[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

        
 [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]       
        
        
                                __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
30-600 PDF                  WASHINGTON : 2018                     
          
----------------------------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, 
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). 
E-mail, [email protected].        
        
        
               
        
        
        
        
        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.]

                            A P P E N D I X

                              ----------                              

[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

                                 [all]