[Senate Hearing 117-634]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 117-634

                THE PRESIDENT'S FISCAL YEAR 2022 BUDGET

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

                                HEARING

                               BEFORE THE

                          COMMITTEE ON FINANCE
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION
                               __________

                             JUNE 16, 2021
                               __________

                                     
                  [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
                  

            Printed for the use of the Committee on Finance
            
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
51-633-PDF                 WASHINGTON : 2023               



                          COMMITTEE ON FINANCE

                      RON WYDEN, Oregon, Chairman

DEBBIE STABENOW, Michigan            MIKE CRAPO, Idaho
MARIA CANTWELL, Washington           CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey          JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware           JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland         RICHARD BURR, North Carolina
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
ELIZABETH WARREN, Massachusetts      BEN SASSE, Nebraska
                                     JOHN BARRASSO, Wyoming

                    Joshua Sheinkman, Staff Director

                Gregg Richard, Republican Staff Director

                                  (II)



                            C O N T E N T S

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                           OPENING STATEMENTS

                                                                   Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee 
  on Finance.....................................................     1
Crapo, Hon. Mike, a U.S. Senator from Idaho......................     3
.................................................................

                         ADMINISTRATION WITNESS

Yellen, Hon. Janet L., Secretary, Department of the Treasury, 
  Washington, DC.................................................     4

               ALPHABETICAL LISTING AND APPENDIX MATERIAL

Crapo, Hon. Mike:
    Opening statement............................................     3
    Prepared statement...........................................    43
Daines, Hon. Steve:
    Letter to Secretary Yellen from Senator Daines, June 15, 2021    44
Wyden, Hon. Ron:
    Opening statement............................................     1
    Prepared statement...........................................    45
Yellen, Hon. Janet L.:
    Testimony....................................................     4
    Prepared statement...........................................    46
    Responses to questions from committee members................    47

                             Communication

Center for Fiscal Equity.........................................   103

                                 (iii)

 
                THE PRESIDENT'S FISCAL YEAR 2022 BUDGET

                              ----------                              


                        WEDNESDAY, JUNE 16, 2021

                                       U.S. Senate,
                                      Committee on Finance,
                                                    Washington, DC.
    The hearing was convened, pursuant to notice, at 10 a.m., 
via Webex, in the Dirksen Senate Office Building, Hon. Ron 
Wyden (chairman of the committee) presiding.
    Present: Senators Stabenow, Cantwell, Menendez, Carper, 
Cardin, Brown, Bennet, Casey, Whitehouse, Hassan, Cortez Masto, 
Warren, Crapo, Grassley, Cornyn, Thune, Portman, Toomey, 
Lankford, Daines, Young, Sasse, and Barrasso.
    Also present: Democratic staff: Adam Carasso, Senior Tax 
and Economic Advisor; Joshua Sheinkman, Staff Director; and 
Tiffany Smith, Chief Tax Counsel. Republican staff: Gregg 
Richard, Staff Director; Don Snyder, Tax Counsel; and Mike 
Quickel, Policy Director.

   OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM 
             OREGON, CHAIRMAN, COMMITTEE ON FINANCE

    The Chairman. This morning the Finance Committee is pleased 
to be able to welcome Treasury Secretary Yellen to discuss the 
President's 2022 budget proposal. There is lots to discuss, and 
time is tight.
    Let's begin with tax. Last Tuesday, Americans woke up to 
what appeared to be the largest unauthorized disclosure of 
taxpayer data in history. As I said at the time, the committee 
takes the confidentiality of taxpayer data very seriously. And 
I expect that an appropriate investigation is underway. I want 
to thank Treasury officials who held a briefing with the staff 
this week on the subject.
    This committee takes confidentiality seriously. I also take 
the issue of economic fairness very seriously. The information 
in the ProPublica report depicts a tax system in which the 
wealthiest people in the Nation pay rock-bottom tax rates, 
sometimes zero. What is worse is that it is all perfectly 
legal. The details may not have been a surprise to those who 
file taxes, but they are still a gut punch to read on the page.
    Days later, another new report described a second big tax 
rip-off; in this case, from the people who brought you the 
carried-interest loophole. This is carried interest on 
steroids. Wealthy investment managers and their lawyers seem to 
turn even more of their wage income into tax-preferred capital 
gains, using legal documents that essentially say ``presto 
change-o'' in accounting lingo.
    Even after whistleblowers came forward, the IRS enforcement 
division found itself overmatched and outgunned, the results of 
years of Republican budget cuts that hobbled their capacity to 
crack down on corporate cheating.
    On its way out the door in January, the Trump 
administration gutted an effort to put even minor limits on 
this behavior. Americans also learned that mega-corporations 
have never contributed less Federal revenues in modern history 
than they do right now. According to the Congressional Budget 
Office, corporate tax revenue after the Trump tax law is down 
nearly 40 percent from the 21st-century average. Many of the 
largest corporations pay nothing--that is zero.
    At the same time, stock buybacks that enrich wealthy 
investors are through the roof. It was reported that from 
January through May of this year, the mega-corporations 
authorized half a trillion dollars in stock buybacks, the most 
in 22 years. I bet there are going to be a lot of comments 
today about people's trust in our tax system. What is damaging 
to people's trust, in my view, is the rotten, cynical 
unfairness that Americans who work for a living always seem to 
get the short end of the stick.
    The tax code on the books today says that a dollar gained 
on the trading floor matters less than a dollar earned on the 
factory floor. So it is not hard to grasp why middle-class 
wage-earning taxpayers object to that idea. They are paying 
taxes out of every paycheck to sustain a country whose 
prosperity is swallowed up so often by wealthy individuals who 
avoid paying a fair share themselves.
    The President, and Democrats in Congress, have a big agenda 
designed to create jobs, make it easier to raise a family, and 
help all Americans get ahead. To fund that agenda, the Congress 
has to make sure that mega-corporations and the wealthy, not 
just workers, have skin in the game.
    I will offer just a few specifics before I close. Senator 
Brown, Senator Warner, and I recently debuted a plan that would 
eliminate the Trump-era deduction for shipping manufacturing 
jobs overseas and make sure that multinationals pay their fair 
share. I also have a proposal dealing with the core unfairness 
in the tax code with special rules that allow the wealthiest 
people in America to pay little or nothing at all.
    Democrats are working on a proposal to close the tax gap, 
because protecting confidential taxpayer data and cracking down 
on the tax cheats are not mutually exclusive. Congress must do 
both.
    This is a fairness-based approach to revenue, and I look 
forward to working with Secretary Yellen, our guest today, on 
these issues in the weeks and months ahead.
    Finally, I want to thank Secretary Yellen for leading the 
battle with respect to a minimum tax for mega-corporations 
around the world. What the Secretary is working to do is to 
stop the race to the bottom on taxes for the most powerful 
corporations.
    The key to moving forward, colleagues--and we will talk 
about it today--is putting a quick stop to discriminatory 
digital service taxes which unfairly target American workers 
and American employees. I will have a question for Secretary 
Yellen on that.
    In the Rescue Plan passed in March, the Congress created a 
major new economic lifeline for rural communities, and it is 
all about making sure that people in these communities have 
resources for schools, roads, and health care. Implementation 
is underway, and I want to work with the Department and my 
colleagues to get the job done.
    One last bit of news. The Treasury Department and IRS are 
getting ready to send the first Advance Child Tax Credit 
payments out to American families. There has been a lot of hard 
work, and I want to commend my colleagues--especially on the 
committee, Senator Brown and Senator Bennet--for all their work 
to get this program up and running for payments that have the 
potential to cut child poverty in half if everybody does their 
part to reach the vulnerable.
    The committee will be talking about how to ensure that that 
happens.
    Secretary Yellen, thank you for joining us. We will hear 
from Senator Crapo, and then we will have your opening 
statement, Madam Secretary.
    [The prepared statement of Chairman Wyden appears in the 
appendix.]

             OPENING STATEMENT OF HON. MIKE CRAPO, 
                   A U.S. SENATOR FROM IDAHO

    Senator Crapo. Thank you, Mr. Chairman. And thank you, 
Secretary Yellen, for joining us today. Today we will discuss 
the President's Fiscal Year 2022 budget and proposals for 
Treasury and its agencies.
    The administration's proposals to increase spending that 
hit Americans with higher taxes and strangle the economy with 
regulations and red tape are not a path to prosperity. The 
President's budget envisions deficits of $14.5 trillion over 
the next decade, with debt exploding to more than $39 trillion, 
or 117 percent of GDP, by the end of Fiscal Year 2031.
    Such high debt is risky, especially in the current high-
inflation environment. Consumer price inflation from April to 
May was 7.7 percent at an annualized rate. And inflation for 
durable goods was 36 percent at an annualized rate. With 
inflation expectations becoming unanchored--which no one can 
credibly claim cannot happen--the resulting increased interest 
rates can turn Federal debt service costs into budget busters.
    Treasury's top-line budget request of $22 billion is an 
11.3-
percent increase over Fiscal Year 2021. And Treasury asked for 
outsized increases across the board in its various agencies and 
programs. I look forward to hearing more about Treasury's 
budget proposals, and general explanations of tax proposals in 
the so-called Green Book. Both proposals are heavy on tax 
hikes, introducing new tax ideas of questionable merit and 
seeking to inject more social policy goals into the income tax 
system.
    They also call for a mandatory financial information 
reporting regime. Under this regime, financial institutions 
would become agents of the IRS, tasked with monitoring and 
reporting flows into and out of personal and business accounts 
above a mere $600 threshold. The proposal, which is sold under 
the guise of trying to close the tax gap, is very concerning 
and pulls almost all taxpayers into a surveillance dragnet. The 
era of big data should not be viewed as an opportunity for Big 
Brother. I do not agree with some high-tax advocates that 
private tax information should be a public good, with 
governments and the public knowing every private aspect of 
individual and business income and assets.
    An overwhelming majority of taxpayers in this country are 
law-abiding and pay the taxes they owe. My concerns are 
amplified by the egregious apparent leak of private taxpayer 
information out of the IRS, with the data ending up at 
ProPublica, which reported sensationalized and misleading 
claims about taxes paid by named individuals. While ProPublica 
focused on wealthy people, an IRS leak may involve personal 
information on American taxpayers across the income spectrum.
    Secretary Yellen, it would be helpful for you to share what 
is known at Treasury and the IRS about this apparent massive 
data breach. I also look forward to hearing about the political 
agreements struck by the administration and the G7.
    A recent G7 communique reflects a shift in the U.S. 
position in OECD negotiations that appears driven by the 
administration's plans to significantly increase taxes on U.S. 
businesses. The United States already has a robust global 
minimum tax, GILTI, and no other country has moved to enact one 
since. If Treasury envisions hiking taxes on U.S. businesses 
domestically, including onerous changes to the minimum tax, 
GILTI, before other countries adhere to global minimum taxes, 
the U.S. could suffer from a first-mover disadvantage.
    Higher U.S. tax rates instituted before other countries 
move pose the risk of others not following through and a new 
wave of inversion and foreign acquisition, arising because U.S. 
businesses are once again unable to compete. Congress needs to 
understand the analysis behind these proposals and whether any 
agreement would allow foreign targeting of U.S. companies, or 
special carve-outs for particular jurisdictions, including 
China.
    The G7 understandings also advocate for new mandatory 
financial disclosures and funding for multilateral financial 
institutions, including a new $650-billion general allocation 
at the IMF of special drawing rights.
    I am interested to hear about the outreach you have done 
with congressional Republicans on both fund increases. 
Additionally, I again ask that Treasury work to improve its 
responsiveness to this committee.
    Secretary Yellen, I look forward to learning more from you 
today in our discussion.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Crapo appears in the 
appendix.]
    The Chairman. Thank you, Senator Crapo.
    Secretary Yellen, the floor is yours.

