[Senate Hearing 115-474]
[From the U.S. Government Publishing Office]







                                                        S. Hrg. 115-474

                  PRESIDENT'S FISCAL YEAR 2019 BUDGET

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                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 14, 2018

                               __________













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            Printed for the use of the Committee on Finance
                                   ______
		 
                     U.S. GOVERNMENT PUBLISHING OFFICE 
		 
35-140-PDF                WASHINGTON : 2019                 




















                          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              SHELDON WHITEHOUSE, Rhode Island

                     A. Jay Khosla, Staff Director

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)


























                            C O N T E N T S

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                           OPENING STATEMENTS

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

                         ADMINISTRATION WITNESS

Mnuchin, Hon. Steven T., Secretary, Department of the Treasury, 
  Washington, DC.................................................     6

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Hatch, Hon. Orrin G.:
    Opening statement............................................     1
    Prepared statement...........................................    33
Mnuchin, Hon. Steven T.:
    Testimony....................................................     6
    Prepared statement...........................................    34
    Responses to questions from committee members................    35
Wyden, Hon. Ron:
    Opening statement............................................     3
    Prepared statement...........................................    60
    ``New Hedge-Fund Tax Dodge Triggers Wild Rush Back Into 
      Delaware,'' by Miles Weiss, Bloomberg, February 14, 2018...    61

                             Communication

Center for Fiscal Equity.........................................    65

                                 (iii)

 
                  PRESIDENT'S FISCAL YEAR 2019 BUDGET

                              ----------                              


                      WEDNESDAY, FEBRUARY 14, 2018

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10:35 
a.m., in room SD-215, Dirksen Senate Office Building, Hon. 
Orrin G. Hatch (chairman of the committee) presiding.
    Present: Senators Grassley, Crapo, Isakson, Portman, 
Toomey, Heller, Scott, Cassidy, Wyden, Cantwell, Nelson, 
Menendez, Carper, Cardin, Brown, Bennet, Casey, Warner, 
McCaskill, and Whitehouse.
    Also present: Republican staff: Jay Khosla, Staff Director; 
Jennifer Acuna, Senior Tax Counsel and Policy Advisor; Chris 
Armstrong, Chief Oversight Counsel; Tony Coughlan, Tax Counsel; 
Mark Prater, Deputy Staff Director and Chief Tax Counsel; Jeff 
Wrase, Senior Economist; and Nicholas Wyatt, Tax and 
Nominations Professional Staff Member. Democratic staff: Joshua 
Sheinkman, Staff Director; Adam Carasso, Senior Tax and 
Economic Advisor; Drew Crouch, Senior Tax and ERISA Advisor; 
Michael Evans, General Counsel; Daniel Goshorn, Investigative 
Counsel; 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. The committee will come to order. This 
morning's hearing will be the first in a series of hearings on 
the President's fiscal year 2019 budget proposal.
    The committee welcomes Treasury Secretary Mnuchin, who is 
here to testify on the budget along with other matters that may 
arise from member questions. The President's budget includes 
numerous proposals to deal with a vast array of policy issues, 
including the opioid epidemic, infrastructure, modernizing 
government, national security, and lowering drug pricing and 
payments, just to mention a few.
    I think I speak for all members of the committee when I say 
that we are all very interested in Secretary Mnuchin's thoughts 
and insights on a number of items proposed in the budget.
    The budget envisions that government's receipts will 
average 17.1 percent of GDP over the 10-year budget window, 
slightly below the long-run average of 17.4 percent over 
roughly the last 4 decades. It also has outlays averaging 20 
percent of GDP over 10 years, which is also slightly below the 
long-run average. The budget also includes some tax proposals, 
but they are not as sweeping as those we have seen in prior 
budgets, as you would expect following enactment of the new tax 
law at the end of last year.
    Thus far, I am pleased by the success of the new tax law, 
which has already resulted in substantial benefits for American 
workers and job creators. Since the beginning of the year--and 
keep in mind that we are still in February--we have seen a 
stream of businesses come forward to announce plans to award 
bonuses, raise wages, or boost 401(k) contributions for their 
employees. Other companies have announced plans to expand 
business and hire more workers here in the United States.
    According to some estimates, more than 340 companies have 
issued these types of statements impacting an estimated total 
of about 3.5 million workers. I will not go through the whole 
list, but I would like to highlight a few.
    For example, Apple announced that it is going to hire 
20,000 new employees and will issue $2,500 employee bonuses in 
the form of restricted stock units. Apple is also increasing 
its financial support for coding, education, science, 
technology, engineering, arts, and math.
    Wells Fargo raised its base wage offered to employees from 
$13.50 to $15 per hour, plus they have promised $400 million in 
charitable donations. And Best Buy distributed $1,000 bonuses 
to its full-time employees and $500 bonuses for part-time 
employees, reaching more than 100,000 workers in total.
    I remember during the floor debate on the tax reform bill, 
one of our fellow committee members and friends, Senator 
Stabenow, used a pretty great line. In evaluating the tax bill, 
she said, ``The proof is in the paycheck.'' Thus far, I think 
it is fair to say that Senator Stabenow was correct.
    The tax law has been in effect for less than 2 months, and 
about 3.5 million workers in a variety of industries have 
already received bonuses, pay increases, enhanced retirement 
accounts, and other benefits as a direct result of our tax 
bill. Let us keep in mind that these announcements have been 
about direct decisions made by employers. They do not take into 
account the changes in the individual tax system, which have 
cut taxes considerably for tens of millions of American 
families.
    As the economy expands further, it is safe to say that 
American workers will continue to benefit, as will the 
businesses that employ them, which is precisely what we 
intended to accomplish with the tax reform bill. Of course, no 
bill or law is perfect, and as implementation of the new tax 
law continues, it has become clear that one provision of the 
bill, section 199A, which provides a tax deduction for 
qualified business income, is having unintended effects in 
agricultural markets due to the treatment of qualified 
cooperative dividends.
    Though the aim of that provision, in part, was to preserve 
benefits previously available to agricultural cooperatives and 
their patrons for income attributable to domestic production 
activities, the current statutory language does not maintain 
the previous competitive balance between cooperatives, other 
agricultural businesses, and the farmers who sell their crops 
to them, which existed prior to enactment of the tax reform 
bill.
    Our colleagues here on the committee, in particular 
Senators Grassley, Roberts, and Thune, have taken a leading 
role in identifying a solution for this issue. I am committed 
to working with them and partnering with Ways and Means 
Chairman Brady as well as other congressional colleagues and 
stakeholders in affected communities to develop a solution to 
this issue that does not choose winners and lose losers and is 
fair to everyone involved.
    Once a suitable solution is identified, my goal is to work 
with my colleagues to advance legislation that can be sent to 
the President for his signature as soon as possible. Of course, 
as is the case with any major tax reform bill, none of the 
important provisions we have written will have their intended 
effects if they are not properly implemented. That is why we 
will keep pressure on the administration to implement the law 
as Congress intended.
    I am going to keep working to ensure that everyone 
recognizes and respects Congress's role in this process and the 
fact that the best place to get an explanation of Congress's 
intent is Congress itself. Where things are potentially unclear 
in the law, Congress should be the one to determine and explain 
what was intended, and if need be, such as with section 199A, 
provide a timely fix.
    I will continue to facilitate this type of instructive 
interaction between Congress and the administration as things 
move forward, and I expect that Secretary Mnuchin will continue 
to ensure this important dialogue continues.
    With that, I look forward to hearing from Secretary Mnuchin 
about his views on the President's budget and the ongoing 
fiscal challenges facing the Nation. And we are very happy and 
pleased to welcome you here before the committee.
    [The prepared statement of Chairman Hatch appears in the 
appendix.]
    The Chairman. Senator Wyden?

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

    Senator Wyden. Thank you very much. Mr. Chairman, today 
ought to start with the recap on taxes.
    Now, a little more than 3 months ago, Treasury Secretary 
Mnuchin went on cable news and said that his tax model showed 
that the Trump tax bill would spur $2.5 trillion in growth, 
enough to cover its $1.5 trillion cost and leave a $1 trillion 
cherry on top. The Secretary added, ``We are happy to go 
through the numbers. We want full transparency to the American 
people.''
    If you are looking for transparency, the American people 
finally got a little bit on Monday when the budget showed how 
baseless that Mnuchin talking point was from the get-go. 
Revenue, according to the budget projections, is about to 
plummet--$300 billion short in 2018, $400 billion short in 
2019. And it does not get any better.
    The fiscal bottom line is so out of whack and the budget is 
so deep in fantasy land, there is a magical $813 billion in 
growth dropped in out of nowhere to make the overall picture 
look a bit less irresponsible. But the idea that the tax cuts 
would pay for themselves is far from the only misleading 
statement about the tax law.
    How about the idea that corporate tax cuts would get turned 
around immediately into workers' pockets, not shareholders'? 
Twenty times more money has been spent on stock buybacks than 
on workers' bonuses over the last few months.
    As of this morning, millions of workers have not seen their 
Trump bump. It has been great for the slim, wealthy share of 
the population who dominate the stock market when stocks are 
doing well. But it is a prescription for trouble when you are 
reaching into the pockets of the middle class to fund the 
buybacks that drive up the value of stock portfolios.
    The famed Mnuchin Rule, the promise that there would be no 
absolute tax cuts for the well-off, has been shattered in a few 
trillion little pieces. The administration did not follow 
through on the promise to close the carried interest loophole. 
And then, of course, there was the promise that the tax bill 
would not lead to cuts in Social Security, Medicare, or 
Medicaid.
    On Monday, the worst fears of the American people were 
confirmed. The Trump budget admits that the tax cuts do not pay 
for themselves, so it hits those key programs, programs like 
Medicare and Medicaid, with massive cuts.
    This morning, it is also important for the committee to 
discuss infrastructure. And here, we are talking about 
crumbling roads and bridges and rails in our transportation 
systems. The administration's infrastructure plan is fiction 
upon fiction upon fiction.
    First off, the idea that this is a $1.5-trillion 
infrastructure plan is just plain nonsense. Even factoring in 
the new $200-billion infrastructure proposal, the Trump budget 
is a net decrease in infrastructure spending. It cuts 
infrastructure programs like a bulldozer through asphalt--$122 
billion cut out of the highway trust fund, $14 billion cut from 
the Army Corps of Engineers, $5 billion cut from the TIGER 
Transportation Grant program, $7.6 billion cut from Amtrak, and 
it just goes on. In my view, if you want big-league 
infrastructure, a good place to start is by not making huge 
cuts to infrastructure programs that already work.
    The second fiction is that this plan is somehow going to be 
workable for the States. Just a few weeks ago, the Trump 
administration kneecapped the ability of States to raise 
revenue to fund infrastructure projects with changes to the tax 
code. Now, the Trump infrastructure plan burdens them with huge 
new costs they cannot possibly afford.
    And that leads to the third fiction, that the Trump 
infrastructure plan will not be a road map to more 
privatization and more tolls taking money out of the pockets of 
our families. If State and local governments cannot cover the 
cost of the projects, they are going to be looking for private 
dollars.
    And that can only mean one outcome, colleagues: drive more 
than a few miles to work, get ready for more tolls. Rushing to 
school in the morning? Do not forget the cash for the toll 
booth. Heading to the grocery store or the mall to do some 
shopping? Better remember to budget tolls into your trip.
    The infrastructure proposal also brings back a whole host 
of old, misguided ideas, for example, in our part of the world, 
selling off the Bonneville Power Administration's transmission 
system, which makes sense only if you believe people's 
electricity bills in Oregon are not high enough.
    The fact is, the Trump plan is a green light for 
infrastructure nationwide to be sold off to Wall Street 
investors or, worse, to shadowy buyers from China or other 
foreign countries.
    I want to close with this last point. Mr. Chairman, on our 
side, we take a back seat to no one when the situation calls 
for major investments in our country's infrastructure. In our 
view, you cannot have big-league economic growth with little-
league infrastructure.
    And I also believe strongly in responsible private 
financing and tackling the issue on a bipartisan basis. But 
getting infrastructure done right, rebuilding the spine of the 
infrastructure system that connects the Nation, requires more 
than hoping for private dollars. It requires robust funding at 
a Federal level to tackle projects that are in the national 
interests.
    That is not what the Trump plan does, and it is not even 
close. The bottom line is, the Trump infrastructure plan dumps 
huge costs onto States and cities, sells off public assets like 
an auction at a county fair, and raises transportation costs 
for hard-working families. And that is why it is a 
disappointment to see it added to the list of broken Trump 
promises.
    We are going to have a lot more to say on these issues this 
morning. I look forward to questions.
    The Chairman. Well thank you, Senator.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. With that enthusiastic set of comments, let 
us just say today I would like to extend a warm welcome to 
Secretary Steven Mnuchin. We are grateful to have you here. 
Thank you for taking the time to be with us here on the 
committee. It is important, and we appreciate it.
    Secretary Mnuchin was sworn in as the 77th Secretary of the 
United States Treasury on February 13, 2017. Prior to his 
confirmation, Secretary Mnuchin was the finance chairman for 
Donald J. Trump for President. In addition to traveling with 
the President around the country in that role, Secretary 
Mnuchin also served as a Senior Economic Adviser to the 
President and assisted in crafting the President's economic 
positions and economic speeches.
    Before those activities, though, Secretary Mnuchin also 
served as founder, chairman, and chief executive officer of 
Dune Capital Management. He also founded OneWest Bank Group, 
LLC and served as its chairman and chief executive officer 
until its sale to CIT Group, Inc.
    Earlier in his career, Secretary Mnuchin worked at the 
Goldman Sachs Group, Inc., where he was a partner and served as 
chief information officer. He has extensive experience in 
global financial markets and oversaw trading in U.S. Government 
securities, mortgages, money markets, and municipal bonds.
    Secretary Mnuchin is committed to philanthropic activities 
and previously served as a member of the boards of the Museum 
of Contemporary Art, Los Angeles; the Whitney Museum of Art; 
the Hirshhorn Museum and Sculpture Garden on the Mall; the UCLA 
Health Assistance Board; the New York Presbyterian Hospital 
Board; and the Los Angeles Police Foundation. He was born and 
raised in New York City and earned a bachelor's degree from 
Yale University.
    Secretary Mnuchin, I would like you to just please proceed 
with your opening statement here, and then we will get into 
some questions.

 STATEMENT OF HON. STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF 
                  THE TREASURY, WASHINGTON, DC

