Ms. Rao. We reviewed the test, the End-to-End Test, to
    ensure that it complied with the requirements of our
    statistical directives and the Paperwork Reduction Act, and it
    did satisfy those standards, and so the Census was allowed to
    move forward with that End-to-End Test.
        Senator Harris. OK. And was there any memo or documentation
    of this finding in the analysis that led to this finding?
        Ms. Rao. I do not believe there was, no.
        Senator Harris. Can you check, and if there was, supply it
    to us?
        Ms. Rao. I would be happy to look into that.
        Senator Harris. Thank you. And, additionally, Commerce
    Secretary Ross announced the addition of a citizenship question
    to the full 2020 Census, and there, I am sure you know, have
    been major concerns expressed about raising that, and bringing
    that question up, especially without proper testing and
    vetting. And the concern is that it will decrease the responses
    to the Census, which, of course, we do only ever 10 years and
    we make a lot of decisions based on the numbers that are
    produced. So it is critically important that it is accurate.
        What role, if any, did OIRA have regarding this decision?
        Ms. Rao. We did not play any role in that decision.
        Senator Harris. And is it your opinion that you do not have
    a role to play in affirming or reviewing that decision?
        Ms. Rao. The decision about what questions would go on the
    Census and be submitted to Congress was a decision made by the
    Department of Commerce. When those questions are finalized,
    after review by Congress, we expect to receive the entire
    package of questions for the Census as part of the Paperwork
    Reduction Act process, and that collection will come to us,
    likely, we expect, sometime in the fall of this year. So we
    will review the collection at that time.
        Senator Harris. So I am clear on the system and the
    process----
        Ms. Rao. Yes..
        Senator Harris [continuing]. So are you saying, then, that
    you do not have a responsibility to review it before it comes
    to Congress?
        Ms. Rao. That is correct.
        Senator Harris. And then after it comes to Congress, you
    will review it, and then what is the purpose of your review at
    that point?
        Ms. Rao. Well, the purpose of that review is the same time,
    it is the same purpose of any Paperwork Reduction, the Census
    is essentially a very significant information collection.
        Senator Harris. Sure.
        Ms. Rao. And so it has to go through our ordinary process
    under the Paperwork Reduction Act, and it will do so after they
    have been submitted to Congress.
        Senator Harris. And what is the purpose of your process?
        Ms. Rao. I think the purpose of our process is to make sure
    that we are gathering reasonable information from the public
    and we are doing it in a way that has integrity and serves the
    underlying purpose of the collection.
        Senator Harris. OK, great. Well I think----
        Ms. Rao. And follows----
        [Overlapping speakers.]
        Senator Harris [continuing]. Those are very important
    purposes. And so I look forward to hearing from you once you
    receive it, on those questions that I have presented, and those
    changes that we are making to the Census for 2020.
        Ms. Rao. Yes.
        Senator Harris. I know that Senator Hassan asked you some
    questions earlier, and just in follow up to the reference that
    she made to the tips rule, have there been any other instances
    where agency heads have gone around OIRA in seeking regulatory
    approval?
        Ms. Rao. Senator, I am not sure I would characterize it
    that way. We have a process where OIRA works closely with the
    agencies and others around the EOP to resolve these issues.
        Senator Harris. OK. So you are not concerned that there are
    other instances?
        Ms. Rao. I am not.
        Senator Harris. OK. Great. Thank you very much. I have no
    further questions.
        Senator Lankford. Thank you, Senator. Kind of walk through
    a few things with us, just in trying to be able to pull some
    things together from this memorandum of agreement, and to be
    able to get some definitions here. The three areas are very
    typical on the scenario where a tax regulation would be subject
    to OIRA review.
        The first one, create a serious inconsistency or otherwise
    interfere with an action taken, or planned by an action by
    another agency. Who determines that, whether that moves? Is
    that Treasury that determines that or is that OIRA determines
    that? Because sometimes finding that it interferes with another
    agency cannot be seen by single agency. It has to be seen by
    OIRA to know someone else is doing something similar or this
    may interfere. Who does that determination?
        Mr. McIntosh. Senator, I am happy to address that. In the
    first instance, Treasury identifies all of its proposed
    regulatory actions to OIRA. The ultimate decision on that is
    made by the OIRA Administrator.
