[Senate Hearing 115-287]
[From the U.S. Government Publishing Office]


                                                       S. Hrg. 115-287

                     NOMINATION OF DAVID J. KAUTTER

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

                                HEARING

                               BEFORE THE
                               
                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                                 ON THE

                             NOMINATION OF

  DAVID J. KAUTTER, TO BE ASSISTANT SECRETARY OF THE TREASURY FOR TAX 
                   POLICY, DEPARTMENT OF THE TREASURY

                               __________

                             JULY 18, 2017

                               __________
                               

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                          COMMITTEE ON FINANCE

                     ORRIN G. HATCH, Utah, Chairman

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

                     Chris Campbell, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hatch, Hon. Orrin G., a U.S. Senator from Utah, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     2

                         ADMINISTRATION NOMINEE

Kautter, David J., nominated to be Assistant Secretary of the 
  Treasury for Tax Policy, Department of the Treasury, 
  Washington, DC                                                      3

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    23
Kautter, David J.:
    Testimony....................................................     3
    Prepared statement...........................................    24
    Biographical information.....................................    24
    Responses to questions from committee members................    31
Wyden, Hon. Ron:
    Opening statement............................................     2
    Prepared statement...........................................    49

                                 (iii)

 
                    NOMINATION OF DAVID J. KAUTTER,
                    TO BE ASSISTANT SECRETARY OF THE
                        TREASURY FOR TAX POLICY
                       DEPARTMENT OF THE TREASURY

                              ----------                              


                         TUESDAY, JULY 18, 2017

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 11:12 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Enzi, Thune, Scott, Wyden, 
Cantwell, Menendez, Carper, Bennet, Casey, and McCaskill.
    Also present: Republican Staff: Mark Prater, Deputy Staff 
Director and Chief Tax Counsel; Nicholas Wyatt, Tax and 
Nominations Professional Staff Member; Chris Armstrong, Deputy 
Chief Oversight Counsel; Tony Coughlan, Tax Counsel; Chris 
Hanna, Senior Tax Policy Advisor; Jay Khosla, Chief Health 
Counsel and Policy Director; Eric Oman, Senior Policy Advisor 
for Tax and Accounting; and Martin Pippins, Detailee. 
Democratic Staff: Joshua Sheinkman, Staff Director; Michael 
Evans, General Counsel; Ian Nicholson, Investigator; Ryan 
Abraham, Senior Tax and Energy Counsel; David Berick, Chief 
Investigator; and Tiffany Smith, Chief Tax Counsel.

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

    The Chairman. Now we are going to shift a little bit and we 
are going to consider the nomination of Mr. David Kautter to 
serve as Assistant Secretary of Treasury for Tax Policy.
    Mr. Kautter, welcome to the Finance Committee. We 
appreciate your willingness to appear before us today. We also 
appreciate your willingness to serve in this capacity.
    I am sure that the significance of this position at this 
crucial time is not lost on you. It is not lost on any member 
of this committee. Tax reform has been a major focus of our 
committee for some time now, and we are grateful to have you 
here to discuss your thoughts on these matters.
    On a number of occasions, I have stated my view that 
presidential leadership will be a key component to any 
successful tax reform effort. Just last week I quoted President 
Obama. In a speech on the Senate floor back in 2012, he said 
things like ``our current corporate tax system is outdated, 
unfair, and inefficient.''
    The problem was that President Obama never really got 
around to truly leading on tax reform. I expect more from 
President Trump on tax reform. That expectation comes in large 
part because of knowing him and knowing the way he approaches 
things.
    I have to say also that he and Secretary Mnuchin have been 
talking about it so much, but more than that, they have engaged 
with Congress and the public on these issues.
    Mr. Kautter, I believe that your nomination is another way 
this President has further demonstrated his commitment to 
reforming our burdensome, job-killing tax code. Your experience 
as a practitioner tax expert will surely be a crucial part of 
this endeavor.
    Now, before I finish up with my remarks, I also want to 
address another important issue, one that I want to stress with 
all nominees who come before the committee. Whether we are 
talking about tax reform or the administration of existing tax 
policy, it is critically important that we keep open lines of 
communication between both parties in Congress and the 
executive branch.
    My hope today is that you will commit to providing timely 
and responsive answers to inquiries submitted by members, 
especially if they sit on this committee. That is the 
expectation, and, quite frankly, anything short of that is 
unacceptable.
    With that, I want to thank you once again for being able to 
be here today. I will now turn to Senator Wyden for any remarks 
he cares to make.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]

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

    Senator Wyden. Thank you very much, Mr. Chairman and 
colleagues. Since this is a tax policy double-header for the 
Finance Committee, we are only at the halfway mark. I am going 
to be brief this morning.
    Mr. Kautter has been nominated to serve as Assistant 
Treasury Secretary for Tax Policy. It is a very tough job, and 
it is especially challenging when the Congress is gearing up to 
work on major tax legislation. And I very much share Senator 
McCaskill's view on the importance of it being bipartisan.
    In my view, the big challenge at the heart of tax reform is 
guaranteeing that everybody in America has a chance to get 
ahead, not just the fortunate few. If tax reform becomes a 
partisan exercise in slashing rates for just the wealthy and 
the biggest corporations, the American people will see this as 
a con job. That is because it will leave in place the root 
causes of the appalling unfairness in the tax code.
    The fact is, the tax code in America today is really a tale 
of two systems. There is one system for cops and nurses, and it 
is compulsory, and it is strict, and basically their taxes come 
out of every single paycheck.
    And then there is another system for the lucky few that 
says you can pay what you want and when you want to. And it 
goes without saying that the nominees for top jobs in tax 
policy need to have the knowledge and experience to fix this 
root unfairness. And it is also vital to make sure nominees 
have not contributed to the problems in the first place.
    Now, I have real concerns. Mr. Kautter and I have talked 
about several matters that took place during his time as 
director of national tax at Ernst and Young. The firm did a 
great deal of work setting up tax shelters for wealthy clients. 
In the process, there were employees who were convicted of 
fraud and obstruction for covering it up. Ernst and Young paid 
more than $100 million in settlements with the Justice 
Department and the Internal Revenue Service over its tax 
shelter marketing.
    In the vetting process for the nomination, it became clear 
that Mr. Kautter was regularly informed of decisions that 
allowed Ernst and Young to profit off tax gaming. Mr. Kautter 
has told me he had no direct role in the marketing of those tax 
shelters or in misrepresenting them to Federal auditors. Yet I 
remain troubled that he was at the top of a department that 
engaged in these practices. This issue is going to come up this 
morning, and I look forward to that discussion.
    Finally, Assistant Secretary for Tax Policy is a job that 
requires close communication with both sides of this committee. 
Over the last few months, the administration has taken a lot of 
hits from Republicans and Democrats alike for its stated policy 
of ignoring questions that come from Democrats. I am pleased 
that Chairman Hatch has spoken out against this policy, as has 
Chairman Grassley.
    I want to be clear that it is completely unacceptable--
unacceptable--for an administration to just stonewall inquiries 
from members of Congress. Members of Congress do not do this 
for sport. We have an obligation on behalf of the millions of 
people we represent to ask tough questions. So I expect a 
commitment today to respond to questions from members of the 
committee regardless of whether they have a ``D'' or an ``R'' 
next to their name.
    Mr. Kautter, thank you for being here. Thank you for 
visiting with me. I look forward to your testimony.
    The Chairman. Well, thank you.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Mr. Kautter, do you have any comments you 
would care to make?

   STATEMENT OF DAVID J. KAUTTER, NOMINATED TO BE ASSISTANT 
  SECRETARY OF THE TREASURY FOR TAX POLICY, DEPARTMENT OF THE 
                    TREASURY, WASHINGTON, DC