    Secretary Mnuchin. Chairman Hatch, Ranking Member Wyden, 
and members of the committee, it is a pleasure to be with you 
here today. Actually, it is my 1-year anniversary of being 
confirmed.
    As Treasury Secretary, I am focused on advancing the 
President's policies that will bring prosperity to the American 
people through economic growth. This is a core focus of the 
President, and he is delivering.
    Last year the economy had 2 straight quarters of 3 percent 
or higher GDP growth, and the growth rate was higher than the 
average over the previous 20 years.
    The cornerstone of returning to more robust growth is 
deregulation and the Tax Cuts and Jobs Act. This law is already 
providing relief to middle-income families by putting money 
directly back into the pockets of hard-working American 
families.
    Since the law was enacted, over 350 companies have 
announced bonuses, wage increases, higher 401(k) matches, and 
new hiring benefiting more than 4 million employees. We are 
seeing the fastest wage growth since 2009 at 2.9 percent. This 
is a meaningful difference in the lives of millions of American 
families.
    Our reforms are making American companies competitive 
again, which is having a demonstrable effect on the economic 
success of the Nation. The Act lowered the statutory corporate 
rate from 35 percent, the highest in the industrial world, to 
21 percent, below the industrial average. It also encourages 
companies to bring back profits that they have sitting overseas 
by eliminating the tax incentive for keeping that money 
offshore.
    Turning to the budget, the fiscal 2019 budget reflects last 
year's tax reform legislation, which reduces the burden on 
taxpayers and sets the country up for long-term growth. The 
policies of this budget will drive down spending and grow the 
economy, which are both critical to putting the Nation on a 
sound fiscal path over the long term and reducing the budget 
deficit as a share of GDP.
    The past year has been an important step forward for our 
country. We will continue this progress by enacting policies 
that enable the American people to succeed, and I look forward 
to continuing to work with Congress to make this happen.
    Thank you very much.
    The Chairman. Well thank you, Mr. Secretary.
    [The prepared statement of Secretary Mnuchin appears in the 
appendix.]
    The Chairman. Let us go to 5 minutes for questions.
    Mr. Secretary, the economic growth assumptions in the 
budget show fourth quarter over fourth quarter GDP growth 
slightly above or at 3 percent for a number of years, 
eventually fading to 2.8 percent. As I understand it, those 
assumptions follow from anticipated positive growth effects 
from policies put forward in the budget, including tax reform, 
regulatory reform, health-care reforms, boosting domestic 
energy production, and others.
    If I recall correctly, several budgets put forward by the 
Obama administration similarly incorporated growth assumptions, 
sometimes above 4.0 percent, in anticipation of results it 
would obtain if the relevant budget proposal were to be 
enacted.
    Secretary Mnuchin, are you comfortable with the growth 
assumptions contained in the budget, and do you believe that 
the policies proposed by the administration will lead to 
strengthened growth in the economy?
    Secretary Mnuchin. Yes, Mr. Chairman, I am comfortable with 
them, and I do believe in them.
    The Chairman. Okay.
    Now the President's budget, which incorporates effects on 
receipts of the recently enacted tax bill, has receipts as a 
share of GDP averaging 17.1 percent over the 10-year budget 
window and receipts as a share of GDP generally increasing over 
the window, ending at 17.8 percent in 2028. By comparison, the 
long-run value of receipts as a share of GDP over the period 
1977 through 2016 was 17.4 percent. That is, receipts relative 
to the size of the economy shown in the budget largely fall in 
line with the long-run historical norm.
    I take that as an indication that the tax reform 
legislation, in light of a 10-year expected revenue stream for 
the Federal Government of as much as $45.5 trillion, can hardly 
be thought of as a fiscal action that in any sense guts the 
Federal tax take as a share of the economy. I wonder if you 
agree with my assessment there?
    Secretary Mnuchin. I do agree, Mr. Chairman.
    The Chairman. Okay.
    Mr. Secretary, I would like to thank you and your staff for 
the hard work you put into ensuring that we deliver tax relief 
to 
middle-class Americans throughout the country. And that will 
benefit workers. It will make American businesses more 
competitive and productive.
    Of course as we move forward, it will be important that the 
tax law is properly implemented and that implementation is 
consistent with congressional intent. I appreciate how your 
department has worked productively with members of Congress and 
their staffs.
    Now will you commit to continuing to work with Congress to 
ensure that our intent in writing the tax law is realized as 
the law is implemented?
    Secretary Mnuchin. Yes, I will. And we have already started 
those conversations on certain areas, as you have pointed out 
in your opening remarks. And we look forward to working with 
you.
    The Chairman. Okay.
    From what I understand, in coming months both the European 
Commission and the OECD may advance suggestions about how to 
tax a so-called digital economy. Despite past conclusions by 
both bodies that it is impossible to distinguish the digital 
economy from the broader economy, it seems as though they are 
contemplating measures directed specifically at digital goods 
and services, along with what some of us see as an emerging 
aggressive posture targeting American companies.
    Mr. Secretary, will you commit to engaging forcefully in 
American efforts to ensure that nondiscriminatory policies are 
advanced in this area?
    Secretary Mnuchin. Yes, I will, Mr. Chairman. I have 
already begun those discussions with my foreign counterparts on 
these issues, making sure that we prevent U.S. companies from 
being unfairly targeted.
    The Chairman. Thank you.
    Mr. Secretary, this administration, as well as the prior 
administration, has engaged with the European Commission and 
member states to express concerns about targeting by the 
European Commission of U.S. firms through state aid 
investigations of the tax administration practices of EU member 
states. Now that we have reformed our tax code to tax the 
historical deferred earnings of U.S. multinationals that are 
the subject of existing state aid cases, as well as prospective 
earnings, by ending deferral and taxing intentional income on a 
current basis, the U.S. has addressed the so-called ``stateless 
income'' issue that was purportedly driving the state aid 
cases.
    However, it is not clear that the European Commission 
acknowledges this fact. The Commission is continuing to pursue 
existing cases and is threatening to launch new investigations 
in an attempt to encroach on the U.S. tax base under the guise 
of state aid. At the same time and somewhat ironically, some EU 
member states have expressed their concerns with certain anti-
base erosion measures included in U.S. tax reform and are 
threatening legal challenges.
    Now, Mr. Secretary, I understand that Treasury plans to 
engage with European officials regarding their concerns with 
U.S. tax reform. Do you agree that Treasury needs to ensure 
that U.S. concerns with EU state aid cases are appropriately 
addressed?
    Secretary Mnuchin. Yes, Mr. Chairman. We are also in 
discussions on both those issues and look forward to working 
with you on that.
    The Chairman. Well, thank you.
    I have more questions, but I will submit them in writing. I 
am a little bit over my time.
    So we will turn to Senator Wyden.
    Senator Wyden. Thank you very much.
    Mr. Secretary, let me start with this question of the stock 
buybacks. Since Republicans jammed this massive corporate tax 
cut through Congress, major corporations have spent over $120 
billion on stock buybacks. This is a problem for the middle 
class.
    Members of this committee promised that middle-class 
paychecks would be bulging early in 2018. But instead, the CEOs 
are funneling the tax windfall into buybacks that inflate the 
value of stocks held by affluent executives and wealthy 
shareholders. Meanwhile, recent public announcements by 
companies have found that the employee pay boost touted by the 
Republicans adds up to $5 billion, give or take--$5 billion. 
That means CEOs have spent 20 times more on corporate buybacks 
than on boosting their employees' compensation.
    Is it not correct, following this massive corporate tax 
cut, that CEOs have spent tens of billions of dollars more on 
corporate buybacks than on compensation boosts for their 
employees?
    Secretary Mnuchin. Mr. Senator, I do not believe that is a 
fair comparison, because----
    Senator Wyden. Mr. Secretary, those are the facts. We got 
that information from public announcements, from companies, 
from SEC filings. So tell me how those facts are wrong.
    Secretary Mnuchin. Again, I was just going to explain--I am 
not doubting your facts. What I said is, I do not think it is a 
fair comparison.
    There are over 4 million Americans who have received a one-
time bonus as a result of this. We expect--and as the Council 
of Economic Advisers has reported--that wages will increase. 
And we expect that over the course of this year we will see 
close to several thousand dollars of wage increases.
    So we would not have expected that all to occur in the 
first month.
    Senator Wyden. So we were told on the floor of the Senate 
last December that early this year we would see workers have 
bulging paychecks. You have just admitted that it has not 
happened yet, but you continue to believe that it might happen 
in the future.
    Now the administration claims its tax plan, as I have just 
indicated, would focus on working Americans. If you care so 
much about delivering tax cuts to the middle class, why was it 
necessary to include in the tax bill a lower top rate for those 
with incomes over $500,000, or expanded estate tax relief for 
those with estates worth more than $5.5 million? Neither of 
those things helps the middle class.
    In fact, you actually conceded last fall that the estate 
tax change disproportionately helps the affluent. Last year 
during your confirmation hearing, you specifically identified 
carried interest as a loophole the tax bill would close. 
Initially, you claimed to solve the problem, but that did not 
fool anybody.
    Since then, you have admitted carried interest was not 
addressed. So tell me why these policies--the top rate being 
lowered for those with incomes over $500,000, expanding tax 
relief for estates worth more than $5.5 million, and not fixing 
the carried interest loophole, which was pledged repeatedly--
how in some way does that help the middle class?
    Secretary Mnuchin. Thank you, I am happy to explain that. 
And just as a follow-up to your previous comment, we do 
expect--again, millions of Americans have seen the effects of 
this already. We expect with the withholding tax changes in 
February, people will see the tax cuts.
    Now in regard to your question----
    Senator Wyden. Before we leave it, Mr. Secretary, I am not 
going to let the record be distorted that way.
    As of now, CEOs have spent 20 times more on corporate 
buybacks than on boosting employees' compensation. I will be 
happy to share with you the information that we have gotten 
from public reports and SEC filings.
    Please proceed.
    Secretary Mnuchin. Thank you, and I am not debating your 
facts on that.
    So, in regards to your specific comments, let me see if I 
can address them.
    The original proposal had a full elimination of the estate 
tax. That was something that the President did support, working 
with Congress. We did scale that back to raising the personal 
exemption. We thought that was important for people to be able 
to pass on businesses without unfair double taxation.
    In regards to the carried interest, it was the President's 
desire to get rid of carried interest. We worked with Congress 
and came up with a solution to increase the holding period to 3 
years. Again, that was something we did working with Congress. 
And again, the reduction of the top rate--that was intended to 
help many parts of the country which account for a big part of 
the GDP, particularly New York, New Jersey, Connecticut, 
California, Illinois, where we were eliminating the full 
deduction of State and local taxes, and in essence wanted to 
offset some of what was the tax increase in those States by a 
drop of the top rate.
    Senator Wyden. I am just going to close this round on your 
so-called compromise on carried interest. And let me just read 
you a headline in Bloomberg this morning. They say, ``New 
hedge-fund tax dodge triggers wild rush back into Delaware.''
    That is what they think of your so-called carried interest 
loophole. They really outline in this article the glorious fix 
that you have said is going to be so helpful. We already have 
hedge-fund managers, according to Bloomberg, showing up with 
ideas for an even bigger loophole for the fortunate few.
    Mr. Chairman, I would just ask that this Bloomberg 
article--which shows what a farce the so-called carried 
interest fix actually is--I would ask unanimous consent that it 
be put in the record.
    The Chairman. Without objection.
    [The article appears in the appendix on p. 61.]
    Senator Wyden. Thank you.
    Secretary Mnuchin. Mr. Chairman, if I could just respond to 
that last comment.
    The Chairman. Sure.
    Secretary Mnuchin. I have already met with the IRS and our 
Office of Tax Policy this morning. As a result of that article, 
the IRS and Tax Policy intends to send out, within the next 2 
weeks, guidance that we do believe that taxpayers will not be 
able to get that loophole by going through subchapter S. And 
that is something that we believe we have the authority to do 
under the existing code that left a certain discretion to me as 
Secretary and the IRS.
    So thank you for bringing that up. We will have that 
resolved.
    Senator Wyden. Mr. Chairman, we have heard again and again 
about how there would be fixes to these various problems, and 
we continue to see that the pass-through loophole which we were 
told again and again would be fixed still is an ongoing 
problem. We have all kinds of financial experts talking about 
how it can be gamed.
    So I would just say, colleagues, when we hear that there is 
a serious problem outlined in a credible publication like I 
just cited and the Secretary says he is going to fix it, 
sometimes it reminds me of the marquee at the old movie house 
where these so-called ``fixes'' are supposed to somehow show up 
and never get there.
    Thank you.
    Secretary Mnuchin. Again, if you do not mind, I want to 
clarify my comment.
    It is not a fix. We believe that the interpretation of the 
existing law is that people are not allowed to do that, and we 
will be putting guidance out. That is different than, Mr. 
Chairman, certain issues that we do need to work with Congress 
to fix.
    But thank you.
    The Chairman. Well, thank you.
    Senator Crapo?
    Senator Crapo. Senator Hatch, I am going to yield 1 minute 
of my time to Senator Grassley.
    The Chairman. Sure. That is fine.
    Senator Grassley. I take this time, Mr. Chairman, to thank 
you for bringing up in your opening remarks the unintended 
consequences of the tax law language about 199A and the 
necessity for correcting it, and working with us to do that. I 
know you know what the problem is. I know you have been working 
on it for a long time.
    It is pretty simple that Congress would not pass a law that 
would put some segments of our economy out of business, and 
that is why it needs to be changed. And I happen to sell and 
buy from a couple cooperatives in Iowa. So I am not anti-
cooperative, but the status quo should be all anybody ought to 
be expecting. And this should have been taken care of back in 
January.
    Thank you.
    The Chairman. Thank you, Senator.
    Senator Crapo?
    Senator Crapo. Thank you.
    Secretary Mnuchin, I want to go into two things, and I will 
try to do them quickly. I only have a few minutes here to do 
it.
    Some allegations have been made or some statements have 
been made--even this morning--that the tax legislation that we 
passed will not achieve the revenue targets that we have 
discussed. I just want to clarify a couple of factors.
    First of all, it is correct, is it not, that the 
Congressional Budget Office issued its analysis that if we do 
nothing, we could expect about 2-percent growth for the next 10 
years under current law?
    Secretary Mnuchin. That is correct.
    Senator Crapo. And that is a pretty anemic rate of growth 
in my opinion. What is the historic average?
    Secretary Mnuchin. Again, it is closer to 3 percent.
    Senator Crapo. That is what I thought.
    And so what you are projecting is that, since we did take 
action and pass some historic and, I think very powerful, tax 
reform, you expect through your analysis that we could achieve 
that or get close to that 3-percent rate of growth?
    Secretary Mnuchin. That is correct.
    Senator Crapo. And it would take--this is the last bit of 
information that I understand. I just want to confirm with you. 
In order to make the tax bill revenue-neutral, we would need to 
get to about 2.3 or 2.4 percent. Is that correct?
    Secretary Mnuchin. That is correct. It is about 35 basis 
points of additional growth.
    Senator Crapo. So we should see, if your projections are 
correct, approaching about 3-percent growth, not only a 
revenue-neutral tax bill, but one that does exactly what it was 
intended to do, generating surplus?
    Secretary Mnuchin. That is correct. I stand by my previous 
comments on this.
    Senator Crapo. All right.
    Let me switch quickly. I have about 2\1/2\ minutes here.
    To another topic now, another one that you have been 
approached about today in the hearing, and that is what the 
impact of the corporate tax rate reductions is on workers, and 
on salaries, and so forth.
    During the deliberations over the tax bill, I had the 
opportunity to ask Tom Barthold of the Joint Committee on 
Taxation about what is the impact of corporate tax rate 
reductions. He indicated that his analysis and the analysis of 
Joint Tax was that approximately a quarter of the benefit of 
corporate tax rate cuts goes to workers in the form of wages 
and benefits and increased job opportunities, as opposed to 
owners.
    And I want to get to owners here in a second. But is that 
roughly correct in your analysis?
    Secretary Mnuchin. No, and in our analysis, many economists 
believe that over 70 percent will go to workers. So Joint Tax 
is more conservative than we are in that analysis.
    Senator Crapo. And that is my understanding. That is a 
conservative range that you have just described there. I think 
almost everybody agrees it is at least 25 percent. And many 
believe it is up as high as 70 percent.
    Secretary Mnuchin. That is correct.
    Senator Crapo. Now, with regard to the owners, it is also, 
as I understand it--understood and analyzed--Mr. Barthold 
indicated that up to 75 percent of the corporate tax cut goes 
to corporate ownership, but that an increasing portion of that 
ownership is held by pension funds, defined contribution plans, 
and other retirement funds, not to mention just the stock 
ownership that members of the middle class now increasingly are 
owning in their own investments.
    Again, what are your thoughts on that allocation that Mr. 
Barthold discussed?
    Secretary Mnuchin. I agree with that. Again, there is 
significant ownership.
    And again, the capital--even if there are share buybacks 
and other things, that capital is recycled back into the 
economy. It just does not sit in banks. It goes back into the 
economy.
    Senator Crapo. And you just anticipated my next point. I 
guess I will ask you to close with this in my last 30 seconds.
    The stock buybacks have been referenced here as though they 
were a terrible thing and just benefited really rich people. 
What is the impact of a stock buyback?
    Secretary Mnuchin. Stock buybacks or dividends--which are 
really the same--they are just different ways of returning 
capital to shareholders. When a company determines they do not 
have the use for that capital to make an appropriate return, it 
is returned to the owners who then deploy it in other business 
back in the economy. So it is a healthy thing as well.
    Senator Crapo. Thank you. And I guess just to reiterate one 
last point, there are many, many people, millions and millions 
and millions of people in America, who are in the middle class 
as we describe it who own stock, whether it is in their pension 
fund, their retirement plan, or their own individual 
investments. Is that not also correct?
    Secretary Mnuchin. That is correct, and we are doing 
whatever we can to encourage that number to go up.
    Senator Crapo. Thank you very much.
    The Chairman. Thank you, Senator.
    Senator Portman?
    Senator Portman. Thank you, Mr. Chairman.
    And, Mr. Secretary, thank you for being here again to talk 
about this tax reform legislation that has had incredibly 
beneficial impact, frankly has exceeded expectations, I think 
it is fair to say. We appreciate you working with us on it.
    And so many of the aspects of this tax reform bill, as you 
know, had been bipartisan previously, including the changes on 
the international side that create enormous opportunities for 
growth. We had a system, of course, where jobs and investment 
were incentivized to go overseas, which is crazy. It made no 
sense.
    Now we see announcements of companies coming back to the 
United States for their production. We see companies that are 
repatriating some of the $2 or $3 trillion that has been parked 
overseas back to this country to invest. And so I think this is 
something that--you know, we talked about a lot in a 
nonpartisan setting prior to the tax bill coming up, and then 
it became more partisan as it came to the floor. But we have to 
remember that this tax code that previously was in place made 
no sense for Ohio workers and American workers.
    There are two things we focused on. One was providing 
direct relief to American families, and that is through the tax 
relief, including the middle-class families in Ohio who are now 
benefiting. The second was on the business side. And on the 
individual side, as Americans look at their paychecks even this 
Friday, many of them are going to see that their withholding 
has changed, right? So they are not seeing as much money going 
to Uncle Sam, more money in their pockets.
    Can you tell us what percentage of American workers are 
likely to see their withholding changed in a way that helps 
them? In other words, that less is coming out of their paycheck 
every couple of weeks or every month?
    Secretary Mnuchin. We anticipate it will be about 90 
percent of American----
    Senator Portman. Ninety percent?
    Secretary Mnuchin. Yes.
    Senator Portman. Ninety percent.
    I want to thank you and the IRS for moving quickly with 
regard to the withholding tables so that employers can begin 
immediately to do that. My sense is, it is already happening, 
because I am hearing from my constituents. This morning I had a 
coffee. I heard from constituents on it. I have had a lot of 
calls and emails to my office on it just in the last week.
    John in Fairfield, OH, says he received an additional $51 
in his paycheck. He was surprised, because he was told by some 
people that there was going to be no relief for him, and there 
is. Carl from Salineville called in. He was pleased to see $60 
every other week coming in. Earlier this month, another Ohioan 
called my office to say when he opened his first check since 
the law had taken effect, he was pleased to see an additional 
$300 there. He said those $300 are going to be used for him to 
help cover the car payments for his two daughters.
    So it is happening. When do you expect that all that 90 
percent of American workers are going to see that in their 
paychecks? Will that happen by the end of this month?
    Secretary Mnuchin. Yes, we believe that is the case.
    Senator Portman. You have told the IRS to send these tables 
out. You have also told employers that they have to go ahead 
and make these withholding changes within the next few weeks. 
Is that accurate?
    Secretary Mnuchin. That is accurate. And we are very 
pleased with the work that the IRS is doing on already 
implementing the Act.
    Senator Portman. Of course, in addition to tax cuts that 
are going directly to these families, because of the changes on 
the business side, the international side--I talked about some 
of the pro-growth elements. We are seeing companies taking the 
savings and investing them back into their plant and equipment 
and making their companies more productive. All of the 
economists I talked to say that productivity in the economy is 
one of the reasons we have had this anemic growth. We have had 
such low growth not just over the past several years, but 
really over the past decade and a half, with no real increase 
in wages.
    Now we are seeing that for the first time. More than 350 
companies have now made decisions to invest in equipment, 
buildings, and employees. Over 4 million Americans are now 
receiving tax reform bonuses, raises, or increases to their 
benefits. That is amazing.
    And let me just ask you, had you expected to have that much 
good news about the effects of the tax bill this soon?
    Secretary Mnuchin. No; we were pleasantly surprised by 
those announcements.
    Senator Portman. Let me ask you about some of the smaller 
business elements here. Yes, Walmart is paying people more. 
They are raising their minimum wage, their entry level. Walmart 
is the biggest employer in the State of Ohio, and in probably 
most of the States represented around this dais. That is 
important.
    J.P. Morgan is adding 400 new branches and adding 4,000 new 
jobs. They are our third biggest employer in Ohio. Apple is 
paying $38 billion to repatriate its overseas earnings. 
Hundreds of billions of dollars are coming back here--$30 
billion in capital expenditures right now in America they say, 
related to the tax bill.
    So a lot of great news from larger businesses. But how 
about the smaller businesses? What are you hearing? I have been 
to four in Ohio, all of which are investing in their people, 
investing in their, again, technology and modernization of 
their plants to make their workers more productive. What are 
you hearing from smaller businesses?
    Secretary Mnuchin. We are hearing good news as well from 
many small business owners whom we have either listened to or 
visited. We are getting the same response about how they can 
invest back into their business and that they are passing on 
wage increases.
    Senator Portman. The National Federation of Independent 
Businesses says that small business optimism is at record 
levels right now. And they relate that directly to the tax 
legislation.
    I do have some questions for the record for you on the 
Production Tax Credit for refined coal facilities, also 
something on the international side. I will not surprise you. I 
want to make sure that the CFC net earnings calculation is done 
properly. I will submit those for the record.
    I thank you for being here. And again, congratulations in 
helping us put together a tax bill that is helping the people I 
represent.
    Secretary Mnuchin. Thank you very much.
    The Chairman. Senator, your time is up.
    We will turn to Senator Cardin.
    Senator Cardin. Well, thank you, Mr. Chairman.
    Secretary Mnuchin, it is always a pleasure to have you 
before the committee.
    Secretary Mnuchin. Thank you.
    Senator Cardin. I want to cover quickly an issue I 
mentioned to you before you walked in, and that is your 
responsibility on implementing the sanctions law that was 
passed by the Congress by 99 percent of the members, over 99 
percent.
    This past week, our intelligence committees held their 
annual briefing, and it was, I believe, the unanimous view of 
our intelligence agencies that Russia has not only continued 
its attacks on our country, but that they are even accelerating 
them and are expected to be active in the 2018 elections. It 
was for that reason that we passed the sanctions law, to make 
it clear to Russia that we will take action against them if 
they continue this type of conduct, if Mr. Putin continues it. 
He clearly has.
    These sanctions are mandatory sanctions. These are not 
discretionary. There are various categories. Let me just 
mention one dealing with the intelligence and defense sector, 
that if there is a significant transaction involving Russia, 
mandatory sanctions need to be imposed.
    Now I want to first start with a compliment. The global 
Magnitsky Law was implemented under the Trump administration. I 
think it was done the right way, including the Treasury 
Department's assessments on implementation of those sanctions.
    It is just hard to understand how no sanctions have been 
imposed under this bill passed by Congress, and it sends a 
clear message to Mr. Putin that he can continue his activities 
without fear. Can you explain to us how you intend to implement 
this law passed by Congress, including the mandatory sanctions?
    Secretary Mnuchin. Sure. Well, Senator, thank you very much 
for that question, because I do think it is a very important 
issue. So first of all, we very much support the legislation, 
and we are fully committed to follow through on it.
    On the section that you mentioned, which is on the 
intelligence and defense sector, that area has been delegated 
to the Secretary of State and the State Department. So I cannot 
comment on that.
    But what I will comment on is the other part of the law, 
the part that we are responsible for, which is the oligarchs 
and government leaders. And as I have mentioned previously in 
my testimony, we did deliver the report which was phase one. 
Part of it is classified. Part of it is unclassified .
    We are actively----
    Senator Cardin. The unclassified part is basically a cut 
and paste from the Forbes list, which to me sends a signal to 
Russia that we are not going to take public action against his 
corrupt regime and the use of oligarchs.
    Secretary Mnuchin. Well, Senator, that is absolutely not 
the case. And I can assure you that, again, I met this morning 
with my internal group and the intelligence people. We are 
actively working on Russia sanctions coming out of the 
classified briefing. And I look forward to them. I am actually 
going to be meeting with the Banking Committee and giving them 
a classified briefing, and I would be more than happy to meet 
with you as well.
    Senator Cardin. I appreciate that. I will take you up on 
that, because I think it--and I understand there have been some 
conversations in the administration. This is the beginning of 
the process. But I just make the observation you got off to a 
bad start with no sanctions being imposed.
    I want to cover the CDFI that your budget eliminates, the 
program that helps community minority banks in our community. 
It also administered the New Markets Tax Credit. I understand 
the budget continues the New Markets Tax Credit and the 
administration of the New Markets Tax Credit.
    My concern is that in distressed communities, the 
stakeholders there, it is difficult for them to feel confidence 
that their institutions will be maintained. Yes, we want to 
rebuild distressed communities, but we also want to rebuild the 
institutions within distressed communities.
    How can you assure the institutions that work within 
distressed communities that with the elimination of the CDFI 
there still will be a focus by the Trump administration on 
strengthening these communities?
    Secretary Mnuchin. Well, I can assure you that there will, 
and we are actually in the process of awarding the current CDFI 
grants. I think that they have been helpful. Again, this was 
just a difficult decision in the context of overall spending 
and having to make difficult decisions.
    We look forward to continuing to work with you on these 
issues.
    Senator Cardin. Well, I appreciate that, and you are right. 
These grants went directly to institutions within distressed 
communities.
    We are losing our community banks, let alone minority 
banks, that are particularly important for strengthening 
distressed areas. So I will take you up on your offer as to how 
we can find ways to strengthen the minority opportunities 
within distressed communities to participate with us, including 
the New Markets Tax Credit.
    Secretary Mnuchin. Thank you. I look forward to working 
with you on that.
    Senator Cardin. Thank you.
    The Chairman. Senator McCaskill?
    Senator McCaskill. I want to follow up on the sanctions 
stuff, because I cannot stress how important it is. It is a 
really big deal around here when we get a vote of 517 to 5. 
That is unprecedented in these times to get that kind of vote. 
That was the vote on the sanctions bill.
    And yesterday Director Coats, who was selected by the 
President, and Director Pompeo both indicated that Russia sees 
their meddling in our election in 2016 as successful, and they 
are confident they will be repeating their efforts in 2018. Has 
the President of the United States asked you to impose 
sanctions on Russia?
    Secretary Mnuchin. Again, first of all, I have a lot of 
confidence in Directors Coats and Pompeo in their work. And 
that work has been incorporated into our report----
    Senator McCaskill. That is not my question. Has the 
President asked you to impose sanctions on Russia?
    Secretary Mnuchin. He did not have to ask me, because I 
have updated the President.
    Senator McCaskill. No. I do not care whether he did not 
have to ask you. I want to know if he asked you. I have never 
heard the President of the United States say a bad word about 
Russia--ever.
    Secretary Mnuchin. Well, that is not the case. I----
    [Simultaneous speech.]
    Senator McCaskill. Well, I need to see quotes. Because I 
have never seen it. He always avoids--this is----
    The Chairman. Let him answer the question.
    Senator McCaskill. I will, Mr. Chairman, but he is not 
answering the question. I want to know if the President asked 
him.
    Secretary Mnuchin. Again, what I am happy to tell you is 
that I have told the President--I updated him on the report. I 
told him we would be doing sanctions against Russia, and he was 
pleased to hear that.
    Senator McCaskill. Okay. Has he ever--have you recommended 
to him that he publicly explain to the American people that he 
wants sanctions imposed on Russia?
    Secretary Mnuchin. I have not made that recommendation to 
him.
    Senator McCaskill. Would you?
    Secretary Mnuchin. I have publicly said that, but I am 
happy to pass on your message to him.
    Senator McCaskill. Do you think that the people of this 
country and, frankly, the government of Russia--would it be 
helpful if they heard from the President of the United States 
that he believes sanctions are appropriate when a country tries 
to break the backbone of democracies all over the world?
    Secretary Mnuchin. Again, the President has delegated to me 
the responsibility for sanctions. I represent the 
administration, and I have been very clear there will be 
sanctions on Russia. I do not think I can be more clear on 
that, and that work is underway as a result of the report.
    Senator McCaskill. Well, the elections are coming. They are 
fast approaching. And so far there have been zero 
consequences--zero.
    Secretary Mnuchin. Again, I think there were many sanctions 
that were issued last year, and we are happy to come and update 
you. And again, we are happy to give you a classified update of 
the work in the report. We are very proud of what the 
intelligence committees have done.
    Senator McCaskill. Well, I--if there have been any 
sanctions, they certainly have not been heralded by this 
administration. And they certainly have not been effective, 
because it is very clear that Russia--according to your 
intelligence community--is actually engaged in doing the exact 
same thing again.
    The release--the memo was very clear that the entire 
Twitter traffic were Russian bots, and not a peep from this 
administration or from you condemning that. Not one word. And 
that is what is so hard to understand. The vote was 517 to 5.
    We all agree here. The chairman agrees. He voted for it. 
All my Republican colleagues with the exception, I think, of 
two, voted for it. And I just want to make sure you do not 
leave here without understanding that it is a real head-
scratcher, the silence from the Oval Office about the conduct 
of Russia in attacking our democracy. And I hope that there is 
a new day and that maybe tomorrow the President will step 
forward and say, ``Enough, Russia. We are coming after you. 
This is warfare. You do not attack our democracy and not pay 
serious consequences.''
    I want to also talk about the tax bill briefly. I am really 
worried about the carried interest being left in there, but I 
am really worried about the new loopholes. And the LA Times 
headline, ``GOP Tax Plan Creates One of the Largest New 
Loopholes in Decades''--that was the headline December 31st.
    Bloomberg just recently: ``Here's the Trump Tax Loophole 
Your Accountant Can Blow Wide Open.'' And this is all about 
pass-throughs, and the very complicated scenario that we have 
laid forth on pass-throughs.
    Are you all prepared to lay out strict guidelines on these 
pass-throughs, because clearly all of the accountant world--it 
is embarrassing how generous this tax bill was to families like 
mine, yours. It is embarrassing.
    I see now all of these pass-throughs, the vast majority of 
money that goes through pass-throughs, goes to the 1 percent 
most wealthy people in this country. And the accountants are 
having a heyday with this loophole.
    How quickly can we expect written guidance on how we can 
make sure this is not a loophole that will allow the wealthy to 
avoid even more taxes going forward?
    Secretary Mnuchin. I can assure you that both the Tax 
Department at Treasury, where we have over 100 people, and the 
IRS are full-time focused on this. And I assure you we will be 
putting out guidance and regulations to make sure that people 
cannot abuse the pass-throughs, that the intent here was to 
create incentives so that businesses got those, but not for it 
to be abused. And I can assure you we are working on that, and 
we will be doing that shortly.
    The Chairman. Senator, your time is up.
    Senator McCaskill. Thank you, Mr. Chairman.
    The Chairman. Thank you.
    Senator Whitehouse?
    Senator Whitehouse. Mr. Mnuchin, this is--I am new to this 
committee, so let me start with some very simple questions.
    The first is, what is your feeling about the present level 
of income inequality in the United States?
    Secretary Mnuchin. Again, the President--I--my number one 
focus is economic growth. And I think if we have proper 
economic growth, that that will shrink the income inequality.