        Senator Lankford. OK. Talk to me about the speed of that.
    How quickly can they get an answer back? Is that within this
    45- and 10-day window, or does it take longer because that is a
    larger batch that is going to them to say, hey, we need to know
    whether we need to even go through this process?
        Mr. McIntosh. That is a different process from the 10- and
    45-day window, which is upon designation as significant for
    OIRA review. The process for determining whether OIRA should
    review under the criteria of Paragraph 1 of last night's
    memorandum of agreement is one where Treasury submits,
    periodically, a notice informing OIRA of the review, and OIRA
    then has the ability to designate things that it believes would
    hit the 1A criteria that you just described.
        Senator Lankford. So what is Treasury's expectation of how
    quickly they get an answer back before it needs to go through
    this longer process or before they can move forward?
        Mr. McIntosh. I do not know how long it takes to get that
    answer back.
        Senator Lankford. Well, let us ask OIRA, shall we? What is
    a good expectation for a time period, because clearly, as we
    have discussed before, and Senator Portman brought up, there is
    no goal here of trying to slow down the process with IRS,
    because many people need answers to questions quickly as they
    are going through the tax process. Especially this week, of all
    weeks, people are interested in rapid answers, to be able to
    get everything in.
        So the question is, how quickly can they expect an answer
    back on some of these things?
        Ms. Rao. We make significance determinations often, just
    within a couple of days. As long as we have sufficient
    information from the agency about what the rule hopes to
    accomplish we can make those determinations. And I would say
    usually that determination, as we have worked with other
    agencies, is fairly uncontroversial. Agencies often flag things
    they believe are significant and usually we accept their
    designations. Sometimes there may be disagreement, which we can
    usually work out pretty expeditiously.
        Senator Lankford. OK. Great. So do not anticipate any kind
    of slowdown in the process or anything that would be atypical.
    How far in advance would you anticipate that they would need to
    submit this to make sure that there is no slowdown in the
    process?
        Ms. Rao. I think it just depends on the rule, the size of
    the rule. The agreement provides for kind of a quarterly
    process, so we have some anticipation of the rules that are
    coming up, and then significance determinations can be made as
    they have further information about the rules that they plan.
        Senator Lankford. OK. I had brought up, in my opening
    statement, a couple of examples that we have seen, that I think
    if this process would have been in place would have been picked
    up by OIRA earlier, would have gone through some review and had
    some opportunity for conversation.
        And let me just reiterate what Senator Heitkamp was saying
    as well. We do anticipate that OIRA is forward leaning, that
    when an agency is trying to go faster or to circumvent the
    process, or not using complete information, we anticipate that
    OIRA is going to lean in and is going to say back to an agency
    head, publicly or privately or both, ``You need to slow down.
    We need better information.'' This will have a court challenge
    and cost the taxpayers millions of dollars, so let us get it
    right the first time rather than us go through millions of
    dollars on the taxpayer, or this will cause a lot of turmoil in
    the economy. We need to be able to resolve it earlier rather
    than later. That is why we like you being in that spot, to be
    in that role.
        So I mentioned a couple of examples earlier that I thought
    would have been picked up. Are there examples that you can
    already see now to think, in the future, these are things that
    I think are going to go through this process? Obviously it was
    just settled last night, but are there any examples you can
    think of with Treasury or IRS that would go through this
    process you see in the coming days?
        Mr. McIntosh. Mr. Chairman, thanks for that question. We do
    have anticipation that certain of the rules we have to
    promulgate under the tax reform bill will go through this
    process. I can give you specific examples. I would note,
    though, that whether they end up going through the process or
    not will depend on the regulatory choices that Treasury
    proposes to make. If, for example, Treasury proposes to hew
    very closely to the text of a statute, and so does not create
    any additional compliance costs, or very de minimis additional
    compliance costs, then one of the rules I cite here may not end
    up triggering the economically significant test here. It might
    still trigger one of the other prongs of the new MOA.
        So, for example, I think we think that some of the pass-
    through guidance would presumably hit these triggers. We think
    some of the guidance on the base erosion and anti-abuse
    provisions would hit it. The limitation on interest expense
    deductions could conceivably hit it, depending on the choices
    Treasury makes in promulgating those rules.