    Mr. Kautter. Yes, thank you, Mr. Chairman.
    Chairman Hatch, Ranking Member Wyden, and distinguished 
members of the Senate Finance Committee, it is an honor to 
appear before you today. I feel both privileged and humbled to 
have been recommended by Treasury Secretary Steven Mnuchin and 
nominated by President Trump to serve as the Assistant 
Secretary of Treasury for Tax Policy.
    As a former tax staffer for a member of this committee, I 
have deep respect both for this committee and the institution 
of the Senate. I look forward to the opportunity, if confirmed, 
to serve this country again.
    I would like to take a moment to thank my family, who have 
been a constant source of inspiration and support for me 
throughout my career--my wife, Kathy; my two children, Hilary 
and David. I would also like to express my thanks to those 
members and staff whom I have been able to visit with over the 
past couple of weeks.
    If confirmed, I look forward to working with you in a 
bipartisan, collaborative, and collegial manner.
    I grew up in a small town by the name of Plymouth in the 
anthracite coal mining region in northeastern Pennsylvania. My 
father worked as an accountant for the coal mines, and my 
mother was a high school teacher. I spent the majority of my 
career as a tax practitioner and leading accounting firm tax 
departments.
    I am currently in charge of the accounting firm RSM's 
Washington National Tax Office. I also ran the American 
University Kogod Tax Center, where I taught in the business 
school. Prior to that, I spent over 30 years with Ernst and 
Young.
    Finally, I am proud to say that I was Senator Danforth's 
tax counsel for over 3 years. I will always be grateful to 
Senator Danforth for the lessons I learned and the values he 
instilled in all of us on his staff. He set a standard for 
excellence in service that has been a source of inspiration for 
my entire career.
    Through these career opportunities, I have worked on many 
aspects of the tax code. At American University, I focused on 
small business and middle-income individuals. My current firm, 
RSM, is focused on middle-market companies. At Ernst and Young, 
I specialized in employee benefits and compensation and 
witnessed first-hand the challenge of keeping American 
companies competitive internationally.
    Comprehensive tax reform is the challenge before us. The 
current code is unnecessarily complex, anti-competitive, and 
picks winners and losers. Americans need a simpler system when 
filing their taxes, and the middle class needs a tax cut. U.S. 
businesses need a tax code that allows them to prosper 
domestically and in an international marketplace.
    You have made great progress in identifying the policies 
that will achieve these goals. The magnitude of Congress's tax 
reform work in terms of the hearings, working groups, and 
legislative proposals is indeed impressive. As a result, 
America is on the verge of its first comprehensive tax code 
overhaul in a generation.
    Treasury has an outstanding team of many of the most 
talented tax professionals in the world. Working together with 
you and your staffs, I believe we can get tax reform over the 
finish line.
    If confirmed, it would be an honor to strive to do so. 
Thank you.
    The Chairman. Well, thank you, sir. We are grateful that 
you are willing to serve.
    [The prepared statement of Mr. Kautter appears in the 
appendix.]
    The Chairman. I have some obligatory questions I am going 
to ask that I ask all nominees.
    First, is there anything that you are aware of in your 
background that might present a conflict of interest with the 
duties of the office to which you have been nominated?
    Mr. Kautter. There is not.
    The Chairman. All right. Do you know of any reason, 
personal or otherwise, that would in any way prevent you from 
fully and honorably discharging the responsibilities of the 
office to which you have been nominated?
    Mr. Kautter. No, sir.
    The Chairman. Do you agree without reservation to respond 
to any reasonable summons to appear and testify before any duly 
constituted committee of the Congress if you are confirmed?
    Mr. Kautter. Yes, sir.
    The Chairman. Finally, do you commit to provide a prompt 
response in writing to any questions addressed to you by any 
Senator of this committee?
    Mr. Kautter. Yes, Mr. Chairman.
    The Chairman. Thank you, sir. You have been in the tax 
business for many years, from tax policy to tax consulting and 
compliance. You have worked with Congress and administrations, 
tax practitioners, academics, and other taxpayers. What is it 
that you would like to achieve as head of tax policy at the 
Treasury Department, and how have your years of experience and 
interaction with all facets of the tax community prepared you 
to do so?
    Mr. Kautter. Well, Mr. Chairman, one of the things I have 
learned over the years is that taxes do impact decision-making, 
both by businesses and individuals. And I think having an 
Internal Revenue Code that is fair and simple should be a high 
priority, and having a globally competitive tax system is 
critically important for American businesses.
    So, if confirmed, I would focus on increasing economic 
growth through the tax code, creating good-paying jobs, a 
middle-income tax cut, and simplicity.
    The Chairman. What are some of the important things 
Congress can do to help Americans save their hard-earned time, 
and of course, their hard-earned money as well, complying with 
this overly complex tax code system?
    Mr. Kautter. Senator, I think an Internal Revenue Code that 
has a broad base with low rates--which means eliminating 
certain tax deductions and preferences that exist today--would 
be very helpful. The Taxpayer Advocate has estimated that the 
Internal Revenue laws exceed 4 million words. No one can 
comprehend that. And so I think eliminating a lot of what we 
have today in terms of preferences, broadening the base, 
lowering the rate, is essential for Americans to feel good 
about the Internal Revenue Code.
    I think none of us tends to trust things we do not 
understand. And most Americans have no understanding whatsoever 
of the tax laws and how they work. When 90 percent of the 
population either hires a tax return preparer or purchases 
software to prepare the returns, we have a problem. So I think 
we need to dramatically simplify the tax law as part of tax 
reform.
    The Chairman. All right. The Trade Facilitation and Trade 
Enforcement Act of 2015 requires U.S. Customs and Border 
Protection, CBP, to promulgate regulations that the Treasury 
Department is responsible for approving. Some of these 
regulations have missed their statutory deadline.
    Do I have your commitment to ensure that CBP's regulations 
would adhere to statutory deadlines going forward, including 
the promulgation of the regulations necessary for simplified 
drawback procedures?
    Mr. Kautter. Senator, that is not an issue I am familiar 
with, but my personal belief is that the responsibility of the 
executive branch is to execute fully and faithfully the laws 
that are passed by Congress and signed into law by the 
President. And, if confirmed, I would do everything within my 
power to make sure Treasury meets its required deadlines.
    The Chairman. Now, you have interacted with and advised 
small and large businesses on a daily basis. What are these 
businesses telling you is most important to them as part of tax 
reform?
    Let me ask a little bit more too. What are the major themes 
you are hearing from large and small businesses alike?
    Mr. Kautter. Larger businesses tend to be more globally 
active, and so the focus tends to be more on a globally 
competitive tax system, including how foreign earnings of U.S.-
headquartered businesses are taxed. Small businesses are less 
concerned, as a general matter, with the global competitiveness 
of the U.S. system. They are more concerned with simplicity.
    One of the things that surprised me most when I moved to my 
current firm--which is focused on middle-market companies--is 
how few businesses in the middle market have a tax 
professional. Businesses with revenue of $50, $60, $70 million 
have no one on their staff who focuses on the tax consequences 
of different decisions they make.
    And so, I think having a simple, straightforward Internal 
Revenue Code for business that allows businesses to make 
decisions that make sense to them, without being unduly 
influenced by the tax law, would be a very good place to be.
    So again, Senator, different concerns at different ends of 
the spectrum.
    The Chairman. Thank you. The Base Erosion and Profit 
Shifting or BEPS project of the Organisation for Economic Co-
operation and Development or OECD was intended to address 
concerns associated with perceived erosion of the countries' 
tax bases and profit shifting. It was intended that countries 
who signed onto the final reports would move forward together 
on these fronts.
    However, not long after the reports were finalized, certain 
countries decided to go their own way and enact measures that 
went further than those measures described in the BEPS reports. 
For example, one of the reports dealt with the tax 
documentation that would be prepared on a country-by-country 
basis and privately shared with certain other governments.
    However, there is a strong movement, currently, in some 
jurisdictions to make that information public. If countries 
collectively agree to do one thing, but then go off and do 
another, what do you see as the benefit to the United States of 
participating in these tax discussions at the OECD, besides, of 
course, attempting to achieve particular consensus?
    If you think the United States should maintain a presence 
in these tax discussions, what thoughts do you have on actions 
that could be taken to encourage jurisdictions to not take 
actions that are contradictory to, or go further than, agreed-
upon frameworks?
    Mr. Kautter. Well, Senator, I think it is important for the 
United States to have a seat at the table in these discussions. 
And I also think it is important for the United States to make 
sure that those agreements we enter into our complied with. And 
so, how we would deal with each situation, I think would vary. 
But I do not know how we could have a globally competitive 
international environment with a level playing field when 
different players play by different rules.
    The Chairman. Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman. And, Mr. Kautter, 
thank you, and thank you for meeting with me.
    When you were director of national tax at Ernst and Young, 
you were responsible for tracking the amount of money employees 
in your department made for selling tax shelters that cost 
taxpayers billions of dollars. It was your job to count the 
money, and, as a partner of Ernst and Young, you benefitted 
financially as the money poured in.
    You also had a hand in designing the process of reviewing 
tax opinions that allowed this. It was a process that led to 
people going to jail and a $123-million fine.
    Yet up to now, up to this morning, you have taken no 
responsibility for a very dark chapter at this firm. And, in 
effect, you said--we heard you out yesterday--``It was not my 
job to complain; not my job to blow the whistle.''
    Now, it takes real courage to stand up when people around 
you are breaking the law. So the question I want to ask you is, 
in hindsight, at the least, do you wish you had handled this 
matter differently?
    Mr. Kautter. Well, Senator, I was not involved in the 
decision to get involved in tax shelters. And I have never 
designed or drafted one myself.
    Every time I think about Ernst and Young's activity in the 
tax shelter area, I wish I had done things differently. I tried 
at the time----
    Senator Wyden. What would you have done differently? You 
were the head of the department. This is a key question for me.
    Mr. Kautter. Sure.
    Senator Wyden. Because this was a big rip-off. And I would 
like to know what you would have done differently.
    Mr. Kautter. At the time the firm agreed to get involved in 
the tax shelter business, I was not the director of national 
tax.
    The firm set up a separate reporting structure with respect 
to tax shelters which did not involve the director of national 
tax. And when I took over, that was the system that was in 
place and continued until the tax shelter group was dissolved.
    It was not until later, when I was designated as the 
primary point of contact for the firm with the Permanent 
Subcommittee on Investigations, that I had a chance to really 
review in detail the email of that group. What I saw greatly 
disappointed me, and I felt members of the group had abused the 
level of trust that the firm had placed in them.
    Looking back, I should have been more active. I think I 
should have played a bigger role. I think I should have been 
more vocal. I spoke up whenever I had the opportunities, but I 
did not speak up as forcefully as I wish I had. And I feel bad 
about that.
    Senator Wyden. Because I am just looking at all these 
documents that you were cc'd on; I mean, not one, but lots of 
them. And I am going to have to consider your answer as we go 
forward, because, when you look at what happened there and the 
fact that you were copied on all of this, and you were the head 
of the department--this was a major fraud. And I may need to 
talk to you some more about this.
    Now, my next question is also on a matter that is very 
troubling to me. You said that you would respond to requests 
made by the committee. However, when you spoke with these 
people sitting behind me, you said that if the White House 
tells you not to respond to Democratic members, you would 
follow that directive and ignore our requests. So, which would 
it be? Are you going to be responsive to requests from 
committee Democrats even if directed not to do so by the White 
House, or are you going to break the pledge that you have made 
to the committee? It cannot be both. It has to be one or the 
other.
    Mr. Kautter. Senator, I was--when I worked here years ago, 
I was bought up to believe that bipartisanship was the way in 
which the Senate worked. I still believe that today. I think 
Congress makes its best decisions when both parties work 
together.
    The answer that I gave to the staff I stated improperly or 
not as accurately as I should have. What I meant to say and 
continue to believe----
    Senator Wyden. You are retracting what you said to the 
staff?
    Mr. Kautter. What I said----
    Senator Wyden. That is a ``yes'' or ``no'' question.
    Mr. Kautter. What I meant to say was, if there is a legal 
prohibition that prevents me from responding, that is all that 
will prevent me from responding. Other than that, I intend to 
fully and as quickly as possible respond to any inquiry from 
any member of this committee or the Senate from either side of 
the aisle.
    Senator Wyden. And one last question, if I can get it in. 
Again, when I think about the tax code, I think about two 
systems: one for cops and nurses--and it is compulsory, as I 
said--and the other is a kind of system that we saw at Ernst 
and Young where, in effect, people who are fortunate and have 
the kind of talent that you had there, can to a great extent 
decide what they are going to pay and when they are going to 
pay it.
    So what do you see as your priorities to close these kinds 
of loopholes and get us to a system that gives everybody a 
chance to get ahead, rather than two systems that end up being 
particularly hard on working families? You have some expertise 
here, because Ernst and Young was doing it on your watch. So 
what would you do to stop those kinds of practices?
    Mr. Kautter. Well, I would say two things, Senator. First 
of all, the activity by Ernst and Young in the tax shelter area 
was a small part. It always constituted less than 1 percent of 
the----
    Senator Wyden. The tax shelters are not a small part of the 
American economy today.
    Mr. Kautter. But I will tell you what led to that is the 
complexity of the Internal Revenue Code. It is all of the gray 
that exists within the tax law, and Ernst and Young was not 
unique. I mean, there were many tax advisors who were engaged 
in similar activity, and it is the complexity that leads to 
that.
    Senator Wyden. My time is up. There is a lot more to this 
than blaming it on complexity. This is a question of whether, 
in this job, you are going to have the political will to take 
on these powerful interests that did so well at Ernst and Young 
and are still out there today. I am going to need to ask you 
some more questions about that.
    Thank you, Mr. Chairman.
    The Chairman. Senator Grassley?
    Senator Grassley. Yes. Thank you, and congratulations on 
your nomination.
    My first question deals with the whole issue of whether we 
ought to have lower rates or expensing, and which is more 
important. How do you see the trade-off between expensing or 
depreciation and lower rates? And I will give you an example. 
Do you view it as acceptable to lengthen depreciation to help 
finance a lower rate?
    Mr. Kautter. Well, Senator, I think different businesses 
would prefer different things. So, professional service 
businesses with low investment in capital would prefer the 
lower rate. Capital-intensive businesses would prefer more 
rapid write-offs of their equipment.
    I think some members of this committee have developed some 
very innovative proposals with respect to capital write-offs 
that are somewhere between current law and expensing. And I 
think trying to simplify the rules for expensing and writing 
off capital equipment would be a very good thing to do. They 
are exceedingly complicated, and I think simplifying them and 
consolidating some of the existing rules would be a very good 
thing to do.
    Senator Grassley. What, if any restrictions should be 
imposed on the ability to deduct interest? As you know, the 
House blueprint generally eliminates interest as a business 
expense in exchange for going to full expensing on capital 
assets. Do you view this as an acceptable trade-off, and should 
any restriction on the deductibility of interest be considered 
to finance lower rates or faster depreciation?
    Mr. Kautter. I think as part of tax reform, Senator, 
everything should be on the table. I think we should look at 
the deductibility of interest. There is concern among many that 
the current treatment of interest deductibility leads 
businesses to excessive leverage.
    If something is done with respect to the deductibility of 
interest expense, I do not think it would be wise to do it as a 
simple across-the-board change. I think there are some aspects 
of the economy that depend very heavily on interest, and it is 
critical that they have availability to interest to debt and to 
the deductibility of their interest expense.
    Senator Grassley. A key simplification of the individual 
income tax being considered is substantially increasing the 
standard deduction. For example, the administration proposed 
doubling it while generally only maintaining the deductions for 
charitable contributions and mortgage interest.
    However, at the end of the day the increased standard 
deduction means that only around 5 percent of the taxpayers 
would itemize to take advantage of either of these two 
remaining deductions. How should tax reform balance the 
important goals of simplification with the long-term policy 
goals of incentivizing charitable giving and home ownership?
    Mr. Kautter. I think as part of tax reform--if we are going 
to do it right, Senator--each individual tax provision needs to 
be viewed in the context of a comprehensive Internal Revenue 
Code. So looking at every provision of the tax law, I think, 
makes sense. And figuring out a new Internal Revenue Code for 
the future which is substantially simpler with lower rates, I 
think, would benefit the economy and all of the taxpayers a 
great deal.
    Senator Grassley. There is a broad agreement that pass-
through tax rates need to be lowered in conjunction with any 
reduction of the corporate tax rate. In your view, must the 
corporate tax rate and pass-through business rates be equal to 
provide a level playing field?
    Mr. Kautter. Well, thank you, Senator. I have actually 
written on that and testified before the House Small Business 
Committee on that.
    Over the years, I have spent a lot of time focused on pass-
through businesses. And when I was at American University, the 
focus of the tax center I headed was on small businesses and 
middle-income taxpayers.
    At the time, about 2 or 3 years ago, there was a lot of 
discussion about eliminating a broad array of business 
expenses, business deductions, and using that revenue to lower 
the corporate rate. My concern was that many of the flow-
throughs are small businesses.
    And so I proposed at the time that maybe what we should 
have is a single business rate structure for all businesses, 
for flow-throughs as well as C corporations. It could be a 
graduated rate structure, but I proposed a single-rate 
structure for all business entities.
    At the time, I realized there are some significant problems 
with that. The biggest one probably is whether personal service 
income should be subject to those lower flow-through rates. I 
think that is a question on which people can differ, but I 
think that is significant.
    If it is agreed that personal service income should be 
subject to that lower pass-through rate, I think we need ways 
to prevent individuals from converting wage income into pass-
through income. But the biggest issue maybe, Senator, and maybe 
to get directly to your point, I think there has to be a 
realization that C corporations have two levels of tax, and 
pass-throughs only have one.
    So, while I would like to see the pass-through rate as low 
as it could be, I think we have to take into account the fact 
that there is a second level of tax on C corporations that does 
not exist for pass-through entities.
    Senator Grassley. Is that saying that there would not be 
some--and this is my last question. What you just said in the 
tail end is, you are giving some consideration to a lower rate 
for pass-through income as opposed to salaries, or not?
    Mr. Kautter. Yes, sir. But going back to my first point, I 
really think there is a serious question whether that lower 
pass-through income rate should apply to personal service 
income. In other words, if there is a corporate attorney in a 
corporate tax department performing exactly the same services 
as an attorney with a law firm, it does not seem right to me 
that the attorney with the law firm pays at a lower rate of tax 
than the employee pays.
    Senator Grassley. Okay.
    Mr. Kautter. Thanks.
    Senator Grassley. Thank you.
    The Chairman. Okay.
    Senator Casey?
    Senator Casey. Thank you, Mr. Chairman.
    Mr. Kautter, we appreciate you being here. I note for the 
record that you are a Luzerne County native.
    Mr. Kautter. Yes, sir.
    Senator Casey. Luzerne County, Pennsylvania. We do not have 
that happen very often around here, so it is good to see you.
    I want to--I will have some questions for the record 
regarding the line of questioning that Senator Wyden pursued 
with regard to Ernst and Young. I want to ask you in 
particular, though, about the code and where we go from here.
    In particular, I want to start with progressivity in the 
code. How do you preserve that? What are your views on that? 
And how do you view that issue, were you to be confirmed?
    Mr. Kautter. Well, progressivity has been a part of the 
Internal Revenue Code since its original enactment. I think it 
is sound social policy. I think it is sound tax policy.
    My focus, if confirmed, will be on a middle-income tax cut. 
I think reducing taxes for middle-income taxpayers, simplifying 
the law, encouraging economic growth, and generating good-
paying jobs are what I would focus on. So I believe in 
progressivity, and I think progressivity should continue to 
exist after tax reform.
    Senator Casey. I hope that would be the perspective or the 
view of the administration, if they are going to focus on 
middle-class tax cuts. I am afraid that that might not be 
widely shared in terms of a goal, because we have seen over a 
number of years that when Congress enacts substantial, and 
sometimes--I would argue--grossly excessive tax cuts for the 
wealthy, other parts of our society pay. Other parts of the 
budget pay--schools pay, research investments pay. Cuts to NIH 
or limitations on the investment, everything from Meals on 
Wheels to other programs are now up for not just cuts, but 
elimination by the administration. So I hope the administration 
would adopt the view that the middle class should be the 
priority.
    So let me just ask it this way in terms of the tax cuts for 
the wealthy: if the administration's tax plan is not deficit-
neutral, how would you weigh unpaid-for tax cuts against 
programs and services that that revenue pays for?
    Mr. Kautter. Well, Senator, my personal belief is that tax 
reform should be revenue-neutral. Saying that, I think we 
should take dynamic scoring into account as part of that. But I 
think adding to the deficit as part of tax reform is not the 
best way to go.
    Senator Casey. I might have a difference of opinion on 
dynamic scoring. We can get to that another day.
    As you know, what we have from the White House so far is 
kind of a one-pager----
    Mr. Kautter. Yes, sir.
    Senator Casey [continuing]. Which does not tell us much, 
but it does give broad outlines. Our sense is that the proposal 
the administration would move forward would be a repeal of all 
deductions, save three, right--just charitable, home interest, 
and retirement? This would result in a kind of above-the-line 
deduction being repealed.
    So here are just some examples of what that could lead to. 
You have in that scenario, repealing deductions for higher 
education expenses like tuition. So, if the overall tax plan 
gives a tax cut to those making, say, over a million dollars, 
how is that an appropriate trade-off when it comes to a 
deduction that benefits those who need higher education?
    Mr. Kautter. Sure. Well, I think the discussion so far has 
been primarily on itemized deductions, and education can pull 
into that. I think everything should be on the table as part of 
tax reform, and I would not rule anything in or anything out at 
this point. I think there are very many meritorious provisions 
in the code.
    The challenge is, they create complexity. And I, if 
confirmed, would be glad to work with you and your staff on the 
issues that you are focused on.
    Senator Casey. Well, we could add to that list of subject 
areas where individuals would be impacted. Education is one, 
expenses for educators in our classrooms, travel expenses 
incurred by Army Reserve members, as well as others.
    I am wrapping up, but I just will ask you one final 
question. Can you guarantee that, on average, there will be no 
absolute tax cut for the wealthy?
    Mr. Kautter. I am not in a position at this point, Senator, 
to make that commitment. I will tell you that my focus is on 
the 
middle-income taxpayer. And that is why I agreed to take on 
this job, if confirmed. And I will give you my word, that is my 
primary concern.
    Senator Casey. Thank you, Mr. Chairman.
    The Chairman. Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman.
    Congratulations on your nomination. We had a chance, Mr. 
Kautter, to talk about how I look at tax reform in trying to 
best think about an information age. Obviously one of the 
things we want to harness is the level of innovation and 
continued development of new products and services, so we need 
to make sure that, as we look at tax reform, we are focusing on 
the era that we live in and how to best capitalize on that.
    We also had the chance to talk about some of the challenges 
that come with that as well. And I mentioned two things--the 
apprentice programs and affordable housing--and wondered if you 
had a chance to think any more about those two issues and ways 
in which we might incentivize a more rapid uptake of worker 
training; that is, to incent companies to hire and train as 
opposed to the challenges that we face. So I do not know if you 
have had a chance to look at that.
    Mr. Kautter. Senator, I have not developed my thinking on 
that any further, but if confirmed, I would look forward to 
working with you and your staff to try to develop something 
that we thought made sense. I will say, I am sympathetic to 
that, as someone who was a university professor for part of my 
career and believes in the importance of education.
    I am a believer that education can make a difference. And 
the apprenticeship programs, which I think you have focused on 
and pioneered in your home State, have made a difference in 
many lives, and I would like to see that extended.
    Senator Cantwell. And do you think that could be an 
applicable place for the tax code, given that part of our 
challenge is that people do not know where to go to spend their 
time and training? We are asking people to go make an 
investment, and change is happening in a much more rapid 
fashion, and people do not know where to make the investment. 
So, if we can short-circuit that by getting companies to hire 
and then train, we have taken a lot of consternation out of the 
system.
    Mr. Kautter. I agree. I think that is a serious issue for 
the U.S. economy and for our competitiveness, and I would look 
forward to working with you to try to develop something we 
could put into the tax law that would not be unduly complicated 
and be effective and efficient to deal with that issue.
    Senator Cantwell. Thank you. And on the affordable housing 
issue, have you had any more opportunity to think about that in 
the context of the crisis in America now on affordable housing?
    The low-income tax credit has been a great tool. I think 
the one thing that has been missing here is the discussion of 
how much we have been impacted as a Nation by the growth of 
Americans who now are in this unaffordable category, that we 
have had a shift in the context of how many Americans have 
retired and now are in the situation of looking for affordable 
housing--returning veterans, people who have fallen out of the 
economy in the downturn.
    So we literally have a 60-percent increase in the number of 
people now paying more than 50 percent of their income for 
housing.
    Mr. Kautter. The Low-Income Housing Tax Credit is not an 
issue I have spent a lot of time on in my career. From what I 
have seen, it works pretty well, and I think as part of tax 
reform we should take a look at whether it can be made more 
effective and more efficient. I think everything should be 
considered as part of the comprehensive tax reform effort.
    And I understand the goal of the Low-Income Housing Tax 
Credit and I think it is a worthwhile goal that we should 
continue to----
    Senator Cantwell. And I think in this case what we are 
looking for is your feedback--and maybe you can think about it 
and give us something for the record. It is the tax credit that 
drives 90 percent of the affordable housing. So if you do not 
increase it, we are not going to increase the supply. So this 
is really more an analysis of the shift change in the 
population that is now experiencing these really dire 
situations and whether it is a worthy investment at this point 
to increase the amount of capital put behind the tax code.
    And then I would put one other note into this, that the 
discussion of tax reform is actually suppressing the amount of 
capital going in at this point in time. So the discussion of 
tax reform is basically hurting us in this discussion, because 
people are just sitting on their capital instead of making the 
necessary investments.
    Mr. Kautter. Senator, it may be possible to make the Low-
Income Housing Tax Credit even more effective and efficient 
than it is today. And if confirmed, I would look forward to 
working with you and your staff to accomplish that.
    Senator Cantwell. Okay.
    Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Enzi?
    Senator Enzi. Thank you, Mr. Chairman.
    Thank you, Mr. Kautter, for being willing to serve in this 
position. I enjoyed meeting with you and visiting and learning, 
and I appreciate your experience and am pleased that we have a 
nominee who understands the challenges that businesses face in 
this complex tax code--in fact, to even understand the tax 
code.
    You have probably already noted that anyone with expertise 
coming through these committees has a lot of problems. There is 
a lot of background that can be looked at and picked apart.
    I would like to mention that President Obama's Assistant 
Secretary for Tax Policy, Michael Mundaca, had these words to 
say about our nominee. ``Beyond deep technical knowledge, which 
is essential, Dave would bring great leadership abilities and, 
perhaps most importantly, he would bring a calm, measured, 
thoughtful approach to controversial issues.''
    I cannot think of higher praise that somebody could get 
than that coming into this position. Now, I also noted that you 
talk about businesses with no financial expertise, that ones 
with $50 to $60 million a year do not have a CFO. And I would 
mention that we have a lot of agencies that do not have any 
CFOs as well.
    I want to congratulate Superintendent Wenk of Yellowstone 
Park. I think he is the first Superintendent of a national park 
that got a chief financial officer instead of having a botanist 
check the box of having done that as part of his experience. I 
noticed in this morning's paper that Casper, WY is going to 
consider eliminating their Assistant City Manager for having a 
chief financial officer.
    It does help to have somebody who can look through 
financial documents and figure them out. There are a lot of 
people who do not have that kind of expertise. You have that 
kind of expertise, and you have worked in taxes, actually done 
them.
    Now, I am also the Budget chairman, and I know that our 
Nation is on an unsustainable fiscal path. So I appreciate your 
comments about having tax reform be budget-neutral.
    The Congressional Budget Office has made it clear that if 
current laws governing taxes and spending do not change, the 
United States will face steadily increasing Federal budget 
deficits and debt over the next 30 years. In CBO's projections, 
debt rises to 86 percent of GDP in 2026 and 141 percent in 
2046, exceeding the historical peak of 106 percent that 
occurred after World War II.
    The prospect of such large debt poses substantial risks for 
our Nation and presents policymakers with significant 
challenges. We need to take steps to reform our broken tax code 
to lay the foundation for long-term prosperity for all 
Americans.
    And as I have mentioned before, I have been working on 
international tax reform for some time so that we can be 
competitive overseas. If we do something in that international 
area, it will help to right the ship by pulling our 
international system into the 21st century, making us more 
competitive overseas and having the possibility of bringing 
more revenue back to the United States to be invested in 
American businesses. I have been working with Senator Portman 
to make that happen.
    From a broad perspective, can you explain what the 
administration believes is the appropriate way for reforming 
outdated international tax rules?
    Mr. Kautter. Well, Senator, the administration is 
supporting a territorial tax system. More than that, I think 
the goal of the administration is to, through tax reform, 
develop a competitive international tax system.
    In 1986, the Internal Revenue Code was state-of-the-art. 
Other countries admired what we had done. We had a broad base, 
we had low rates, and they went to school on what Congress had 
enacted in 1986, and they have broadened their bases and 
lowered their rates.
    And they went a step further. In 1986, a worldwide system 
of taxation was state-of-the-art. Today, a territorial system 
is what most of our major trading partners have moved too.
    With a worldwide system, U.S. businesses are at a 
competitive disadvantage. Now there are strengths and 
weaknesses of any system, whether it is a worldwide system, 
whether it is a territorial system, but the fact of the matter 
is, we are--at this point--out of step with the rest of the 
international community. And if we do not move to a similar 
system, a territorial system, I think we are going to be at a 
competitive disadvantage.
    Senator Enzi. Thank you. Again, I appreciate your 
background and know that a simpler and less burdensome tax code 
will help American businesses and individuals to prosper. It is 
a thrill to have somebody who has hands-on accounting 
experience, and I appreciate you making it through some of the 
pretty tough stuff that you will have to go through. But I look 
forward to working with you.
    Mr. Kautter. Thank you.
    The Chairman. Thank you, Senator.
    Before I call on Senator Thune, let me just make a couple 
of points here, and then Senator Wyden will close out the 
hearing.
    It is important that we not cloud the record concerning Mr. 
Kautter's work at Ernst and Young. Let us restate the facts. 
Number one, for nearly 3 decades, David Kautter was a 
professional at Ernst and Young, and the committee has seen no 
evidence whatsoever that would call into question his honesty, 
his integrity, or his good judgment during his work there. 
Number two, the firm's tax activities were the subject of a 
Permanent Subcommittee on Investigation inquiry, including 
hearings and a report. No part of this inquiry found any hint 
of wrongdoing by Mr. Kautter or reflected negatively on him in 
any way.
    Mr. Kautter has told the committee both in writing and in 
person that he had no involvement in creating or promoting 
alleged tax shelters. We have no reason whatsoever to doubt 
him.
    I have to leave for a meeting with the Japanese Ambassador, 
but I want to thank everyone for their participation today. 
Today's schedule was a bit more demanding than normal, and I 
want to thank everyone for their participation.
    Mr. Kautter, I personally want to thank you for your 
professionalism and responsiveness. My hope is that we can 
process your nomination in short order and continue the 
important bipartisan work of this committee.
    So, we will turn now to Senator Thune. When he is through, 
I understand the ranking member would like----
    Senator Wyden. Mr. Chairman, just before you leave, for 30 
seconds, as Mr. Kautter has said today--and it is something I 
will be weighing in the days ahead--he would have handled the 
matter of what happened at Ernst and Young differently.
    The Chairman. Yes.
    Senator Wyden. And I was taken by that statement. We are 
going to have to have some more discussion about it, but I 
wanted the record to note that.
    The Chairman. Well, thank you. I think that it is good for 
you to point that out.
    Senator Thune?
    Senator Thune. Thank you, Mr. Chairman.
    The Chairman. Now, if you will excuse me. You will finish 
up.
    Senator Thune. Let me begin by thanking Mr. Kautter for 
appearing before the committee today, and for your willingness 
to serve as Assistant Secretary for Tax Policy. We appreciate 
your participation in this confirmation hearing. And obviously, 
the position to which you have been nominated is one of the 
most important roles in the executive branch as we press 
forward with tax reform. So thanks for your willingness to 
bring your expertise to this enormous undertaking.
    I want to talk for just a minute about the continued growth 
of the so-called gig economy. The issue of worker 
classification has taken on greater importance.
    Historically, the tax code and the IRS have had a bias 
toward classifying individuals as employees and against 
independent contractors. But that view really does not square 
with the increasing number of Internet platforms and apps that 
bring service providers together with people looking for those 
services and create much-needed jobs in this country.
    So I introduced legislation last week to provide more 
certainty for these independent entrepreneurs who are really 
building the gig economy today. Do you share my belief that we 
cannot afford to continue looking past the worker-
classification issue and that tax reform is the singular 
opportunity to modernize the tax code for traditional business 
models as well as the new models that are propelling the gig 
economy, the sharing economy, and whatever comes next?
    Mr. Kautter. Senator, I would agree with that. I mean, the 
rules governing classification between employee and independent 
contractor have been uncertain for decades. The IRS issued a 
revenue procedure in the late 1980s which is sort of state-of-
the-art for classifying. It has 20 factors. Some of those 
factors are incomprehensible.
    And so I think bringing greater clarity to classifications 
between employees and independent contractors is an important 
thing to do. And I think tax reform is the right time to do it.
    Senator Thune. If you are confirmed, would you work with me 
to address this issue as part of tax reform?
    Mr. Kautter. Yes, sir. I would look forward to that.
    Senator Thune. Thank you.
    Mr. Kautter, we have a once-in-a-generation opportunity not 
only to modernize the tax code, but also to refocus it on 
sustained long-term economic growth in this country. I believe 
the two most powerful things that we can do in the tax code to 
achieve that goal are to lower business tax rates for both 
corporations and pass-throughs and to allow businesses to 
recover the cost of their investments as quickly as possible.
    Both of these changes will allow companies to deploy 
capital and earnings into business growth, job creation, and 
better wages, rather than sending more tax revenues to 
Washington for government spending.
    So I have two questions. One, do you agree with this view 
on lower business tax rates and faster cost recovery? And 
second, do you agree that these changes will have a 
macroeconomic effect on tax revenues that we should take into 
account as we develop tax reform legislation?
    Mr. Kautter. Yes, sir. I do believe that both those changes 
would have a favorable effect on the economy. And I think 
trying to strike the right balance between lowering the rate 
and changing the depreciation rules by shortening them is an 
imprecise science, but I think we need to focus on both as part 
of tax reform. Both are very important.
    Senator Thune. Okay. Well, I do too. And I hope that as we 
get into the debate on tax reform, this committee and the full 
Senate will look at the macroeconomic impact that these policy 
changes could have on tax revenues as we develop that 
legislation, recognizing, again, that lower rates and faster 
cost recovery are the two things from which I think we get the 
biggest economic pop, and we want to do everything we can to 
grow the economy.
    Mr. Kautter. I would agree with that.
    Senator Thune. Thank you.
    Thank you, Mr. Chairman.
    Senator Wyden [presiding]. I thank my colleague.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    Mr. Kautter, do you support the proposition in the 
President's proposal to eliminate State and local tax 
deductions?
    Mr. Kautter. Senator, I think as part of tax reform we 
should look at every individual provision in the Internal 
Revenue Code. And I think that what we do should be viewed as a 
comprehensive package. So I think every provision of the code 
should be on the table.
    Components of the tax reform package are interdependent, 
and so I think we should look at that.
    Senator Menendez. I appreciate that. I am asking you, 
specifically, about this one. I get the broad picture. It is 
all interrelated. What are your views on this one?
    Mr. Kautter. I would say, Senator, that it should be 
considered. It is hard to answer that question, frankly, in 
isolation. I think it depends on what the comprehensive package 
looks like.
    Senator Menendez. Well, what is the purpose of the State 
and local property tax deduction?
    Mr. Kautter. In my experience, one of the theories was that 
it was to avoid double taxation on the amounts paid into State 
and local governments.
    Senator Menendez. So in your view of ``everything should be 
on the table,'' should the foreign tax credit, which is 
basically a subsidy for U.S. corporations--the credit they 
receive against U.S. taxes reduces revenue to the Treasury--do 
you think that that one should be on the table as well?
    Mr. Kautter. Yes, sir.
    Senator Menendez. And what are your views on it?
    Mr. Kautter. Again, I would say--I would give you the same 
answer I gave you with respect to the State and local tax 
deduction. In isolation, I can see the benefit of a foreign tax 
credit. I can see the detriments of it. I think the key is how 
it fits into a comprehensive overall tax reform package.
    Senator Menendez. And let me express to you what I have 
expressed now to several nominees in different forums on 
different committees. It is a little difficult here to vote on 
someone, because I understand at the end of the day, anyone who 
is nominated by the administration will ultimately pursue what 
the administration decides is its policy. That is pretty clear.
    But this is a very significant position, and you will have 
the ability to advocate internally at Treasury and in 
interagency processes, and it is hard to vote for someone if 
you cannot glean from them what it is that they will be 
advocating. So that is a problem with your answer.
    Let me ask you a different thing. For multiple Congresses, 
many members of this committee on a bipartisan basis have urged 
the Treasury Department to withdraw IRS Notice 2007-55 in order 
to encourage more overseas investment into the U.S. commercial 
real estate market. In fact, 40 Senators cosponsored the 
Foreign Investment in Real Property Tax Act, or FIRPTA reform 
bill that I and others introduced in 2013, which would have 
repealed the notice.
    These days, that is an almost unheard-of level of 
bipartisanship. Despite significant reforms that we passed in 
2015, the notice still has a chilling effect on investments in 
commercial property. It stunts investments from foreign pension 
funds, sovereign wealth funds, regular foreign individual 
investors who want to invest in and develop American property. 
Since this was done as an executive action and not 
legislatively by Congress, you, if you are confirmed, are in 
the position to influence the potential repeal of this IRS 
notice.
    Will you actively review the feasibility of withdrawing 
this notice after you are confirmed?
    Mr. Kautter. Senator, it is not an issue I have focused on 
a lot in my career, but I would welcome the opportunity to take 
a close look at it and work with you and your staff.
    Senator Menendez. Okay. Let me ask you one last question. 
If you are confirmed, you would be the point person in the 
Treasury Department for tax reform--and I share the views of 
many on the committee that it is both long-overdue and 
desperately needed. We have not updated the code in more than 
30 years, so it is the right thing to do.
    But do you believe that something as important and all-
encompassing as tax reform should be done openly, 
transparently, for the public to see? Do you believe that the 
Finance Committee should hold legislative hearings and mark up 
something as important as tax reform? Is regular order 
preferable to reconciliation in order to obtain long-lasting 
reform?
    Mr. Kautter. Senator, I believe that Congress does its best 
work when it works in a collaborative, collegial, across-the-
aisle manner. When I worked here years ago, that was how we 
worked.
    The Senator I worked for, Senator Danforth, required every 
tax bill that I worked on to have a Democratic sponsor. I 
thought it made the legislation stronger and better, and my 
personal fiber and commitment to you is that if confirmed, I 
will do everything I can to always have an open door and to 
work across the aisle and to give access to both sides.
    Senator Menendez. Thank you, Mr. Chairman.
    Senator Wyden. Thank you, Senator Menendez.
    I have a couple of additional areas, Mr. Kautter, I would 
like to get your thoughts on. The administration seems to think 
that tax cuts pay for themselves. That is, the folks who are 
there now. Do you share that view?
    Mr. Kautter. Senator, I believe that taxes do affect 
economic behavior. I have seen it. And I think most economists 
believe that taxes do affect economic behavior.
    There is a wide variety of views as to what that impact is 
in a complex economy. So, I do believe in dynamic scoring.
    Senator Wyden. But do tax cuts pay for themselves? The 
reason I am asking is, I happen to share the view that behavior 
is relevant.
    I remember when Mr. Elmendorf was head of the Congressional 
Budget Office and I asked him about the proposal that you and I 
talked about, a bipartisan proposal that I had. And he said, 
``Yes, we will score thoughtful bipartisan proposals as 
generating growth in revenue.''
    That is very different than the proposition of tax cuts 
paying for themselves. So staying with this issue that, in my 
view, is different than saying behavior is relevant with 
respect to activity in a private economy, do tax cuts pay for 
themselves?
    Mr. Kautter. I guess I would say that I have never tried to 
resolve that issue in its full extent. I do believe that they 
affect behavior; I do not know that they pay for themselves. I 
just do not know.
    Senator Wyden. Okay. If you are confirmed, my guess is you 
are going to have to resolve that issue, because certainly the 
people whom you would join seem to share that view.
    Let me ask you about another matter that we talked about, 
and that is who ought to get the lion's share of tax relief. To 
me, making sure that the middle class gets most of the benefit 
in an economy where the middle class, the consumer, drives it, 
that should be the central focus of tax relief. So in your 
view, should the middle class get the lion's share of the 
benefits from tax reform?
    Mr. Kautter. I do believe the middle class should be the 
focus, the primary focus of tax reform. Yes, sir.
    Senator Wyden. Okay. I want it clear that I am not going to 
announce a Kautter Rule, because we have had the experience of 
having Mr. Mnuchin embrace the rule, and I am just going to 
hold you to it----
    Mr. Kautter. Thank you, Senator.
    Senator Wyden [continuing]. Because that is what we talked 
about in the office. I think that is the clear reality. I do 
not know of any other place that you can go to drive the kind 
of growth that we want without zeroing in on the middle class. 
So you are being spared having a Kautter Rule that the middle 
class ought to get most of the benefits.
    Mr. Kautter. Let me say, Senator, I am grateful for your 
forbearance.
    Senator Wyden. But we want it understood we are going to 
hold you to the fact that the middle class ought to be--in your 
words--the focus----
    Mr. Kautter. Right.
    Senator Wyden [continuing]. Of tax relief, which frankly is 
not what we saw in the campaign. In the campaign, we saw lots 
of rhetoric, but then when you start adding up the numbers, it 
looked like most of the relief went to the fortunate few, and 
then we have this one-page proposal--which I call shorter than 
the typical drugstore receipt--where it is very detailed with 
respect to the fortunate few, and not very detailed with 
respect to the middle class.
    Is there anything else you would like to add?
    Mr. Kautter. No. Just to express my gratitude, again, 
Senator, for the time that you have given me, and I will say 
probably, in closing, I think some of the work that you and 
your staff have done over the years is some of the most 
creative and thoughtful work, and if confirmed, I would 
genuinely look forward to working with you and your staff.
    Senator Wyden. I appreciate that. We are going to have some 
more things we want to talk about in terms of the discussion 
today, but I appreciate your saying that, not just because I 
think that Judd Gregg and Dan Coats--I mean, they were really 
legislators who felt strongly about this and wanted to spend 
the time.
    If you are confirmed, you are going to really be going in 
there and playing catch-up, because the reality is, in the 1986 
tax reform--and I often talk to Bill Bradley about this--by 
this time in the year, they had a very extensive bipartisan 
effort underway where they were regularly bringing together 
Democrats and Republicans, and there had been a judgment that 
had been made that there was going to be a bipartisan bill, 
that it had to be bipartisan, and it reflects the comment you 
made about Jack Danforth--whom I also liked very much--feeling 
strongly about that.
    But here we are sitting in July, and Senator McCaskill is 
asking, ``When is there going to be some bipartisan 
discussion?'' And when you opened up your Wall Street Journal 
last week, it basically had all of those described as the ``Big 
Six'' making all the tax decisions.
    The reality is that you can probably find some 
opportunities to bully your way to a 51-vote strategy with 
reconciliation. It does not make it sustainable, and in the 
case of the area you want to work in, it will not bring the 
certainty and predictability we need for real growth, because 
what will happen is, if it is just a partisan bill, everybody 
is going to say, well, gee, that will just turn around, get 
repealed, the next time somebody else is in the majority.
    So to get the certainty and predictability that you really 
need for private-sector growth, it has to be bipartisan, and it 
has to focus on the middle class and ending this tale of two 
tax codes--as I call it--because something is way out of whack 
when the cop and the nurse have their taxes taken in a 
compulsory way and people who are fortunate get handled very 
differently.
    So, on behalf of Chairman Hatch, I want to make it clear 
for the record that any member of the Finance Committee--on 
either side of the aisle--who has written questions for the 
record, we would ask that they be submitted by close of 
business today.
    And with that, the hearing is adjourned.
    [Whereupon, at 11:03 a.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON-Senate Finance Committee Chairman Orrin Hatch (R-Utah) today 
delivered the following opening statement at a hearing entitled, 
``Consideration to Nominate David J. Kautter, of Virginia, to be an 
Assistant Secretary of the Treasury'':