STATEMENT OF HON. JANET L. YELLEN, SECRETARY, DEPARTMENT OF THE 
                    TREASURY, WASHINGTON, DC

    Secretary Yellen. Chairman Wyden, Ranking Member Crapo, 
members of the committee, it is a pleasure to be with you.
    When I took office back in January, the first and most 
urgent problem confronting our economy was obviously the 
pandemic, helping people make it to the other side of the 
crisis, and ensuring they were met there by a robust recovery.
    Thanks to this Congress and its passage of the American 
Rescue Plan, we are well on our way towards that goal. But we 
have to be clear-eyed about something. The pandemic is not our 
only economic problem. Long before a single American was 
infected with COVID-19, millions of people in this country were 
running up against a series of long-term structural economic 
challenges that undermined their ability to make a good living.
    For instance, wage inequality. In healthy economies, we see 
wage growth across the distribution for workers making the 
highest incomes and those making the lowest. But over the past 
several decades, that has not been the case in our economy. 
Where the highest earners have seen their income grow, families 
at the bottom end of the distribution have seen their pay 
stagnate. Gender and racial pay gaps also persist.
    At the same time, the labor force participation has been 
dropping. Even before the pandemic, the share of American women 
in the workforce lagged far behind many other wealthy nations. 
These trends have coincided with the reordering of the economic 
map. There have always been richer areas of the country and 
poorer areas, but for most of the 20th century, the latter were 
catching up with the former. The country was rising together, 
and today this is less true. There is a divergence among local 
economies. Some areas are growing more prosperous, and others 
are stagnating.
    Climate change adds a fresh layer of crisis on top of this. 
The average cost of climate-related disasters is expected to 
double every 5 years.
    And of course, there is racial inequality. When I started 
studying economics in 1963, the average black family's wealth 
was about 15 percent of the average white family. Maybe that is 
not surprising. Jim Crow laws were still in effect. But what is 
surprising is, it is almost 60 years later, and that ratio has 
barely changed.
    These destructive forces--the divergence in wages and in 
geographic areas, the declining labor force participation, the 
rise of climate change, and the persistence of racial 
inequality--all these are combining to block tens of millions 
of Americans from the prosperous parts of our economy.
    There are clear reasons why these destructive forces have 
festered. The private sector does not make enough of the types 
of investments needed to reverse them: training programs that 
can lead to higher wages, child care and paid leave that would 
help people rejoin the workforce, or infrastructure that would 
lower carbon emissions and spur growth in neglected 
communities.
    For 40 years we have not done that, not as much as we 
should have. We need to remedy this lack of investment. We need 
ambitious fiscal policy to start unwinding these trends. And if 
there is a short summary of the President's budget, that is it.
    The budget, which includes both the American Jobs and 
American Families Plans will repair the fractured foundations 
of our economy. It does it through a series of smart policies, 
including child care and paid leave so more parents can join 
the workforce; a mass modernization in greening of America's 
infrastructure to spur commerce and reduce emissions; an 
investment to make housing and education available for all; and 
the list goes on.
    We need to make these investments at some point, and now is 
fiscally the most strategic time to make them. We expect the 
cost for these will remain well below historic levels through 
the coming decade. We have a window to invest in ourselves.
    In fact, this budget is both fiscally strategic and 
fiscally responsible. It pays for itself through a long-overdue 
reformation of the tax code that will make it fairer, without 
touching the vast majority of Americans, those who earn less 
than $400,000 a year.
    There are some tough tradeoffs in fiscal policy, but a 
fairer tax code for a structurally sound economy is not one of 
them.
    With that, I am happy to take your questions.
    [The prepared statement of Secretary Yellen appears in the 
appendix.]
    The Chairman. Thank you very much, Secretary Yellen. And a 
fairer tax code for a structurally sound economy sounds like a 
pretty good deal for the American people, and thank you for 
your leadership.
    First, Secretary Yellen, I appreciate the President's 
opposition to raising gas taxes. And the fact is that indexing 
the gas tax is just a way to start raising taxes on working 
people next year, rather than this year.
    I want to now move to questions. And let me start with 
congratulations. A ground-breaking G7 agreement that helps halt 
the race to the bottom on corporate taxes is extraordinarily 
important, and you have moved these negotiations forward in a 
way that would have just been implausible even 6 months ago. 
And so, I want to commend you for that. They are a shared goal 
of ensuring mega-corporations pay their fair share of taxes to 
fund the investments.
    Now, I remain concerned about how long digital service 
taxes are going to stay in place once an agreement is struck. 
Our foreign counterparts have often put in place discriminatory 
taxes that target American workers and American employers. And 
these discriminatory taxes I consider to be digital daggers 
aimed at some of our most successful, high-skill workers and 
the places that employ them. They should never have been put in 
place, and yet they remain and even grow.
    How are you working to put an end to these digital service 
taxes in the negotiations?
    Secretary Yellen. Thank you, Senator Wyden. We share your 
goal of making discriminatory digital services taxes a thing of 
the past. And we have made substantial progress here. At the 
G7, we have achieved agreement that there will be a removal of 
all DSTs and other relevant similar measures on all companies. 
This relates to our insistence at the OECD on both the 
standstill and rollback of DSTs. The steering group member 
countries have accepted that DSTs need to be rolled back, and 
that is important progress.
    Additionally, we have changed the norms surrounding DSTs, 
conveying to our trading partners that the discriminatory 
nature of these taxes is unacceptable to the United States. By 
conveying this message multilaterally, rather than through 
threats and retaliation, we have also prevented a series of 
trade disputes that are harmful to U.S. businesses, workers, 
and consumers.
    That being said, we are also retaining all options for 
discouraging the use of DSTs. The U.S. Trade Representative has 
started trade retaliation procedures via investigation and 
sanctions under section 301. And we are keeping that tool 
available to use if it were to become necessary to get prompt 
action to eliminate DSTs. While we very much hope to avoid 
trade conflicts, this tool remains a useful lever, and it 
brings countries to the bargaining table.
    The Chairman. I need to get to another area, Madam 
Secretary. And your statement sounds constructive to me. What 
the American people want to know is, when are these 
discriminatory taxes going to go away?
    So, I would like to close this questioning out. Can you 
commit to a swift resolution to get rid of these discriminatory 
taxes that are so bad for our high-skill, high-wage workers?
    Secretary Yellen. We are pursuing absolutely every avenue 
toward a swift and comprehensive standstill and rollback of our 
DSTs. We are well aware of the importance of this issue, and we 
are exploring numerous options in this space, recognizing that 
foreign sovereigns have political concerns in this space that 
frankly are every bit as heartfelt as ours.
    But let me emphasize again, we share your goals here. We 
are committed to resolving this issue both on its merit, and 
because it was standing in the way of a once-in-a-generation 
opportunity to create a new international tax system to end 
this spurious and longstanding problem of profit shifting and 
corporate tax----
    The Chairman. I have one other question. But for purposes 
of shorthand, these discriminatory taxes against our workers 
and our employers have got to go. And we will continue that 
discussion to make sure that that happens quickly.
    With respect to my last question, you and I have talked 
about my view that congressional oversight is so important. 
Three months ago, I wrote to you requesting information 
relating to Treasury's handling of the Halkbank/Erdogan 
investigation during the Trump administration.
    I have sent a number of requests. I know your team has a 
lot on its plate, but we have not gotten what we need. And here 
is what the question is about. Your team seems to believe that 
we want all kinds of information relating to a DOJ 
investigation. That is not what we are interested in.
    We want to see how Treasury and your predecessor handled 
the matter with Erdogan and Halkbank. So my question to you is, 
can you commit to me that the committee will have substantive 
production on those requests by the time we start our July 
session? These are matters in front of Treasury, not Justice.
    Secretary Yellen. I promise to discuss this with my staff 
and get back to you promptly.
    The Chairman. Good. I just want to emphasize: we are not 
asking for documents that relate to DOJ and DOJ's 
investigation. We need Treasury documents to get to the bottom 
of this major scandal and examine Halkbank and Erdogan.
    I am over my time.
    Senator Crapo?
    Senator Crapo. Thank you, Mr. Chairman.
    And, Secretary Yellen, continuing to focus on the OECD 
international tax negotiations, the administration has proposed 
a 15-percent global minimum tax at the OECD. However, the 
administration's domestic tax agenda includes raising our 
current global minimum tax, the GILTI tax effective rate, to 
more than 26 percent. And the administration appears to be 
pushing for changes to U.S. law before any other country has 
even enacted a global minimum tax.
    A number of countries have pushed back on the idea, 
including Ireland, Hungary, and India, and most notably China. 
In fact, there are even reports that China will not sign a 
global minimum tax without carve-outs for its companies and tax 
policies.
    So my first question is, is the administration's position 
that the U.S. should increase its global minimum tax, the GILTI 
for its minimum tax, to an effective rate of 26 percent before 
others, including China, enact a minimum tax themselves?
    Secretary Yellen. Well, we have proposed a global minimum 
tax effective rate of 21 percent, not 26 percent. And what we 
are working toward internationally is a global minimum tax that 
is at least 15 percent, and hopefully higher than that. What 
the G7 agreed to in London last week was that they would adopt 
a global minimum tax of at least 15 percent--not 15 percent but 
hopefully higher than that. And I think if we are able to make 
progress domestically on reforming our GILTI, which needs to be 
on a country-by-country basis rather than a blended basis, and 
ourselves move it into the same territory we are asking other 
countries to do, I think we have a very good chance of getting 
them to agree. And we are really looking for agreement on this 
by the time of the leaders' G20 summit next October. I think we 
have a very good chance of getting very broad-based agreement 
on this in the OECD and----
    Senator Crapo. It sounds to me like you are saying that you 
think the United States should move first, regardless of 
whether there is a global agreement.
    Secretary Yellen. Well, I think we are trying to move these 
things in tandem. We feel very good about the progress that we 
are making internationally and feel the United States would be 
in a better situation, and it would help to fund the important 
proposals in the President's budget to close tax loopholes that 
are--if we raise this tax and reform it, we are going to stop 
incentives that many American firms now have to shift profits 
and actual production activity away from our shores.
    Senator Crapo. Well, I take it that you are saying that you 
are not ruling out, at least, that the United States would act 
first? But even if we acted in conjunction with the OECD, that 
does not include a number of critical other nations, some of 
which have already signaled that they will not do a global 
minimum tax.
    Secretary Yellen. Well, Senator----
    Senator Crapo. Go ahead.
    Secretary Yellen. You mentioned Ireland and a few other 
countries. I had very constructive bilateral conversations with 
the Irish Finance Minister and believe that he is going to be 
working with us to try to raise the global minimum tax, even 
though that is a highly consequential matter for Ireland.
    I believe the entire EU will, in the end, go along with 
higher minimum taxes. Now if there are a few countries--we do 
need global agreement on this. But we do not need every country 
to go along with it, because the Pillar 2 minimum taxes contain 
an enforcement mechanism whereby we will be able to incent 
hold-out tax havens that do not want to go along with this deal 
to come onboard and establish a global minimum tax. And if they 
are unwilling even so to do so, we are proposing changes to the 
BEAT to make it more effective and to deny foreign corporations 
in the United States the deductions that enable them to shift 
their profits offshore.
    Senator Crapo. Well, thank you. My time is up. I think you 
are referring to what has been called the ``SHIELD'' concept--
--
    Secretary Yellen. That's correct.
    Senator Crapo. I do not have time to get into it with you 
right now, but I will, in questions submitted, ask you to 
explain that concept and how it is that you believe it will 
work to force other nations to turn it around.
    I understand the basics of what it is, and I do not see 
personally how that is going to work. But I will ask you to 
clarify that in your written responses.
    Secretary Yellen. I will.
    The Chairman. Thank you, Senator Crapo. And let me also say 
to colleagues that Secretary Yellen has a hard stop time, and 
so we are going to have to stick to 5 minutes.
    Senator Stabenow?
    Senator Stabenow. Well, thank you very much, Mr. Chairman 
and Ranking Member. Secretary Yellen, it is always wonderful to 
have an opportunity to see you. And thank you so much for your 
incredible service.
    I just want to start with a general comment, Mr. Chairman. 
I think probably today, as I have heard in other committees as 
well, we are going to hear a lot about deficits being out of 
control. And I just always have to put this in some context.
    I was in the House of Representatives in 1997 when we 
balanced the budget for the first time in 30 years under a 
Democratic President, Bill Clinton. I went into the Senate. We 
started exploding deficits under a Republican President, for a 
number of different reasons, but ended his tenure with a 
financial crisis.
    Then the Democratic President comes in, President Obama, 
and he has to dig our way out of a financial crisis. By the 
time he leaves, we are bringing down the deficit. We go into 
the next President, President Trump, who explodes the deficit 
again. Now we have a Democratic President who is having to dig 
us out of a different kind of crisis, which is the health 
pandemic, and trying to right-size things.
    So from my perspective in working with Democratic 
Presidents, we have tried step by step to do the right policies 
to not only bring down the deficit, but to make sure that 
things are being done right for people in our country.
    So, Secretary Yellen, I wanted to talk to you specifically 
about that, in terms of the tax code, because there are clear 
differences between what President Biden wants, what we want as 
the Democratic majority, what our Republican colleagues did in 
their time in charge, the largest tax cuts for the wealthiest 
in our country in 2017.
    We put in place the Child Tax Credit. We want to extend 
that further. The President extends it for 5 years. I would 
love to see it, as well, extended permanently, the idea of a 
tax cut for working families. And then you juxtapose that whole 
discussion of what we want to do with what we have talked about 
and have had hearings on in the committee, on what is called 
the tax gap, the difference between what people owe and what 
people pay. And when we look more closely at that--and the 
former IRS Commissioner calls that gap as large as $1 trillion 
a year. I do not know if that is accurate. It is certainly, I 
think, believable. It is several hundred billion. But when you 
look at that, again from a fairness standpoint--a study in 2019 
found that Humphreys County in Mississippi was the most heavily 
audited county in America--mostly African American, a third 
under the poverty line, mostly focused on the Earned Income Tax 
Credit--rather than wealthy people with complicated tax forms 
with ways to hide their income, and so on. So we see tax rates 
that are unfair, and then we see not reporting income, hiding 
income, and so on.
    So could you just speak broadly about what the President is 
talking about with tax cuts for working people, and then asking 
everybody to pay their fair share--and frankly, I do not think 
it is a tax increase to ask a billionaire to pay more than zero 
on their taxes. People in Michigan do not think that. But could 
you speak, just in the big picture, about right-sizing the tax 
system and making sure that everybody pays what they are 
supposed to be paying?
    Secretary Yellen. Thank you for that question, Senator. 
President Biden feels that it is crucial that we have a tax 
system that is fair, and one where we enforce tax laws so that 
individuals and corporations pay what they owe. And we really 
need to do that in order to assist hardworking low-income 
families, for example with the Child Tax Credit that you 
mentioned that is working now to reduce child poverty by almost 
50 percent and give children and families the opportunities 
they need to succeed in America, and to get ahead.
    As you pointed out, there is an enormous tax gap. One 
number we have been using, one estimate is that it will amount 
to at least $7 trillion over the next decade. And it largely 
reflects shortfalls in collections for high-income individuals 
and corporations.
    And we have proposed--the Biden budget proposes to close 
this tax gap by giving the IRS the resources and the 
technology, and the money and long-term time perspective, they 
need to recruit and train and retain qualified staff that can 
conduct specialized, complicated audits.
    We have also proposed to give the IRS a bit more 
information that will greatly enhance its ability to target 
those audits at those who are noncompliant, and not at 
taxpayers who are obeying the law and paying what they owe.
    The Chairman. I thank my colleague from Michigan. We have 
25 Senators waiting to ask questions.
    Next is Senator Grassley.
    Senator Grassley. Thank you, Mr. Chairman.
    I want to talk about stepped-up basis--and this is a hot 
topic in every one of the town meetings I have had across Iowa 
ever since the President proposed it. And I know that the 
President has said, well, there is going to be some sort of 
special rule to protect family operations by allowing them to 
delay payment of the tax. But farmers do not buy farmland to 
buy it one day and sell it the next day.
    Farmers in Iowa and throughout the Midwest, the family 
farmers, they do it to pass down their family operations from 
one generation to another generation. And sometimes I run into 
farmers who are in the fourth or fifth generation of farming; 
even six or seven generations occasionally you run into.
    So I want to quote what the Democrat Chairman of the House 
Agriculture Committee, David Scott, said recently about this 
administration's proposed exceptions, quote: ``Could still 
result in significant tax burdens on family farming 
operations.''
    So my question is, isn't Chairman Scott correct in regard 
to that? Is it really your point that family farms of several 
generations ought to be broken up because of doing away with 
the stepped-up basis to raise money for this?
    Secretary Yellen. Senator Grassley, the President's 
proposal would enable a family to hold onto its farm, and to 
pass it down through generations without paying any tax on 
that. And so the same would be true for small businesses. As 
long as the property remains within the family, there would be 
no taxes collected. Only if the farm were eventually sold would 
there be taxes. And that would not be on the value of the farm, 
it would only be on gains in the value of the farm.
    We feel that eliminating stepped-up basis in death is an 
important way of closing what is really a significant loophole, 
which is that capital gains can escape taxation entirely if 
individuals hold property until death. And the President's 
proposal includes an exclusion of $1 million in capital gains 
for an individual, and $2 million for a couple, and an 
additional up to $500,000 for a couple if a primary residence 
is involved. And in the case of family farms and businesses, 
there would be no tax levied as long as it stays in the family.
    Senator Grassley. Okay.
    On another question, you were recently quoted as saying, 
quote, ``I don't think there's going to be an inflationary 
problem, but if there is, the Fed will be counted on to address 
it.''
    I find this nonchalant approach to the risk of inflation 
very troubling. As we know from the 1970s, once inflation takes 
off, getting it back under control can require very painful 
measures. The early 1980s proved that. As former Treasury 
Secretary Summers recently stated in an interview with Time 
magazine, quote, ``The Fed has had almost no success in gently 
bringing down inflation once an economy has started to 
overheat.''
    Isn't it incumbent upon the President, you as Secretary of 
Treasury, and even us in the Congress, to take inflationary 
risks seriously by pursuing responsible fiscal policies and not 
just expect the Fed to clean up a mess after the fact?
    Secretary Yellen. Senator Grassley, we are monitoring 
inflation very carefully, and we do take it very seriously. No 
one wants to return to the bad time of inflation of the 1970s. 
And I have put forward the view previously--I think this is 
what most economists think--that the current burst of inflation 
we have seen reflects the difficulties of reopening an economy 
that has been shut down, that has seen huge swings in spending 
patterns, and is experiencing bottlenecks.
    And we are taking steps, those we can, to deal with the 
bottlenecks that are affecting the economy now. It is 
critically important that fiscal policies be put on a 
responsible course. As Treasury Secretary, I take that 
responsibility very seriously, and I believe that the budget 
that the President has proposed is indeed fiscally responsible. 
And I would be glad to--I see you are running out of time, but 
I would be glad to explain in detail why I hold that view.
    The Chairman. Thank you, Senator Grassley.
    Senator Cantwell is tied up in a hearing. The next two are 
Senator Cornyn and Senator Menendez.
    Senator Cornyn, and then Senator Menendez.