        Senator Lankford. OK. I can see it, by the way, and part of
    the OIRA process is helping think through, back and forth, and
    having someone outside of the entity thinking through what are
    other alternatives, which is exceptionally important in this
    process, to say this is the way this will be implemented, to
    think what else, how else could it be done and why. Why is that
    the best one? Why is that the easiest one to be able to
    implement? Is there a better way to do it?
        OK. Thank you. Any other ideas on that?
        Mr. McIntosh. I actually have a list here, but most of them
    are references to sections that would, I think, not probably be
    interesting to the listener in this hearing. But I am happy to
    come back----
        Senator Lankford. I am quite confident someone that is
    listening to this hearing would be exceptionally interested in
    that.
        Mr. McIntosh. So we think that, for example--I referenced
    the 199(a) regulations. We think the 100 percent bonus
    depreciation under 168(k) probably would, depending on the
    judgments made.
        Senator Lankford. Can I do a quick pause? The 199, is that
    the one that came to the omnibus, with the original one, or
    both? Because there was a revision of that, that happened in
    the omnibus vote as well.
        Mr. McIntosh. I do not know the answer to that, Mr.
    Chairman. I will have to take that----
        Senator Lankford. Hopefully the last one, because that was
    cleaning up the mess from the first one, but that is a whole
    different issue. OK. Go ahead.
        Mr. McIntosh. Yes. So I think we think that, for example,
    the 512(a), the regulations under 512(a), which deal with
    investments in partnerships, and the unrelated business taxable
    income being separately computed for each trade of business
    activity could conceivably, depending on the regulatory choices
    that are hit.
        I mentioned the 163(j) limitation on interest expense
    deduction. Conceivably, Section 59(a), which is the base
    erosion anti-abuse that I referenced earlier. Conceivably,
    951(a), which is what we call the global, intangible, low-tax
    income (GILTI) provisions could conceivably hit these triggers.
    There are others beyond that.
        Senator Lankford. OK. All right. That is extremely helpful
    to get the context on this.
        This determination on a rule having a revenue effect on the
    economy of $100 million or more, is that something Treasury
    will have the responsibility to be able to examine, or is that
    part of this early review process that you would anticipate
    happens?
        Mr. McIntosh. Mr. Chairman, if you are talking about the
    question of whether something hits the economic significance
    threshold that we have set forth in the memorandum of
    understanding, Treasury, in the first instance, would be
    obliged to make that calculation and provide it to OIRA, and
    OIRA would review that, and the ultimate decision would be the
    administrators.
        Senator Lankford. OK. So that is in this advance process,
    before you determine whether it goes in at all.
        Mr. McIntosh. That is correct, Mr. Chairman.
        Senator Lankford. All right. Which, by the way, is a very
    reasonable process on this.
        One of the things that Senator Heitkamp and I have had a
    lot of conversations about, dealing with the regulatory issues,
    is small business and how that actually works. One of the
    concerns that I have is the Small Business Advocate--it is my
    understanding, whatever year that that was, stopped sending
    issues over to IRS, basically saying they are not responding
    back to us anyway, they are not hearing us out. And even things
    like on estate tax and things that clearly hit small business,
    IRS has, in the past, said, well, this does not really apply
    and so we are going to keep moving.
        How are you going to get input from small business on these
    things when regulations actually do affect small businesses,
    and obviously multiple of these regulations will hit them
    disproportionately?
        Mr. McIntosh. Mr. Chairman, I think you are talking about
    the requirements of the Regulatory Flexibility Act?
        Senator Lankford. I am.
        Mr. McIntosh. So although you cited an instance in which
    IRS apparently got that calculation wrong, according to the
    Small Business Administration (SBA), the IRS Chief Counsel
    Manual, in Part 32.1, actually sets forth a regulatory
    flexibility checklist that IRS is obliged to undertake for
    every regulation it promulgates, and go through and determine
    whether it actually is subject to the Regulatory Flexibility
    Act calculations analysis or not.
        And so while that the IRS got it wrong in a prior year,
    there is a provision of the Chief Counsel Manual that is
    required to be applied to every rule.
        Senator Lankford. So how is there input back and forth
    between small business and IRS on things that affect small
    business?
