[Senate Hearing 116-321]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 116-321
 
                  PRESIDENT'S FISCAL YEAR 2020 BUDGET

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

                                HEARING

                               before the

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 14, 2019

                               __________
                               
                               
                               
 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                              
                               

                                     
                                     

            Printed for the use of the Committee on Finance
            
            
            
            
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             U.S. GOVERNMENT PUBLISHING OFFICE 
43-323 PDF             WASHINGTON : 2020            


                          COMMITTEE ON FINANCE

                     CHUCK GRASSLEY, Iowa, Chairman

MIKE CRAPO, Idaho                    RON WYDEN, Oregon
PAT ROBERTS, Kansas                  DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming             MARIA CANTWELL, Washington
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
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BILL CASSIDY, Louisiana              SHELDON WHITEHOUSE, Rhode Island
JAMES LANKFORD, Oklahoma             MAGGIE HASSAN, New Hampshire
STEVE DAINES, Montana                CATHERINE CORTEZ MASTO, Nevada
TODD YOUNG, Indiana

             Kolan Davis, Staff Director and Chief Counsel

              Joshua Sheinkman, Democratic Staff Director

                                  (ii)


                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman, 
  Committee on Finance...........................................     1
Wyden, Hon. Ron, a U.S. Senator from Oregon......................     2

                         ADMINISTRATION WITNESS

Mnuchin, Hon. Steven T., Secretary, Department of the Treasury, 
  Washington, DC.................................................     4

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Cortez Masto, Hon. Catherine:
    Letter from Seth Frotman to Hon. Mick Mulvaney, August 27, 
      2018.......................................................    31
Grassley, Hon. Chuck:
    Opening statement............................................     1
    Prepared statement...........................................    33
Mnuchin, Hon. Steven T.:
    Testimony....................................................     4
    Prepared statement...........................................    34
    Responses to questions from committee members................    35
Whitehouse, Hon. Sheldon:
    Submissions for the record...................................    53
Wyden, Hon. Ron:
    Opening statement............................................     2
    Prepared statement...........................................    59

                             Communication

Center for Fiscal Equity.........................................    61

                                 (iii)


                  PRESIDENT'S FISCAL YEAR 2020 BUDGET

                              ----------                              


                        THURSDAY, MARCH 14, 2019

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 1:30 p.m., 
in room SD-215, Dirksen Senate Office Building, Hon. Chuck 
Grassley (chairman of the committee) presiding.
    Present: Senators Roberts, Enzi, Portman, Scott, Cassidy, 
Lankford, Daines, Wyden, Cantwell, Menendez, Carper, Casey, 
Whitehouse, Hassan, and Cortez Masto.
    Also present: Republican staff: Jeffrey Wrase, Deputy Chief 
of Staff and Chief Economist; and Mark Warren, Chief Tax 
Counsel. Democratic staff: Michael Evans, General Counsel; Adam 
Carasso, Senior Economic Advisor; Daniel Goshorn, Investigator; 
and Tiffany Smith, Tax Counsel.

 OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM 
              IOWA, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. Welcome to everybody this afternoon and 
particularly to Secretary of the Treasury Mnuchin.
    The President's budget includes various proposals to 
confront a variety of policy issues, whether that is runaway 
spending, border security, national defense, the opioid 
epidemic, or health-care costs--and all of the above and more. 
The budget envisions receipts averaging 17.3 percent of GDP 
over the next 10 years, slightly above the average of the past 
50 years. It also has outlays averaging 20 percent over 10 
years, about equal to the average of the last 50 years.
    The budget contains some relatively minor tax proposals and 
proposes spending restraint to help achieve budget savings of 
around $2.8 trillion over 10 years. Those savings are 
significant, even if they come to only a fraction of what some 
recent proposals from the other side might end up costing. As 
examples, Medicare-for-All or the Green New Deal, those 
liberal-leaning proposals, would easily cost tens of trillions 
of dollars over decades, bring harm to
employer-provided health insurance, and radically restructure 
the American economy. They would add tens of trillions to the 
debt.
    The President's budget represents only a first step in our 
budget process where we learn of the President's priorities and 
proposals. As I often say, a President proposes, but Congress 
disposes.
    I can say that I agree that we must remain focused on 
important goals, like reducing health-care costs, continuing to 
rebuild the military, fighting against opioid abuse, and 
addressing the security and humanitarian crisis at our southern 
border. And of all of those I mentioned, three of the four, at 
least, are very bipartisan.
    I also know that this committee is ready to help accomplish 
some goals, such as tackling issues surrounding high drug 
prices, as well as the mystery in drug pricing, another very 
bipartisan issue I believe we can accomplish.
    I will note that the budget is being put forward in the 
setting of a robust economy, an economy that has been 
strengthening following enactment of tax reform. The economy 
and tax reform are benefiting Americans across the board.
    As you mentioned in your testimony, Secretary Mnuchin, the 
tax rate cuts, doubling of the standard deduction, and expanded 
child-care tax credits give real benefits to hardworking 
middle-class American families, and tax reform is fueling the 
economy.
    During the Trump administration generally, and especially 
since tax reform was enacted, economic growth has topped 3 
percent, business investment has been strong, job creation has 
been robust, real wage growth has accelerated--and we have not 
seen this sort of picture for 10 years--and incomes have grown.
    In 2018, we saw more job openings than the number of people 
who are unemployed, and that signals a robust labor market. 
Unemployment has been remarkably low overall, and especially as 
the President can proudly point out, particularly among 
Hispanic and African-American workers. And in my State of Iowa, 
unemployment stands at a record low 2.4 percent, the lowest 
rate of the 50 States.
    All of those strong economic numbers mean that hardworking 
Americans and their families are clearly benefiting from tax 
reform.
    [The prepared statement of Chairman Grassley 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.
    And today we are doing another round on the budget. Since 
the Treasury budget is largely about taxes, and taxes pay for 
the bulk of Federal programs, I want to begin with a hard look 
at the overall picture. In my view, this is not a budget as 
much as it is an economic smash-and-grab perpetrated on the 
American people. And if you get rid of the Washington lingo, 
what you have are cuts to Medicare, cuts to Medicaid, cuts to 
Social Security, cuts to education, cuts to housing, cuts to 
cancer research, cuts to job training, cuts to anti-hunger 
programs, cuts to anti-poverty programs, and the list goes on.
    Then you have the impact of the Trump tax law, hundreds of 
billions of dollars in tax handouts to corporations and those 
at the very top of the economic ladder, with an overall price 
tag that will reach $2 trillion in a decade. The Secretary's 
famously declared proposition that the tax law would pay for 
itself and more was off by trillions of dollars.
    The big effect of the Trump tax law has been to launch a 
trillion-dollar stock buyback bonanza that has been a non-stop 
joyride for corporate executives. That is because those 
executives get much of their compensation in the form of 
corporate stock.
    So once again, you see the two tax systems in America, and 
with the stock buyback bonanza, the executives get two special 
breaks that are unavailable to a cop or a nurse. They can defer 
their taxes on their stock holdings and they get a lower tax 
rate on their salaries and bonuses.
    In addition, new data released by Syracuse University shows 
the effects of years of Republican austerity imposed on the 
IRS. With audits of corporations and high earners steadily 
dropping year after year, enforcement of the tax law is in the 
worst shape it has been in in decades. Not in modern memory has 
there been a better time to be a wealthy tax cheat in America.
    So under Donald Trump, corporations and the wealthy do not 
have to pay a fair share, and there is a pretty good chance 
they can get away with paying virtually nothing at all. And it 
should come as no surprise that deficits crossed the trillion-
dollar mark under unified Republican control of the government.
    Unveiling the budget at a press briefing on Monday, the 
acting OMB Director drummed up fears over what he called 
``unsustainable national debt.'' He warned that ``annual 
deficits are continuing to rise'' without recognizing what is 
driving the increase. Echoing other Republican budget-cutters, 
he said Washington has got a spending problem. And then it was 
off to the races outlining exactly how the Trump administration 
wants to dismantle the system that created a vibrant middle 
class.
    For too long, the full burden of Republican budget cuts has 
fallen on the middle class and working families trying to get 
there. It does not fall on special interests. It does not fall 
on billionaires. And what the Trump administration put forward 
is not anything resembling fair belt-tightening. It is not 
even-handed reduction in spending. Middle-class families lose, 
but the budget would send more taxpayer dollars to defense 
contractors. It gives them even more than what the Pentagon 
asked for.
    The bottom line is, just about every warning that has come 
from this side of the committee about the Republican tax cut 
and its aftermath is proving to be true. The $4,000 raises 
American workers were promised--nowhere to be found. The tax 
handouts--not paying for themselves. New fed data projects the 
economy is growing this quarter at a rate of 0.2 percent. The 
experts at CBO, the nonpartisan budget office, forecast, as the 
corporate tax cut sugar high wears off, economic growth will 
slow to 1.7 percent in the years ahead.
    And as the public has seen this week, the deficits driven 
upward by the tax law are now considered the justification for 
draconian budget cuts. A cycle that has gone on for decades has 
taken a real toll on the middle class. It is long past time to 
end it.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Wyden appears in the 
appendix.]
    The Chairman. Our witness, the Secretary of Treasury, has 
been very active with the President. Before he was elected, he 
was finance chairman for the campaign and a senior economic 
advisor. But he also has extensive experience in global 
financial markets, U.S. Government securities, mortgages, money 
markets, municipal bonds, and has held several successful 
positions with private enterprises.
    Secretary Mnuchin also is committed to a lot of activity to 
help our society advance socially through philanthropic 
activities like being a member of the boards of the Museum of 
Contemporary Arts, the Los Angeles Whitney Museum of Arts, the 
Hirshhorn Museum Sculpture Garden on the Mall, the UCLA Health 
Systems Board, the New York Presbyterian Board, the Los Angeles 
Police Foundation, and I will bet there is a lot longer list 
some place.
    He was born and raised in New York City, and has a degree 
from Yale University.
    You may proceed, please.