    Senator Whitehouse. The ratio of CEO to average worker pay 
has gone from 18:1 to 270:1 in the last 50 years. The top 1 
percent of income earners take 24 percent of all income out of 
the economy every year, according to the Federal reserve. And 
the top 25 hedge fund managers made more in the last year we 
have information for, this is 2014, than all 158,000 
kindergarten teachers, according to The Washington Post. Do you 
think we are going to grow our way out of that?
    Secretary Mnuchin. Yes, I do.
    Senator Whitehouse. Okay.
    Do you think that the tax code should be progressive in the 
sense that it demands a higher contribution as a percentage of 
income from high-income earners than from lower-income earners?
    Secretary Mnuchin. I think it is quite progressive, and 
many things we did in the tax cuts act, like eliminating the 
State and local deductions, actually made it more progressive.
    Senator Whitehouse. So it should be progressive. I am glad 
we agree on that. The last report that we had from the IRS was 
from 2014. They looked at the top 400 taxpayers, aggregated 
their income and their tax payments, and calculated that they 
paid an average Federal tax rate of 23 percent, which is a 
lower tax rate for the top 400 taxpayers than a lot of plumbers 
pay, a lot of teachers pay.
    And one thing that bothers me is that the IRS has stopped 
reporting that information. You are in the position as 
Secretary of the Treasury to instruct the IRS to start 
reporting that information again, and I think it is--I do not 
know about what you think, but I think it is important for 
Americans to get a sense of how things are going in their 
democracy, to have a fair report of how much the highest-income 
earners are actually paying in taxes. I do not know why that is 
something that we would want to not disclose.
    I am not going to put you on the spot right here, but I 
will ask you in a question for the record if you will tell the 
IRS to go back to reporting the aggregated tax information for 
the top 400 taxpayers. So as I said, I do not want to put you--
--
    Secretary Mnuchin. I am happy to answer the question, which 
is, I am not aware of the report. But I am happy to go back and 
speak to the IRS and understand why they were comfortable in 
the past and why they are no longer doing it. Obviously, there 
is a sensitivity to any specific taxpayer information, so 
whether that is a small enough sample----
    Senator Whitehouse. This is aggregated among the top 400.
    Secretary Mnuchin. I am happy to get back to you on that.
    Senator Whitehouse. I appreciate it.
    The other issue I want to talk with you about is, as 
Treasury Secretary, you oversee FinCEN, and one of the problems 
that we are hearing very loudly in the Judiciary Committee--
Senator Grassley and I have bipartisan legislation on this--is 
that the United States is becoming the haven for international 
kleptocrats and criminals because our incorporation 
transparency controls are so bad. And as the EU is cleaning up 
on this, and as the UK is cleaning up on this, the United 
States is becoming the laggard with the result that terror 
organizations, drug cartels, human traffickers, and other 
criminal enterprises can hide assets and launder money here in 
the United States.
    Your Deputy Assistant Secretary at the Office of Terrorist 
Financing and Financial Crimes told the Judiciary Committee 
that this lack of information, this prevalence of American 
shell corporations, was what she called a ``vulnerability.'' 
And a former Treasury Special Agent and FinCEN Agent testifying 
said, ``Requiring the real owner of a U.S. company to be named 
during the incorporation process will cut down in dramatic 
fashion the ability of criminals to finance their crimes.''
    I would like to ask you to work with us, with Senator 
Grassley and myself, in trying to improve incorporation 
transparency in the United States. I think that when Ronald 
Reagan said we were a city on a hill, echoing John Winthrop, he 
said that for a reason. I do not think we look much like a city 
on a hill when we become the haven for crooked gains of 
criminals and kleptocrats.
    Secretary Mnuchin. Senator, I agree with you. This issue 
that we refer to as beneficial ownership, we need to have a way 
of tracking beneficial ownership. I am working with the 
Department. We look forward to working with Congress.
    We do need to solve this issue. And it is something I look 
forward to working with you on.
    Senator Whitehouse. And for the record, Mr. Chairman--I 
know my time has expired. But the problem here is that even 
with a warrant, even with a subpoena, you cannot get this 
information, because it has been so well hidden. So the 
traditional tools of law enforcement fail up against this 
problem of the shell corporations.
    I thank you, Mr. Mnuchin.
    The Chairman. Senator Isakson, I think you are next.
    Senator Isakson. Thank you very much, Mr. Chairman.
    Secretary Mnuchin, I--like you, and I think most 
everybody--have been somewhat amazed with the results of the 
Tax Cuts and Jobs Act. I thought it would do a lot of good 
things. It appears that you have done even more.
    But it does bear out the old saying that tax policy drives 
economic decisions. I think the policy of this administration 
and the policy that we passed is showing a reinvestment in 
America, American corporations, but a reinvestment also in 
their people through stock donations, through increases in pay, 
through reinvestment in their businesses. And we are going to 
get a large reward for that in the future because those 
businesses are going to grow.
    The regulatory relief that has taken place under this 
administration, combined with the tax changes that have 
incentivized investment in business, have done a lot for this 
economy and have built the consumer confidence level, which is 
so critical to our economic prosperity as a country. So I just 
want to commend you on being a part of that. Thank you for what 
you are doing with that. Thank you for the job that you are 
doing.
    I also want to say that it is easy for any of us to 
demonize the upper 1 percent of anything--the top of anything--
whether it is performance-wise, whether it is income, or 
anything else. But they invest an awful lot of money in our 
country that would not be invested otherwise. I live in a city 
called Atlanta that is led by a corporate leader called Coca 
Cola, which is a little syrupy soft drink. It was developed in 
1906 and now has funded universities and hospitals and research 
and advancement for years. Those are moneys by the private 
sector and the upper 1 percent that have made our city better.
    Home Depot started in Atlanta, GA. Two hardware store guys 
had an idea about how to change selling hardware and 
revolutionize the business--Arthur Blank and Bernie Marcus--and 
they did so.
    So there are a lot of actors out there who have done things 
that would be less than admirable, but there are a lot of 
people at the top 1 percent who have done things that are 
unimaginable and would not have been possible in our country 
before. So I just wanted to say that first and foremost.
    I also want to take the liberty of taking your time to talk 
about something that is not under your auspices and not under 
your responsibility, but it is a part of the budget. It is a 
part of our country's infrastructure. It needs to be addressed 
in the President's budget this year, and that is the Port of 
Savannah.
    The Port of Savannah is the most profitable port on the 
east coast of the United States as a net export port. It is a 
port where 19 years ago we authorized its expansion to 47 feet, 
its depth to 47 feet. We have over the course of time 
reauthorized it, and 3 years ago approved it. My State put $285 
million in that project at the request of the United States 
Government, which the United States Government promised it 
would follow with investment in the Corps of Engineers to 
complete the $600 million expansion of the port, so the Panamax 
ships of the 21st century that are going through the Panama 
Canal can come to the most profitable export port in the United 
States, the Port of Savannah.
    The current budget falls short, and the President 
recommends $49 million for the Federal share of finishing that 
project. That, unfortunately, is just enough for us to go back 
and re-dredge the sediment we have already taken out, but not 
enough to continue to expand the port.
    So I am going to be talking every time I get the chance to 
encourage the administration to look at the Port of Savannah 
and the harbor-deepening project that has been for 19 years 
authorized by this Congress. It has been underway for the last 
3 in the State of Georgia, with some Federal money and mostly 
State money.
    It is time for the feds to deliver on their part of the 
investment, and I am going to do everything I can to fight to 
see that we get it done. If we do not, we are going to lose 
jobs, and we are going to lose opportunity. That port generates 
300,000 jobs in the southeastern United States and billions of 
dollars in income to the companies and individuals of the 
United States. And we have to see it finish its expansion, or 
else we are going to get passed by as a country as a port of 
call for the ships going through the Panama Canal. And that 
business is going to go somewhere else, and we do not want that 
to happen.
    You do not have to respond to that except to tell me that 
you will keep the Port of Savanah in mind, and when you sit 
around the table----
    Secretary Mnuchin. I will keep it in mind.
    Senator Isakson. Because it is good for America, and it is 
good for the guy who collects its taxes, and it is good for the 
Treasury of the United States of America.
    Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Cassidy?
    Senator Cassidy. Secretary Mnuchin, a comment, a request, 
and then a question.
    First I will add to the comments on the Tax Cuts and Jobs 
Act. Working in Louisiana--Louisiana-based companies like 
Builder Supply Company in Shreveport, Iberia Bank based in 
Lafayette, Gulf Coast Bank in New Orleans, as well as big box 
stores like Home Depot, Walmart, Best Buy, they are giving 
bonuses, better wages, better benefits, all benefiting on the 
long-term capital investment. ExxonMobil, with a major presence 
in Louisiana, announced $35 billion in CapEx investment. That 
is going to increase competition for workers, driving up their 
wages. That is the way to reduce income inequality.
    The Tax Cuts and Jobs Act bill has been good for our State, 
and thank you for your role in it. I am proud to have 
participated.
    Now a request, if you will. One of the provisions in the 
tax bill was to provide fair treatment for taxpayers in a loss 
position upon deemed repatriation under section 965. The intent 
is clear. Free repatriation losses are ring-fenced, but a 
potential question has arisen as regards losses in 2017.
    So I would just ask that your department work with us. We 
have an amendment to address that, but I want to make sure that 
we can address that.
    Secretary Mnuchin. We look forward to working with you. 
Thank you.
    Senator Cassidy. Let me now go to something that Senator 
Whitehouse raised, the FinCEN, the Financial Crimes Enforcement 
Network. You all have a strategic plan for 2018 through 2022 to 
modernize the system, the analytical capabilities, to better 
collect, assess, disseminate, and act upon financial data and 
intelligence. In my office, we are looking at how the drug 
cartels transfer $110 billion per year from the United States 
down into Mexico. Best we can tell, Treasury is getting about 
$7 billion of it.
    We know it is going through bulk cash. It is going through 
trade-based money laundering. It is going through people buying 
cards that have $10,000 on them, and they are bringing down 
another form of bulk cash, if you will.
    We are not sure, though, that the interdepartmental 
cooperation is very good. It has been a little difficult to 
find out, but it seems like we have one department doing this, 
another that, and another this, but the departments are not 
doing it in concert. Clearly this is important, and it is a way 
to get at the cartels.
    Frankly, I would like to use that money to pay for the 
wall. It would not be the Mexican government, it would be the 
Mexican cartels. But you take out their ability to finance 
their crime mission.
    Any comments on the effectiveness of our different 
departments working together?
    Secretary Mnuchin. From my experience, Senator, I actually 
think the departments are working very well together. But on 
this specific issue, we look forward to following up with you. 
It is a very important issue, and we want to do everything we 
can to get the money from the cartels.
    Senator Cassidy. Now it seems, though--just kind of prima 
fascia, if you will--you have $110 billion reportedly moving 
south, and Treasury is only getting $7 billion of it. That 
seems to be a big gap. So we would like to continue to work 
with you on this, because $7 billion is just what you might 
lose in the back of your couch if you are worth $110 billion 
per year. And we need to grab that.
    We also understand that FinCEN, in its anti-money 
laundering mission, uses data provided by the private-sector 
financial institutions. And again, this may relate to what 
Sheldon was speaking about. Does FinCEN have a process for 
verifying information contained in suspicious transaction 
reports?
    Secretary Mnuchin. They do, and they use those czars to 
follow up with the institutions, but one of the problems--as 
has already been pointed out--is the issue of beneficial 
ownership. We have a flaw in our process of how to track 
beneficial ownership, and whether we do it at the State level 
or the Federal Government level, that is something we need to 
solve.
    Senator Cassidy. Will that require a statute, or can you do 
that by regulation to address the issue of the lack of clarity 
regarding beneficial ownership?
    Secretary Mnuchin. It is unclear. It depends on what the 
solution is and which way we go, but this is something that we 
do want to work with Congress on and make sure that we are 
enacting it the right way.
    Senator Cassidy. Okay.
    I am almost out of time. I yield back.
    The Chairman. Senator Brown?
    Senator Brown. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. Glad you are in front of the 
committee. I have some short comments and then one pretty 
simple question. As you know, there has been a--you and I have 
talked about this in the Banking Committee. There has been a 
quiet crisis brewing. Millions of retired workers are at risk 
of losing the pension plans they spent an entire career paying 
into.
    Many in this town do not really understand what happens at 
the bargaining table, where workers will give up wages today in 
order to have retirement security in the future. Sixty thousand 
Ohioans, 1.5 million workers and retirees across the country, 
could see drastic cuts to the pensions that they have earned 
and they have been promised. It does not just affect retirees. 
It is current workers. It is small businesses.
    This week I met with a group of businesses from Ohio, about 
a dozen of them that have done the right things for their 
workers. They have enrolled them in Central States. They are 
scared to death about their liability and what happens to their 
workers.
    What is the thanks that these businesses got? Wall Street 
squandered that money. These businesses face bankruptcy if the 
plan is allowed to fail. We know what happens to the Pension 
Benefit Guaranty Corporation if we do not act.
    These family-owned businesses that have been passed on for 
three and sometimes four generations are at risk. And that is 
not how their story should end. It is not partisan on this 
committee alone. Senator Portman has been interested, Senator 
Stabenow has been interested, Senator Roberts, Senator Nelson, 
Senator Scott, Senator Casey, next to me, Senator Thune, 
Senator Burr, Senator McCaskill, down the table, and the chair 
and the ranking member all have cared about this issue that 
affects most of these States. It affects thousands of workers.
    I have introduced a bill, as you know, Mr. Chairman, with 
my Democratic colleagues to address it. We need all sides to 
bring their ideas to the table. That is why the joint select 
committee on pension reform is now law and why it is so 
important. The committee will force Congress to finally treat 
the pension crisis with the seriousness and urgency American 
workers deserve.
    My question is this: the committee needs the 
administration's help. There will be four Republicans and four 
Democrats from each house. The committee and Congress need the 
administration's help to be successful. I know that you and I 
do not see eye-to-eye on some big issues that affect our 
country. I do not quarrel where you come from on this, and your 
ultimate goal. We sometimes disagree on things, but this is an 
area, I think, where we can agree something must be done.
    Would you commit to this committee and ultimately to the 
Congress and to this select committee--would you commit that 
Treasury and the administration will provide technical support 
and expertise needed for the committee to succeed?
    Secretary Mnuchin. Yes, I will. It is an important issue, 
and we look forward to working with you, and we are pleased to 
provide technical help and any policy work you need from us.
    Senator Brown. Good. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. Senator Casey?
    Senator Casey. Mr. Chairman, thank you very much.
    Mr. Secretary, good to be with you. Thank you.
    I wanted to start with a matter that arose in the debate 
around the tax bill. And I think part of this story was missed 
in the coverage and missed in the debate, and that is what 
happened with regard to the Child Tax Credit. There was a lot 
of publicity and attention paid to the debate about the tax 
credit, and I am afraid that the real story was missed, because 
according to one source--this would be the Center on Budget and 
Policy Priorities--the increase, the new part of the tax credit 
in a sense, the increase in the Child Tax Credit in the bill, 
when you compare it to current law, here is what it resulted 
in. A single mother with two children earning $14,500, working 
full time at minimum wage, her increase in the Child Tax Credit 
year over year would be 75 bucks, total, 75 bucks.
    But a married couple with two children, earning $400,000, 
that family would benefit from the Child Tax Credit $4,000 in 
the year, about 333 bucks per month. So, 75 bucks for the 
single mom and an increase of $4,000 for the family with income 
over 400,000 bucks. And this is not your responsibility to 
publicize a provision in the tax bill, but I wanted to ask you 
about that.
    How do you feel about that? What is your view of that 
policy? And when you consider, not just your job as Treasury 
Secretary, but the administration's job with regard to helping 
families, what do you think the purpose of that tax credit is?
    Secretary Mnuchin. Well, again, I think the purpose of the 
tax credit was to get relief to middle-income families. I am 
not familiar with the specific example you have outlined at 
$14,500.
    I can tell you, I am familiar with the median numbers, and 
we have looked at lots of examples, but we are happy to follow 
up. I assume your number is correct, but obviously this impacts 
different taxpayers differently. But the intent was for the 
median family. It did deliver significant middle-class relief.
    Senator Casey. Well, I would argue that we had an 
opportunity to have a transformative Child Tax Credit and it 
did not happen. But let me move on.
    The other issue I wanted to raise with you is wages. There 
were a lot of assertions made that a cut in the corporate rate 
would lead to a wage increase. In fact, Bloomberg 
Intelligence's current estimates are that corporations will 
ultimately devote $875 billion to buying back stock. So far 
this year, corporations have authorized 20 times more on stock 
buybacks than they have spent on increasing wages.
    Last May you told the committee that ``over 70 percent of 
the cost of corporate taxes are actually borne by the worker.'' 
If companies are not keeping to that and instead are giving a 
majority of the value of the tax cut to shareholders and 
executives through dividends and buybacks, do you think we 
should have a mechanism in place to make sure that employees, 
the wage earners, see the gains from this tax cut?
    Secretary Mnuchin. I commented on this earlier, the similar 
question. And again, we do stand behind what we do believe. 
There are many economists who support this, that over-70-
percent number. On the low end, it is probably 30 percent.
    So we do stand behind that. We think we are going to see 
that. We think we are going to see wage increases. And as I 
commented earlier, to the extent there are share buybacks, that 
is capital that is recycled back being into the economy; it 
does not sit in banks.
    Senator Casey. I would have preferred that we just gave it 
directly to the workers. That would have been my preference. My 
argument did not prevail.
    Mr. Secretary, I know we have less than a minute left, but 
I wanted to ask you a question about Russia sanctions.
    We, as you know, passed the Countering America's 
Adversaries Through Sanctions Act, where Congress provided the 
administration with additional authorities to hold accountable 
countries like Iran, Russia, and North Korea for their 
aggressive actions.
    Are there currently budget constraints that prevent 
Treasury from fully exercising the authorities granted under 
this legislation? And if not, are there other constraints?
    Secretary Mnuchin. There are not budget constraints, and I 
commented on this earlier--I apologize; you missed it, so I 
will restate it--that we are actively working on those 
sanctions. You should expect them in the near future.
    Phase one was creating the report. I am happy to come talk 
to you in a classified setting about the report, but I assure 
you, those sanctions are coming. We are actively working on 
that as we speak.
    Senator Casey. Thank you, Mr. Secretary.
    The Chairman. Thank you.
    Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary for being here. Last week when you 
testified before the Banking Committee, I asked you about the 
IRS's fundamentally flawed advisory released 2 days after 
Christmas, which prohibited thousands of New Jersey families 
from deducting their property taxes in 2017, despite rushing to 
pay them in the final days of last year.
    You responded that the rule was meant to prevent taxpayers 
from ``abusing the system.'' I have to say, I am offended--
offended by that accusation. Let us be clear, the people of New 
Jersey work hard. They pay far more than their share of taxes. 
They punch way above their weight economically. We just are not 
a blue State, we are a blue-chip State that drives innovation 
and dynamism. So we are not abusing the system. In our view, 
the system is abusing us.
    So let me ask you another way: prior to the passage of the 
Trump corporate tax bill, was there any prohibition against 
deducting prepaid State income taxes or local property taxes in 
the year that they were paid?
    Secretary Mnuchin. Well, first let me comment. I did not in 
any way mean to offend you. So I apologize if that is the case. 
The guidance that the IRS put out is completely consistent with 
what has been----
    Senator Menendez. I am sorry to interrupt you. That is not 
what I asked you. I asked you, was there any provision prior to 
the passage of the Trump corporate tax bill against deducting 
prepaid State income taxes or local property taxes?
    Secretary Mnuchin. Yes, there was. The IRS interpretation 
did not change as a result of the bill. And I would just say, 
in certain cases--again, it is very fact-specific. In certain 
cases, again, if it has been assessed, people could pay their 
taxes this year. In certain cases----
    Senator Menendez. Well then, let me ask you this: if that 
is the case, that they were both prohibited based upon your 
answer, why would section 11042 of the Trump corporate tax bill 
specifically prohibit the deduction of prepaid State income 
taxes? Why would the bill prohibit something that was already 
disallowed? That is simply illogical.
    Secretary Mnuchin. Again, on the real estate side, there 
was no change to current law. And again, the IRS felt it was 
important to put out guidance to give taxpayers information.
    Senator Menendez. Well, is there anything in the Trump 
corporate tax bill that prohibits the deduction of prepaid 
property taxes? In the bill?
    Secretary Mnuchin. I am sorry. We are talking about prepaid 
property taxes. So our interpretation of the----
    Senator Menendez. I am asking you, in the law--can you 
point me to the section in the law that specifically prohibits 
the deduction of prepaid property taxes?
    Secretary Mnuchin. Again, not in the bill, but in the IRS 
actual code, yes. And we would be happy to follow up with your 
office, and I will bring a team from the IRS to go through this 
with you.
    Senator Menendez. So, listen. Prior law does not prohibit 
the deduction of prepaid property taxes--prior law. The Trump 
corporate tax bill does not prohibit the deduction of prepaid 
property taxes.
    Therefore the property taxes should be deductible under the 
law. The law that we passed was silent on this issue 
specifically, but prohibitive about State income taxes. So it 
seems to me that clearly we should be allowed to permit the 
deduction of property taxes when they are paid.
    I just heard you in an answer a little while ago talk about 
the estate tax. We want to avoid double taxation. Well that is 
exactly what is happening to places like New Jersey and other 
parts of the country that get hit with this tax bill that 
ultimately does not allow them the full deductibility that has 
existed for a long time.
    Let me ask you another question. The administration has 
bragged about trickle-down bonuses that only about 2 percent of 
American workers are receiving after the Trump corporate tax 
bill. Do corporations get to deduct these bonuses from their 
2017 taxes even if they do not pay the bonuses in 2017?
    Secretary Mnuchin. Again, that is a very fact-specific 
question that I am not prepared to answer.
    Senator Menendez. Well, let me inform you that corporations 
can deduct the full amount of the bonuses in 2017, regardless 
of whether or not they actually made the payment. This is 
important because, by deducting in 2017, corporations can, to 
use your words, Mr. Secretary, game the system and claim an 
even larger deduction in 2017 without spending a dime.
    But in contrast, a middle-class family that actually paid 
their property taxes in 2017 will not be able to deduct them in 
the year that they paid them, which to me is blatant hypocrisy 
and would be shocking if it did not so neatly fit into the 
pattern of an administration that puts corporations and Wall 
Street above the people who live on Main Street.
    So I urge you to look at this again, because if it is good 
enough for corporations to be able to make a deduction in the 
year in which they did not even pay it, then taxpayers should 
be able to make a deduction in the year in which they did pay 
it. And I urge you to relook at this issue, because it is just 
a question of fairness and justice. And if it is good enough 
for corporations, it is good enough for middle-class families.
    The Chairman. Senator Bennet?
    Secretary Mnuchin. I just want to clarify one thing. In 
certain circumstances, the prepayment would be eligible. In 
certain circumstances, the prepayment would not be eligible. So 
I just want to clarify that. The guidance was a strict 
interpretation of current law.
    The Chairman. Senator Bennet?
    Senator Bennet. Thank you, Mr. Chairman. Thank you for 
holding this hearing.
    Mr. Mnuchin, it is nice to see you again. Thank you for 
your service.
    This year, we are working on a farm bill. Chairman Roberts 
and Ranking Member Stabenow and I are all members of this 
committee, and we are working hard within very tight budget 
constraints to write the next farm bill.
    I noticed that your budget cuts $260 billion from farm bill 
spending on top of a 15-percent cut in discretionary spending 
for USDA. And I am all for finding savings. In fact, the Ag 
Committee--you may not know this--was the only committee that 
actually got bipartisan savings in the last budget process. The 
last farm bill was projected to save $23 billion--the only 
committee that did its work.
    CBO now tells us that that bipartisan work on behalf of and 
fueled by our farmers and ranchers is now saving $100 billion. 
Now many of Colorado's farmers and ranchers are struggling with 
low prices, facing persistent drought, and are fighting hard 
every day to keep their operations moving. I would like you to 
tell those farmers and ranchers about the proposed cuts when 
these guys have already, unlike anybody else, actually done 
their work last time.
    How are these proposed cuts going to help them?
    Secretary Mnuchin. Well, again, I am not an expert on the 
farm area, but it is an important part of the economy, and I 
look forward to working with you on these issues.
    Senator Bennet. Well, but could you elaborate on how the 
cuts are going to affect our farmers and ranchers, particularly 
at these commodity prices?
    Secretary Mnuchin. Again, there were difficult decisions 
made in the budget, and obviously as it relates to farmers, 
this is something that would have some impact. And again, I 
look forward to following up----
    Senator Bennet. Okay.
    I know from at least my perspective, and I hope speaking 
both for Republicans and Democrats on the Ag Committee, it 
really adds insult to injury when we did our work the last time 
to see farmers and ranchers, especially in this commodity 
environment, getting whacked.
    And by the way, I do not think you guys have made hard 
choices. Giving $37 billion to 572,000 taxpayers that make more 
than a million dollars a year by borrowing that money from our 
kids is not a hard choice. And now you are having to backfill 
already, just a month later, Mr. Secretary.
    Do you know what the deficit was when Bill Clinton left the 
presidency?
    Secretary Mnuchin. I do. And because of the economic growth 
during that period of time, we saw revenues increase 
significantly. And since that period of time, the deficits have 
increased significantly.
    Senator Bennet. What was the deficit when Bill Clinton left 
the White House?
    Secretary Mnuchin. Well, we were actually, during that 
period of time, paying down.
    Senator Bennet. We had a surplus, did we not?
    Secretary Mnuchin. That is correct.
    Senator Bennet. It was a $5-trillion surplus projected over 
a decade. Is that not correct?
    Secretary Mnuchin. I do not know what it was over the 
decade, but I do know we were paying----
    Senator Bennet. That is what it was, and we were holding 
hearings about what to do with the surplus. Do you know what 
the deficit was when President Obama became president?
    Secretary Mnuchin. I have the numbers with me. I am----
    Senator Bennet. It was about $1.2 trillion. It became $1.5 
trillion. And I saw Jack Lew--who was here, your predecessor--
and Secretary Geithner beaten to death by members of this 
committee over the deficit during the worst recession since the 
Great Depression.
    I have statement after statement after statement of 
Republican colleagues who were unwilling to lift a finger to--
when we had a 10-percent unemployment rate, beating those guys 
to death as they sat here. And now, we pass a $1.5-trillion tax 
cut. We borrowed all that money from our kids.
    Last week, the President signed that spending bill like we 
have never seen before. And so the estimates now are that even 
in an economy where we are seeing tremendous growth, we are 
going to have a trillion-dollar deficit next year and maybe as 
much as 2 trillion over 10 years.
    How can you look yourself in the mirror?
    Secretary Mnuchin. Well, again, let me just first say, I 
share your concerns over the deficit, and that is why I think 
it is important, on a bipartisan basis, we work on this. We 
have put together a budget that shrinks the deficit, but the 
President is concerned that the debt went from $10 to $20 
trillion----
    [Simultaneous speech.]
    Senator Bennet. And that was when we had a recession, Mr. 
Secretary. That was when we had a recession. We will have a 
recession. We may have an armed conflict of some kind, and the 
idea that we are now spending the money instead of trying to 
figure out how to work in a bipartisan way, to do the work----
    And, Mr. Secretary, the assumptions that underlie your 
budget save $675 billion by repealing the Affordable Care Act. 
The Majority Leader has already told us we are not doing that. 
They attempted to repeal it over and over and over again. The 
Majority Leader says we are not doing that. That is $675 
billion. You save $1.5 trillion by slashing non-defense 
discretionary spending to a level we have not seen since 
President Hoover was the President.
    The Chairman. Senator, your time is expired.
    Senator Bennet. I look forward to trying to create a 
rational process here.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator.
    Senator Wyden has a couple of questions, and then we are 
going to wrap this up.
    Senator Wyden. Thank you. I think Senator McCaskill may 
have a couple of questions.
    The Chairman. You do?
    Senator McCaskill. No. I do not.
    The Chairman. Okay.
    Senator Wyden?
    Senator Wyden. All right.
    The Chairman. He will be the last one.
    Senator Wyden. I want to talk about infrastructure for a 
moment, Mr. Secretary. State and local governments now are 
responsible for more than three-quarters of all government 
investment in infrastructure.
    Despite that, the core of the Trump infrastructure plan is 
for the States and localities to pony up even more money. In 
fact, administration officials were actually quoted over the 
weekend, talking about the need for local governments to 
increase property taxes and sales taxes.
    This, of course, comes--as Senator Menendez eloquently 
noted--after the tax bill causes a dramatic curtailment of the 
State and local deduction, known as the SALT deduction. Aside 
from raising taxes on many middle-class families by subjecting 
them to double taxation, cutting back the SALT deduction makes 
it more difficult for local governments to raise new revenues.
    So, I have a ``yes'' or ``no'' question, and I think it is 
pretty direct. Does the Trump administration actually support 
local governments raising taxes 2 months after passing a law 
that ensures that those taxes are no longer deductible from 
their Federal taxes? And this is a ``yes'' or ``no'' answer, 
Mr. Secretary, because of what your administration officials 
said last weekend. So you are either agreeing with them or not 
agreeing with them, and have at it.
    Secretary Mnuchin. Well again, I realize you want a ``yes'' 
or ``no'' answer, but not every single State is the same. Some 
States have very high taxes, like California and New York.
    So I surely would not encourage California and New York to 
raise their taxes. I would encourage them to lower their taxes.
    Senator Wyden. So it seems to me you are definitely 
agreeing with the officials who were quoted last weekend that, 
certainly in substantial parts of the country, your answer on 
infrastructure is the need for local governments to increase 
property taxes and sales taxes. I will keep the record open so 
you can amplify on that, but you basically said, ``Hey, what 
the administration officials said last weekend was our view, 
with the possible exception of some States that we know have 
been very concerned.''
    Let me finish with one last question. As you know, I have 
repeatedly asked the Treasury Department to turn over to the 
committee its records on Russian financial transactions in the 
country. And across the board, the Department has refused--has 
refused--to turn over to me as the Ranking Democrat, these 
records, many of which are not even classified.
    So now, according to news reports, the FBI is investigating 
whether Aleksandr Torshin, a Russian official with close ties 
to Vladimir Putin and the National Rifle Association, used 
Russian-backed shell companies to funnel money to U.S. tax-
exempt entities that spent millions of dollars backing the 
Trump campaign in 2016.
    So, as you and I have talked about, I consider this 
oversight function absolutely key to the committee's work. So 
earlier in the month, I wrote letters to both you and the NRA, 
seeking more information about these alleged transactions, 
transactions that could involve shell companies, money 
laundering, and the like.
    Now I just got a commitment from the NRA to respond to my 
request. They said they will get us these documents. So I would 
like to renew my request to you today. Will you respond, as the 
NRA has, to my request for documents and do it promptly?
    Secretary Mnuchin. Senator, I am aware of your request. As 
you know, we have lots of resources that are cooperating with 
three bipartisan committees, as well as the Special Prosecutor. 
These are the same resources that we use for sanctions and 
national security and, as we have talked about, our focus on 
Russia sanctions.
    We have also been following through on previous 
administration information that we needed to follow up. So we 
look forward to working with you and the chairman. Again, we 
have the request.
    The Chairman. Okay.
    Senator Wyden. Mr. Chairman, just very briefly.
    The Chairman. Well, let us----
    Senator Wyden. And I will be very brief.
    Mr. Secretary, you have not responded to one single 
request, not one. And now, when I asked about something where 
the NRA, to their credit, said they were going to get back 
promptly, you said, we will see what happens.
    That is a textbook case of essentially telling the 
committee with lead jurisdiction over your agency that when it 
comes to oversight, and when it comes to reasonable requests, 
you are saying, not interested. I think that is very 
detrimental to the public interest, and I hope you change your 
mind.
    Thank you, Mr. Chairman.
    The Chairman. Well, thank you, Senator.
    Secretary Mnuchin. I do not think that was the 
interpretation of my comment.
    Senator Wyden. Not one request has been honored.
    The Chairman. Nor did I interpret it that way as well.
    Look, this has been a particularly contentious day as far 
as I am concerned. And you are in a tough position. There is no 
question about it. You are doing some very, very important work 
for this country, and I personally appreciate it.
    I want to thank you for being here today. And I want to 
thank all my colleagues for their questions and for their 
participation at today's hearings.
    Now, for any of my colleagues who have any written 
questions, I ask that you submit them by Wednesday, February 
21st.
    With that, this hearing is adjourned.
    [Whereupon, at 12:12 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