        Mr. McIntosh. Mr. Chairman, I do not have the specifics of
    those interactions. I would be happy to take that back.
        Senator Lankford. Yes. Let us talk about that. This may be
    an ongoing conversation with Small Business Administration and
    others that just want to be able to have people at the table,
    to make sure when rules are promulgated that affect them
    directly they are able to raise their hand and say, ``Have you
    considered this?'' That is a reasonable part of it. They are
    going to see the same statute come out and think when the
    regulation is promulgated on that there will be issues, and in
    our particular business we want to make sure it is correct.
        We believe it is reasonable for those individuals to be
    able to be at the table so that when the regulation is made, it
    is consistent with law, but obviously consistent with common
    sense for application as well, and that only happens when you
    have people that are affected at the table, in that
    conversation, especially on the small business side, because it
    is so unique for that type of business trying to be able to
    operate under statute. Senator Heitkamp.
        Senator Heitkamp. I want to just follow on. When you do not
    pay attention to small business, we do not get the information
    we need to make the corrections. And we can classify a lot in
    tax, appropriately so, based on big and small business. And so
    this is not just about being responsive in following the
    current law. It is getting that information to us about impacts
    on small business so we can respond appropriately. And so,
    obviously, I am very concerned.
        I just want to kind of make a point. You are outgunned, Mr.
    McIntosh. Not you, personally. The IRS is outgunned. There are
    literally thousands and thousands of thousand-dollar-an-hour
    lawyers right now combing through this new tax bill, and what
    they are looking for is those glitches and these glitches, and
    you are down 20,000 employees at the IRS. Twenty thousand
    people have left since 2010. You are outgunned, and I am deeply
    concerned.
        That is their job. I am not criticizing $1,000 tax lawyers.
    I am not criticizing that. I was the tax commissioner in North
    Dakota. I know how this goes.
        But we will have an impact on the debt and deficit in this
    country unless you get this right, unless you fulfill--I mean,
    I will tell you that--we can debate. You opened it up, bragging
    about the tax bill. We can debate a trillion-dollar deficit
    over 10 years, which is where this thing is headed if you
    believe some of our analysis. I know you do not agree with that
    analysis. Let us put that aside.
        This bill has the potential of having a Mack truck driven
    through it, in terms of revenue, because of the changes,
    because those changes were not vetted in a meaningful way here.
    They are going to have to be analyzed there. And the speed to
    which you do it and help us identify those loopholes, that will
    be loopholes that were unintended, is absolutely critical
    moving forward.
        I mean, Congress has spoken. This bill has passed. We know
    what the legislative history and the intent of this is. I am
    deeply concerned, like the problem with 199(a), that we are
    going to see more and more glitches. In fact, they have been
    reported. And so if the language--this, probably is more
    appropriate for a Finance Committee hearing--but if the
    language of this bill provides the ambiguity that gets you in
    litigation over various deductions, various exemptions, various
    transfers, we need to know so that we can react here.
        And so I cannot impress upon you enough how important it is
    to staff up, even if it means you rob from Peter to pay Paul.
    We cannot let the IRS just prioritize these things based on
    what they think is the biggest mess, allowing a major loophole
    or a major problem on the back door. And the pass-through stuff
    is complicated, and I am deeply concerned about what is going
    to happen with the potential for revenue loss that goes beyond
    what was intended here with pass-through entities and with
    transfers. I am deeply concerned about what could happen with
    multinational allocations.
        And so just know that we need to know, as an oversight body
    on regulation, if you do not have enough people. We need to go
    make that argument, because no one wants this to be a bigger
    deficit problem than what we currently have, a bigger debt
    problem.
        And so I am concerned about the lack of staffing at IRS to
    implement this statute. And Senator Portman raised the
    withholding tables. Good. I hope they are right, because people
    who usually get, $2,000 or $3,000 of withholding, of refund,
    they are not going to be very happy if, in April, their refund
    is only $200.
        So this is critically important that this get done right.
    And, I am not saying that is going to happen. I am not saying--
    it could be that they double their refund. I do not know. But
    it is really important that we stay on top of this rulemaking
    process, and it is really important that you rely on your
    counterpart, and that is why I am grateful for the solution
    that you guys worked out. I think it is important.