    Senator Cornyn. Thank you, Madam Secretary, for joining us 
today.
    First of all, I want to ask you, when it comes to 
negotiating a global minimum tax with the G7, what do you and 
the administration see the role of Congress as being?
    Secretary Yellen. Well, any agreement that we are able to 
reach--and the G7 is just one group, an important group that 
has expressed support for this approach. The largest group 
involved is the OECD. Negotiations have been going on there for 
many years. Anything that affects U.S. tax law must be enacted 
by the U.S. Congress. So, Congress plays a critical role.
    Senator Cornyn. Thank you.
    The administration has proposed to make spending for the 
IRS mandatory spending. But as you know, the appropriations 
process is an important part of congressional oversight into an 
agency like the IRS.
    Are you endorsing this idea that Congress will be removed 
from oversight of the Internal Revenue Service?
    Secretary Yellen. No; I have no such thought. I think it is 
important that Congress have oversight of all the executive 
branch activities and of agencies like the IRS. We have 
proposed an increase in mandatory spending because the IRS 
really does not have the kind of budget certainty that it needs 
to undertake long-term programs of modernization of their 
technology, and hiring and training and retaining the qualified 
cadre of staff that are needed to improve their audit 
performance, and trying to close the tax gap. And we think the 
certainty that comes with a long period of assured funding--and 
what we have proposed, we think, is within IRS's wheelhouse to 
practically increase their expenditures at a pace of around 10 
percent a year.
    Senator Cornyn. How is that different, Madam Secretary, 
from every other Federal Government agency?
    Secretary Yellen. Well, really these are long-term 
investments that are just required. We are seeing a 20-percent 
real shrinkage of IRS's budget, and----
    Senator Cornyn. I understand. I understand your argument, 
but how does that differ from any other government agency? I am 
sure all Federal Government agencies would like to have 
mandatory spending and diminished congressional control over 
their budget. How is that different?
    Secretary Yellen. Well, it is not inherently different, and 
most of IRS's budget would continue to go through an annual 
appropriation.
    Senator Cornyn. On another matter, Madam Secretary, my 
constituents have expressed concern about the retroactive 
nature of the administration's proposal to increase the capital 
gains tax. The administration's Green Book notes that the 
proposal would, quote, ``be effective for gains required to be 
recognized after the date of announcement.''
    First, a clarification. What date does this refer to, ``the 
date of announcement''?
    Secretary Yellen. I will have to get back to you on that, 
Senator.
    Senator Cornyn. Fair enough. And the other concern that I 
have heard from my constituents is the fundamental unfairness 
to people making long-term plans, whether as individuals or 
small businesses or the like, to basically change the rules of 
the game on capital gains after they have relied upon existing 
rules in order to plan their affairs, whether it is a business 
or an individual or the like.
    So do you think it is fair to basically retroactively 
change the rules of the game when it comes to capital gains?
    Secretary Yellen. I--you know, Congress has the ability to 
change the tax laws, and has done so on many, many different 
occasions. And I do not see a prospective change in rules 
pertaining to the taxation of future realizations of capital 
gains as being a retroactive feature.
    Senator Cornyn. Let me ask you one last question about the 
Foreign Investment Risk Review Modernization Act. As you know, 
Congress has given Treasury new responsibilities under CFIUS, 
the Committee on Foreign Investment and, as I understand it, is 
working with some of our allies to create a similar policy 
within their jurisdiction.
    I think it would be helpful for the U.S. to create a 
multilateral mechanism to address predatory practices by 
countries like China and the other countries where our national 
security interests are involved.
    Is there a process in place to discuss with our allies a 
mechanism to create a CFIUS-type process so that China and 
other countries could not basically exploit the gaps in that 
sort of coverage and scrutiny?
    Secretary Yellen. So I agree with you that that would be a 
very desirable thing for other countries to do. And I do not 
know that I would say there is a process in effect, but I know 
that we have had conversations with many different countries 
about putting in place such a process or enhancing processes 
that they may already have. They have indicated a willingness, 
and I have worked jointly with them, and I think it is 
something we absolutely should be encouraging.
    The Chairman. The time of the Senator has expired.
    Senator Menendez?
    Senator Menendez. Prior to the Trump corporate tax giveaway 
bill in 2017, the corporate rate was 35 percent, the tax rate. 
After this giveaway, the corporate tax rate was lowered to 21 
percent.
    Secretary Yellen, as a result of the Trump tax cuts in 
2017, what is the new average effective corporate tax rate that 
U.S. corporations are paying?
    Secretary Yellen. Um, I believe the number that I have seen 
on an all-inclusive corporate tax rate that would include also 
State corporate taxes is a little bit under 26 percent, maybe 
25.8 percent. And if you look at other G7 countries, our 
effective tax rate is a little bit below theirs. Theirs is 
something closer to 28 percent.
    Senator Menendez. Well, I think the average effective tax 
rate paid by U.S. corporations, as I have seen it, dropped 
after the Trump tax bill, the effective rate, by nearly half, 
to almost 8 percent. And in New Jersey, the average rate for a 
hardworking family was double that of the U.S. corporations at 
about 15 percent.
    Isn't it fair to say that the cost of the Trump corporate 
tax cuts was a whopping $1.5 trillion unpaid for?
    Secretary Yellen. It was very expensive. And really, I did 
not see any--and I believe most economists saw very little 
evidence of a boom in investment spending or productivity that 
resulted from it. So----
    Senator Menendez. So----
    Secretary Yellen. The reason our deficits are as large as 
they are now--of course the pandemic contributed, but the 2017 
law made a big contribution.
    Senator Menendez. So only the previous administration could 
manage to lose $1.5 trillion in tax revenue while still raising 
taxes on millions of hardworking families. You know, rather 
than provide much-needed relief to hardworking families that 
already paid too much in taxes, the 2017 Trump corporate tax 
bill actually made things worse as it imposed an arbitrary 
$10,000 cap on State and local tax deductions, one of the 
oldest deductions in the code.
    This provision disproportionately impacts New Jersey and 
other States that make investments in our public schools, 
roads, bridges, other critical infrastructures. Do you think it 
is a coincidence that States hardest hit by the SALT cap like 
New Jersey are also the States that have invested the most in 
public education systems, and their roads, and transit and 
highways?
    Secretary Yellen. Well, I mean that is one reason that 
these States have higher State and local taxes, is to invest in 
public infrastructure. And as you know, the Biden 
administration thinks those investments are critically 
important.
    Senator Menendez. Yes. And of course, this is why States 
like New Jersey contribute more to the Federal Treasury than 
they receive, while other States receive far more from the 
Federal Treasury than they donate.
    And so it does not make sense, I think, to punish taxpayers 
in States like New Jersey that choose to make investments in 
their people and in their infrastructure that make it a blue 
chip State, that make it a maker State that therefore 
contributes to the Federal Treasury.
    But in reviewing the Treasury's Green Book--which I have 
here with me--which provides an explanation of the President's 
revenue proposals including for infrastructure, I was 
disappointed to see that the SALT deduction is not discussed 
anywhere in the President's tax proposals.
    Now you and I discussed this at length during your 
confirmation. I discussed the same with your deputy. Both of 
you committed during your confirmation hearing to do a study 
and evaluate the SALT deduction. Yet, there is nothing in that 
book. So I expect much more. I expect to see what that 
commitment is going to yield.
    And finally, your office responded to me yesterday, 6 
months later, to my questions in your nomination hearing about 
the question of how many Latinos were hired, what is the 
overall inclusion. The fact is that we see very little progress 
being made in new hires.
    The Office of Minority and Women Inclusion at Treasury has 
identified that over the past 5 years--which of course precedes 
this administration--there remains a consistent 
underrepresentation of Hispanic employees. I hope you are aware 
that, according to industry publications, the largest money 
managers have nearly $54 trillion under their management. And 
of those, minority and women managers represent less than 1 
percent. And yet research by the Knight Foundation shows that 
diverse managers perform the same, if not better, than 
mainstream managers.
    So I would like to see the Treasury Department as a force, 
both in its representation in its department and in creating 
this access to capital and opportunities. I do not know--when 
we have billions in Federal pension funds and other funds--why 
it is that only 1 percent of minorities and women get to manage 
that money, and this other group of individuals gets to manage 
99 percent.
    I want to see some real change, and I hope you will be 
committed to that.
    Secretary Yellen. I am committed to it. I have met with our 
OMWI officer, and diversity and inclusion in our contracting 
and in hiring is a very high priority. I am committed to 
working hard to change these numbers.
    The Chairman. Thank you. Thank you, Senator Menendez. I 
also want to say, on Senator Menendez's important point about 
corporate taxes, according to the Congressional Budget Office, 
corporate income tax revenue after the Trump tax law is down 
nearly 40 percent from the 21st-century average. I thank my 
colleague.
    Next is Senator Thune.
    Senator Thune. Thank you, Mr. Chairman.
    Madam Secretary, welcome back to the committee. As you can 
tell, I am in another committee room marking up a bill at the 
Commerce Committee. But let me ask a question about this issue 
of inflation, which I am sure has been talked about a good bit 
already today, but it is the highest, as I think you know, in 
13 years. Consumer prices are rising at 5 percent, and 
according to the latest Consumer Price Index, the indexes for 
all items except food and energy are up 3.8 percent, which is 
the largest yearly increase in almost 30 years.
    The energy index rose 28.5 percent over the last year, and 
according to a survey by the Federal Reserve Bank of New York, 
fears of inflation a year ahead hit their highest level on 
record, with a consumer expectation of 4 percent.
    Do you view this inflationary trend as transitory, or do 
you expect an extended period of raised inflation?
    Secretary Yellen. Well, I previously said that I see 
important transitory influences at work, and I do not 
anticipate that it will be permanent. But we continue to 
monitor inflation data very carefully and, importantly, for the 
long-run inflation outlook, we see inflation expectations by 
most measures--there are many different measures--but by most 
measures we see those expectations as being well anchored. And 
I think the consensus of forecasters is that this bout is 
temporary.
    Partly what we are seeing is that prices had just collapsed 
at the onset of the pandemic in the service sector, where 
demand collapsed. As the economy is opening back up again, 
prices are now moving back to a normal level in leisure, 
hospitality, air fares, and the like. In most cases, prices 
remain below pre-pandemic levels, but they are rising. And that 
is some of what is going on here.
    But there are also bottlenecks, and clearly firms are 
having difficulty hiring workers. I believe our economy is on 
track to get back to a more normal operation, and that 
inflation will decline over time. But we are going to monitor 
this very, very carefully.
    Senator Thune. Do you still agree with the administration's 
projection of 2 percent for the year?
    Secretary Yellen. Well, the projections that we made were 
back in February. And what we said agreed very closely with the 
blue chip at the time. We are going to be doing a mid-session 
review and coming out with a new forecast, as certainly for 
this year inflation will be higher than that.
    Senator Thune. Let me switch gears here for a minute. The 
Biden administration has proposed having banks report to the 
IRS, both inflows and outflows, of business and personal 
accounts, which would be a significant new intrusion into 
taxpayers' lives.
    Yet just last week the IRS had one of the most widespread 
breaches in the agency's history in order to advance a 
political agenda. And this apparent leak, a targeted leak--a 
targeted attack, I should say--on a select few Americans 
undermines the heart of public trust between taxpayers and the 
IRS's ability to safeguard private information.
    Can you tell me how the Treasury and the IRS hold 
individuals accountable who break Federal law by sharing 
confidential tax information and tax returns? And will you 
commit to updating us immediately on what steps the 
administration is taking to ensure this does not happen again? 
And can you maybe tell us what steps you have taken so far?
    Secretary Yellen. Yes. This was a very serious situation, 
and I and the Treasury Department take very seriously the 
protection of government data. We have referred this matter to 
the Treasury Inspector General and to the Department of 
Justice.
    The IRS Commissioner is looking into the matter, as is the 
Treasury Inspector General for Tax Administration. But we are 
only one week out on this, and I really want to emphasize we do 
not know what happened. We do not have any facts at this point.
    I promise to keep you updated on what we find. But it is 
absolutely top priority to safeguard taxpayer data. When we see 
the results of the investigations that are done, if there are 
actions that we need to take to shore up the protection of this 
information, you have my absolute word that we will do so, and 
we will keep you and Congress informed on what we are doing and 
what we are finding on this.
    Senator Thune. Mr. Chairman, my time has expired, but I 
will submit a question for the record dealing with the issue of 
the stepped-up basis tax proposal as it pertains to a family-
owned business or farms and ranches. I am very interested in 
what the administration's proposals are to exempt--or protect, 
I should say--those types of entities from what would be an 
incredibly crushing and onerous tax.
    The Chairman. Thank you very much, Senator Thune.
    Senator Carper is next.
    Senator Carper. Thanks, Mr. Chairman. Madam Secretary, 
thanks very much for joining us today, and for your 
extraordinary leadership over all these years.
    My colleagues have heard me say more than a few times, 
whenever someone is offering changes to the tax code, I ask 
four questions with respect to those changes. Is it fair? Does 
it enhance or diminish economic growth? Does it simplify the 
tax code or make it more complex? And lastly I ask, what is the 
effect on the budget deficit and the fiscal situation?
    The first of those guiding principles deals with fairness. 
It is my experience that people are generally willing to pay 
their fair share of taxes as long as they are convinced that 
others are doing the same. And I am pleased that many of the 
proposed investments in the Treasury Department's budget are 
designed to reflect that principle of fairness.
    For example, I have been a long-time proponent of providing 
greater funding and resources for IRS enforcement operations. 
Each dollar spent on IRS enforcement generates, I am told, a 
return on investment of at least $5, and some say it may be 
higher. That is a pretty decent return on our investment. And I 
support those proposals very strongly.
    The budget proposal from the administration will help close 
the tax gap and ensure that large corporations and high-income 
individuals will be more likely to pay their fair share. 
Another principle that guides my decision-making is the need 
for fiscal responsibility, and I believe things worth having 
are worth paying for, and that must be a consideration.
    The Chairman. Good.
    Senator Carper. Mr. Chairman, you said ``good''?
    The Chairman. Sorry; I just wanted to cheer you. Your 
points are very important. Go ahead.
    Senator Carper. Very good. Thank you. The administration 
includes many options to make the tax code fair and fiscally 
responsible, including reversing parts of the 2017 tax law, and 
we should definitely consider these ideas as well as other 
options to level the playing field, such as lowering the 
exemption level on the estate tax.
    A question, Madam Secretary. Can you highlight some of the 
provisions in your budget request that most effectively 
strengthen the fairness of our tax system? And would you share 
with us your thoughts on how we can make these investments 
while ensuring that our decisions are fiscally responsible, 
please?
    Secretary Yellen. Yes. We have tried to make the tax system 
fairer in our proposals. The President has pledged that no 
taxpayer earning under $400,000 will see their taxes raised by 
as much as a penny. And he has been absolutely scrupulous in 
adhering to that promise.
    So the tax proposals on the individual side would target 
only very high-income taxpayers by raising the top rate back to 
where it was, but it would only apply to joint filers earning 
over about $509,000.
    He proposes to raise rates on dividends and capital gains 
on the principle that it is not fair for workers to pay a 
larger share of their wage income than wealthy individuals pay 
on their rewards, their income from capital.
    So he proposes to equalize that, equalize those rates on 
income from capital gains and dividends, and from work. And he 
has proposed to--in the step-up of basis at death, or when 
gifts are given, that also was unfair that by holding an asset 
throughout one's life it can completely escape taxation--
capital gains taxation--totally.
    And fairness also means collecting what is owed under our 
tax code from everyone, rich or poor. And wage income which is 
reported to the IRS is accurately reported to a level of 97, 98 
percent on tax returns, so those earning W-2 wage income do pay 
what they owe. The tax gap really reflects shortfalls in 
reporting by high-income individuals and by companies. And the 
President's proposal would seek to remedy that by providing the 
IRS the resources they need to audit high-income individuals 
and companies that are responsible for that tax gap to improve 
tax compliance, to make the tax system fairer, and to collect 
the information.
    There is enough information to give a guide as to where the 
auditing resources should be used so that we do have fairer tax 
collection.
    The Chairman. Thank you, Senator Carper. We still have 16 
Senators to ask questions.
    And next is Senator Portman.
    Senator Portman. Thank you, Mr. Chairman, and thank you, 
Secretary Yellen, for joining us again. I have found this a 
fascinating dialogue this morning. I am going to ask questions 
I had not planned to ask because it seems like everybody on the 
Democratic side has decided that the 2017 tax reform bill had a 
negative impact on our economy and on the opportunity for 
people to get ahead. So let me just ask a few questions to be 
sure we are working from the same facts, because it seems like 
this is kind of a fact-free zone on that particular topic.
    Do you agree that--with regard to the tax bill which was 
implemented in 2018, and then of course COVID-19 hit in early 
2020, so let's say in the 18 months prior to February of 2020, 
which was when the COVID pandemic hit and affected our economy 
in such negative ways--would you agree that, during that time 
period, we had significant improvements to the economy and to 
the equality that we all seek, meaning that lower-income 
individuals have a better shot. And in particular, do you agree 
that the poverty rate during that period was the lowest it has 
been in the history of our country since we began keeping track 
back in the 1950s? Yes, or no?
    Secretary Yellen. I agree that that was a period of good 
economic performance in the ways you just said. But it was a 
continuation of trends we had seen in the prior years, with 
recovery----
    Senator Portman. Let's talk about that for a second, if we 
could, Madam Secretary. It was the lowest poverty rate in the 
history of our country. You said it continued a trend. That is 
not true. With regard to wages, when you take inflation into 
account, wages had been going down in my home State and 
nationally. In the 18 months prior to February of 2020, we had 
19 straight months, actually, in 2020 February, of wage gains 
of 3 percent or more on an annualized basis. Isn't that true?
    Secretary Yellen. I agree that there were good wage gains, 
especially at the bottom of the income spectrum----
    Senator Portman. You've just said what I was going to add, 
which is the lower quartile particularly benefited, as well as 
a lot of middle-income Americans. And that was a huge relief 
for us in my home State and elsewhere in the unemployment 
numbers. Do you agree unemployment was at a 50-year low?
    Secretary Yellen. Absolutely. But I would----
    Senator Portman. For Hispanics and blacks and other 
marginalized groups, it was the lowest ever in history.
    Secretary Yellen. Yes. And I think those were wonderful----
    Senator Portman. What were----
    Secretary Yellen. Those were wonderful developments. We had 
a full employment economy, tight labor markets. And, just as a 
weak economy imposes the largest losses on disadvantaged groups 
or minorities, on low-income workers, a strong labor market 
does exactly the opposite. And we had a good, strong labor 
market that was conferring those benefits.
    I simply would argue that this was largely a continuation 
of trends that had been in place and continued. I do not 
believe that was caused by the 2017 tax act. It certainly was 
not harmed by that act, either. Those trends were very 
favorable.
    Senator Portman. Yes, well, many economists would differ, 
including the Congressional Budget Office, which is a 
nonpartisan group up here that says that the corporate tax 
reform that you apparently oppose allowed for workers to gain a 
lot of benefits. In fact, they said 75 percent of the benefits 
went to workers' salaries, wage gains we just talked about, and 
went to workers' benefits, 75 percent of it.
    They also said that $1.6 trillion--this is a Joint Tax 
number as well--came back into the U.S. economy in terms of 
repatriation, $1.6 trillion. And you made the point earlier 
that somehow everybody was leaving the United States during 
that time period. That is not true. In fact, inversions 