    I'd like to welcome everyone to this morning's hearing.

    Today, we will consider the nomination of Mr. David J. Kautter to 
serve as Assistant Secretary of the Treasury for Tax Policy.

    Mr. Kautter, welcome to the Finance Committee. We appreciate your 
willingness to appear before us today. We also appreciate your 
willingness to serve in this capacity.

    I am sure that the significance of this position at this crucial 
time is not lost on you. I know it's not lost on any member of this 
committee. Tax reform has been a major focus of our committee for some 
time now, and we are grateful to have you here to discuss your thoughts 
on these matters.

    On a number of occasions, I've stated my view that presidential 
leadership will be a key component to any successful tax reform effort.

    Just last week I quoted President Obama in a speech on the Senate 
floor. Back in 2012, he said things like ``our current corporate tax 
system is outdated, unfair, and inefficient.'' The problem was that 
President Obama never really got around to truly leading on tax reform.

    I expect more from President Trump on tax reform. That expectation 
comes, in large part, because he and Secretary Mnuchin have been 
talking about it so much. But, more than that, they have engaged with 
Congress and the public on these issues.

    Mr. Kautter, I believe that your nomination is another way this 
President has further demonstrated his commitment to reforming our 
burdensome, job-killing tax code. Your experience as a practitioner tax 
expert will surely be a crucial part of this endeavor.

    Now, before I finish up with my remarks, I also want to address 
another important issue, one that I try to stress with all nominees 
that come before the committee.

    Whether we're talking about tax reform or the administration of 
existing tax policy, it is critically important that we have open lines 
of communication between both parties in Congress and the executive 
branch. My hope today is that you'll commit to providing timely and 
responsive answers to inquiries submitted by members, especially if 
they sit on this committee.

    That is the expectation, and, quite frankly, anything short of that 
is unacceptable.

    With that, I want to thank you once again for being here today. 
I'll now turn to Senator Wyden for his opening comments.

                                 ______
                                 
   Prepared Statement of David J. Kautter, Nominated to be Assistant 
  Secretary of the Treasury for Tax Policy, Department of the Treasury
    Chairman Hatch, Ranking Member Wyden, and distinguished members of 
the Senate Finance Committee, it is an honor to appear before you 
today. I feel both privileged and humbled to have been recommended by 
Treasury Secretary Steven Mnuchin and nominated by President Trump to 
serve as Assistant Secretary of the Treasury for Tax Policy. As a 
former tax staffer for a member of this committee, I have deep respect 
both for this committee and the institution of the Senate. I look 
forward to the opportunity, if confirmed, to serve this country again.