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

    Secretary Mnuchin. Thank you.
    Chairman Grassley, Ranking Member Wyden, and members of the 
committee, it is good to be here with you today.
    I am pleased to report that President Trump's economic 
program of tax cuts, regulatory relief, and improved trade 
deals is working for the American people. During 2018, real GDP 
increased by 3.1 percent, measured from the fourth quarter of 
2017 to the fourth quarter of 2018. This is the highest Q4 to 
Q4 growth rate since 2005. The unemployment rate remains 
historically low at 3.8 percent, and earnings rose by over 3 
percent in 2018, the highest nominal increase in a decade. More 
Americans are entering the workforce because of a renewed sense 
of optimism. The World Economic Forum's most recent Competitors 
Report announced that the United States is the number one most 
competitive economy in the world, receiving the top ranking for 
the first time in 10 years.
    Companies are investing hundreds of billions of dollars in 
new and expanding business operations in the United States. 
This is in large part because the Tax Cuts and Jobs Act made 
our tax rate competitive, moved us from a worldwide system 
towards a territorial system of taxation, and allowed immediate 
expensing of capital expenditures. For hardworking families, it 
also cut rates across the board, doubled the standard 
deduction, and expanded the Child Tax Credit.
    I would also like to highlight Opportunity Zones, a key 
component of the TCJA. Opportunity Zones will help ensure that 
Americans benefit from our economic expansion and robust job 
market. They provide capital gains relief to encourage 
investment in businesses located in distressed communities. 
This policy has generated a great deal of enthusiasm.
    These measures are fueling growth. Along with our efforts 
to provide regulatory relief, in our trade negotiations we are 
aiming to break down barriers to markets around the world.
    As you know, China has gained many advantages through 
unfair trade practices. This administration is committed to 
rebalancing our trading relationship in order to level the 
playing field for hardworking Americans. We are negotiating 
with China on structural reforms to open their economy to our 
companies and to protect critical technology and intellectual 
property.
    The administration is also prioritizing the U.S.-Mexico-
Canada Agreement. It is the most comprehensive trade agreement 
ever negotiated and will modernize our trading relationship 
with North America. The USMCA will create the highest standards 
ever to protect intellectual property rights, support small and 
medium-sized businesses, open markets for agriculture, and spur 
manufacturing.
    I encourage all members of Congress to support its passage, 
because it will have a positive impact for American workers, 
business owners, farmers, and families.
    In addition to enhancing overall growth prospects, I want 
to note the impact the administration's economic agenda will 
have on our country's debt and deficits going forward. During 
the last administration, analysts predicted the 2-percent 
growth was the highest America could achieve and that it was 
the new normal. We have already shown that we can and will do 
better. An extra 1 percent of GDP growth per year means 
trillions of dollars of additional economic activity and more 
revenue to the government.
    Turning to the budget, the policies and priorities of the 
President's fiscal year budget will continue to foster strong 
economic growth, reduce spending, and create a more sustainable 
fiscal outlook for our country by reducing the deficit as a 
share of GDP.
    Of special interest to this committee, the Treasury portion 
of the budget includes $290 million for the Business Systems 
Modernization account, funding which is foundational for a new 
6-year IRS IT modernization plan. Investment in the 
modernization of IRS information technology systems and 
infrastructure will protect the integrity of our tax system and 
improve customer service for taxpayers.
    I am pleased to continue working with you on policies that 
will help to create jobs and increase wages for the American 
people. Thank you very much.
    The Chairman. Thank you.
    [The prepared statement of Secretary Mnuchin appears in the 
appendix.]
    The Chairman. We will start our questioning now and will 
have 5-minute rounds, and I want to keep this going while we 
have the vote. So I hope somebody will volunteer to chair while 
I go vote.
    Instead of reading a long introduction on my first 
statement, I am going to put that in the record.
    But basically it is the fact that I think the tax reform 
has benefited the average American, particularly middle-income 
people, and you have accusations that the middle-income worker 
was left behind. So to me, the facts are pretty clear that all 
Americans, especially workers in the middle class, are 
benefiting from the tax reform and other policies of this 
administration. So given this difference of opinion about the 
tax bill, Mr. Secretary, can you help me understand how workers 
were left behind, as the accusation is?
    Secretary Mnuchin. Mr. Chairman, I cannot help you on that. 
I think that workers have done quite well, and they are doing 
substantially better both through tax cuts, increased wages, 
and more jobs.
    The Chairman. Yes. Did you misunderstand my question? I was 
not criticizing that it was not helping the workers.
    Secretary Mnuchin. No, I understand.
    The Chairman. Okay.
    Secretary Mnuchin. You were asking me if I could explain 
how it was not helping the worker.
    The Chairman. Okay.
    Mr. Secretary, we have heard a lot about the size of the 
tax reforms, and I have already said, look at the bottom line 
of your tax form this year versus last year, and you will know 
whether you had a tax increase or not, or tax decrease or not. 
And you cannot tell it from your refund. Even the National 
Taxpayer Advocate has said there is no evidence to support such 
claims made by the Democrats.
    So would you care to set the record straight and explain 
the process followed for updating the withholding tables, 
because there were some accusations that there were political 
manipulations of it to make the tax reform look better for some 
people.
    Secretary Mnuchin. Mr. Chairman, we tried to carefully 
adjust the withholding tables so that hardworking taxpayers 
would have the benefit of tax cuts last year and have money in 
their pockets.
    Now, let me just walk you through some examples. First of 
all, I know there has been a lot of attention, but the average 
tax refund this year is the same as last year. Notwithstanding 
that, we would have expected that they would have gone down 
because taxpayers had less taxes.
    So for example, an average married couple with one job and 
two children under age 17 who had $75,000 of income in 2017, 
they would have had a tax of $3,800. In 2018, they would have 
had a tax of $1,700. So their taxes--they would have saved 
$2,000 or about 55 percent. If that taxpayer had been withheld 
the same in both years, their refunds would have been down 55 
percent.
    So again, the average refunds, so far, are flat. So if 
anything, I think the data shows that we did not adjust the 
withholding tables enough.
    The Chairman. I want to talk about the SALT deduction being 
limited to $10,000. In general, this limitation increases the 
progressivity of the tax code and allows for targeting larger 
tax cuts than otherwise would have been the case for middle-
income families. Yet the same people who have criticized the 
recent tax reform as tax cuts for the wealthy are now seeking 
to repeal the cap which would overwhelmingly only benefit 
millionaires and billionaires.
    Indeed, according to the liberal Tax Policy Center, nearly 
57 percent of the benefits from repealing the SALT cap would go 
to the top 1 percent of the taxpayers, and more than a quarter 
of the benefits would go to the top one-tenth of 1 percent 
alone. Are these numbers consistent with Treasury's 
understanding of who would stand to benefit from the repeal of 
the SALT cap?
    Secretary Mnuchin. I do believe they are, Mr. Chairman.
    The Chairman. Okay.
    It appears as though the President's budget assumes that 
the tax cuts and reforms benefiting individuals and small 
businesses are permanent. And I hope that becomes more than 
just an assumption. Anything less than permanence of this bill 
would equate to an eventual tax hike for millions of 
individuals. The $2,000 child credit would revert to $1,000. 
The nearly doubled standard deduction and lower overall rates 
would revert to prior laws. The new provision for small 
business of a 20-percent above-the-line deduction would no 
longer exist.
    So my last question is, Mr. Secretary, in Treasury's 
estimate, what would the expiration of these policies mean in 
terms of tax increases on individual families and job creators? 
And what would this mean to our economy generally?
    Secretary Mnuchin. Mr. Chairman, if we do not continue 
those tax cuts, it would reverse the tax cuts to middle-income 
families and significant child tax credits. And it would have 
an impact on the economy.
    The Chairman. Okay.
    Senator Wyden?
    Senator Wyden. Thank you, Mr. Chairman.
    First of all on the stock buybacks, Mr. Secretary, I am not 
going to ask a question just because, you know, time is short. 
I told you I think this buyback bonanza, a trillion dollars' 
worth, is just a non-stop joyride for corporate executives.
    And it just looks to me like this is classic trickle-down 
economics, that what you all are basically saying is well, 
maybe at some point the middle-class person might get an itty-
bitty slice of the well-to-do's pie. I just disagree profoundly 
with that proposition.
    Now, let me go to my questions. First, with respect to 
ethics, I am trying to make sense out of your uncertified 2017 
ethics form. And the government has not been able to certify it 
yet. And I gather that there are some questions about why.
    One of the assets you report is a receivable from the Alan 
G. Mnuchin Trust--that is your brother--and is valued at 
between $25 and $50 million. Another is a receivable from 
Stormchaser Partners, which I gather is your wife. What can you 
tell us about these receivables, and what is their relation to 
the assets you certified you had divested in 2017?
    Secretary Mnuchin. Thank you, Senator.
    So first, let me just clarify. My forms were filed timely, 
and they were certified by the career Designated Agency Ethics 
Official at Treasury, who is the person that I consult with on 
a regular basis.
    Senator Wyden. But the Office of Government Ethics has not 
certified.
    Secretary Mnuchin. Mr. Senator, I am just explaining, 
please.
    So again, I deal with the career Designated Agency Ethics 
Advisor. I am fully in compliance. It was fully certified by 
that person.
    I do understand that it has not yet been certified by OGE. 
I understand the Treasury is working with OGE. There have been 
discussions in regards to their certification. But I have been 
advised by the people at Treasury that I am fully in 
compliance, and I have no ethical issue.
    Senator Wyden. We will wait for that. I hope that is the 
case. And until I see it, what we have wondered is whether 
there has been an exchange of an asset for a loan, rather than 
divestment. So we will await those results.
    I want to turn now, if I might, to the question of the 
sanctions deal, and particularly, Mr. Deripaska. Now the 
Treasury Department's decision to lift sanctions on the big 
aluminum manufacturer involved a variety of entities related to 
the sanctioned Russian oligarch, Mr. Deripaska.
    So I just want to ask you about a few issues here. Now 
according to reports, under the sanctions relief deal almost 
$100 million worth of shares in EN+--really an entity linked to 
Deripaska and Rusal--were transferred to a trust for 
Deripaska's children. Are you aware of this report?
    Secretary Mnuchin. I am aware.
    Senator Wyden. Do you dispute the report?
    Secretary Mnuchin. Again, I do not have it in front of me. 
So I cannot comment on it.
    Senator Wyden. Well, the name of the trust was ``Liberi,'' 
which is the Latin word for children. It is a real head-
scratcher how this came to pass, because it sure looks like Mr. 
Deripaska's children are benefiting from sanctions efforts 
meant to punish him.
    So I am trying to make sense out of this. I mean this 
really resembles a Keystone Cops-level sanction enforcement.
    How did this pass muster there at Treasury?
    Secretary Mnuchin. Bear with me. We are just pulling the 
information, but I can assure you it was not a Keystone Cops 
effort. This is something--as you know--the career people at 
Treasury worked on for a very, very long period of time.
    Our objective--and we believe the sanctions worked--was to 
decrease his ownership, put in compliance, and now have the 
board controlled by a majority of Americans and Europeans.
    Senator Wyden. Let us do this, because my time is going to 
expire. I am puzzled how something like this could pass 
Treasury's muster. I am concerned that Deripaska's kids are 
benefiting from a sanctions effort meant to punish him.
    Mr. Secretary, will you respond to my questions here today 
on Mr. Deripaska within 7 business days so we can get this 
resolved?
    Secretary Mnuchin. Absolutely, and I can assure you--and I 
am happy to not only respond, but to come up and meet with you 
and your staff if you want us to go through the details that 
his children did in no way benefit from sanctions.
    Senator Wyden. It does not look like it to me at this 
point, and we are going to have to exchange----
    Secretary Mnuchin. When we have more time, I would be happy 
to walk you through it.
    Senator Wyden. That will be fine.
    Secretary Mnuchin. Thank you.
    The Chairman. Senator Scott?
    Senator Scott. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here this afternoon 
with us. I want to ask you a couple questions that I think are 
probably easy to answer ``yes'' or ``no,'' and some of them you 
have already stated in your opening statement. So I assume that 
the answer will likely be ``yes'' on many of the questions.
    But are you aware of the fact that in February the Federal 
receipts were up 10 percent?
    Secretary Mnuchin. Yes.
    Senator Scott. With lower tax rates, we actually saw an 
increase in our revenues. Therefore, if we were to control our 
spending, we would find ourselves on the right path. Is that an 
accurate assumption?
    Secretary Mnuchin. That is accurate. And I just want to 
highlight that the tax cut act was designed to stimulate the 
economy and, because of automatic expensing, would specifically 
lower revenues in the first year with additional revenues going 
forward.
    So not only were revenues up, but there was the impact we 
had expected of additional costs in the beginning.
    Senator Scott. I would assume, then, that we should expect 
more good news as we move forward because, as you think of the 
Laffer Curve, as we reduce the impediments on growth in our 
economy, we should expect that we will see even more growth in 
our economy.
    Secretary Mnuchin. Yes.
    Senator Scott. That would probably help explain the fact 
that our GDP growth in 2018 was 3.1 percent?
    Secretary Mnuchin. Yes.
    Senator Scott. It would also reinforce the fact that the 
earnings for our workers--we have seen a lag in their growth 
financially, individually--have lagged behind. And now for the 
first time in more than a decade, we saw their earnings grow 
over 3 percent?
    Secretary Mnuchin. That is correct.
    Senator Scott. And since 2017, we have seen the creation of 
about 5.2 million jobs?
    Secretary Mnuchin. That is about correct.
    Senator Scott. And since the passage of the tax reform, 
about half of those jobs have been created?
    Secretary Mnuchin. Yes; you are on a roll.
    Senator Scott. Okay.
    So doubling the Child Tax Credit is a positive thing for 
folks with kids?
    Secretary Mnuchin. Absolutely. It was a significant way of 
getting tax cuts to hardworking families.
    Senator Scott. And then making more of it refundable also 
is an interesting and positive incentive as well?
    Secretary Mnuchin. Correct.
    Senator Scott. Looking at the positive results for single 
parents--as we have discussed on a number of occasions, I was 
raised by a single mom. If you look at the average single 
mother around the country making wages around $40,000--which 
according to the IRS is the average wage for a single mother--
her share of Federal taxes has been cut at least in half, some 
say as high as 73 percent.
    Secretary Mnuchin. That is about right.
    Senator Scott. I would love to have an entire hearing, Mr. 
Chairman, contrasting the Tax Cuts and Jobs Act versus a Green 
New Deal. These questions may be harder to answer because I am 
not sure that there is an answer that we know yet. But, if the 
Green New Deal's price tag is $93 trillion, how does that help 
create jobs in the private sector?
    Secretary Mnuchin. I do not know how it would create jobs, 
and I do not know how we would possibly pay for it.
    Senator Scott. That would be a harder question to answer.
    Secretary Mnuchin. It would be indeed.
    Senator Scott. Yes, sir.
    My thought is that, as we look at the Green New Deal, and 
if you look at the, as I call them, cross tabs within the 
information in the Green New Deal, it to me is undoubtedly a 
regressive tax on the poor from my perspective and reading of 
the Green New Deal. Would you have any information on that?
    Secretary Mnuchin. I think not only is it a tax on the 
poor, but it is an enormous brake on the entire economy.
    Senator Scott. I certainly hope we have the opportunity to 
have this conversation and this debate in a hearing in the 
Finance Committee several times in the next 2 years.
    Changing subjects to the Opportunity Zones, I assume that 
you are aware that I am a fan of the Opportunity Zones.
    Secretary Mnuchin. Not only am I aware you are a fan, but I 
want to personally thank you, Senator Scott, because you have 
been an important part of this. This never would have occurred 
without you. So thank you very much for your contributions.
    Senator Scott. Thank you, sir.
    Yesterday your team sent OIRA* a second set of proposed 
regulations on qualified opportunity funds. As you know, 
Congress intended for the Opportunity Zones to provide a new 
lifeline of equity capital to operating businesses in low-
income communities in addition to certainly creating 
opportunities for real estate investments. Much of the market 
for operating business has been frozen due to the need for 
additional clarity on rules which thus far have not been 
provided. I know you are aware of the bipartisan concerns of 
this fundamentally important issue for the success of the 
Opportunity Zones policy. What can you tell us today about the 
forthcoming rules that will address key questions that may 
unfreeze the market and see even more development to follow on 
the so far successful implementation?
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    * The Office of Information and Regulatory Affairs.
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    And I thank your office for working with us to smooth the--
I guess the experience in the real world.
    Secretary Mnuchin. Well, thank you. And again, I think this 
is a very, very important economic development for communities 
that really need the investment.
    We did significant listening after the first round to try 
to clarify issues. I can assure you this is at the top of my 
list.
    We are working very closely with OIRA to get this out as 
quickly as we can so that taxpayers can understand this and we 
can see money going into the communities right away.
    Senator Scott. Thank you, Mr. Secretary, Mr. Chairman.
    The Chairman. Senator Menendez?
    Senator Menendez. Thank you, Mr. Chairman. Mr. Chairman, 
first of all, I would like to invite you to New Jersey so you 
could meet the nearly 1.8 million New Jerseyans who deducted 
their State and local property tax. And I can assure you, just 
like me as a property owner in New Jersey, they are not 
millionaires. They are not multimillionaires. They are about as 
middle-class as can be.
    And as a State, we give more money to the Federal Treasury 
than we get back, compared to other States that give less and 
get more in return. So that classification in your opening 
comments I would seriously dispute.
    Now, Mr. Secretary, I watched with interest that you 
acknowledged this morning before the Ways and Means Committee 
that the SALT cap is having a significant impact on States like 
New Jersey, and other productive States, and that these 
economies are critical to the national economy. As I said, New 
Jerseyans pay more than their fair share in taxes, and we punch 
above our weight economically. So I am encouraged to hear from 
you that it appears maybe you have come to understand the views 
of some of us who are facing this challenge. But this 
administration's support of the SALT cap and unprecedented 
efforts to undermine State-level tax credit programs sabotages 
the success of States like New Jersey, and it hurts our country 
as a whole.
    Mr. Secretary, is it not fair to say that States have had 
programs that awarded tax credits and exchange for donations 
before the President's tax bill?
    Secretary Mnuchin. Well, Senator, as you pointed out, I did 
make comments on that this morning. So I will repeat them 
without getting into a debate whether it impacted the high-end 
individuals or the middle----
    Senator Menendez. I do not mean to interrupt, but there is 
limited time. That is not my question. I know what you said at 
the Ways and Means Committee, and I accept that you have come 
to some sensitivity of it. But is it not true that States have 
had programs before the Trump tax bill that awarded tax credits 
in exchange for donations?
    Secretary Mnuchin. There have been credits for--
particularly in educational areas.
    Senator Menendez. Yes, and so there are actually over 30 
States that had such programs, where they had credits in 
exchange for donations. So why did the administration reverse 
decades of precedent and case law by prohibiting taxpayers from 
deducting donations made to those State funds?
    Secretary Mnuchin. Senator, I would be happy to come up and 
walk you through this carefully. But what I would say is, what 
we tried to do was preserve the intent of these programs in the 
context of our obligation to monitor the $10,000 SALT.
    So the idea was not to allow States to create a 
workaround----
    Senator Menendez. But this existed, Mr. Secretary, before 
the SALT is what I am saying. These States, by the way, mostly 
red States--including of many members of this committee--their 
States had these charitable deductions for purposes that would 
help them with their taxes. And for years, they went on without 
a consequence, and all of a sudden States like New Jersey come 
along and do the exact same thing as the States had for years, 
and then all of a sudden we get a different ruling.
    Now I will say this much: at least you are affecting all of 
the States by those rulings at the end of the day, not just New 
Jersey. But in essence, it seems to me that what you try to do 
is to crack down on blue States that created the same exact 
circumstances that red States had, and for years tax preparers 
in those red States would say this is the easiest way to deal 
with avoiding hitting the alternative minimum tax.
    So they had it for a different purpose. But the IRS for 
years allowed this to go on. The IRS actually had rulings that 
said it was okay, and then all of a sudden when States like New 
Jersey try to deal with the challenge for their taxpayers, it 
was ruled unacceptable.
    So you know, those of us who believe that, and get 
concerned that the IRS is being weaponized, see this is a 
classic, perfect example of that set of circumstances. I hope 
we can work together to find a way to create relief for 
taxpayers like myself who live on my salary and who have a 
property and who are being affected by the SALT deduction. But 
far beyond me, we have hundreds of thousands of New Jerseyans 
who are not millionaires who are being affected by this, and 
being treated poorly at the end of the day.
    The Chairman. Senator Whitehouse?
    Senator Whitehouse. Thanks very much.
    Mr. Secretary, before we go any further, I would like to 
ask unanimous consent to put two articles in the record, one 
regarding the commentary that has been heard in this hearing 
about tax bill revenues. Similar statements just earned four 
Pinocchios, and I would like to have that article added. And 
second, there is a recent article evaluating the so-called $93 
trillion that the Koch brothers came up with and evaluating the 
credibility of that as well.
    The Chairman. Without objection, so ordered.
    [The articles appear in the appendix beginning on p. 53.]
    Senator Whitehouse. Secretary Mnuchin, you have said in the 
past, in July of 2018 in the House Financial Services 
Committee, ``We have got to figure out this beneficial 
ownership issue in the next 6 months. I do not want to be 
coming back here next year and we do not have this solved.'' I 
think you and I are in the same place on this beneficial 
ownership issue, but it is a bear trying to get progress, and 
here it is next year and I do not see much progress. Could you 
tell me, just for openers, who is the point person at Treasury, 
by name, leading the beneficial ownership issue?
    Secretary Mnuchin. First, let me just acknowledge I did 
make that statement, and I am not pleased that it has not been 
fixed.
    Senator Whitehouse. Nor am I, and I look forward to working 
with you together to fix it.
    Secretary Mnuchin. I have put our new Deputy, Justin 
Muzinich, in charge of this issue. He is coordinating with our 
Office of Tax Policy. He would be happy to come over and sit 
down with you.
    We have a bunch of different ideas. I think it is very 
important that we figure out a solution to beneficial 
ownership. It is important for our TFI* area. It is important 
for tax reporting. It is important for international 
compliance. It is not a simple answer.
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    * Terrorism and Financial Intelligence.
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    Senator Whitehouse. Would you agree that it is also 
important for our international credibility, that if we become 
the Crooked Redoubt of kleptocrats everywhere, that is not a 
great American brand to own.
    Secretary Mnuchin. I would agree with you. I do not think 
we will be without it. But I do agree with you, and I am not 
happy to report that we have not solved this. It is a very 
complicated issue with lots of different views.
    But I am committed that Treasury will follow up with you 
specifically, and we would very much like to get your input.
    Senator Whitehouse. Thank you. I appreciate that.
    Secretary Mnuchin. I hope I am not back here next time 
without this solved.
    Senator Whitehouse. I hope so too, because I am eager to 
get it solved. I would also like to add to the record an 
editorial piece that General David Petraeus and I wrote 
describing the kleptocracy regime and America's support of the 
secret channels for hiding money by foreign dictators and 
crooks as a national security weakness for the country.
    The Chairman. Without objection, so ordered.
    [The article appears in the appendix on p. 57.]
    Senator Whitehouse. And I want to thank General Petraeus 
for writing that article with me. He is, obviously, somebody 
who has an extraordinary record of defending America's national 
security.
    Mr. Secretary, there was really terrific bipartisan action 
related to climate change here in Congress with respect to what 
is called the 45Q tax program. It created a tax benefit for 
investors in carbon capture and sequestration. On the floor the 
other day, Republicans came to talk about climate change and 
repeatedly mentioned the importance of this particular 
legislation. Just recently Chairman Barrasso held a hearing in 
which he repeatedly mentioned the importance of this 
legislation.
    I wrote to Treasury officials about this issue in early 
February and would like to add a copy of that letter dated 
February 6th to the record. I do not believe we have had a 
response.
    The Chairman. Without objection, so ordered.
    [The letter appears in the appendix on p. 59.]
    Senator Whitehouse. Thank you.
    I do not believe we have had a response. I do not know why. 
The failure of guidance on this has gummed up the progress that 
we have tried to seek. There are industries waiting to go. 
There are investors waiting to move. There are academic 
institutions that have done scientific work that they want to 
move forward with into production, and all of that is being 
held up for want of 45Q guidance that I think is reasonably 
tolerably easy to achieve.
    Could you give us a time for when you think you can 
actually get this done?
    Secretary Mnuchin. So I understand that we followed up the 
letter with a briefing to your office. I am not familiar, 
personally, with all the details. But I will make sure that 
next week I get briefed on this, and we will get back to you if 
we have questions. So we will put it high on the list, and if 
there are issues, we will follow up with you.
    Senator Whitehouse. Let us just say there are not a whole 
ton of issues on which Senator Cory Booker and I and Senators 
John Barrasso and Jim Inhofe come together and agree on. This 
is one. It ought not to get lost in the executive bureaucracy.
    Thank you, Mr. Chairman.
    Secretary Mnuchin. I assure you it will not get lost. Thank 
you, Senator.
    The Chairman. Senator Lankford?
    Senator Lankford. Thank you, Mr. Chairman.
    Mr. Secretary, thanks for being here, and for the testimony 
today.
    Tell me how it is going with OIRA. There is a new 
memorandum of understanding between IRS and OIRA trying to be 
able to work out any of the regulatory issues. Have you bumped 
into any barriers, slowdowns in timing, anything that has 
caused an issue to OIRA and IRS in promulgating rules and regs?
    Secretary Mnuchin. So I think we are pleased with the new 
memo and the change of it. And I think we are working closely 
with OIRA. Obviously, from our standpoint we always want to get 
things out quicker. And from their standpoint, they have an 
obligation to look through them. So there is always a natural--
we would rather go faster, but I think it is working.
    Senator Lankford. No major hiccups to this point. That is 
helpful.
    There has been an ongoing dialogue about the tax gap, and 
you and I have talked about that before. The tax gap is one of 
those issues where we all talk about a number, but we also 
realize the tax gap number is a decade old. So we really do not 
know what the tax gap is anymore.
    Any progress on trying to determine what is our tax gap, 
and what is unpaid at this point?
    Secretary Mnuchin. Well, I think there is progress, but I 
would say more importantly, this is why I am determined that we 
need to modernize the IRS technology--and we substantially 
under-
invested in technology. We need to bring it into the modern 
age.
    And the best way to shrink the tax gap is through 
technology, is through being able to use the vast amounts of 
information that we have at the IRS, and automate it so that we 
can use it for narrowing the tax gap.
    Senator Lankford. So you and I talked about this last year 
during FSGG conversations on appropriations, that for the past 
10 years IRS has listed a problem with legacy hardware and 
legacy software. There was additional investment that was put 
to IRS last year, and there was the year before that, and the 
year before that to be able to help in modernization.
    Do you have a number yet, what it would take to be able to 
move from ``we need additional investment'' to ``we are 
there?''
    Secretary Mnuchin. I think the total investment is 
approximately $2 to $2.5 billion as to what we think is 
necessary. And this will obviously be over a multiyear period.
    Senator Lankford. Are we talking 5 years, 10 years? Are we 
talking 3 years? What do you think that is?
    Secretary Mnuchin. I think it is 6 years, and I think it is 
like $2.2 to $2.6 is the range we have been using.
    Senator Lankford. Okay.
    So, switching from tax gap to the other side, the improper 
payments side, EITC has been one of those things for a while. 
GAO has placed it on the high-risk list to say there are a lot 
of improper payments there.
    Any progress in providing greater clarity to tax preparers 
and other folks on how to be able to close down that improper 
payment?
    Secretary Mnuchin. There is, but again, this is something 
that I would like to come in and brief you on----
    Senator Lankford. Yes.
    Secretary Mnuchin [continuing]. Because I think, as you 
know, we have the right to hold the payments for a certain 
period of time. But there are still issues with matching and 
everything else and potential fraud in this. And we would be 
happy to come up and give you a briefing. It is potentially a 
significant amount of money.
    Senator Lankford. Yes, it is. And it is one of those areas 
that has been on GAO's list for a very long time to resolve, 
and if there are ways that we can be helpful in that process, I 
hope that we can be helpful in that process as well.
    Secretary Mnuchin. Yes.
    Senator Lankford. Opportunity Zones are, if not one of the 
first three things that people say to me--there are a lot when 
I get back in State--they are in that top list somewhere.
    It has been interesting the amount of buzzing conversation 
in different places around the States where they want to talk 
about Opportunity Zones. I know that the regs are coming out on 
that frequently. Will the frequency increase, or what do you 
think is a regular release on regs on that? When do you think 
is the next release? I know we just had one. When do you think 
is the next one?
    Secretary Mnuchin. I think the next release will come 
within the next month, and it is quite material. I think it 
will have a lot of issues. And then again, as we get feedback 
and other issues, we will roll out additional regulation.
    Senator Lankford. Terrific. There is a question that has 
come up from a couple of folks in my State that there are 
listed within the regs what are called sin businesses: 
commercial golf courses--which I think a lot of people would be 
shocked to know that the golf course, I guess, is on the sin 
list--country club, massage parlor, hot tub facility, suntan 
facility, racetrack, gambling facility, liquor store. Is there 
an assumption within that that anything that violates Federal 
law should also be on that list?
    So for instance, the multiple States that have legalized, 
decriminalized, or allowed medical distribution of marijuana, 
would those businesses and grow locations or dispensaries--
because they violate Federal law--would they also not be 
eligible for an Opportunity Zone credit the same as these 
others?
    Secretary Mnuchin. It is not something I believe we have 
considered at the moment. But I would be happy to review it 
internally----
    Senator Lankford. There has been a question just in my 
State. Just try to figure out, if it violates Federal law if it 
still is eligible for a tax credit. And so trying to be able to 
figure out that balance on it would be helpful to folks.
    Can I flip to one more quick subject? The nonprofit parking 
piece that the reg came out for, about 30 pages of it--is that 
done or is there a new reg that is coming out? Any updates on 
that one in the days ahead?
    Secretary Mnuchin. The taxpayer should be able to rely upon 
the guidance that has come out, although it will go through a 
more formal process. But they should be able to rely upon that. 
And we hope that we have solved it as best as we can.
    Senator Lankford. Okay. Thank you.
    The Chairman. Senator Hassan?
    Senator Hassan. Thank you, Mr. Chairman and Ranking Member 
Wyden, for having this hearing.
    Good afternoon, Mr. Secretary. Thank you for being here. 
Before turning to my questions, I just wanted to comment on 
Treasury's mission to stop terrorist financing.
    Detecting and disrupting terrorist financing is a critical 
tool in the counterterrorism arsenal. And in order to help 
prevent ISIS, Al-Qaeda, or the next version of these groups, 
whatever they may be, from threatening our homeland, we have to 
provide robust funding for the antiterrorist financing programs 
at the Treasury Department. To that end, I am very pleased that 
Treasury's budget requests a significant increase for the 
Office of Terrorism and Financial Intelligence, and I look 
forward to supporting Treasury in this mission. So thank you 
all for doing that.
    Secretary Mnuchin. Thank you, and thank you for the 
specific funding increases we have had in the last few years in 
recognition of the importance of it.
    Senator Hassan. Well, thank you.
    Now I want to move on to some pieces of the budget. I am 
sure, Mr. Secretary, we can agree that supporting innovative 
small businesses is key to growing the economy and creating 
good-paying jobs. In my State, the New Hampshire Community Loan 
Fund, a nonprofit community development financial institution 
in Concord, has been increasing access to capital for Granite 
Staters, especially small businesses in economically distressed 
areas of our State, for more than 35 years.
    In fact, they came by my office yesterday. But the 
President's budget would eliminate the Treasury Department's 
Community Development Financial Institution program, which 
provides support to CDFI in New Hampshire.
    Meanwhile, Mr. Secretary, the administration told the 
American people that the new pass-through deduction in the 2017 
tax law would give a boost to Main Street entrepreneurs. But in 
fact, the Joint Committee on Taxation found that in 2018, the 
top 1 percent received over $20 billion in tax cuts from this 
new deduction.
    Now, after billions in tax cuts that were supposed to help 
small businesses have actually gone to the top 1 percent, the 
administration wants to slash the vital CDFI program. Mr. 
Secretary, can you tell me in dollar terms how much the 
President's budget would cut from the Treasury Department's 
CDFI program?
    Secretary Mnuchin. It would take it down from 250 to 
approximately 14----
    Senator Hassan. That is the CDFI fund, not the program.
    Secretary Mnuchin. Yes.
    Senator Hassan. The program, I believe, is currently funded 
at about $160 million.
    Secretary Mnuchin. I do not have that chart with us, but we 
would be happy to follow up with you.
    Senator Hassan. It is a very important program within your 
own department. So let me just tell you that it is funded at 
about $160 million, and your budget completely eliminates it--
100-percent cut.
    So with the $20 billion that the pass-through deduction 
handed to the top 1 percent last year, with----
    Secretary Mnuchin. I----
    Senator Hassan. Go ahead. I am sorry. Did you want to say 
something?
    Secretary Mnuchin. No, I was just going to say we are happy 
to follow up. But let me just acknowledge that I do think the 
CDFI program does create valid benefits to the community. There 
were difficult decisions we made in the budget, and we would be 
happy----
    Senator Hassan. And let us just talk about what that 
reflects about the administration's priorities then, okay? 
Because with the $20 billion that the pass-through deduction 
handed to the top 1 percent last year, is it not true that the 
CDFI program could be fully funded more than 100 times over?
    Secretary Mnuchin. Well, I do not agree with you. And the 
calculation is rather complicated on the $20 billion, because 
what we did is, we lowered the corporate tax rate. The idea of 
the pass-through discount was to create some level of parity 
between pass-throughs and corporations.
    Senator Hassan. I do understand. I----
    Secretary Mnuchin. There is an assumption in that 