flipped; we did not have any inversions virtually in that time 
period I am talking about as compared to previously when we had 
a lot of them.
    So in terms of advances, we were going the wrong way in 
terms of losing jobs and investments overseas. Anyway, I 
appreciate your background and experience, but I just think 
that we have misinformed the public as to what happened in 2017 
in the interest of somehow raising taxes on the workers I 
represent, who are going to be hit by these higher corporate 
taxes that you would like to put in place.
    I am also very concerned about the budget. You said this 
morning--I heard you saying that you are proposing ambitious 
fiscal policy. It is ambitious, taking the country's debt to 
historic levels as a percentage of GDP, which is how we measure 
it, and a $14-trillion increase in spending over the next 10 
years.
    So as you know, during your nomination I supported you and 
I said, ``Would you commit to me to be the fiscally responsible 
one?'' And you said you would. So I hope that you will begin to 
do that and get us back on track.
    Secretary Yellen. I believe we are getting back on track 
because, for 15 years, every dollar of spending proposed in 
this budget is paid for. And over 20 years, there is a 
substantial reduction in outstanding debt. Over the next 
decade, the real interest cost on the debt is projected to be 
either negative or just barely positive. And in the interest 
rate environment that we are in now and have been in before the 
pandemic, we have had an opportunity to finance critical 
investments that will make our economy grow more quickly and be 
more productive and fairer and have the ability to pay for 
them. And we will end up with more tax revenue from the changes 
to the tax code that will benefit our economy into future 
decades when problems of aging populations will get to our 
entitlement program----
    The Chairman. The time----
    Secretary Yellen. And I believe this is fiscally very 
responsible.
    The Chairman. The time of the----
    Senator Portman. We can disagree about that.
    Thanks, Mr. Chairman.
    The Chairman. Our next Senator will be Senator Cardin.
    [No response.]
    The Chairman. Senator Toomey?
    [No response.]
    The Chairman. Senator Brown?
    [No response.]
    The Chairman. Senator Scott?
    [No response.]
    The Chairman. Senator Bennet is next.
    Senator Bennet. Hello, Mr. Chairman. Can you hear me?
    The Chairman. Yes, we can hear you fine.
    Senator Bennet. Thank you very much.
    Madam Secretary, I want to thank you and your team very 
much for the work that they have done to get ready for the 
monthly distribution of the Child Tax Credit. We are very 
grateful for that.
    I wonder if you could talk a little bit about what that 
work has looked like and where we are in that process?
    Secretary Yellen. So first of all, Senator Bennet, thank 
you so much for your leadership on this issue. I think putting 
this Child Tax Credit in place really is an important step, and 
we are proposing to continue it, to make the nonrefundablity 
permanent and the increase in the size of it.
    We have worked very hard with the IRS to begin monthly 
payments to eligible families, starting July 15th. The IRS, I 
believe, is ready to make those distributions. Special 
attention has gone to how to create awareness and make sure 
that the families that did not file a tax return this year or 
last year know about their eligibility for the Child Tax 
Credit, and to apply for it.
    The IRS opened a Non-filer portal yesterday, and it will 
take some time to fully develop. It will be necessary to 
collect more information about individuals than the IRS needed 
for the first rounds of Economic Impact Payments. But they are 
developing that portal, and it will be available to non-filers. 
And we are working hard with members of Congress and through 
many different areas to get the word out into those communities 
and the nonprofit organizations that work with individuals--
low-income individuals who really need that money, are eligible 
for it, but do not file taxes.
    Senator Bennet. I appreciate it, the Non-filer portal and 
everything, so much. I also--I have another question on another 
topic I want to address but, Madam Secretary, I know you know 
how important this is to working families in this country. And 
there are a lot of us who have not given up hope that we can 
find a way to work together to make the Child Tax Credit 
permanent. It does not make any sense to me that we would do 
something that was this valuable and then turn around and raise 
taxes basically on working people who can least afford it.
    So we are going to fight hard through this process to try 
to make it permanent, and I hope we will be able to persuade 
the administration at the moment to do it.
    I want to just shift gears, with what little time I have 
left. In May, this committee held a hearing on financing 
options to bolster American infrastructure. And I was pleased 
with the response and support from my colleagues on both sides 
of the aisle for bringing back a taxable bond option similar to 
Build America Bonds created in the 2009 Recovery Act to help 
State and local governments with critical public projects. My 
colleague, Senator Wicker, and I recently introduced our 
bipartisan American Infrastructure Bond Act to do just that. 
The bill would create a new class of direct-pay taxable bonds 
that would be attractive to investors who do not benefit from 
traditional tax-exempt bonds, such as pension funds and 
institutional investors.
    And the President has proposed creating a similar type of 
bonds called Qualified School Infrastructure Bonds, which would 
be limited to construction and repair of schools.
    I am interested in your views on tools like American 
Infrastructure Bonds that States and local governments could 
use for infrastructure projects that could include, but not 
necessarily be limited to, public schools.
    Secretary Yellen. Senator Bennet, I think it is an 
important and interesting proposal. As you mentioned, our 
budget proposal does use a tool like that for schools. There is 
also an additional $15 billion proposed for Private Activity 
Bonds to support transportation infrastructure. But this is an 
important area where we would definitely be willing to work 
with you and your staff to understand how a tool like this 
could help broadly with the Nation's infrastructure, and how it 
could be coordinated with the infrastructure spending proposals 
we have made.
    Senator Bennet. Thank you, Mr. Chairman.
    The Chairman. I thank my colleague.
    Senator Cardin is next.
    Senator Cardin. Thank you, Mr. Chairman. And, Secretary 
Yellen, thank you very much for your service.
    I want to get your view as to how we can use the tax code 
more effectively to deal with investment of resources to build 
wealth and equity in communities across the country that have 
been traditionally underserved.
    We have several tools that are available. We have the Low-
Income Housing Tax Credit. We have the historic tax credits. We 
have now the Opportunity Zones. I want to talk about two that 
are in the President's budget and get your view as to how you 
intend to use these tools to deal with the lack of housing 
opportunities in underserved communities.
    The New Markets Tax Credit, which I have sought to be made 
permanent, is made permanent under the President's budget. So 
that is one tool that has been very effective in Maryland and 
throughout the country. So I am interested in your views as to 
how you would utilize the New Markets Tax Credit.
    And then there is the new program, the Neighborhood Homes 
Investment Act, which I am a proud sponsor of, along with 
Senator Portman, that deals with the tax credits to deal with 
the appraisal gap between the value and needs in underserved 
communities. In the President's budget, you also have funding 
for that new tool to deal with underserved communities.
    Could you just share with our committee how the Biden 
administration intends to use the tax code to help serve 
communities that have been left behind in the past?
    Secretary Yellen. Well, Senator Cardin, we certainly share 
the broad aim of trying to help communities that have been left 
behind. And we have the toolkit that has a number of important 
elements in it. And you have mentioned two that we think can 
make a real contribution.
    The New Markets Tax Credit--as you mentioned, the President 
has proposed an additional allocation. And we think that it is 
an important way of channeling funds to qualified community 
development entities that, in turn, can make investments in 
low-income communities.
    And we will work through, if this proposal is enacted into 
law, to get that money out and make sure that it is used 
effectively.
    And I think the second proposal that you mentioned, the 
Neighborhood Homes Investment Act, also fills a need that is 
really not addressed anywhere else, as far as I know, in our 
tax structure. We have credits to encourage the construction 
and rehabilitation of rental properties, but this would 
encourage construction and rehabilitation of owner-occupied 
housing in distressed neighborhoods.
    And if this is enacted, we would--Treasury would write 
rules to make sure that this money is used effectively and is 
awarded on a competitive basis.
    Senator Cardin. Thank you for that. We recognize that, in 
regard to the new program, the Neighborhood Homes Investment 
Act, we do not have a track record on that. On the New Markets 
Tax Credits, we have a track record. So I would just urge you 
to work with us as we look to give you that authority as to how 
it would be implemented so that we can maintain the broad 
bipartisan support we have.
    I think it can play a critically important role in reaching 
a gap that we have today in neighborhoods that are great 
neighborhoods, but the appraised values just do not allow for 
the traditional financing.
    So I thank you for your commitment, and, Mr. Chairman, I 
will yield back. Thank you.
    The Chairman. Thank you, Senator Cardin. And your good work 
on the Neighborhood Homes Investment Act and Secretary Yellen's 
support are clearly paying off. And I am going to put it in my 
big housing bill that I will be introducing shortly--credit to 
you and the Secretary, Senator Cardin.
    Next will be Senator Brown.
    Senator Brown. Thank you, Mr. Chairman.
    Madam Secretary, it is nice to see you again as always. I 
will echo the words of a number of my colleagues, Senator 
Bennet most recently, about the Child Tax Credit. I remember 
when you and I talked soon after your nomination, and I asked 
you about this, and you promised that--you said it would be a 
challenge, but you promised that the IRS would find a way to 
make the monthly disbursal of $250 or $300 for a child happen, 
and you did it even earlier than we, with your immense talents 
and persuasive ability, thought you could.
    So apparently, 65 million kids across the country will get 
this financial boost. It will help parents. Senator Casey and I 
have talked about this, and when we sat together on the Senator 
floor when we voted on this package, that was the best day--
certainly I cannot speak for him, but the best day of my career 
was seeing these 10 years of work come forward in this way. And 
the temporary expansion of the EITC and CTC is so important, 
and I appreciate your commitment to work with us to make this 
permanent. So thank you again for that.
    My first question is about your efforts on international 
tax. People in Ohio are furious that our tax code rewards 
companies when they ship jobs overseas and stick profits in a 
tax haven. I am working with Chairman Wyden and Senator Warner 
to fix that. The agreement you secured with the G7 could help 
us reverse that race to the bottom on corporate taxes.
    If you would, speaking of that, how will that help workers 
in my State, especially workers who live in fear that their 
factory will be shuttered and their jobs shifted overseas?
    Secretary Yellen. So I think workers, Senator, in Ohio are 
right to worry that our tax system contains incentives that 
make it profitable, in some cases, for American firms to move 
jobs overseas, and also sometimes to move income overseas to 
deprive the U.S. of tax revenue we could use and absolutely 
need for things like the Child Tax Credit, and for education, 
research and development, manufacturing, and other things that 
would be very positive for them.
    So I was pleased that, at the G7, we were able to get a 
unanimous support on the part of our allies for creating a 
global minimum tax of at least 15 percent. We are hoping that 
by the time this is finalized, we can get countries to agree to 
a higher rate than that.
    And what we have had is a race to the bottom in corporate 
taxes that has just cannibalized tax bases in the United States 
and around the world, depriving us of the revenue to invest in 
good jobs and education and addressing climate change and the 
like. And I am hopeful that Congress will adopt changes to 
make--we have a global minimum tax, but we need to make changes 
to make it more effective. And establishing a global agreement 
will definitely address incentives that firms now have to shift 
jobs abroad, and will really address unfair competition that 
American businesses face from foreign-based corporations that 
are based in low-tax areas or make use of tax havens.
    Senator Brown. The other frustration--well, anger is 
probably a better word--that so many Ohioans exhibit about the 
tax system is how they pay their taxes every week, every month, 
every paycheck, at the end of the year, whatever, but they also 
see so many who do not. And the so many who do not are so often 
some of the wealthiest people in the country. And I think 
people recognize the problem is that the IRS is underfunded on 
the one hand, and also outmatched by sophisticated actors whose 
money is hard to follow.
    Tell us, if you would, briefly--and my last question, Mr. 
Chairman--how does the President's compliance proposal benefit 
honest taxpayers who currently have to compete with dishonest 
cheats?
    Secretary Yellen. So, with proposed and substantial 
investments in the IRS to improve their ability to collect 
taxes from high-income earners and companies, where audit rates 
have diminished more than 80 percent over the last decade--and 
that is where the tax gap is that we propose collecting. Having 
the IRS collect just a few additional pieces of information 
that will be simple for financial institutions to provide will 
help the IRS target their audits on the individuals who are not 
paying their fair share and who lead honest taxpayers--who earn 
mainly wage income that is accurately reported to the IRS--lead 
them to feel that they are not getting fair treatment because 
high-income individuals and companies, either because of our 
tax laws or because they do not accurately report their income, 
are able to evade their responsibilities.
    The Chairman. The time has expired.
    And the next two are Senator Lankford and Senator Casey.
    Senator Lankford. Madam Secretary, thank you for your 
testimony today. I do want to make just a couple of quick 
statements. You made the comment earlier about a fiscally 
responsible budget.
    This budget does spend almost 25 percent of GDP. That is 
well above the 50-year average. That is even above the amount 
during the 2009 stimulus time period, when there was a very 
large jump. It assumes a very large increase in spending. And 
one other corrective statement that I want to be able to make, 
you talked about the difference in wages for the different 
types of earners.
    The lowest quartile of income earners, after the 2017 tax 
changes, actually went up faster than all the rest. I noticed 
you went back and looked at a 20-year average, rather than 
actually looking at what happened since the 2017 tax change. 
After the 2017 tax change--I know you know this statistic--but 
the lowest quartile of earners actually went up faster than all 
other quartiles of earners. So I do want to make that 
correction.
    I want to go back to something Senator Brown just mentioned 
as well, about trying to gather information. You mentioned 
getting information on more high-income earners, that if the 
IRS had that, they would be able to do a better job of actually 
closing the tax gap.
    But in your budget request, you actually are asking for 
information for every transaction for every individual of $600 
or more. Now, when I asked the Commissioner about this--
currently banks turn in information of $10,000 or more, and the 
IRS has a difficult time processing that much data.
    Now we are talking about individuals with $600 or more in 
transactions. Can you tell me why you need that information, 
that level of granularity? That is not about high-income 
earners, that's about getting more information on everyone.
    Secretary Yellen. We are asking financial institutions that 
already have an obligation to report on the 1099-INT form 
interest earned by individuals if it amounts to more than a 
minimal amount--I cannot remember, maybe there is a $10 cutoff. 
We are simply asking to add two boxes to that form, one that 
would be the aggregate inflows into the account over the course 
of the year, and the second would be the aggregate outflows 
from the account. So it is not detailed information. It is for 
accounts where there is already a provision of information from 
financial institutions directly to the IRS.
    And we are proposing two additional bits of data that are 
easily accessible and involve essentially no additional burden 
on financial institutions. Those pieces of information are not 
actionable. They are not taxable items in their own right. But 
they will greatly assist the IRS in knowing where to target 
their audit resources.
    Senator Lankford. So here is the challenge that I have. As 
recently as last week--obviously there was an enormous leak 
from the IRS that we have seen. We do not know how many 
documents have been leaked out, and an institution has started 
publishing private tax information for individuals. I know 
there are a lot of individuals who say those are wealthy 
people, so stick it to them; we will put the wealthy 
information out there.
    The problem is, it is a violation of Federal law. And your 
request is to get a lot more information from private 
individuals. We also need to see what the IRS is doing. And I 
heard your answer earlier to Senator Thune, because publishing 
that data is against Federal law as well.
    So it is not just an instance of, if you release the data 
that that is also a felony, but actually publishing that data 
is also a felony, if they know it is tax data. And from the 
ProPublica article, they know it is tax data. It was quote, end 
quote, ``given to them anonymously.'' We do not know that to be 
true. But we do know that it is a Federal offense for them to 
be able to do that.
    So what we want to know is, what is the IRS doing about 
this? And you have said you are going to give that to Senator 
Thune. Thank you for that. How are they actually following up 
on it? We will ask the DOJ what they are actually doing as 
well. But gathering that kind of data on every single 
individual and then to have this large a breach from the IRS 
reminds me of old times in the IRS when, quite frankly, 
Congress gave them less money until they actually took care of 
all their internal issues.
    So it does not help us or actually encourage us to help 
with the tax gap. I do want to mention one other issue, though, 
and I am looking forward to that information and getting back 
to Senator Thune on what is happening on this breach.
    Secretary Yellen. Senator, I just want to make one thing 
clear. We do not know what the source of this information was. 
And we do not know that it was a leak from the IRS. We are 
investigating this. It is a very serious matter. We have 
referred it to DOJ, the Inspector General, the FBI. But we do 
not know it was a leak from the IRS.
    Senator Lankford. I have one more question that I need to 
state, and that is on the energy issue side. I was very 
surprised, because you talked about the fiscal responsibility 
side of this, but you're talking about, at the end of this 
year, wiping out every kind of tax treatment, even normal tax 
treatment for businesses that do oil and gas, by the end of 
2021.
    I do not know if the IRS has done any kind of study on what 
that would do for jobs, or what that would do for the price of 
gasoline across the United States and how that would increase 
the inflation rate across the country; if that would make us 
more energy independent or more energy dependent, what that 
would do to the smallest mom and pop companies that do oil and 
gas, because they have percent depletion. Those are a lot of 
family businesses.
    Has there been any study from IRS on any of those issues? 
And you can get this back to me in writing. The proposals that 
you made even for normal tax treatment for oil and gas 
companies look like they will have a dramatic effect on the 
price of gasoline for individuals all over the country and 
would be a huge hit on jobs and energy independence.
    The Chairman. My colleague's time has expired. And, 
Secretary Yellen, he indicated it would be acceptable to answer 
in writing. We will get that, Senator Lankford.
    Next is Senator Casey.
    Senator Casey. Mr. Chairman, thanks very much for this 
opportunity. And, Secretary Yellen, we are honored to have you 
with us today. And thank you for, really, two things: one, for 
your ongoing public service at a challenging time for the 
Nation; and secondly, the way you have done throughout your 
career of making the connection between economic policy and the 
betterment of our families, and making that connection over and 
over again.
    Secretary Yellen. Thank you.
    Senator Casey. And I especially appreciate the work you 
have done to lift up the provisions in the Rescue Plan in your 
conversations with Senator Bennet, Senator Brown, and others 
who have done so much for our children.
    I wanted to ask you, first and foremost, about women's 
rights. You have discussed your objective with respect to 
promoting full legal rights, and greater economic and education 
opportunities for both women and girls, not just here at home, 
but around the world. I share those goals, and I know a lot of 
the members of our committee do.
    The Senate recently advanced legislation that Senator 
Cortez Masto and I worked on to ensure that our trade and 
development programs, and particularly GSP, include measures on 
nondiscrimination, measures on women's economic empowerment, 
people protection, and human rights as criteria.
    So would you discuss how you intend to engage with the IMF, 
the World Bank, and the interagency here at home to support the 
objective of inclusive recovery in the U.S. and around the 
world?
    Senator Yellen. Well, thank you, Senator, for that 
question. I think this just simply has to be a very important 
priority. And it has been a priority for President Biden in 
thinking about how we need, here in the United States, to 
recover from the pandemic. When you see the disproportionate 
negative effect that this pandemic has had on women, and often 
minority and low-income women, it motivates both features of 
the American Rescue Plan and it has also motivated many of the 
proposals in the President's budget that would address wages 
and working conditions in the care economy, child care and the 
like.
    And as you said, in our international work, this is 