    I would like to take moment to thank my family who have been a 
constant source of inspiration and support for me throughout my career, 
my wife Kathy and my two children, Hilary and David.

    I would also like to express my thanks to those members and staff 
whom I've been able to visit with over the past couple of weeks. If 
confirmed, I look forward to working with you in a bipartisan, 
collaborative, and collegial manner.

    I grew up in a small town by the name of Plymouth in the anthracite 
coal mining region in northeastern Pennsylvania. My father worked as an 
accountant for the coal mines and my mother was a high school teacher.

    I have spent the majority of my career as a tax practitioner and 
leading accounting firm tax departments. I am currently the partner in 
charge of the accounting firm RSM's Washington National Tax Office. I 
also ran the American University Kogod Tax Center, where I taught in 
the business school. Finally, I'm proud to say that I was Senator 
Danforth's tax counsel for over 3 years. I will always be grateful to 
Senator Danforth for the lessons I learned and the values he instilled 
in all of his staff. He set a standard for excellence and service that 
has been a source of inspiration for my entire career.

    Through these career opportunities, I have worked on many aspects 
of the tax code. At American University, I focused on small businesses 
and middle-income individuals. My current firm, RSM, is focused on 
middle-market companies. At Ernst and Young, I specialized in employee 
benefits and compensation, and witnessed firsthand the challenge of 
keeping American companies competitive internationally.

    Comprehensive tax reform is the challenge before us.

    The current code is unnecessarily complex, anti-competitive, and 
picks winners and losers. Americans need a simpler system when filing 
their taxes and the middle class needs a tax cut. U.S. businesses need 
a tax code that allows them to prosper, domestically and in the 
international marketplace.

    You have made great progress in identifying the policies that will 
achieve these goals. The magnitude of Congress's tax reform work, in 
terms of hearings, working groups, and legislative proposals, is 
impressive. As a result, America is on the verge of its first 
comprehensive tax code overhaul in a generation.

    Treasury has an outstanding team of many of the most talented tax 
professionals in the world. Working together, I believe we can get tax 
reform over the finish line. If confirmed, it will be an honor to 
strive to do so.

    Thank you.

                                 ______
                                 

                        SENATE FINANCE COMMITTEE

                  STATEMENT OF INFORMATION REQUESTED 
                               OF NOMINEE

                      A. BIOGRAPHICAL INFORMATION

 1.  Name (include any former names used): David J. Kautter; David John 
Kautter; Dave Kautter.

 2.  Position to which nominated: Assistant Secretary of the Treasury 
for Tax Policy.

 3.  Date of nomination: May 11, 2017.

 4.  Address (list current residence, office, and mailing addresses):

 5.  Date and place of birth: March 20, 1948; Wilkes Barre, PA.

 6.  Marital status (include maiden name of wife or husband's name):

 7.  Names and ages of children:

 8.  Education (list secondary and higher education institutions, dates 
attended, degree received, and date degree granted):

      Plymouth High School; 9/1963-6/1966; high school diploma; June 
8, 1966.
      University of Notre Dame; 9/1966-5/1971; bachelor of business 
administration, with high honors; May 23, 1971. (Note: While at Notre 
Dame, I spent my sophomore year abroad at Sophia University, Tokyo, 
Japan, 9/1968-6/1969).
      Georgetown University; 9/1972-5/1974; Juris Doctor; May 26, 
1974.

 9.  Employment record (list all jobs held since college, including the 
title or description of job, name of employer, location of work, and 
dates of employment):

      Staff accountant; Coopers and Lybrand; Washington, DC; 9/1971-5/
1974.
      Tax staff; Arthur Young and Co.; Washington, DC; 9/1974-1/1979.
      Legislative assistant; office of Senator John C. Danforth; 
Washington, DC; 
1/1979-4/1982.
      Partner; Ernst and Young LLP; Washington, DC; 4/1982-1/2010.
      Consultant; self-employed; Washington, DC; 1/2010-12/2010.
      Executive in residence and director, Kogod Tax Center; American 
University; Washington, DC; 1/2011-10/2014.
      Adjunct professor, American University, Washington, DC, 10/2014-
current.
      Partner; RSM US LLP; Washington, DC; 10/2014-current.

10.  Government experience (list any advisory, consultative, honorary, 
or other part-time service or positions with Federal, State, or local 
governments, other than those listed above):

     None.

11.  Business relationships (list all positions held as an officer, 
director, trustee, partner, proprietor, agent, representative, or 
consultant of any corporation, company, firm, partnership, other 
business enterprise, or educational or other institution):

      Ernst and Young, partner (1982-2010).
      Sole proprietor (2010).
      RSM US LLP, partner (2014-current).
      Tax Analysts; member, board of directors (2013-current).
        Chair, Human Resources Committee (2014-current).

12.  Memberships (list all memberships and offices held in 
professional, fraternal, scholarly, civic, business, charitable, and 
other organizations):

      American Institute of Certified Public Accountants; member 
(1985-present).
        Strategic Implementation Task Force (2003-2004).
        Tax Executive Committee (1995-1999).
        Tax Legislation Liaison Committee, chairman (1994-1995).
        Tax Division Administration Committee (1993-1994).
        Employee Benefits Taxation Committee, chairman (1989-1992).
        Tax Legislative Liaison Committee (1988-1989).
        Taxation of Distribution from Qualified Plans Task Force 
(1988-1989).
        Legislative Affairs Task Force (1986-1987).
        Employee Benefits Taxation Committee (1985-1987).

      District of Columbia Institute of CPAs; member (1991-present).
      American Bar Association; member (1975-present).
      District of Columbia Bar Association (1975-present).
      Federal Bar Association; member (1984-2000).
        Section of Taxation, officer (1988-2000).
        Section of Taxation Report, editor (1989-1990).

      Washington National Cathedral; member, Cathedral Chapter (board 
of directors) (2010-present); chair (2012-2016).
      Protestant Episcopal Cathedral Foundation.
        Member, board of directors (2012-2016).
        Chair, Retirement Committee (2009-2011).

      American College of Employee Benefits Counsel; fellow (2001-
present).
      American Accounting Association (2009-2015).
      American Tax Policy Institute, board of advisors (1992-1998).
      American Society of Payroll Management, Government Relations 
Committee (1992-1998).
      International Coaches Federation (2009-2012).
      Westwood Country Club (1985-present).
      Saint Luke Church (1988-present).

13.  Political affiliations and activities:

    a.  List all public offices for which you have been a candidate.

      None.

    b.  List all memberships and offices held in and services rendered 
to all political parties or election committees during the last 10 
years.

      None.

    c.  Itemize all political contributions to any individual, campaign 
organization, political party, political action committee, or similar 
entity of $50 or more for the past 10 years.

      2007 Ernst and Young Political Action Committee  $500.00.
      2008 Ernst and Young Political Action Committee  $500.00.
      2009 Ernst and Young Political Action Committee  $500.00.

14.  Honors and awards (list all scholarships, fellowships, honorary 
degrees, honorary society memberships, military medals, and any other 
special recognitions for outstanding service or achievement):

      Beta Alpha Psi; honorary accounting fraternity, 1970-present.
      Outstanding Teacher Award; American University; 2013.
      Outstanding Service Award; American University; 2013.

15.  Published writings (list the titles, publishers, and dates of all 
books, articles, reports, or other published materials you have 
written):

    Accounting Today
      ``20 Tax Tips for Small Businesses,'' David J. Kautter and 
Donald Williams, 10/1/2013.
      ``Best Tax Practices for Small Businesses,'' David J. Kautter 
and Donald Williams, 8/20/2013.

    American Bar Association (ASA) Section of Taxation Newsletter
      ``Tax Court Holds Income on Disqualifying Disposition of ISO 
Stock Is Wages for Research Credit Calculation,'' David J. Kautter, 10/
1995.

    Boardroom Report
      ``Compensation Planning 1995: Tax-Saving Opportunities for 
Companies for Employees,'' David J. Kautter, 1/15/1995.
      ``Cut Compensation Costs With Fringe Benefits,'' David J. 
Kautter, 10/1/1994.
      ``Shrewd Tax Planning . . . and Employee Benefits,'' David J. 
Kautter and Leonard S. Hirsh, 6/1/1993.
      ``Shrewd Compensation Strategies . . . Under the New Tax Law,'' 
James C. Godbout, David J. Kautter, and Rob Bennett, 11/1/1993.
      ``Executive Pension Planning After Tax Reform Changed the 
Rules,'' David J. Kautter and Maria Stefanis, 6/1/1987.
      ``Compensation Strategies: How to Take Good Care of Key 
Executives After Tax Reform,'' David J. Kautter and Maria Stefanis, 2/
1/1987.
      ``Benefit Planning: Under the New Tax Law . . . New Breaks and 
New Pitfalls,'' David J. Kautter, 9/15/1984.
      ``Compensation Planning--New Opportunities Under the New Tax 
Law,'' David J. Kautter, 12/1997.
      ``Compensation Planning 1997,'' David J. Kautter, 1/1997.
      ``Low-Cost Opportunities in Tax-Favored Fringe Benefits,'' David 
J. Kautter, 3/1/1996.

    Bottom Line Personal
      ``New Retirement Planning: Inspired by Tax Reform,'' David J. 
Kautter, 
11/15/1986.

     Daily Tax Report (Bureau of National Affairs, Inc.)/ Daily Report 
for Executives (Bureau of National Affairs, Inc.)
      ``Return Preparers See Fees Increase but Say Tax Complexity, 
Government Shutdown Added to Pressures in 2013,'' David J. Kautter, 11/
21/2013.
      ``Complexity, Expanded Filings, and the Economy Big Concerns for 
Tax Return Preparers,'' David J. Kautter, 2012.
      ``Survey Reveals Common Tax Reform Goals for Businesses of All 
Sizes: Uniformity of Views Could Buttress Legislative Prospects,'' 
David J. Kautter, 
2/8/2012.
      ``Solving the `Flowthrough' Entity Problem in Corporate Tax 
Reform,'' David J. Kautter, 4/11/2011.

    Employee Benefit News
      ``Commuting Subsidy Benefits: A Hit for Suburbanites,'' David J. 
Kautter, 
8/1996.

    FBA Section of Taxation Report Newsletter
      ``Tax Years for Partnerships, S Corporations, and Personal 
Service Corporations: An Overview of Section 444,'' Diane P. Herndon 
and David J. Kautter, Summer 1988.

    GFOA Pension and Benefits Update
      ``IRS Provides Some Guidance and Model Participant Notice on 20 
Percent Withholding and Rollover Rules,'' David J. Kautter and Joseph 
G. Metz, 
11/12/1992.

     International Fiscal Association, Cahiers de droit fiscal 
international Munich Congress
      ``International Tax Aspects of Deferred Remunerations,'' David 
J. Kautter, Volume 85b, 2000.

    Institute of Management Accountants, New York Chapter Newsletter
      ``IRS Releases Guidance on New Qualified Plan Distribution 
Rules,'' David J. Kautter, Nov.-Dec. 1992.

    Investment Dealers Digest
      ``Tax Notes for Investment Professionals,'' David J. Kautter and 
Glenn N. Eichen, 9/14/1982.

    The Journal of Accountancy
      `` `SERPs' Up: Retirement Benefits for Senior Executives,'' 
David J. Kautter and Mark A. Weinberger, 11/1990.
      ``Compensation After Tax Reform (Part 2): ESOPs, IRAs, and 
Others,'' David J. Kautter, 12/1987.
      ``Compensation After Tax Reform (Part 1): The TRA's Two Waves,'' 
David J. Kautter, 11/1987.

    The Journal of Bank Taxation
      ``What Type of Stock Option Is Best for a Bank?'', David J. 
Kautter, 12/1989.

    The Journal of Taxation of Employee Benefits
      ``Section 83(b) Election Offers Tax Planning Opportunities for 
Restricted Stock,'' David J. Kautter and Lorraine Bell, 1996.
      ``Prop. Regs. Eliminate Section 83 Deduction Withholding 
Requirement,'' David J. Kautter, 1995.
      ``Tax Treatment of Equity Substitutes Can Differ Dramatically,'' 
David J. Kautter, 1994.
      ``IRS Liberalizes Nonlapse Restrictions for Closely Held 
Companies,'' David J. Kautter, 1993.

    Kogod Now
      ``Exorcising the Tax Code,'' David J. Kautter and Jackie Zajak, 
Fall 2013.
      ``How to Get Workers to Save for Retirement,'' David J. Kautter, 
Spring 2013.
      ``Employers: Save Money, Retain Talent with Commuter Benefits,'' 
David J. Kautter, Fall 2012.
      ``Golden Parachutes and Congress,'' David J. Kautter, Spring 
2012.

    The Middle Market Index (RSM)
      ``Tax Reform Likely to Occur in 2017,'' David J. Kautter and 
Anne Bushman, January 2017.

    The Tax Adviser
      ``Tax Clinic, Practical Advice on Current Issues,'' David J. 
Kautter, Jane Rohrs, Kirsten Simpson, Marjorie Rollinson, Steven 
Schneider, Robert Crnkovich, and Paul Manning, January 2005.
      ``Court Decisions Clarify QDRO Rules for ERISA Plans,'' David J. 
Kautter, 1997.
      ``Rollover of Qualified Plan Benefits--Importance of Form,'' 
David J. Kautter and Jennifer L. Wells, 1996.
      ``Taxable Compensation or Medical Reimbursement?'', David J. 
Kautter, 1996.
      ``Bonus Payments to Key Employees Required to Sell ISO Stock Not 
Capitalized,'' David J. Kautter, 1996.
      ``Extended Risk of Forfeiture Delays Recognition of Income With 
Respect to Restricted Property,'' David J. Kautter and Lorraine Bell, 
1995.
      ``Amounts Included in Income by Employees Under Section 83 Are 
Not `Received' '', David J. Kautter, 1995.
      ``The $1 Million Cap on Compensation Deductions,'' David J. 
Kautter, June 1994.
      ``Insurance Policy Covering a Promise to Pay Nonqualified 
Deferred Compensation Did Not Trigger Income,'' David J. Kautter and 
Lorraine Bell, 1994.
      ``Promise to Pay Compensation Secured by a Letter of Credit 
Ruled Currently Taxable Under Section 83,'' David J. Kautter and 
Lorraine Bell, 1994.
      ``Deferring Director Salaries May Save Social Security Taxes,'' 
David J. Kautter and Lorraine Bell, 1992.
      ``Employee Termination Payments and Payroll Taxes,'' David J. 
Kautter and Joseph E. Marx, 1991.
      ``Section 4980A: Excess Retirement Distributions and 
Accumulations,'' David J. Kautter and Maria Stefanis, 3/1989.
      ``IRS Interest Expense and Tax Dispute Expenses,'' David J. 
Kautter, 1987.
      ``Retroactive Limitation on Retirement Plan Contributions for 
Self-Employed Individuals,'' David J. Kautter, 1986.
      ``Purchased Computer Software,'' David J. Kautter, 1984.
      ``ERISA Developments,'' David J. Kautter, 1983.

    Tax Angles
      ``Q&A Tax Forum: Keoghs, Estates, Depreciation,'' David J. 
Kautter, 1987.

    Tax Management Compensation Planning Journal
      ``Employee Benefits: Statutory Simplification,'' David J. 
Kautter, 3/2/1990.

    Tax Notes
      ``A Simplified Method of Accounting for Small Business,'' David 
J. Kautter and Donald Williamson, 2/13/2012.

16.  Speeches (list all formal speeches you have delivered during the 
past 5 years which are on topics relevant to the position for which you 
have been nominated):

     ``The Fiscal Cliff and the Future of Tax Reform,'' CBIZ National 
Tax Conference, July 18, 2012.

     ``Tax Reform in 2013 and 2014,'' CBIZ National Tax Conference, 
July 19, 2013.

     ``Key Retirement and Fringe Benefit Plan Trends for Small and Mid-
Size Businesses,'' CBIZ National Tax Conference, July, 15, 2014.

     Capitol Hill Update/Tax Reform, RSM Tax Summits--During the spring 
and fall of each year, RSM sponsors a series of updates for its clients 
around the country. I started speaking at these updates in the spring 
of 2015 continuing through this spring (2017). I prepare a standard 
slide deck for these presentations, one for the spring sessions and one 
for the fall sessions. All slides for any presentations I deliver are 
taken from the slides in these decks. The decks for the following 
sessions have been provided to the committee.

      Spring, 2015.
      Fall, 2015.
      Spring, 2016.
      Fall, 2016-Pre-election.
      Fall, 2016-Post-election.
      Spring, 2017.

17.  Qualifications (state what, in your opinion, qualifies you to 
serve in the position to which you have been nominated):

     I have been a tax practitioner for the past 43 years. During that 
period, I have provided advice on a wide range of tax issues to a wide 
variety of taxpayers ranging from individual taxpayers to small 
businesses to mid-size businesses to large global multinational 
businesses. I have taught numerous courses in tax law including as an 
executive in residence for 4 years at the Kogod School of Business at 
American University where I also ran a tax center focused on small 
businesses and middle-income taxpayers. Over the years, I have authored 
numerous articles on various aspects of Federal taxation. While at 
Ernst and Young, I provided advice to clients ranging from individuals 
to small businesses to large global multinational companies. For 20 of 
my years with Ernst and Young, although I provided advice on a wide 
range of tax issues, I was the leading tax specialist at the firm with 
respect to the taxation of compensation and benefits. I served as tax 
legislative counsel to Senator John C. Danforth from 1979 to 1982 
during which time I worked on the Economic Recovery Tax Act of 1981 and 
other legislative matters including the Federal budget. As previously 
mentioned, I was an executive in residence at American University in 
the Department of Accounting and Taxation for almost 4 years where I 
also was the director of the Kogod Tax Center. The Tax Center was 
focused primarily on tax issues affecting small businesses and middle-
income taxpayers. I joined RSM in October 2014 where I have focused 
primarily on tax issues affecting middle-market businesses. During the 
course of my career, I have also testified before various congressional 
committees on various Federal tax matters.

                   B. FUTURE EMPLOYMENT RELATIONSHIPS

 1.  Will you sever all connections with your present employers, 
business firms, associations, or organizations if you are confirmed by 
the Senate? If not, provide details.

    Yes.