calculation as to what goes to the taxpayers and what gets 
passed on.
    Senator Hassan. But let us just be very clear, though. That 
is about half of the value of the total pass-through deduction. 
And it went to the top 1 percent at a time when the 
administration is turning around and talking here in this 
hearing about tough choices to make. The tough choices are 
going to be for small businesses in economically distressed 
areas that cannot get necessary capital to invest and create 
jobs just where we need them the most.
    That reflects this administration's priorities, and I just 
have to tell you I think that is backwards. I think we should 
be focused on where we need to help people start small 
businesses and create jobs in the most economically depressed 
areas of our country. And certainly in my State, that 
elimination of CDFI is going to have a real impact.
    Thank you, Mr. Chairman.
    The Chairman. Senator Casey?
    Senator Casey. Thank you, Mr. Chairman.
    Mr. Secretary, good to be with you. I wanted to start with 
something that was not noticed by very many people, I guess, 
across the country when the tax bill was enacted at the end of 
2017. The 2017 tax bill eliminated the deduction for union dues 
and other expenses for workers like gasoline and tools that 
they have to purchase. At that time--and I would include that 
time as well as the present--did you support eliminating the 
deduction for unreimbursed employee expenses?
    Secretary Mnuchin. I did support the elimination of 
unreimbursed employee expenses.
    Senator Casey. And is there anything in the President's 
budget that has just been announced, or any initiative that you 
or anyone else in the administration has undertaken to 
reinstate those provisions for union dues and employee 
expenses?
    Secretary Mnuchin. I am not aware of it, but I can check 
with the team and get back to you.
    Senator Casey. Okay, I might have the answer, or an answer. 
I have a bill to make the deduction for union dues above the 
line, and also to reinstate the deduction for expenses like 
tools and gas. And I ask--you may not have seen this bill yet, 
but I ask you to take a look at it and then correspond back 
with us with an answer as to whether or not you or the 
administration could support it.
    Secretary Mnuchin. We would be happy to do that, and we 
will have the Office of Tax Policy work with your staff so we 
can understand the exact impact.
    Senator Casey. Thank you.
    And at the time of the tax bill, there were a lot of 
debates about the projected impact of the tax bill on workers, 
on workers' wages. At one point, the Council of Economic 
Advisors for the White House said that wages would go up on 
average $4,000. What is your sense of, (a) what has happened 
since the enactment of the bill to workers' wages? Have they 
gone up $4,000? Have they gone up at all? What is your sense of 
where workers' wages are in dollars?
    Secretary Mnuchin. We have had the largest growth of wages 
last year that we have had. I think the idea was not 
necessarily the $4,000 would all be in year one, but we 
continue to think that wage growth will lead to that for the 
calculation.
    Senator Casey. So are you saying that real wages are up,
inflation-adjusted wages are up since the tax bill?
    Secretary Mnuchin. Yes, indeed.
    Senator Casey. And what is your source for that?
    Secretary Mnuchin. Yes, we are happy to give you the 
sources. I have it from our Office of Economic Policy. This is 
all based on third-party data that I believe is put out with 
the Commerce Department.
    But we are happy to give you the exact data and the 
sourcing of it.
    Senator Casey. Okay; we look forward to seeing that it.
    Also, going back to one of the 2018 hearings--to be exact, 
February 14, 2018--I asked you the following. I said last May, 
referring to 2017, you told the committee, quote--and I'm now 
quoting you--``over 70 percent of the cost of corporate taxes 
are actually born by the worker.'' And then my question was, if 
companies are not keeping to that, instead are giving the 
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 for making sure that 
employees--that wage earners--see the gains from the tax code? 
That was my question to you in 2018.
    Your response at that time was, quote, ``I commented on 
this earlier, the similar question. And again, we do stand by 
what we believe. There are many economists that support that 
over 70 percent.'' You went on to say, ``We do stand behind 
that. We think we are going to see that. We think we are going 
to see wage increases.''
    Do you still stand behind those statements about 70 
percent?
    Secretary Mnuchin. I do, over a broad basis. Okay, I do 
think that is the case. Now I know the comment that you are 
going to say is, well there have been big stock buybacks.
    Senator Casey. What do you mean by ``broad basis?''
    Secretary Mnuchin. If we look over the economy, over a 
large set of large companies and small companies, that is what 
that statistic was based on.
    Senator Casey. Are you saying that we have seen or we will 
see 70 percent of the gains going to workers?
    Secretary Mnuchin. What I am saying is that, over time, the 
workers bear 70 percent of the cost of taxes. So, yes, I stand 
behind, over the 10-year scoring period, that that is our view.
    Senator Casey. Thank you, Mr. Chairman.
    The Chairman. Senator Cortez Masto?
    Senator Cortez Masto. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I want to jump to another subject. 
I am concerned about an unpublished IRS decision that is 
blocking the development of affordable housing for veterans in 
my State. For years, the Low-Income Housing Tax Credits and 
private activity bonds were effectively used together to build 
affordable housing, including projects that serve veterans and 
other special needs populations.
    Recently, however, the IRS has informally interpreted how 
the general public use criteria are applied to private activity 
bonds.
    [Pause.]
    Secretary Mnuchin. We are working with the Finance staff, 
and we are----
    Senator Cortez Masto. I have not asked a question.
    Secretary Mnuchin. I am sorry. I apologize.
    Senator Cortez Masto. I was just waiting for you to get 
your answer, or question, or take care of whatever you needed 
to.
    In the misinterpretation of the statue and congressional 
intent, the IRS has decided that private activity bonds can no 
longer be used for veteran housing projects. And as a result, 
ongoing projects have been halted and the ability of veteran 
housing facilities to renovate or expand will be significantly 
impaired in my State.
    So can you tell me, when did the IRS make the decision to 
reinterpret the general public use criteria as applied to 
private activity bonds? And what was the justification for the 
change?
    Secretary Mnuchin. I am concerned about the impact, 
particularly on our veterans. We have been working with the 
Finance staff. We will also work with your office. We are 
trying to resolve this issue so that it can be used, and so 
that veteran housing is not impacted. So we share your concern.
    Senator Cortez Masto. So then, why change it? I guess I 
would like more information. That was not enough. I do not 
understand the justification for the change.
    Secretary Mnuchin. I apologize, but I am not briefed on the 
entire issue, given the specifics of this, but I assure you I 
will follow up with you next week.
    Senator Cortez Masto. Thank you. I appreciate that. Thank 
you.
    Another subject as important for me--and I know you are 
aware of this--is the high student loans that we have in this 
country. There are more than 40 million Americans with student 
loan debt. This outstanding debt of $1.5 trillion is stressful 
for families. It is a drag on our economy.
    And the Consumer Financial Protection Bureau has a position 
which is called the Private Education Student Loan Ombudsman. 
That ombudsman is designated by the Treasury Department, is my 
understanding. And I understand the previous gentleman who was 
there left the Bureau because he had concerns that it had 
abandoned students. It was no longer enforcing the law. I would 
like to include his letter of resignation in the hearing 
record.
    [The letter appears in the appendix on p. 31.]
    Senator Cortez Masto. I am curious: have you read that 
letter, and do you agree with his concerns, or are you aware of 
what is happening here?
    Secretary Mnuchin. I have read the letter. I am aware of 
the concerns. We do not necessarily agree with the concerns. I 
have had my legal department review it internally, and we are 
working to replace that position.
    Again, our responsibility is to effectively designate the 
person, and that person has the responsibility to carry it out. 
But it is something that is an important position that will be 
dealt with.
    Senator Cortez Masto. And do you have a time frame of when 
you are going to fill that position?
    Secretary Mnuchin. Very soon.
    Senator Cortez Masto. Okay.
    And is that individual going to be committed to ensuring 
that students--protecting student loan borrowers from servicing 
errors, like miscalculated payments?
    Secretary Mnuchin. I would say that person, that will be 
part of the responsibility. Again, that is an important issue 
that that person will have to review. Ultimately, we need to 
make sure that the servicers are properly enforcing their 
responsibilities.
    Senator Cortez Masto. Okay.
    The third subject I want to jump to is U.S. debt. Is it not 
true that the U.S. national debt is more than $25 trillion 
dollars?
    Secretary Mnuchin. No; it is less than $25 trillion.
    Senator Cortez Masto. So I am looking at the U.S. debt 
world clock. That is not accurate?
    Secretary Mnuchin. I do not believe that is the exact 
number.
    Senator Cortez Masto. All right. So what is our national 
debt, then, if that is not the case?
    Secretary Mnuchin. Well, we will get back to you on the 
exact number.
    Senator Cortez Masto. You do not know, sitting right here, 
what our national debt is as a Treasury Secretary?
    [No response.]
    Senator Cortez Masto. Well, I can tell you it is over $20 
trillion.
    Secretary Mnuchin. It is more like $22 trillion than 25. 
Just to be clear, I was trying to get the exact number for you. 
I was aware of----
    Senator Cortez Masto. All right, semantics. It is $22 
trillion. Thank you.
    And is it not true that the administration's tax bill 
raised the debt by $1 trillion?
    Secretary Mnuchin. No, that is not true.
    Senator Cortez Masto. Then what did it raise----
    Secretary Mnuchin. I would be happy to go through the math 
for you. So the tax bill scored at $1.5 trillion on a static 
basis. You take off 250. That is the difference between 
baseline and policy as a result of expensing. That gets you 
down to 1.25 trillion. As a result of last year's growth, we 
have already accounted for about 400. So the current cost is 
825, and with about 35 basis points of growth over the 9 years, 
it will pay for itself.
    So we do not believe that it will add to the----
    Senator Cortez Masto. That is at 3-percent growth?
    Secretary Mnuchin. No; what I am saying is, all you need is 
an additional----
    Senator Cortez Masto. You said ``basis points of growth 
over 9 years.'' What basis points are you looking at?
    Secretary Mnuchin. The breakpoint is about 2.55. We believe 
that we will get 3 percent. At 3 percent, it pays down the 
debt.
    Senator Cortez Masto. So it is just under $1 trillion right 
now.
    Secretary Mnuchin. Again, no; it is $825 billion assuming 
zero growth. Okay, if you assume----
    Senator Cortez Masto. So when you say it is $825 billion 
right now----
    Secretary Mnuchin. Again, just to be clear, the way this 
was scored was on a static basis at 1.5 trillion. Okay, all 
along we said that it would be positive because we thought 
there would be over 75 basis points of additional growth, and 
we would raise an additional trillion dollars.
    What I am saying to you is that the cost has been reduced 
already as a result of 1 year of growth, and if we hit 2.55 
percent growth--that is roughly the break-even for paying for 
itself. So we firmly believe not only will this pay for itself, 
but it will pay down debt.
    Senator Cortez Masto. I notice I have run out of time. So 
thank you very much.
    The Chairman. Senator Roberts?
    Senator Roberts. Thank you, Senator.
    I want to talk a little bit about agriculture. And then I 
have some very quick questions for you.
    I want to know that tax reform included much-needed 
incentives for farmers to grow their operations at a time when 
we are struggling to stay afloat. I think you know that I am 
not a very good fan of tariffs and tariff retaliation and the 
rather desperate need for price recovery in farming.
    But I want to also say that, because of tax reform, a 
family farmer in Dodge City, KS can now immediately write off 
larger capital purchases, things like breeding livestock, farm 
equipment. Single-purpose structures up to $1 million are 
eligible, and the benefit does not start to phase out until the 
business reaches $2.5 million in capital purchases.
    A dairy farm in Wichita can now invest in an additional 
milking machine they need to grow their business. The Act also 
created a 20-percent deduction for pass-through businesses. I 
have a couple of questions for you on that, since we have heard 
a lot of commentary from my friends across the aisle.
    Ninety-three percent of the U.S. farms file their taxes as 
pass-throughs. This deduction is a very big deal for 
agriculture. Some will say this only applies to certain 
businesses, and that the rules for those who qualify are too 
complicated to the average small business. I just do not think 
that is true.
    Based on the Joint Committee on Taxation's 2019 
projections, over 95 percent of individuals who will take the 
pass-through deduction will fall below the income eligibility 
thresholds. As a result, they do not have to worry about the 
section 199A limitations. This is tax relief for farmers that 
really provides some incentives to grow their business and hire 
more workers.
    Now, given where we are with the farm economy, it could not 
have been done at a better time. Now we have heard a lot from 
my friends here across the aisle with regards to their concern 
that too much of the benefit on pass-throughs goes to owners 
above the income threshold.
    Mr. Secretary, an owner of an S corporation, a 
manufacturing business for example, who is above the income 
threshold would be subject to wage and investment limitations. 
If that business pays no employee wages and has no special 
investment in the business, that section 199A deduction would 
be exactly zero. Is that not true?
    Secretary Mnuchin. That is correct.
    Senator Roberts. So this deduction is helping to encourage 
the impressive increase in jobs and wage growth that we have 
seen since tax reform, as well as the increase in capital 
investment. And I think you would agree with that, would you 
not, sir?
    Secretary Mnuchin. I would agree. Thank you.
    Senator Roberts. Lastly, the Democrats--pardon me; I do not 
say ``Democrats.'' My friends across the aisle are terribly 
concerned about the pass-through deduction, that it is just too 
complicated. I have just mentioned that.
    Is it not true, Mr. Secretary, that for pass-through 
business owners below the income threshold--and according to 
JCT, more than 95 percent of the business owners taking the 
deduction are below the income threshold--the complexity really 
amounts to taking your qualified business income and 
multiplying it by 20 percent. Is that not correct?
    Secretary Mnuchin. That is correct.
    Senator Roberts. Now, the budget proposes legislation 
enabling additional funding for new and continuing investments 
to expand and strengthen tax enforcement. Now, I have been on 
this committee for quite a while. That does not excite me too 
much, given the past history of what we have had to investigate 
and get into.
    According to the budget, however, spending $15 billion will 
generate $47 billion in new revenue. How?
    Secretary Mnuchin. Well, this has to do with the tax gap. 
It has to do with better technology and having enforcement. So 
that is the idea.
    Senator Roberts. It is my understanding that this 
represents a much larger investment in--regarding the question 
that Senator Lankford had just a while ago on computer 
technology, is that not correct?
    Secretary Mnuchin. That is true.
    Senator Roberts. Well, if you are investing $15 billion and 
you produce $47 billion in revenue, hopefully, that is a good 
thing.
    Where are we with China on trade?
    Secretary Mnuchin. We are in active discussions with China. 
I have had two conference calls recently with Ambassador 
Lighthizer and our counterpart, Vice-Premier Liu He. We had a 
discussion as recently as last night.
    I think you know we are working on a very extensive 
document that covers very important issues, structural changes, 
forced technology, IP protection. It is a complicated issue. We 
are working diligently to try to get this done as quickly as we 
can.
    Senator Roberts. I appreciate that. I know you are aware of 
this, but all regions, all crops, farmers, ranchers, growers, 
everybody involved in the food chain, are going through a 
difficult time. I would just offer an opinion of mine, and 
talking to the Ambassador from Canada and also Mexico, they 
would sure think it would be a good idea if we are going to get 
NAFTA-2 passed, that we could do something with those 
continuing tariffs.
    I know in talking to Mr. Lighthizer, sometimes he can be a 
stubborn cuss. He will not mind that. I have known him for a 
long time. But at least--how do you feel about that?
    Secretary Mnuchin. I can assure you that the Ambassador and 
I are working very hard on that issue. We had a bunch of people 
with the President yesterday. That was brought up.
    The idea is, one, we would like to pass the USMCA as 
quickly as we can, and as part of that, we would like to reach 
a resolution on the steel and aluminum tariffs with Canada and 
Mexico. And I can assure you on the agriculture side, I spoke 
to the Soybean Growers Association this week. I understand the 
importance of agriculture and trade.
    Senator Roberts. You can add in corn, wheat, sorghum.
    Senator Daines, you want to add in beef, I know that.
    Senator Daines. Beef, wheat, and barley, sir.
    Senator Roberts. There we go. We can just keep going down 
the line.
     The Chairman. Senator Cassidy?
    Senator Cassidy. Thank you, sir.
    A couple of things, and I am sorry. I have been away, so 
you may have answered this. But I do not know what your answer 
was.
    The issues on the guidance on the Opportunity Zones, as to 
the pace at which those will come out, you spoke of them, 
rightly, as something which is highly anticipated and has the 
potential to have a great impact. But the information from the 
IRS has been somewhat limited.
    You know, for example, how do we liquidate an Opportunity 
Zone without disrupting the tax benefit, as one example. Or how 
local businesses can meet key tests to become qualified. So 
anyway--and it is a time-limited incentive. So any insights as 
to when these rules shall be released?
    Secretary Mnuchin. I can assure you this is on the top of 
our list. We are going through with OIRA right now the review 
of various regulations. And we are trying to get things out as 
quickly as we can. We realize how important this is to the 
communities.
    Senator Cassidy. Also, I think one of my colleagues 
earlier, I am told, brought up trade-based money laundering. It 
is something of intense interest to me in my office.
    When we were in Mexico, they pointed out that the USMC does 
have new provisions which would allow greater cooperation 
between the United States and Mexico to track this.
    I do not know what it will require to implement this, but 
the cartels are moving $60 billion a year, conservatively, out 
of our country. And obviously, this has been highlighted 
recently, because the President is using money from the asset 
forfeiture fund to help finance the southern border.
    Are you familiar with these provisions, and do you have any 
sense of how they will begin to be implemented?
    Secretary Mnuchin. I am familiar with them, and we are 
working closely with ourselves and other departments on how we 
will implement them. We look forward to coming up and briefing 
you once we make a little bit more progress.
    Senator Cassidy. That will be wonderful. And what I do not 
know now--and again, if you want to include this in your 
briefing--and I have tried to understand. If somebody is moving 
assets and our dollars one direction or the other, and there is 
an effort to mis-invoice, or double invoice, or false invoice, 
how is there a correlation between the dollars that are going 
in one direction and the putative goods going in another? I 
just have not been able to figure that out, as easy as that 
seems.
    Obviously money is flowing, but goods may not go. So how do 
we know whether or not that is happening?
    Secretary Mnuchin. As you have outlined, it is somewhat of 
a complicated issue, and we look forward to going through it 
with you.
    Senator Cassidy. Sounds great. Also, I would like to point 
out, just for my colleagues who seem to be bashing the Tax Cuts 
and Jobs Act bill and suggesting that benefits have not been 
realized by those who are lower-income, I also will put up this 
and just point out here the dark blue line is wage growth, and 
the wage growth right now is disproportionately among those who 
are in the lower half of the income scale. And that is because 
of this economy, and this economy is at least in part because 
of the Tax Cuts and Jobs Act bill.
    So this is not pertaining to your testimony or questions to 
you, but it does pertain to the public debate as to whether or 
not there is a general benefit that comes from a booming 
economy. There is a general benefit, and in this economy it is 
disproportionately for those who are in the lower end of the 
wage scale.
    So hospitality and the service industries, for example, are 
disproportionately benefiting with 5-percent growth in their 
wages. So also just to make that point, again not apropos of 
you, but just to echo something you said earlier.
    With that, Mr. Chairman, I yield the balance of my time.
    The Chairman. Senator Daines?
    Senator Daines. Thank you, Mr. Chairman and Secretary 
Mnuchin. Thanks for coming up here today.
    Since President Trump took the oath of office, Republicans 
have delivered lower taxes, fewer regulations, and because of 
these policies, our economy is soaring. In fact, on average 
Montana families are keeping over $1,000 of their hard-earned 
paychecks. And on top of that, many are receiving higher wages. 
This is resulting in bigger paychecks for working families.
    I would like to first talk about the pass-through 
deduction. It is allowing Main Street companies in Montana and 
around our country to succeed. As you know, these businesses 
employ 66 million workers, which is about 55 percent of the 
workforce. The purpose of the TCJA deduction is to help 
preserve and to grow these jobs. And I am hearing from small 
businesses in Montana it is doing just that.
    My question is, would you agree that this deduction for 
Main Street businesses is helping to encourage the impressive 
increase in jobs and wage growth we are seeing since tax 
reform, as well as the increase in capital investment?
    Secretary Mnuchin. Yes, I would.
    Senator Daines. And now the naysayers of the tax cut bill 
contend that it produced nothing more than a sugar high. In the 
President's budget, however, you anticipate annual economic 
growth of around 3 percent over the next decade. What do you 
think the other forecasters are missing about the 
sustainability of our soaring economy?
    Secretary Mnuchin. Well, I think you know last year when we 
predicted 3 percent or higher, everybody else was still in the 
low 2s. I think we just have a fundamentally different view of 
growth, and in running it through the economy. So we think that 
the impact of the tax cuts is just beginning and we will 
continue to see more.
    Now, let me just make one comment, which is, the U.S. is 
growing. The rest of the world is slowing down substantially. 
So we are growing, and whether it is Europe, or whether it is 
China, they are having an opposite impact.
    Senator Daines. Why do you think we are growing and other 
places are not?
    Secretary Mnuchin. Because we have instituted a combination 
of tax cuts, regulatory relief, and redoing our trade agenda.
    Senator Daines. In sharp contrast, Mr. Secretary, to the 
policies that you and I would support, several of my friends 
across the aisle have proposed a so-called Green New Deal, 
which includes wiping out all the oil and coal industries that 
are critical to Montana jobs, critical to our tax base, 
critical to our way of life. And it includes canceling the 
private health coverage of 180 million Americans, including 
over 500,000 Montanans. To top it off, these proposals would be 
financed by tens of trillions of dollars in tax increases.
    Could you give a short overview of how these radical 
proposals would disrupt and damage our economy?
    Secretary Mnuchin. I do not think they disrupt or damage. I 
think they destroy. So I do not know how they could possibly be 
financed without having the economy just ground to an absolute 
halt.
    Senator Daines. I want to shift gears and talk a bit about 
China. Senator Roberts mentioned it earlier. It was recently 
reported the administration is actively seeking to exclude 
allies from talks with China.
    Do you agree that working with our allies to confront 
China's trade abuses could increase pressure on China to make 
the structural reforms, the necessary reforms that are needed 
to level the playing field, particularly for Montana farmers 
and ranchers, the outdoor industry, and other businesses?
    Secretary Mnuchin. Well, let me just comment. At the G7, we 
are working on WTO reform, which is really a lot of the China 
issues, and a lot of the other problems with the WTO. I think 
the President is very focused on our bilateral trade with 
China, which is very unbalanced, and that is our number one 
priority.
    Although I can tell you I was in Europe last week and met 
with both the finance ministers of France and the UK, and we 
have been in communication with them and have their input.
    Senator Daines. So one of the industries we are seeing that 
has been hurt with retaliatory tariffs is the U.S. polycon 
industry. They have been targeted by the Chinese. I would urge 
you to prioritize removal of these tariffs to help level the 
playing field.
    We have a polysilicon manufacturer called REC Silicon in 
Butte, a place that creates great jobs. And we need some help 
here to get rid of these retaliatory tariffs. I just want to 
make sure you are aware of that, Mr. Secretary.
    Secretary Mnuchin. Thank you.
    Senator Daines. Thanks.
    The Chairman. Senator Cantwell?
    Senator Cantwell. Thank you, Mr. Chairman.
    I join my colleague from Montana in asking for your help 
and support, obviously, on the trade issues and trying to open 
up markets. And this is a holdover from the last 
administration, but nonetheless, it is still a very important 
issue to, in my opinion, focus more on, giving the resources to 
USTR to fight these cases legally. I am more for lawyering up 
than tariffing up.
    So anyway, REC is a good example to that point, because it 
is 5 or 6 years later, and we are still dealing with the basic 
underlying substance.
    And I apologize for asking a bunch of related questions, 
but I wanted to get your views on them. The new deduction under 
199A--you have had an extension, but how can we help our 
farmers and fishermen get the information that they need so 
that they can file their taxes?
    Secretary Mnuchin. This is a very important issue for us, 
and we want to make sure--there are obviously a lot of 
technical issues, as you said, particularly for farmers. We 
hope to get something out very quickly, and we have taken a lot 
of input. And if there are specific issues you have, we will 
reach out to your office, but we are very focused on this.
    Senator Cantwell. Okay; soon meaning what? What would you 
say soon is?
    Secretary Mnuchin. Within the next month--weeks.
    Senator Cantwell. So, okay; thank you.
    I just want to get your viewpoints too. Do you think it is 
fair that we have business expense deduction for legitimate 
businesses, but on a cannabis business, we do not? They are not 
allowed to have business expensing.
    Secretary Mnuchin. Let me just comment that this is a very 
complicated issue that impacts lots of things where there is a 
conflict between Federal law and State law. And whether it is 
me putting on my IRS hat where we have hundreds of thousands of 
dollars of cash coming in, this issue needs to be resolved one 
way or another, because there are conflicts, and so many 
regulations and rules and everything else.
    However it is resolved, you have just described one of 
many, many, many complicated issues.
    Senator Cantwell. And so you would like to see that 
resolved?
    Secretary Mnuchin. Again, I just encourage--there are lots 
of issues that we cannot give guidance on, or cannot change 
from Treasury without dealing with the conflict.
    Senator Cantwell. To me it is an injustice that there is a 
business that is not treated like other businesses when a State 
decides that that is a true business. But we will get on to 
other things.
    The Low-Income Housing Tax Credit is something we are very 
supportive of and want to see continued investment in. My 
colleague from New Jersey brought up, and maybe my colleague, 
Senator Scott brought up, we definitely are seeing hundreds of 
thousands of people paying more taxes in the State of 
Washington.
    So the notion that corporations are paying less--we are 
getting more money from a larger pool of people who are paying 
more. I have constituents who are paying more, middle-class 
families who are paying more because of those same SALT 
deductions that are no longer available. And yet I do not know 
that they would relate that growth that you are saying is 
occurring and wage growth.
    In 2015, we had one quarter with 5.1-percent wage growth, 
and in 2016, we had one quarter with 3.1-percent wage growth. 
So we have had some wage growth, but I do not know that 
everybody is equating the tax bill results to wage growth. I do 
not even know if you believe that there is consistency among 
economists about what creates wage growth. Do you think there 
is?
    Secretary Mnuchin. I think different economists have 
different views on lots of different things. And let me just 
say, I am sympathetic where SALT is having an impact on certain 
economies, and we are trying to monitor this carefully.
    Senator Cantwell. All I am saying is I think the northwest 
has a lot of wage growth. And I think that companies and 
employees are doing great jobs at creating products and 
services. And that is why I think that they are having some 
success in also raising wages, because of the productivity that 
is coming and the efficiencies that are coming out of some of 
those business models.
    So I would just caution us not to equate, just by looking 
at the balance sheet of the Federal Government, that all of a 
sudden we are achieving all these goals. Personally, I would 
like us to see a Federal discussion about what causes wage 
growth, at least get people on the same page, because I am not 
sure we are all on the same page. And I think we are going to 
continue to have this debate.
    But from the concerns of people in my State--I hear from 
people who work for these companies and who literally are 
paying more in taxes. So they think they are creating the 
economic opportunity, and now they are paying more in taxes.
    And yes, we gave that company a big tax break, and they 
might have bought back shares and increased the value of the 
company, but it is not necessarily as clean-cut as I think the 
administration might think it is.
    Thank you, Mr. Chairman.
    The Chairman. Thank you. Senator Portman?
    Senator Portman. Thank you, Mr. Chairman.
    And, Mr. Secretary, I appreciate your being here, and 
you're here during a time where we can brag about what we have 
accomplished, which is a tax bill that is helping middle-class 
families throughout Ohio. A median-income family in Ohio is 
getting another 2,000 bucks a year, on average.
    Wage growth is finally going up, not just in Ohio, but 
across the country. This is something we have all been waiting 
for for a long time. In Ohio, it has been about a decade and a 
half. The wage growth last month was 3.4 percent, inflation-
adjusted by the way.
    So some of the numbers we heard a minute ago were not
inflation-adjusted. And yes, I mean, here are the numbers: 1.7 
percent average, real--meaning inflation-adjusted in this 
administration, post the tax bill, versus .6 percent during the 
Obama administration. That is reality.
    And now we are finally seeing wages go up even higher, 3.4 
percent last month, the highest in over 10 years. And if you 
look at it over your long basis, it is also the highest since 
the Great Recession.
    So finally, we are getting the kind of wage growth that all 
of us have been waiting for. And people working harder, longer 
hours have not seen the ability to get ahead. Now they are 
saying, yes, finally we are beginning to see the benefits of 
good tax policy being spread more broadly.
    So I am excited about it, particularly because, if you look 
at it, it is the blue collar workers who are getting the 
biggest benefit, right? The white collar wages are not going up 
quite as fast. So this is exciting.
    I have been all around Ohio, as you know, doing these town 
hall meetings and talking to our small business community. I 
had a roundtable discussion the week before last, and I heard 
the same thing I have heard at the other two dozen of them that 
I have done, which is every single business around the table is 
doing something to invest in their people or in their plant and 
equipment.
    And to the point earlier about, you know, is this really 
going to result in more investment, non-residential fixed 
investment, equipment structures, and so on--7.2-percent annual 
growth rate in 2018, the highest since 2011.
    So this is the tail. This is the consequence of tax reform 
over time. Would you agree with that, that seeing the increased 
investment is going to be one of the major benefits of the tax 
reform?
    Secretary Mnuchin. Yes, I would agree with you.
    Senator Portman. When you look at the 199A pass-through 
issue, I heard earlier some of my colleagues talking about 
folks who are above the threshold getting too much of a 
benefit. I would make two points. Number one, that is about 4.9 
percent of taxpayers. Number two, they only get a deduction 
when they do one of two things, right: pay wages or make 
investments. Is that not good?
    Secretary Mnuchin. That is good.
    Senator Portman. And if you look at the wage growth, and 
you look at the investment growth, I mean part of it is because 
you and we, working together, put together a pretty smart 
package on 199A. It is not perfect. Nothing is in this 
complicated tax code and complicated world we live in. But this 
has enabled us to be able to see higher growth, don't you 
think?
    Secretary Mnuchin. It has, and I want to personally thank 
you for the work that you have done, in particular, on this.
    Senator Portman. You and I worked a lot on the 
international side--again, very complicated. I will give you a 
quote from a group that met in 2015, the International Tax 
Working Group. It said that ``tax reforms on the international 
side work best with a substantial corporate rate reduction and 
broader tax reform for all businesses.'' That was Chuck Schumer 
and Rob Portman. We were co-chairs of that task force. That is 
exactly what we did.
    And you have worked with us on some issues, including the 
expense allocations issues under GILTI and other things--and to 
try to be sure that we are getting these benefits broadly.
    But let me ask you this question. Do you think, as some of 
my colleagues have asked when they talk about raising the 
corporate rate, if we took the corporate rate back up to, let 
us say 28 percent or more, maybe even 35 percent, let us say 
even 28 percent, do you think that would result in a new trend 
of foreign acquisitions and inversions that we saw happening 
before the tax bill?
    Secretary Mnuchin. Either that or, again, an additional 
slowdown in the economy.
    Senator Portman. Yes. I mean, I look at the numbers. 
Businesses were being acquired or inverting at a rapid rate, 
three times as many businesses being bought by others rather 
than the U.S. buying those businesses. And we managed to 
reverse that and now have money actually flowing back in.
    Two final questions quickly. One is with regard to IRS 
reform legislation. You and I have talked about this before. I 
know you are generally supportive.
    The new Commissioner now being in place and having gotten 
through the worst part of the tax season--and soon he will be 
through it altogether--do you think it is time for us to push 
IRS reform, as we talked about at the end of last year, to be 
able to make the agency work even better for taxpayers?
    Secretary Mnuchin. I do, and the Commissioner and I would 
look forward to coming up and sitting down with you and going 
through that.
    Senator Portman. I think it would be time. And one of the 
things that we talked about and I want to get your view on is 
the IRS Oversight Board. It has not worked well.
    The administration--and I would say the Obama 
administration most recently, but even the Bush 
administration--did not embrace it as I had hoped they would. 
The idea is that it gives strategic direction to the IRS to 
avoid some of the problems we are now seeing at the IRS in 
terms of taxpayer service and lack of direction on IP and 
investment in technology.
    Do you support the idea of an Oversight Board going back to 
its original intent?
    Secretary Mnuchin. I would like to go through that with you 
and kind of weigh the benefits and the issues. Again, there is 
a difference between oversight and an advisory. But again, I 
would love to come and talk to you, and we could discuss the 
benefits and the issues.
    Senator Portman. I think it is a matter of establishing a 
strategic direction that is consistent for the agency. And I 
would like to work with you, and I hope you can give us some 
ideas of what kind of expertise you would be looking for on, 
perhaps, a board that is more streamlined and more effective.
    The other one is retirement security. My time is expired, 
so I will just ask you for the record if you could just tell us 
what your views are on trying to move forward with a broader 
retirement package.
    We have RESA that we got so close to passing. We also have 
this issue of frozen defined benefit plans. The Retirement 
Security Preservation Act deals with that. We have about 
420,000 beneficiaries who stand to lose benefits this year 
alone if we do not deal with that.
    So we would love to hear your thoughts on that at the 
appropriate time. If you want to give an answer now if the 
chairman will allow you, otherwise I have to yield back my time 
that I have already used too much of.
    Secretary Mnuchin. I will just comment that retirement 
savings is an important issue and we look forward to working 
with you on it.
    The Chairman. Everybody has asked you the questions that 
you are going to get today. You may get questions in writing. 
So every member should know that those questions for answer in 
writing should be submitted to the Secretary by the close of 
business March 28th.
    Thank you very much, Secretary Mnuchin.
    Secretary Mnuchin. Thank you, Mr. Chairman.
    [Whereupon, at 3:03 p.m., the hearing was concluded.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