something that we want to see promoted around the world. And we 
are working with the IMF, the Multilateral Development Banks, 
the World Bank, to ensure that for the kinds of goals that you 
mentioned--women's rights, nondiscrimination--we examine every 
project that we vote on at these organizations with that 
perspective in mind.
    And increasingly this has become a feature of the programs 
that these institutions run. But it is just as important, and 
in many countries more important, to promote women's rights and 
their participation in the economy as in the United States.
    Senator Casey. Thank you. And in light of the recent 
developments we have had around the Child Tax Credit expansion 
and the Earned Income Tax credit, as well as the Child and 
Dependent Care Tax credit--all of which contributed to the 
conclusion reached by those who spend their lives analyzing 
child poverty, that that combined effect of those Rescue Plan 
provisions would cut child poverty in half--I wish those who 
have been touting the 2017 tax cut would have voted for the 
Rescue Plan, and maybe they will vote for it when we make some 
of the provisions that lift up families permanent.
    The purpose of this--and I know we have a vote on. I will 
send you a written question, Madam Secretary, regarding some of 
these issues that we are going to try to extend beyond the 
Rescue Plan to lift up families. One of them involves not just 
children, but an additional policy on homeless services and for 
people with disabilities. But I will send that to you in 
writing, and I yield back to the chairman 7 seconds. Thanks 
very much.
    Secretary Yellen. Thank you, Senator Casey.
    The Chairman. Colleagues, we want to keep going. I believe 
Senator Crapo is with us.
    Senator Crapo. That is correct, Mr. Chairman.
    The Chairman. Wonderful. Thank you, Senator Crapo. Next in 
line is Senator Warner. I do not believe he is here. Senator 
Young is next, and he is here. And with Senator Crapo's 
graciousness, I will run over and vote and come right back, and 
we will keep this going. And we will meet your timetable, 
Secretary Yellen.
    Senator Crapo, Senator Young is recognized.
    Senator Young. Well, thank you to the chairman.
    Madam Secretary, welcome. One major incentive for domestic 
investment is section 174 of the Internal Revenue Code, 
allowing U.S. businesses to immediately deduct R&D costs. This 
provision has historically received bipartisan support, as it 
incentivizes research investment and job creation here in the 
United States.
    Beginning next year, however, U.S. businesses will be 
required to capitalize and amortize those costs over 5 years, 
rather than immediately deducting them. Earlier this summer I 
reintroduced the American Innovation and Jobs Act, along with 
Senator Hassan, to prevent the expiration of this important 
provision. Allowing businesses to continue to deduct their 
research and experimental costs would be a critical incentive 
for investment and innovation in the United States. This 
legislation has received considerable bipartisan support, with 
many of my esteemed colleagues on this committee, from both 
sides of the aisle, joining the effort.
    In your response to questions for the record at your 
nomination hearing back in January, you stated that you would 
carefully consider the concerns raised regarding the 
deductibility of research expenditures, paying particular 
attention to any effects on small businesses during the 
recovery.
    So I ask you, Madam Secretary, given President Biden's 
interest in encouraging investment in manufacturing, jobs, and 
innovation in the United States, would you encourage Congress 
to build back better by maintaining the current immediate 
deductibility of R&D expenses?
    Secretary Yellen. So, Senator Young, thank you for that 
question. You are absolutely right that promoting innovation is 
a critical priority for President Biden. And it is a very 
important contributor to productivity growth in this country.
    And we are absolutely looking for ways to do that. And 
certainly, continuing to allow firms to expense R&D rather than 
shifting to amortizing would be one very effective way to bring 
that about. There could also be more generous R&D tax credits. 
There might be other approaches. But many OECD countries do 
permit expensing of R&D.
    So this is something we certainly would want to work with 
you on and find a way to be supportive of more tax support for 
R&D. I would mention that the President's budget proposes to 
repeal the Foreign-Derived Intangible Income feature of the tax 
law----
    Senator Young. Madam Secretary, could I just interject? Why 
is our proposal not in the President's Green Book?
    Secretary Yellen. I think the President has proposed to 
repeal the FDII exemption and to use the money for support of 
R&D, but he wants to work with Congress to decide on what is 
the best approach to doing that. Certainly, he is open to this 
strategy.
    Senator Young. Okay. Well, in consultation with other 
eminent economists and learned individuals and policy experts, 
and with colleagues alike, they believe that we would get a lot 
more bang for the buck through the American Innovation and Jobs 
Act with Senator Hassan than we would through the FDII 
manipulation that you mentioned. The two are not entirely 
equivalent. So I am going to move on, in light of the time 
limitations here, and other colleagues needing to speak.
    I'll just note that the administration's revenue proposals 
released last month contain over $2 trillion of tax increases 
on U.S. businesses, including increasing the U.S. corporate tax 
rate from 21 percent to 28 percent for tax years beginning 
after 2021. That of course would include a tax itself, 
somewhat, on workers and consumers.
    This proposal would create a 32.5-percent combined U.S. 
corporate income tax burden when considering State and local 
taxes. By comparison--and my time is running out--by 
comparison, China has a 25-percent rate, and the OECD countries 
have a 23.5 percent average rate. When thinking about American 
competitiveness, I think it is very important that we focus on 
this issue.
    And I will allow the chairman--the ranking member--to 
proceed.
    Senator Crapo [presiding]. All right. Thank you, Senator 
Young.
    Next on my list is Senator Whitehouse. Are you there, 
Senator Whitehouse?
    [No response.]
    Senator Crapo. I will move on to Senator Sasse.
    [No response.]
    Senator Crapo. All right, rather than just go through the 
list, are there any Senators--I do not see any Senators. Are 
there any Senators who are with us?
    Senator Cortez Masto just came up. All right, Senator 
Cortez Masto, you may go.
    Senator Cortez Masto. Thank you.
    Secretary Yellen, it is great to see you. Thank you for all 
of your good work. And thank you for the conversations this 
morning. As I was listening to them--so let me ask a couple of 
questions that you have not addressed.
    This one is around the Financial Crimes Enforcement 
Network. So there is work that has been done by bipartisan 
Senators. I joined with Senators Cassidy, Moran, Thune, and 
Warren. It is the Financial Crimes Enforcement Network 
Improvement Act. It was included in the Anti-Money Laundering 
Act. And what the bill does is, it gives them the authority to 
work with Tribal governments in monitoring digital currency and 
to investigate financial issues related to domestic terrorism.
    My question to you is, how will the President's budget 
request ensure that the Financial Crimes Enforcement Network 
meets the requirements of the law? If you can address that, 
that would be great.
    Secretary Yellen. Well, I will probably have to get back to 
you with details on that. There is a significant request in the 
budget for FinCEN. Part of it is to build the beneficial 
ownership database, which was authorized by the NDAA Act since 
the beginning, but it needs funds in order to do that. But 
FinCEN's work is very important, and I can get back to you with 
details about the specific issue you asked about.
    Senator Cortez Masto. Thank you, Madame Secretary. And 
please include--and I will include this request as well--the 
geographic targeting orders that require U.S. title insurance 
companies to identify the actual person behind the shell 
companies. I am very interested in that as well. So, please, if 
you can follow up on that, that would be great.
    And then let me just do one final question for you. Again, 
like my colleagues, I want to thank the administration for 
including extension of the refundable credits like the Child 
Tax Credit and the Earned Income Tax Credit in this year's 
budget proposal.
    I am a supporter, along with my colleagues--we support 
extensions of these. But as we continue to build toward 
recovery, we need to be as inclusive as possible for all 
families and children. And the 2017 tax cuts eliminated 
longstanding access to the Child Tax Credit for over a million 
immigrant children, despite the requirement to work and pay 
taxes in order to qualify.
    Because of this, working families in my home State lost out 
on over $36.7 million invested per year they had previously 
been eligible for. Would you and the Biden administration 
support restoring eligibility of these children to qualify for 
the CTC?
    Secretary Yellen. The Biden administration is certainly 
concerned about these children. I do not know that they have 
taken a position on this particular issue, but again, I promise 
to get back to you and would look forward to working with you 
on this important matter.
    Senator Cortez Masto. I appreciate it. It is an important 
matter. And thank you again, Secretary Yellen, for joining us 
this morning.
    I yield the remainder of my time.
    Senator Crapo. Thank you very much, Senator Cortez Masto. I 
do not see the cameras on for any other Senators at this point. 
Are there any other Senators who have made it back from the 
vote?
    [No response.]
    Senator Crapo. All right. Well, not seeing any, Madam 
Secretary, I want to ask a couple more questions while we are 
waiting for Senator Wyden to return, or another Senator.
    When we concluded our discussion earlier, you had just 
mentioned the SHIELD concept in terms of assuring that nations 
who are not willing to join in the global minimum tax agreement 
are pressured into joining that agreement.
    Could you describe a little more clearly how that is 
intended to work?
    Secretary Yellen. Yes. It is intended to counter foreign 
company profit shifting by denying deductions to firms 
operating in the United States when they make deductions that 
reflect payments to their own affiliates, a parent or another 
affiliate, if that affiliate is based in a tax haven that does 
not have a global minimum tax.
    So that is a way that foreign companies operating in the 
United States make use of tax havens. And by denying those 
deductions, it makes it impossible for these firms to shift 
income derived from U.S. activities into tax haven countries.
    In addition, given that a tax haven would be able to see 
that its failure to adopt a global minimum tax is depriving 
them--and this is a tool that is not only something that we are 
proposing in the Biden budget, but it is also embodied in the 
OECD agreement that is being worked out. It is intended--it is 
called ``an under-tax payment rule.'' And a mechanism of this 
sort is one that every country will have available to it to 
deal with tax havens, countries that do adopt the global 
minimum tax. And it should incent tax havens to want to adopt a 
global minimum tax, because it is going to deprive them of the 
benefits that they seek to gain by having yet lower tax rates.
    So we think that the SHIELD proposal will more effectively 
counter this incentive than the current system, the BEAT system 
that is in place.
    Senator Crapo. Thank you. I still have more questions and 
concerns about it, but I see that a couple of my colleagues 
have returned from the vote. And, Senator Sasse, you are next.
    Senator Sasse. Thank you, Senator Crapo.
    Secretary Yellen, thank you for being here. Sorry we are 
popping in and out on you during this vote.
    Secretary Yellen. That's okay.
    Senator Sasse. I am glad to get a little time with you. 
Before you were confirmed, I wrote to you about the strategic 
perils of economic and broader interdependence with the Chinese 
Communist Party. And now that you have been in office for, I 
guess pushing 6 months, and have had a chance to read 
intelligence products consistently since then, I would just be 
curious as to an update on your current thinking about whether 
some degree of financial and technological decoupling from the 
CCP will be required over the next 4 years?
    Secretary Yellen. So that is a really big question. You 
know, we certainly recognize in the Biden administration that 
China is our most serious competitor, and that it poses 
challenges to our security and our democratic values.
    We are looking at the full range of tools that we have to 
push back, and to address practices that harm us, our national 
security, and our broader economic interests. You know, it is 
conceivable--certainly our process denies, through CFIUS, 
China's ability to make investments in the United States that 
would harm national security.
    You know, I would worry somewhat about complete 
technological decoupling, which our conflict with China could 
result in, a growing decoupling of technologies between the 
United States and China. I worry that if we are too broad in 
our policies in terms of how we approach this, that we can lose 
the benefits that come from having globally integrated 
technology systems where advances in one country benefit 
countries worldwide.
    The globe has benefited substantially from spillovers of 
technological development in one place to other places. I would 
worry about a decoupled global system. And many of our allies 
would be very reluctant, I think, to all but stop doing 
business in China.
    So you know, this is a difficult issue. It is one we are 
concerned about, but protecting our national security and 
economic security is paramount.
    Senator Sasse. So let me pull on the word ``complete,'' 
about complete decoupling, because I agree with you that is not 
where we are headed. Obviously agricultural and industrial 
engagement is nearly inevitable. I live on the bread basket of 
the world. On a per-acre basis, the Ogallala Aquifer in 
Nebraska right now is probably the most productive farm and 
ranch land anywhere in all of human history.
    We need export markets. There are not enough folks to 
consume all the protein. Nebraska is the largest cattle State 
in the Union now, as well as in corn and beans. So obviously we 
want foreign markets. But if you move up the complexity ladder 
from agricultural and industrial goods to the technological 
goods and services, obviously you are right. The supply chains 
are going to remain integrated globally. But there are some 
aspects of technologies that are uniquely dangerous, and huge 
parts of the future of the world are going to be U.S./
democratic capitalist free nations that believe in open 
navigation of the seaways, human rights, the rule of law, et 
cetera. Or there is going to be more of a CCP, digital 
authoritarian-led Internet in portions of the technological 
world.
    So, short of complete technological decoupling, which 
surely you are right about, what are some mid-points that you 
envision as plausible stopping points and scenarios over the 
next 3 or 4 years?
    Secretary Yellen. Well, I think national security has to be 
a key concern. And we have to be assiduous in evaluating 
economic policies that--for example, through monitoring of 
individual data--can pose risks to our national security. And 
so some technology in those areas.
    I expect that we will have decoupling, because we have to 
protect our national security.
    Senator Sasse. There is--am I out of time?
    Senator Crapo. Yes, your time is up, Senator. Sorry.
    Senator Sasse. Gotcha. Thank you, Secretary Yellen. I will 
follow up as well.
    Thanks, Mike.
    Senator Crapo. Thank you.
    And I saw Senator Barrasso, but he stepped away from his 
desk. Are you there, Senator Barrasso?
    [No response.]
    Senator Warren. I am here.
    Senator Crapo. I see you, Senator Warren. Senator Warren, 
you may go next.
    Senator Warren. Thank you.
    So welcome, Chair Yellen. It is good to see you--or 
Secretary Yellen. It is good to see you here.
    Last week, ProPublica published an investigation into some 
of the wealthiest American tax returns showing that year after 
year, multibillionaires paid basically no Federal income taxes. 
And here is the worst part: it is possible that they did it all 
legally.
    That is because, year after year, lobbyists and members of 
Congress have worked together to hollow out the tax code. So, 
take Jeff Bezos. He is the second richest person in the world, 
whose net worth is nearly $195 billion, but his salary is about 
the same as the average public-school teacher in Massachusetts: 
$80,000.
    So, Secretary Yellen, I want to ask about who our tax code 
is structured to benefit--Jeff Bezos, or our Massachusetts 
public school teacher? The average family in America pays about 
7.2 percent of their total wealth in taxes, and that includes 
public school teachers. If the same rate applied to Jeff Bezos 
last year, he would have paid $14 billion in taxes.
    So, Secretary Yellen, if all we do is increase the Federal 
income tax rate, is it ever possible for Mr. Bezos to pay the 
same proportion of his wealth in taxes as the average public 
school teacher?
    Secretary Yellen. Well, President Biden is proposing 
important ways to address this disparity----
    Senator Warren. I understand that. But let's just start 
with our current tax code. If we continue to focus on the 
income tax, will Jeff Bezos ever pay a proportionate amount of 
his wealth as the State of Massachusetts public school teacher?
    Secretary Yellen. Well, if we raise the rate on capital 
gains, and we eliminate step-up of basis, and regard death as a 
realization event so that all of those capital gains are taxed 
and not allowed to permanently--so if we tax capital gains and 
work----
    Senator Warren. Secretary Yellen, I do not want to 
interrupt you, but my question was pretty simple. It was about 
income taxes. I think what you are saying is, the only way we 
are ever going to get a fair tax rate from Jeff Bezos is if we 
tax something other than income. His income is only $80,000 a 
year. And Jeff Bezos uses all the tricks he can to keep his 
money in the form of what is today tax-free wealth.
    So let me ask a different question. If billionaires like 
Jeff Bezos have wages about like the average public school 
teacher, how do they have the money to buy mansions and private 
islands and super-yachts? Well, the answer is, they can borrow 
against their wealth rather than realize the gains on stock 
growth.
    So, Secretary Yellen, do multimillionaires pay taxes when 
they borrow against wealth to do things like buy super-yachts?
    Secretary Yellen. Well, to the extent that they avoid 
capital gains by selling assets to support their spending 
needs, they avoid paying a capital gains tax. And even if they 
did, the capital gains tax is lower than what your school 
teacher in Massachusetts may pay. And so that seems like unfair 
tax avoidance. And of course, anyone can borrow against assets, 
but billionaires have lots to borrow against.
    Senator Warren. Well, actually, let me ask you about that, 
because I think you are going to the heart of the matter. Does 
the public school teacher in Massachusetts have the same 
options as Jeff Bezos, that is, the option to collect stock 
instead of a salary, the option to pay no taxes, the option to 
accumulate wealth tax-free, and to have plenty of cash flow to 
pay her bills by engaging in borrowing?
    Secretary Yellen. No. Your school teacher does not have 
most of those options. And the Biden proposal would end many of 
these options for very rich individuals, in a whole variety of 
different ways. The carried interest loophole would be closed. 
There would be higher capital gains taxes, and no step-up of 
basis. All of that would----
    Senator Warren. So, under our current law, the teacher is 
going to pay her taxes year after year to help support her 
community and to help support the Nation. And Jeff Bezos gets 
to laugh at her for paying full freight while he keeps his 
money, and even builds his personal wealth without paying a 
penny more in taxes.
    Our tax code basically lets billionaires like Bezos opt 
out. It says, once you accumulate enough wealth, you do not 
have to pay to help run this country anymore. Jeff Bezos is a 
billionaire grifter, and so are the rest of these hugely 
wealthy people who pay next to nothing in taxes.
    So, Secretary Yellen, we have a choice. Do you think we 
should give up trying to tax the ultra-rich like Jeff Bezos? Or 
should we change our tax laws so billionaires also have to pay 
to run the country?
    Secretary Yellen. We have proposed to change the tax laws 
to make them much fairer on all of these dimensions, and that 
is central to the tax proposals President Biden has put into 
this budget.
    Senator Warren. I support the President's proposals. They 
will go a long way to build revenue for everyone by making 
taxes on millionaires a little fairer. But I want to point out 
that the easiest, most obvious solution to this system is 
instituting a wealth tax. A tax on people worth more than $50 
million would provide at least $3 trillion in revenue. And that 
is money for universal child care, for taking on the housing 
crisis, for rebuilding our infrastructure.
    This is about choices. We can fund universal child care, or 
we can hand Jeff Bezos enough money to build a super-yacht----
    Senator Crapo. Thank you, Senator----
    Senator Warren. Or we can make the tax code work for public 
school teachers, not Jeff Bezos.
    Thank you, Mr. Chairman.
    Senator Crapo. We need to move on. Thank you.
    Senator Whitehouse, you are next.
    Senator Whitehouse. Great. Thank you very much, Senator 
Crapo. I appreciate it.
    And, Secretary Yellen, we are reaching the end of a long 
hearing for you, and I appreciate your patience and fortitude 
with all of us. First, a word of congratulations. I think the 
global minimum tax agreement is a really big deal----
    Secretary Yellen. Thank you.
    Senator Whitehouse [continuing]. And very significant, and 
a really important stopper against a race to the bottom of 
corporations competing with each other, and countries competing 
with each other over tax gimmickry, not on innovation and good 
management.
    So, thank you for that. And anything you can do to push 
that 15-percent number up, you have a cheering band of 
enthusiasts in the Senate to urge you on.
    Secretary Yellen. Thank you.
    Senator Whitehouse. The second flag I wanted to put in 
place was with respect to the negotiations that we are going to 
be coming into on climate internationally. You have expressed 
your support for putting a price on carbon emissions. A number 
of, I think we are seven, Senators are filing an updated carbon 
pricing bill in the Senate tomorrow.
    I do not think that a carbon price is ``the'' solution, but 
I think it is an irreplaceable part of the solution. And it is 
the only way I can think of to offset the $600-billion subsidy 
that the IMF has reported fossil fuel gets every single year 