              Prepared Statement of Hon. Orrin G. Hatch, 
                        a U.S. Senator From Utah
WASHINGTON--Senate Finance Committee Chairman Orrin Hatch (R-Utah) 
today delivered the following opening statement at a Finance Committee 
hearing to consider the administration's fiscal year (FY) 2019 budget 
request for the Treasury Department and to discuss the implementation 
of the largest tax overhaul in more than 3 decades.

    This morning's hearing will be the first in a series of hearings on 
the President's fiscal year 2019 budget proposal. The committee 
welcomes Treasury Secretary Mnuchin, who is here to testify on the 
budget along with other matters that may arise from member questions.

    The President's budget includes numerous proposals to deal with a 
vast array of policy issues, including the opioid epidemic, 
infrastructure, modernizing government, national security, and lowering 
drug pricing and payments. I think I speak for all members of the 
committee when I say that we are all very interested in Secretary 
Mnuchin's thoughts and insights on a number of items proposed in the 
budget.

    The budget envisions that government's receipts will average 17.1 
percent of GDP over the 10-year budget window, slightly below the long-
run average of 17.4 percent over roughly the last 4 decades. It also 
has outlays averaging 20 percent of GDP over 10 years, which is also 
slightly below the long-run average.

    The budget also includes some tax proposals, but they are not as 
sweeping as those we've seen in prior budgets, as you would expect 
following enactment of the new tax law at the end of last year.

    Thus far, I am pleased by the success of the new tax law, which has 
already resulted in substantial benefits for American workers and job 
creators. Since the beginning of the year--and keep in mind that we're 
still in February--we've seen a stream of businesses come forward to 
announce plans to award bonuses, raise wages, or boost 401(k) 
contributions for their employees. Other companies have announced plans 
to expand business and hire more workers here in the United States.

    According to some estimates, more than 340 companies have issued 
these types of statements, impacting an estimated total of about 3.5 
million workers.

    I won't go through the whole list. But, I'd like to highlight a 
few.

    For example, Apple announced that it is going to hire 20,000 new 
employees and will issue $2,500 employee bonuses in the form of 
restricted stock units. Apple is also increasing its financial support 
for coding education, science, technology, engineering, arts, and math.

    Wells Fargo raised its base wage offered to employees from $13.50 
to $15.00 per hour, plus they have promised $400 million in charitable 
donations.

    And Best Buy distributed $1,000 bonuses to its full-time employees, 
and $500 bonuses for part-time employees, reaching more than 100,000 
workers in total.

    I remember during the floor debate on the tax reform bill, one of 
our fellow committee members and friends, Senator Stabenow, used a 
pretty great line. In evaluating the tax bill, she said: ``The proof is 
in the paycheck.'' Thus far, I think it's fair to say that Senator 
Stabenow was correct. The tax law has been in effect for less than 2 
months, and about 3.5 million workers in a variety of industries have 
already received bonuses, pay increases, enhanced retirement accounts, 
and other benefits as a direct result of the tax bill.

    And let's keep in mind that these announcements have been about 
direct decisions made by employers. They don't take into account the 
changes in the individual tax system, which have cut taxes considerably 
for tens of millions of American families.

    As the economy expands further, it's safe to say that American 
workers will continue to benefit, as will the businesses that employ 
them, which is precisely what we intended to accomplish with the tax 
reform bill.

    Of course, no bill or law is perfect, and, as implementation of the 
new tax law continues, it has become clear that one provision of the 
bill, section 199A, which provides a tax deduction for qualified 
business income, is having unintended effects in agricultural markets 
due to the treatment of qualified cooperative dividends.

    Though the aim of that provision, in part, was to preserve benefits 
previously available to agricultural cooperatives and their patrons for 
income attributable to domestic production activities, the current 
statutory language does not maintain the previous competitive balance 
between cooperatives, other agricultural businesses, and the farmers 
who sell their crops to them, which existed prior to enactment of the 
tax reform bill.

    Our colleagues here on the committee--in particular, Senators 
Grassley, Roberts, and Thune--have taken a leading role in identifying 
a solution for this issue. I'm committed to working with them and 
partnering with Ways and Means Chairman Brady as well as our other 
congressional colleagues and stakeholders in affected communities to 
develop a solution to this issue that does not choose winners and 
losers and is fair to everyone involved. Once a suitable solution is 
identified, my goal is to work with my colleagues to advance 
legislation that can be sent to the President for his signature as soon 
as possible.

    Of course, with any major tax reform bill, none of the important 
provisions we have written will have their intended effects if they are 
not properly implemented.

    That's why we will keep pressure on the administration to implement 
the law as Congress intended. I'm going to keep working to ensure that 
everyone recognizes and respects Congress' role in this process and the 
fact that the best place to get an explanation of Congress's intent is 
Congress itself.

    Where things are potentially unclear in the law, Congress should be 
the one to determine and explain what was intended, and, if need be, 
such as with section 199A, provide a timely fix.

    I will continue to facilitate this type of constructive interaction 
between Congress and the administration as things move forward, and I 
expect that Secretary Mnuchin will continue to ensure this important 
dialogue continues.

    With that, I look forward to hearing from Secretary Mnuchin about 
his views on the President's budget and the ongoing fiscal challenges 
facing the Nation.

                                 ______
                                 
             Prepared Statement of Hon. Steven T. Mnuchin, 
                 Secretary, Department of the Treasury
    Chairman Hatch, Ranking Member Wyden, and members of the committee, 
it is good to be here with you today.

    As Treasury Secretary, I am focused on advancing the President's 
policies that will bring prosperity to the American people through 
economic growth. This is a core focus of the President, and he is 
delivering. Last year, the economy had two straight quarters of 3 
percent or higher GDP growth, and the growth rate was higher than the 
average over the previous 20 years.

    The cornerstone of returning to more robust growth is deregulation 
and the Tax Cuts and Jobs Act. This law is already providing relief to 
middle-income families by putting money directly back into the pockets 
of hardworking American families.

    Since the law was enacted, over 350 companies have announced 
bonuses, wage increases, higher 401(k) matches, and new hiring, 
benefiting more than 4 million employees. We are seeing the fastest 
wage growth since 2009 at 2.9 percent.

    This is a meaningful difference in the lives of millions of 
American families.

    Our reforms are making America's companies competitive again, which 
is having a demonstrable effect on the economic success of the Nation. 
The Act lowered the statutory corporate tax rate from 35 percent--the 
highest in the industrial world--to 21 percent, below the industrial 
average. It also encourages companies to bring back the profits they 
have sitting overseas by eliminating the tax incentive for keeping that 
money offshore.

    Turning to the budget, the fiscal year 2019 budget reflects last 
year's tax reform legislation, which reduces the burden on taxpayers 
and sets the country up for long-term growth. The policies in this 
budget will drive down spending and grow the economy, which are both 
critical to putting the Nation on a sound fiscal path over the long 
term and reducing the budget deficit as a share of GDP.

    The past year has been an important step forward for our country. 
We will continue this progress by enacting policies that enable the 
American people to succeed, and I look forward to continuing to work 
with Congress to make this happen.

    Thank you very much.

                                 ______
                                 
      Questions Submitted for the Record to Hon. Steven T. Mnuchin
               Questions Submitted by Hon. Orrin G. Hatch
                    salt deduction and progressivity
    Question. Secretary Mnuchin, I'd like to ask you about the State 
and Local Tax deduction, sometimes called the SALT deduction. As you 
know, the Tax Cuts and Jobs Act capped the SALT deduction at $10,000 
per year. Prior to the Act, the nonpartisan Joint Committee on Taxation 
repeatedly provided information to Congress that the SALT deduction, as 
a so-called tax expenditure, provided benefits that skewed strongly to 
upper earners, who some people in certain contexts loosely label ``the 
rich.''

    Secretary Mnuchin, I have two questions regarding the SALT 
deduction in the context of the new tax law. I'll just pose the two 
questions, after which you can respond.

    First, can you please tell us about whether this capping of the 
SALT deduction was a move in a progressive direction or not?

    Answer. Capping Federal deductibility for State and local taxes 
(SALT) was a move in a progressive direction. Higher-income households 
were more likely to claim the SALT deduction than lower-income 
households, and the deduction amount rose with income among those who 
claimed it.\1\ Treasury's analysis also shows that, under the prior 
law, tax benefits of the SALT deduction were highly skewed toward the 
upper end of the income distribution.\2\ We expect a small share of 
taxpayers, consisting of mostly high-income households, will pay more 
in Federal income taxes because of the capped SALT deduction as 
included in the Tax Cuts and Jobs Act.
---------------------------------------------------------------------------
    \1\ https://www.irs.gov/statistics/soi-tax-stats-historic-table-2 
for the United States.
    \2\ https://www.treasury.gov/resource-center/tax-policy/tax-
analysis/Documents/Selected-Credits-Deductions-and-Exclusions-2017.pdf.

    Question. Second, we have heard some criticize the capping of the 
State and Local Tax deduction, saying it will lead to State and local 
governments providing less social services. But I wonder whether you 
believe that the Tax Cuts and Jobs Act require State or local 
---------------------------------------------------------------------------
governments to either cut spending or to cut taxes?

    Answer. The Tax Cuts and Jobs Act does not require any actions by 
State or local governments. Each State and local government must 
independently analyze the effect, if any, that changes made by the act 
will have on State and local fiscal policy choices. I also note that we 
expect the new law to generate economic growth that will benefit States 
and potentially increase their tax revenues.
                           winners vs. losers
    Question. Secretary Mnuchin, under the Tax Cuts and Jobs Act, can 
you please tell us what percentage of individual taxpayers will have a 
tax cut versus the percentage that will have a tax increase?

    Answer. According to the non-partisan Tax Policy Center, about 80 
percent of families will experience a tax cut and 5 percent will 
experience a tax increase.
         personal exemption swapped for bigger child tax credit
    Question. Secretary Mnuchin, it is my understanding that the 
replacement of the personal exemption with an enhanced Child Tax Credit 
moved the Internal Revenue Code in a more progressive direction. I 
wonder whether you agree with that assessment.

    Answer. Yes, I do. First, the personal exemptions would increase 
with a family's marginal tax rate, and, as such, provide bigger 
benefits as family incomes increase. In contrast, the expansion of the 
child credit, including the new $500 credit for dependents who did not 
qualify before, is generally worth about the same amount, regardless of 
income. Second, we have increased the value of the refundable portion 
of the child credit from $1,000 to $1,400, which helps insure that even 
moderate income families benefit from the credit's expansion.
                            debt vs. equity
    Question. Secretary Mnuchin, I understand that one of the effects 
of the Tax Cuts and Jobs Act is that corporations will rely less on 
debt financing and more on equity financing, as compared with the pre-
TCJA law. Do you agree with that assessment, and do you believe that 
there are any benefits associated with less reliance on debt in the 
capital structure of businesses?

    Answer. Yes. The different tax treatment of corporate debt and 
equity financing of investment was one of the largest distortions in 
the Code prior to passage of the TCJA when measured by effective 
marginal tax rates. Corporations were allowed to deduct interest 
payments at a high statutory tax rate, while dividends were not 
deductible. The preferential tax rate on dividends received by 
individuals only partially reduced this distortion. The higher tax on 
corporate equity encouraged corporations to take on more debt than 
would otherwise be optimal given relative non-tax financing costs. 
Excessive debt may increase the costs of financial distress, including 
bankruptcy, needing to engage in ``fire sales'' of assets, and lead to 
a lack of liquidity to finance productive investments. The lower 
corporate tax rate and limitation on interest deductions included in 
the TCJA both contribute to a considerable narrowing of the difference 
in effective marginal tax rates on debt and equity financed corporate 
investment. Consequently, the associated costs of excessive leverage 
should diminish as corporations alter their capital structures to rely 
less on debt.
                       corporate rate comparison
    Question. Secretary Mnuchin, prior to the Tax Cuts and Jobs Act, 
the U.S. statutory corporate tax rate, at 35 percent, was the highest 
among all OECD countries. Upon enactment of tax reform, the U.S. 
corporate rate was reduced to 21 percent, putting the U.S. rate below 
the OECD average. It had been a bipartisan goal for some time to reduce 
the corporate tax rate to bring it more in line with rates of our 
global competitors. Do you believe that the corporate rate reduction 
and international tax provisions in the Tax Cuts and Jobs Act will 
benefit not only American businesses, but also workers?

    Answer. The TCJA includes a number of provisions that directly 
increase the after-tax income of workers, including lower individual 
income tax rates for most brackets, larger standard deductions, and an 
increase in the child tax credit. In addition, workers benefit from 
TCJA's provisions such as expanded bonus depreciation and the permanent 
increase in section 179 expensing that encourage more investment in the 
United States. Higher levels of investment and capital stock 
accumulation are typically associated with increases in worker 
productivity, which in turn increases output and worker compensation. 
Estimates from the Joint Committee on Taxation indicate that the TCJA 
could increase employment by around 0.6 percent on average over the 10-
year budget period relative to baseline levels.
            social impact partnership to pay for results act
    Question. Mr. Mnuchin, I'm glad to see the President's budget 
proposes a focus on using evidence to fund what works. I've long been a 
champion of this effort, and I'm pleased to note that on February 9th 
the President signed into law the Social Impact Partnership to Pay for 
Results Act (as part of the Bipartisan Budget Act of 2018), a bill that 
will support innovative public-private partnerships to address critical 
social and public health challenges. As a result of this bill, States 
will identify key social challenges to address and the results they 
seek to achieve, and the Federal Government will sign an agreement with 
a State to pay if a rigorous, independent evaluation shows that they 
achieved the outcome. While many agencies will be involved in reviewing 
State proposals for financing under this new law, Treasury was chosen 
as the lead department for this initiative both because these 
initiatives will cut across multiple Federal agencies and because of 
the agency's financial management and contracting expertise.

    Implementing this law will require close coordination with the 
White House Office of Management and budget, as well as other Federal 
departments who may be involved in reviewing State proposals for 
performance-based funding. As this bill is now law, can you provide me 
with information regarding some of the major next steps your department 
plans to take to implement this policy?

    Answer. Treasury staff have been evaluating the requirements of the 
new law and making some initial determinations of how best to staff the 
initiative. We are also working with OMB on the operations of the 
interagency Council, and we are looking forward to working with the 
Commission once appointments have been made.

                                 ______
                                 
               Question Submitted by Hon. Johnny Isakson
    Question. A provision in the Tax Cuts and Jobs Act deals with stock 
attribution rules as they pertain to inbound companies as well as U.S.-
headquartered companies with investments in foreign companies. As the 
Treasury Department and the IRS issue guidance on the new tax law, I 
urge its implementation in a manner that is consistent with the 
provision's historical application and the intent of Congress. 
Specifically, prior to its repeal in the new tax law, Internal Revenue 
Code section 958(b)(4) prevented the ``downward attribution'' of stock 
ownership from a foreign person to a related U.S. person for purposes 
of determining the status of a corporation as a controlled foreign 
corporation (CFC).

    The new law's legislative history--the Senate Finance Committee 
report; a colloquy between Chairman Hatch and my colleague from 
Georgia, Senator Perdue; and the Conference Report--shows that Congress 
intended the modification of CFC rules should not result in income 
inclusions to a U.S. shareholder of a foreign corporation in cases 
where the U.S. shareholder is neither in control of the foreign 
corporation nor related to an affiliated group of which the foreign 
corporation is a part. The treatment outlined throughout the 
legislative process is also consistent with the purpose and historical 
application of the CFC rules over their 55-year history.

    Given this clear legislative intent and the grant of regulatory 
authority to implement such intent, will the Treasury Department and 
the IRS issue administrative guidance to ensure that the modification 
of the stock attribution rules is implemented in a manner that is both 
consistent with its historical application and the intent of Congress?

    Answer. We are aware of the legislative intent as evidenced by the 
legislative history, as well as the colloquy referred to in your 
question. We are still studying whether, and how, we can effectuate 
that intent, taking into account the statutory language.

                                 ______
                                 
                 Question Submitted by Hon. Pat Roberts
    Question. The IRS has for many years sought to collect the Federal 
air transportation excise tax, also known as the airline ticket tax, 
from aircraft management services (AMS) companies that manage and 
maintain fractional and wholly owned aircraft programs even though they 
provide private, non-commercial transportation. The IRS has pursued 
enforcement action for the ticket tax from AMS companies despite 
lacking statutory authority to do so. In addition, the agency's 
collection efforts against AMS companies has been inconsistent and 
arbitrary, effectively picking winners and losers and resulting in 
confusion within the AMS industry. Along with Senator Portman, I 
championed a fix for this issue in the recently passed Tax Cuts and 
Jobs Act (section 13822, H.R. 1) that was included in the final bill 
and States clearly that AMS companies are not subject to the ticket 
tax. Our view is that Congress has spoken and that the IRS should 
respect the law and stop trying to collect the ticket tax from AMS 
companies. Indeed, the conference report accompanying H.R. 1 states: 
``In 2017, the IRS decided not to pursue examination of the issue of 
whether amounts paid to aircraft companies by the owners or lessors of 
the aircraft are taxable until further guidance is made available.'' 
Although Congress has now spoken and settled the issue, I understand 
that the IRS is still pursuing collection of the tax against some AMC 
companies for past tax years, undermining the law and creating 
additional confusion and instability within the AMS industry.

    Will you follow the law and the clear intent of Congress by ceasing 
all collection activity of the air transportation ticket tax against 
aircraft management services companies?

    Answer. IRS is not pursuing examinations of aircraft management 
companies involving the issue of whether fees paid by aircraft owners 
to aircraft management companies for whole aircraft management services 
are taxable under Internal Revenue Code section 4261. Aircraft 
management companies may, however, be under examination for other 
issues such as charter services.

    Previous examinations of aircraft management companies involving 
whole aircraft management service fee issues have been closed, and the 
IRS has notified the aircraft management companies that this issue is 
not being pursued. The IRS is also working with aircraft management 
companies to resolve any claims for previously paid whole aircraft 
management service fees.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    Question. Secretary Mnuchin, the passage of tax reform was a 
significant accomplishment for the administration. However, I 
understand that in some respects the heavy lift for Treasury and the 
IRS is just beginning. What process or procedures do you have in place 
to determine the priority among the numerous issues on which you will 
no doubt be asked to provide guidance?

    Answer. We have put in place processes to ensure that we are 
focused on the right guidance so that we provide timely information to 
the taxpaying public and ensure that we will have the forms, 
publications, and instructions necessary for the next filing season. 
For example, we created a program management team at the IRS that is 
well connected with the Office of Tax Policy in the Department of 
Treasury, to help facilitate the evaluation and timing of guidance 
necessary to implement Tax Reform. We also have added a section our 
Priority Guidance plan that lists our tax reform guidance priorities, 
and this is updated quarterly: https://www.irs.gov/privacy-disclosure/
priority-guidance-plan.

    Question. Secretary Mnuchin, at your nomination hearing I asked you 
about the IRS's private debt collection (PDC) program and concerns I 
had with the slow roll-out. As I pointed out at the time, the number of 
accounts the IRS planned to release for private collection were 
woefully inadequate, guaranteeing the program would fall far short of 
collecting the hundreds of millions in revenue JCT estimates is 
possible. Unfortunately, despite your assurance of support for the 
program, this is exactly what has occurred. I understand the need for a 
testing period to ensure all systems are go, but what concerns me is 
that we are nearly a year in and the IRS is still placing accounts at 
little more than a trickle. I am told the program has the capacity to 
do more than 10 times the volume it is presently operating at.

    Why haven't Treasury and the IRS implemented the program to the 
full extent required under the law?

    Answer. The IRS is responsible for implementing the Private Debt 
Collection program and takes its obligations under the Private Debt 
Collection program seriously. The IRS has been working diligently 
toward a fully engaged Private Debt Collection program. The IRS 
delivered the first Private Debt Collection accounts to the Private 
Collection Agencies on April 10, 2017. The initial number of assigned 
cases was small to ensure the protection of taxpayer rights and the 
secure transmission of sensitive information. Over the next 9 months, 
the IRS increased the number of assigned cases and by the end of 
calendar year 2017, the IRS had delivered over 240,000 cases with a 
total of $1.7 billion outstanding tax debt to the Private Collection 
Agencies. In calendar year 2018, the IRS plans to deliver between 
700,000 and 800,000 cases totaling approximately $5 to $5.5 billion in 
total debt. Business cases will be assigned beginning in 2019.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
    Question. The new pass-through deduction is significant rate relief 
for all types of pass-through businesses. I think it holds untold 
potential for the on-demand economy and the rapidly increasing number 
of entrepreneurs who are turning to this sector on a part- or full-time 
basis. It also highlights the need for clear tax rules so these on-
demand workers can have the certainty that the IRS will respect their 
choice to engage in this sector as independent contractors. I 
introduced my NEW GIG Act (S. 1549) last year as one approach, and I 
was very pleased to see that the administration included that concept 
in this year's budget proposal. Can you talk about how you see clearer 
rules for worker classification helping individuals who want to work in 
this rapidly growing sector, how such rules would interact with the new 
pass-through deduction for small businesses and entrepreneurs, and any 
actions the administration plans to take to take in this area?

    Answer. Clearer rules for worker classification should remove one 
potential obstacle to growth of the on-demand economy by eliminating 
the uncertainty inherent in applying the common law employer-employee 
standards to workers in this sector. The new pass-through deduction is 
available to independent contractors in general and is not available to 
employees. Therefore, clearer rules for worker classification would be 
helpful in determining who is eligible to receive the pass-through 
deduction.