 2.  Do you have any plans, commitments, or agreements to pursue 
outside employment, with or without compensation, during your service 
with the government? If so, provide details.

    No.

 3.  Has any person or entity made a commitment or agreement to employ 
your services in any capacity after you leave government service? If 
so, provide details.

    No.

 4.  If you are confirmed by the Senate, do you expect to serve out 
your full term or until the next presidential election, whichever is 
applicable? If not, explain.

    Yes.

                   C. POTENTIAL CONFLICTS OF INTEREST

 1.  Indicate any investments, obligations, liabilities, or other 
relationships which could involve potential conflicts of interest in 
the position to which you have been nominated.

     Any potential conflicts of interest have been identified and 
resolved in accordance with the terms and conditions of my ethics 
agreement with the Department of the Treasury, which is documented by 
letter to Rochelle F. Granat, Designated Agency Ethics Official and 
Assistant General Counsel for General Law and Ethics. Should any 
potential conflict of interest arise in the future, I will seek 
guidance from a Treasury ethics official.

 2.  Describe any business relationship, dealing, or financial 
transaction which you have had during the last 10 years, whether for 
yourself, on behalf of a client, or acting as an agent, that could in 
any way constitute or result in a possible conflict of interest in the 
position to which you have been nominated.

     Any potential conflicts of interest have been identified and 
resolved in accordance with the terms and conditions of my ethics 
agreement with the Department of the Treasury, which is documented by 
letter to Rochelle F. Granat, Designated Agency Ethics Official and 
Assistant General Counsel for General Law and Ethics. Should any 
potential conflict of interest arise in the future, I will seek 
guidance from a Treasury ethics official.

 3.  Describe any activity during the past 10 years in which you have 
engaged for the purpose of directly or indirectly influencing the 
passage, defeat, or modification of any legislation or affecting the 
administration and execution of law or public policy. Activities 
performed as an employee of the Federal Government need not be listed.

    Testimony before Congress:

      ``The Biggest Tax Problems of Small Businesses;'' Statement of 
the Kogod Tax Center of the American University; Before the Committee 
on Small Business of the U.S. House of Representatives; 4/9/2014.

      ``Tax Related Provisions in the President's Health Care Law;'' 
Statement of the Kogod Tax Center of the American Universtiy; Before 
the Subcommittee on Oversight of the Committee on Ways and Means of the 
U.S. House of Representatives; 3/5/2013.

      ``Tax Filing Season: Improving the Taxpayer Experience;'' 
Statement of the Kogod Tax Center of the American University; Before 
the Committee on Finance of the U.S. Senate; 4/26/2012.

      ``The Tax Outlook for Small Business: What's on the Horizon;'' 
Statement of the Kogod Tax Center of the American University; Before 
the Committee on Small Business of the U.S. House of Representatives; 
4/18/2012.

      ``Tax Reform for Small Businesses and Pass-Through Entities;'' 
Statement of the Kogod Tax Center of the American University; Before 
the Committee on Ways and Means Working Group of the U.S. House of 
Representatives; 4/12/2013.

      ``Treatment of Closely Held Businesses in the Context of Tax 
Reform;'' Statement of the Kogod Tax Center of the American University; 
Before the Committee on Ways and Means of the U.S. House of 
Representatives; 3/13/2012.

      ``The Importance of Extending the 2011 Tax Provisions of 
Importance to Small Businesses;'' Statement of the Kogod Tax Center of 
the American University; Before the Committee on Finance of the U.S. 
Senate; 2/1/2012.

      ``How Business Tax Reform Can Encourage Job Creation;'' 
Statement of the Kogod Tax Center of the American University; Before 
the Committee on Ways and Means of the U.S. House of Representatives; 
6/2/2011.

      ``The Employee Benefits Simplification Act (S. 2901);'' 
Statement of the Federal Taxation Division of the American Institute of 
Certified Public Accountants; Before the Select Revenue Measures 
Subcommittee of the Committee on Ways and Means of the U.S. House of 
Representatives; 7/25/1991.

      ``The Employee Benefits Simplification Act (S. 2901);'' 
Statement of the Federal Taxation Division of the American Institute of 
Certified Public Accountants; Before the Subcommittee on Private 
Retirement Plans and Oversight of the IRS of the Committee on Finance 
of the U.S. Senate; 8/3/1990.

      ``Simplification of Current Rules Concerning Private Pension 
Plans;'' Statement of the Federal Taxation Division of the American 
Institute of Certified Public Accountants; Before the Subcommittee on 
Private Retirement Plans and Oversight of the IRS of the Committee on 
Finance of the U.S. Senate; 2/23/1990.

    Testimony before Washington, DC government:

      ``Tax Revision Proposals Adversely Affecting Small Businesses;'' 
Statement of the Kogod Tax Center of the American University; Before 
the District of Columbia Tax Revision Commission; 12/4/2013.

 4.  Explain how you will resolve any potential conflict of interest, 
including any that may be disclosed by your responses to the above 
items.

     Any potential conflicts of interest have been identified and 
resolved in accordance with the terms and conditions of my ethics 
agreement with the Department of the Treasury, which is documented by 
letter to Rochelle F. Granat, Designated Agency Ethics Official and 
Assistant General Counsel for General Law and Ethics. Should any 
potential conflict of interest arise in the future, I will seek 
guidance from a Treasury ethics official.

 5.  Two copies of written opinions should be provided directly to the 
Committee by the designated agency ethics officer of the agency to 
which you have been nominated and by the Office of Government Ethics 
concerning potential conflicts of interest or any legal impediments to 
your serving in this position.

     My understanding is that these documents have been submitted to 
the committee.

                       D. LEGAL AND OTHER MATTERS

 1.  Have you ever been the subject of a complaint or been 
investigated, disciplined, or otherwise cited for a breach of ethics 
for unprofessional conduct before any court, administrative agency, 
professional association, disciplinary committee, or other professional 
group? If so, provide details.

    No.

 2.  Have you ever been investigated, arrested, charged, or held by any 
Federal, State, or other law enforcement authority for a violation of 
any Federal, State, county, or municipal law, regulation, or ordinance, 
other than a minor traffic offense? If so, provide details.

    No.

 3.  Have you ever been convicted (including pleas of guilty or nolo 
contendere) of any criminal violation other than a minor traffic 
offense? If so, provide details.

    No.

 4.  Please advise the committee of any additional information, 
favorable or unfavorable, which you feel should be considered in 
connection with your nomination.

    None.

                     E. TESTIFYING BEFORE CONGRESS

 1.  If you are confirmed by the Senate, are you willing to appear and 
testify before any duly constituted committee of the Congress on such 
occasions as you may be reasonably requested to do so?

    Yes.

 2.  If you are confirmed by the Senate, are you willing to provide 
such information as is requested by such committees?

    Yes.

                                 ______
                                 
         Questions Submitted for the Record to David J. Kautter
              Questions Submitted by Hon. Debbie Stabenow
    Question. I strongly support incentives in our tax code for 
charitable giving, and have been proud to champion several of them. 
However, I am concerned that our current tax system can limit corporate 
charitable giving in an unintended way, especially among regulated 
industries that are frequently operating at a net operating loss. This 
can be the case because the carryforward period for charitable 
deductions is only 5 years, as compared to general business credits and 
deductions, which can be carried forward for 20 years.

    Do you believe the carry-forward period for charitable deductions 
should be aligned with general business credits and deductions at 20 
years, rather than the current 5-year period, to encourage companies to 
invest in local communities?

    Answer. Charitable giving is a critical part of our society, and 
I'm pleased that President Trump chose to protect the charitable 
deduction in his tax reform outline. The wording of your question 
appears to indicate that a certain subset of the corporate community is 
disadvantaged by the 5-year carry-forward period. I am interested to 
learn who these companies are and how the current-law treatment impacts 
their giving. I would also like to better understand any past policy 
justifications for the 5-year period as compared to the 20-year period 
for other credits.

    Question. I firmly believe that we cannot have a robust economy if 
we do not grow things here and make things here. Many businesses use 
credit financing to meet operating expenses, invest in equipment, 
supplies and to help bridge the gap during times of uncertainty or when 
trying to expand their operations. The current tax code supports 
businesses in making these investments by allowing them to deduct 100 
percent of the interest paid on debt from their taxable income. This 
deduction is critical to many different types of businesses of various 
sizes and sectors. In Michigan, interest deductibility is critical to 
the agriculture and manufacturing sectors, and to small businesses, 
which frequently simply do not have the option of raising money from 
the equity markets.

    What are your thoughts on eliminating or limiting interest 
deductibility?

    What are some pros and cons to repealing or limiting interest 
deductibility?

    Do you believe that full expensing is an acceptable substitute if 
interest deductibility is limited or eliminated?

    Answer. Modifying the tax treatment of the ability of businesses to 
deduct interest expense is something that has to be considered in the 
broader context of tax reform. Whether to do so depends on how tax 
reform addresses other parts of the code, such as depreciation. There 
are legitimate policy arguments for revisiting interest expense. For 
instance, limiting its deductibility is one avenue for addressing the 
current code's preference for debt over equity. Any limitations on 
interest deductibility, though, need to be carefully considered, 
including the possible impact on different types of businesses and 
sectors taken into account. In addition, in order to avoid negative tax 
rates, a limitation on the ability to deduct interest also may be 
appropriate to the extent that the tax system allows full or partial 
expensing of capital investments. The downsides of interest 
limitations, including raising the cost of capital for some businesses, 
need to be weighed against that policy's benefits.

    Question. I am one of the chief authors of a law that accelerated 
access to AMT tax credits for companies in lieu of bonus depreciation. 
This legislation is designed to allow companies to utilize their AMT 
credits--many of which are old and have been sitting on their books for 
years--to generate economic growth and create good-paying jobs. On 
August 5, 2016, the Office of the Chief Counsel of the IRS publicly 
released a memorandum stating that, upon redemption under this 
provision, these AMT credits will be fully subjected to sequester under 
the Balanced Budget and Emergency Deficit Control Act of 1985 and the 
Budget Control Act of 2011 (BCA). The memorandum also stated that the 
sequestered amounts cannot be carried over and therefore, would be 
permanently lost.

    Unlike other business tax credits, AMT credits are the result of 
tax liability already paid to the Treasury by these businesses--often 
years ago in the case of old credits. Permanently denying companies a 
significant portion of their AMT credits contradicts congressional 
intent and denies these companies access to their own funds.

    Do you believe it is appropriate for companies who elect this 
provision to be permanently denied access to their own pre-paid AMT 
credits?

    Answer. I appreciate your raising this issue. If confirmed, I look 
forward to working with the professional staff at Treasury and IRS to 
gain a better understanding of this issue and how to properly address 
it.

    Question. As you know, section 199 plays an important role in 
incentivizing domestic manufacturing. Unfortunately, the IRS has 
implemented this deduction in a manner that benefits domestic 
manufacturers that are vertically integrated (own and operate their own 
production facilities), but does not benefit most domestic 
manufacturers that use contract manufacturers here in the United 
States. This is the case even though both arrangements create jobs in 
the United States.

    Indeed, since the enactment of section 199, there has been 
considerable confusion and numerous disputes between the IRS and 
taxpayers about whether a taxpayer who uses a contract manufacturer is 
entitled to take the section 199 deduction. This has created 
inconsistent results, litigation, and a lack of certainty.

    In August 2015, Treasury proposed a new regulation that would 
specifically disallow the section 199 deduction for taxpayers who use 
U.S. contract manufacturers, citing a goal of reducing the complexity 
of administering section 199. This proposed regulation would also deny 
the section 199 deduction to most contract manufacturers, meaning that 
in many cases, neither party could take section 199.

    Senators Portman, Brown, and I have introduced legislation here in 
the Senate to clarify the intent of section 199 and ensure that any 
party who makes a substantial contribution to the manufacture of 
domestic goods through the activities of its U.S. employees is eligible 
for the section 199 deduction based on its own income from the domestic 
goods. This would resolve the discrepancy under current law that exists 
between vertically integrated and non-vertically-integrated 
manufacturers.

    Will you commit to reviewing the 2015 proposed regulation and 
considering taking appropriate action to ensure that going forward, the 
IRS will allow taxpayers to claim equal value from section 199 
regardless of whether they are vertically or non-vertically integrated?

    Answer. I recognize that there has been much litigation and 
uncertainty around this issue. I appreciate your willingness to pursue 
additional statutory clarity and, if confirmed, I look forward to 
reviewing and considering the positions taken in the 2015 proposed 
regulations in light of potential inequalities between vertically and 
non-vertically integrated manufacturers.

                                 ______
                                 
              Questions Submitted by Hon. Claire McCaskill
    Question. The Base Erosion and Profit Shifting (BEPS) project 
developed by the Organisation for Economic Co-operation and Development 
(OECD) recommended international tax policy changes intended to 
increase tax collection from multinational corporations. What role 
should Treasury play at the OECD in representing the interests of U.S.-
based multinational corporations that may be impacted by these changes 
in foreign tax laws?

    Answer. I believe it is important for Treasury to represent U.S. 
interests in the OECD to ensure that efforts undertaken by the OECD, 
including the BEPS project, are not used by other countries to unfairly 
target U.S. businesses.

    Question. For many years, in both Republican and Democratic 
administrations, the Treasury has released detailed tax reform 
proposals. If confirmed, do you pledge to partner with my colleagues on 
both sides of the aisle by offering detailed tax reform ideas to 
Congress?

    Answer. If confirmed, I look forward to working with the 
professional experts in Treasury's Office of Tax Policy to generate 
useful tax reform proposals and working with both sides of the aisle in 
Congress to solve tax policy challenges.

    Question. The business community requires certainty in our tax laws 
in order to accomplish effective long-range planning. What are your 
views on adopting temporary, short-term changes to the Internal Revenue 
Code, instead of permanent policy?

    Answer. Avoiding temporary tax provisions that regularly are 
extended adds to policy certainty, is consistent with sound budgeting 
principles, and facilitates long-term planning. However, in certain 
cases truly temporary provisions can be appropriate.

    Question. The Internal Revenue Code includes many tax provisions 
designed to spur investment in infrastructure. What tax policies should 
Treasury pursue to ensure that sufficient revenue is directed toward 
our country's infrastructure needs?

    Answer. I understand that the administration is committed to 
rebuilding our country's infrastructure. If confirmed, I look forward 
to considering Federal tax incentives that support greater investment 
in critical public infrastructure, while giving due regard to Federal 
budget constraints.

    Question. The burden of collecting revenue and enforcing our tax 
laws has only increased in recent years, and yet the Internal Revenue 
Service has struggled due to insufficient funding. Do you believe that 
ensuring appropriate funding of the IRS should be a priority of the 
administration?

    Answer. The IRS should be provided appropriate funding for customer 
service and enforcement in a manner that makes prudent use of taxpayer 
dollars.

    Question. After the Federal court decision in Loving v. IRS, the 
Internal Revenue Service was forced to repeal rules regulating tax 
preparers. Should Congress pass legislation to implement standards in 
the tax preparation industry? What role do you believe Treasury should 
play in this process?

    Answer. The administration's FY 2018 Budget proposed that Congress 
enact legislation to allow IRS to regulate tax return preparers, and I 
support that proposal.

    Question. When Congress passed the Trade Facilitation and Trade 
Enforcement Act of 2015, we expanded the ability of U.S. exporters to 
use drawback laws so they could obtain a refund of duties, taxes, and 
other fees paid for the importation of articles that are later exported 
or destroyed. If confirmed, will you support the duty drawback program 
so that U.S. manufacturers can continue to benefit from this policy?

    Answer. If confirmed, I look forward to learning about this program 
and, if confirmed, ensuring that the drawback law is properly 
implemented.

                                 ______
                                 
                Questions Submitted by Hon. Pat Roberts
    Question. Chairman Hatch asked me to lead a small group of Finance 
members in looking at tax reform and the agricultural sector. I have 
had my staff take a hard look at the tax code sections relating to 
agriculture. In this review, we determined that the most crucial 
features of the tax code for farmers and ranchers are the depreciation 
and accounting rules, and the various provisions relating to capital 
gains.

    On depreciation, a lot of farmers benefit from bonus depreciation, 
which gets them pretty close to full expensing. My ultimate goal would 
be to get the AG folks to full expensing. Is that something that your 
department would support?

    Answer. If confirmed, I look forward to working with you as part of 
tax reform to explore the possibility of full or partial expensing. I 
certainly am willing to discuss ideas about capital cost recovery with 
you and your staff.

    Question. On capital gains, ag producers, as the saying goes, are 
land-rich but cash-poor. Land is their most important asset. Keeping a 
low rate for capital gains, and getting rid of the estate tax are 
critical goals of mine in tax reform. What are your views on this?

    Answer. The administration has publicly supported pro-growth tax 
policies and estate tax relief. My views align with those expressed 
views and I see a low rate on capital gains as consistent with those 
views.

    Question. One of the areas my staff is addressing in tax reform is 
the pass-through rate. It is critical in my State that pass-through 
companies, which make up the bulk of the businesses in Kansas, also 
benefit from reform. That is why I am pleased to see your support for a 
lower pass-through rate. In achieving a lower rate, we have been 
looking at a variety of options, both on how to define income and how 
to handle expenses. It's all very complicated, probably the most 
complicated aspect of a reform plan. How are you all looking at this? 
What help can we offer you in constructing a new pass-through taxation 
system?

    Answer. I agree that taxing pass-throughs at a rate below that 
applied to other ordinary income raises a number of difficult issues. I 
look forward to hearing your ideas and working with you on these 
matters.

    Question. The Department of Commerce is currently conducting two 
section 232 investigations on steel and aluminum. While the 
investigation is intended to address the national security implications 
of certain imports, broad trade remedies could have unintended negative 
consequences. We have already heard foreign governments plan to 
retaliate through duties on U.S. agriculture exports if the 
administration decides to restrict steel and aluminum imports. The 
agriculture economy is going through a rough patch and any retaliation 
on agriculture exports will be damaging and create more uncertainty.

    How are you and the Department of the Treasury working with 
Secretary Ross to ensure that actions for steel and aluminum imports do 
not result in harm to U.S. agriculture, manufacturers, and consumers?

    Answer. If confirmed, I look forward to working with the relevant 
trade experts at Treasury and with the Department of Commerce to 
address these issues as they may relate to tax policy.