just in the United States of America.
    So I hope you will stick to your guns to make sure that we 
are on a safe trajectory to less than 1.5 degrees Celsius 
global warming, and stick to your guns on pricing carbon to 
make sure we get there.
    Secretary Yellen. You know I am supportive of carbon 
pricing. It is something I have long been in favor of. And 
President Biden, I believe, is also supportive of using carbon 
pricing.
    He has proposed a clean energy standard that would achieve 
100-percent carbon-free electricity production by 2035. That is 
an important step he wants to take to cut emissions in line 
with our nationally determined position.
    Senator Whitehouse. That is another important part of the 
solution. But if I may, I would like to go on to my question I 
have for you.
    Secretary Yellen. Yes, sir.
    Senator Whitehouse. You have spoken about the problem that 
has emerged with 501(c)3 and 501(c)4 organizations. The 
chairman opened the hearing by talking about the importance of 
taxpayer confidentiality and his expectation that an 
investigation was underway. With respect to the 501(c)3s and 
501(c)4s, we have seen political abuse. It is, in my view, 
contrary to law. It has been influenced heavily by special 
interests, and the result has been corrosive to democracy.
    I have asked you to look into this, and I hope that, in the 
same way that we conduct investigations of leaks of taxpayer 
information, we can also expect investigation into what went 
wrong in the 501(c) space. In particular, you mentioned that 
there has been a referral to DOJ on the taxpayer 
confidentiality breach.
    Secretary Yellen. Yes.
    Senator Whitehouse. I have been pushing for an explanation 
as to why, for a decade, neither the IRS nor Treasury made a 
referral to DOJ when 501(c)3 and 501(c)4 forms came in that 
were patently inconsistent with other forms filed with election 
agencies, both under oath, which would seem to predicate a 
simple false statement investigation.
    So again, back to this 501(c)3, 501(c)4 mischief, I really 
hope that you will task some entity within Treasury to report 
to you and to us on what the heck went wrong? And what produced 
this miserable decade of 501(c)3 and 501(c)4 abuse?
    Secretary Yellen. I understand the importance of this 
issue, Senator Whitehouse. We really need to get that money out 
of politics, and this is an important area. In learning about 
this issue, I have found out how very complicated it has been. 
And I know, for example, that the IRS has been prohibited from 
issuing guidance in this area for a number of years.
    I do believe that it deserves serious study, and I promise 
to do that.
    The Chairman. The time of the----
    Senator Whitehouse. Yes, I understand my time is over. I 
just wanted to add that I think we can solve that problem, and 
I know we intend to.
    The Chairman. And, Senator Whitehouse, Madam Secretary, 
apropos of your comment that this is very complicated, Senator 
Whitehouse has consistently been a voice for transparency and 
accountability on dark money, and we very much appreciate all 
his leadership.
    We are getting close to the Secretary's stop time, but 
Senator Hassan is here.
    Senator Hassan. Well, thank you so much, Chair Wyden and 
Ranking Member Crapo. And, Secretary Yellen, thank you so much 
for a long morning, but a very fruitful one, and we appreciate 
it very much.
    I wanted to start to just follow up on a conversation you 
had earlier this morning with Senator Young concerning the R&D 
tax bill that he and I are co-sponsoring to strengthen R&D tax 
incentives for startups and innovative American businesses.
    In your confirmation hearing, we discussed the importance 
of promoting domestic R&D, which is key for out-competing China 
and creating jobs as the economy recovers from COVID-19.
    Secretary Yellen, will you continue working with this 
committee to strengthen R&D incentives in the tax code, 
including by expanding the R&D credit for startups and small 
businesses?
    Secretary Yellen. Certainly. It is a high priority of 
President Biden. It is a priority in the budget. There are some 
areas that lack specificity, but we want to do more to promote 
R&D. I am glad to work with you on this and to discuss the 
specifics.
    Senator Hassan. Well, thank you so much. I appreciate that, 
and I look forward to it.
    Another topic. Madam Secretary, in your confirmation 
hearing, we also discussed the importance of Treasury programs 
that combat the financing of terrorist and criminal 
organizations. I was pleased to see the President's proposed 
budget included a request for $196 million in funding for the 
Office of Terrorism and Financial Intelligence, a $10-million 
increase from last year's funding level.
    Can you speak to how this increased funding will help 
Treasury combat terrorists and organized crime financing?
    Secretary Yellen. Yes. This is a very important office, and 
it has seen a very big increase in its role and mission over 
the last 5 or 6 years. Among other things, it manages more than 
30 sanctions programs, and sanctions have proven a critical 
national security tool.
    I think imposing sanctions has advanced U.S. national 
security and foreign policy interests in areas including 
counterterrorism, protection of human rights, combating drug 
trafficking, anticorruption, and nonproliferation. And the 
request for additional funds is to support an increase in 
staffing for OFAC and for IT infrastructure.
    Senator Hassan. Well, thank you for that clarification. And 
I am also glad to hear about the IT infrastructure piece, 
because it is so critically important in Treasury, as well as 
so many other agencies across government.
    I also want to turn to the issue of unfair trade and supply 
chains. I was encouraged to see that, as part of the 
President's supply chain review, the administration recommended 
creating a strike force led by the U.S. Trade Representative 
that would address unfair trade practices that impact the 
domestic supply chain.
    In the bipartisan U.S. Innovation and Competition Act, I 
pushed for a similar amendment that is now in there that would 
strengthen investigations of major trading partners whose 
unfair practices systemically affect U.S. supply chains and 
workers.
    Secretary Yellen, how is the Treasury supporting broader 
efforts to combat unfair trade practices and strengthen supply 
chain resiliency?
    Secretary Yellen. Well, Senator, immediately upon taking 
office, the President directed a whole-of-government effort to 
shore up our supply chains, and addressing unfair trade 
practices is a key component of that work.
    We welcome fair competition from abroad, but in too many 
circumstances, unfair foreign subsidies and trade practices 
have adversely affected U.S. competitiveness and impacted 
manufacturing unfairly.
    So the administration is really implementing a 
comprehensive strategy to push back on unfair competition that 
erodes the resilience of our supply chains and industries. And 
the strike force that you described will be led by USTR, and it 
is one element of the strategy whose goal will be to identify 
unfair trade practices that have eroded U.S. critical supply 
chains. And they will recommend trade actions to address these 
practices.
    Senator Hassan. Thank you so much, Madame Secretary. Thank 
you, Mr. Chair.
    I will submit one more question for the record about 
implementing the Employee Retention Tax Credit for businesses 
that started up during the pandemic. I appreciate your time. 
Thank you.
    The Chairman. I very much appreciate my colleague's work on 
that Employee Retention Tax Credit that was in the first 
package. Thank you.
    Senator Hassan. Thank you.
    The Chairman. Senator Toomey is back.
    Senator Toomey. Thank you very much, Mr. Chairman. Welcome 
back, Secretary Yellen.
    I have to say--and I think this will not come as a surprise 
to you--I am just extremely disappointed by this entire process 
that you and your colleagues have engaged in with the G7. This 
idea that countries that are pursuing greater economic freedom, 
and the prosperity that comes from it, that that constitutes a 
race to the bottom, I think could not be a worse way to think 
about this.
    Expanding economic freedom, diminishing the burden 
countries put on their businesses, their economies, their 
opportunities for growth, that is not a race to the bottom that 
we should try to prevent. That is a race we ought to be 
winning. And I just completely disagree.
    And by the way, I think everybody has to acknowledge that 
there is an implicit confession in this whole effort, which is 
that the Biden proposals with respect to tax reform make us 
less competitive. And that is why we need these other countries 
to inflict the same kind of damage on their economies that he 
is suggesting we do to ours.
    I think it is completely misguided, I have to say. Let me 
get to one of the specifics. You know very well, and we all 
remember that prior to the TCJA, U.S. multinationals had a 
significant incentive to establish their headquarters in some 
other country, almost any other country, at least from a tax 
point of view, because we had such an onerous tax regime on the 
income earned overseas, especially if you wanted to bring it 
back home.
    We addressed this head-on. We made significant changes to 
deal with this. And I have not been able to identify a single 
corporate inversion of a major American company since the 
enactment of TCJA.
    And so maybe I missed something. Secretary Yellen, are you 
aware of a single corporate inversion of a significant large 
American multinational post-2017 tax reform?
    Secretary Yellen. Well, what we are concerned with is 
shifting of profits to tax havens, where the United States 
loses the ability to gain the tax revenue, and competition from 
firms in other countries that make use of tax havens. More 
broadly, we do have to raise tax revenue in order to be able to 
finance important expenditures that make----
    Senator Toomey. Madam Secretary, I hate to--I really hate 
to rudely interrupt, but I have just so little time. And so, I 
know you want to raise taxes, and the President wants to raise 
taxes, but rather than getting into a general debate about 
that, I do want to--I would like to exchange some data with 
you. The data that I have looked at suggests that there has 
been no shifting of American corporate earnings to lower-tax 
jurisdictions.
    When I asked if you are aware of an inversion that has 
happened since 2017, you kind of shifted to a different 
question, which is a concern about income shifting. I still am 
not aware of a single corporate inversion that has happened 
since we eliminated the incentive to invert. And yet, we have 
in the Biden proposal something called ``the SHIELD,'' which is 
an acronym for Stopping Harmful Inversions and Ending Low-Tax 
Developments. I do not know why you have to do something to 
stop inversions that are not occurring.
    I want to say, we have a global minimum tax. We have GILTI. 
And most of the rest of the world does not. But we have it low 
enough that it is not a prohibitive problem. The administration 
is now proposing doubling the rate to 21 percent. But earlier 
you told Senator Crapo--I heard you earlier in this hearing, 
and I thought I understood you to say that the administration's 
proposed effective GILTI rate is 21 percent. But as you know, 
the existing tax law disallows taking full credit for all of 
the overseas taxes paid. And that increases the effective rate 
from the statutory 10 to about 13\1/8\. If you raised that to 
21, unless you allow full credits--which current statute does 
not--the effective rate will be 26\1/4\.
    So my question for you is, are you contemplating allowing 
the full crediting of foreign taxes paid, rather than the 
partial crediting that occurs under the current law?
    Secretary Yellen. I will get back to you on that, but I 
believe we have not changed that.
    The Chairman. I thank my colleague from Pennsylvania. We 
have two other Senators waiting in the queue. I believe Senator 
Daines is first, then Senator Barrasso. But we are going to get 
you both in, and we can do it before the sand is out of the 
hourglass and the Secretary has to leave.
    Senator Daines?
    Senator Daines. Mr. Chairman, thank you. Thanks, Secretary 
Yellen for being here.
    Secretary Yellen, I sent you a letter yesterday. You 
probably have not had a chance to read it yet, so I would like 
to ask for unanimous consent to submit it for the record, Mr. 
Chairman.
    [Secretary Yellen and the chairman speak simultaneously.]
    The Chairman. Madam Secretary, just so the record is clear, 
without objection, it is so ordered.
    [The letter appears in the appendix on p. 44.]
    Senator Daines. It is on a topic of cybersecurity, 
something I am hearing frequently from Montana business owners 
and across our country who worry about the major upticks in 
cyber-attacks and ransomware payments that we have seen 
recently. The attack on Colonial Pipeline controlled nearly 
half of the gasoline, jet fuel, diesel fuel along the East 
Coast and should serve as a wake-up call for the country. And 
of course, we saw the same with the attack on our food supply 
chain as well, most likely Russian cyber-attacks.
    The financial system facilitates commerce in every 
industry, and an attack of a similar kind that we saw on 
Treasury, or a major financial institution, could cripple the 
financial system as well as our economy.
    Secretary Yellen, at the most recent Financial Stability 
Oversight Council meeting just last Friday, the 11th of June, 
you outlined three key priorities: one, vulnerability in non-
bank financial intermediation; two, climate change; and three, 
Treasury market resilience.
    I am concerned that Treasury's focus on longer-term risks 
associated with climate change is coming at the expense of the 
major threat, the immediate threats we are seeing from cyber-
attacks and ransomware attacks that we are seeing nearly on a 
daily basis.
    My question: do you really believe that cybersecurity of 
our critical financial infrastructure, even after the recent 
surge in attacks, is still not a top-three priority for the 
FSOC?
    Secretary Yellen. It is a huge priority, Senator Daines. It 
is a great threat to financial stability. Treasury has long 
taken the lead in trying to pull together the financial sector 
to exchange information and to raise preparedness. It has 
groups, fondly known as FBIIC and FSSCC, that are organized to 
address financial sector threats. It is one of the most 
important focuses these days in supervision of banking 
organizations. The FFIEC, which is the group of Federal bank 
regulators, has a comprehensive program. It is in the----
    Senator Daines. Secretary Yellen, thank you. I just--you 
know, we spent, both of us, years in managing large 
organizations. And again, this is a zero-sum game, and 
priorities say this is most important. And I just would hope 
that what is going on right now with the cyber-attacks, that 
something that truly could bring down the entire finances of 
the U.S. Government should rise to a top three issue. Because 
everything cannot be the most important thing.
    I am just concerned. Climate change is a longer-term issue. 
We have some very acute challenges today that could literally 
bring down the financial system of the U.S. Government and our 
country.
    So I have a couple of other questions. I want to go back to 
the G7 and the recent agreement into a global minimum corporate 
tax rate of 15 percent. I think a bigger test is going to come 
at the G20 next month, which includes China, of course. It is 
clear that China does not have the best record of living up to 
its commitments, whether we are talking about accession in the 
WTO or otherwise.
    Secretary Yellen, will you commit to not agree to any deal 
that includes special carve-outs for China or any other 
country? And what steps would you take to ensure that if China 
does agree to a deal, it is held accountable to fulfill its 
commitments?
    Secretary Yellen. We would not agree to any type of carve-
out that would meaningfully weaken a robust global minimum tax 
regime, not for China and not for other countries. We want this 
to work and not be filled with loopholes.
    We continue to work to try to bring China into this 
agreement. Other countries are doing the same. We will see 
where we are when we get to Venice in a couple of weeks with 
the G20 meetings. I am hopeful China will decide it is in their 
interests to join this agreement, but I do pledge that this is 
not an agreement that we will weaken.
    Senator Daines. Thank you.
    The Chairman. My colleague's time has expired.
    We have Senator Barrasso next. Madam Secretary, we are 
going to have Senator Barrasso take his 5 minutes. The floor is 
waiting for me. We will have you out within 3 or 4 minutes of 
your hard stop, and I will be back to wrap up.
    Okay; Senator Barrasso?
    Senator Barrasso. Thanks, Mr. Chairman. Thank you very 
much, Madam Secretary. Thanks for testifying before the 
committee.
    Your budget request is for about an 11.3-percent increase 
from fiscal year 2021, and the Department's budget includes 
about a 10.4-percent increase in the IRS budget. This includes 
$5.5 billion in the enforcement account to hire more compliance 
staff.
    In my experience, the overwhelming majority of Americans, 
and people in Wyoming, are trying to pay the correct amount of 
taxes that they owe. The tax code is complex, and dealing with 
the IRS, I have heard from people, can be intimidating. It can 
be confusing. It can be stressful, and it can be never-ending.
    Thankfully for many, we have a Taxpayer Advocate Service. I 
think it is a very important tool that the IRS has to help 
taxpayers. The Taxpayer Advocate--I meet with them in Wyoming. 
They do not have the resources or the authority to resolve 
every problem that taxpayers encounter with the IRS. The issues 
that they can help with are limited, but their assistance and 
guidance can really be invaluable. I have heard that from folks 
at home.
    Given the focus on enforcement in the budget, can you 
detail to me how the Treasury Department and the IRS are going 
to enhance the visibility of the Taxpayer Advocate and ensure 
that their resources are available to help people receive 
answers to questions and provide guidance to so many Americans 
who are just simply trying to correctly follow the law?
    Secretary Yellen. Well, I agree the taxpayer service 
generally is not what any of us should want it to be at the 
IRS. And this is partly due to lack of resources. The decrease 
over the last decade of about 20 percent in real terms of 
resources, and more recently the pandemic, has put special 
strains on the IRS.
    But the funding that we are seeking for IRS in the budget--
you mentioned the importance of compliance, and I would 
emphasize that. The customer service, broadly speaking, is also 
important. And that would be an important thing that we would 
want to see greatly improved.
    Senator Barrasso. Well, thank you. I agree with you. I 
think it would be very helpful to the taxpayers who are trying 
to comply, trying to follow the law, trying to get it right, 
and sometimes just need a little assistance, and the taxpayer 
advocacy group does do that.
    I want to move to the budget singling out the producers of 
oil and gas products by disallowing them from using certain tax 
provisions such as intangible drilling costs and percentage 
depletion. That proposal will almost certainly raise gas prices 
at the pump. It will affect working Americans, leading to a 
violation of the President's promise. He said he was not going 
to raise taxes on anyone earning less than $400,000. So at the 
same time, in some of the infrastructure spending discussions 
with Congress, the administration has rejected even indexing 
the gas tax. And the President told us that, when we were in 
the Oval Office meeting with him. He said, no indexing the gas 
tax or raising the gas tax, which would certainly raise gas 
prices at the pump that would affect working Americans and 
violate the President's tax pledge.
    But what you are proposing in the budget is certainly going 
to raise the cost at the pump. So it seems to me that the two 
positions are inconsistent. The President is saying he does not 
want gas prices to go up by adding taxes, but he is willing to 
let gas prices go up by taking away some of the deductions that 
exist right now for those people who produce America's energy.
    Secretary Yellen. The President is very concerned, as most 
countries around the world are, about climate change and sees 
no policy justification for subsidizing fossil fuels. He really 
believes that inefficient subsidies for this industry can 
reduce more efficient investment elsewhere in the economy, and 
he wants to see the United States become a global leader in 
clean energy and to see an increase in really good jobs and a 
rapidly growing sector.
    So you know, his proposal includes subsidies for green 
energy production and will create jobs in a new and expanding 
sector. With respect to price increases, I have looked at some 
recent studies on what the impact would be of phasing out the 
fossil fuel subsidies. And generally, although there might be 
some negative impacts, the impacts are generally found to be 
small.
    Senator Barrasso. Well, I appreciate your comments. It 
looks like time has expired for me. I do not see the chairman 
back yet, but I would point out that--and he will be back to 
adjourn. If he shows up, I will stop immediately. We are facing 
a $27-trillion debt. The budget requests a billion dollars for 
the international Climate Change Fund. That is an increase of 
almost 786 percent over funding from last year. It is happening 
at a time when the American people are facing significant 
challenges at home. Communities across our Nation are emerging 
from the pandemic. Dealing with the soaring debt, declining 
infrastructure--whether it is the Green New Deal or the U.N. 
Climate Change Fund, the American people cannot afford these 
kinds of policies.
    Why should taxpayers support borrowing more money from 
countries like China in order to spend it overseas to 
international bureaucrats in the name of climate change? I do 
not get that at all.
    Secretary Yellen. Well, climate change is a global threat. 
And while we need to make meaningful reductions of our own, our 
efforts will not be successful in addressing the climate threat 
unless we see similar efforts around the world.
    And the United States committed, as part of its Paris 
Agreement, to help provide funds for developing countries, for 
low-income countries, to reduce their climate emissions and to 
address the impacts of climate change. And we have upped our 
contributions to the Green Climate Fund in order to make good 
on that commitment, which is a very important one.
    Senator Barrasso. Well, thank you very much, Madam 
Secretary.
    I see that the chairman has not yet returned from the vote. 
I know you have a hard stop at 45 minutes after the hour. It is 
now 44 minutes after the hour. I do not know if I am entitled 
to adjourn the meeting, but if he does not come in within 1 
minute, I would be happy to adjourn the meeting, because I know 
you have places to be and commitments to meet.
    Secretary Yellen. Thanks so much. It is much appreciated. 
Thank you, Senator.
    Senator Barrasso. Thank you, Madam Secretary.
    [Pause.]
    [Whereupon, at 12:50 p.m., the hearing was adjourned.]