    Question. As you may be aware, Senator Carper and I had engaged 
your predecessor on the topic of modernizing the preventive care safe 
harbor that currently exists for HSA-eligible high-deductible health 
plans. Under current Treasury guidance, the safe harbor narrowly 
defines prevention, failing to recognize the value that chronic disease 
management has in preventing future complications and eventual need for 
more costly care. We believe that the Department has the authority to 
update this definition to permit plans to cover high-value, preventive 
care services related to a chronic condition, but nevertheless have 
proposed legislation to address the matter as well. Is this something 
that the Department is considering through executive action, and if 
not, will you commit to working with Congress on the legislation 
Senator Carper and I have introduced?

    Answer. While Treasury and the IRS are continuing to consider the 
appropriate standards for preventive care for HSA-eligible high 
deductible health plans under current law, and recently issued a 
specific request for comments on those standards and related issues, it 
is likely that legislation could provide for more flexible standards. 
Treasury is committed to working with Congress to pursue sound policies 
for defining preventive care for purposes of the rules for high 
deductible health plans and HSAs.

    Question. In 2015, Congress passed the Trade Facilitation and Trade 
Enforcement Act (TFTEA) with the stated goal of ensuring a ``fair and 
competitive trade environment.'' The Treasury Department and Customs 
and Border Protection (CBP) are required to promulgate regulations by 
February 24, 2018 that will allow manufacturers in the United States to 
fully realize the benefits of TFTEA, including with respect to updated 
drawback rules to help promote exports. To date, those regulations have 
not been released and the Department has not provided a timeline for 
the rulemaking process. This committee, including members that were 
involved in the crafting of TFTEA, have a strong interest in ensuring 
that manufacturers are able to both utilize the benefits of the bill 
and that the regulations are crafted consistent with the bill's 
language and congressional intent. Please provide the committee with an 
update as to the status of the TFTEA regulations and rulemaking process 
and when manufacturers in the U.S. can expect to fully utilize the 
benefits of the bill.

    Answer. A Notice of Proposed Rulemaking (NPRM) on Modernized 
Drawback was published in the Federal Register on August 2, 2018 (83 
Fed. Reg. 37886), and the public comment period closed on September 
17th. CBP will consider the comments received and prepare responses to 
be published with a final rule and provide that to Treasury for final 
approval. Although we anticipate many comments on the complex issue of 
drawback, we will be working with CBP to answer the comments and 
publish a final rule.

                                 ______
                                 
                Questions Submitted by Hon. John Cornyn
    Question. Mr. Secretary, I want to highlight a pressing national 
security issue involving China, and a bill that you and I developed 
together to address this issue. The context is China, which uses both 
legal and illegal means to vacuum up advanced U.S. technology and know-
how in an effort to turn it against us and erase our national security 
advantage. One of these legal means is investment, which China has 
weaponized for these very purposes. Thanks for your collaboration with 
Senator Feinstein and me over the past year on the Foreign Investment 
Risk Review Modernization Act (S. 2098), which would update the 
jurisdiction of the Committee on Foreign Investment in the United 
States (CFIUS) to reflect the 21th-
century landscape.

    As you know, CFIUS plays a very important role in reviewing foreign 
investment transactions and vetting them for national security risks.

    My legislation, which is supported by members on both sides of the 
aisle, takes a targeted approach to addressing specific national 
security problems, while also seeking to not unduly chill foreign 
direct investment.

    Mr. Secretary, on a scale of 1 to 10, how important is it to our 
national security that we modernize CFIUS?

    Answer. It is of the highest importance. Modernizing CFIUS to 
better address threats posed by today's foreign investment landscape is 
critical to protecting our national security, and implementing the 
Foreign Investment Risk Review Modernization Act (FIRRMA) is a priority 
for me and the administration. That is why the administration supported 
House and Senate passage of your legislation, FIRRMA, and I am truly 
grateful for your leadership on this issue. Using the new authorities 
afforded to us in FIRRMA, we have moved quickly to develop a pilot 
program related to critical technology and published regulations for 
this pilot program on October 11th.

    Question. How important is cooperation with our friends and allies 
in ensuring that investments involving China and other competitors do 
not jeopardize our national security?

    Answer. Engagement with our friends and allies on these issues is 
essential given that our own national security is linked to the 
security of our closest friends and allies, who face similar threats. 
Due to increasingly globalized supply chains, it is crucial to our 
national security that our allies maintain robust and effective 
national security review processes to vet foreign investments into 
their countries. FIRRMA recognizes this by providing CFIUS the tools to 
better collaborate with our friends and allies and encourage them to 
adopt similar processes. We have already begun engaging with foreign 
authorities on this topic.

    If the bill is enacted, how extensively do you intend to exercise 
this ``safe list'' authority, and do you envision a decent number of 
countries being on that list eventually?

    Answer. The final legislation included a ``country specification'' 
provision that allows CFIUS to develop regulations that limit the 
application of the provisions related to real estate and ``other 
investments'' to certain categories of foreign persons. We will need to 
take the time to ensure that any such specifications are consistent 
with the protection of our national security. The pilot program is 
expected to provide useful information to inform the full 
implementation of FIRRMA, including the ``country specification'' 
provision.

                                 ______
                                 
                Questions Submitted by Hon. Bill Cassidy
                      trade-based money laundering
    Question. Does FinCEN have a process for verifying information 
contained in suspicious activity reports submitted by financial 
institutions? If so, please describe the process.

    Answer. FinCEN continually assesses BSA data for analytic and 
enforcement purposes, producing numerous reports for law enforcement 
and the intelligence community related to trade and trade based money 
laundering (TBML) in recent years. Additionally, authorized government 
users perform approximately 27,000 queries daily through FinCEN's 
secure portal to obtain SARs and other BSA reports in support of 
criminal, national security, regulatory and tax investigations. These 
users, including law enforcement investigators and prosecutors, review 
BSA information for potential investigative use and can further 
validate BSA information through subpoenas and other investigative 
methods.

    FinCEN also monitors Suspicious Activity Reports (SARs) for 
systemic errors associated with data quality, i.e., ensuring that 
filing institutions report required data in accordance with Bank 
Secrecy Act (BSA) regulations, including specific SAR filing 
instructions. FinCEN will notify a financial institution when it finds 
systemic filing errors, requesting that the institution take necessary 
action to correct existing and prevent future errors. FinCEN does not 
verify the subject-related or transactional information reported in 
SARs, which are based on the filing institution's records, direct 
conversations with customers, and the filing institution's research on 
customers or other parties associated with the suspicious transactions. 
Pursuant to FinCEN regulations, SAR filers are required to keep records 
for 5 years (31 CFR Sec. 1020.320(d)). When FinCEN has a particular 
interest in a SAR or subset of SARs, FinCEN can review SAR attachments 
containing additional transactional details and/or obtain underlying 
records from the filing institution. FinCEN can also validate some 
entities or activities reported in a SAR by cross-referencing other BSA 
reports, government, and open-source records (such as corporate, real 
estate, or other commercial records).

    Question. Would changes in form or processing of suspicious 
activity reports allow FinCEN to address threats more efficiently or 
effectively? If so, please describe the potential changes.

    Answer. FinCEN's SAR form is well-designed to assist law 
enforcement in addressing trade-based money laundering (TBML). The BSA 
database currently reflects 6,720 entries for TBML through December 
2017, with 2017 accounting for 1,460 entries. In March 2011, FinCEN 
issued an automated SAR form to facilitate prompt reporting through the 
FinCEN Electronic BSA E-Filing System. The report now includes numerous 
check boxes to enable the filer to quickly select the type of activity, 
including TBML that the filer believed to be occurring. A recent 
revision to the form also included additional capabilities that allow 
reports to be more effectively flagged for additional attention. For 
example, the revised version allows the filer to include a ``Note to 
FinCEN,'' allowing FinCEN analysts to more quickly identify and access 
that report. As a further enhancement, the BSA database has added the 
capability to ``flag'' or alert law enforcement of a particular SAR, 
which allows law enforcement to identify the SAR and quickly follow-up 
with the filing institution(s).

    Question. Please describe the ways in which FinCEN coordinates its 
anti-trade-based money laundering activities with the IRS, CBP, DHS, 
DOJ, and other Federal agencies.

    Answer. As part of its anti-TBML activities, FinCEN shares TBML 
typologies, trends, and schemes based on its review and analysis of BSA 
data with its on-site law enforcement liaisons, including the IRS-CI, 
DHS-HSI, FBI, U.S. Secret Service, DEA, and U.S. Federal Marshals 
Service on a regular basis. This collaboration takes many forms, to 
include substantive information exchange, FinCEN-convened training 
sessions, and specialized BSA analytic support. FinCEN also engages 
with financial institutions across the country at AML conferences to 
highlight specific FinCEN advisories and more broadly, to raise 
awareness of typologies including TBML. For instance, FinCEN recently 
hosted a TBML conference for 150 participants, including 20 from 
foreign jurisdictions (U.K., Canada, Mexico, and Australia), and 130 
from U.S. industry, academia, defense and intelligence communities, and 
Federal law enforcement agencies. IRS-CI, CBP, HSI, State Department, 
and U.S. Attorneys' Office personnel were among the key presenters and 
attendees at the conference. Since the conference, FinCEN has seen 
increased information sharing and casework collaboration among 
participants on TBML and other topics. Additionally, FinCEN hosted a 
FinCEN Exchange public-private information sharing briefing on TBML in 
May 2018 with law enforcement partners and financial institutions.

    Another example of operational coordination with our law 
enforcement partners is FinCEN's TBML-focused Geographic Targeting 
Orders (GTOs), imposing additional recordkeeping or reporting 
requirements on domestic businesses in a specific geographic area. In 
October 2014, FinCEN issued a GTO on the Los Angeles Fashion District 
to help identify and assist law enforcement pursue cases against 
persons engaged in illicit, currency-backed trade movements to Mexico 
and Colombia. In April 2015, FinCEN issued a GTO to help identify and 
pursue cases against persons engaged in trade-based money laundering 
involving electronics in Doral, Florida. These GTOs provided FinCEN and 
our law enforcement partners with useful financial intelligence and 
operational leads, which law enforcement is still actively pursuing. 
FinCEN also works closely with the other TFI components to determine 
other potential actions that may be appropriate to counter TBML.

    Similarly, FinCEN has a number of other examples of engaging with 
the financial sector to share information related to TBML through 
advisories and other informational programming. For example, in 2010 
following the Financial Action Task Force's work on TBML, and 
supplemented with analysis of U.S. financial reporting and law 
enforcement cases, FinCEN issued an Advisory to inform and assist the 
financial industry in reporting suspected instances of TBML. In May 
2014, FinCEN issued an advisory on TBML and Funnel Accounts. The 
advisory detailed how drug trafficking organizations used funnel 
accounts as part of a larger TBML scheme to launder drug proceeds. The 
advisory provided red flag indicators of such activity to financial 
institutions so that they could better detect, mitigate, and report 
such activities to FinCEN and law enforcement authorities through more 
effective SAR reporting. Most recently, in November 2017, FinCEN issued 
an advisory on how North Korea uses front and trade companies to 
disguise, move, and launder funds to finance its nuclear and ballistic 
missile programs.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
         alcohol and tobacco tax and trade bureau (ttb) funding
    Question. Secretary Mnuchin, 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. 
Since 2015, Congress has acted in a bipartisan, bicameral manner to 
address this backlog by appropriating $5 million annually to streamline 
and accelerate formula and label approvals.

    The TTB FY 2019 budget justification proposes to implement a hiring 
freeze within its ``Protect the Public'' function, which is projected 
to reduce staffing by 14 FTE and reduce expenditures by nearly $2 
million.

    As you know, the formula and label approval program area is housed 
in the ``Protect the Public'' function. The budget justification states 
that the reduction will be taken across multiple program areas. Please 
describe specifically how this hiring freeze is expected to apply to 
each program area's FTE and expenditure levels.

    Answer. TTB takes its role in protecting the public very seriously. 
The bureau had to make many difficult choices in the FY 2019 request. 
TTB continues to improve its efficiency through tools such as 
electronic filing, streamlined processes, and risk modeling. The budget 
will fund further technology modernization while maintaining current 
service levels to industry. These investments will enable TTB to 
improve efficiency and provide better service in the long term with 
slightly reduced staffing levels.

    Question. Since 2017, Congress has acted in a bipartisan, bicameral 
manner to increase trade practices enforcement resources by $5 million 
annually to ensure craft beverage producers have fair access to tap 
lines and store shelves, and to ensure independent distributors have 
fair access to the marketplace. These new resources have increased 
trade practice enforcement activity from one case annually to 15 cases 
annually. The number of active cases illustrates that trade practices 
enforcement continues to present an enforcement challenge for TTB and 
industry.

    The TTB FY 2019 Budget Justification proposes to scrap the $5 
million appropriation for trade practices enforcement, reducing the 
number of active cases from 15 to one. In addition, the budget 
justification states that this drastic cut to resources will require 
TTB to ``reevaluate'' the trade practices enforcement program.

    Please describe why the administration believes robustly enforcing 
fair trade practices laws is no longer necessary.

    Answer. TTB had to make difficult choices in the FY 2019 request. 
The request focuses TTB's limited resources on maintaining service 
levels to the alcohol industry in areas such as formula and label 
approvals. These are critical to small business success. TTB also has 
focused on modernizing IT to make TTB more efficient and effective in 
providing service. In this era of very limited resources, it was not 
possible to fund the trade enforcement work.

    Question. Please explain what the phrase ``reevaluate the program'' 
is intended to mean in the context of these dramatic proposed cuts to 
trade practice enforcement resources.

    Answer. In reevaluating the Trade Practice Enforcement program, 
facilitating voluntary compliance is the most efficient means of tax 
administration, and it remains a priority for TTB in FY 2019. To this 
end, TTB will enhance its guidance related to Federal alcohol laws and 
regulations, and explore opportunities to streamline regulations and 
requirements to reduce compliance burden.
                   conservation easement syndication
    Question. Secretary Mnuchin, on March 29, 2017, I wrote to IRS 
Commissioner John Koskinen about the growth in abusive tax shelters 
involving the syndication of conservation easements. I asked the IRS to 
provide a report on the nature and scope of this problem. On July 13, 
2017, the IRS provided a partial response that revealed participants in 
these syndication deals claimed deductions that were nine times the 
amount of their original investment. The IRS also indicated that 
aggregate contribution deductions claimed by just 40 investors exceeded 
$217 million.

    The Treasury Department issued Notice 2017-10, identifying these 
syndication transactions as abusive tax shelters and requiring 
participants to disclose their involvement to the IRS. The notice was 
also intended to deter future deals, however, media reports suggest 
these deals are still taking place.\3\
---------------------------------------------------------------------------
    \3\ Peter Elkind, ``The Billion-Dollar Loophole,'' ProPublica, 
December 20, 2017.


    Historically, when the Treasury Department and the IRS issue a 
notice ``listing'' a certain transaction as an abusive tax shelter, the 
promotion and use of such schemes stops. Can you confirm whether this 
---------------------------------------------------------------------------
activity is continuing despite the Notice?

    Answer. Once 2017 Federal income tax returns are filed, the IRS 
will evaluate the information on these returns, as well as other 
information available to the IRS, to determine the impact of the notice 
on this activity.

    Question. Please describe whether the administration has taken 
enforcement actions against the promoters of these abusive shelters 
identified via Notice 2017-10.

    Answer. The IRS has responsibility for enforcement of the internal 
revenue laws, including taking enforcement action against tax shelter 
promoters in appropriate cases. Prior to release of the notice, the IRS 
has taken some enforcement actions which continue, and the IRS is 
currently analyzing the information provided in the disclosures to 
determine next steps for enforcement.

    Question. Please describe whether the administration has developed 
plans to take any enforcement actions against the promoters of these 
abusive shelters identified via Notice 2017-10.

    Answer. The IRS has responsibility for enforcement of the internal 
revenue laws, including taking enforcement action against tax shelter 
promoters in appropriate cases. The IRS is currently analyzing the 
information provided from the disclosures and determining the most 
effective way to address compliance issues.

    Question. Will Treasury propose regulatory or statutory changes to 
address these abuses if Notice 2017-10 is shown to be insufficient to 
curb the use of these tax shelters?

    Answer. Fulfilling the intent of Notice 2017-10 continues to be a 
top priority for the Department. As indicated in the responses to the 
above questions, Treasury and the IRS are waiting on the relevant 
information to evaluate the impact of Notice 2017-10.

    With that said, Treasury is encouraged to hear of congressional 
interest in addressing the issue. Treasury is in the process of 
reviewing H.R. 4459 and S. 2436. While it remains unclear if a 
legislative solution will ultimately be needed, Treasury supports the 
efforts to lay the groundwork in the case that it is.
       new republican tax law and irs telephone level of service
    Question. In the Treasury Department's Budget in Brief, the 
administration states that implementing the new Republican tax law 
``will require extensive administrative work in calendar years 2018 and 
2019.'' To implement this law, the brief says ``the IRS will need 
immediate additional resources.''

    The administration estimates that, due to the tax law, the IRS will 
receive four million additional phone calls, a 17-percent increase from 
fiscal year 2017.

    Despite recognizing the IRS's need for greater resources and 
anticipating millions of taxpayers needing assistance navigating the 
complexities of the new tax law, the President's budget cuts funding 
for taxpayer services at the IRS by 4.63%. Funding specifically for 
Filing and Account Services for taxpayers is cut 6.47%. This budget 
activity funds taxpayer services such as issuing refunds and processing 
of paper and digital returns.

    The administration projects that Customer Service Representative 
Level of Service (LoS) for Filing and Account Services will fall from 
an estimated 75 percent in FY 2018 to 47 percent in FY 2019. The LoS 
rate measures the share of taxpayers calling the IRS who get through to 
a person or an automated message. According to the administration's 
Congressional Justification of the IRS budget, Level of Service is the 
``the relative success rate of taxpayers who call the IRS toll-free 
number seeking assistance from a customer service representative.''

    What this means, in other words, is that fewer than half of 
taxpayers who try to call the IRS in 2019 would be able to get through.

    Please provide the administration's rationale for cutting filing 
services and limiting taxpayers' ability to successfully call the IRS 
for help just when taxpayers would need assistance most--especially to 
assist with understanding the complicated new Republican tax law.

    Answer. The Department requested $397 million for implementing tax 
reform, including $75 million for taxpayer assistance, education, and 
outreach efforts and $3 million for taxpayer publications and guidance 
efforts. Based on anticipated call volumes and the requested resources, 
the IRS will ensure that a sufficient number of customer service 
representatives are available to answer taxpayer questions and that all 
CSRs and all assistors in IRS taxpayer assistance centers will be 
trained on the new tax law. The IRS has begun answering tax reform tax 
law questions year-round, not just during filing season. In addition, 
the 2019 budget includes resources for expanding taxpayer self-
assistance tools and digital communications so that taxpayers have the 
option to interact with the IRS online and for IT modernization efforts 
that will improve the IRS's ability to respond to taxpayers promptly 
and securely when they interact with the IRS.

    Question. Funding specifically for Pre-filing Taxpayer Assistance 
and Education is effectively flat-funded, with a meager increase of 
0.72%. This budget activity includes helping taxpayers understand and 
meet their tax obligations, which includes tax law interpretation and 
advocate services.

    Neither the administration's Budget in Brief nor the congressional 
justification project the Customer Service Representative Level of 
Service for Pre-filing Taxpayer Assistance and Education.

    Given the administration's proposal to flat-fund pre-filing 
services, what are the administration's projections of Customer Service 
Representative Level of Service for Pre-filing Taxpayer Assistance and 
Education in FY 2019?

    Answer. Based on anticipated call volume and the requested 
resources, the IRS will ensure that a sufficient number of customer 
service representatives are available to answer taxpayer questions and 
that all CSRs and all assistors in our TACs will be trained on the new 
tax law. In addition, the IRS will answer tax reform tax law questions 
year-round, not just during filing season.

    Question. What are the administration's projections of how the near 
flat-funding of pre-filing services would impact taxpayer compliance?

    Answer. We will be closely monitoring taxpayer compliance. The IRS 
is ensuring online resources like the withholding calculator, IRS 
guidance, and other web services are available to taxpayers and in 
addition, the IRS will answer tax reform tax law questions year-round, 
not just during filing season.

    Question. Does the administration project an increase in the number 
of unintentionally non-compliant returns, due to the new tax law and 
the flat-funding of pre-filing services?

    Answer. Not at this time. Tax reform is expected to simplify the 
filing process for many taxpayers and the frequency of certain disputes 
between taxpayers and the IRS. For example, approximately 90 percent of 
taxpayers will now be eligible to claim the increased standard 
deduction, up from approximately 75 percent. These taxpayers will no 
longer have to file Schedule A to Form 1040, and many will no longer 
need to maintain records associated with claiming itemized deductions.

    Question. Does the administration project an increase in the number 
of taxpayers paying penalties for unintentionally non-compliant 
returns, due to the new tax law and flat-funded pre-filing services?

    Answer. Not at this time.

                                 ______
                                 
             Questions Submitted by Hon. Sheldon Whitehouse
    Question. The United States Code, 26 U.S.C. Sec. 7206(1), makes it 
a felony punishable by up to 3 years of imprisonment and $100,000 in 
fines for a person who: ``[w]illfully makes and subscribes any return, 
statement, or other document, which contains or is verified by a 
written declaration that it is made under the penalties of perjury, and 
which he does not believe to be true and correct as to every material 
matter.''

    Why is it important to ensure that taxpayers are providing accurate 
information?

    Are persons also subject to penalty under the criminal false 
statement statute, 18 U.S.C. Sec. 1001, if they knowingly make material 
false statements to the IRS?

    What steps do the Treasury and the IRS take to ensure that 
statements made to the IRS are accurate?

    Does the Treasury or IRS review other filings and statements the 
person has made to the IRS to verify that the information regarding 
material matters is consistent?

    Does the Treasury or the IRS review other filings the person has 
made to other Federal agencies to verify the information regarding 
material matters is consistent?

    Answer. The IRS has primary responsibility for tax administration 
and enforcement of the tax laws. In criminal cases, the IRS Criminal 
Investigation division works with the Department of Justice to 
prosecute those committing crimes. Therefore, these are questions 
better answered by the IRS. That being said, the Treasury Department 
fully supports the IRS's efforts to enforce both the civil and criminal 
tax laws.

    Question. According to the IRS, the net tax gap--the difference 
between what people and companies owe in taxes and what the IRS 
ultimately collects--exceeds $400 billion per year. This should be the 
low-hanging fruit of deficit reduction; this is money owed under the 
law. The budget request notes that an additional $15 billion for 
enforcement over 10 years will generate $44 billion in collections, 
``yielding a net savings of $29 billion.'' In other words, every dollar 
spent on enforcement brings in three.

    Do you agree that additional enforcement dollars would produce a 
positive return and help reduce the deficit?

    Answer. The enforcement dollars proposed by the administration in 
the FY 2019 budget will help reduce the deficit. The enhanced 
enforcement will also help deter non-compliance, thereby strengthening 
voluntary tax payments and protecting revenue. The administration 
proposes an IRS program integrity cap adjustment of $362 million in FY 
2019 (with additional resources in future years) to expand and improve 
tax enforcement over the 10-year budget window. Ultimately, a 10-year 
investment of $15 billion will result in $44 billion in additional 
revenue, with a net savings of $29 billion.

    Question. Are you aware that the FY19 request for the IRS 
enforcement budget is nearly $1 billion lower than Congress 
appropriated for it in 2011?

    Answer. I am familiar with the enforcement budget. I look forward 
to working with Congress on IRS funding in the coming appropriations 
negotiations.

    Question. With the potential for enforcement dollars to cut the 
deficit, why hasn't the President requested more?

    Answer. The administration proposes an IRS program integrity cap 
adjustment of $362 million in FY 2019 (with additional resources in 
future years) to expand and improve tax enforcement over the 10-year 
budget window. The administration proposes a 10-year investment of $15 
billion, which will result in nearly $44 billion in additional revenue, 
with a net savings of $29 billion. I look forward to working with 
Congress to ensure support for the IRS's tax enforcement functions.

    Question. Currently no jurisdiction in the United States requires 
shell companies to disclose their beneficial owners. At the hearing on 
the President's FY 2019 budget, in response to my question regarding 
abuse of anonymous shell companies, you said ``we need to have a way of 
tracking beneficial ownership.''

    Do you agree the United States' lack of beneficial ownership 
collection presents a serious shortcoming in our anti-money laundering 
regime?

    Answer. Treasury's ability to combat tax evasion and to detect, 
deter, and disrupt money laundering and terrorist financing would be 
greatly enhanced through reporting of beneficial ownership information. 
Illicit actors may more easily hide funds and avoid detection through 
business entities when the true owner is not disclosed. Treasury's 
Customer Due Diligence (CDD) rule, which was implemented by covered 
financial institutions in May 2018, requires those institutions to 
identify and verify the identity of the beneficial owners of their 
legal entity customers. The definition of beneficial owner includes all 
natural persons who own 25 percent or more of the equity in a legal 
entity, as well as one natural person who controls the legal entity. 
This change will assist financial institutions in managing risks and 
law enforcement in pursuing criminals who launder illicit proceeds 
through legal entities. This is an important step forward. We look 
forward to working with Congress on legislation that further addresses 
this issue.

    Question. How can shell companies be used by criminals to avoid 
paying taxes?

    Answer. Shell companies are sometimes a vehicle used in business 
transactions to avoid disclosing the identity of the beneficial owner 
of an entity and thus allow the entity to operate anonymously. Shell 
companies are used in lawful activities and in illegal activities. 
Perpetrators of tax evasion and other criminal activity use shell 
companies to conceal their beneficial owners and hinder government 
agencies or others in making legitimate determinations of ownership of 
assets and income. In some cases, the shell company allows a person to 
own both sides of what otherwise appears to be a legitimate transaction 
but is structured to move money to a more advantageous location or to 
obscure its source.