                                 ______
                                 
               Question Submitted by Hon. Michael B. Enzi
    Question. Before 2007, in accordance with general provisions of tax 
law, liquidating distributions from a REIT or redemptions of REIT stock 
were generally considered a sale of the REIT's stock.

    In 2007, the IRS issued Notice 2007-55 which revoked existing 
authority and concluded that, solely for foreign shareholders, these 
transactions should be treated as capital gain distributions subject to 
FIRPTA. Will the administration review the feasibility of withdrawing 
the notice?

    Answer. If confirmed, I look forward to working with you and your 
staff to better understand the impact of Notice 2007-55, and working 
with the professional career staff at Treasury on reviewing whether 
this notice should be reconsidered.

                                 ______
                                 

               Questions Submitted by Hon. Maria Cantwell
    Question. As we previously discussed, I support comprehensive tax 
reform that encourages innovation and helps deal with the challenges 
that that innovation can create. While the administration has set an 
ambitious deadline for announcing a comprehensive proposal this 
September, I am increasingly concerned that we are running out of time 
this year, and critical tax policy issues could go unaddressed. This 
includes dealing with currently expired tax provisions like production 
tax credit for hydropower and the tax credit for biodiesel, both of 
which support hundreds of jobs in my State and many more across the 
country.

    In the event that the administration is unable to enact 
comprehensive tax reform this calendar year, will you support moving 
forward on other timely tax policy priorities, including currently 
expired tax provisions, before the end of the year?

    Answer. If confirmed, my first priority would be to ensure the 
success of the administration's tax reform proposals. I also support 
considering any other proposals that would increase economic growth and 
create jobs.

    Question. I am concerned about proposals to eliminate or change the 
current law tax treatment of municipal bonds and the potential costs 
that could have to the 49 million consumers of public power in this 
country. Public power utilities rely on tax-free financing to build, 
maintain and improve their facilities that generate, transmit and 
distribute electricity in nearly every State across the country. I 
understand that if public power utilities had had to finance these 
improvements with taxable debt, they would be paying $4.5 billion in 
additional borrowing costs ever year. As a result, changing the tax 
treatment of municipal bonds would undoubtedly raise electric utility 
rates for tens of millions of public power customers across the 
country.

    Is the administration considering the impact that this type of 
change would have on electric bills of American families across the 
country?

    Answer. I recognize the important role that the tax-exempt 
municipal bond market plays in financing our country's infrastructure, 
including the significant public power sector of that market. If 
confirmed, I will consider carefully the role of tax-exempt municipal 
bonds in supporting State and local financing of infrastructure and its 
impact on American families.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
               responsiveness to members of the committee
    Question. The Trump administration has apparently given a directive 
to agencies to ignore requests for information or technical assistance 
from Democratic members of Congress. Mr. Kautter, when you met with 
committee staff, you were asked to commit to responding to both 
Democratic and Republican members of the Finance Committee. You 
responded that, while it was in your nature to be responsive, if you 
were directed not to respond, you would not respond.

    During your confirmation hearing, you said you meant you would not 
respond if there was a legal reason not to.

    Please explain what might qualify as a legal reason not to respond 
to Democratic members' requests?

    Answer. I believe that responsiveness to congressional requests for 
information is critically important and I am committed to providing 
appropriate, useful responses to all members of Congress. There are of 
course circumstances in which the law places limitations on the 
disclosure of information. For example, with respect to tax 
information, restrictions on disclosure are imposed under section 6103 
of the Internal Revenue Code. Another restriction appears in the 
Privacy Act.

    Question. Would you consider a directive from the White House a 
legal reason not to respond?

    Answer. The decision on how to respond to a request for information 
should always be governed by applicable law and privileges.
         protecting the u.s. tax base and preventing inversions
    Question. In April, President Trump issued an executive order 
asking the Treasury Department to review and identify overly burdensome 
tax regulations created in the final 15 months of the Obama 
administration. I was very concerned that the administration planned to 
weaken rules preventing corporate inversions, earnings stripping, and 
other tax-motivated transactions. That's why I wrote a letter to 
Secretary Mnuchin, along with Leader Schumer and eight of my Finance 
colleagues, on June 12th, in this regard. I have not received a 
response to my letter, but the Treasury Department did recently 
identify eight regulations for potential repeal. Two of these 
regulations, pertaining to section 367 and section 385, took specific 
aim at aggressive international planning techniques, often in 
combination with corporate inversions, to avoid U.S. taxation.

    Do you agree that the tax law must have strong anti-base erosion 
rules to prevent earning stripping, corporate inversions, and other 
aggressive planning techniques designed to avoid or eliminate U.S. 
taxation?

    Answer. I think that the tax law should have strong rules to 
prevent aggressive tax planning designed to avoid or eliminate U.S. 
taxation.

    Question. As the head of tax policy for the Treasury Department, if 
the administration repeals or amend the regulations, especially up 
until Congress passes and the President signs comprehensive tax reform, 
what specifically will the administration do to prevent corporate 
inversions, earnings stripping, and other tax-motivated transactions?

    Answer. Because I am not currently involved in Treasury's review of 
these regulations, I cannot opine on what action will be taken with 
respect to these regulations. However, if confirmed, I look forward to 
reviewing the regulations to determine the appropriate course of 
action. I do not believe that any changes should open up opportunities 
for inversions, earnings stripping, or other aggressive tax-motivated 
transactions.

    Question. As part of tax reform, what will the administration do to 
prevent corporate inversions, earnings stripping, and other tax-
motivated transactions?

    Answer. If confirmed, my top priority will be working with Congress 
to enact tax reform that is fairer for Americans and increases the 
competitiveness of American businesses in the global marketplace. I 
believe that reforming our business tax system is a critical step in 
addressing incentives that encourage companies to engage in inversions 
and earnings stripping.
                   maintaining a progressive tax code
    Question. Is the President committed to keeping the progressivity 
of the current tax code? Explain how repealing the 3.8% net investment 
income tax and the 0.9% additional Medicare tax maintains 
progressivity?

    Answer. I believe that the tax code should be progressive and that 
progressivity is sound social and tax policy. While I cannot speculate 
on any specific proposals at this time, if confirmed, I look forward to 
working with Congress on a comprehensive tax reform package that 
delivers tax relief to the middle class.

    Question. The President's tax reform plan proposes to expand the 
standard deduction, but remains silent on whether the plan keeps the 
personal exemption. Independent analyses of the President's campaign 
proposal (doubling the standard deduction, repealing the personal 
exemption, providing an above-the-line deduction for child care 
expenses) raised taxes on many middle-class families. Is the President 
still committed to a middle-class tax cut for everyone in the middle 
class? If so, how will his proposals achieve this result?

    Answer. My priority in tax reform is to ensure that the economy 
grows, that good paying middle-class jobs are created and the middle 
class receives tax relief, and if I am confirmed, I look forward to 
working with the staff at Treasury and with Congress on analyzing the 
impact of any particular proposals and whether they benefit the middle 
class.

    Question. What will the top rate on individuals be? What is top 
rate on corporations? What is the top rate on non-corporate businesses? 
Will this result in a more progressive tax code?

    Answer. It is premature at this time to speculate on what the 
ultimate rates will be, however, I believe it is important that tax 
reform include tax relief and that middle-class Americans benefit from 
tax reform.

    Question. Is the President committed to keeping the EITC and the 
refundable child tax credit as-is? If not, how would he propose to 
change these key work supports for low- and middle-income families?

    Answer. I am not in a position to speak for the President at this 
time. I personally believe the EITC and the refundable child tax credit 
play a crucial role in our social safety net. I think it would be 
appropriate to look for ways to improve and strengthen the EITC and the 
refundable child tax credit.

    Question. The President's FY18 budget claims that tax reform will 
produce 3 percent real, annual growth and pay for the cost of tax cuts. 
The Treasury Secretary has backed up this dynamic scoring of tax reform 
in testimony before the Senate Finance Committee and numerous 
statements in the press. However, as you know, the Joint Committee on 
Taxation is the arbiter of dynamic scoring for tax policies in the 
Congress and, based on past scoring of tax reform proposals, they are 
likely to score the dynamic effects of tax reform much more modestly 
than is indicated in the President's budget. Do you agree to respect 
the score produced by JCT/CBO on tax reform bills considered in the 
Congress?

    Answer. There is no question that congressional scores are done by 
JCT and CBO. If confirmed, as an official within the executive branch, 
I would want Treasury's professional career economists to evaluate the 
economic impacts of tax reform as well. I don't believe these efforts 
would conflict, even if the modeling results differ as is often the 
case within the economic community.
                  fiscal responsibility in tax reform
    Question. Tax reform should focus on simplifying the code, making 
it fairer and more efficient. It should grow the economy to create 
good, middle-class jobs, and put the United States on an even playing 
field with our international trading partners.

    Current plans from the Trump administration and Republicans in the 
House of Representatives are estimated to lose trillions of dollars. A 
recent report from the Tax Policy Center estimated that this kind of 
debt increase would severely hamper economic growth and job creation.

    In a time when the United States faces annual budget deficits, 
Congress should not be pursuing large, unpaid for tax cuts. Nor should 
Congress repeat the mistake of the health care bill, which would have 
cut taxes for special interests, paid for by eliminating health 
benefits for working families.

    Will you commit that you will push to ensure tax reform is revenue-
neutral--fully paid for without spending cuts?

    Answer. It is my understanding that the administration has 
indicated its intention to work with the Congress to attain deficit-
neutral tax reform. If confirmed, I look forward to continuing to work 
toward such a goal.
         alcohol and tobacco tax and trade bureau (ttb) funding
    Question. Between 2012 and 2016 the number of U.S. breweries has 
more than doubled, however, TTB funding has not kept pace. TTB is 
responsible for administration of Federal excise tax laws, as well as 
certain Federal alcohol and labeling regulations. Specifically, brewers 
are required to obtain TTB approval for beverage labels and formulas in 
certain cases. The brewing industry recognizes these regulations are 
crucial to ensure the integrity of the industry and fairness in the 
marketplace.

    Due to resource limitations and the significant increases in the 
number of U.S. brewers, TTB has in recent years faced a significant 
backlog of formula and label approvals--sometime as long as 2 months. 
In 2015 Congress acted in a bipartisan, bicameral manner to address 
this backlog by appropriating $5 million to streamline and accelerate 
formula and label approvals. In the FY 2017 appropriations bill passed 
earlier this year, Congress again, in a bipartisan, bicameral manner 
extended and enhanced appropriations for TTB's regulatory functions.

    The TTB FY 2018 budget justification, which is part of the 
President's budget proposed to terminate these funding increases. In 
addition, the budget justification described this bipartisan, bicameral 
priority as an ``earmark.''

    Please describe whether you believe the additional appropriation 
for formula and label approvals should be labeled as an ``earmark.'' Do 
you believe Congress should continue the current level of funding for 
this important program?

    Answer. I have little background with TTB and have not practiced in 
this area. If confirmed, I look forward to learning about TTB issues 
such as this.

    Question. Please describe whether you believe this funding increase 
has been effective in reducing the backlog for TTB formula and label 
approvals. Please describe the change in the formula and label approval 
processing times since enactment of increased funding for this program.

    Answer. I have little background with TTB and have not practiced in 
this area. If confirmed, I look forward to learning about TTB issues 
such as this and look forward to working with you and your office on 
this issue.

    Question. Despite the President's budget's significant proposed 
cuts to TTB broadly and its proposals to undermine efforts to 
accelerate formula and label approvals, the TTB budget justification 
suggests that TTB ``customer satisfaction'' is expected to increase. Do 
you believe TTB funding should be maintained at current levels? Please 
describe whether you believe cutting resources for services to TTB-
regulated entities will increase ``customer satisfaction.'' Please 
explain your reasoning.

    Answer. As stated previously, I have little background with TTB and 
have not practiced in this area. If confirmed, I look forward to 
learning more about these issues and would welcome the opportunity to 
work with you and your staff on this issue.

    Question. On June 27, 2017, a majority of members of the U.S. House 
of Representatives sent a bipartisan letter to Secretary Mnuchin urging 
the administration to maintain the TTB as an independent bureau within 
the Treasury Department. Will you commit to preserving TTB as an 
independent bureau?

    Answer. As stated previously, I have little background with TTB and 
have not practiced in this area. If confirmed, I look forward to 
learning more about these issues and would welcome the opportunity to 
work with you and your staff on this issue.

    Question. On February 11, 2016, TTB issued TTB Ruling 2016-1 
emphasizing TTB's intent to fully investigate and enforce trade 
practice violations under the Federal Alcohol Administration Act with 
respect to category management agreements. In addition, earlier this 
year Congress appropriated additional funds to TTB for enforcement of 
trade practice violations. Will you commit to this committee that the 
TTB will continue to fully enforce trade practice violations to ensure 
that our brewers, cider makers, distillers, and vintners have fair 
access to tap lines and store shelves?

    Answer. As stated previously, I have little background with TTB and 
have not practiced in this area. If confirmed, I look forward to 
learning more about these issues and would welcome the opportunity to 
work with you and your staff on this issue.
 alcohol and tobacco tax and trade bureau (ttb) tobacco tax enforcement
    Question. TTB is charged with collecting excise tax and regulating 
products including alcohol, tobacco, and firearms, collecting more than 
$22 billion in tax annually. Tobacco diversion is a long-term tax 
enforcement challenge given the high profits to be gained from illegal 
activity, the relative ease of diversion, and the substantial revenue 
loss that it represents.

    In 2014, the Finance Committee held a hearing on Federal tobacco 
tax evasion and avoidance and related market shifts within the tobacco 
industry. In its testimony, before the committee, the Government 
Accountability Office (GAO) found that industry practices resulted in 
up to $3.7 billion in lost revenue since 2009. In addition, the 
National Academy of Sciences recently released a report finding that 
illicit tobacco represented between 8.5 and 21 percent of the U.S. 
market, resulting in between $2.95 and $6.92 billion in lost State and 
local taxes annually.

    As this committee's record has demonstrated, TTB's enforcement 
funding levels are not sufficient to carry out the agency's important 
task. Specifically, the agency faces a backlog of enforcement cases and 
a significant lack of enforcement resources. TTB currently employs only 
5 criminal enforcement agents to enforce alcohol, tobacco, and firearms 
violations across all 50 States. This concern is heightened by a 
dramatic decline in resources allocated to parallel tobacco 
investigations and enforcement by the Justice Department's Bureau of 
Alcohol, Tobacco, Firearms, and Explosives (ATF). In a June 2014 
report, GAO reported that less than one half of one percent of ATF's 
criminal investigations are now related to illicit alcohol and tobacco 
activities.

    How do you plan to ensure TTB has sufficient resources to 
appropriately investigate and prosecute cases of tobacco tax evasion?

    Answer. As stated previously, I have little background with TTB and 
have not practiced in this area. If confirmed, I look forward to 
learning more about these issues and would welcome the opportunity to 
work with you and your staff on this issue.

    Question. Following tobacco excise tax changes as part of the 2009 
passage of the Children's Health Insurance Program Reauthorization Act 
(CHIPRA), the roll-your-own market quickly shifted to labeling its 
products as lower taxed ``pipe tobacco.'' And with a wink and a nod, 
pipe tobacco retailers and cigarette smokers were able to dodge $22 per 
pound in tax by slapping phony pipe tobacco labels on bags full of 
cigarette tobacco. In 2010, TTB issued an advanced notice of proposed 
rulemaking to distinguish between the two products based on 
characteristics including cut, weight, moisture, curing method, and 
type of tobacco. In 2014 TTB Administrator Manfreda committed before 
this committee to finalize those regulations in a timely manner. I am 
concerned that TTB has taken no further action on this rulemaking since 
the comment period closed in 2011. Please describe what steps you will 
take to ensure TTB finalizes these regulations to close down this 
loophole.

    Answer. As stated previously, I have little background with TTB and 
have not practiced in this area. If confirmed, I look forward to 
learning more about these issues and would welcome the opportunity to 
work with you and your staff on this issue.
             prohibition on political activity by charities
    Question. Under present law, charities (including religious 
organizations) are prohibited from electioneering activity, including 
intervening in any political campaign on behalf of, or in opposition 
to, any candidate for public office. This protection ensures that 
charities are not used as conduits to avoid campaign finance rules, and 
prohibits charitable tax deductions from subsidizing political campaign 
expenditures. In addition, the charitable sector broadly views these 
rules as essential to ensure the integrity and independence of 
charities, and insulates these organizations, which receive more than 
$130 billion in Federal, State, and local grants, from undue political 
influence. Earlier this year Congress received a letter signed by 
nearly 4,500 charities opposing any action that would weaken the 
prohibition on political activity. In addition, Congress received a 
letter from nearly 100 national faith organizations opposing any 
weakening of this prohibition, and more than 3,000 faith leaders from 
across the country have signed a petition to oppose any such change.

    Please describe whether you believe Congress should ``get rid of 
and totally destroy'' the prohibition on political activity by 
charities (sometimes referred to as the ``Johnson Amendment'') as 
President Trump promised during a speech at the National Prayer 
Breakfast on February 2, 2017. Please describe how you interpret the 
phrase ``get rid of and totally destroy the Johnson Amendment'' in this 
context.

    Answer. This is not an issue I have considered in any depth. If 
confirmed, I look forward to working with Congress and the 
administration to learn more about the Johnson Amendment and whether 
any reforms should be made in this area.

    Question. In May of this year, the President signed an executive 
order titled ``Promoting Free Speech and Religious Liberty'' which 
directed the IRS to not enforce the prohibition on electioneering with 
respect to religious institutions, ``to the greatest extent practicable 
and to the extent permitted by law.'' The prohibition in political 
activity in IRC Sec. 501(c)(3) is not ambiguous, nor does it provide 
exceptions for IRS discretion. Please describe your interpretation of 
how IRS should apply this executive order in practice. Please describe 
whether you believe this executive order fulfills President Trump's 
commitment to ``get rid of and totally destroy the Johnson Amendment'' 
made on February 2, 2017.

    Answer. If confirmed, I look forward to working with the 
professional legal staff at Treasury and the IRS to learn more about 
the rules governing section 501(c)(3) organizations and ensuring that 
the interpretation of the executive order is consistent with the laws 
enacted by Congress.