               Submitted by Hon. Catherine Cortez Masto, 
                       a U.S. Senator From Nevada
August 27, 2018

The Honorable Mick Mulvaney
Acting Director
Consumer Financial Protection Bureau
1700 G Street, NW
Washington, DC 20052

Acting Director Mulvaney:

It is with great regret that I tender my resignation as the Consumer 
Financial Protection Bureau's Student Loan Ombudsman. It has been the 
honor of a lifetime to spend the past seven years working to protect 
American consumers; first under Holly Petraeus as the Bureau defended 
America's military families from predatory lenders, for-profit 
colleges, and other unscrupulous businesses, and most recently leading 
the Bureau's work on behalf of the 44 million Americans struggling with 
student loan debt. However, after 10 months under your leadership, it 
has become clear that consumers no longer have a strong, independent 
Consumer Bureau on their side.

Each year, tens of millions of student loan borrowers struggle to stay 
afloat. For many, the CFPB has served as a lifeline--cutting through 
red tape, demanding systematic reforms when borrowers are harmed, and 
serving as the primary financial regulator tasked with holding student 
loan companies accountable when they break the law.

The hard work and commitment of the immensely talented Bureau staff has 
had a tremendous impact on students and their families. Together, we 
returned more than $750 million to harmed student loan borrowers in 
communities across the country and halted predatory practices that 
targeted millions of people in pursuit of the American Dream.

The challenges of student debt affect borrowers young and old, urban 
and rural, in professions ranging from infantrymen to clergymen. 
Tackling these challenges should know no ideology or political 
persuasion. I had hoped to continue this critical work in partnership 
with you and your staff by using our authority under law to stand up 
for student loan borrowers trapped in a broken system. Unfortunately, 
under your leadership, the Bureau has abandoned the very consumers it 
is tasked by Congress with protecting. Instead, you have used the 
Bureau to serve the wishes of the most powerful financial companies in 
America.

As the Bureau official charged by Congress with overseeing the student 
loan market,\1\ I have seen how the current actions being taken by 
Bureau leadership are hurting families. In recent months, the Bureau 
has made sweeping changes, including:
---------------------------------------------------------------------------
    \1\ Section 1035 of the Dodd-Frank Act establishes a Student Loan 
Ombudsman at the CFPB to ``provide timely assistance to borrowers,'' 
``compile and analyze'' borrower complaints, and ``make appropriate 
recommendations to the Director [of the CFPB], the Secretary [of the 
Treasury], the Secretary of Education, the Committee on Banking, 
Housing, and Urban Affairs and the Committee on Health, Education, 
Labor, and Pensions of the Senate and the Committee on Financial 
Services and the Committee on Education and Labor of the House of 
Representatives.'' See 12 U.S.C. Sec. 5535.

      Undercutting enforcement of the law. It is clear that the 
current leadership of the Bureau has abandoned its duty to fairly and 
robustly enforce the law. The Bureau's new political leadership has 
repeatedly undercut and undermined career CFPB staff working to secure 
relief for consumers. These actions will affect millions of student 
loan borrowers, including those harmed by the company that dominates 
this market. In addition, when the Education Department unilaterally 
shut the door to routine CFPB oversight of the largest student loan 
companies, the Bureau's current leadership folded to political 
pressure. By undermining the Bureau's own authority to oversee the 
student loan market, the Bureau has failed borrowers who depend on 
independent oversight to halt bad practices and bring accountability to 
---------------------------------------------------------------------------
the student loan industry.

      Undermining the Bureau's independence. The current leadership of 
the Bureau has made its priorities clear--it will protect the misguided 
goals of the Trump Administration to the detriment of student loan 
borrowers. For nearly seven years, I was proud to be part of an agency 
that served no party and no administration; the Consumer Bureau focused 
solely on doing what was right for American consumers. Unfortunately, 
that is no longer the case. Recently, senior leadership at the Bureau 
blocked efforts to call attention to the ways in which the actions of 
this administration will hurt families ripped off by predatory for-
profit schools. Similarly, senior leadership also blocked attempts to 
alert the Department of Education to the far-reaching harm borrowers 
will face due to the Department's unprecedented and illegal attempts to 
preempt state consumer laws and shield student loan companies from 
accountability for widespread abuses. At every turn, your political 
appointees have silenced warnings by those of us tasked with standing 
up for servicemembers and students.

      Shielding bad actors from scrutiny. The current leadership of 
the Bureau has turned its back on young people and their financial 
futures. Where we once found efficient and innovative ways to 
collaborate across government to protect consumers, the Bureau is now 
content doing the bare minimum for them while simultaneously going 
above and beyond to protect the interests of the biggest financial 
companies in America. For example, late last year, when new evidence 
came to light showing that the nation's largest banks were ripping off 
students on campuses across the country by saddling them with legally 
dubious account fees, Bureau leadership suppressed the publication of a 
report prepared by Bureau staff. When pressed by Congress about this, 
you chose to leave students vulnerable to predatory practices and deny 
any responsibility to bring this information to light.

American families need an independent Consumer Bureau to look out for 
them when lenders push products they know cannot be repaid, when banks 
and debt collectors conspire to abuse the courts and force families out 
of their homes, and when student loan companies are allowed to drive 
millions of Americans to financial ruin with impunity.

In my time at the Bureau I have traveled across the country, meeting 
with consumers in over three dozen states, and with military families 
from over 100 military units. I have met with dozens of state law 
enforcement officials and, more importantly, I have heard directly from 
tens of thousands of individual student loan borrowers.

A common thread ties these experiences together--the American Dream 
under siege, told through the heart wrenching stories of individuals 
caught in a system rigged to favor the most powerful financial 
interests. For seven years, the Consumer Financial Protection Bureau 
fought to ensure these families received a fair shake as they strived 
for the American Dream.

Sadly, the damage you have done to the Bureau betrays these families 
and sacrifices the financial futures of millions of Americans in 
communities across the country.

For these reasons, I resign effective September 1, 2018. Although I 
will no longer be Student Loan Ombudsman, I remain committed to 
fighting on behalf of borrowers who are trapped in a broken student 
loan system.

Sincerely,

Seth Frotman
Assistant Director and Student Loan Ombudsman
Consumer Financial Protection Bureau

cc:  Hon. Steven Mnuchin, Secretary, U.S. Department of the Treasury

   Hon. Betsy DeVos, Secretary, U.S. Department of Education

   S enator Mike Crapo, Chairman, Senate Committee on Banking, Housing, 
and Urban Affairs

   S enator Sherrod Brown, Ranking Member, Senate Committee on Banking, 
Housing, and Urban Affairs

   S enator Lamar Alexander, Chairman, Senate Committee on Health, 
Education, Labor and Pensions

   S enator Patty Murray, Ranking Member, Senate Committee on Health, 
Education, Labor and Pensions

   Representative Jeb Hensarling, Chairman, House Financial Services 
Committee

   R epresentative Maxine Waters, Ranking Member, House Financial 
Services Committee

   R epresentative Virginia Foxx, Chairman, House Committee on 
Education and the Workforce

   R epresentative Bobby Scott, Ranking Member, House Committee on 
Education and the Workforce

                                 ______
                                 
              Prepared Statement of Hon. Chuck Grassley, 
                        a U.S. Senator From Iowa
    Welcome to this afternoon's hearing. Treasury Secretary Mnuchin is 
here to testify about the President's Fiscal Year 2020 budget proposal.

    The President's budget includes various proposals to confront a 
variety of policy issues, including runaway Federal spending, border 
security and immigration enforcement, national defense, the opioid 
epidemic, and health-care costs.

    The budget envisions receipts averaging 17.3 percent of GDP over a 
10-year budget window, slightly above the average of the past 50 years. 
It also has outlays averaging 20.0 percent of GDP over 10 years, equal 
to the average of the past 50 years.

    The budget contains some relatively minor tax proposals and 
proposes spending restraint to help achieve budget savings of around 
$2.8 trillion over 10 years. Those savings are significant, even if 
they come to only a fraction of what some recent proposals from the 
other side would cost, such as Medicare-for-All or the Green New Deal. 
Those socialist-leaning proposals would easily cost tens of trillions 
of dollars over a decade, force Americans out of employer-provided 
health insurance that they like, and radically restructure the American 
economy. And they'd add tens of trillions to our deficits.

    The President's budget represents a first step in our budget 
process, where we learn of the President's priorities and proposals. I 
can say that I agree that we must remain focused on important goals 
like reducing health-care costs, continuing to rebuild the military, 
fighting against opioid abuse, and addressing the security and 
humanitarian crisis at our southern border.

    I also know that this committee is ready to help accomplish some of 
the goals in the President's budget, such as tackling issues 
surrounding high drug prices and confusing drug pricing.

    I will note that the budget is being put forward in the setting of 
a robust economy, and an economy that has been strengthening following 
enactment of tax reform. The economy and tax reform are benefiting 
Americans across the board.

    As you mention in your testimony, Secretary Mnuchin, the tax rate 
cuts, doubling of the standard deduction, and expanded Child Tax Credit 
give real benefits to hardworking American families. And tax reform is 
fueling the economy.

    During the Trump administration generally, and especially since tax 
reform was enacted, economic growth has topped 3 percent, business 
investment has been strong, job creation has been robust, real wage 
growth has accelerated, and incomes have grown.

    In 2018, we saw more job openings than the number of people who are 
unemployed, and that signal of a robust labor market has persisted. 
Unemployment has been remarkably low, overall and for Hispanic and for 
African American workers. And in my State of Iowa, unemployment stands 
at a record low 2.4 percent, the lowest rate in the country.

    All of those strong economic numbers mean that hardworking 
Americans and their families are clearly benefiting from tax reform.

    With that, I turn to Ranking Member Wyden for his opening remarks.

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

    I am pleased to report that President Trump's economic program of 
tax cuts, regulatory relief, and improved trade deals is working for 
the American people. During 2018, real GDP increased by 3.1 percent 
measured from the fourth quarter of 2017 to the fourth quarter of 2018. 
This is the highest Q4-to-Q4 growth rate since 2005.

    The unemployment rate remains historically low at 3.8 percent, and 
earnings rose by over 3 percent in 2018, the highest nominal increase 
in a decade. More Americans are entering the workforce because of a 
renewed sense of optimism.

    The World Economic Forum's most recent competitiveness report 
announced that the United States is the number one most competitive 
economy in the world, receiving the top ranking for the first time in 
10 years. Companies are investing hundreds of billions of dollars in 
new and expanding business operations in the United States.

    That is in large part because the Tax Cuts and Jobs Act (TCJA) made 
our tax rates competitive, moved us from a worldwide system towards a 
territorial system of taxation, and allowed immediate expensing of 
capital expenditures. For hardworking families, it also cut rates 
across the board, doubled the standard deduction, and expanded the 
Child Tax Credit.

    I would also like to highlight Opportunity Zones, a key component 
of the TCJA. Opportunity Zones will help ensure that more Americans 
benefit from our economic expansion and robust job market. They provide 
capital gains tax relief to encourage investments in businesses located 
in distressed communities. This policy has generated a great deal of 
enthusiasm. We are particularly proud of this incentive, because it 
will ensure not only that capital is deployed in our country, but that 
it is invested in a way that will achieve profound results--by 
restoring the promise of prosperity to people and communities.

    These measures are fueling growth. Along with our efforts to 
provide regulatory relief, in our trade negotiations we are aiming to 
break down barriers to markets around the world.

    As you know, China has gained many advantages through unfair trade 
practices. This administration is committed to rebalancing our trading 
relationship in order to level the playing field for hardworking 
Americans. We are negotiating with China on structural reforms to open 
their economy to our companies and protect America's critical 
technology and intellectual property.

    The administration is also prioritizing the U.S.-Mexico-Canada 
Agreement (USMCA). It is the most comprehensive trade agreement ever 
negotiated and will modernize our trading relationships across North 
America. The USMCA will create the highest standards ever to protect 
intellectual property rights, support small and mid-size businesses, 
open markets for agricultural products, and spur manufacturing. I 
encourage all members of Congress to support its passage, because it 
will have a positive impact for American workers, business owners, 
farmers, and families.

    In addition to enhancing overall growth prospects, I want to note 
the positive impact that the administration's economic agenda will have 
on our country's debt and deficits going forward. During the last 
administration, analysts predicted that 2-
percent growth was the highest America could achieve, and that it was 
the new normal. We have already shown that we can and will do better. 
An extra 1 percent of GDP growth per year means trillions of dollars of 
additional economic activity and more revenue to the government.

    Turning to the budget, the policies and priorities in the 
President's Fiscal Year (FY) 2020 budget will continue to foster 
stronger economic growth, reduce spending, and create a more 
sustainable fiscal outlook for our country by reducing the deficit as a 
share of GDP. Of special interest to this committee, the Treasury 
portion of the FY 2020 budget includes $290 million for the Business 
Systems Modernization account, funding which is foundational for a new 
6-year IRS IT modernization plan. Investment in the modernization of 
IRS information technology systems and infrastructure will protect the 
integrity of our tax system and improve customer service for taxpayers.

    I am pleased to continue working with you on policies that will 
help to create jobs and increase wages for the American people.

    Thank you very much.

                                 ______
                                 
      Questions Submitted for the Record to Hon. Steven T. Mnuchin
               Questions Submitted by Hon. Chuck Grassley
    Question. Over the course of the Obama administration, debt held by 
the public more than doubled, increasing by more than $8 trillion. 
Deficits totaled more than nearly $8 trillion in current dollars, with 
4 straight years of deficits above $1 trillion, even in years after the 
recession ended.

    Spending as a share of gross domestic product (GDP) shot up to well 
above the historic average. And taxes were increased by well over $1 
trillion when Obamacare taxes and the resolution of the fiscal cliff 
are taken into account.

    If we look ahead, under current law, revenue relative to GDP will 
get back to the long-run average, even before temporary tax reform 
provisions phase out, according to the non-partisan Congressional 
Budget Office (CBO).

    But spending relative to GDP is scheduled to continue to rise well 
above the long-term average, driven by unsustainable entitlement 
spending.

    I've felt, for a long time, that we have a spending problem. And, 
as CBO has told us for a long time now, entitlement spending is driving 
our deficits as growth in entitlement spending continues to outstrip 
growth in the economy.

    Secretary Mnuchin, with discretionary spending accounting for 
around 30 percent of the budget, and mandatory spending accounting for 
70 percent, do you think we can stabilize the budget without doing 
something about unsustainable mandatory spending growth?

    Answer. As Treasury discusses in the 2019 Financial Report for the 
U.S. Government, current fiscal policy is unsustainable. With the aging 
of the baby boom generation, non-interest spending as a percentage of 
GDP is projected to rise from 18.7 percent in 2018 to 21.0 percent in 
2029. This increase in spending is primarily due to growth in Medicare, 
Medicaid, and Social Security spending. Policy changes that do not 
hinder economic growth are essential to realizing a sustainable fiscal 
path. For that reason, the President's budget proposes reductions in 
non-defense discretionary spending and reforms to Medicaid and 
Medicare. Treasury looks forward to working with Congress to identify 
and implement meaningful spending modifications, which can include 
changes in mandatory spending, that will put the Nation on a 
sustainable fiscal path.
                  45q carbon capture and sequestration
    Question. As part of the Bipartisan Budget Act of 2018, Congress 
enacted modifications to the section 45Q credit for carbon oxide 
sequestration. To be a qualified facility under the amended provision, 
construction must begin on the facility before January 1, 2024.