    Question. What other risks do abuse of anonymous shell companies 
pose to the U.S. financial system?

    Answer. U.S. companies with hidden beneficial owners have been used 
by arms dealers, narco-traffickers, proliferators of weapons of mass 
destruction, and facilitators of massive health-care and mortgage 
frauds, among other abuses. As one example, Viktor Bout, a Russian arms 
dealer used at least 12 companies incorporated in the United States to 
carry out his arms dealing. Similarly, Tareck El Aissami, the current 
Venezuelan vice president, and Samark Lopez Bello (both designated 
pursuant to the Foreign Narcotics Kingpin Designation Act in February 
2017) created five U.S. LLC companies in Florida to hold real estate or 
other U.S. assets in Lopez Bello's name. Similarly, in June 2017, four 
people in Florida were indicted as part of a nationwide round-up of 
alleged perpetrators of health-care fraud. In this case, the co-
conspirators submitted more than $8 million in false claims to Medicare 
for home health services that were never provided, and allegedly 
created a series of shell companies to launder the proceeds for their 
own benefit.

    Answer. Would having access to beneficial ownership information 
make Treasury investigations into tax evasion and money laundering 
easier?

    Answer. Yes. Treasury's ability to combat tax evasion and to 
detect, deter, and disrupt money laundering and terrorist financing 
would be greatly enhanced through reporting of beneficial ownership 
information at the time of company formation. We look forward to 
working with Congress on legislation that further addresses this issue.

    Question. At a January 2018 Senate Banking Committee hearing, Greg 
Baer, president of the Clearinghouse Association, said that he ``could 
not think of a valid reason you wouldn't want law enforcement to know 
who owns your company.'' Do you agree with Mr. Baer?

    Answer. We believe that law enforcement access to information that 
identifies beneficial owners of legal entities is crucial for 
investigations of money laundering, terrorist financing and other 
financial crimes.

    Question. When do you expect the administration to take a position 
on the various pieces of legislation in this area?

    Answer. As of the date of this hearing, Treasury is aware of 
options in proposed legislation to report beneficial ownership 
information at the State or the Federal level. We look forward to 
continue working with Congress on legislation that further addresses 
this.

    Question. In January 2016, FinCEN issued Geographic Targeting 
Orders (GTOs) to require U.S. title insurance companies to report 
beneficial ownership information on shell companies used to purchase 
certain luxury residential real estate in Manhattan and Miami without a 
bank loan and made, at least in part, using a cashier's check or 
similar instrument. In July 2016 and February 2017, FinCEN reissued the 
original GTOs and extended coverage to all boroughs of New York City, 
two additional counties in the Miami metropolitan area, five counties 
in California (including Los Angeles, San Francisco, and San Diego), 
and the Texas county that includes San Antonio. In August 2017, FinCEN 
also expanded the GTOs to include transactions conducted in the city 
and county of Honolulu, Hawaii. Within this narrow scope of real estate 
transactions covered by the GTOs, FinCEN's data indicates that about 30 
percent of reported transactions involve a beneficial owner or 
purchaser representative who was also the subject of a previous 
suspicious activity report.

    Question. The current GTO is set to expire on March 20, 2017. Does 
FinCEN plan to further extend the order?

    Answer. FinCEN uses GTO data on an ongoing basis for both tactical 
and strategic purposes. FinCEN, for example, has analyzed real estate 
GTO data to identify (1) those subjects who are also flagged in SARs, 
and trends associated with these cross referenced SARs; (2) industry 
responses to the GTOs themselves, to include indicators of potential 
evasion; (3) potential targets to share with law enforcement; and (4) 
transactions requiring follow up for further review and potential 
enforcement action.

    In March, FinCEN renewed the GTO for an additional 6 months. In the 
future, FinCEN may consider modifications to the GTOs as appropriate.

    Question. What does the FinCEN and the Treasury Department do with 
the information collected from the GTOs?

    Answer. FinCEN uses GTO data on an ongoing basis for both tactical 
and strategic purposes. FinCEN, for example, has analyzed real estate 
GTO data to identify (1) those subjects who are also flagged in SARs, 
and trends associated with these cross referenced SARs; (2) industry 
responses to the GTOs themselves, to include indicators of potential 
evasion; (3) potential targets to share with law enforcement; and (4) 
transactions requiring follow up for further review and potential 
enforcement action. FinCEN also uses GTO data to help achieve broader, 
more strategic goals. For example, FinCEN uses GTO data to help take a 
more data-centric approach to rulemaking by folding its analysis into 
the regulatory review and development process. For example, GTO data 
can be used to help develop more focused Advance Notice of Proposed 
Rulemaking (ANPRMs), so that industry responses are more focused. This 
allows FinCEN to develop more targeted policy responses to AML/CFT 
risks in areas such as real estate that may be the subject of a GTO. 
FinCEN also has mechanisms, such as through an advisory, where key 
risks identified in the GTO, can be shared with the real estate market 
and the financial sector.

    Question. What do FinCEN and the Treasury Department do with the 
information collected from the GTOs?

    Answer. FinCEN analyzes the real estate GTO data to identify, among 
other things, the following: (1) persons involved in the transactions 
who are the subjects of SARs and any trends in such SARs; (2) market 
responses to the GTOs themselves, including potential evasion; (3) 
potential targets to share with law enforcement; (4) transactions 
requiring follow up for further review and potential enforcement 
action; and (5) to inform potential rulemaking.

    Question. At the hearing on the President's FY 2019 budget, I asked 
you to provide information about why the IRS stopped publishing the 
``The 400 Individual Income Tax Returns Reporting the Largest Adjusted 
Gross Incomes'' data. This information served to illustrate trends in 
income and tax inequality in the United States.

    Why did the IRS stop publishing this information?

    Answer. The IRS and Treasury revise publications and publication 
schedules from time to time, as data sources and user needs change. 
Recent publications by the IRS and Treasury on the distribution of 
incomes include tables on the shares of AGI received by income 
percentile (including the top 0.001 percent) over time and the 
distribution of cash incomes and tax burdens for various years.

    Question. Knowing that this information is useful to the public and 
to members of Congress, will you commit to reviving this annual report?

    Answer. We do not plan to revive this report. I believe that the 
reports cited above and other data released by the IRS are more useful 
than a report based on a fixed number of taxpayers.

    Question. What role does Treasury play in ensuring foreign money is 
not entering our political system through outside organizations like 
LLCs and tax exempt organizations?

    Answer. We refer you to the Federal Election Commission for 
questions regarding U.S. elections laws and campaign finance. FinCEN 
focuses its enforcement activity on the Bank Secrecy Act authorities it 
is charged with administering. The information reported to FinCEN 
pursuant to the Bank Secrecy Act is made available to law enforcement 
agencies via their access to the Bank Secrecy Act database.

    Question. Does FinCEN play a role in these efforts? If not, what 
obstacles prevent FinCEN from doing so?

    Answer. FinCEN's role in these efforts includes (a) ensuring the 
data integrity of the BSA database for use in the investigations; (b) 
using its authorities to strategically gather relevant information; (c) 
facilitating and supporting law enforcement access to BSA data; and (d) 
providing analysis of BSA data related matters, as needed, to assist 
investigations.

    Question. Are the current disclosures to the IRS by such groups 
sufficient to ensure that foreign actors are not funneling money 
through cutouts or domestic organizations? If not, what recommendations 
do you have to improve those disclosures?

    Answer. The information that the IRS collects from LLCs and tax-
exempt organizations is sufficient to enforce the Internal Revenue 
Code. We refer you to the Federal Election commission for questions 
regarding disclosure under campaign finance laws.

    Question. Does the IRS have sufficient resources to enforce 
501(c)(4) rules?

    Answer. The IRS continues to focus enforcement efforts on areas 
with the highest risk of noncompliance and allocates its resources as 
necessary.

    Question. The FY 2019 congressional budget justification notes that 
``it is imperative that the IRS implement and sustain a robust security 
strategy in an ever-
evolving threat and technology environment'' and that the IRS is 
undertaking a number of steps to ``meet emerging security needs.''

    Do you believe that the IRS and the Treasury Department have 
sufficient resources and authorities to attract the most capable 
cybersecurity professionals to implement this strategy?

    Answer. Enacting the budget, including approximately $304 million 
for IRS cybersecurity and roughly $25 million for Treasury-wide 
cybersecurity initiatives, would allow us to implement this strategy. 
Recruiting qualified cybersecurity professionals remains a challenge. 
Treasury would benefit from additional hiring authorities, including 
streamlined critical pay authority for the IRS.

    Question. Would the recruiting and talent-management challenges 
related to cybersecurity professionals be more efficiently managed if a 
central agency or office were made responsible for FISMA audits and 
penetration testing, for example?

    Answer. Treasury is open to exploring a centralized solution. In 
the case of the IRS, restoring streamlined critical pay will address 
many of the most pressing workforce challenges related to IT, including 
cybersecurity. The IRS successfully used this authority to recruit top 
talent from the private sector before it expired.

    Question. How many matters involving false statements by taxpayers 
on IRS forms has the Department of Treasury referred to the Department 
of Justice for prosecution since January 20, 2017?

    Answer. Since January 20, 2017, the IRS Criminal Investigation 
Division (IRS-CI) has referred 440 individuals to the Department of 
Justice for making false statements in violation of 26 U.S.C. 7206(1) 
with an aggregate criminal deficiency of approximately $1.9 billion. 
These figures are through September 30, 2018.

    It should be noted these figures do not include prosecutions in 
violation of 26 U.S.C. Sec. 7206(1) recommended by Treasury's Inspector 
General office, the Treasury Inspector General for Tax Administration 
(TIGTA), or the Special Inspector General for the Troubled Asset Relief 
Program (SIGTARP).

                                 ______
                                 
              Questions Submitted by Hon. Debbie Stabenow
    Question. One of the concerns I hear from families in Michigan 
repeatedly is about the rapidly rising cost of prescription drugs. 
Pharmaceutical companies are among the biggest winners from last year's 
tax bill, significantly lowering their tax rates. The tax bill gives 
middle-class families only temporary tax relief and many families will 
face tax increases after 2025, while pharmaceutical companies received 
permanent tax relief.

    The tax cuts for pharmaceutical companies come despite years of 
record profits from the sale of prescription drugs. What I fear is that 
pharmaceutical companies will use their tax savings to give dividends 
to their investors while continuing to increase prices on families 
struggling to pay for their prescription drugs.

    What is even more maddening about this is many of the medicines 
that people need to survive, and they are paying outrageous amounts 
for, have been developed with support from tax breaks financed by U.S. 
taxpayers.

    Michigan seniors, many of whom live on a fixed income, are among 
those most impacted by the rising cost of prescription drugs.

    Does the tax bill come with any safeguards to ensure pharmaceutical 
companies pass on their tax savings to seniors and families in the form 
of more affordable prescription drugs?

    Answer. There are no specific provisions in the Tax Cuts and Jobs 
Act that require pharmaceutical companies to pass all their tax savings 
to consumers. The tax cut, however, will give pharmaceutical companies 
more money to invest, including in developing new drugs, as well as pay 
employees more. This investment could benefit pharmaceutical consumers 
in the long run.

    Question. Does the President's budget contain any such safeguards?

    Answer. There is no specific budget proposal that requires 
pharmaceutical companies to lower prices to consumers.

    Question. I believe that if we are not growing things and making 
things here in America we will not have a strong economy. In Michigan, 
small businesses are an essential piece of the economy, employing over 
half of Michigan's workforce.

    Opening a small business requires a lot of hard work and a 
willingness to accept risk. One of the best parts of my job is 
traveling the State to meet with small businesses owners, and I bring 
their ideas and concerns back to Washington. That is why I am 
distressed to see that your budget makes cuts to programs that small 
businesses rely upon to get off the ground and later expand. I fear 
that last year's tax cuts did too little to help our small businesses 
and these budget cuts are even more distressing.

    Have you studied the impacts the elimination of the Community 
Development Financial Institutions Fund (CDFI Fund), which gives small 
businesses access to funding in underserved communities, would have on 
small business growth?

    Answer. The budget does not eliminate the CDFI Fund. The CDFI Fund 
will continue to certify financial institutions. Not only does 
certification make an entity eligible for multiple programs at the CDFI 
Fund, it also serves as a basis for eligibility to apply for other 
Federal Government programs such as the Small Business Administration's 
Community Advantage Pilot Program and Federal Home Loan Bank 
membership.

    In addition, the budget provides funding for the CDFI Fund to 
continue to operate the non-grant programs, like the New Markets Tax 
Credit Program, which provide support for CDFIs and other community 
organizations lending and investing in economically distressed 
communities across the country. Since 2001, the New Markets Tax Credit 
Program has allocated $54 billion in tax credit allocations in urban 
and rural areas. The budget also proposes to reauthorize the Bond 
Guarantee Program to allow $500 million in new guarantees in FY 2019. 
This program provides capital to CDFIs at no cost to the taxpayer. 
Effectively managing those resources will ensure that CDFIs have access 
to capital to continue to support urban and rural distressed 
communities.

    Question. I have long been critical of the loopholes for big oil 
companies that to be permanently enshrined in the tax code. In fact, I 
have fought for years to get rid of them.

    Unfortunately, the new tax law actually went the wrong direction, 
by not only failing to eliminate any of the existing loopholes, but 
also creating a new $4 billion loophole for oil companies that want to 
dodge their U.S. taxes in our international system.

    What proposals does the President's budget contain to end the tax 
loopholes for big oil companies, including the new tax loophole 
included in the tax reform law?

    Answer. There are no proposals in this area at this time.

    Are we to assume that this means the administration supports the 
giveaways in our tax code for big oil companies?

    Answer. This administration does not support tax giveaways or 
loopholes for any industry.

    Question. What is the policy justification for the tax bill's 
elimination of foreign base company oil-related income as a category of 
income under subpart F?

    Answer. This change to Subpart F was not included in the 
administration's framework for tax reform.

    Question. Michigan families are extremely charitable--85 percent of 
Michigan families make charitable donations to help their community and 
those in need. Charitable giving helps feed families that do not have 
enough to eat, delivers education and support to children, and provides 
housing to those who are not fortunate enough to have a roof over their 
head.

    However, the tax bill passed last year has caused great concern 
among charitable organizations. There are countless estimates that the 
recent tax legislation could reduce charitable giving by billions of 
dollars every year. The government should be finding ways to encourage 
and expand charitable giving, not making it available only to the top 
one percent. As charitable organizations scramble to try to make up the 
difference, corporations are projecting record profits.

    Has the Department of the Treasury done any studies about the 
effect of last year's tax law on charitable giving?

    Answer. Treasury has not conducted a study of the effect of the Tax 
Cuts and Jobs Act (TCJA) on charitable giving.

    Question. What percentage of people do you estimate will take the 
charitable deduction after the changes to the tax law, as compared to 
those who took the charitable deduction under the previous law?

    Answer. Treasury estimates that, for tax year 2018, approximately 
10 percent of returns will itemize their deductions, many of which will 
claim the deduction for charitable contributions. In the absence of the 
changes brought about by the TCJA, Treasury estimates that, for tax 
year 2018, approximately 25 percent of returns would itemize their 
deductions.

    Question. Unfortunately, the charitable sector is also wrestling 
with many of the new changes to the tax on unrelated business income.

    In particular, I know they are struggling with determining whether 
an activity constitutes single or multiple trades or businesses; the 
disallowance or limitation of deductions for expenses associated with 
providing qualified transportation fringes and some health and wellness 
fringe benefits; and the correlation between fiscal year and calendar 
year expenses, given that many tax exempt organizations have fiscal 
years that begin on April 1st or July 1st.

    When can these organizations expect to have guidance on these 
issues?

    Answer. Treasury is aware that there is a need for guidance 
relating to a number of the new rules under the TCJA, including the 
important issues that you have identified relating to these changes in 
the rules for unrelated business income that affect charitable 
organizations. Thus, Treasury has a process for assessing both the 
priority for issuing guidance and for allocating the resources needed 
to develop the guidance. As this process is ongoing, I do not yet have 
specific time frames when all the guidance under TCJA will be issued.

    Question. It was concerning to see that the administration's FY 
2019 budget proposes a near elimination of a program at TTB that 
enforces current Federal law in order to transfer ATF functions into 
the TTB. Under recent funding levels, TTB increased its capacity to 
handle 15 new trade practice enforcement cases annually, which is no 
easy feat given that these are, by nature, time-intensive 
investigations that keep the marketplace safe, fair, and transparent.

    Why would the administration propose this change when TTB has made 
such great progress in working with State/local regulatory partners to 
ensure that entities in the marketplace follow the law?

    Answer. The Alcohol and Tobacco Tax and Trade Bureau (TTB) had to 
make difficult choices in the FY 2019 request. The request focuses 
TTB's limited resources on maintaining service levels to the alcohol 
industry in areas such as formula and label approvals. These are 
critical to small business success. TTB also has focused on modernizing 
IT to make TTB more efficient and effective in providing service. In 
this era of very limited resources, it was not possible to fund the 
trade enforcement work.

    Question. How does the administration plan to make sure that the 
Federal Alcohol Administration Act is fully enforced?

    Answer. Facilitating voluntary compliance is the most efficient 
means of tax administration, and it remains a priority for TTB in FY 
2019. To this end, TTB will enhance its guidance related to Federal 
alcohol laws and regulations, and explore opportunities to streamline 
regulations and requirements to reduce compliance burden.

    Question. Can you provide the committee with data specifying the 
TTB's inability to join current or recent State/local enforcement 
action for trade practice violations, including the number and types of 
cases?

    Answer. I cannot get into specifics on law enforcement actions. 
TTB's FY 2019 request was the result of many difficult prioritization 
decisions. TTB participates in State/local enforcement action for trade 
practice violations where feasible and will continue to do so.

                                 ______
                                 
             Question Submitted by Hon. Benjamin L. Cardin
    Question. Though the general economic and trading environment 
between the U.S. and China remains somewhat uncertain, I understand 
that investment flows in certain sectors have increased, including in 
financial services. Could you please elaborate on the administration's 
strategy or other thinking regarding market access for U.S. companies 
in financial services sectors in China?

    Answer. While we welcome China's November 2017 announcement that it 
will begin to remove ownership restrictions and provide national 
treatment for foreign firms in its financial services sector, we are 
concerned that China has not yet implemented this announced opening. We 
have pressed China to implement this opening as soon as possible, and 
to do so in a manner that provides non-discriminatory regulatory 
treatment of foreign firms in these sectors.

    However, this opening is not sufficient to address the significant 
imbalance in market access and openness between our two economies. The 
administration will continue to press China to guarantee fair and 
reciprocal treatment for all U.S. companies, provide greater market 
access for U.S. exports and firms, and implement market-oriented 
reforms to reduce our trade deficit with China.

                                 ______
                                 
              Questions Submitted by Hon. Robert Menendez
    Question. Mr. Secretary, in October, 32 members of the House Ways 
and Means Committee--both Republicans and Democrats--sent you a letter 
asking you to withdraw IRS Notice 2007-55 which was issued over a 
decade ago and continues to deter foreign investment in the United 
States. The notice relates to the Foreign Investment in Real Property 
Tax Act, or FIRPTA. In short, the notice treats certain distributions 
from REITs as the sale of REIT assets rather than the sale of REIT 
stock. The result is that the distributions are subject to tax rates as 
high as 54 percent. The practical effect is to raise the tax burden on 
investors in U.S. commercial real estate and infrastructure to levels 
that are punitive and prohibitive. Cal-
Berkeley professor and economist Ken Rosen recently estimated that 
FIRPTA costs the United States between $65-$125 billion in lost 
investment and between 147,000-284,000 in lost jobs. This is an 
infrastructure issue--FIRPTA blocks private investment in U.S. 
infrastructure. Repealing IRS Notice 2007-55 is a simple and immediate 
thing that the administration could do to boost private investment in 
U.S. real estate and infrastructure.

    Many of us have been working on this issue for years--no senior 
official seems willing to defend the current notice, but it just keeps 
getting kicked down the road.

    Could you review this matter and let us know within 30 days, in 
writing, whether you will repeal section 2 of the notice and restore 
prior law, as dozens of members of Congress have encouraged?

    Answer. We agree that encouraging foreign investment in the United 
States, including in commercial real estate and infrastructure, is an 
important priority. We look forward to continuing to work with Congress 
to explore ways in which we can achieve our shared goal of encouraging 
foreign investment in U.S. infrastructure while protecting the U.S. tax 
base.

    Question. Secretary Mnuchin, it my understanding that the 2014 
FinCEN guidance for banks and financial institutions that provide 
services to marijuana-related businesses is currently in full force and 
effect, notwithstanding the status of the Cole Memorandum. Is that 
correct?

    Answer. The 2014 Guidance set forth FinCEN's expectations under the 
Bank Secrecy Act as to the customer due diligence and suspicious 
activity reporting obligations of financial institutions with respect 
to customers engaged in marijuana-
related activity and currently remains in place.

    Question. The legal cannabis industry in the United States is in a 
state of turmoil as banks and financial institutions withdraw from the 
space following the rescission of the Cole Memorandum. What is the 
Treasury Department's guidance to financial institutions which are 
choosing, legally, to bring transparency and accountability to the 
legal cannabis market by offering banking services?

    Answer. As you are aware, FinCEN's 2014 guidance was prompted by 
the Justice Department's guidance on marijuana-related enforcement 
priorities, and clarified portions of FinCEN regulations that 
implemented the BSA. FinCEN's February 2014 guidance and the SAR 
reporting structure it set forth, both remain in place. We are 
reviewing the guidance in light of the Attorney General's announcement 
and are consulting with law enforcement. We continue to work closely 
with law enforcement and the financial sector to combat illicit finance 
and will notify the financial sector and supervisory authorities of any 
changes to FinCEN's SAR reporting expectations, in general and 
specifically with respect to the provision of financial services to 
marijuana-related businesses.

    Question. Please describe in detail your deliberations on the 
following mandatory provisions and explain to me why they have not been 
implemented?

    Sec. 224: Sanctions with respect to activities of the Russian 
Federation undermining cybersecurity;

    Sec. 225: Sanctions related to special Russian crude oil products;

    Sec. 226: Sanctions with respect to Russian and other foreign 
financial institutions;

    Sec. 227. Sanctions with respect to significant corruption in the 
Russian Federation;

    Sec. 228: Sanctions with respect to certain transactions with 
foreign sanctions evaders and serious human rights abusers in the 
Russian Federation;

    Sec. 231: Mandatory Sanctions with respect to persons engaging in 
transactions with the intelligence and defense sectors of the 
Government of the Russian Federation.

    Sec. 233: Sanctions with respect to investment in or facilitation 
of privatization of state-owned assets by the Russian Federation; and

    Sec. 234: Sanctions with respect to the transfer of arms and 
related materiel to Syria.

    Answer. Countering Russia's malign activities is one of Treasury's 
highest priorities. Indeed, along with North Korea and Iran, Treasury's 
Russia sanctions program has been among this administration's most 
active to date--since January 2017, this administration has sanctioned 
232 Russian-related individuals, including 215 subject to Treasury 
actions.

    CAATSA is a powerful statute that adds new tools to Treasury's 
current menu of sanctions authorities available to counter Russia's 
malign activities.\4\ To achieve CAATSA's important objectives of 
imposing real costs on and deterring Russia, Treasury has employed not 
only the new authorities granted under title II of CAATSA, but also 
other sanctions authorities, some of which title II of CAATSA codified 
and others, such as those applicable to the North Korean and Syrian 
regimes, that further enable Treasury to target Russian entities and 
individuals.
---------------------------------------------------------------------------
    \4\ As you know, the President delegated the provisions of CAATSA, 
and statutes it amended, to various departments and agencies. Pursuant 
to the delegation memorandum issued on September 29, 2017, the 
President delegated to the Department of State, among other provisions, 
the waiver authorities and the following provisions of title II of 
CAATSA: sections 225, 231, 232, 255, and 256. Treasury works closely 
with the Department of State and other interagency partners in a 
consultative role to implement these and other provisions of CAATSA. In 
this letter, however, Treasury focuses specifically on the provisions 
of title II of CAATSA delegated to it.

    For example, in March of this year, Treasury used the provisions of 
title II of CAATSA to achieve the critical objective of imposing costs 
on Russia for its malign cyber activities, including interference in 
the 2016 U.S. presidential election. Indeed, on March 15, 2018, 
Treasury designated five entities and 19 individuals for their role in 
conducting a variety of destabilizing activities, including 
interference in the 2016 U.S. election, using section 224 of CAATSA and 
Executive Order (E.O.) 13694, as codified by CAATSA. And Treasury 
continues to actively develop additional targets using CAATSA 
authorities. On June 11, 2018, we followed this action when Treasury 
designated five entities and three individuals for enabling the 
malicious activities of the FSB pursuant to E.O. 13694, as amended. One 
of these entities, Kvant Scientific Research Institute, was 
concurrently designated pursuant to section 224 of CAATSA for also 
being owned or controlled by the FSB. And on August 21, 2018, Treasury 
designated two entities and two individuals in order to counter 
attempts to evade U.S. sanctions pursuant to E.O. 13694, as amended. 
Furthermore, on September 12, 2018 and in recognition of the centrality 
that elections play in our democracy, the administration issued 
Executive Order 13848, ``Imposing Certain Sanctions in the Event of 
Foreign Interference in a United States Election.'' This executive 
order authorizes sanctions, as well as other measures, against those 
---------------------------------------------------------------------------
determined to have interfered in a United States election.