        But we are going to be monitoring that, because it is just
    not enough for your eyes to be on this stuff. Her eyes need to
    be on it. And it is a plus multiplier for the IRS to be able to
    use that excellent staff that we have at OIRA to help you guys
    implement this huge bill.
        So I just want to make that comment that we are on your
    team. Ask for help if you need it. Identify things that you go,
    ``Whoa, whoa, whoa, that was not intended. We need a fix.''
    Even though this was a highly partisan process--I am not
    commenting either way--the fixing it should not be partisan if,
    in fact, we run into those problems. So we are very interested
    in what can happen in oversight and very interested in how we
    can help you fix unintended consequences in this bill.
        Senator Lankford. Let me ask some specific questions on
    this. On the memorandum of agreement that you settled last
    night, in the last part of it, this MOA will have immediate
    effect except that Paragraph 2(b) will take effect on the
    earlier of 12 months from the date of this agreement or when
    Treasury obtains reasonably sufficient resources, with the
    assistance of OMB, to perform the required analysis.
        Help me understand that part, especially the part about
    ``with the assistance of OMB.'' What is the agreement at this
    point about trying to get you assistance faster than 12 months,
    or do you anticipate it will take 12 months to be able to
    actually rule this out? Where will those individuals be housed?
    Will they be at OMB, that Treasury will tap on, or will they be
    at Treasury that OMB will help facilitate?
        Mr. McIntosh. Mr. Chairman, this was a provision that was
    carefully crafted between the Administrator and myself because
    of the importance of getting this right.
        Our expectation will be able to go into effect before 12
    months. Our concern is it takes a certain set of economists to
    produce a regulatory impact analysis. We have one pending
    before OIRA right now where the primary author spent over 1,000
    hours on the impact analysis. And it is, perhaps, a good thing
    that Treasury does not have economists sitting around with
    nothing to do. We deploy them as best we can.
        Senator Lankford. They are dangerous people when they have
    nothing to do. Yes.
        Mr. McIntosh. I have no comment on that. [Laughter.]
        So we are going to need, and want to bring in additional
    resources to bear, to produce these regulatory impact analyses.
    And in terms of what is the agreement between Treasury and OMB
    on getting those more resources, it is essentially what is on
    the page here. We need to work on it, we both recognize we need
    to work on it, and we hope to solve that problem in the very
    near future.
        Senator Lankford. So help me understand, from OMB's
    perspective, what this section means and where the staffing
    will go. Treasury needs to add additional people. Will OMB and
    OIRA need to add additional people as well? What does that
    mean?
        Ms. Rao. We will need to add additional people. We have
    been looking into that. We have actually recently brought on
    Kristin Hickman, who is a professor at the University of
    Minnesota, as a Special Assistant to the Administrator. She is
    one of the Nation's leading tax and administrative law experts
    who will help us with this transition.
        I think this provision also recognizes the fact that there
    are things that both OIRA and Treasury need to learn about the
    process, since we have not been doing this type of work
    together, and to figure out what types of analysis we need to
    meet our standards for economically significant rules. And, so
    we want to do that in a way that is responsible, and
    understanding the kind of work they are already doing, what
    type of additional work may be required.
        But I would also just highlight that in the meantime, for
    rules, Treasury will still be providing us with analysis of
    costs and benefits, just not a full regulatory impact
    assessment, which kind of has a particular meaning. So we will
    still be receiving analysis from Treasury while we work out the
    details of these more elaborate requirements for economically
    significant rules.
        Senator Lankford. Do you anticipate it will take a year?
        Ms. Rao. I certainly hope it will not.
        Senator Lankford. OK. So how many staff do you think you
    will have to add? Is this 100? Is this 5?
        Ms. Rao. Probably somewhere between those two.
        Senator Lankford. There is a lot between those two.
        Ms. Rao. I think it would be great for the review of
    Treasury rules if we could have maybe 10 additional staffers. I
    think that would be reasonable as a start depending on the
    volume, which was something that we will need to work out as we
    go along.
        Senator Lankford. OK. What about Treasury? How many people
    do you think you will add?
        Mr. McIntosh. I think we are in about the same----
        Senator Lankford. Ten-ish?