    Question. Last week the House Committee on Appropriations passed 
its fiscal year 2018 Financial Services and General Government 
Appropriations legislation. section 116 of the legislation would 
implement a new, stringent process for enforcing the prohibition on 
political activity by churches, which appears intended to intimidate 
the IRS to prevent them from enforcing the statutory prohibition.

    Please describe what you believe to be the intent of this 
appropriations rider.

    Please describe how you believe this appropriations rider would be 
implemented if enacted.

    Please describe whether you support the concept of overriding 
statutory Internal Revenue Code provisions via appropriations riders.

    Answer. If confirmed, I look forward to working with Congress on 
determining the appropriate funding level for the IRS. I also look 
forward to learning more about the issues surrounding the current rules 
under section 501(c)(3) governing political campaign activities and how 
those issues should best be addressed.
               effects of charitable giving in tax reform
    Question. On April 26, 2017, President Trump released a tax 
framework which would repeal the estate tax and slash tax rates for the 
wealthiest Americans. The Tax Policy Center estimated the effects on 
charitable giving of a previous version of the Trump tax plan, finding 
it would reduce charitable giving by between 4.5 and 9 percent in its 
first year--equal to a reduction in giving by as much as $26 billion 
annually.

    Would you describe charities as ``winners'' or ``losers'' under the 
Trump tax plan as presented April 26, 2017?

    Answer. If confirmed, I look forward to working with the 
professional staff at Treasury and with Congress on determining the 
economic impact of any tax reform proposals on charities.

    Question. Do you believe overall charitable giving should be 
increased as part of tax reform? Please describe whether you believe 
the President's tax framework achieves that goal?

    Answer. Charitable giving is a critical part of our society, and I 
support President Trump's decision to protect the charitable deduction 
in his tax reform outline. If confirmed, I will be open to working with 
Congress to make incentives for charitable giving more effective.

    Question. The nonprofit sector represents approximately 10 percent 
of the U.S. workforce. Given charities' crucial role in our economy and 
communities, do you believe any tax reform framework should make clear 
how it intends to treat tax exempt entities and charitable giving?

    Answer. I agree that it is critical that the tax code provide 
certainty to taxpayers, including donors and tax exempt entities.
                   conservation easement syndications
    Question. Under present law, taxpayers may claim a charitable 
deduction for contributions of conservation easements preserving 
certain natural, recreational, educational, and historical property to 
a qualified charitable organization. The PATH Act of 2015 made 
permanent certain enhanced incentives for contributions of conservation 
easements. Since 2004, the IRS has identified certain syndicated 
conservation easement transactions as potentially abusive. Generally, 
these transactions include real estate developers claiming excessive 
deductions for inappropriately valued contributions of conservation 
easements. In addition, these transactions generally involve the real 
estate developer or a related party syndicating (i.e., selling off) 
deductions to so-called ``investors,'' with investors receiving a tax 
benefit often as much as nine times the cost of the investment. The 
prevalence of these abusive transactions has grown exponentially in 
recent years, with conservation easement deductions increasing from 
$971 million in 2012 to $3.2 billion in 2014.

    In response to the growth in abusive conservation easement 
syndication transactions, IRS issued Notice 2017-10 requiring 
participants and material advisors of certain potentially abusive 
syndicated conservation easement transactions to disclose the 
transaction to the IRS. Under these rules, syndicated conservation 
easement transactions involving one or more pass-through entities, 
which use marketing materials suggesting to prospective investors that 
they may be entitled to a charitable deduction of 250 percent or more 
of the amount invested must be reported to the IRS as a potentially 
abusive transaction. The new rules apply to transactions entered into 
on or after January 1, 2010.

    Last week the House Committee on Appropriations passed its fiscal 
year 2018 Financial Services and General Government Appropriations 
legislation. Section 114 of the that legislation would prohibit funds 
made available by the Act from being used to implement or enforce 
Notice 2017-10 with respect to transactions entered into before January 
23, 2017.

    Please describe how this appropriations rider could potentially 
impede IRS's enforcement actions with respect to abusive syndicated 
conservation easement transactions.

    Please describe whether you support appropriations riders 
overriding IRS enforcement actions in this context.

    IRS recently provided the Finance Committee with a preliminary 
analysis of reported transactions under Notice 2017-10, which found 
that the average return on investment for these tax shelter schemes was 
nine to one. In other words, for each dollar placed into the tax 
shelter, participants received $9 in tax benefits in return. Please 
explain whether you believe this abuse of the conservation easement 
program was within Congress's intent when this provision was enacted.

    Answer. As former tax legislative counsel for Senator Danforth, I 
have great respect for the legislative process. I appreciate the role 
of the appropriations and tax writing committees in the House and 
Senate. If confirmed, I look forward to working with members of these 
committees on important tax policy issues. I am not specifically 
familiar with this notice and would have to review it further if 
confirmed.
                     estate tax valuation discounts
    Question. Under present law, taxable estates in excess of $5.5 
million ($11 million per couple) are subject to a 40-percent tax on the 
value of the estate in excess of the exemption amount. Strict rules 
govern valuation of an estate for tax purposes. Courts have held that a 
taxpayer may reduce the value of certain business interests due to lack 
of control and lack of marketability. As such, sophisticated taxpayers 
have developed tax planning techniques to artificially reduce the value 
of assets by placing them into a family partnership and claiming 
valuation discounts based on supposed lack of marketability and 
control. In response to these tax avoidance techniques, Congress 
enacted IRC Sec. 2704 in 1990 which excludes certain factors from 
valuation discount if they do not reflect a true economic decline in 
value, and provided the Secretary of the Treasury authority to 
designate additional factors for exclusion. Many of these rules pivoted 
around determinations of control under State partnership law. Since the 
original enactment of IRC Sec. 2704, limited liability companies have 
become more prevalent and have rendered the provision ineffective, as 
these entities are not subject to the strict partnership control rules. 
On August 4, 2016, the Treasury Department issued proposed regulations 
to address these new abuses, under explicit authority granted by IRC 
Sec. 2704.

    Last week the House Committee on Appropriations passed its fiscal 
year 2018 Financial Services and General Government Appropriations 
legislation. Section 115 of the legislation would prohibit the 
Department of the Treasury from finalizing the August 4, 2016 
rulemaking or any substantially similar amendments to such regulation. 
In addition, the IRS identified this proposed regulation as a 
regulation under review pursuant to Executive Order 13789.

    Please describe whether you support the concept of overriding 
Treasury regulations via appropriations riders.

    Please describe why the Treasury Department and IRS feel that a 
proposed regulation released less than a year ago is now unnecessary.

    Please describe why you believe Congress granted the Secretary 
explicit authority to provide additional restrictions for valuation 
discounts under IRC Sec. 2704(b)(4).

    Please describe whether you believe the proposed regulations under 
IRC Sec. 2704 impose an undue financial burden on U.S. taxpayers. 
Please explain your reasoning. In addition, please describe whether you 
believe paying tax legally owed constitutes ``an undue financial 
burden'' in the context of Executive Order 13789.

    Please describe whether you believe the proposed regulations under 
IRC Sec. 2704 adds undue complexity to the Federal tax laws. Please 
explain your reasoning.

    Please describe whether you believe the proposed regulations under 
IRC Sec. 2704 exceed the statutory authority of the Internal Revenue 
Service. Please explain your reasoning.

    Answer. I believe that tax legislation is best left to the tax 
writing committees in Congress. If confirmed, I will work with 
Treasury's professional staff and the administration to understand the 
intended purpose of these proposed regulations and the concerns raised 
by taxpayers about these proposed regulations to help me determine what 
modifications I would recommend be made to these proposed regulations.
           preserving bipartisan commitments to clean energy
    Question. At the end of 2015, Congress passed a bipartisan 
extension and phase-down of the Production Tax Credit for wind power 
and the Investment Tax Credit for solar power. These longer-term 
extensions were meant to provide some certainty to these industries. 
Any attempted reduction or claw back of these extensions would be a 
retroactive tax increase.

    Congressional leadership and members of the administration have 
noted a desire to maintain the extensions of the wind and solar 
credits.

    Will you commit to preserving the wind and solar extensions, as 
agreed to in the PATH Act in 2015?

    Answer. If confirmed, I look forward to working with the 
administration and with Congress to determine the most appropriate ways 
to continue to support and provide certainty to these industries.
                               oversight
    Question. In response to the committee's written due diligence 
questions concerning your role in overseeing the VIPER/SISG team, which 
developed and marketed tax shelter products for Ernst and Young (E&Y), 
you responded ``(s)ince the group was part of the National Tax 
Department and led by the national director of personal financial 
counseling, the director of national tax was responsible for making 
sure that the firm's human resources, financial and administrative 
processes, such as completion of annual performance reviews, filing 
timesheets, and submitting travel expenses, were properly followed.''

    On July 17, 2001, the national director of personal financial 
counseling sent an email to the VIPER/SISG team with the subject 
heading ``Important--Purge of All Key COBRA Documents,'' referring to 
one of the firm's major tax shelter products and directing recipients 
to immediately delete and dispose of paper and electronic materials in 
their possession regarding COBRA transactions. Company record-
keeping policies and practices would normally be considered an 
``administrative process.''

    What, if any, personnel actions did you take with regard to the 
Director once you learned of his email? What procedures did you put in 
place following this incident to ensure that records regarding the 
VIPER/SISG group were retained and the integrity of firm records 
regarding the promotion of tax shelters was maintained?

    Answer. This email was sent by Bob Coplan, who was then the head of 
the SISG Group. Mr. Coplan did not report to me with respect to his 
SISG activities, and any personnel action in response to this email was 
the responsibility of the chief operating officer of the tax practice 
to whom Mr. Coplan reported and the vice-chair of tax to whom the chief 
operating officer reported. I was not copied on this email and was not 
aware of it until I learned that the firm's general counsel had 
directed that it be rescinded. In discussing this matter with the 
firm's general counsel once I became aware of the email and its 
rescission, I was told that the matter was now under the jurisdiction 
of the general counsel's office and that they would handle any future 
communications.

    Question. In response to the committee's written ``due diligence'' 
question concerning your knowledge of and response to the IRS 
examinations of E&Y's tax shelter promotion activities, initiated on or 
about January 30, 2002, you responded ``I fully cooperated with the IRS 
examination in a truthful manner personally and made it clear to my 
colleagues that I expected them to fully and truthfully cooperate as 
well.'' The statement of facts accompanying the February 26, 2013 non-
prosecution agreement between the Department of Justice and E&Y 
indicates that your colleagues did not fully and truthfully cooperate. 
The statement of facts notes that ``. . . in implementing the sale of 
tax shelter products, certain members of SISG also prepared documents 
and correspondence that falsely and inaccurately reflected events or 
conversations, and that were designed to improperly influence the IRS's 
view of the merits of the transactions in the event of an audit. These 
activities continued into 2003 and 2004.''

    Following the initiation of the IRS examinations in 2002, and 
knowing of the prior efforts by the VIPER/SISG team to purge company 
documents related to the COBRA tax shelter in 2001, what actions did 
you take to ensure complete and truthful cooperation by all members of 
that group and other firm employees with those IRS examinations? How 
did you make it clear that they were required to do so?

    Answer. During this time period, I repeatedly instructed NTD staff 
that they should take this matter seriously and that I expected full 
and forthright cooperation with any request received by anyone with 
respect to the examination.

    Question. As discussed during this morning's hearing, you were kept 
apprised of many of the VIPER/SISG activities. For example, emails show 
that you were informed of the COBRA shelter beginning in September 
1999. Ultimately, in addition to a 2003 $15-million settlement with the 
IRS concerning its examination of the E&Y's tax shelter promotion, E&Y 
reached a $123 million non-prosecution agreement with the Department of 
Justice in 2013 after criminal convictions of E&Y employees, including 
the national director of the personal financial counseling cited above.

    If you had it to do over again, what specific things would you have 
done differently with regard to your role as director of national tax 
in responding to E&Y's promotion of tax shelters and subsequent 
obstruction of IRS examinations?

    Answer. As director of national tax, I did not have the ability to 
decide whether to proceed with offering particular tax shelters. 
Moreover, the decision to engage in tax shelter activity was made by 
the firm before I became director of national tax. Once I became 
director, I did not have full visibility into SISG's activities, but I 
nonetheless objected to the firm's involvement in the tax shelter 
activity on numerous occasions. Had I had a complete understanding of 
SISG's activities at the time, I would have insisted that the vice 
chairman of tax and chief operating officer direct SISG to cease its 
tax shelter activity. I also would have pushed to gain a complete 
understanding of what the group was doing despite the fact that it 
reported to someone else.

    Question. If confirmed, you will be one of the lead administration 
officials on tax reform efforts, in addition to many other substantive 
tax policy issues. In part, this will require regular engagement with 
the House and Senate, particularly the Senate Finance Committee. You 
also made clear to the committee that given your past experiences at 
E&Y, you wish you would have been more vocal with respect to the tax 
shelter issue.

    Looking ahead, if confronted with situations that raise issues from 
a policy, oversight, or ethical perspective (such as a directive 
instructing you not to respond to requests from all member offices), 
what actions do you plan to take?

    Answer. I would consult with appropriate personnel within the 
Treasury Department concerning the best way to resolve novel policy 
issues in a manner consistent with all applicable laws and regulations. 
With respect to oversight matters, I strongly believe that the 
executive branch should provide useful, appropriate responses to all 
members of Congress, and if confirmed would make my views on this 
matter known to the Department as necessary. If confronted with a 
situation in which the law governing the performance of my official 
duties is unclear, I would consult with the Legal Division of the 
Treasury Department.

    Question. How would you address those matters before you? Will you 
address instances of misconduct differently than you did when you 
served as director of national tax for E&Y? If so, how will you address 
such situations?

    Answer. If confirmed, I will endeavor to perform my duties with the 
highest level of integrity and professionalism, as I have throughout my 
career. If I believe that I am in a position where I cannot perform my 
duties in an appropriate and ethical manner, I would resign.
                  customs revenue collection oversight
    Question. The Homeland Security Act of 2002 (HSA) established the 
Department of Homeland Security (DHS) and dissolved the legacy U.S. 
Customs Service in the Department of the Treasury. Although certain 
functions were transferred from Treasury to DHS by the HSA, the customs 
revenue functions remained in Treasury. The HSA stated that Treasury 
could delegate, but not transfer, its customs revenue function to DHS. 
Treasury did delegate many aspects of the revenue function, with some 
exceptions.

    The Trade Facilitation and Trade Enforcement Act of 2015, drafted 
by the Finance Committee and signed into law in 2016, required 
Treasury's Inspector General (IG) to conduct a review of Customs and 
Border Protection (CBP) revenue collection. When the IG undertook the 
first review, they told the committee that (1) they did not have the 
resources and competency to look into the issue; and (2) it was not 
clear whether Treasury retained adequate oversight over the authority 
it delegated to CBP to collect tariff revenue. Specifically, the report 
stated ``[f]rom our review thus far, it does appear that Treasury's 
current role may not be in alignment with statutory requirements, as 
operational functions were delegated and not transferred.''

    What are your views on Treasury's role in overseeing the Customs 
revenue collection functions of CBP?

    Answer. If confirmed, I look forward to learning about Treasury's 
customs revenue functions and working with Congress to ensure that 
Treasury plays an appropriate role in regulating international trade.

    Question. If confirmed, will you review the report and take any 
action necessary to ensure that Treasury is exercising appropriate 
oversight of CBP's customs revenue function?

    Answer. I look forward to learning more about the Inspector 
General's report and working with Congress to ensure proper oversight 
of customs revenue functions.

                                 ______
                                 
            Questions Submitted by hon. Robert P. Casey, Jr.
    Question. You have experience working at a firm that has been 
charged and where individuals were convicted of fraud and obstruction 
relating to the design and marketing of tax shelter products. This 
action allowed individuals to defer, reduce, or eliminate $2 billion in 
aggregate tax liabilities. If confirmed, how will that experience 
inform your work as Assistant Secretary for Tax Policy?

    Answer. If confirmed, one of my top goals in tax reform is to 
ensure that a revised code is simple and fair for all Americans. I 
believe that a simpler Internal Revenue Code will eliminate many 
opportunities for taxpayers to engage in aggressive tax planning.

    Question. The White House has put forward a tax plan to repeal all 
deductions, except for three--charitable, home interest and retirement. 
This will presumably also result in the repeal of ``above the line'' 
deductions.

    Do you believe it's reasonable to repeal the deduction for higher 
education expenses, like tuition?

    Do you believe it's reasonable to repeal deductions for educators 
to purchase supplies for their classroom?

    Do you believe it's reasonable to repeal deductions for travel 
expenses incurred by Army Reserve members?

    Answer. I believe that everything should be on the table as part of 
tax reform. If confirmed, I look forward to working with Congress to 
take a look at every deduction and decide whether or not it belongs in 
the code going forward.

    Question. If Democrats' stated goal is no absolute tax cut for the 
wealthy, and the President's stated goal is the same, can you guarantee 
that, on average, there will be no absolute tax cut for the wealthy?

    Answer. If confirmed, my focus will be on providing tax relief to 
middle-income taxpayers. I look forward to working with you and your 
colleagues to create a tax reform package that stimulates economic 
growth and creates good paying middle-income jobs. As part of this 
process, I would be focused on developing family tax provisions that 
provide economic security to low- and middle-income Americans.

    Question. You stated in the hearing that your primary objective is 
a middle-class tax cut. In your opinion, how does the current one-page 
tax reform outline stack up against the pledge to provide a middle-
class tax cut? That is, do you believe the current proposal provides a 
tax cut for the middle class of the size and scope you would hope to 
see?

    Answer. My understanding is that the President's tax reform outline 
contains high-level priorities but does not represent a complete set of 
proposals that can be analyzed for a precise impact on taxpayers. For 
example, although the President's outline set forth three rates of tax, 
it does not provide where the rate brackets would begin or end. If 
confirmed, I look forward to working with the professional staff at 
Treasury and with Congress on determining what impact any tax reform 
proposal will have on the middle class in order to ensure that we are 
providing economic growth and benefiting middle-income taxpayers.

    Question. According to analysis by the Tax Policy Center, under the 
White House proposal, almost 25 percent of those making $48,000-$86,000 
would see a tax increase, of on average $1,000 a year. For those who do 
see a tax cut, it would amount to around the equivalent of $3.60 a day. 
Meanwhile, those making over $1 million a year would get an average tax 
cut of almost $200,000. Does this comport with your stated goal of 
providing a middle-class tax cut?