    This bipartisan provision is an example of an incentive to reduce 
the amount of carbon released into the atmosphere, directing it to 
productive uses such as enhanced oil recovery. The provision represents 
the sort of common-sense public-
private partnership that is better able to address issues with 
pollution than draconian energy policies or vast mandates of power to 
the government.

    I appreciate all the work the Department of the Treasury is 
devoting toward implementation of tax reform and the provisions within 
the Bipartisan Budget Act of 2018. I want to highlight the importance 
of this provision to our sustainable energy future, encourage the 
timely release of guidance necessary for stakeholders to use the 
provision, and ask you to keep me informed as to your timeline to 
prepare that guidance.

    Answer. The Treasury Department and the Internal Revenue Service 
(IRS) are actively working to solicit stakeholder input on the modified 
section 45Q provisions and also provide guidance on the relevant 
provisions. Treasury is aware that industry and investors need guidance 
for many of these projects to get underway and Treasury is working to 
provide the necessary clarity.
                     low-income housing tax credit
    Question. As you noted during the hearing, the Treasury Department 
has been in communication with Finance Committee staff regarding a 
recent interpretation of the use of Private Activity Bonds (PABs) in 
conjunction with the Low-Income Housing Tax Credit that would 
apparently prevent the use of PABs for projects that serve veterans and 
other populations with special needs.

    Internal Revenue Code (IRC) section 42(g)(9) notes that ``A project 
does not fail to meet the general public use requirement solely because 
of occupancy restrictions or preferences that favor tenants--(A) with 
special needs, (B) who are members of a specified group under a Federal 
program or State program or policy that supports housing for such a 
specified group, or (C) who are involved in artistic or literary 
activities.''

    Because the 4-percent Low-Income Housing Tax Credit is typically 
used for rehabilitation projects financed with PABs, enforcing a public 
use requirement on PABs effectively invalidates the IRC provision cited 
above and could limit the ability of the Low-Income Housing Tax Credit 
to be used for veterans housing.

    Although legislation addressing this issue was introduced in the 
House during the last Congress, I understand that the Treasury 
Department currently has sufficient authority to address this matter. 
Please provide the committee with an update on the steps you are taking 
to address this issue.

    Answer. On April 3, 2019, the Treasury Department and the IRS 
released Rev. Proc. 2019-17, which provides favorable public 
administrative guidance to address this issue regarding the general 
public use requirements for qualified residential rental projects 
financed with tax-exempt bonds under section 142(d) of the Internal 
Revenue Code (Code). Rev. Proc. 2019-17 coordinates these requirements 
with the provisions of Code section 42(g)(9) regarding the 
permissibility of certain housing preferences for purposes of the low-
income housing credit. Specifically, this guidance provides that a 
qualified residential rental project (as defined in Code section 
142(d)) does not fail to meet the general public use requirement 
applicable to exempt facilities solely because of occupancy 
restrictions or preferences that favor tenants described in Code 
section 42(g)(9) (for example, certain housing preferences for military 
veterans). Rev. Proc. 2019-17 was published in 2019-17 Internal Revenue 
Bulletin, dated April 22, 2019, and can be found at the following 
website link: https://www.irs.gov/pub/irs-drop/rp-19-17.pdf.

                                 ______
                                 
                 Question Submitted by Hon. Pat Roberts
    Question. Since China joined the World Trade Organization (WTO), 
opening its financial sector to foreign competition and establishing a 
level playing field have been important United States objectives. I 
have read that China has demonstrated a willingness to open the 
financial sector to 100 percent ownership for U.S. companies in 3 
years, but did not offer a clear roadmap. What are we doing in the 
ongoing negotiations to ensure that U.S. financial institutions will be 
allowed access to the Chinese market without ownership or activity 
restrictions?

    Answer. The administration is working to ensure that U.S. financial 
services suppliers, across a full range of sectors including banking, 
insurance, securities, and asset management, have full and fair access 
to the Chinese market, including China's removal of ownership and 
activity restrictions.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
    Question. Mr. Secretary, as you know, with the European Union's 
(EU) failure to reach a consensus on a uniform digital tax proposal, a 
number of EU member states have decided to impose their own individual 
digital taxes. As currently drafted, most (if not all) of these digital 
tax proposals would have a disparate impact on American technology 
companies. I believe this disparate impact speaks to the underlying--
true--intent of the taxes, which appear to be nothing more than a money 
grab at the expense of U.S. innovators.

    Have you reached a conclusion as to whether these discriminatory 
proposals would give the United States actionable rights under any of 
its existing trade agreements?

    Answer. Unfortunately, we are seeing a disturbing trend of some 
politicians, especially in Europe, politicizing the complex issue of 
seeking genuine fairness in the rules for taxing cross border 
transactions. This trend is seen most clearly in so-called Digital 
Services Taxes (DSTs), such as that proposed by France. If implemented 
unilaterally in various countries, DSTs are likely to:

        a.  Hurt consumers in the countries that implement them;
        b.  Complicate the environment for seeking global consensus for 
        new rules in the OECD; and
        c.  Stifle innovation and global growth because of inconsistent 
        and redundant tax obligations around the world.

    The United States believes all companies--regardless of nationality 
or sector of the economy they operate in--should pay fair rates of 
taxation. The United States recognizes that changes in business 
practices in the increasingly digitalized, 21st-century global economy 
are challenging the global consensus that has existed for many years on 
the rules for taxing cross border transactions.

    As a result, the United States is leading efforts in the 
Organisation for Economic Co-operation and Development (OECD) seeking 
agreement on new international tax rules. In the OECD, the United 
States is working with more than 125 countries on a multilateral 
solution, seeking to craft a global consensus for new rules that will 
ensure all companies pay fair rates of taxation and will also provide 
certainty to taxpayers, minimize administrative burdens, and avoid 
double taxation.

    The United States is fully committed to seeing the multilateral 
OECD process succeed. We believe the ongoing work is on an increasingly 
positive trajectory and look forward to the G20 endorsing a detailed 
OECD work plan by June 2019. This work plan is specifically designed 
and intended to deliver a global consensus on new rules by the end of 
2020.

    Question. The President's fiscal year 2020 budget seeks to improve 
clarity in worker classification, and as you may know, I have 
introduced legislation that would do just that. My bill, the New 
Economy Works to Guarantee Independence and Growth (NEW GIG) Act, 
addresses the classification of workers--independent contractors versus 
employees--and creates a safe harbor for those who meet a set of 
objective tests that would qualify them as an independent contractor, 
both for income and employment tax purposes.

    Given the importance of this issue to me, to the administration, 
and to the on-demand economy, (a) do you agree that more needs to be 
done to clarify who is an independent contractor in such network 
platform companies, and (b) will you commit to working with me to add 
much-needed certainty to our worker classification rules?

    Answer. Workers, service recipients, and tax administrators would 
benefit from reducing uncertainty about worker classification, 
eliminating incentives to misclassify workers, and reducing 
opportunities for noncompliance by workers classified as independent 
contractors. Your bill shares many common elements with the proposal in 
the administration's fiscal year (FY) 2020 budget. Treasury is 
committed to working with you and others in Congress to add much-needed 
certainty to existing worker classification rules.

                                 ______
                                 
               Questions Submitted by Hon. Johnny Isakson
    Question. Tax reform changed our international tax system to 
address the ``stateless'' income issue, which is the same issue that 
the European Union's proposed ``digital tax'' claims to target. Would 
you agree that it is wrong and punitive for foreign countries to levy a 
discriminatory new tax on U.S. firms, especially a tax targeted solely 
at large U.S. technology companies?

    Answer. Unfortunately, we are seeing a disturbing trend of some 
politicians, especially in Europe, politicizing the complex issue of 
seeking genuine fairness in the rules for taxing cross border 
transactions. This trend is seen most clearly in so-called Digital 
Services Taxes, such as that proposed by France. If implemented 
unilaterally in various countries, DSTs are likely to:

        a.  Hurt consumers in the countries that implement them;
        b.  Complicate the environment for seeking global consensus for 
        new rules in the OECD; and
        c.  Stifle innovation and global growth because of inconsistent 
        and redundant tax obligations around the world.

    The United States believes all companies--regardless of nationality 
or sector of the economy they operate in--should pay fair rates of 
taxation. The United States recognizes that changes in business 
practices in the increasingly digitalized, 21st-century global economy 
are challenging the global consensus that has existed for many years on 
the rules for taxing cross border transactions.

    As a result, the United States is leading efforts in the 
Organisation for Economic Co-operation and Development (OECD) seeking 
agreement on new international tax rules. In the OECD, the United 
States is working with more than 125 countries on a multilateral 
solution, seeking to craft a global consensus for new rules that will 
ensure all companies pay fair rates of taxation and will also provide 
certainty to taxpayers, minimize administrative burdens, and avoid 
double taxation.

    The United States is fully committed to seeing the multilateral 
OECD process succeed. We believe the ongoing work is on an increasingly 
positive trajectory and look forward to the G20 endorsing a detailed 
OECD work plan by June 2019. This work plan is specifically designed 
and intended to deliver a global consensus on new rules by the end of 
2020.

    Question. What is the administration prepared to do to avoid these 
actions by France and other European governments, which will both hurt 
the international competitiveness of American companies and also 
threaten the U.S. tax base?

    Answer. Please refer to answer above.

                                 ______
                                 
                 Questions Submitted by Hon. Tim Scott
    Question. I'd like to say that I very much support the President's 
deregulatory agenda. Too little attention is paid to the cost 
attributed to burdensome regulations and the negative affects these 
regulations have on our economy. I was especially pleased that he 
extended his deregulatory mission to tax regulations when he issued 
Executive Order 13789 though I will say I was a little surprised when I 
saw in Treasury only found a total of eight tax regulations as worthy 
of further review. I understand that Treasury staff are now fully busy 
with implementing tax reform, but this executive order was issued early 
2017. Notably, Treasury still has yet to act on the distribution rules 
of the Obama-era section 385 regulations. On October 4th of 2017, 
Treasury issued its final report in response to EO 13789 in which it 
said that it expected that Congress would obviate the need for the 
distribution rules through tax reform and would reserve action until 
completion of tax reform. On the day that the 385 regulations were 
released, then Treasury Secretary Lew stated that the best way to deal 
with the issues that the regulations grappled with ``would be to enact 
comprehensive business tax reform.'' With that statement, I could not 
agree more. The issues that the 385 regulations deal with, debt versus 
equity, go to the heart of tax reform. Well, I'm happy to say that we 
completed tax reform and I think the powerful measures we took do 
obviate the need for those rules. Specifically, we lowered the rate to 
2 percent, transitioned to a territorial system, provided for downward 
attribution rules, limited interest deductions, and provided for a new 
Base Erosion and Anti-Abuse Tax (BEAT). The remaining section 385 
regulations should be low-hanging fruit ripe for revocation since their 
sole purpose now are to increase cost and freeze out investment in the 
United States washing away the economic benefits from tax reform. I'm 
proud to say that over 140,000 South Carolinians are employed by 
international companies and the foreign direct investment is driving a 
manufacturing renaissance in my State as it is across the country. 
Therefore, while I was pleased to see Treasury repeal the documentation 
requirements of the regulations, it's unfortunate that the more 
substantive and burdensome portions of the regulations remain. Can we 
count on you to finish what you started as part the President's 
deregulatory agenda and finally rescind the remaining portions of the 
385 regulations?

    Answer. Treasury has consistently worked during this administration 
to reduce regulatory burdens on U.S. taxpayers--by reviewing existing 
regulations and partnering with Congress to address burdens best 
resolved through legislation. On April 21, 2017, the President issued 
Executive Order (EO) 13789 (82 FR 19317), a directive designed to 
reduce tax regulatory burdens. The order directed the Secretary of the 
Treasury to identify significant tax regulations issued on or after 
January 1, 2016, that impose an undue financial burden on U.S. 
taxpayers, add undue complexity to the Federal tax laws, or exceed the 
statutory authority of the IRS. In an interim Report to the President 
dated June 22, 2017, Treasury identified eight such regulations, 
including the final and temporary regulations issued under section 385 
of the Internal Revenue Code (Code). (T.D. 9790; 81 FR 72858). The 
section 385 final and temporary regulations address the classification 
of related-party debt as debt or equity for U.S. Federal income tax 
purposes, and generally consist of two parts: (i) the ``documentation 
regulations''; and (ii) the ``distribution regulations.''

    As your question acknowledges, in light of taxpayer concerns and 
other contemplated further actions, on September 24, 2018, Treasury and 
the IRS issued proposed regulations (83 FR 48265) that propose to 
remove the final documentation regulations. With respect to the 
distribution regulations, Treasury stated in its October 2017 report on 
EO 13789 that legislative changes can most effectively address and that 
proposing to revoke the existing distribution regulations before the 
enactment of fundamental tax reform could make the problems worse. 
Accordingly, Treasury focused its efforts on actively working with 
Congress on fundamental tax reform to prevent base erosion and fix the 
structural deficiencies in the current U.S. tax system. The Tax Cuts 
and Jobs Act (TCJA), which was enacted shortly after Treasury released 
its report, included many elements that addressed the underlying 
conditions that had previously led to inversions and foreign takeovers.

    Consistent with Treasury's prior statements on assessing whether 
the TCJA obviates the need for the distribution regulations and makes 
it possible for these regulations to be revoked, Treasury has been 
studying the inter-relationships of the statutory and regulatory 
changes from the TCJA with the section 385 distribution regulations. 
Part of this analysis includes understanding how taxpayers have 
modified their behavior in response to the changes. One such example 
includes whether the application of the Global Intangible Low-Taxed 
Income (GILTI) system to U.S. parented groups, but not to foreign-
parented groups, creates continuing motivation for inversions and 
foreign takeovers, and whether the BEAT and other anti-earnings 
stripping provisions fully mitigate those motivations. Treasury is 
continuing to assess these factors before reaching a conclusion on 
whether or not to revoke the section 385 distribution regulations.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    Question. Mr. Secretary, lawmakers from both sides of the aisle--
not to mention supporters of the Opportunity Zones policy in the 
private and philanthropic sector--are eager to make sure Opportunity 
Zones work in our communities. Today in my home State, the Opportunity 
Investment Consortium of Indiana is leading the way by discussing best 
practices for successful implementation at the local level.

    I believe it is imperative that the IRS collects data on 
Opportunity Funds and their investments so we can better understand and 
evaluate whether our policy goals are being met. I believe this can be 
done in a manner that provides basic transparency without imposing 
significant or arbitrary administrative burdens on investors.

    Can you speak to how your department is approaching this issue?

    Will you commit to implementing a reporting standard for 
Opportunity Funds this year as part of the broader rules among process?

    Answer. On April 17th, we released the text of a Notice and Request 
for Information, which was then published in the Federal Register. This 
request sought public comment on the data that would be most valuable 
to collect and the least burdensome means of collecting those data. We 
would welcome your concrete suggestions in that process.

    In addition, the preamble to the second set of Opportunity Zone 
regulations, which were published in the Federal Register, foreshadowed 
potential changes to the Form 8996 filed by Qualified Opportunity Funds 
(Funds). We expect that proposed revisions to the Form 8996 may require 
additional information such as (1) the employer identification number 
(EIN) of the Zone business owned by a Fund, and (2) the amount invested 
by Funds and Zone businesses located in particular Census tracts 
designated as qualified Opportunity Zones. Those changes would be 
effective for the current tax year.

    Question. Mr. Secretary, I appreciate the administration's focus on 
the issue of China's economic aggression. For far too long, China has 
stolen American intellectual property, forced technology transfer on 
our job creators, and dumped goods, undercutting American jobs.

    Resolving these illicit trade practices in the near term is a 
shared priority of the administration and Congress. However, the 
unilateral manner in which the administration initiated this trade 
dialogue--through punitive tariffs--has detrimentally impacted scores 
of Hoosier job creators. While the administration should be lauded for 
bringing China to the table to seriously dialogue about their illicit 
activities, the administration must not forget that there is a very 
tangible impact that the tariffs are placing on American farmers and 
manufacturers.

    Can you reassure my Hoosier constituents that the administration is 
acutely aware of the impact this trade dispute has on American workers 
and families--and that we are working to swiftly conclude this dispute 
in short order?

    Answer. The administration is committed to working toward a more 
fair and reciprocal trade relationship with China, which will benefit 
American workers and families in Indiana and across the United States. 
In the current negotiations with China, we are seeking to address a 
wide range of unfair trade practices, including ones that support non-
market forces. China should have responded to the findings in the 
section 301 investigation and the subsequent U.S. tariff actions by 
undertaking the necessary economic and policy reforms needed to end its 
trade-distortive practices. Instead, China retaliated with tariffs on 
U.S. products. Currently, the administration's use of tariffs under 
section 301 is providing the United States with an important source of 
leverage to bring China to the table to negotiate an enforceable 
agreement that will address China's unfair trade practices. The 
administration does not have a predetermined timetable for how long it 
will be necessary to leave these tariffs in place.

    Our negotiations with China stalled in May 2019 following months of 
hard work and candid and constructive discussions. By that time, the 
parties had reached agreement on a number of important matters. In 
wrapping up the final important issues, however, the Chinese moved away 
from previously agreed-upon provisions. More recently, China has 
indicated a willingness to resume our discussions. For an agreement to 
be reached, China must commit to real structural changes and cease its 
unfair trade practices, as well as end its retaliatory actions. Any 
agreement must also be enforceable.

    Question. Mr. Secretary, I occasionally hear the charge that tax 
reform created new incentives for U.S.-based companies to invert to a 
foreign country. While it's too early to tell from aggregate date--
anecdotally it appears that tax reform has changed the incentives that 
drove companies to invert in the past, namely a high corporate tax 
rate.

    While it appears we've leveled the playing field for U.S. 
companies, I'm still hearing from companies located in Indiana 
concerned that regulations implementing the TCJA might run counter to 
the intent of Congress, particularly as it relates to our international 
regime.

    Can you speak to how you are approaching regulations that still 
need to be finalized and how they might impact decisions on where to 
locate business units that are located in the U.S. today?

    Are you confident we won't return to the pre tax reform days where 
we were reading about inversions of U.S.-based multinationals on a 
regular basis?

    Answer. Compared to the old international system, the new system 
discourages the shifting of U.S. profits overseas, significantly 
reduces the disincentive to repatriate foreign profits to the United 
States, and reduces the tax rate disparities that motivated U.S. 
companies to invert. TCJA reduced the top U.S. statutory corporate tax 
rate from 35 percent to 21 percent and created an international tax 
system that more closely aligns the tax rate on domestic investment of 
U.S. companies with the tax rate on foreign investment of U.S. 
companies. Overall, as a result of the TCJA, the incentive to locate 
investment in the United States has increased and the incentive to 
invert has been greatly reduced. Treasury received comments from some 
taxpayers that the statutory allocation of expenses to foreign source 
income for purposes of computing the foreign tax credit limitation, and 
the resulting limitation on foreign tax credits, can result in higher 
than expected residual tax on global intangible low-taxed income. 
Proposed regulations treat income and assets related to the section 250 
deduction as exempt for expense allocation purposes, which has the 
effect of reducing expense allocations to global intangible low taxed 
income. As regulations are finalized, Treasury continues to review the 
relevant statues, comments, and all other aspects of the issues.

                                 ______
                                 
                 Questions Submitted by Hon. Ron Wyden
                           corporate tax cuts
    Question. Mr. Secretary, you repeatedly claim that the 2017 
Republican tax bill is going to pay for itself, and even reduce the 
level of expected debt. The failure of this policy is obvious when one 
looks at corporate tax receipts, as we are already seeing that the 
Republican tax bill will not pay for itself. Corporate tax revenues 
dropped a massive $90 billion between 2017 and 2018, an over-30 percent 
drop.

    Of course, determining whether the tax cuts increase revenue is not 
based on whether nominal revenues increase year-over-year, inflation 
generally leads to nominal revenue growth most years. One better way is 
to see how revenues stack up against prior expectation. Under this 
analysis, the massive corporate tax cuts will end up losing hundreds of 
billions of dollars.

    In 2017, before passage of the tax bill, CBO estimated corporate 
tax revenues through 2027. They did so again this year (ultimately 
projecting through 2029). Among years that were projected both before 
the passage of the bill and after it, it becomes clear that the 
corporate tax cuts will never pay for themselves. It will be 6 years 
before annual corporate revenues reach prior expectations, and even 
that is fleeting. Overall, corporate revenues through 2027 are 
projected to be down over $500 billion.


                                        CBO Corporate Revenue Projections
                                            (in billions of dollars)
----------------------------------------------------------------------------------------------------------------
                                    2018   2019   2020   2021   2022   2023   2024   2025   2026   2027   Total
----------------------------------------------------------------------------------------------------------------
2017 CBO  projection                 340    352    382    377    381    385    396    408    422    439    3,882
----------------------------------------------------------------------------------------------------------------
2019 CBO  projection                 205    245    274    292    319    358    399    428    427    409    3,356
----------------------------------------------------------------------------------------------------------------
Revenue loss                         135    107    108     85     62     27     -3    -20     -5     30      526
----------------------------------------------------------------------------------------------------------------


    Looking at this, how can you continue to claim that the corporate 
tax cuts will pay for themselves? If you maintain that corporate 
revenues are not going to be $500 billion below prior expectations, 
please identify the year you project corporate revenues to reach the 
number projected by CBO in its 2017 projection.

    Answer. Neither the Secretary, nor Treasury staff, have maintained 
that corporate tax cuts alone would cover the cost of the Tax Cuts and 
Jobs Act (TCJA). Rather, it has been the consistent position of 
Treasury that the TCJA would pay for itself through economic growth 
over a 10-year period. The Secretary has consistently maintained that 
the tax cuts through TCJA were front-loaded due to provisions such as 
immediate expensing, and that calculations and predictions were done 
over a 10-year period of time. It was never implied that the TCJA would 
pay for itself during the early years of its implementation. Business 
provisions in the Tax Cuts and Jobs Act (TCJA), including immediate 
expensing, lower tax rates, and deemed repatriation, are currently 
incentivizing economic activity and generating growth. The Department 
of Treasury's Office of Tax Policy's Analysis of Growth and Revenue 
Estimates released on December 11, 2017 correctly projected the 2.9-
percent economic growth in 2018, which exceeded the Congressional 
Budget Office's 2.2-percent projection made just before President Trump 
took office. This increased rate of growth is expected to continue. 
According to this analysis, each 0.35 percent of incremental annual GDP 
growth increases tax receipts by roughly $1 trillion over 10 years. 
These results indicate that TCJA along with President Trump's other 
economic policies will generate enough additional economic growth to 
pay for the Joint Committee on Taxation's estimated $1.5 trillion 
static cost of the tax bill.

                    repeal of energy tax incentives
    Question. The National Climate Assessment, a report developed by 
more than a dozen Federal Government agencies, including the 
Departments of Defense, Transportation, Commerce, and Agriculture, 
determined:

        Climate change creates new risks and exacerbates existing 
        vulnerabilities in communities across the United States, 
        presenting growing challenges to human health and safety, 
        quality of life, and the rate of economic growth. . . . Without 
        substantial and sustained global mitigation and regional 
        adaptation efforts, climate change is expected to cause growing 
        losses to American infrastructure and property and impede the 
        rate of economic growth over this century.