        Mr. McIntosh [continuing]. Same area, Mr. Chairman,
    although I do not want to speak for our Offices of Tax
    Analysis, which would have much greater expertise on that.
        Senator Lankford. I get that. No, I am not going to hold
    you to it, as we are going through some of the possibilities
    for review. It is early to be able to determine how many things
    will be affected by that, so I am not going to try to hold you
    to every single one of those. But it is helpful to be able to
    get some context on the things you are already looking at.
        How is that--and do you anticipate this will have a gain to
    the taxpayer? When we are talking about adding 20 people in the
    process to be able to review this, what do you think is the
    gain to the taxpayer?
        Mr. McIntosh. We would expect that it would be beneficial
    to the taxpayer, Mr. Chairman. We clearly believe that there
    are a set of rules that have not gone through OIRA review that
    ought to. We do not think it is the majority of tax rules.
        Senator Lankford. Right.
        Mr. McIntosh. We think it is something along the lines of
    what other agencies send through OIRA, and I believe the
    Administrator agrees with that.
        But the tax code has changed over the past 40 years, since
    this agreement was first struck. The tax code is now used for
    some things that are not primarily designed to raise revenue.
    They are designed to incentivize conduct by imposing a tax. So,
    for example, certain of the ACA regulations that are
    promulgated are not primarily about raising revenue to bolster
    the fisc. And so those are the sorts of things where we think
    there is a clear role for OIRA to review.
        The things that are just----
        Senator Lankford. There is a wide variety of how those
    things can be imposed, and it will make a tremendous
    difference.
        Mr. McIntosh. We agree----
        Senator Lankford. Just going through the alternatives will
    make a significant difference of the least burdensome but most
    effective methods.
        Mr. McIntosh. We agree completely, Mr. Chairman. We also
    think there is a set of things that are pure--I will not say
    boring tax rules, but do not impose significant costs on the
    regulation itself, does not impose significant incremental
    costs beyond what the statute does, and they are not being used
    in this sort of conduct-inducing way that I described. And so
    for those we do not think there would be an advantage, and so
    that is reflected in the way we set forward the prongs under
    Paragraph 1 of the new MOA.
        Senator Lankford. Talk to me about the Congressional Review
    Act and the engagement with Treasury and IRS on the CRA and
    what it will take, obviously that can slow the process down
    significantly. What areas will IRS still be engaged in CRA
    requirements?
        Mr. McIntosh. Mr. Chairman, I am afraid I am a little
    baffled by a lot of the reporting about the Congressional
    Review Act. IRS actually over-complies with the Congressional
    Review Act. Whether a rule goes through OIRA review--I am
    sorry, IRS over-complies. I hope I did not misspeak there.
    Whether a rule goes through OIRA review or not does not
    determine whether we at Treasury comply with the Congressional
    Review Act.
        In addition to all rules, we submit all notices, all
    revenue procedures, and other guidance from IRS to Congress and
    to the Comptroller General so as to comply with the
    Congressional Review Act.
        The determination by OIRA as to whether a rule is major or
    not has a timing effect on when it can to into effect. But in
    terms of, for example, the concern that rules might hang out
    there for years and then be repealed by a Congress many
    Congresses away, that is actually--the over-compliance of IRS
    with the Congressional Review Act should prevent that. Makes it
    an impossibility, actually.
        Senator Lankford. OK. Additional elements that need to be
    addressed in this memorandum of agreement that are unaddressed,
    is where in the process, this was resolved last night, are
    there additional outstanding elements still yet to be resolved,
    that you would anticipate continuing on the negotiations on in
    the days ahead?
        Mr. McIntosh. Mr. Chairman, I do not think anything from
    the terms of the memorandum of understanding, or memorandum of
    agreement. I do think that--I would commend to you a column by
    Adam Looney at Brookings today, or maybe it was yesterday,
    where he explained that there is going to need to be some work
    between Treasury and OIRA to have the analysis conformed to
    what OIRA does, and have OIRA's analysis conform to what tax
    rules do, because tax rules are not easily analyzed under the
    usual cost benefit analysis, because they do impose costs, and
    they do raise revenue, and often there is no cognizable non-
    revenue benefit.