    Answer. See my answer to the previous question.

    Question. Do you think that fairness and equity should be 
principles by which tax reform proposals should be judged?

    Answer. Fairness and equity are important principles in evaluating 
tax reform proposals. There are other principles that should also be 
considered in evaluating tax reform proposals such as simplicity and 
the impact of the proposal on economic efficiency and growth.

    Question. Do you think that the tax proposal from the White House 
is fair and equitable for working families?

    Answer. As noted previously, the Tax Reform Priorities contain 
high-level priorities but do not represent a complete set of proposals 
that can be analyzed for a precise impact on taxpayers. If confirmed, I 
look forward to working with you and your colleagues to create a tax 
reform package that stimulates economic growth and creates good paying 
jobs for middle-income taxpayers. As part of this process, I would be 
focused on developing family tax provisions that will provide relief to 
low- and middle-income Americans.

    Question. The administration has been very detailed on the tax cuts 
they intend to provide to very high income earners, however, they have 
provided very little on how they are going to achieve tax cuts for the 
middle class. What would you hope to do in this space?

    Answer. If confirmed, I look forward to working with you and your 
colleagues to create a tax reform package that promotes economic growth 
to increase employment and wages for all working families, and provides 
tax relief to middle-income taxpayers.

    Question. Do you believe it is appropriate to amend taxes 
pertaining to Medicare and Medicaid, which will result in less 
coverage, on a strictly partisan basis?

    Answer. I believe that all taxes should be reconsidered as part of 
comprehensive tax reform, and I look forward to working with both 
parties in Congress on determining the best way to provide tax relief 
to middle-income Americans.

    Question. What guidance will you provide States regarding ABLE 
account balances for account holders who die? Specifically, should the 
balance be used to reimburse Medicaid or be converted to the account 
holder's heirs/family?

    Answer. I look forward to working with Treasury staff to learn more 
about the possible intersection of ABLE accounts and Medicaid benefits 
to be sure that all relevant perspectives are fully considered.

                                 ______
                                 
              Questions Submitted by Hon. Robert Menendez
    Question. In the wake of the 2015 signing of a U.S.-Armenia Trade 
and Investment Framework Agreement, we witnessed a surge in U.S. 
commercial engagement in Armenia--including, as reported by our 
Ambassador, Richard Mills, upwards of $500,000,000 in new American 
investments in Armenia's energy and mining sectors.

    A new U.S.-Armenia Double Tax Treaty would establish a clear legal 
framework for investors and individuals that have business activities 
in both jurisdictions, preventing double taxation and facilitating the 
expansion of U.S.-Armenia economic relations--an American policy 
priority.

    Are you, in principle, supportive of a new U.S.-Armenia Tax Treaty 
that will eliminate the threat of double taxation, removing a major 
barrier to the further growth of U.S.-Armenia economic relations?

    Answer. If confirmed, I look forward to working with your staff to 
learn more about the barriers to U.S.-Armenia economic relations, and I 
also look forward to learning more from the professional staff at 
Treasury about the pros and cons of a tax treaty with Armenia.

    Question. The only accord that even remotely speaks to U.S.-Armenia 
taxation issues is the outdated and obsolete 1973 U.S.-U.S.S.R tax 
treaty. Even by 1970s standards, this Soviet-era treaty was a limited 
agreement between two hostile superpowers. Armenia does not consider 
this accord in force, and its current legal status remains unclear.

    Do you consider the 1973 U.S.-Soviet tax treaty adequate to the 
needs of the present-day U.S.-Armenia economic relationship?

    Answer. If confirmed I look forward to working with your staff and 
the professional staff at Treasury as well as the State Department to 
learn more about this issue and what we can do to adequately address 
any impediments to U.S.-Armenia economic relations.

    Question. Yerevan has repeatedly sought to replace this obsolete 
accord, and--in the interest of facilitating the negotiating process 
and easing the burden on our own Treasury Department--has expressed a 
willingness to start talks based on the current U.S. model tax treaty.

    Do you welcome Armenia's willingness to enter into Tax Treaty 
negotiations based upon our current U.S. model tax treaty?

    The lack of a working U.S.-Armenia Double Tax Treaty hinders the 
growth of U.S.-Armenia economic relations, perpetuating unnecessary 
legal uncertainty that deters potential U.S. investors, diverts 
investment flows, and disadvantages American businesses.

    Answer. If confirmed I look forward to working with your staff and 
the professional staff at Treasury as well as the State Department to 
learn more about this issue and what we can do to adequately address 
any potential impediments to U.S.-Armenia economic relations.

    Question. The U.S. has Double Tax Treaties with many small 
countries, including Estonia, Jamaica, Lativa, Lithuania, Malta, and 
Slovenia. Armenia, in turn, has Double Tax Treaties with many advanced 
countries, including Austria, Belgium, Canada, China, France, Italy, 
the Netherlands, Poland, Russia, and the United Kingdom.

    Aside from bureaucratic consideration regarding staff resources and 
negotiating capacity, do you see any reason why we should not move 
quickly to eliminate the threat of double taxation as a barrier to the 
growth of U.S.-Armenia economic relations.

    Answer. If confirmed I look forward to working with your staff and 
the professional staff at Treasury as well as the State Department to 
learn more about this issue and what we can do to adequately address 
any potential impediments to U.S.-Armenia economic relations.

                                 ______
                                 
             Questions Submitted by Hon. Benjamin L. Cardin
    Question. I believe that the only way we can get to strong 
bipartisan tax reform is by having a public and transparent tax reform 
process--and have been encouraged by past statements from Secretary 
Mnuchin and Director Cohn that the administration feels the same way.

    If you are confirmed, will you coordinate with the Senate Finance 
Committee regularly on a bipartisan basis as you work out the details 
of the President's tax plan and other tax reform ideas?

    Answer. If confirmed, I would welcome the opportunity to coordinate 
with all members of the Senate Finance Committee on tax reform 
proposals.

    Question. Do you agree that additional public hearings would be 
helpful not only to building bipartisan consensus, but also to 
providing a transparent process for our constituents?

    Answer. I do not think it would be appropriate for me to pre-judge 
Congress's processes, but as a general matter I think that a 
transparent process, potentially including public hearings, can be 
helpful to the process.

    Question. Again, without this transparency and public buy-in, I do 
not think bipartisan tax reform is achievable. Secretary Mnuchin has 
not yet responded to a similar question I posed to him following his 
testimony before the Senate Finance Committee in May. I'd like to get 
your thoughts.

    Answer. I believe that a transparent process, and getting public 
buy-in, is important for achieving tax reform.

    Question. During my recent meeting with you, we spoke about our 
mutual interest in retirement and savings issues. I believe that 
significant, bipartisan work can be done to ensure that all Americans 
have a dignified and secure retirement, including by expanding saving 
opportunities through employer-based retirement plans, incentivizing 
increased savings accumulation, and encouraging lifetime income-
oriented distributions.

    Employer-based retirement plans like 401(k)s are a critical 
component of our Nation's retirement system. Over 60 million workers 
participate in these plans, the majority of whom are in lower- or 
middle-income households that need support in saving for retirement. 
Current tax incentives encourage employers to establish and maintain 
these savings plans as benefits for their workers, a critical decision 
factor, particularly for small business owners, who must balance a 
number of competing financial priorities.

    Will you commit to expanding savings opportunities in any 
administration tax reform effort--including by protecting the tax 
deferral incentives currently in place?

    Answer. I share your interest in encouraging retirement savings and 
agree that tax incentives play an important role in our retirement 
system--by providing incentives for employers to establish workplace 
retirement plans and by encouraging Americans to save. If confirmed, I 
would welcome the opportunity to work with you and other members of 
Congress to improve retirement security, whether that be through tax 
reform or other efforts.

    Question. Working with Senator Blunt, Senator Schumer, and others, 
I was pleased that NMTC was extended for 5 years in the bipartisan PATH 
Act of 2015. Senator Blunt and I introduced the New Markets Tax Credit 
Extension Act of 2017 in February.

    Since the credit was launched in 2001, $38 billion in direct NMTC 
investments were made in businesses and these NMTC investments 
leveraged over $75 billion in total capital investment to businesses 
and revitalization projects in communities with high rates of poverty 
and unemployment.

    This financing has resulted in the creation of 750,000 jobs and the 
financing of commercial and industrial facilities, day care and health 
care centers, mixed use facilities and small business loans, all of 
which improve local economies and the quality of life in distressed 
neighborhoods.

    In Maryland, some $930 million in NMTC capital has leveraged more 
$2.3 billion in other financing for a range of projects and created 
over 27,000 construction jobs and 7,600 permanent jobs.

    The NMTC is working in some of the poorest, most economically 
distressed rural and urban communities in America--bringing private 
sector capital to neighborhoods left out of the economic mainstream. 
Even if Congress agrees to cut tax rates, these communities will still 
need assistance in creating jobs and business opportunities.

    When I raised the NMTC with Secretary Mnuchin in January, he 
indicated that he was willing to work with our office to ``ensure that 
the appropriate incentives (related to economic opportunities) are 
retained.'' In April, funding for the administration of the NMTC was 
retained in the President's budget.

    As the administration assembles its tax reform package, can you 
commit to retaining this very important infrastructure and economic 
development incentive?

    Answer. If confirmed, I hope to work with Congress and with the 
administration to determine what incentives are appropriate to 
effectively encourage infrastructure and economic development.

    Question. Another infrastructure and community development program 
that has seen great success and bipartisan support is the Historic Tax 
Credit.

    The National Park Service's annual report on the economic impact of 
the HTC for 2016 shows that the HTC has leveraged more than $131 
billion in private investments over the program's history, about 5 
times the $25.2 billion in credits allocated by the National Park 
Service. Over the same period, the HTC has generated $29.8 billion in 
Federal tax receipts, more than paying for the incentive on a dynamic 
basis. National Park Service data show that more than 42,293 buildings 
have been placed back into commerce. We know that historic rehab 
generates high-skilled, good-paying jobs (more than 2.4 million over 
the life of the program) that include specialty trades such as 
plastering, paint restoration, historic floor and roof restoration, 
fine woodworking and refinishing, historic window repair and 
wallpapering. We also know that HTC projects serve as the catalytic 
economic driver of whole neighborhoods and in some cases, entire cities 
and towns.

    Working with Senator Collins, along with Senators Blunt, Cochran, 
Wicker, Cantwell, Stabenow, Brown, Leahy, and Peters, I've introduced 
legislation that would improve the credit to make it more accessible in 
small and rural communities and to make more buildings eligible. I 
would love to work with you to do the same.

    In particular, our legislation make long overdue changes to the 
program to further encourage building reuse and redevelopment in small, 
midsize, and rural communities. It also makes the rehabilitation of 
community projects like theaters, libraries, and schools easier. 
Finally, the bill would make more historic properties eligible to use 
the credit by updating program requirements to reflect current industry 
practices. These reforms would be the first major changes to the HTC 
since the Tax Reform Act of 1986.

    Given the administration's priorities regarding investments in 
economic development, can you commit to working with Congress to 
promote and strengthen the HTC's critical incentives in the 
administration's tax reform efforts?

    Answer. If confirmed, I would look forward to working with you and 
your colleagues in Congress to determine the ways in which the tax code 
can most effectively continue to support important economic development 
priorities.

    Question. Along with my colleague Senator Roberts, I have co-
authored legislation that we are introducing this week that will 
encourage employee ownership and the creation of more ESOP (employee 
stock ownership plan) companies. Last Congress, the bill had 35 
bipartisan cosponsors, including 12 from the Finance Committee. ESOP 
companies create good jobs, keep those jobs in local communities, while 
also providing meaningful retirement savings to their employee owners.

    Will the Department of Treasury commit to working with Congress to 
promote employee ownership and ESOPs?

    Answer. If confirmed, I would welcome the opportunity to work with 
you and other Senators to develop policies that create jobs and expand 
opportunities for retirement savings. I look forward to learning more 
about your proposed legislation to encourage employee ownership and 
ESOPs.

    Question. One of the programs that the Treasury Department has a 
shared responsibility with the Department of Labor on is the Work 
Opportunity Tax Credit (WOTC). Academic research shows that by 
encouraging employers to hire stigmatized individuals, the WOTC 
program--even using very conservative analytical assumptions--saves the 
Federal and State governments far more in reduced public assistance 
spending than its tax cost to the Federal Treasury. In addition, the 
data also shows that individuals hired under WOTC often advance to 
better positions.

    We hear a lot about the trend towards automation and its impact on 
reducing entry level jobs. Yet, at the same time, we encourage people 
to choose a life of work instead of dependency on public assistance 
programs. Wouldn't you agree that if we are going to have incentives to 
invest in capital equipment and automation, we also need to provide 
incentives to invest in human capital through the WOTC program? Will 
you work with our office to strengthen the WOTC program, which has 
bipartisan support in the Congress, in order to move many individuals 
into the workforce?

    Answer. If confirmed, I would be happy to work with you and other 
Senators on proposals to encourage job creation in the United States.

    Question. As you may know, drawback law is the refund of duties, 
taxes, and certain fees paid on importation of articles into the United 
States when those articles, or like-kind articles, are exported or 
destroyed. Drawback, and other duty deferral regimes, are a long-
standing feature of U.S. law that enable U.S. manufacturers to compete 
on a ``level playing field'' with their foreign competitors. By 
refunding duties, taxes, and fees paid on imports when there is a 
similar-classed export, drawback strongly promotes U.S. exports, 
manufacturing, capital investment, and job creation.

    Congress most recently expanded drawback privileges in 2016 with 
the passage of TFTEA, providing even greater opportunities for U.S. 
exporters to take advantage of this statutory benefit.

    If you are confirmed as Assistant Secretary for Tax Policy, will 
you and your office support our U.S. manufacturers and workers by 
maintaining and enforcing legislation such as duty drawback and 
deferral programs in order to promote growth in U.S. manufacturing and 
exports?

    Answer. I look forward to learning about this program and ensuring 
that the drawback law is properly implemented.

    Question. President Trump has consistently mentioned infrastructure 
investment as a major priority for his administration. A key part of 
any effective infrastructure program should be improving our existing 
commercial and residential building stock. Energy efficiency provisions 
in the tax code, such as the energy efficient commercial buildings 
deduction (section 179D), have been shown to achieve this goal while 
creating jobs in the construction and design industry and improving the 
energy usage by buildings to the benefit of taxpayers.

    Are you willing to work with me to ensure that energy efficiency 
measures are included in any infrastructure or tax reform plan?

    Answer. If confirmed, I would welcome the opportunity to work with 
you and other Senators on infrastructure or tax reform proposals to 
encourage energy efficiency.

    Question. There are many tax treaties and protocols pending before 
the Senate. These treaties are very important to many U.S. businesses, 
including companies in my home State of Maryland.

    Do you support the timely ratification of these treaties?

    Answer. I look forward to working with the Senate on any pending 
matters that would support U.S. job and economic growth and support 
their timely ratification.

    Question. With Senator Collins, I have introduced two bills--the 
Volunteer Responder Incentive Protection Act (VRIPA) and the Length of 
Service Award Program Cap Adjustment Priority Act (LOSAP CAP)--that 
would simplify the tax treatment of nominal benefits that volunteer 
emergency responders receive as a reward for their service.

    The economic challenges facing rural areas are making it much more 
difficult for public safety agencies to recruit and retain volunteer 
emergency responders, and VRIPA and LOSAP CAP are commonsense bills 
that would make it easier for local governments to offer incentives to 
their volunteers.

    Both bills have bipartisan support in the Congress. I understand 
that helping rural America and simplifying tax administration are major 
priorities for this administration. Will you pledge to working with me 
on both of these bills in any tax reform effort to get them over the 
finish line for our volunteer emergency responders?

    Answer. If confirmed, I would welcome the opportunity to work with 
you and other Senators to learn more about these bills and consider how 
we can best support volunteer emergency responders.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    Today is a tax policy double-header for the Finance Committee, and 
we're only at the halfway mark, so I'll keep my remarks brief and focus 
on just a few points.

    Mr. David Kautter is nominated to serve as Assistant Treasury 
Secretary for Tax Policy. It is a tough job, and it's never tougher 
than when the Congress is gearing up to work on major tax legislation.

    In my view, the big challenge at the heart of tax reform is 
guaranteeing that everybody has a chance to get ahead--not just the 
fortunate few. If tax reform becomes a partisan exercise in slashing 
rates for the wealthy and the biggest corporations, the American people 
will see right through it. That's because it will leave in place the 
root causes of the appalling unfairness in the tax code today. It's the 
tale of two systems; one strict, compulsory system for the hard-working 
people who punch in and out of work every day, and another system for 
the lucky few that says you can pay what you want and when you want.

    It goes without saying that nominees for top jobs in tax policy 
ought to have the knowledge and experience to fix that root unfairness. 
In my view, it's also vital to find nominees who haven't contributed to 
the problems in the first place, or made a career of allowing others to 
benefit from them.

    I have real concerns about work Mr. Kautter did during his time as 
director of national tax at Ernst and Young. The firm did big business 
setting up tax shelters for wealthy clients, and employees were 
convicted of fraud and obstruction for covering it up. E&Y also paid 
more than $100 million in settlements with the Justice Department and 
IRS over its tax shelter marketing.

    In the vetting process for this nomination, it became clear that 
Mr. Kautter was regularly informed of decisions that allowed E&Y to 
profit off tax gaming. Even if he had no direct role in the marketing 
of those tax shelters or in misrepresenting them to Federal auditors, 
it remains troubling that he was at the top of a department that 
engaged in these practices at all. I'm sure this issue will come up 
today, and I look forward to hearing that discussion.

    Finally, Assistant Secretary for Tax Policy is a job that requires 
close communication with both sides of this committee. Over the last 
few months, the administration has taken brickbats from Republicans and 
Democrats alike for its stated policy of ignoring questions that come 
from Democrats. Chairman Hatch has spoken out against this policy, as 
has Chairman Grassley.

    And I want to be clear that it is completely unacceptable for an 
administration to stonewall inquiries from members of Congress. We 
don't do it for sport--we ask questions on behalf of the millions of 
Americans we represent. So I expect a commitment today to respond to 
questions from members of this committee regardless of whether they've 
got a ``D'' or an ``R'' next to their name.

    Thank you for being here today, Mr. Kautter, and I look forward to 
your testimony.

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