    The assessment stated not only that climate change is an 
extraordinary threat to the health and well-being of American citizens, 
but also that we need to be doing substantially more to deal with this 
growing crisis.

    Right now, what few tools we have to combat climate change include 
Federal tax credits for renewable energy, including solar and wind. 
Congress, on a bipartisan basis, provided longer-term extensions of 
these incentives in 2015.

    But in the budget proposal, the Trump administration has called for 
repealing these incentives--even going so far as to tax utility rebates 
customers get for buying more efficient appliances and reducing their 
energy consumption.

    Mr. Mnuchin, can you explain to me, in light of the National 
Climate Assessment, in light of the overwhelming international 
consensus on the need for action to combat climate change, why the 
Trump administration wants to repeal these incentives that have been 
extraordinarily successful in driving investment in clean energy and 
creating jobs?

    Answer. The tax incentive was instituted to encourage investment in 
clean energy. Now that a market has developed, there is no longer a 
need to continue the subsidy and have taxpayers subsidize this 
industry.
                         infrastructure policy
    Question. Mr. Mnuchin, 2 years ago, many members of the Senate 
Finance Committee were excited about the prospect for bipartisan action 
on infrastructure. It's been 2 years. Senate Democrats have put forward 
a plan. House Democrats have put forward proposals.

    The budget contains barely more than a page of platitudes, with few 
specifics, and what little is there would actually reduce overall 
Federal investment in infrastructure. It's extraordinarily backward to 
think paying for a new infrastructure program by gutting existing 
infrastructure grant programs will lead to more investment.

    Mr. Mnuchin, where is the administration's infrastructure plan? 
Would the Trump administration support increasing Federal revenues to 
pay for investments in infrastructure? If so, what are some ideas?

    Answer. The administration is poised to work with Congress on an 
infrastructure plan. The President has stated that he would consider 
additional revenues in such a plan. Details should be worked out in 
negotiations with Congress.
                   conservation easement syndication
    Question. Secretary Mnuchin, as you know I have been focused on the 
issue of syndicated conservation easement tax shelter transactions 
since 2016. I am a strong supporter of the conservation easement 
program and am concerned that these abusive transactions may threaten 
the integrity of the conservation easement program. In December of 
2016, the IRS issued Notice 2017-10 which deemed certain syndicated 
conservation easement transactions to be potentially abusive listed 
transactions, and requires participants and material advisors of such 
transactions to make additional disclosures to the IRS. The IRS has, 
and continues to, provide the Finance Committee with analysis on these 
disclosures. In addition, on March 27th, Senator Grassley and I 
initiated a bipartisan investigation into syndicated conservation 
easement transactions.

    In February of last year, Senators Daines and Stabenow introduced 
the Charitable Conservation Easement Program Integrity Act (S. 2436) 
which seeks to end to abuse of this critical program. Earlier this year 
they reintroduced an updated version of this legislation as S.170. In 
response to a question regarding abusive syndicated conservation 
easement transactions during last year's budget hearing you stated: 
``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.''

    Has Treasury completed its review of this legislation? If so, does 
the administration intend to endorse the policy?

    Answer. The IRS continues to address the syndicated easement 
contributions through review of the disclosures required by Notice 
2017-10 and appropriate examinations. At this point no decision has 
been made regarding specific legislative proposals; however, Treasury 
supports the bipartisan investigation and hopes that it can provide 
additional information which can be used to help develop comprehensive 
solutions to ensure the integrity of the conservation easement program.

                              irs staffing
    Question. Secretary Mnuchin, on March 26, 2019, the GAO released a 
report entitled ``Internal Revenue Service: Strategic Human Capital 
Management Is Needed to Address Serious Risks to IRS's Mission.'' The 
report found that reductions in IRS enforcement staff have created a 
skills gap and affected the IRS's enforcement capabilities. Between 
2011 and 2017, enforcement staff declined 27 percent, leading to a 40 
percent decline in individual audits. Without a robust enforcement 
staff at the IRS, wealthy and well-connected individuals can cheat on 
their taxes and escape the consequences.

    During your 2017 confirmation hearing, you stated that you were 
committed to addressing understaffing issues at the IRS. Yet as the GAO 
report shows, staffing shortages and skills gaps are continuing to 
prevent the IRS from carrying out its mission. Additionally, the 
Treasury's fiscal year 2020 budget request suggests further reducing 
the IRS staff by 1,639 employees. What have you done since your 
confirmation to improve IRS staffing? Do you plan to implement the 
GAO's recommendations, and if not, what is your planned response to the 
GAO report?

    Answer. Treasury has taken a series of actions to strengthen the 
IRS workforce and address the long-term trends highlighted by the 
Government Accountability Office (GAO). The Department has also used 
existing flexibilities to improve hiring and has sought to restore 
streamlined critical pay authority.

    First, Treasury has made hiring in enforcement positions a 
priority. The latest example of this commitment is our plan to hire 
approximately 4,300 additional enforcement personnel at the IRS in FY 
2019, including nearly 2,000 revenue officers and revenue agents. 
Treasury is also improving IRS staffing by continuing to request 
additional human capital resources and better employ existing hiring 
authorities in mission critical areas. For example, the IRS is hiring 
up to 1,000 positions to assist with tax reform implementation. 
Virtually all of these positions were filled by December 2018.

    The administration has also proposed additional resources for 
enforcement in the FY 2020 budget. For example, the 2020 budget 
includes $34 million to expand IRS compliance analytics. These targeted 
investments in compliance analytics and technology will allow existing 
enforcement personnel to be more productive and build on our existing 
efforts. For example, the IRS recently deployed machine learning 
techniques that revealed a new form of non-compliance among 
partnerships that was not previously known. Similarly, new data 
products for employment tax investigations identified 18 cases with an 
average estimated tax loss 30-percent greater than traditional methods. 
The budget also proposes a $362-million discretionary program integrity 
cap adjustment in FY 2020 to fund new and continuing investments in 
expanding and improving the effectiveness and efficiency of the IRS's 
overall tax enforcement program. Additional adjustments are provided in 
future years to fund new initiatives and inflation. These investments 
will generate $47.1 billion in new revenue over 10 years and will cost 
about $14.5 billion, for net revenue of $32.6 billion.

    Treasury agrees with GAO's recommendations and will implement them 
to the extent resources are available.

              Questions Submitted by Hon. Robert Menendez
                       unbanked cannabis industry
    Question. Over 300 million Americans in 47 States have access to 
some form of State-legalized cannabis product. The National Cannabis 
Industry Association estimates that the United States marijuana 
industry could generate over $130 billion in Federal tax revenue and 
add over one million jobs by 2025 if adult use is legalized in all 50 
States. However, as you know, State-legal cannabis businesses mostly 
deal only in cash and are overwhelmingly denied banking services, 
making their employees and customers become soft targets for crime, 
robbery, or assault.

    Does the Department have any estimates on the percentage of legal 
marijuana-related businesses that are unbanked?

    Answer. The Department of the Treasury does not receive or maintain 
information on the percentage of State-authorized marijuana-related 
businesses that are unbanked. FinCEN, however, has been tracking 
Suspicious Activity Reports (SARs) filed in response to FinCEN's 
Guidance on BSA Expectations Regarding Marijuana-Related Businesses 
(FIN-2014-G001). These SARs provide FinCEN with the status of reported 
banking relationships with marijuana-related businesses (MRBs). As of 
December 31, 2018, Treasury is aware of 551 Depository Institutions 
providing services to MRBs.\1\
---------------------------------------------------------------------------
    \1\ FinCEN Marijuana Banking Updates, Frequently Requested FOIA-
Processed Records, https://www.fincen.gov/frequently-requested-foia-
processed-records.

    Question. Since cannabis-related businesses are forced to pay their 
Federal taxes in cash, do you know how much time and resources are 
dedicated by the Department to process paper-filed tax returns as 
---------------------------------------------------------------------------
compared to electronically filed tax returns?

    Answer. The Department would not be able to provide such an 
estimate for 
cannabis-related businesses. Generally speaking, all other things being 
equal, processing electronically filed returns requires fewer resources 
than processing paper-filed returns.

    Question. From a fiscal perspective, is it your opinion that the 
U.S. would benefit if State-legal cannabis businesses could pay their 
fair share of Federal taxes electronically?

    Answer. The Department encourages taxpayers to pay their taxes 
according to the processes established by the IRS. Whether cannabis-
related businesses should be able to pay their Federal taxes 
electronically is a policy question best addressed by the U.S. 
Congress.

    Question. Are there any discussions of expanding the current FinCEN 
guidance?

    Answer. The SAR reporting structure set forth in the February 2014 
guidance remains in place. FinCEN continues 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.

    Question. It is well-documented that the Russians evade our 
sanctions through simple corporate restructuring. Mr. Secretary, the 
Office of Foreign Assets Control (OFAC) has what's referred to as the 
50 percent rule, which means that if an entity is owned 50 percent or 
more by an sanctioned person, it is automatically treated as 
sanctioned. The problem is that Russian oligarchs reportedly 
restructure their companies so that their ownership on paper is lower 
than 50 percent so they avoid sanctions, retain control of the company, 
and continue to profit. Given this reality, I strongly believe that it 
is in the interest of US national security to lower the standard from 
50 percent to 20 percent or lower in the Russia context. You have the 
power to do this through regulation. Will you do so or should the 
Senate consider legislation?

    Answer. Treasury is very focused on sanctions evasion, including 
through the use of ownership restructurings. The 50 percent rule does 
not hinder Treasury's ability to target sanctions evasion, including by 
designating entities on the basis of control rather than ownership. 
Rather, the 50 percent rule reflects longstanding industry practice and 
enlists global compliance departments in the effort by instructing them 
when to determine property is blocked. The 50 percent rule (set out on 
OFAC's webpage https://www.treasury.gov/resource-center/sanctions/
Documents/licensing
_guidance.pdf) establishes that any property (e.g., an entity) in which 
a blocked person holds a 50 percent or greater interest is itself 
considered blocked, regardless of whether OFAC has added the entity to 
OFAC's List of Specially Designated Nationals and Blocked Persons (SDN 
List). OFAC's regulations, guidance, and Frequently Asked Questions 
make clear that ownership is only one of the bases upon which OFAC can 
sanction an entity. For example, if a sanctioned oligarch restructured 
a company to own less than a 50-percent ownership interest, OFAC 
retains the authority to designate the company for being controlled by 
the oligarch or for materially assisting, sponsoring, or providing 
financial, material, or technological support for, or goods or services 
to the oligarch.

    Using different ownership thresholds for different OFAC sanctions 
programs could result in uncertainty and confusion in the global 
compliance community, which, in turn, could undermine the effectiveness 
of OFAC sanctions.

    Question. Since the April 6th designations of Oleg Deripaska and 
others, the Treasury Department has not designated any other Russian 
oligarchs for sanctions. When can we expect additional sanctions on 
Russian oligarchs who are connected to Putin? How many will you 
sanction? Will you coordinate these actions with our allies?

    Answer. This administration is aggressively pursuing the wide range 
of Russian malign activity, having sanctioned 287 Russia-related 
entities and individuals under various sanctions authorities. Of these, 
the administration sanctioned 188 entities and individuals under 
Ukraine- and/or Russia-related sanctions authorities created or 
codified by title II of the Countering America's Adversaries Through 
Sanctions Act (CAATSA), including sections 224 and 228. These actions 
have included individuals and entities acting for or on behalf of 
designated Russian oligarchs. For example, in December 2018, Treasury 
designated Victor Boyarkin, a former GRU officer who reports directly 
to Deripaska and has led business negotiations on Deripaska's behalf. 
Continuing outreach and collaboration with allies is a key component of 
the strategy to counter Russia's destabilizing behavior and sends a 
strong signal of transatlantic unity to the Kremlin. Treasury worked 
closely with allies in the EU and Canada to impose coordinated 
sanctions on Russian individuals and entities in March in response to 
Russia's continued aggression in Ukraine, specifically for Russia's 
attack on Ukrainian naval vessels in the Kerch Strait. Furthermore, 
senior Treasury officials have made several trips to European capitals 
to urge national authorities to take enforcement actions against 
Russian targets designated by Treasury. Although Treasury does not 
telegraph sanctions or comment on prospective actions, Treasury is 
committed to continue to increasing pressure on Kremlin-
connected oligarchs and preventing them from being able to wield their 
influence directly or through proxy actors across the globe.

    In addition to employing targeted financial sanctions on those 
advancing the Kremlin's destabilizing behavior, Treasury has worked to 
harden the anti-money laundering controls in countries with high levels 
of exposure to illicit Russian financial activity and taken measures to 
safeguard the U.S. financial system from being exploited by corrupt 
actors. For example, in February 2018 FinCEN issued a notice of 
proposed rule-making pursuant to section 311 of the USA PATRIOT Act 
against ABLV Bank, a Latvian bank it found had facilitated significant 
Russian-based illicit activity. FinCEN identified ABLV Bank as a 
foreign financial institution of primary money laundering concern and 
proposed a special measure that would prohibit U.S. financial 
institutions from opening or maintaining a correspondent account in the 
U.S. on behalf of the bank.

    Question. I'm concerned that Treasury is not devoting sufficient 
resources to implementing Russia sanctions. How many people do you have 
working on Russia sanctions targeting at the Treasury Department? How 
many meetings has the National Security Council held with Treasury this 
year to discuss Russia sanctions targeting? How does the demand signal 
from the White House for sanctions on Russia compare to those on Iran?

    Answer. Countering Russia's malign activities is one of the highest 
priorities for the administration and the U.S. Department of the 
Treasury. Indeed, along with North Korea, Venezuela, and Iran, 
Treasury's Russia sanctions program has been among this 
administration's most active to date. Treasury will continue to 
identify opportunities to use the full range of Russia-related 
sanctions authorities to advance U.S. national security and foreign 
policy priorities. Treasury will also continue to work with 
international partners to maintain transatlantic unity in thwarting 
Russian malign behavior. For example, over the past year senior 
Treasury officials have made multiple trips to key jurisdictions--such 
as Cyprus and Latvia--identified as priorities in combating Russia's 
illicit financial networks. This is in addition to several other trips 
to Europe to urge allied countries to aggressively enforce U.S. and EU 
Russia sanctions programs and increase transatlantic cooperation to 
counter Russia's malign influence. This financial diplomacy is a key 
component in Treasury's strategy to implement Treasury sanctions 
programs.

    In the recent FY 19 appropriations passed by Congress, Terrorism 
and Financial Intelligence (TFI) Departmental Offices received $159 
million, which is approximately $17 million over enacted FY 2018 
budget. On top of the budget increase from last year, this represents 
an almost 30 percent increase from just 2 years ago. TFI does not 
always permanently dedicate specific full-time employees to a single 
sanctions program, because TFI administers approximately 30 programs 
and often surge resources to meet immediate priorities. Because many of 
Treasury's staff have specializations in multiple subjects, in certain 
circumstances, staff cover more than one program. Additionally, 
Russia's malign activity spans multiple sanctions programs. This 
administration has sanctioned Russia-related targets under many other 
sanctions programs, including the Cyber, North Korea, Syria, Venezuela, 
Transnational Criminal Organizations, Russia Magnitsky, and Global 
Magnitsky programs.

    Beyond sanctions, Treasury leverages an array of measures to 
advance Treasury objectives and counter-threats, including engagement 
with the public and private sector, support for partners' actions, 
working in multilateral fora, and using other authorities.

    Question. Why has Treasury not continued the periodic ``sanctions 
maintenance'' packages against Russia that the Obama administration 
used to ensure that Russian evasion was checked?

    Answer. Treasury has--and has done more. Treasury believes Russia's 
malign activities call for a response that is stronger than mere 
``maintenance.'' Treasury's Russia sanctions program is among the most 
active. In a little over 2 years, this administration has sanctioned 
287 Russia-related entities and individuals, including 271 subject to 
Treasury actions. The administration carried out over 188 of these 
actions under Ukraine- and/or Russia-related sanctions authorities 
created or codified by CAATSA, including Sections 224 and 228. 
Treasury's sanctions have imposed significant costs on Russia, and 
Treasury will continue to use all of its authorities aggressively to 
impose sanctions on Russia for its brazen and malign activity, 
including targeting and disrupting activities related to sanctions 
evasion.
                    base erosion and anti-abuse tax
    Question. I understand that the Department of Treasury is currently 
reviewing public comments related to its draft Base Erosion and Anti-
Abuse Tax regulations. Can you provide an update on the expected timing 
of the final rule?

    Answer. Treasury and IRS are carefully studying public comments 
related to the proposed BEAT regulations. Final regulations are 
expected to be released in early fall 2019.

                                 ______
                                 
           Questions Submitted by Hon. Catherine Cortez Masto
irs determination that veterans or special needs housing ineligible for 
                         private activity bonds
    Question. Affordable housing providers have used Private Activity 
Bonds (26 U.S.C. 142) to build homes for veterans, people with AIDS, 
and other special needs populations.

    How will the Treasury Department reverse the recent IRS 
interpretation so that ``General Public Use'' will once again include 
projects that provide housing to low-income veterans and other special 
needs populations?

    Who is leading this effort at the IRS and at Treasury?

    What discussions have you had with officials at HUD and USDA? What 
were there views and concerns, if any?

    Answer. See answer to Chairman Grassley's question #3 (reproduced 
below).
                     student loan ombudsman at cfpb
    Question. On April 3, 2019, the Treasury Department and the IRS 
released Rev. Proc. 2019-17, which provides favorable public 
administrative guidance to address this issue regarding the general 
public use requirements for qualified residential rental projects 
financed with tax-exempt bonds under section 142(d) of the Internal 
Revenue Code (Code). Rev. Proc. 2019-17 coordinates these requirements 
with the provisions of Code section 42(g)(9) regarding the 
permissibility of certain housing preferences for purposes of the low-
income housing credit. Specifically, this guidance provides that a 
qualified residential rental project (as defined in Code section 
142(d)) does not fail to meet the general public use requirement 
applicable to exempt facilities solely because of occupancy 
restrictions or preferences that favor tenants described in Code 
section 42(g)(9) (for example, certain housing preferences for military 
veterans). Rev. Proc. 2019-17 will appear in 2019-17 Internal Revenue 
Bulletin, dated April 22, 2019, and can be found at the following 
website link: https://www.irs.gov/pub/irs-drop/rp-19-17.pdf.
                     student loan ombudsman at cfpb
    Question. Will you meet with the former CFPB Student Loan Ombudsman 
Seth Frotman to hear his concerns and recommendations?

    Answer. The Dodd Frank Act requires that the Secretary, in 
consultation with the Bureau of Consumer Financial Protection (CFPB) 
Director, designate a Private Education Loan Ombudsman within the 
Bureau. Treasury approves the selection of an Ombudsman after an 
appropriate candidate emerges through the civil service process 
employed by the CFPB. Treasury has no operational authority over the 
Ombudsman.

    Question. What criteria will you require in your proposed candidate 
to ensure the Ombudsman has a history and commitment to protect 
borrowers from service errors such as miscalculated payments or 
preventing permitted lower payments?

    Answer. On May 5, the CFPB posted the Private Education Loan 
Ombudsman position on its website and on USAJOBS. The position 
description is available from CFPB. As with any position, Treasury and 
CFPB evaluated candidates against the knowledge, skills, and abilities 
set forth in the position description. On August 16, 2019, Robert G. 
Cameron was appointed to the position of Ombudsman.
                              tax evasion
    Question. What is the IRS doing to reduce tax evasion?

    Answer. The IRS is committed to reducing the tax gap and is taking 
several actions to reduce evasion. These efforts revolve around the 
hiring of an additional 4,300 personnel for exam and collection, 
deploying new technologies to detect and deter evasion, tapping into 
new data sources with analytics, issuing guidance, undertaking targeted 
compliance campaigns, authorized information sharing with government 
partners, supporting the Department of Justice Tax Division, and 
highlighting priority enforcement actions for the public. The IRS is 
also committed to promoting voluntary compliance through proactive 
outreach and education as well as quality customer service.

    Question. What additional resources does the IRS need to punish tax 
evasion?

    Answer. Enacting the President's budget will allow the IRS to 
better address tax evasion. The budget includes funding increases for 
enforcement personnel, increases for enabling technology, and new 
authorities--including authority to regulate paid return preparers and 
new information return reporting requirements--that will make it easier 
for the IRS to detect, deter, and address evasion.

    Question. What penalties are assessed on firms that market illegal 
tax shelters?

    Answer. The Internal Revenue Code penalties directed at the 
marketing of abusive tax shelters, also known as abusive tax avoidance 
transactions, are (1) section 6700, Promoting abusive tax shelters; (2) 
section 6701, Penalties for aiding and abetting understatement of tax 
liability; (3) section 6707, Failure to furnish information regarding 
reportable transactions; and (4) section 6708, Failure to maintain list 
of advisees with respect to reportable transactions.

    In addition to these penalties, injunctions are available under 
sections 7407 and 7408 via civil actions in district courts. Section 
7408 is most directed against the promotion of abusive tax avoidance 
transactions because it allows for an injunction when a person has 
taken actions subject to penalty under sections 6700, 6701, 6707 or 
6708. In addition, section 7407 provides for an injunction against 
return preparers who have engaged in specified conduct, including 
conduct subject to penalty under section 6694 and any fraudulent or 
deceptive conduct which substantially interferes with the proper 
administration of the Internal Revenue laws. Ultimately, the court may 
enjoin the person from acting as a tax return preparer.

    Question. What tax benefits are available for transactions with no 
economic substance, for example, a U.S. citizen who sells his U.S. home 
to a foreign company he controls and then pays them rent on his home?

    Answer. In general, a transaction that lacks economic substance may 
be recharacterized or disregarded by the IRS to deny the Federal income 
tax benefits claimed by the taxpayers. Transactions engaged in by all 
taxpayers, not just individuals but also entities like partnerships and 
corporations, may be challenged by the IRS and recharacterized to the 
extent they lack economic substance. The codified economic substance 
provisions in section 7701(o) apply to transactions entered into after 
March 30, 2010, and provide that in applying the economic substance 
doctrine, a transaction will have economic substance only if (A) the 
transaction changes in a meaningful way (apart from Federal income tax 
effects) the taxpayer's economic position; and (B) the taxpayer has a 
substantial purpose (apart from Federal income tax effects) for 
entering into such transaction. See 26 U.S.C. 7701(o)(1). In addition, 
under section 6662(b)(6), significant penalties apply to transactions 
that are found to lack economic substance within the meaning of section 
7701(o)(1), which are increased if the position is not disclosed to the 
IRS on an income tax return. See 26 U.S.C. 6662(i).