                            A P P E N D I X

              Additional Material Submitted for the Record

                              ----------                              


                Prepared Statement of Hon. Mike Crapo, 
                       a U.S. Senator From Idaho
    Thank you, Mr. Chairman, and thank you, Secretary Yellen, for 
joining us today.

    Today, we will discuss the President's Fiscal Year 2022 budget and 
proposals for Treasury and its agencies. The administration's proposals 
to increase spending, hit Americans with higher taxes, and strangle the 
economy with regulations and red tape is not a path to prosperity.

    The President's budget envisions deficits of $14.5 trillion over 
the next decade, with debt exploding to more than $39 trillion, or 117 
percent of GDP, by the end of fiscal year 2031. Such high debt is 
risky, especially in the current high inflation environment.

    Consumer price inflation from April to May was 7.7 percent at an 
annualized rate, and inflation for durable goods was 36 percent at an 
annualized rate. If inflation expectations become unanchored, which no 
one can credibly claim cannot happen, the resulting increased interest 
rates can turn Federal debt-service costs into budget busters.

    Treasury's top-line budget request of $22 billion is an 11.3-
percent increase over fiscal year 2021, and Treasury asks for outsized 
increases across the board in its various agencies and programs. I look 
forward to hearing more about Treasury's budget proposals and general 
explanations of tax proposals in the so-called Green Book.

    Those proposals are heavy on tax hikes, introduce new tax ideas of 
questionable merit, and seek to inject more social policy goals into 
the income tax system. They also call for a mandatory financial 
information reporting regime. Under this regime, financial institutions 
would become agents of the IRS, tasked with monitoring and reporting 
flows into and out of personal and business accounts above a mere $600 
threshold.

    The proposal, which is sold under the guise of trying to close the 
tax gap, is very concerning and pulls almost all taxpayers into a 
surveillance dragnet. The era of big data should not be viewed as an 
opportunity for Big Brother. I do not agree with some high-tax 
advocates that private tax information should be a public good, with 
governments and the public knowing every private aspect of individual 
and business income and assets.

    An overwhelming majority of taxpayers in this country are law-
abiding and pay the taxes they owe. My concerns are amplified by the 
egregious apparent leak of private taxpayer information out of the IRS, 
with data ending up at ProPublica, which reported sensationalized and 
misleading claims about taxes paid by named individuals. While 
ProPublica focused on wealthy people, an IRS leak may involve personal 
information on American taxpayers across the income spectrum.

    Secretary Yellen, it would be helpful for you to share what is 
known at Treasury and the IRS about the apparent massive data breach. I 
also look forward to hearing about political agreements struck by the 
administration and the G7. A recent G7 communique reflects a shift in 
the U.S. position in OECD negotiations that appears driven by the 
administration's plans to significantly increase taxes on U.S. 
businesses.

    The United States already has a robust global minimum tax, GILTI, 
and no other country has moved to enact one since. If Treasury 
envisions hiking taxes on U.S. businesses domestically, including 
onerous changes to GILTI, before other countries adhere to a global 
minimum tax, the U.S. could suffer from a first-mover disadvantage.

    Higher U.S. tax rates instituted before other countries move poses 
the risk of others not following through and a new wave of inversions 
and foreign acquisitions arising because U.S. business are unable to 
compete. Congress needs to understand the analysis behind your 
proposals, and whether any agreement would allow foreign targeting of 
U.S. companies or special carve-outs for particular jurisdictions, 
including China.

    The G7 understandings also advocate for new mandatory financial 
disclosures and funding for multilateral financial institutions, 
including a new $650-billion general allocation at the IMF of special 
drawing rights. I am interested to hear about the outreach you have 
done with Congressional Republicans on those funding increases.

    Additionally, I again ask that Treasury work to improve its 
responsiveness to this Committee.

    Secretary Yellen, I look forward to learning more from our 
discussions today.

    Thank you, Mr. Chairman.

                                 ______
                                 
                    Submitted by Hon. Steve Daines, 
                      a U.S. Senator From Montana

                          United States Senate

                       washington, dc 20510-2606

                             June 15, 2021

The Honorable Janet Yellen
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220

Dear Secretary Yellen:

In light of the recent wave of cyber-attacks impacting both private 
companies and government entities, I write today requesting an update 
on Treasury's cyber infrastructure and general security in the face of 
ongoing threats. This is a particularly pressing issue, and I am 
concerned that it is not receiving the level of attention it deserves.

In recent months, we have seen a number of troubling, high-profile 
cyber- and ransomware attacks targeting U.S. companies. Last month, a 
ransomware attack targeting Colonial Pipeline Co. forced the company to 
halt operations, resulting in fuel shortages across the southeastern 
United States. Earlier this month, a ransomware attack against JBS USA 
Holdings, Inc. halted operations at some of the largest meatpacking 
plants in the United States. On June 1st, Scripps Health announced 
that, due to a May ransomware attack, hackers had stolen personal data 
from nearly 150,000 individuals. On June 11th, McDonald's Corp. told 
employees that hackers had successfully stolen company data, including 
employee information, from its systems in the United States, South 
Korea, and Taiwan. Hackers have also recently targeted local entities 
like ferry services in Massachusetts and water treatment plants in 
Florida, suggesting that multinational corporations and national 
governments are not the only entities subject to the threat of cyber- 
and ransomware attacks. Unfortunately, the above instances of 
successful cyber- and ransomware attacks undoubtedly represent a small 
fraction of total attempts to violate the cybersecurity of U.S. 
corporations, government agencies, and other entities.

In December of last year, it was revealed that the Treasury Department 
was among the agencies impacted by the SolarWinds hack, one of the 
worst data breaches in the history of the United States. It is clear 
that cybercriminals, including those responsible for the SolarWinds 
hack, have continued unabated and that further action is needed to 
bolster Treasury's cybersecurity. This is particularly true in the wake 
of the unauthorized disclosure of confidential taxpayer data published 
by ProPublica. Luckily, the recent wave of cyber- and ransomware 
attacks does not appear to have targeted U.S. banks, stock market 
exchanges, mutual and pension funds, Federal Government agencies, or 
other elements critical to the operations of the U.S. financial system. 
However, that does not mean that U.S. financial infrastructure is 
immune to attack. In fact, in recent years we have seen attacks 
successfully target foreign central banks. In 2016, hackers installed 
malware on the Bangladesh Central Bank's computer system resulting in 
the theft of approximately $81 million.

The U.S. financial system is a critical component of U.S. 
infrastructure. The industry holds trillions in assets and massive 
amounts of American citizens' personal data. As criminals grow more 
sophisticated and increasingly target ransomware attacks against U.S. 
critical infrastructure, the Federal Government must ensure that its 
defensive capabilities match the changing threat environment.

With that in mind, I have several questions for which I am hopeful you 
can provide clarification:

      How confident is Treasury that U.S. financial infrastructure is 
capable of preventing cyber- and ransomware attacks from increasingly 
sophisticated criminals?
      What steps has Treasury recently taken to secure the 
cybersecurity of U.S. financial infrastructure?
      Has Treasury determined the full extent of the SolarWinds hack? 
If not, could additional sanctions be considered if additional 
perpetrators are identified?

The U.S. financial system relies in large part upon the security of 
confidential data housed at the Treasury Department. As criminals grow 
more sophisticated and increasingly target ransomware attacks against 
U.S. critical infrastructure, the Federal Government must ensure that 
its defensive capabilities match the changing threat environment. Thank 
you for your work to protect the integrity of U.S. financial 
infrastructure, and I look forward to receiving your answers to the 
above questions.

            Sincerely,

            Steve Daines
            United States Senator

                                 ______
                                 
                 Prepared Statement of Hon. Ron Wyden, 
                       a U.S. Senator From Oregon
    This morning the Finance Committee welcomes Treasury Secretary 
Janet Yellen to discuss the President's 2022 budget proposal.

    There's a lot for us to talk about this morning, and time is tight. 
I'm going to begin with tax. On Tuesday of last week, the American 
people woke up to what appeared to be the largest unauthorized 
disclosure of taxpayer data in history. As I said at the time, this 
committee takes the confidentiality of taxpayer data very seriously, 
and I fully expect that an appropriate investigation is underway. I 
also want to thank the Treasury officials who held a briefing with 
staff this week on this subject.

    This committee takes confidentiality seriously. I also take the 
issue of economic fairness extremely seriously. The information in the 
ProPublica report depicts a tax system in which the wealthiest people 
in the country pay rock-bottom tax rates, sometimes zero. What's worse, 
it's all perfectly legal. The details may not have been a surprise to 
those who follow the tax debate closely, but they're still a gut punch 
to read on the page.

    Days later, another new report described another tax rip-off; in 
this case, from the people who brought you the carried-interest 
loophole. It's carried interest on steroids. Wealthy investment 
managers and their lawyers schemed to turn even more of their wage 
income into tax-preferred capital gains using legal documents that 
essentially said ``presto change-o'' in accounting jargon. Even after 
whistleblowers came forward, the IRS enforcement division found itself 
overmatched and outgunned, the result of years of Republican budget 
cuts that hobbled its capacity to crack down on corporate cheating. On 
its way out the door in January, the Trump administration gutted an 
effort to put even minor limitations on behavior like this.

    Americans also learned recently that mega-corporations have never 
contributed less to Federal revenues in modern history than they do 
right now. According to the Congressional Budget Office, corporate 
income tax revenue after the Trump tax law is down nearly 40 percent 
from the 21st-century average. Many of the largest corporations pay 
nothing--zero. At the same time, stock buybacks that enrich wealthy 
investors are through the roof. It was reported that from January 
through May of this year, mega-corporations authorized half a trillion 
in stock buybacks, the most in 22 years.

    I'd wager there's going to be a lot said during this hearing about 
people's trust in our tax system. What's most damaging to people's 
trust in the tax system, in my view, is its rotten, cynical unfairness 
to Americans who work for a living. The tax code on the books today 
says that a dollar gained on the trading floor matters more than a 
dollar earned on the factory floor. It's not hard to grasp why middle-
class, wage-earning taxpayers object to that idea. They're paying taxes 
out of every paycheck to sustain a country whose prosperity is 
swallowed up mostly by wealthy individuals who avoid paying a fair 
share themselves.

    The President and Democrats in Congress have an extensive agenda 
designed to create jobs, make it easier to raise a family, and help 
every American get ahead. To fund that agenda, the Congress must ensure 
that corporations and the wealthy--not just people who work for a 
living--have skin in the game.

    A few specifics. Senator Brown, Senator Warner, and I recently 
debuted a plan that would eliminate the Trump-era deduction for 
shipping manufacturing jobs overseas and ensure multinational 
corporations pay a fair share.

    I'll have a proposal dealing with a core unfairness of the tax 
code, the special rules that allow the wealthiest individuals to pay 
little or nothing at all. Democrats are also working on proposals to 
close the tax gap, because protecting confidential taxpayer data and 
cracking down on tax cheats are not mutually exclusive--Congress 
absolutely must do both. This is a fairness-based approach to revenue 
that the American people support, and I'm looking forward to working 
with Secretary Yellen on these issues in the weeks and months ahead.

    A few other issues to discuss before I wrap up. I want to thank 
Secretary Yellen for leading the battle with respect to a minimum tax 
for mega-corporations around the world. There is a new day ahead--no 
more race to the bottom on taxes for the biggest, most powerful 
corporations. Key to moving forward is putting a quick stop to 
discriminatory digital service taxes, which unfairly target American 
firms. I'll have a question for Secretary Yellen on that.

    In the Rescue Plan passed in March, the Congress created a major, 
new economic lifeline for rural communities and tribes. This program is 
all about making sure people in these communities have resources for 
schools, roads, and health care. Implementation is underway, and I want 
to continue working with the Treasury Department and Senator Crapo to 
get the job done.

    And lastly, the Treasury and IRS are just weeks away from sending 
the first Advance Child Tax Credit payments out to American families. 
It's taken a lot of hard work to get this program up and running. These 
payments have the potential to cut child poverty in half if everybody 
does their part to reach vulnerable families. The committee will be 
talking about how to ensure the program achieves that goal.

                                 ______
                                 
        Prepared Statement of Hon. Janet L. Yellen, Secretary, 
                       Department of the Treasury
    Chairman Wyden, Ranking Member Crapo, it's a pleasure to be with 
you.

    When I took office back in January, the first--and most urgent--
problem confronting our economy was obviously the pandemic: helping 
people make it to the other side of the crisis and ensuring they were 
met there by a robust recovery. Thanks to this Congress--and its 
passage of the American Rescue Plan--I believe we are well on our way 
towards that goal.

    But we have to be clear-eyed about something: the pandemic was not 
our only economic problem. Long before a single American was infected 
with COVID-19, millions of people in this country were running up 
against a series of long-term, structural economic challenges that 
undermined their ability to make a good living.

    For instance, wage inequality. In healthy economies, we see wage 
growth across the distribution--for workers making the highest incomes 
and those making the lowest. But over the past several decades, that 
has not been the case in our economy. While the highest earners have 
seen their income grow, families at the bottom end of the distribution 
have seen their pay stagnate. Gender and racial pay gaps also persist.

    At the same time, labor force participation has been dropping. Even 
before the pandemic, the share of American women in the workforce 
lagged far behind many other wealthy nations.

    These trends have coincided with a reordering of the economic map. 
There have always been richer areas of the country and poorer areas, 
but for most of the 20th century, the latter were catching up with the 
former. The country was rising together. Today, this is less true. 
There's a divergence among local economies, some areas that are growing 
more prosperous and others that are stagnating.

    Climate change adds a fresh layer of crisis on top of this--the 
average cost of 
climate-related disasters is expected to double every 5 years.

    And of course, there is racial inequality: when I started studying 
economics in 1963, the average black family's wealth was about 15% of 
the average white family. Maybe that isn't surprising: Jim Crow laws 
were still in effect. But what is surprising is that it's almost 60 
years later, and that ratio has barely changed.

    These destructive forces--the divergence in wages and of geographic 
regions, the decline in labor force participation, the rise of climate 
change, and the persistence of racial inequality--all these are 
combining to block tens of millions of Americans from the prosperous 
parts of our economy.

    There are clear reasons why these destructive forces have festered. 
The private sector does not make enough of the types of investments 
needed to reverse them--training programs that can lead to higher 
wages; childcare and paid leave that would help people rejoin the 
workforce; or infrastructure that would lower carbon emissions and spur 
growth in neglected communities. For 40 years we haven't done that. Not 
as much as we should have.

    We need to remedy this lack of investment. We need ambitious fiscal 
policy to start unwinding these trends, and if there is a short summary 
of the President's budget, that's it.

    The budget, which includes both the American Jobs and Families 
Plans, will repair the fractured foundations of our economy. It does so 
through a series of smart policies, including child care and paid leave 
so more parents can join the workforce; a mass modernization--and 
greening--of America's infrastructure to spur commerce and reduce 
emissions; an investment to make housing and education available to 
all. The list goes on.

    We need to make these investments at some point, and now is 
fiscally the most strategic time to make them. We expect the cost of 
Federal debt payments will remain well below historical levels through 
the coming decade. We have a window to invest in ourselves.

    In fact, this budget is both fiscally strategic and fiscally 
responsible. It pays for itself through a long overdue reformation of 
the tax code that will make it fairer, without touching the vast 
majority of Americans, those who earn less than $400,000 a year.

    There are some tough trade-offs in fiscal policy, but this--a 
fairer tax code for a structurally sound economy--is not one of them.

    With that, I am happy to take your questions.

                                 ______
                                 
       Questions Submitted for the Record to Hon. Janet L. Yellen
                 Questions Submitted by Hon. Ron Wyden
    Question. Under section 1332 of the Affordable Care Act, States can 
apply for State Innovation Waivers giving them greater flexibility to 
meet the needs of their residents while meeting key insurance guard 
rails. A total of 15 States have received a 1332 waiver, and 14 States 
receive pass-through funding under 1332 to finance reinsurance programs 
to ensure affordable health insurance premiums in their States.

    On March 11, 2021, the American Rescue Plan was enacted, giving 
millions of Americans access to affordable health insurance through the 
expanded Premium Tax Credit. To facilitate access to affordable health 
insurance and the expanded Premium Tax Credits, the Biden-Harris 
administration created a special enrollment period from February 15th 
through August 15, 2021. As of May 31st, the Centers for Medicare and 
Medicaid Services (CMS) reports that 13,000 Oregonians and more than 
1.2 million people nationally have signed up for health insurance 
through HealthCare.gov. The American Rescue Plan is providing much-
needed relief to millions.

    States, particularly 1332 waiver States, are integral partners in 
expanding health insurance coverage. In March, Oregon's State insurance 
commissioner along with 13 other States wrote a letter requesting that 
CMS and Treasury recalculate final pass-through funding for their 
State-based reinsurance programs taking into account the changes in law 
from the American Rescue Plan Act. In April, CMS notified States that 
it would do so, but did not provide any guidance around when that 
calculation would be complete noting in a FAQ the Department planned to 
recalculate pass-through funding amounts. Specifically, the guidance 
provided to States said that CMS would inform States of the adjusted 
pass-through funding ``later this year.''

    Can you provide a more specific timeline by which States can expect 
to receive their adjusted final pass-through funding levels?

    Answer. CMS and Treasury (the Departments) are working to swiftly 
calculate updated section 1332 pass-through funding levels that reflect 
the American Rescue Plan's (ARP) expansions of financial assistance to 
individuals and families purchasing coverage through the health 
insurance marketplace. The American Rescue Plan was a historic 
legislative accomplishment that included the biggest improvement in 
health care affordability since the Affordable Care Act (ACA) was 
passed. Because of this unique and historic legislative change, the 
Departments must use a different approach than what is typically used 
to calculate pass through annually under prior law. We do not have a 
more specific timeline at this time, but look forward to engaging 
further with Congress and states when we have updates to share.

    Question. Can you tell me how CMS and the Treasury Department 
coordinate to calculate pass-through funding amounts for 1332 States 
when there are changes in law?