    Treasury has also continued to aggressively respond to Russia's 
pernicious activities in Ukraine and elsewhere using the E.O.s codified 
in title II of CAATSA. On April 6, 2018, Treasury sanctioned seven of 
Russia's wealthiest and most politically connected oligarchs along with 
12 companies they own or control, and 17 senior Russian government 
officials. These actions have, among other things, demonstrated the 
acute impact the United States can bring to bear on the Russian economy 
and have provided the United States with leverage to help extricate 
Oleg Deripaska, one of Russia's most notorious oligarchs and a close 
Putin associate, from his business empire.

    In fact, these recent designations followed from Treasury's 
submission on January 29, 2018 of a report pursuant to CAATSA section 
241, providing Congress with the names, net worth, any indicia of 
corruption, and other information about significant senior political 
figures and oligarchs in Russia.

    Over the last year, Treasury has also carried out other Russia-
related designations consistent with CAATSA's intent to hold Russia 
accountable for its global conduct, including targeting (a) nine 
Russians for malign activities related to the North Korea sanctions 
program, (b) Russia's state-owned arms marketing firm Rosoboron Export 
and its bank, Russian Financial Corporation Bank, for supporting the 
Assad regime's brutality in Syria, and (c) two Russians for serious 
human rights abuses under the Global Magnitsky Human Rights 
Accountability Act. Further, on June 20, 2017, Treasury imposed 
sanctions on 58 individuals and entities related to Russia and Ukraine, 
continuing to raise the pressure on Russia's illicit activities.

    Title II of CAATSA is one of numerous sanctions authorities that 
Treasury has availed itself of to effectively target and deter Russia's 
malign activity. In selecting which authority to use against a 
particular target, Treasury relies on the tools that will most 
expeditiously and effectively advance U.S. foreign policy and national 
security objectives. Where other authorities will allow Treasury to act 
more speedily and effectively, we will rely on them instead of CAATSA 
in order to effectuate the overarching objectives of CAATSA. In making 
this determination, Treasury considers numerous factors, including the 
type of information available to target a given individual or entity 
and whether such information meets the necessary threshold to withstand 
a legal challenge; the speed with which Treasury can act; the public 
message the U.S. Government wishes to send; the deterrent impact an 
action will take; the impact on allies and partners; and equities of 
other U.S. departments and agencies. This flexibility to choose among 
the available sanctions authorities allows us to fine tune our 
targeting to most effectively and successfully achieve our objective.

    There is no question that CAATSA has provided Treasury with 
important additional tools to counter Russia's malign activities, and 
we appreciate and intend to continue to use this powerful statute in 
addition to the other powerful sanctions authorities we possess. While 
the means we use may vary, Treasury will continue to prioritize its 
efforts to hold Russia accountable for its actions; deter ongoing and 
future misconduct; and protect U.S. and global security. Congress' role 
in this effort will remain essential, and we look forward to working 
closely with you to achieve these ends.

    In addition to identifying and designating targets, another aspect 
of that work is helping \5\ the regulated community understand and 
comply with our sanctions. To that end, Treasury developed and 
published guidance in the form of Frequently Asked Questions about 
CAATSA provisions that seemed to be of particular interest to the 
regulated community relative to other parts of the statute. That 
guidance, which pertains primarily to changes made or prohibitions 
imposed under CAATSA sections 223, 226, 228 and 233, is available on 
the CAATSA landing page that Treasury's Office of Foreign Assets 
Control (OFAC) established on its website at https://www.treasury.gov/
resource-center/sanctions/Programs/Pages/caatsa.aspx.
---------------------------------------------------------------------------
    \5\ Treasury can sanction Russian malign activity under seven 
E.O.s.

     Russia: E.O.s 13660, 13661, 13662, 13685 (the sanctions therein 
were codified by section 222 of CAATSA).

     Cyber: E.O. 13694, as amended by E.O 13757 (the sanctions therein 
were codified by section 222 of CAATSA).

     E.O. 13818, implementing the Global Magnitsky Human Rights 
Accountability Act (GloMag). Treasury can also sanction Russian malign 
activity under five statutes (including GloMag, which was implemented 
through E.O. 13818).

     Title II of CAATSA.

     Ukraine Freedom Support Act of 2014 (UFSA), as amended by CAATSA.

     Support for the Sovereignty, Integrity, Democracy, and Economic 
Stability of Ukraine Act of 2014 (SSIDESU), as amended by CAATSA.

     Sergei Magnitsky Rule of Law Accountability Act of 2012.

     GloMag, as implemented by E.O. 13818.

                           sanctions evasion
    Question. The Russian Government has reportedly created banks which 
would help Russian defense firms evade U.S. sanctions and be less 
transparent in their public reporting. What measures are you taking to 
respond to that dynamic?

    Answer. We are mindful of this troubling dynamic by Russian defense 
firms and while we cannot forecast specific future actions, Treasury 
has a range of authorities under which to address sanctions evasion--
including CAATSA section 228.

    OFAC remains committed to maintaining the integrity of our 
sanctions programs by rooting out sanctions evasion. Most recently, on 
April 6, 2018, Treasury designated Rosoboroneksport, a state-owned 
Russian weapons trading company, and its subsidiary, Russian Financial 
Corporation Bank (RFC Bank), a Russian bank, pursuant to E.O. 13582, a 
sanctions authority targeting the Government of Syria. Rosoboroneksport 
was designated for having materially assisted, sponsored, or provided 
financial, material, or technological support for, or goods or services 
in support of, the Government of Syria. RFC Bank was designated for 
being wholly owned by Rosoboroneksport.

    Question. According to BuzzFeed News, a Treasury Department 
official confirmed that the publicly released oligarch list was ``drawn 
from publicly available sources''--that is, the 2017 Forbes list of the 
richest businessmen in Russia. Do you dispute that account?

    Answer. The report required under CAATSA section 241 was released 
in an unclassified form, with a classified annex that reflects in great 
detail the extensive work of experts within the Department of the 
Treasury, the Office of the Director of National Intelligence, and the 
Department of State, as well as other key agencies. Among the publicly 
available sources used for the report required under section 241 of 
CAATSA was the 2017 Forbes list.

    Question. According to reports, ``At the last minute . . . somebody 
high up . . . threw out the experts' work and instead wrote down the 
names of the top officials in the Russian presidential administration 
and government plus the 96 Russian billionaires on the Forbes list.'' 
Do you dispute that account? Had Treasury in fact developed its own 
non-public list? If so, why was that list not released?

    Answer. The report required under CAATSA section 241 was released 
in an unclassified form, with a classified annex that reflects in great 
detail the extensive work of experts within the Department of the 
Treasury, the Office of the Director of National Intelligence, and the 
Department of State, as well as other key agencies. In preparing and 
releasing the report, we sought to limit the risk of asset flight of 
individuals that may be subject to future sanctions actions, as well as 
protect intelligence sources and methods used to prepare the report.

    Question. When was the decision made to create and release the 
public oligarchs list that the Treasury department published? Who was 
the senior-most official that made that decision?

    Answer. The decision to release the report as it finally appeared 
was made in the course of multiple discussions in the lead up to 
January 29th. I made the ultimate decision to release the report.

    Question. Releasing lists that are publicly available, that anyone 
could copy and paste off the Internet send a signal--to Congress, to 
the public, and to Russia--that this administration is not taking this 
sanctions regime seriously. If this is how the Treasury Department 
treats this important mandate from Congress, how do you expect us to 
have any confidence that you are giving serious consideration to 
imposing sanctions?

    Answer. Treasury is the primary agency responsible for implementing 
and enforcing U.S. sanctions, and we treat this responsibility with the 
utmost seriousness. An extraordinary amount of work went into the 
report, particularly the classified annex, by Treasury and other 
agencies. This report informed our actions in sanctioning seven of 
Russia's wealthiest and most politically-connected oligarchs along with 
12 companies they own or control, and 17 senior Russian government 
officials. These actions have, among other things, demonstrated the 
acute impact the United States can bring to bear on the Russian economy 
and have provided the United States with leverage to help extricate 
Oleg Deripaska, one of Russia's most notorious oligarchs and a close 
Putin associate, from his business empire.

    For the purposes of the unclassified report, and consistent with 
our interest in avoiding asset flight and protecting intelligence 
sources and methods, the unclassified report encompassed a range of 
senior political figures and oligarchs while not tipping our hand to 
any future action. A critical aspect of effective sanctions 
implementation is to avoid providing notice to potential targets in 
order to reduce the risk that they move their funds or obscure their 
connection to property in which they have an interest. By releasing the 
report in the manner we did, we sought to respond to the provisions of 
the statute while preserving our ability to take meaningful action 
against potential future targets. As we have made clear, we are using 
the report to inform our actions.

    Question. How many man-hours would you estimate that it took to 
compile the public oligarchs list?

    Answer. The compilation of the unclassified portion of the report 
was part of the broader drafting of the report, which was an extensive 
effort involving dozens of analysts and other officials over a number 
of months. The extent of this effort is reflected in particular in the 
classified annex of the report. Treasury has not sought to estimate the 
man-hours of any particular portion or section.

    Question. Why did the public oligarchs list include an identical 
spelling error of a name found on the Forbes list of billionaires?

    Answer. There are several possible variations in the 
transliteration of Russian names. To the extent the name was misspelled 
elsewhere, it is possible that the error carried over into the 
unclassified report.

    Question. Why does someone with an estimated net worth of $1 
billion or more count as an oligarch, but someone with an estimated net 
worth of $950 million does not?

    Answer. There is no statutory or regulatory definition of oligarch. 
For purposes of efficiency and accuracy, Treasury deemed it appropriate 
to include individuals with an estimated net worth of $1 billion or 
more in the unclassified report.

    Question. Why did the public oligarchs list not include people 
worth several hundreds of millions of dollars and who are close to 
Putin and assist his domestic agenda? For example, President Putin has 
trusted Grigory Berezkin, worth an estimated $800 million, to purchase 
media assets, like RBC, that are useful for the Kremlin's domestic 
propaganda machine. Yet he was not included on the list.

    Answer. For the purposes of the unclassified report, and consistent 
with our interest in avoiding asset flight and protecting intelligence 
sources and methods, we cast a wide net that encompassed a broader 
variety of senior political figures and oligarchs while not tipping our 
hand to any future action. The result was a line-
drawing exercise intended to respond to the statutory language while 
preserving programmatic and operational flexibility to the greatest 
extent possible. There is no statutory or regulatory definition of 
oligarch. Treasury determined it appropriate to include individuals 
with an estimated net worth of $1 billion or more in the unclassified 
report.

    Question. Why did the public oligarchs list include Russian 
citizens who hardly do any business in Russia and are targets of 
Putin's regime? For example, Yuri Shefler, who was included on the 
list, runs a Luxembourg-based company that makes Stolichnaya vodka in 
Latvia, and the Russian government taken Shefler's company' to court to 
take away its rights to produce Stolichnaya and other Russian vodka 
brands. Another example is Oleg Boyko, who made his fortune with 
casinos until Putin banned them in Russia, and who now owns casinos in 
Germany, Italy, Romania, and Croatia, as well as a peer-to-peer lending 
company that operates outside of Russia.

    Answer. The compilation of the unclassified portion of the report 
was an objective exercise based on net worth. It did not seek to 
account for the specific circumstances of each and every individual 
included.

    Question. Why did the administration classify the oligarchs list in 
the annex, which was based on reliable information? Would publishing 
only the names in the annex reveal intelligence sources and methods?

    Answer. For the purposes of the unclassified report, and consistent 
with our interest in avoiding asset flight and protecting intelligence 
sources and methods, Treasury sought to avoid tipping our hand to any 
future action. As mentioned, a critical aspect of effective sanctions 
implementation is avoiding providing notice to potential targets in 
order to reduce the risk that they can move their funds or obscure 
their connection to property in which they have an interest. By 
releasing the report in the manner we did, Treasury sought to respond 
to the provisions of the statute while preserving our ability to take 
meaningful action against potential future targets. As we have made 
clear, we are using the report to inform our actions, including the 
designations announced on April 6, 2018, in which Treasury sanctioned 
seven of Russia's wealthiest and most politically-connected oligarchs 
along with 12 companies they own or control, and 17 senior Russian 
Government officials.

    Question. Would any changes need to be made to the classified list 
in the annex to allow it to be made public?

    Answer. The classified report remains classified consistent with 
our interest in avoiding asset flight in addition to preventing the 
divulgence of intelligence sources and methods. Treasury has no plans 
to release the classified portion of the report.

    Question. Do you agree that the publicly released version of the 
list does not fully comply with section 241 of CAATSA? Do you commit to 
reviewing the classified list to ensure that any information that can 
be publically released will be released?

    Answer. The report that Treasury submitted to Congress is entirely 
consistent with CAATSA section 241. As we made clear, Treasury is using 
the report to inform sanctions actions. To prevent asset flight of the 
individuals listed in the report and to protect intelligence sources 
and methods, Treasury has no plans to make the classified portion of 
the report public at this time.

    Question. On January 30th, when you appeared before the Senate 
Banking Committee, you stated that ``there will be sanctions'' coming 
out of the report issued under section 231 of CAATSA. What is the 
status of Treasury's review of who may be subject to sanctions? Do you 
have an anticipated timeline for when sanctions would be announced? Has 
Treasury made any recommendations to the President for who should be 
subject to sanctions under this section? What is the extent of 
Treasury's involvement in recommendation sanctions under this 
provision?

    Answer. As our April 6, 2018 action demonstrates, we have already 
targeted a number of the individuals listed in the unclassified CAATSA 
section 241 report, including those who benefit from the Putin regime 
and play a key role in advancing Russia's malign activities. The CAATSA 
section 241 report will continue to inform future sanctions actions as 
Treasury counters worldwide Russian malign activity. Treasury does not 
comment on potential sanctions actions.

                                 ______
                                 
               Questions Submitted by Hon. Maria Cantwell
                                 lihtc
    Question. Today there is a nationwide shortage of 7.4 million 
affordable rental homes for our most vulnerable citizens, a 60 percent 
increase from 2000. Over 11 million people face extreme 
unaffordability, also a 60 percent increase. If we do not act, that 
number is projected to increase to nearly 15 million by 2025.

    The corporate rate cuts in the recently passed tax reform bill 
(H.R. 1) lower the value of the LIHTCs, and if we do nothing to 
increase the total allocation of the credits, the number of affordable 
housing units built with the LIHTC each year is likely to be lower than 
it was under the law prior to the passage of H.R. 1.

    Senator Hatch and I continue to work very hard to pass the 
Affordable Housing Credit Improvement Act, which would increase the 
allocation for the 9 percent credit by 50 percent, set a floor for the 
4 percent credit, which enables the program to better serve lower 
income populations, and make many other important improvements.

    While we are in the middle of a housing crisis, the FY 2019 HUD 
budget would take us in the wrong direction. These proposals would 
result in the loss of at least 200,000 Housing Choice Vouchers, and 
eliminate several key resources, including: the National Housing Trust 
Fund; flexible funding used by States and communities to address their 
housing needs; rural housing grants and direct loan programs; and 
assistance to help low income families heat their homes. We need to be 
doing more to address affordable housing, not cutting valuable 
programs.

    Given the success of the LIHTC program in bringing together public 
and private resources, will the administration support the Hatch-
Cantwell Affordable Housing Credit Improvement Act?

    Answer. The administration has not taken an official position on 
the Hatch-
Cantwell Affordable Housing Credit Improvement Act. We look forward to 
learning more about the proposal by working with both Senators and with 
Representatives who have sponsored corresponding legislation in the 
House.

                               extenders
    Question. Congress recently retroactively extended 34 previously 
expired tax provisions for 2017, including important clean energy 
provisions for geothermal, hydroelectric generation, and biodiesel. But 
none of these provisions were extended for 2018.

    Many of us believed that Congress was going to address these 
provisions after tax reform. But this was not the case. Businesses need 
certainty at the beginning of the year rather than waiting until the 
end of the year for a retroactive extension of these provisions.

    We know that renewable energy is among the fastest-growing job 
sectors in the U.S. Making sure these credits are extended now for 2018 
is crucial. This will help provide economic growth, good jobs, and a 
cleaner environment.

    From your background in business, is it preferable to have 
certainty when making business decisions?

    Answer. The administration believes that certainty is important to 
business owners when making investment decisions. Therefore, the 
administration looks forward to working with Congress to determining 
which tax provisions that expired at the end of 2017 merit further 
extension.

    Question. One of the administration's priorities is investing in 
infrastructure. How would investments in clean energy also help the 
future economic competitiveness of the United States?

    Answer. The administration believes that investments in energy, of 
all types, will help reduce energy prices, allowing American families 
to keep more of their hard-earned dollars and providing workers with 
access to more jobs and opportunities. Reduced energy prices and 
continued advances in clean energy technologies will make American 
businesses more competitive across the world stage.
                        infrastructure financing
    Question. The administration recently released its infrastructure 
plan, which called for $1.5 trillion in infrastructure investment over 
the next 10 years. But the administration would only provide $200 
billion in Federal financing.

    This proposal would shift the remaining cost of repairing our 
Nation's infrastructure to city, State, and local governments. 
Municipal governments are facing lower revenue collections due to the 
changes in the State and local deductions and other provisions in the 
recently passed tax bill. Under this proposal, these localities would 
bear the costs to fund the much needed investments in infrastructure.

    Has the Treasury reviewed the current debt service coverage ratios 
for the city, State, and local governments with the greatest 
infrastructure needs to determine if they have the additional borrowing 
capacity needed to make the investments necessary to repair, 
rehabilitate, or construct their infrastructure identified in the 
President's infrastructure proposal?

    Answer. We have not reviewed these metrics because they are not 
part of the evaluation criteria that the administration proposes for 
its infrastructure incentives initiative. Those criteria emphasize 
securing new, non-Federal revenue rather than additional debt.

    Question. How would the priority order for projects be determined? 
Would they be determined by available financing, or by benefit to the 
community and the economic and social returns on investment?

    Answer. Both financing and economic and social returns are part of 
the administration's proposed weighting criteria. The President's 
infrastructure framework describes the criteria that would be used for 
each of the proposed programs. For example, for the Incentives program, 
the evaluation criteria would include the dollar value of the project, 
new non-Federal funding for the development, operation, and maintenance 
of the project, efficiency improvements utilized in the project, new 
technologies used in the project, and evidence of how the project will 
spur economic and social returns.
                            apprenticeships
    Question. According to a survey by the National Association of 
Manufacturers, 67 percent of responding employers reported a shortage 
of available, qualified workers. Over the next decade, the United 
States will need to fill 3.5 million manufacturing jobs, but there are 
gaps in workforce training that could leave the U.S. as many as 2 
million trained workers short.

    According to the National Skills Coalition, ``middle skills'' jobs, 
which require education beyond high school but not a 4 year degree, 
make up 54 percent of our labor market, yet only 44 percent of our 
workers are trained to that level, a gap of 10 percent.

    I have introduced legislation, along with Senator Collins, to 
provide a $5,000 tax credit per new hire for businesses that expand or 
start registered apprenticeship programs. Such a tax credit would 
support more than 1.5 million apprenticeships over the next 10 years in 
high-demand jobs in the mechanical or technical, health-care, or 
technology professions.

    Question. What is the administration doing right now to train 
American workers for the challenges and opportunities of the future?

    Answer. The Federal Government funds numerous training and 
retraining programs in many different Federal agencies. In addition, 
the administration's infrastructure initiative includes reforms to 
career and technical education and expanding Pell grant eligibility to 
short-term programs that lead to a credential in an in-demand field. 
The administration is also making new strides on national workforce 
development strategy, in part through the National Council for the 
American Worker, established by President Donald J. Trump on July 19, 
2018, through Executive Order (EO) 13845. The current economic 
environment brings both new challenges and new opportunities to support 
more workers with specific skill sets to fill an increasing number of 
open jobs. The administration is also continuing to leverage and 
advance the progress on implementing the vision of the President's EO 
13801 on Expanding Apprenticeships in America to help job seekers and 
workers find good jobs, and employers to build a skilled workforce.

    Question. Will the administration support a tax incentive for 
apprenticeship programs?

    Answer. We would consider such legislation if it is presented to 
the President. The administration is also moving forward with 
introducing a new, innovative form of apprenticeship, the industry-
recognized apprenticeship, that will allow more employers to adopt this 
work-based learning approach to meet their talent development needs. 
The administration has issued interim guidance on Industry Recognized 
Apprenticeships this past June and has announced the availability of 
$150 million for sector-based approaches to apprenticeship.
                            russia sanctions
    Question. On February 13, 2018, six of the highest-ranking 
officials in the Intelligence Community confirmed their assessment that 
Russia interfered in the 2016 elections. They also unanimously 
confirmed that they fully expect Russia to continue to try to influence 
our upcoming 2018 midterm elections.

    However, despite this ongoing threat, and the assessment done by 
the Intelligence Community, this administration has dragged its feet, 
or flat out refused every opportunity to impose new sanctions against 
Russia in relation to its past electoral interference.

    Will the administration impose additional sanctions against Russia?

    Answer. The assertion that the administration has ``refused every 
opportunity to impose new sanctions'' is incorrect. On March 15, 2018, 
Treasury designated five entities and 19 individuals under CAATSA and 
E.O. 13694 for their role in conducting destabilizing activities, 
ranging from interference in the 2016 U.S. election to conducting 
destructive cyber-attacks, including the NotPetya attack, which was 
launched by the Russian military and was the most destructive and 
costly cyber-attack in history. On June 11, 2018, we followed this 
action when Treasury designated five entities and three individuals for 
enabling the malicious activities of the FSB pursuant to E.O. 13694, as 
amended. One of these entities, Kvant Scientific Research Institute, 
was concurrently designated pursuant to section 224 of CAATSA for also 
being owned or controlled by the FSB. And on August 21, 2018, Treasury 
designated two entities and two individuals pursuant to E.O. 13694, as 
amended in order to counter attempts to evade U.S. sanctions. 
Furthermore, on September 12, 2018 and in recognition of the centrality 
that elections play in our democracy, the administration issued 
Executive Order 13848, ``Imposing Certain Sanctions in the Event of 
Foreign Interference in a United States Election.'' This executive 
order authorizes sanctions, as well as other measures, against those 
determined to have interfered in a United States election.

    To date, the administration has sanctioned 136 individuals and 
entities under our Ukraine/Russia-related sanctions authorities, which 
were codified pursuant to section 222 of CAATSA. On April 6, 2018, 
Treasury used the Ukraine/Russia-related sanctions authorities to 
designate seven Russian oligarchs and 12 companies they own or control, 
as well as 17 senior Russian Government officials.

    On December 20, 2017, Treasury designated five individuals pursuant 
to the Sergei Magnitsky Rule of Law Accountability Act of 2012, 
bringing the total designated under this program to 49.

    Additionally in 2017, Treasury designated nine Russians targeted 
for malign activities related to the North Korea sanctions program, and 
the President imposed sanctions on two Russians under Executive Order 
13818, which implements the Global Magnitsky Human Rights 
Accountability Act.

    Treasury's track record demonstrates that we have and will continue 
to actively target the full range of Russian malign activities. And in 
considering additional future measures, we will look for opportunities 
to use the full range of authorities at our disposal.
                           export-import bank
    Question. The Export-Import Bank recently stated that they have 
approximately $35 billion in transactions currently pending that cannot 
be entered into because they lack a quorum on their board.\6\ According 
to the Bank's Acting First Vice President, this backlog represents a 
loss of approximately a quarter of a million jobs. Each day the Bank is 
closed, U.S. businesses are losing ground in the global marketplace. 
The Treasury Secretary has leadership over U.S. economic policy. I 
believe strongly in promoting exports as a way to promote U.S. economic 
growth.
---------------------------------------------------------------------------
    \6\ Tomlinson, Chris, ``Republican Senator Blocks Trump's Efforts 
to Increase Trade,'' Houston Chronicle, February 12, 2018, https://
www.houstonchronicle.com/business/columnists/tomlinson/article/
Republican-senator-blocks-Trump-s-efforts-to-12563114.php.

    How is the administration conveying its support for a quorum on the 
---------------------------------------------------------------------------
Board of Directors at the Bank?

    Answer. Given the degree to which global competitors--such as 
China--subsidize their exporters, the administration is fully 
supportive of a fully functional EXIM that helps to level the playing 
field for U.S. exporters, particularly for our small and medium 
enterprises. At the same time, the administration believes that the 
role of government financing should be targeted, with exporters turning 
first to the private market to meet their financing needs, and that 
governmental lending should seek to minimize taxpayer risk. Regarding 
next steps in the process of restoring a quorum on EXIM's Board of 
Directors, this is an issue that the White House is working on with the 
Senate Banking Committee. Treasury has no further information on this 
issue.

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    Today ought to start off with a recap on taxes. A little more than 
3 months ago, Treasury Secretary Mnuchin told CNN that his models 
showed the Trump tax bill would spur $2.5 trillion in growth--enough to 
fully cover its $1.5-trillion cost and leave a $1-trillion cherry on 
top. He added, quote, ``And we're happy to go through the numbers . . . 
we want full transparency to the American public.''