    In addition, U.S. individuals may utilize foreign entities 
(corporations, trusts and foundations) and chains of entities (e.g., a 
foreign trust owning a foreign corporation), and nominees to conceal 
their beneficial ownership of property, such as financial assets, 
entities, and real property, while retaining control and enjoyment of 
the property. U.S. individual taxpayers may use foreign entities to 
hold foreign accounts or assets for their benefit in order to keep such 
accounts or assets hidden from interested persons, such as creditors, 
law enforcement, and tax authorities like the IRS.

    Question. What steps has Treasury taken to cut off access to U.S. 
financial markets for tax and financial professionals that facilitated 
offshore tax abuses?

    Answer. The Office of Professional Responsibility (OPR) supports 
the Treasury Department's strategy to enhance enforcement of the tax 
law by ensuring that tax professionals (including attorneys, certified 
public accountants, enrolled agents, enrolled actuaries, enrolled 
retirement plan agents, appraisers, and unenrolled/
unlicensed return preparers) adhere to tax practice standards and 
follow the law. The OPR is the governing body responsible for 
interpreting and applying the regulations governing practice before the 
IRS, which are set out in title 31, Code of Federal Regulations, 
subtitle A, Part 10, and which are released as Treasury Department 
Circular No. 230. The regulations prescribe the duties, obligations, 
and restrictions relating to such practice and prescribe the 
disciplinary sanctions for violating the regulations. The OPR has 
exclusive responsibility for practitioner conduct and discipline, 
including instituting disciplinary proceedings and pursuing sanctions. 
The OPR has the authority to prescribe, among others, the following 
disciplinary sanctions for violation of the applicable standards: (i) 
disbarment from practice before the IRS for a minimum period of 5 
years; (ii) suspension from practice before the IRS; and (iii) censure 
in practice before the IRS.

    An IRS employee who believes a practitioner has violated any 
provision in Circular 230 is required to make a written report to the 
OPR. A mandatory referral must be made to the OPR when the following 
penalties or sanctions are asserted against a practitioner: (i) 
understatement of taxpayer's liability by tax return preparer due to 
willful or reckless conduct (section 6694(b)); (ii) aiding and abetting 
understatement of a tax liability (section 6701); (iii) promotion of 
abusive tax shelters (section 6700); (iv) actions to enjoin tax return 
preparers for engaging in unlawful conduct (section 7407); and (v) 
actions to enjoin specified conduct related to tax shelters and 
reportable transactions (section 7408).

    Question. Are foreign financial firms sending staff of private 
banks into the USA to recruit and service U.S. clients participating in 
offshore tax evasion schemes? How big of a problem is this?

    Answer. Based on prior IRS enforcement and Department of Justice-
Tax Division (DOJ-Tax) prosecutions, it is clear that foreign firms 
were sending staff into the United States to recruit and service U.S. 
taxpayer clients, particularly in the time period extending from 
approximately 2000 to 2010.

    As a result of IRS-Criminal Investigation enforcement work within 
the international banking arena, DOJ-Tax announced the Swiss Bank 
Program (SBP) in August 2013, to provide a path for Swiss banks to 
resolve potential criminal liabilities in the United States. As a 
result of the SBP, DOJ-Tax has finalized Non-Prosecution Agreements 
(NPA) with 81 Swiss financial institutions, some of which provided 
information indicating bank personnel traveled into the U.S. for client 
meetings.

    Question. Are there international financial firms opening accounts 
in the name of shell entities, concealing money transfers, ignoring 
disclosure obligations, thwarting subpoena requests and extradition 
requests to punish tax evaders in the U.S.? If so, how many and what is 
Treasury doing about this?

    Answer. The IRS frequently observes cases in which shell entities 
formed in the U.S. and in foreign countries are used to conceal 
beneficial ownership for the purpose of avoiding U.S. tax reporting 
requirements. Recent investigations have revealed an increase in 
foreign financial firms and ``professional enablers'' assisting U.S. 
persons in the concealment of offshore assets and transactions.

    Question. Please give me examples of where the U.S. Treasury is 
working with foreign allies to prosecute financial corruption in other 
nations. Corruption is in the end a problem of criminal law. How can 
Treasury help make criminal law regarding financial corruption from 
heads of state work in a multi-jurisdictional environment?

    Answer. Treasury, through IRS-Criminal Investigation (IRS-CI), is 
involved in several international collaborations with foreign partners 
to combat financial corruption.

    For example, IRS-CI was instrumental in the investigation of 
misappropriation of funds from the 1Malaysia Development Berhad (1MDB), 
where $4.5 billion was allegedly diverted out of the Malayan sovereign 
wealth fund by its officials, their relatives, and other associates. 
The funds were reportedly laundered through a series of shell companies 
in the U.S. and abroad. IRS-CI worked with international law 
enforcement partners to successfully trace the flow of funds through 
multiple jurisdictions and through a web of shell companies.

    Question. In 2017, and 2018 if available, what percent of the 
profits of U.S. corporations were in tax-haven countries? These are 
countries where the firm has few staff or employees, no physical 
presence, or any real economic presence.

    Answer. There is not a universally agreed upon list of a tax-haven 
countries, but many scholars consider countries with very low tax rates 
to be tax havens. While data for 2018 and 2017 are not available yet, 
the IRS's Statistics of Income division has published information on 
profits and income tax of large U.S. multinational corporations for tax 
year 2016 by jurisdiction. In particular, tax data in Table 3: 
Country-by-Country report (https://www.irs.gov/statistics/soi-tax-
stats-country-by-country-report) shows the effective tax rate of a 
multinational enterprise group by tax jurisdiction.

    Question. Should corporate income tax be imposed where the value is 
created?

    Answer. Income subject to tax within a multinational enterprise is 
determined in part based on the prices charged between related parties. 
The U.S. continues to be a strong advocate for the ``arm's length 
standard'' used in determining those prices. Recognizing that there is 
growing international dissatisfaction with these existing profit 
allocation rules, and in consideration of a view these rules may not be 
fit-for-purpose in a modern economy, the U.S. is willing to consider 
alternatives that would provide more certainty and stability to the 
international tax system.
                  our nation's housing finance system
    Question. How would Treasury experts structure the government's 
role in our housing finance system to increase access to homes 
affordable to families earning less than $40,000 a year? What would 
your housing finance experts recommend as an approach to increase the 
supply of rental homes, manufactured homes and home ownership to 
families who cannot afford to pay more than a $900 a month for housing?

    In Nevada, much of the only available housing available in rural 
areas is manufactured homes. What recommendations will you make to 
ensure manufactured home buyers have access to affordable financing 
that sustains their homeownership choice?

    How will your proposed plan ensure that home buyers in rural areas 
benefit from national pricing rather than pay higher fees and interest 
rates due to fewer financial firms serving their counties?

    How will your plan increase the percentage of African American, 
Latino, Asian Pacific American and Native American home buyers who are 
able to sustain homeownership?

    Please identify which housing and consumer groups your staff has 
met with to discuss changes to our housing finance system?

    Answer. On March 27th, President Trump signed a Presidential 
Memorandum directing Treasury and the Department of Housing and Urban 
Development (HUD) to each develop a housing reform plan. Treasury's 
housing reform plan must make recommendations for administrative and 
legislative reforms to achieve the following housing reform goals: (a) 
ending the conservatorships of the Government-Sponsored Enterprises 
(GSEs) upon the completion of specified reforms; (b) facilitating 
competition in the housing finance market; (c) establishing regulation 
of the GSEs that safeguards their safety and soundness and minimizes 
the risks they pose to the financial stability of the United States; 
and (d) providing that the Federal Government is properly compensated 
for any explicit or implicit support it provides to the GSEs or the 
secondary housing finance market.

    Treasury is in the process of preparing its housing reform plan, 
and as part of that process it continues to engage with stakeholders 
and other interested parties to identify issues and challenges facing 
the housing finance market. As required by the Presidential Memorandum, 
Treasury's housing reform plan will propose reforms that, among other 
specific objectives, define the GSEs' role in promoting affordable 
housing without duplicating support provided by the Federal Housing 
administration or other Federal programs.

    Treasury looks forward to working with the Federal Housing Finance 
Agency, HUD, Congress, and other stakeholders to address the need for 
comprehensive housing finance reform as laid out in the Presidential 
Memorandum.

                              killing myra
    Question. I'm disappointed that the Treasury Department killed the 
myRA program. Half of workers do not have access to a retirement 
account at work. The national savings rate is going down.

    How does the Treasury Department plan to help more people save for 
retirement?

    Answer. With respect to its retirement agenda, Treasury is 
prioritizing issuing guidance in response to EO 13847, Strengthening 
Retirement Security in America. The EO states it is the policy of the 
Federal Government to expand access to workplace retirement plans for 
American workers and notes that regulatory burdens and complexity can 
be costly and discourage employers, especially small businesses, from 
offering workplace retirement plans to their employees. The EO also 
states that outdated distribution mandates may reduce the effectiveness 
of plans, requiring retirees to take larger than necessary withdrawals 
and possibly leaving them with insufficient retirement saving in later 
years. To address these issues, the EO directed Treasury to consider 
issuing guidance, and Treasury is considering issuing guidance: (a) 
regarding the circumstances in which a multiple employer plan may 
satisfy the tax qualification requirements of the Code, including if 
one or more of the participating employers fails to take action to 
satisfy those requirements, given that (i) these plans provide an 
efficient way to reduce administrative costs of establishing and 
maintaining retirement plans and (ii) providing clear guidance on these 
issues should make the plans more attractive, especially among small 
employers; and (b) to update the life expectancy tables in regulations 
on required minimum distribution from retirement plans and individual 
retirement arrangements to reflect current mortality data.

                    public monthly housing scorecard
    Question. For 90 months, HUD and Treasury released a Monthly 
Housing Scorecard providing information on the health of the Nation's 
housing markets. It was insightful, expansive and public.

    When will Treasury and HUD resume jointly producing the Monthly 
Housing Scorecard?

    Answer. Treasury will consider your request.
                    financial services for cannabis
    Question. As you may be aware, the State of Nevada legalized 
recreational use of cannabis in 2016. While the cannabis industry in 
the State, and across much of our Nation, is thriving, I am troubled by 
the public safety concerns presented by a lack of financial services 
for cannabis and cannabis affiliated businesses.

    Does the Department have estimates on the number of legal 
marijuana-related businesses that are unbanked? If so, please provide 
the number.

    Answer. The Department of the Treasury does not receive or maintain 
information on the percentage of State-authorized marijuana-related 
businesses that are unbanked. FinCEN, however, has been tracking 
Suspicious Activity Reports (SARs) filed in response to FinCEN's 
Guidance on Bank Secrecy Act (BSA) Expectations Regarding Marijuana-
Related Businesses (FIN-2014-G001). These SARs provide FinCEN with the 
status of reported banking relationships with marijuana-related 
businesses (MRBs). As of December 31, 2018, Treasury is aware of 551 
Depository Institutions providing services to MRBs.\2\
---------------------------------------------------------------------------
    \2\ FinCEN Marijuana Banking Updates, Frequently Requested FOIA-
Processed Records, https://www.fincen.gov/frequently-requested-foia-
processed-records.

    Question. Does the Department have estimates on how many 
individuals who work for legal cannabis-related businesses are 
---------------------------------------------------------------------------
unbanked? If so, please provide the number.

    Answer. The Department has not prepared an estimate of how many 
individuals work for State authorized MRBs, nor how many are unbanked.

    Question. Does the Department support additional regulatory clarity 
to allow financial institutions to facilitate services for legal 
cannabis-related businesses?

    Answer. Marijuana remains a controlled substance under U.S. law 
(the Controlled Substances Act), making it illegal under Federal law to 
manufacture, distribute, or dispense marijuana. Many States have passed 
or are considering laws which conflict with Federal law. To the extent 
a legislative solution is being sought, it must address these 
conflicts. The Department of the Treasury will continue to operate 
consistent with Federal law. The Department has not expressed an 
opinion on whether financial institutions should bank marijuana-related 
businesses or any other services in which banks engage. Treasury has 
consistently stated that financial institutions are expected to follow 
the law and reasonably manage their anti-money laundering risks. 
Treasury's approach remains consistent with the guidance it issued in 
2014, setting forth BSA obligations for financial institutions that 
provide services to marijuana-related businesses. Private institutions 
make their own risk decisions regarding their banking relationships, 
which in this case could include marijuana's status as a controlled 
substance under U.S. law.

    Question. Please provide any actions the Department could take to 
facilitate financial services for cannabis-related industries.

    Answer. Marijuana remains a controlled substance under U.S. law 
(the Controlled Substances Act), making it illegal under Federal law to 
manufacture, distribute, or dispense marijuana. Many States have passed 
or are considering laws which conflict with Federal law. To the extent 
a legislative solution is being sought, it must address these 
conflicts. The Department of the Treasury will continue to operate 
consistent with Federal law.
                missing tax dollars related to cannabis
    Question. An audit by the State of Nevada found that the State 
missed at least $500,000 in missed tax revenue.

    Does the Department know how much Federal tax revenue was collected 
from cannabis-related businesses in 2018? If so, please provide the 
number.

    Does the Department have an estimate of missed Federal tax revenue 
by cannabis and cannabis-affiliated businesses? If so, please provide 
the estimate.

    Answer. The Department has no information on, nor any estimates of, 
Federal tax revenue collected or not collected specifically from 
cannabis-related businesses in 2018 or any other year. The Department 
does not track this information.

                                 ______
                                 
            Questions Submitted by Hon. Robert P. Casey, Jr.
    Question. Secretary Mnuchin, were you aware, prior to enactment of 
the TCJA, that 66 percent of the benefit of the legislation's pass-
through deduction would go to the wealthiest 5 percent of eligible 
taxpayers?

    Answer. The pass-through deduction provided a much needed tax 
relief for the country's small businesses. Additionally, the majority 
of the beneficiaries of the pass-through deduction are in the bottom 
four quintiles of the income distribution. As a result of the tax cut, 
small business optimism soared and strong economic growth followed. The 
solid economic growth the U.S. has experienced since the enactment of 
the TCJA has led to higher compensation and more employment 
opportunities for American workers, providing financial benefits for 
middle- and lower-
income families beyond what is captured in conventional tax 
distribution analysis.

    Question. Were you aware, prior to the enactment of the TCJA, that 
over 50 million households making under $100,000 a year would see a tax 
increase or a tax cut of less than $9 a month?

    Answer. When working closely with colleagues in Congress in 
designing tax reform, many ways to put money in workers' pockets were 
considered. In addition to providing tax cuts for the majority of 
families, the TCJA was projected, and has worked, to incentivize 
economic activity and thereby boost GDP. Most importantly, the 
resulting wage and job growth since the passage of the TCJA has 
increased the take-home pay and improved the well-being of the 
country's middle- and lower-
income families.

    Question. Were you aware, prior to its enactment, that the TCJA 
would make the U.S. tax system less progressive?

    Answer. As stated in the responses above, prior to its enactment, 
it was expected the TJCA would boost U.S. economy and increase take-
home pay for working families. This growth effect is generally not 
captured in the tax distribution analysis.

    According to the Joint Committee on Taxation (JCT),\3\ the TCJA 
will provide a total tax cut of $259 billion in 2019, benefiting, on 
average, families across all income levels. While the majority of 
families will see their tax liability decline, 3.8 percent of families 
are projected to have a tax increase of more than $500. Of all income 
categories, the top-income families--those with economic income of $1 
million or more--will have the highest percentage (13.8) with tax 
increases of more than $500. Moreover, the share of Federal taxes paid 
by these highest earners will increase from 19.3 percent to 19.8 
percent in 2019 due to the TCJA.
---------------------------------------------------------------------------
    \3\ https://www.jct.gov/publications.html?func=startdown&id=5173.

    Question. Were you aware, prior to the enactment of the TCJA, that 
the tax legislation will allow corporations to exempt more income from 
---------------------------------------------------------------------------
US tax when they build a new factory overseas?

    Answer. Section 951A (GILTI) exempts from taxation a routine return 
attributable to certain offshore tangible assets determined based on a 
formula (generally, 10 percent of an asset's tax basis). This tax basis 
measurement was chosen because it is administrable and avoids disputes. 
It is also subject to many exceptions and limitations and is thus not 
susceptible to easy generalizations about the tax effect of building 
new factories overseas versus in the United States. In certain cases, 
overseas investments in new plants and equipment will materially 
increase a taxpayer's overall and U.S. tax burdens.

    Question. Do you continue to have a financial relationship with 
Eddie Lampert--through ESL Investments, Inc., Seritage, or any other 
entity? That is, are you invested in any of his firms?

    Answer. No.

    Question. Prior to the enactment of the TCJA, did you ever discuss 
with Mr. Lampert the net operating loss carryforward provision that was 
made law through the 2017 tax bill?

    Answer. I do not believe that I ever discussed that issue with Mr. 
Lampert.

    Question. Do you have a personal financial interest in the net 
operating loss carryforward provision that was enacted into law through 
the 2017 tax bill?

    Answer. I do not believe that I have any such personal financial 
interest.

                                 ______
                                 
                 Submitted by Hon. Sheldon Whitehouse, 
                    a U.S. Senator From Rhode Island

                        From The Washington Post

 Larry Kudlow's Claim That ``We Have Virtually Paid For'' Trump's Tax 
                                  Cut

                           By Salvador Rizzo

Judy Woodruff, PBS: ``You are hanging a lot of this on these tax cuts, 
but we now have a number of experts who are watching those tax receipt 
numbers that come in regularly, and they are saying that they do not 
add up to what is anything like the kind of growth that the 
administration had projected off these tax cuts.''

National Economic Council Director Larry Kudlow: ``Well, actually, 
overall revenues are up about 10 percent. So that's a pretty good 
number. And let me say, one of the people that are skeptical of us, the 
Congressional Budget Office, nonetheless, their estimates before taxes 
and most recently after the taxes, they have argued, they have said, 
there's roughly $7 trillion of higher nominal GDP, and from that comes 
about 1.2 trillion in extra revenues, so that the tax cuts are about 80 
percent paid for overall.''

--Exchange on PBS's ``NewsHour,'' March 11, 2019

``Even the CBO, with which we generally disagree--I'm not breaking news 
here on my part--but they just published their new numbers. You know, 
from the point of pre-tax-cut to now, we have had about $7 trillion 
unexpected increase, $7 trillion over 10 years in terms of GDP. And 
that kind of calculates to roughly 1.2, 1.3 trillion in additional 
revenue. That's the CBO numbers. These are all 10-year estimates. I 
apologize for that, but that's the convention. So, what am I saying 
here? The tax cut was about 1.5 trillion scored. We have virtually paid 
for it--I guess 80 percent paid for it--and that's by the CBO's own 
numbers.''

--Kudlow, in an interview on CNBC's ``Squawk on the Street,'' March 8, 
2019

President Trump's chief economic adviser says new numbers from the 
Congressional Budget Office show that 80 percent of the 
administration's tax cuts will be paid for in a decade. Even when 
accounting for lost revenue, the tax cuts will ``virtually'' pay for 
themselves because of increased economic activity, Kudlow suggests.

He's not the first Republican to claim tax cuts pay for themselves. But 
he is the first to twist what the CBO's nonpartisan number-crunchers 
said in a Feb. 28 analysis.

CBO Director Keith Hall factored in several big developments in this 
analysis. One was the estimated effect of the tax cuts Trump signed in 
December 2017. Another was ``changes to federal spending resulting from 
legislation enacted early in 2018.'' The biggest change came from 
``revised historical data and changes in the economic outlook . . . 
before accounting for the effects of the tax act.''

The CBO breaks down the effect of the tax cuts by themselves--but 
Kudlow isn't using that specific, smaller number. He's citing the much 
larger estimate that folds in all the changes.

The Facts

The Tax Cuts and Jobs Act lowered rates for individuals and businesses. 
The CBO in 2018 estimated that in the 10 years between 2018 and 2027, 
the bill would reduce revenue by $1.65 trillion and boost the deficit 
by almost $1.5 trillion, before accounting for the cost of additional 
deficit borrowing. The CBO also estimated that the tax cuts would spur 
net economic growth at the same time that they drove up the federal 
debt.

On Feb. 28, Hall gave an updated economic forecast. Kudlow accurately 
noted that CBO analysts revised upward by $7 trillion their estimate 
for nominal GDP for the 10-year period from 2017 to 2027.

But Kudlow went on to say that the added tax revenue from that $7 
trillion--roughly $1.2 trillion to $1.3 trillion, he said--would cover 
80 percent of the cost of Trump's tax cuts.

On CNBC, he attributed this to ``the CBO's own numbers.'' On PBS, 
anchor Judy Woodruff mentioned experts who have challenged the 
administration's economic projections. Kudlow, offering the CBO 
analysis as a defense, said ``there's roughly $7 trillion of higher 
nominal GDP, and from that comes about 1.2 trillion in extra revenues, 
so that the tax cuts are about 80 percent paid for overall.''

That's a bunch of spin.

Hall broke down the added $7.17 trillion in nominal GDP into several 
different buckets:

        Close to 38 percent, or $2.7 trillion, ``consists of the 
        effects of revised historical data and changes in the economic 
        outlook after January 2017 and before accounting for the 
        effects of the tax act.'' (Emphasis ours. Hall is saying 
        specifically that these changes were not tied to the tax cuts.)

        Nearly 32 percent, or $2.33 trillion, ``is the effect of the 
        2017 tax act on CBO's projection of GDP.'' This is where Hall 
        isolates the estimated economic gains from Trump's tax cuts.

        Around 18 percent, or $1.29 trillion, stems from ``other policy 
        changes . . . especially the changes to federal spending 
        resulting from legislation enacted early in 2018.'' No tax-cut 
        talk here.

        The remaining 12 percent, or $846 billion, represents 
        ``revisions to the economic outlook and changes to data.'' This 
        is not tied to the tax cuts, either.

When Kudlow mentions the added $7 trillion in GDP covering 80 percent 
of the tax cuts' cost, and cites the CBO analysis, he misses the point 
and ends up in deceptive territory. The question is really whether the 
tax cuts generate more revenue than they remove from the equation. If 
you have economic growth from other sources and you're using it to 
cover the cost of the tax cut, you're forgoing other uses for that 
money.

The CBO is estimating that $2.33 trillion, or one-third of the extra $7 
trillion, will come from economic activity sparked by Trump's tax cuts.

The budget analysts don't make the claim that this economic activity 
would cover 80 percent of the cost of the tax cuts. Hall wrote that 
``macroeconomic feedback from the tax act offset about 30 percent of 
CBO's estimate of the act's increase in budget deficits through 2028--
or 20 percent after debt-service costs are accounted for.'' (The tax 
cut increases the deficit, which means the government would be 
borrowing more money to cover some expenses over the 10-year period.)

So, you take the increased economic activity (deficit-reducer), the 
interest on the borrowed funds (deficit-raiser) and the lost revenue 
(deficit-raiser). Then you do the math. Looking solely at the tax cut, 
the CBO says the increased economic activity offsets 20 percent of the 
growth in the deficit over 10 years. Overall, the tax cut would 
increase the projected deficit by more than $1.8 trillion through 2028, 
the CBO said. (Note that this is a slightly different 10-year budget 
window than the original estimate.)