        And so the normal cost benefit analysis, people who are tax
    economists think it does not map on well, and I think we and
    OIRA are both cognizant of the fact that we are going to need
    to work with OIRA to get that to conform the review we do and
    the specifics of tax regulations, and confirm OIRA's analysis
    of those things to the specifics of the Internal Revenue Code.
        Senator Lankford. Which, by the way, I do not think you are
    getting any disagreement from us on that. We understand that
    completely. That is the nature of it. But there are times that
    regulations are promulgated that there are variations of how
    they can be implemented that do affect people dramatically.
    Small businesses, corporations overseas, individuals, there is
    a great variety in how things are actually implemented--timing,
    focus. Those decisions are wild cards in the decision, and
    everyone is trying to think through the right way to be able to
    do it. It is helpful to be able to get a second opinion and to
    be able to say this is a very significant rule; what are the
    other options and how are they actually implemented? How will
    this affect small businesses? Those conversations, I think, are
    beneficial.
        We do understand the cost benefit analysis a different
    dynamic, other than the way that it is actually being
    implemented, if that makes sense. So we understand that.
        Other things that you want to add into the agreement?
        Ms. Rao. No, I would agree with Mr. McIntosh, and I would
    also just add that our career economists and staffs have been
    working together during this process while we have been talking
    about the MOA, and, we believe that there is a lot of common
    ground in the analysis that Treasury is already conducting. And
    so those are questions that will have to be worked out as we go
    along, and we learn more about the work that each agency is
    doing and how that comes together.
        But we are quite confident that we can do this in a way
    that is expeditious.
        Senator Lankford. The issue about an interpretive rule and
    whether something is economically significant, saying this is
    what the statute said and so we are just implementing that, so
    this is really not a regulation, it is really not a
    economically significant, that is an area that I would see that
    the two of you are going to have to spend a lot of time talking
    and trying to figure out what is this. Because you are right.
    There are some areas of tax code, a tax table coming out, it is
    just, that is what the statute says and you are following right
    through with it. But there are other times it is economically
    significant. There were other options in the decisionmaking
    process that will require some back-and-forth to be able to
    make sure that is done.
        So what I do not want to have is a time, 2 years from now,
    when we are talking about saying, well, we do not have any
    options to be able to put out because they are all just the
    statute. Every agency could say that, that our regulations are
    just the statute. But when there are options and variables,
    there needs to be some outside conversation on it. Senator
    Heitkamp.
        Senator Heitkamp. I just want to add to that, because I
    think it is critically important, once you issue one of these
    rules, the reliance on a rule, the reliance on an
    interpretation pretty much cements it, and that is why it is so
    critical that you come back to Congress if it is not clear.
    That is why it is so critical that we know when the
    interpretations are not clear, when you need clarification,
    because if you get out there with an interpretation, we are
    looking at litigation, we are looking at reliance. It is
    possible to roll that back after the interpretation, and that
    is why it is so critical that we have an ongoing dialogue,
    especially as it relates to implementation of the new tax law.
        Final comments from either one of you.
        Mr. McIntosh. Nothing from me, Mr. Chairman. Thanks for
    holding the hearing.
        Senator Lankford. No. Thanks for being here.
        Ms. Rao. Yes, thank you, Mr. Chairman. Thank you.
        Senator Heitkamp. Thank you.
        Senator Lankford. We appreciate you being here and doing
    the hard work. You all have done a lot of work behind the
    scenes to be able to get to this point, to be able to do this,
    and we do appreciate it. This will be helpful long term for
    everyone going through tax policy, which is everyone's favorite
    subject.
        May I remind everyone that there is only days left until
    filing. Would that be helpful to you, to be able to get that
    done?
        Mr. McIntosh. We appreciate the notice, all the notice we
    can get, Mr. Chairman.
        Senator Lankford. As that approaches, all Americans are
    thinking about tax policy now. We just want to be able to make
    it as clear and as accurate as we can, from the IRS coming out
    to the American people, to be able to make sure that there is
    the least amount of ambiguity.
        That concludes today's hearing. I do want to thank both of
    you for your participation and your engagement in this. The
    hearing record will remain open for 15 days until the close of
    business on April 27, for the submission of statements and
    questions for the record.
        This hearing is adjourned.
        [Whereupon, at 11:38 a.m., the Subcommittee was adjourned.]

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