    If you're looking for transparency, the American public finally got 
a little of it on Monday, when the budget showed how baseless that 
talking point was from the get-go. Revenue, according to the budget 
projections, is about to plummet: $300 billion short in 2018, $400 
billion short in 2019. And it doesn't get better. The fiscal bottom 
line is so far out of whack and the budget so deep in fantasy land, 
there's a magical $813 billion in growth dropped in out of nowhere to 
make the overall picture look a bit less irresponsible.

    But the idea that the tax cuts would pay for themselves is far from 
the only misleading statement about the tax law.

    How about the idea that corporate tax cuts would get turned around 
immediately into workers pockets, not shareholders? Twenty times more 
money has been spent on stock buybacks than on worker bonuses over the 
last few months. As of today, millions of workers haven't seen their 
Trump Bump.

    It's great for the slim, wealthy share of the population who 
dominate the stock market when stocks are doing well. But it's a 
prescription for trouble when you're reaching into middle-class pockets 
to fund the buybacks that drive up the value of stock portfolios.

    The famed Mnuchin Rule--the promise that there would be no absolute 
tax cut for the well-off--that's been shattered in a few trillion 
little pieces. The administration didn't follow through on the promise 
to close the carried interest loophole. And then, of course, there was 
the promise that the tax bill would not lead to cuts to Social 
Security, Medicare or Medicaid. Well, on Monday, our worst fears were 
confirmed. The Trump budget admits the tax cuts don't pay for 
themselves, so it hits those programs with massive cuts.

    This morning I've also got to address infrastructure. The 
administration's infrastructure plan is fiction upon fiction upon 
fiction.

    First off, the idea that this is a $1.5 trillion dollar 
infrastructure plan is nonsense. Even factoring in the new $200 billion 
infrastructure proposal, the Trump budget is a net DECREASE in 
infrastructure spending. It cuts infrastructure programs like a 
bulldozer through asphalt: $122 billion cut out of the Highway Trust 
Fund; $14 billion cut from the Army Corps of Engineers; $5 billion cut 
from the TIGER transportation grant program; $7.6 billion cut from 
Amtrak; and more. In my view, If you want big-league infrastructure, a 
good place to start is not making huge cuts to infrastructure programs 
that already work.

    The second fiction--that this plan is going to be workable for the 
States. Just a matter of weeks ago, the Trump administration kneecapped 
the ability of States to raise revenue to fund infrastructure projects 
with changes to the tax code. Now the Trump infrastructure plan burdens 
them with huge new costs they cannot possibly afford.

    And that leads to the third fiction--that the Trump infrastructure 
plan will not be a roadmap to more privatization and more tolls taking 
money out of families' pockets. If States and local governments can't 
cover the costs of projects, they're going to look for private dollars. 
And that can only mean one outcome.

    Drive more than a few miles to work? Get ready for more tolls. 
Rushing to school in the morning? Don't forget cash for the tollbooth. 
Heading to the grocery store or the mall to do some shopping? Better 
remember to budget tolls into your trip.

    The infrastructure proposal brought back an old, misguided idea to 
sell off the Bonneville Power Administration's transmission system, 
which only makes sense if you believe people's electricity bills in 
Oregon aren't high enough. The fact is, the Trump plan is a green light 
for infrastructure nationwide to be sold off to Wall Street investors, 
or worse, to shadowy buyers from China or other foreign countries.

    Colleagues, I take a back seat to nobody when it comes to calling 
for major investments in our infrastructure systems. In my view, you 
cannot have a big-league economy with little-league infrastructure. And 
I'm also a firm believer in responsible private financing, and in 
tackling this issue on a bipartisan basis.

    But getting infrastructure done right, rebuilding the spine of our 
infrastructure system that connects the country, requires more than 
hoping for private dollars. It requires robust funding at a Federal 
level to tackle projects that are in the national interest. That's not 
what the Trump plan does--not even close. Bottom line, the Trump 
infrastructure plan dumps huge costs onto States and cities, sells off 
public assets like an auction at a county fair, and raises 
transportation costs for hard-working families. And that's why it's 
such a disappointment to see it added to the list of broken Trump 
promises.

                                 ______
                                 

                             From Bloomberg

     New Hedge-Fund Tax Dodge Triggers Wild Rush Back Into Delaware
                             By Miles Weiss
                           February 14, 2018
Wall Street's fast-money crowd is returning to well-trodden ground to 
elude Trump-era tax laws: Delaware.

Since late 2017, hedge fund managers have created numerous shell 
companies in the First State, corporate America's favorite tax 
jurisdiction. These limited liability companies share a common goal: 
dodging new tax rules for carried-interest profits through a bit of 
deft legal paperwork.

Big names appear to be embracing the maneuver, which requires setting 
up LLCs for managers entitled to share carried-interest payouts. Four 
LLCs have been created under the name of Elliott Management Corp., the 
hedge-fund giant run by Paul Singer. More than 70 have been established 
under the names of executives at Starwood Capital Group Management, the 
private-equity shop headed by Barry Sternlicht.

President Donald Trump turned carried interest into a rallying cry 
during his populist presidential campaign, declaring that ``hedge fund 
guys are getting away with murder.'' Critics from billionaire Warren 
Buffett on down essentially agree, saying carried interest is a fee-
for-service and should be taxed at the individual rate that today tops 
out at 37 percent. But money managers are eligible to pay a rate of 
about 20 percent, having successfully argued for years that carried 
interest, or their portion of investment returns, is a capital gain.

Swiss-Cheese Rule

``Carried interest was a key litmus test of whether the bill can be 
called tax reform, and it failed,'' Steven Rosenthal, a senior fellow 
at the Urban-Brookings Tax Policy Center in Washington, said of the tax 
overhaul passed in December. ``This legislation was a Swiss cheese.''

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


It wasn't supposed be this way. But the LLCs demonstrate, yet again, 
how determined Wall Street players are to circumvent whatever rules 
Washington throws at them.

Under pressure from industry lobbyists and exploiting a split among 
White House advisers, the Republican Congress in December failed to 
fulfill Trump's promise to end the tax windfall enjoyed by money 
managers. And lawmakers may have stumbled in trying to narrow their tax 
advantage, writing the new carried-interest rule in a way that provides 
firms an easy escape.

The rule requires hedge funds and private-equity players to hold 
investments for at least 3 years to get the lower capital gains rate, 
rather than 1 year under the old law. Otherwise, they must pay the 
higher income tax rate.

``Total End-Run''

The rule, however, exempts carried interest from the longer holding 
period when it's paid to a corporation rather than an individual. To 
the surprise of legal and accounting experts, the law didn't specify 
that it applied solely to regular corporations, whose income is subject 
to double taxation.

Hedge funds are preparing to exploit the wording: Managers are betting 
that by simply putting their carried interest in a single-member LLC--
and then electing to have it treated as an S corporation--the profit 
will qualify for the exemption from the 3-year holding period and be 
taxed at the lower rate. The maneuver by money managers contributed to 
a 19 percent jump in the number of LLCs incorporated during December in 
Delaware.

``It's a total end-run around the statute,'' said Anthony Tuths, a tax 
principal in the alternative investment unit of KPMG's New York office. 
The Delaware filings ``spiked through the roof because all these fund 
managers set up single-member LLCs,'' said Tuths, adding that he 
doesn't endorse the strategy because the government could still close 
the loophole.

Spokespeople for the firms declined to comment or didn't return a 
request for an interview on the purpose of the LLCs.

Thousands of LLCs

Tax attorneys say hedge funds are setting up thousands of LLCs, most of 
which are difficult to identify. Some include the names or initials of 
executives at activist hedge funds Corvex Management and Sachem Head 
Capital Management, Delaware records show. Steadfast Capital 
Management, Permian Investment Partners and Stelliam Investment 
Management also created LLCs.

Hedge funds that follow activist, credit and distressed strategies, 
which sometimes keep investments for 1 or 2 years, are particularly 
affected by the new 3-year holding requirement.

Private-equity firms also formed LLCs in late December, even though 
their typical 5-year holding period means the new law may not be an 
issue for many of them. Crestview Capital Partners, the private-equity 
firm co-founded by Barry Volpert and Thomas Murphy, incorporated 28 
LLCs in the last month of the year.

By lengthening the holding period for capital gains treatment instead 
of eliminating it, lawmakers gave up revenue.

Losing Revenue

The Congressional Joint Committee on Taxation estimated that the longer 
holding period would raise about $1.1 billion in additional tax revenue 
through 2027, far less than a 2016 projection of $19.6 billion from 
ending the capital gains treatment altogether. And the LLCs may prevent 
the government from even getting the total $1.1 billion.

Tax attorneys and accountants are convinced the loophole resulted from 
a drafting error in the Republican rush to score a legislative victory 
before year end. They expect the government to close it by clarifying 
that the holding period exemption is available only to regular 
corporations.

The Treasury Department is confident that it has the power to narrow 
the law so only regular corporations would be included in the 
exemption, Dana Trier, the department's deputy assistant secretary for 
tax policy, said at a conference in San Diego last week.

That could create a quandary for hedge fund managers who set up LLCs in 
December. They have 75 days to decide whether they want the LLC to 
convert into an S corporation, a window that would close by mid-March. 
Those who make the election could face additional taxes and 
administrative nightmares if the government subsequently knocks down 
their strategy.

``I am telling everybody, `Don't do anything at this point,' '' said 
Robert Schachter, a tax partner in the financial and investment 
services group at the New York office of WithumSmith+Brown. ``You are 
going to end up with egg on your face if you run too quickly.''

--With assistance from Alexis Leondis

http://www.msn.com/en-us/money/companies/new-hedge-fund-tax-dodge-
triggers-wild-rush-back-into-delaware/ar-BBJ6R1b

                                 ______
                                 

                             Communication

                              ----------                              


                        Center for Fiscal Equity

                    Statement By Michael G. Bindner

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity 
to submit these comments for the record to the Committee on Finance on 
the FY 2019 Budget. Recent legislation has not met the Center's policy 
goals, nor the goals of other advocates with similar proposals, for 
example the advocates of the FairTax, who were disappointedly silent in 
the last round of debate.

As you know, we did raise our voices and will continue to, as the 
recent law will still have all of the flaws of the prior system as well 
as the asset inflation which would have made another Great Recession 
inevitable, although the recently passed bill will increase the 
deficits enough to cancel out the tax reduction to the Executive/Donor 
Class.

We withdraw none of our proposals, most of which are about tax and 
entitlement policy and the process of estimating discretionary 
spending, rather than specific recommendations for departmental 
budgets. We are wondering, however, why this hearing, which mainly 
presents discretionary budget request data for the subject fiscal year, 
is still being held when on Friday last an Omnibus Appropriation for 
the period in question was passed and signed into law. Regardless, our 
comments still apply so we will preface them with our comprehensive 
four-part approach, which will provide context.

      A Value-Added Tax (VAT) to fund domestic military spending and 
domestic discretionary spending with a rate between 10% and 13%, which 
makes sure every American pays something.

      Personal income surtaxes on joint and widowed filers with net 
annual incomes of $100,000 and single filers earning $50,000 per year 
to fund net interest payments, debt retirement and overseas and 
strategic military spending and other international spending, with 
graduated rates between 5% and 25%.

      Employee contributions to Old-Age and Survivors Insurance (OASI) 
with a lower income cap, which allows for lower payment levels to 
wealthier retirees without making bend points more progressive.

      A VAT-like Net Business Receipts Tax (NBRT), which is 
essentially a subtraction VAT with additional tax expenditures for 
family support, health care and the private delivery of governmental 
services, to fund entitlement spending and replace income tax filing 
for most people (including people who file without paying), the 
corporate income tax, business tax filing through individual income 
taxes and the employer contribution to OASI, all payroll taxes for 
hospital insurance, disability insurance, unemployment insurance and 
survivors under age 60.

News reports indicate that the Administration and members of the House 
leadership favor deep cuts in entitlement programs benefiting the poor. 
We agree that these programs are non-functional and should be replaced 
by a $15 minimum wage or a literacy and job training program paying the 
same wage to participants, a $1,000 child tax credit per month per 
dependent through the net business receipts tax described above and 
health coverage mandated through the employer or training program 
provider. Medicaid for the disabled and elderly should be entirely 
federalized. Don't just make smalls, which is torture. Go big or go 
home.

These proposals are identical to what we have stated previously, but 
they bore highlighting. Let us return to the usual details and 
analysis.

We have no proposals regarding environmental taxes, customs duties, 
excise taxes, and other offsetting expenses, although increasing these 
taxes would result in a lower VAT.

Recent legislation has solved some of our international tax issues. It 
would still be simpler to adopt a VAT on the international level and it 
would allow an expansion of family support through an expanded child 
tax credit. American competitiveness is enhanced by enacting a VAT, as 
exporters can shed some of the burden of taxation that is now carried 
as a hidden export tax in the cost of their products. The NERT will 
also be zero rated at the border to the extent that it is not offset by 
deductions and credits for health care, family support, and the private 
delivery of governmental services.

Some oppose VATs because they see it as a money machine, however this 
depends on whether they are visible or not. A receipt visible VAT is as 
susceptible to public pressure to reduce spending as the FairTax is 
designed to be, however unlike the FairTax, it is harder to game. 
Avoiding lawful taxes by gaming the system should not be considered a 
conservative principle, unless conservatism is in defense of entrenched 
corporate interests who have the money to game the tax code.

Our VAT rate estimates are designed to fully fund non-entitlement 
domestic spending not otherwise offset with dedicated revenues. This 
makes the burden of funding government very explicit to all taxpayers. 
Nothing else will reduce the demand for such spending, save perceived 
demands from bondholders to do so--a demand that does not seem evident 
given their continued purchase of U.S. Treasury Notes.

Value-Added Taxes can be seen as regressive because wealthier people 
consume less, however when used in concert with a high-income personal 
income tax and with some form of tax benefit to families, as we suggest 
as part of the NBRT, this is not the case.

The shift from an income tax-based system to a primarily consumption-
based system will dramatically decrease participation in the personal 
income tax system to only the top 20% of households in terms of income. 
Currently, only roughly half of households pay income taxes, which is 
by design, as the decision has been made to favor tax policy to 
redistribute income over the use of direct subsidies, which have the 
stink of welfare. This is entirely appropriate as a way to make work 
pay for families, as living wage requirements without such a tax 
subsidy could not be sustained by small employers.

The income surtax is earmarked for overseas military, naval sea and 
international spending because this spending is most often deficit 
financed in times of war. Earmarking repayment of trust funds for 
Social Security and Medicare, acknowledges the fact that the buildup of 
these trust funds was accomplished in order to fund the spending boom 
of the 1980s without reversing the tax cuts which largely benefited 
high income households.

Earmarking debt repayment and net interest in this way also makes 
explicit the fact that the ability to borrow is tied to the ability to 
tax income, primarily personal income. The personal or household 
liability for repayment of that debt is therefore a function of each 
household's personal income tax liability. Even under current tax law, 
most households that actually pay income taxes barely cover the 
services they receive from the government in terms of national defense 
and general government services. It is only the higher income 
households which are truly liable for repayment of the national debt 
both governmental and public.

If the debt is to ever be paid back rather than simply monetized, both 
domestically and internationally (a situation that is less sustainable 
with time), the only way to do so without decreasing economic growth is 
to tax higher income earners more explicitly and at higher rates than 
under current policy, or even current law.

The decrease in economic class mobility experienced in recent decades, 
due to the collapse of the union movement and the rapid growth in the 
cost of higher education, means that the burden of this repayment does 
not fall on everyone in the next generation, but most likely on those 
who are living in high income households now.

Let us emphasize the point that when the donors who take their cues 
from Americans for Tax Reform bundle their contributions in support of 
the No Tax Pledge, they are effectively burdening their own children 
with future debt, rather than the entire populace. Unless that fact is 
explicitly acknowledged, gridlock over raising adequate revenue will 
continue.

CBO projections on the size of the debt and the role of Net Interest 
are troubling, however, in that they show that while most discretionary 
and entitlement spending are projected to remain flat while net 
interest is due to explode. It is helpful to explore the reasons for 
this. This explosion essentially fuels the growth of the growth of the 
Dollar as the world's currency. Essentially, this means that we pay our 
expenses with taxation (even without adopting the Center for Fiscal 
Equity Plan) while we roll over our debt without repaying it. This 
seems like a wonderful way for American consumers to continue to live 
like imperial Rome, however it cannot last.

There are two possible ends to this gravy train. The first is the 
internationalization of the Dollar, the Federal Reserve and our entire 
political system into a world currency or government and its concurrent 
loss of national sovereignty or the eventual creation of rival 
currencies, like a tradable Yuan or a consolidated European Debt and 
Income Tax to back its currency. In the prior case, all nations which 
use the Dollar will contribute to an expanded income tax to repay or 
finance the interest on the global debt. In the second case, the 
American taxpayer will be required to pay the debt back--and because 
raising taxes on all but the wealthy will hurt the economy, it will be 
the wealthy and their children who will bear the burden of much higher 
tax levies.

To avert either crisis, there are two possibilities. The first is the 
elimination of deductions, including the Charitable Deduction itemized 
on personal income taxes--especially for the wealthy. If the charitable 
sector, from the caring community to the arts, industrial and education 
sectors, convince wealthier taxpayers to fight for this deduction, then 
the only alternative is higher rates than would otherwise occur, 
possibly including a much more graduated tax system.

Unlike other proposals, a graduated rate for the income surtax is 
suggested, as at the lower levels the burden of a higher tax rate would 
be more pronounced. More rates make the burden of higher rates easier 
to bear, while providing progressivity to the system rather than simply 
offsetting the reduced tax burden due to lower consumption and the 
capping of the payroll tax for Old Age and Survivors Insurance.

One of the most oft-cited reforms for dealing with the long-term 
deficit in Social Security is increasing the income cap to cover more 
income while increasing bend points in the calculation of benefits, the 
taxability of Social Security benefits or even means-testing all 
benefits, in order to actually increase revenue rather than simply 
making the program more generous to higher income earners. Lowering the 
income cap on employee contributions, while eliminating it from 
employer contributions and crediting the employer contribution equally 
removes the need for any kind of bend points at all, while the 
increased floor for filing the income surtax effectively removes this 
income from taxation. Means testing all payments is not advisable given 
the movement of retirement income to defined contribution programs, 
which may collapse with the stock market--making some basic benefit 
essential to everyone.

Moving the majority of Old-Age and Survivors Tax collection to a 
consumption tax, such as the NBRT, effectively expands the tax base to 
collect both wage and non-wage income while removing the cap from that 
income. This allows for a lower tax rate than would otherwise be 
possible while also increasing the basic benefit so that Medicare Part 
E and Part D premiums may also be increased without decreasing the 
income to beneficiaries.

If personal accounts are added to the system, a higher rate could be 
collected, however recent economic history shows that such investments 
are better made in insured employer voting stock rather than in 
unaccountable index funds, which give the Wall Street Quants too much 
power over the economy while further insulating ownership from 
management.

Too much separation gives CEOs a free hand to divert income from 
shareholders to their own compensation through cronyism in compensation 
committees, as well as giving them an incentive to cut labor costs more 
than the economy can sustain for purposes of consumption in order to 
realize even greater bonuses. Employee-
ownership ends the incentive to enact job-killing tax cuts on dividends 
and capital gains, which leads to an unsustainable demand for credit 
and money supply growth and eventually to economic collapse similar to 
the one most recently experienced.

The NBRT base is similar to a Value-Added Tax (VAT), but not identical. 
Unlike a VAT, an NBRT would not be visible on receipts and should not 
be zero-rated at the border--nor should it be applied to imports. While 
both collect from consumers, the unit of analysis for the NBRT should 
be the business rather than the transaction. As such, its application 
should be universal--covering both public companies who currently file 
business income taxes and private companies who currently file their 
business expenses on individual returns.

In the long term, the explosion of the debt comes from the aging of 
society and the funding of their health-care costs. Some thought should 
be given to ways to reverse a demographic imbalance that produces too 
few children while life expectancy of the elderly increases.

Unassisted labor markets work against population growth. Given a choice 
between hiring parents with children and recent college graduates, the 
smart decision will always be to hire the new graduates, as they will 
demand less money--especially in the technology area where recent 
training is often valued over experience.

Separating out pay for families allows society to reverse that trend, 
with a significant driver to that separation being a more generous tax 
credit for children. Such a credit could be ``paid for'' by ending the 
Mortgage Interest Deduction (MID) without hurting the housing sector, 
as housing is the biggest area of cost growth when children are added. 
While lobbyists for lenders and realtors would prefer gridlock on 
reducing the MID, if forced to choose between transferring this 
deduction to families and using it for deficit reduction (as both 
Bowles-Simpson and Rivlin-Domenici suggest), we suspect that they would 
chose the former over the latter if forced to make a choice. The 
religious community could also see such a development as a ``pro-life'' 
vote, especially among religious liberals.

Enactment of such a credit meets both our nation's short term needs for 
consumer liquidity and our long term need for population growth. Adding 
this issue to the pro-life agenda, at least in some quarters, makes 
this proposal a win for everyone.

The expansion of the Child Tax Credit is what makes tax reform 
worthwhile. Adding it to the employer levy rather than retaining it 
under personal income taxes saves families the cost of going to a tax 
preparer to fully take advantage of the credit and allows the credit to 
be distributed throughout the year with payroll. The only tax 
reconciliation required would be for the employer to send each 
beneficiary a statement of how much tax was paid, which would be shared 
with the government. The government would then transmit this 
information to each recipient family with the instruction to notify the 
IRS if their employer short-changes them. This also helps prevent 
payments to non-existent payees.

Assistance at this level, especially if matched by state governments 
may very well trigger another baby boom, especially since adding 
children will add the additional income now added by buying a bigger 
house. Such a baby boom is the only real long term solution to the 
demographic problems facing Social Security, Medicare and Medicaid, 
which are more demographic than fiscal. Fixing that problem in the 
right way definitely adds value to tax reform.

The NBRT should fund services to families, including education at all 
levels, mental health care, disability benefits, Temporary Aid to Needy 
Families, Supplemental Nutrition Assistance, Medicare and Medicaid. If 
society acts compassionately to prisoners and shifts from punishment to 
treatment for mentally ill and addicted offenders, funding for these 
services would be from the NERT rather than the VAT.

The NBRT could also be used to shift governmental spending from public 
agencies to private providers without any involvement by the 
government--especially if the several states adopted an identical tax 
structure. Either employers as donors or workers as recipients could 
designate that revenues that would otherwise be collected for public 
schools would instead fund the public or private school of their 
choice. Private mental health providers could be preferred on the same 
basis over public mental health institutions. This is a feature that is 
impossible with the FairTax or a VAT alone.

To extract cost savings under the NBRT, allow companies to offer 
services privately to both employees and retirees in exchange for a 
substantial tax benefit, provided that services are at least as 
generous as the current programs. Employers who fund catastrophic care 
would get an even higher benefit, with the proviso that any care so 
provided be superior to the care available through Medicaid. Making 
employers responsible for most costs and for all cost savings allows 
them to use some market power to get lower rates, but not so much that 
the free market is destroyed. Increasing Part E and Part D premiums 
also makes it more likely that an employer-based system will be 
supported by retirees.

Enacting the NBRT is probably the most promising way to decrease health 
care costs from their current upward spiral-- as employers who would be 
financially responsible for this care through taxes would have a real 
incentive to limit spending in a way that individual taxpayers simply 
do not have the means or incentive to exercise. While not all employers 
would participate, those who do would dramatically alter the market. In 
addition, a kind of beneficiary exchange could be established so that 
participating employers might trade credits for the funding of former 
employees who retired elsewhere, so that no one must pay unduly for the 
medical costs of workers who spent the majority of their careers in the 
service of other employers.

Conceivably, NBRT offsets could exceed revenue. In this case, employers 
would receive a VAT credit.

In testimony before the Senate Budget Committee, Lawrence B. Lindsey 
explored the possibility of including high income taxation as a 
component of a Net Business Receipts Tax. The tax form could have a 
line on it to report income to highly paid employees and investors and 
pay surtaxes on that income.

The Center considered and rejected a similar option in a plan submitted 
to President Bush's Tax Reform Task Force, largely because you could 
not guarantee that the right people pay taxes. If only large dividend 
payments are reported, then diversified investment income might be 
under-taxed, as would employment income from individuals with high 
investment income. Under collection could, of course, be overcome by 
forcing high income individuals to disclose their income to their 
employers and investment sources--however this may make some inheritors 
unemployable if the employer is in charge of paying a higher tax rate. 
For the sake of privacy, it is preferable to leave filing 
responsibilities with high income individuals.

Dr. Lindsey also stated that the NBRT could be border-adjustable. We 
agree that this is the case only to the extent that it is not a vehicle 
for the offsets described above, such as the child tax credit, employer 
sponsored health care for workers and retirees, state-level offsets for 
directly providing social services and personal retirement accounts. 
Any taxation in excess of these offsets could be made border adjustable 
and doing so allows the expansion of this tax to imports to the same 
extent as they are taxed under the VAT. Ideally, however, the NBRT will 
not be collected if all employers use all possible offsets and 
transition completely to employee ownership and employer provision of 
social, health, and educational services.

Thank you for the opportunity to address the committee. We are, of 
course, available for direct testimony or to answer questions by 
members and staff.

                                  
                                  
                                  
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