``Kudlow seems to be counting the entire difference in GDP between two 
CBO projections as being caused by the TCJA,'' said Kyle Pomerleau, 
chief economist and vice president of economic analysis at the Tax 
Foundation. ``While it is completely possible CBO is off in its 
projection and the tax cut is contributing to more (or less) than 
estimated, Kudlow is still misstating what CBO is projecting here.''

``There were a bunch of reasons that CBO revised their forecast up--
revised economic data, policy changes--in addition to the Tax Cuts and 
Jobs Act, and the TCJA itself,'' said Benjamin R. Page, senior fellow 
at the Urban-Brookings Tax Policy Center.

Kudlow was making this claim that the tax cuts were ``virtually paid 
for'' even before the CBO revised its GDP forecast in February. It 
hasn't aged well. (Here's an August 2018 article from FactCheck.org.)

The White House did not respond to our requests for comment.

The Pinocchio Test

Kudlow's comments are misleading because he's twisting what the CBO 
analysis says. He's doing it repeatedly and in front of TV cameras. He 
has made these claims before and after the updated forecast from the 
nonpartisan budget office.

The CBO's analysis says increased economic activity from Trump's tax 
cuts would offset 20 percent of the growth they're adding to the 
deficit over 10 years. That's a big net negative. It's a far cry from 
saying economic growth would cover 80 percent of their cost. And it's 
the kind of spin worth Four Pinocchios, especially when Kudlow 
misstates the sober analysis of the CBO for political purposes.

                                 ______
                                 

                             From Politico

   The Bogus Number at the Center of the GOP's Green New Deal Attacks

                             By Zack Colman

Republicans' estimates that the climate plan would cost $93 trillion 
are based on a think tank study that doesn't endorse that total.

Republicans claim the ``Green New Deal'' would cost $93 trillion--a 
number that would dwarf the combined economic output of every nation on 
Earth.

The figure is bogus.

But that isn't stopping the eye-popping total from turning up on the 
Senate floor, the Conservative Political Action Conference and even 
``Saturday Night Live'' as progressive Democrats' sweeping-yet-vague 
vision statement amps up the political conversation around climate 
change.

The number originated with a report by a conservative think tank, 
American Action Forum, that made huge assumptions about how Democrats 
would implement their plan. But the $93 trillion figure does not appear 
anywhere in the think tank's report--and AAF President Douglas Holtz-
Eakin confessed he has no idea how much the Green New Deal would cost.

``Is it billions or trillions?'' asked Holtz-Eakin, a former director 
of the Congressional Budget Office. ``Any precision past that is 
illusory.''

The Green New Deal isn't even a plan yet--at the moment it's a non-
binding resolution that calls for major action to stop greenhouse gas 
pollution while reducing income inequality and creating ``millions of 
good, high-wage jobs.'' But top Republicans have embraced the $93 
trillion price tag, using it to argue that the climate plan would 
bankrupt the United States.

Democrats say Republicans are using the number to dodge responsibility 
for decades of denying climate science, while the White House continues 
to disregard the evidence linking human activity to rising temperatures 
and extreme weather.

To come up with the $93 million total, Republicans added together the 
cost estimates that the AAF report's authors had placed on various 
aspects of a Green New Deal platform. Most of those were based on 
assumptions about universal health care and jobs programs rather than 
the costs of transitioning to carbon-free electricity and 
transportation.

``There's a race for think tankers, analysts and academia to be the 
first to come up with a number, and you can see why--look at how many 
people latched on to that $93 trillion number,'' said Nick Loris, an 
economist at the conservative Heritage Foundation. ``A lot of times you 
just see the number and you don't get a lot of the backstory behind the 
number.''

Holtz-Eakin told Politico that he was interested only in ``ballparks,'' 
adding that the study is best viewed as ``a sincere but a heroic 
estimate of a not very well-specified proposal.'' When asked whether he 
had a problem with the way Republicans had characterized his study and 
the $93 trillion figure, Holtz-Eakin said: ``We did try to play it 
straight here. We never added it up.''

Green New Deal supporters acknowledge that their preferred polices 
won't be free, but they say Republicans are acting in bad faith by 
painting the resolution with a specific brush so early and refusing to 
acknowledge that unchecked climate change poses its own economic risks. 
For instance, a United Nations report last fall estimated a global cost 
of as much as $69 trillion from even a modest rise in global 
temperatures.

``We all knew this vacuum was here, but you can't put a price on it 
until you have a piece of legislation that you can score,'' said Greg 
Carlock, Green New Deal research director with the progressive think 
tank Data for Progress. He said the AAF study ``was an attempt to fill 
that vacuum, but it does it in a mean-spirited way.''

Yet the figure is already a fixture of GOP talking points about the 
Green New Deal--echoing attacks the party has made on environmental 
regulations for decades.

``That's always been the crux of the Republican argument against making 
all these changes,'' said Rory Cooper, a Republican strategist and 
managing director at Purple Strategies, a bipartisan consulting firm. 
``It's significant lifestyle changes in exchange for an undefined 
benefit.''

The GOP's eagerness to wield the price estimate underscores the 
prominence that climate change has achieved in Washington for the first 
time in nearly a decade.

When they set out to put a price tag on the Green New Deal last month, 
Holtz-Eakin and his associates had no real policy or plan to evaluate, 
so they made one up to perform back-of-the-envelope calculations. AAF's 
analysis extrapolated from the various ideas laid out in the non-
binding resolution from Representative Alexandria Ocasio-Cortez (D-NY) 
and Senator Ed Markey (D-MA)--such as switching the electric grid off 
fossil fuels and providing jobs and health care for all Americans.

Democrats dismiss the AAF study as a fabrication. And on Wednesday, as 
Republican senators railed on the floor about the $93 trillion estimate 
and the dangers of socialism, several Democrats interrupted them to 
demand that the GOP acknowledge the reality of climate change.

``That is a completely made up number by the Koch brothers,'' Markey, 
who co-
sponsored the 2009 cap-and-trade bill, said on the Senate floor.

Markey interrupted a speech by Sen. Thom Tillis (R-NC), who is expected 
to be among Democrats' top targets in next year's elections.

``I don't care if it is $93 trillion, $43 trillion or $10 trillion--it 
is unsustainable,'' Tillis shot back. ``We can sit here and question 
the sources, but at the end of the day, we all know that this was 
theater.''

Senate Majority Leader Mitch McConnell kept pushing the talking point, 
noting that $93 trillion is ``more than the combined annual GDP of 
every nation on Earth''--as well as more than enough to ``buy every 
American a Ferrari.''

The figure has been a fixture of GOP messaging since AAF released its 
report on Feb. 25.

Senator David Perdue (R-GA) wielded the $93 trillion figure at the 
recent Conservative Political Action Conference. Senate Environment and 
Public Works Chairman John Barrasso (R-WY) cited the price estimate in 
a USA Today op-ed. Senator John Cornyn (R-TX) displayed it on a poster 
on the Senate floor. It worked its way into an online skit from 
``Saturday Night Live'' that parodied Democratic Senator Dianne 
Feinstein's interaction with a group of young climate activists.

The number is so large it is nearly incomprehensible, but it dwarfs 
other massive endeavors like building the interstate highway system, 
which cost an equivalent of $241 billion in today's dollars, for 
example. And the AAF study does not distinguish between government and 
private-sector spending, nor does it attempt to quantify the benefits 
of reducing pollution or other policies. For example, Stanford 
University civil and environmental engineering professor Mark Jacobson 
estimated that eliminating the electricity sector's carbon emissions 
would avoid $265 billion in annual U.S. damages beginning in 2050.

``A central challenge to climate policy-making is there are costs right 
away and the benefits emerge over time,'' said Michael Greenstone, an 
economist and director of the Energy Policy Institute at the University 
of Chicago. ``But just because the benefits happen over time doesn't 
mean it's not real.''

In fact, $80.6 trillion of the costs in AAF's study come from a jobs 
guarantee and universal health care. The Green New Deal resolution 
calls for ``guaranteeing a job'' and providing high-quality health care 
to everyone, but it is primarily focused on outlining a set of goals to 
get the U.S. economy to net-zero carbon emissions by mid-century. While 
liberal activists say economic justice must be a part of any eventual 
policy based on the resolution, most see the Green New Deal itself as a 
vehicle for an energy transition and industrial economic policy, rather 
than something more sweeping, like ``Medicare for All.''

``Given that the [Green New Deal] is at this point simply a set of 
long-term goals, without any specification of how those goals would be 
achieved, any estimate of cost is itself likely to be exceptionally 
speculative,'' Robert Stavins, an environmental economist at Harvard 
University, wrote in an email.

Many studies that warn of dire economic effects of climate change 
overstate the potential harm, according to a Pew Charitable Trusts 
review of environmental policies.

Nevertheless, having a specific figure to cite can define the contours 
of policy conversation, said Margo Thorning, a senior economic policy 
adviser with the American Council for Capital Formation. Thorning was a 
frequent Capitol Hill witness when Congress debated cap-and-trade 
legislation in the early years of the Obama administration. She was 
coveted partly because her organization published an influential study 
that used Energy Information Administration statistics to show that the 
policy would have curbed economic growth by $3.1 trillion between 2012 
and 2030.

Similarly, a National Association of Manufacturers-backed study on the 
potential effects of tightening standards for ground-level ozone said 
the measure would cost $1.1 trillion and surrender $1.7 trillion in 
economic growth between 2017 and 2040.

``I think it helped shape the debate because if people realized we were 
going to be losing 2 to 3 percent of GDP or more and other countries 
weren't, we were going to be losing a lot,'' Thorning said of her 
organization's study on cap and trade.

Climate hawks say Republicans dismissing the Green New Deal as 
unaffordable are ignoring the costs of doing nothing, like property 
damage from extreme weather and public health effects from continued 
fossil fuel pollution. The AAF study makes no attempt to address 
potential benefits of avoiding those consequences.

``Not talking about the cost of inaction is incredibly misleading,'' 
said Rhiana Gunn-Wright, policy director with New Consensus, one of the 
groups working on the Green New Deal. ``It's about how, when and where 
you want to spend your money, because you're going to spend it.''

The United Nations' Intergovernmental Panel on Climate Change said in 
October that the global cost of temperatures rising 1\1/2\ degrees 
Celsius--the target the Green New Deal aims to avoid--would be $54 
trillion in 2100. That would rise to $69 trillion in a 2-degree 
scenario. Those targets also served as the basis of the 2015 Paris 
climate agreement, which Trump has announced plans to abandon.

Global temperatures are on track to rise by at least 4 degrees by the 
end of the century, according to projections from the Trump 
administration. That would lead to even greater economic devastation--
for example, damaging $3.6 trillion of coastal property by 2100 without 
measures to adapt to climate change, according to the National Climate 
Assessment published last November.

Some GOP strategists see a long-term risk in a dismissive approach to 
climate policy.

``With the Green New Deal, Republicans are excited to talk about 
climate change for the first time because we can point out how silly 
Democrats are being,'' said Alex Conant, a GOP strategist and partner 
at Firehouse Strategies. ``It's likely not a long-term position. 
Ultimately Republicans, if we want to be taken seriously on climate 
change, we will have to offer conservative solutions to it.''

At least one Republican has kept her criticism of the Green New Deal 
more muted: Alaska Senator Lisa Murkowski, whose home state is warming 
more quickly than the rest of the country. Chairing an Energy and 
Natural Resources Committee hearing on climate Tuesday, Murkowski 
pointed to dwindling fisheries and melting permafrost, which her 
constituents are already dealing with. She has never publicly cited the 
American Action Forum study.

``This has got to be a priority for all of us,'' she said of 
confronting climate change. ``It is directly impacting our way of 
life.''

                                 ______
                                 

                        From The Washington Post

 Putin and Other Authoritarians' Corruption Is a Weapon--and a Weakness

               By David Petraeus and Sheldon Whitehouse 
                             March 8, 2019

David Petraeus is a retired U.S. Army general and the former director 
of the Central Intelligence Agency. Sheldon Whitehouse, a Democrat, is 
a U.S. senator from Rhode Island.

Thirty years after the end of the Cold War, the world is once again 
polarized between two competing visions for how to organize society. On 
one side are countries such as the United States, which are founded on 
respect for the inviolable rights of the individual and governed by 
rule of law. On the other side are countries where state power is 
concentrated in the hands of a single person or clique, accountable 
only to itself and oiled by corruption.

Alarmingly, while Washington has grown ambivalent in recent years about 
the extent to which America should encourage the spread of democracy 
and human rights abroad, authoritarian regimes have become increasingly 
aggressive and creative in attempting to export their own values 
against the United States and its allies. Russian President Vladimir 
Putin and other authoritarian rulers have worked assiduously to 
weaponize corruption as an instrument of foreign policy, using money in 
opaque and illicit ways to gain influence over other countries, subvert 
the rule of law and otherwise remake foreign governments in their own 
kleptocratic image.

In this respect, the fight against corruption is more than a legal and 
moral issue; it has become a strategic one--and a battleground in a 
great power competition.

Yet corruption is not only one of the most potent weapons wielded by 
America's authoritarian rivals, it is also, in many cases, what 
sustains these regimes in power and is their Achilles' heel.

For figures such as Putin, the existence of America's rule-of-law world 
is intrinsically threatening. Having enriched themselves on a 
staggering scale--exploiting positions of public trust for personal 
gain--they live in fear that the full extent of their thievery could be 
publicly exposed, and that the U.S. example might inspire their people 
to demand better.

Corrupt regimes also know that, even as they strive to undermine the 
rule of law around the world, they are simultaneously dependent on it 
to a remarkable degree. In contrast to the Cold War, when the Soviet 
bloc was sealed off from the global economy and sustained by its faith 
in communist ideology, today's autocrats and their cronies cynically 
seek to spend and shelter their spoils in democratic nations, where 
they want to shop, buy real estate, get health care and send their 
children to school.

Ironically, one of the reasons 21st-century kleptocrats are so fixated 
on transferring their wealth to the United States and similar countries 
is because of the protections afforded by the rule of law. Having 
accumulated their fortunes illegally, they are cognizant that someone 
more connected to power could come along and rob them too, as long as 
their loot is stuck at home.

Fortunately, the United States has begun to take steps to harden its 
rule-of-law defenses and push back against foreign adversaries. The 
passage of the Global Magnitsky Act in 2016, for instance, provided a 
powerful new tool for targeting corruption worldwide that is being 
increasingly utilized. But there is more to do.

In particular, the United States should make it more difficult for 
kleptocrats, and their agents, to secretly move money through the rule-
of-law world, whether by opening bank accounts, transferring funds or 
hiding assets behind shell corporations. Failure to close loopholes in 
these areas is an invitation to foreign interference in America's 
democracy and a threat to national sovereignty.

Congress should tighten campaign-finance laws to improve transparency 
given that U.S. elections are clearly being targeted for manipulation 
by great-power competitors.

At the same time, the United States must become more aggressive and 
focused on identifying and rooting out corruption overseas. Just as the 
Treasury Department has developed sophisticated financial-intelligence 
capabilities in response to the threat of terrorism and weapons of mass 
destruction, it is time to expand this effort to track, disrupt and 
expose the corrupt activities of authoritarian competitors and those 
aligned with them.

Hardening the nation's rule-of-law defenses is not, of course, a 
substitute for traditional forms of U.S. power, including military 
strength and economic dynamism. But it can provide an additional set of 
tools to bolster national security.

In the intensifying worldwide struggle between the rule of law and 
corruption, the United States cannot afford neutrality. Complacency 
about graft and kleptocracy beyond U.S. borders risks complicity in 
it--with grave consequences both for the nation's reputation abroad and 
Americans' well-being at home.

                                 ______
                                 

                          United States Senate

                          washington, dc 20510

                            February 6, 2019

Honorable David Kautter
Assistant Secretary (Tax Policy)
Department of the Treasury
1500 Pennsylvania Ave., NW
Washington, DC 20220

William M. Paul
Acting Chief Counsel
Internal Revenue Service
1111 Constitution Ave., NW
Washington, DC 20024

Dear Messrs. Kautter and Paul:

Last year, a broad bipartisan coalition successfully included the 
Furthering Carbon Capture, Utilization, Technology, Underground 
Storage, and Reduced Emissions Act (FUTURE Act) in the Bipartisan 
Budget Act of 2018. The FUTURE Act enhanced the existing carbon 
sequestration credit under section 45Q of the Internal Revenue Code, 
expanding the credit to a wide range of carbon capture technologies.

It has been a year since the bill's passage, and we write today to 
request that Treasury commit staff and resources to finalize a revised 
guidance promptly. Recent reports have cited that several project 
developers are interested in using the expanded credit, but require 
updated guidance from Treasury. These projects have long lead times, 
and therefore developers need certainty in order to commence 
construction by the January 1, 2024 deadline.

We also request a staff briefing on the status of the revised guidance 
at your earliest opportunity. Thank you for your work, and we look 
forward to hearing from you soon.

            Sincerely,

Sheldon Whitehouse                  John Barrasso
United States Senator               United States Senator

Shelly Moore Capito
United States Senator

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    The Finance Committee is back for Round Two on the budget, and 
we're joined by Secretary Mnuchin. Since the Treasury budget is largely 
about taxes, and taxes pay for the bulk of Federal programs, I want to 
start with a hard look at the overall picture.

    This isn't a budget as much as it's an economic smash and grab 
perpetrated on the American people.

    Get rid of the Washington lingo, and it's obvious. Cuts to 
Medicare. Cuts to Medicaid. Cuts to Social Security. Cuts to education. 
Cuts to housing. Cuts to cancer research. Cuts to job training. Cuts to 
anti-hunger programs. Cuts to anti-poverty programs. I could go on.

    Then you have the impact of the Trump tax law. Hundreds of billions 
of dollars in tax handouts to corporations and billionaires. An overall 
price tag that will reach $2 trillion in a single decade. Secretary 
Mnuchin famously declared that the tax law would pay for itself and 
more. He was off by multiple trillions of dollars.

    The law kicked off a stock buyback bonanza. It's been a nonstop 
joyride for corporate executives, who get a lot of their compensation 
in the form of corporate stock. So that makes two special breaks that 
are unavailable to cops and nurses. They can defer their taxes on their 
stock holdings, and they got a lower tax rate on their salaries and 
bonuses.

    In addition, new data released by Syracuse University shows the 
effect of years of Republican austerity imposed on the IRS. With audits 
of corporations and high-earners steadily dropping year after year, 
enforcement of our tax laws is in the worst shape that it's been in 
decades. Not in modern memory has there been a better time to be a 
wealthy tax cheat in America.

    So under Donald Trump, corporations and the wealthy don't have to 
pay a fair share, and there's a good chance they can get away with 
paying virtually nothing at all. It should come as no surprise that 
deficits crossed the trillion-dollar mark under unified Republican 
control of government.

    Unveiling the budget at a press briefing on Monday, Acting OMB 
Director Russell Vought drummed up fears over what he called the 
``unsustainable national debt.''
    He warned that, ``annual deficits are continuing to rise'' without 
any recognition of what's driven that increase. Echoing so many 
Republican budget cutters before him, he declared that ``Washington has 
a spending problem.''

    Then it was off to the races, outlining exactly how the Trump 
administration wants to dismantle the system that created a vibrant 
middle class in America.

    For too long, the full burden of Republican budget cuts has fallen 
on the middle class and working people trying to get there. Not on 
powerful special interests. Not on billionaires.

    What the Trump administration put forward is not across-the-board 
belt tightening. It's not a fair, even-handed reduction in spending. 
Middle-class families lose, but the budget would send more taxpayer 
dollars to Defense contractors. It gives them even more than what the 
Pentagon asked for.

    The bottom line is, just about every warning that came from this 
side of the committee about the Republican tax bill and its aftermath 
is proving to be true. The $4,000 raises American workers were 
promised--nowhere to be found. The tax handouts are not paying for 
themselves. New Fed data projects that the economy is growing this 
quarter at a rate of 0.2 percent.

    The nonpartisan experts at CBO forecast that as the corporate tax-
cut sugar high wears off, economic growth will slow to 1.7 percent in 
the years ahead. And as the public has seen this week, the deficits 
driven upward by the tax law are now the justification for draconian 
budget cuts.

    This cycle has lasted for decades. It's past time for it to end.

                                 ______
                                 

                             Communication

                              ----------                              


                        Center for Fiscal Equity

                      14448 Parkvale Road, Suite 6

                          Rockville, MD 20853

                      [email protected]

                    Statement of Michael G. Bindner

Chairman Grassley and Ranking Member Wyden, thank you for the 
opportunity to submit these comments for the record to the Committee on 
Finance on the FY 2020 Budget.

The federal budget process is broken. The solution must include 
incentives to keep the process moving. Automatic appropriations would 
occur at Joint Budget Resolution marks, and if no resolution is passed, 
revised Budget Control Act spending caps would end this difficulty and 
spur action by both parties. Because BCA levels are too low, the marks 
in the Act could be increased by the legislation amending the process 
itself. These marks should be realistic rather than punitive. Part of 
any reform must include new caps be set through 2025, when parts of the 
TCJA expire as well.

As long as the current tax cuts are in force, the money not collected 
in taxes should be made up with bond sales, else all sorts of mischief 
occur in the area of asset accumulation and inflation. Such 
accumulations are not economic growth, they are the manufacture of 
speculative investment bubbles that always lead back to recessions and 
depressions. There is no such thing as a business cycle, only rich 
people who are undertaxed who invest in garbage and then sell it to the 
public, like any Ponzi scheme.

We remind the Committee that in the future we face a crisis in net 
interest on the debt, both from increased rates and growing principle. 
This growth will only feasible until either China or the European Union 
develop tradable debt instruments backed by income taxation, which is 
the secret to the ability of the United States to be the world's bond 
issuer. At some point, however, we need incentives to pay down the 
debt.

The national debt is possible because of progressive income taxation. 
The liability for repayment, therefore, is a function of that tax. For 
every dollar you pay in taxes, you owe $13 in debt. People who pay 
nothing owe nothing. People who pay tens of thousands of dollars a year 
owe hundreds of thousands. The answer is not making the poor pay more 
or giving them less benefits, either only slows the economy. Rich 
people must pay more and do it faster. My child is becoming a social 
worker, although she was going to be an artist. Don't look to her to 
pay off the debt. Your children and grandchildren and those of your 
donors are the ones on the hook unless their parents step up and pay 
more. How's that for incentive to raise taxes?

We have added a Carbon Value-Added Tax to the first bullet of our 
comprehensive four part approach to tax reform. A 25% Asset Value-Added 
Tax will be added to the second bullet so that capital gains taxes can 
be repealed, making automatic filing possible based on submissions to 
the IRS from federal NBRT income and tax credit data provided by state 
revenue agencies (see bullet four). Aside from these changes, our 
proposals are identical to what we have stated previously, and can be 
found in Attachment One.

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.
Attachment One: Center for Fiscal Equity Detailed Proposals

Our four part tax reform plan provides 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 very American pays something. This would include a Carbon 
Value-Added Tax.

      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%. Capital Gains Taxes will be 
replaced by a 25% VAT on Asset Sales, making automatic filing possible.

      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. Collection would be accomplished by the states, 
who would forward data to the IRS.

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 NBRT 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 most discretionary and 
entitlement spending is 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 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 
B 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 NBRT 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.

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