    Answer. CMS and Treasury work closely to jointly administer the 
section 1332 waiver program. To date, the Departments leverage 
Treasury's methodology for modeling health insurance coverage and 
premium tax credits (PTC) at the State level, which is used for 
evaluating section 1332 waiver applications and calculating pass-
through payments for States with approved section 1332 waivers. This 
methodology was developed by Treasury's Office of Tax Analysis (OTA) in 
collaboration with the Office of the Actuary, Centers for Medicare and 
Medicaid Services (OACT/CMS). When there are changes in State or 
Federal law that are expected to impact the savings in ACA financial 
assistance yielded by a State's section 1332 waiver, the Departments 
work to identify how those changes in law are expected to impact the 
Federal savings due to the waiver and then estimate those impacts on 
pass-through funding.

    Question. From your perspective, what can Congress do to ensure 
that there is the appropriation coordination between CMS and the 
Department of the Treasury to provide timely and responsive updates to 
1332 waiver States?

    Answer. Along with CMS, Treasury looks forward to working with 
Congress, and we look forward to continuing to work closely with States 
with approved section 1332 waivers to address and account for any 
changes in Federal law as they pertain to the section 1332 waiver 
program. We understand that section 1332 pass-through funding, 
including the updated amount attributable to the ARP, is crucial to 
help States run their waiver program, and we appreciate the need for 
timely updates. We will continue to work to expediently account for the 
groundbreaking reforms ushered in by the ARP to help make health 
insurance more accessible for American individuals and families.

               Questions Submitted by Hon. John Barrasso
    Question. In its fiscal year 2022 revenue proposal, the 
administration proposes repealing several tax provisions utilized by 
the fossil fuel industry. In some instances, such as with percentage 
depletion, these provisions are repealed only for fossil fuel producers 
and royalty owners, while allowing their continued use by other 
industries. Clearly the proposed repeal is not for policy reasons, but 
simply because the fossil fuel industry utilizes these provisions.

    During our exchange at the hearing on June 16th, you referred to 
these tax provisions as ``subsidies.'' The intangible drilling costs 
tax deduction simply allows fossil fuel producers to immediately deduct 
ordinary businesses expenses such as wages paid to their employees. 
This is similar to the treatment of other ordinary necessary business 
expenses such as capital investments and research and development 
costs, which can also be deducted immediately.

    In your view, are all tax deductions for ordinary business expenses 
``subsidies'' to those industries that utilize those deductions?

    If no, please provide a list of all tax deductions you would not 
classify or refer to as a ``subsidy.''

    Answer. In general, costs that benefit future periods must be 
capitalized and recovered over such periods for income tax purposes, 
rather than being expensed in the period the costs are incurred. In 
addition, the uniform capitalization rules require certain direct and 
indirect costs allocable to property to be included in inventory or 
capitalized as part of the basis of such property. In general, the 
uniform capitalization rules apply to real and tangible personal 
property produced by the taxpayer or acquired for resale.

    Special rules apply to intangible drilling and development costs 
(IDCs). IDCs include all expenditures made by an operator for wages, 
fuel, repairs, hauling, supplies, etc., incident to and necessary for 
the drilling of wells and the preparation of wells for the production 
of oil and gas. Under the special rules applicable to IDCs, an operator 
(i.e., a person who holds a working or operating interest in any tract 
or parcel of land either as a fee owner or under a lease or any other 
form of contract granting working or operating rights) who pays or 
incurs IDCs in the development of an oil or gas property located in the 
United States may elect either to expense or capitalize those costs. If 
a taxpayer elects to expense IDCs, the amount of the IDCs is deductible 
as an expense in the taxable year the cost is paid or incurred. In the 
case of an integrated oil company (i.e., a company that engages, either 
directly or through a related enterprise, in substantial retailing or 
refining activities) that has elected to expense IDCs, 30 percent of 
the IDCs on productive wells must be capitalized and amortized over a 
60-month period.

    The expensing of IDCs, like other oil and gas preferences the 
administration proposes to repeal, distorts markets by encouraging more 
investment in the oil and natural gas industry than would occur under a 
neutral system. This market distortion is inconsistent with the 
administration's policy of supporting a clean energy economy and 
reducing carbon emissions. Moreover, the subsidy for oil and natural 
gas must ultimately be financed with taxes that cause other economic 
distortions, e.g., underinvestment in other, potentially more 
productive, areas of the economy. Capitalization of IDCs would place 
the oil and gas industry on a cost recovery system similar to that of 
other industries and reduce economic distortions.

    Question. The administration's fiscal year 2022 revenue proposal 
includes significant modifications to the taxation of family businesses 
at the time of death. Currently, when an heir inherits an asset, their 
tax basis in the asset is ``stepped up'' to an amount equal to the fair 
market value of the asset atthe time of the decedent's death. If an 
heir subsequently sells that asset, they only owe capital gains tax on 
the gain during their period of ownership.

    This policy ensures heirs do not pay taxes on what might simply be 
inflation, and ensures they are not forced to sell the family ranch or 
businesses just to pay a tax on an unrealized gain. The 
administration's proposal would remove this longstanding policy and 
force an heir to recognize gains in the asset and pay taxes on it, even 
if there is no sale.

    Multiple recent studies have demonstrated the harmful effects such 
a policy would have on small ranches and businesses. The Agricultural 
and Food Policy Center released a study on June 15 that analyzed the 
elimination of step-up basis. The study revealed 92 of the 94 
representative farms would be impacted, with additional tax liabilities 
averaging $726,104 per farm. In April, Ernst and Young released a 
similar study commissioned by the Family Business Estate Tax Coalition 
that found a repeal of stepped-up basis would result in the loss of 
80,000 jobs per year for the first 10 years, followed by the loss of 
100,000 jobs each year afterwards.

    Given the harmful impacts resulting from the administration's 
proposal regarding stepped-up basis found by these studies, has the 
Treasury Department modeled the impact this policy would have on small 
businesses and family farms and ranches?

    If so, please provide me with the results of Treasury's modeling.

    Answer. To be clear, the administration's proposals do not make 
changes to the existing estate tax rules. The capital gains proposal 
would impose income tax on unrealized appreciation in assets 
transferred by gift or at death, but would exempt the first $2 million 
in capital gains for a married couple, in addition to up to $500,000 of 
gain in their residence(s). To the extent income tax is imposed at 
death under the capital gain proposal, an heir would take assets with a 
fair market value (usually stepped-up) basis and prospectively would 
only be liable for gain(s) on appreciation accruing only during the 
heir's period of ownership of the asset(s). In addition, the proposal 
provides special rules in recognition of the critical role that family 
businesses (including farming and ranching businesses) play in our 
communities and our economy. In the case of an interest in a family-
owned and operated business, any tax liability on unrealized 
appreciation (after the aforementioned exemption of up to $2 million) 
would not be due until the interest is sold or for as long as the 
business remains family-owned and -operated.

    Question. You recently attended the G7 finance ministers meeting in 
London. The June 5th communique resulting from this meeting expressed 
support for mandatory climate financial disclosures by private 
companies and financial institutions.

    Prior to offering an endorsement from the administration for 
mandating disclosures, was there any outreach to Congress to see if 
there is bipartisan support for mandatory climate and ESG disclosures 
of companies in the private sector?

    If so, can you describe that outreach?

    If not, can you explain the reasoning for not engaging with 
Congress on this issue prior to the release of the communique?

    Answer. Domestic and international investors are seeking more 
consistent, comparable, and reliable information on climate-related 
risks and opportunities. The commitment among G7 members is to support 
mandatory disclosure of climate-
related financial information in a manner that is in line with domestic 
regulatory frameworks, which would include statutory frameworks in the 
United States and other G7 jurisdictions.

    In line with its mandate and regular procedures, the SEC recently 
sought public input on climate-related financial disclosures as well as 
the costs and benefits of different regulatory approaches related to 
climate disclosure. The SEC will continue to work through the domestic 
regulatory process to make sure it is meeting the needs of U.S. 
investors and those who want to invest in our capital markets. We have 
regularly engaged with Congress on climate change and look forward to 
continue doing so.

               Questions Submitted by Hon. Maria Cantwell
    Question. I would like to follow up on your responses to my 
questions following your confirmation hearing earlier this year about 
climate change.

    As you're well aware, climate change poses the greatest long-term 
threat to our society, as well as more immediate threats from extreme 
weather events such as the severe drought building across the west, and 
increasing wildfire risks as we head into summer and the hurricane 
season. In response to my questions for the record following your 
nomination hearing earlier this year, you said, quote: ``We cannot 
solve the climate crisis without effective carbon pricing;'' and, ``We 
are all committed to doing everything we can to solve this crisis.''

    I was reassured by your response and commitment to take action 
within the administration to address climate change, but now I want to 
talk about what steps you are taking to live up to that promise.

    Since those QFRs, you announced the creation of a new climate hub 
within the Treasury Department to bring the full force of the Treasury 
Department to leverage finance and financial risk mitigation to 
confront the threat of climate change.

    You also stated that, ``Climate change presents new challenges and 
opportunities for the U.S. economy,'' while also restating your prior 
position that climate change requires an economy-wide investment by 
industry and government along with strong global cooperation because 
climate is, by its very nature, a global challenge.

    I believe you're correct that addressing climate change presents 
both a challenge and opportunity for the U.S. as the global market for 
clean energy products will be a $23-trillion market, and that's just 
through 2030 in 21 developing nations.

    The innovation needed to develop these clean energy technologies by 
the private sector is where the U.S. can lead by developing and 
manufacturing clean energy technology we could export to the world.

    To build this market, we need to provide policy certainty.

    The one policy that you have previously supported, along with a 
wide variety of groups ranging from the Business Roundtable, the 
Chamber of Commerce, American Petroleum Institute, to Fortune 500 
companies, 27 Nobel Laureate economists, and all four Federal Reserve 
Chairs, is a price on carbon.

    You previously stated that we need carbon pricing in order to 
address the climate crisis, but we also need policies that protect the 
most vulnerable families. I believe that enacting an economy-wide price 
on carbon, paired with a dividend that returns the majority of revenue 
back to individuals, can achieve both of these objectives cost-
effectively with very little government intervention.

    Do you still agree that an economy-wide price on carbon, imposed 
upstream at the mine or wellhead and subject to a cap on total 
emissions is the most efficient way to reduce emissions by unleashing 
the full potential of the markets to find the lowest cost solutions?

    Do you agree with previous analysis from the Treasury Department's 
Office of Tax Analysis that found a carbon cap and dividend policy 
would protect the most vulnerable families because of the progressive 
nature of a dividend policy?

    You stated in April of this year in association with the 
announcement of the Climate Hub within the Treasury that ``Climate 
change requires economy-wide investments by industry and government.''

    Do you believe that an economy-wide price on carbon would spur the 
level of private sector investment that is needed to reduce emissions?

    Do you believe that by auctioning off carbon permits and using a 
portion of that revenue could provide the necessary Federal funding to 
invest in the clean energy transition and ensure no communities are 
left behind?

    Answer. This administration has set ambitious climate goals, as 
articulated in our Nationally Determined Contribution, and laid out a 
robust ``whole-of-government'' approach to achieving those goals.

    The administration's climate plan ensures that all Americans will 
benefit from a cleaner economy and will create a carbon pollution-free 
power sector by 2035 and a net zero emissions economy by no later than 
2050. Redistributing the proceeds of a carbon tax or auctioned permits 
would be one way to enable this. We look forward to working with 
Congress to finalize the specific actions the country will take to 
achieve our ambitious decarbonization goals.

    There are multiple paths to reach these goals, and the U.S. 
Federal, State, local, and tribal governments have many tools available 
to work with civil society and the private sector to mobilize 
investment to meet these goals while supporting a strong economy. The 
administration's plan will provide good-paying jobs deploying carbon 
pollution-free electricity generating resources, transmission, and 
energy storage and leveraging the carbon pollution-free energy 
potential of power plants retrofitted with carbon capture and existing 
nuclear, while ensuring those facilities meet robust and rigorous 
standards for worker, public, and environmental safety, as well as 
environmental justice.

    Question. In February of this year, during a meeting of the G7, you 
stated that U.S. is prepared to take the lead in the global fight 
against climate change.

    What steps have you taken to follow up on that commitment?

    Answer. This administration is committed to a whole-of-government 
effort to mobilize the resources necessary for tackling climate change. 
The President announced that the United States intends to double, by 
2024, our annual public climate finance for developing countries 
compared to what the United States was providing during the second half 
of the Obama-Biden administration. The United States released America's 
first-ever International Climate Finance Plan. Recognizing that it's 
not just about how much finance we provide, but how we invest it, the 
Plan aims to ensure that we use each public dollar as strategically as 
possible to maximize impact on the ground and leverage the much larger 
sums of private capital that will be needed.

    At Treasury, we have created a Climate Hub to coordinate and 
elevate the Department's efforts on climate change, from domestic 
finance, to economic policy, to our international affairs teams.

    Question. Would passage of a carbon cap and dividend program help 
the U.S. regain its leadership position globally while also 
demonstrating an efficient policy option other nations could employ?

    Answer. President Biden is demonstrating global leadership by 
fulfilling his promise to rejoin the Paris Accords on Day One. He has 
brought the U.S. back to the table and is rallying the world to tackle 
the climate crisis and creating economic prosperity at the same time. 
The President has set an ambitious Nationally Determined Contribution 
and articulated a plan to achieve our climate goals. We look forward to 
working with Congress to finalize the specific actions the country will 
take to achieve these ambitious goals.

    Question. Today, President Biden is meeting with President Putin 
and will raise continued cyber-attacks on U.S. companies and 
infrastructure that originate in Russia. Since the Solarwinds attack, 
we have seen ransomware attacks on the Colonial Pipeline and on meat 
processor JBS.

    These continued attacks have enormous costs on U.S. business and 
have the potential to be major disruptions to the U.S. economy. The 
United States must use all its tools to stop these attacks including 
sanctions.

    The Senate-passed China Competition bill contained new sanctions 
authorities developed by our colleagues Senators Brown and Toomey to go 
after Chinese actors responsible for cyberattacks against USG or 
private sector networks. Congress passed the Countering America's 
Adversaries Through Sanctions Act (CAATSA) in 2017 to authorize similar 
sanctions targeted at Russian actors. And there are executive orders 
that apply more generally, enabling you to target others responsible 
for cyber-attacks against the United States.

    As Treasury is undertaking the broad sanctions review you 
previously testified about, have you come to any conclusions about 
whether current legal authorities in place are sufficient?

    Answer. The sanctions review that I asked Deputy Secretary Adeyemo 
to lead is not focused on a particular sanctions program or individual 
set of designations, but rather on identifying broad successes, 
opportunities for changes or improvements, and steps for adapting 
implementation across all sanctions programs. This will help to ensure 
that sanctions remain relevant, rigorous, and fit to purpose, advancing 
the national security, and foreign policy, and economic aims of the 
United States. The review remains ongoing. However, we look forward to 
briefing you when the review is completed.

    Question. Has Treasury determined how we can better target these 
attackers using existing sanctions authorities both to punish them and 
to strongly deter future such attacks?

    Answer. OFAC continues to target malicious cyber-enabled actors, 
including pursuant to cyber-related Executive Order (E.O.). 13694, as 
amended by E.O. 13757. Together with actions pursuant to various 
country-specific sanctions authorities, these actions have aimed to 
disrupt and deter malicious cyber-activity across the spectrum of 
adversary States and criminal actors. OFAC has used these authorities 
to counter a wide array of types of malicious cyber activity, to 
include perpetrators of ransomware attacks and those who facilitate 
ransomware transactions. Treasury is committed to continuing efforts to 
hold malicious cyber actors accountable for their actions.

    Question. How is Treasury working with our allies to ensure a 
coordinated approach on cyber-related sanctions?

    Answer. We appreciate that the effect of our sanctions can be 
amplified when imposed in coordination with other U.S. government 
efforts, and, where possible, in coordination with similar sanctions or 
other complementary actions by allied and partner governments. Treasury 
continues to explore working across the interagency and with allied and 
partner governments to take complementary actions including joint 
designations and coordinated messaging, to amplify our actions. 
Multilateral pressure can limit the ability of targeted States or 
persons to circumvent our actions and conveys united resolve that we 
are willing and ready to hold cyber-criminals based in and affiliated 
with Russia, China, and elsewhere accountable for their malicious 
activities. In addition to coordination on sanctions, Treasury works 
with allied and partner governments to urge them to take stronger 
action against cyber-criminals and their associated networks of 
supporters and facilitators and improve cybersecurity and resilience.

    Question. I want to discuss an issue that I know is of serious 
concern to both of us--our growing affordable housing crisis and the 
need to build millions more housing units in Washington State and 
nationwide.

    As you know, I have been working with Senator Young, along with the 
chairman and Senator Portman, to expand and strengthen the Low-Income 
Housing Tax Credit.

    Our legislation includes several critical increases to housing 
credit resources and improvements to the program: a 50-percent 
allocation increase for the credit overall, a reduction of the current 
50-percent bond threshold to 25 percent so projects can more easily 
access much-needed housing credit equity, and important basis boosts to 
help extremely low-income populations as well as high-need areas 
including rural and tribal communities. This is something we have been 
able to make incremental progress on, most recently last December with 
the enactment of the 4-percent floor.

    But as we recover from the pandemic, now more than ever families 
need access to more affordable housing. We have much more to do here.

    So I was pleased to see that the President's budget includes 
support for an expansion of LIHTC, and I look forward to working with 
you to get that enacted in to law this Congress.

    What is the Department's estimate for how many homes could be built 
through these changes to LIHTC?

    As we work towards these reforms, will you commit to do all you can 
to work with myself, Senator Young, and our colleagues on expanding and 
improving the Low-
Income Housing Tax Credit?

    Answer. The administration is committed to working with Congress to 
help make affordable housing a reality for more Americans. As you 
mentioned, the President's budget includes a proposal to expand LIHTCs, 
including a more than 100-percent allocation increase for the credits 
in 2022 through 2026. The administration expects that these new LIHTCs 
will support the construction or rehabilitation of tens of thousands of 
affordable residential rental units for low-income tenants. Combining 
the $55-billion revenue cost of these credits with investments 
including $80 billion in HUD's HOME Investment Partnership program and 
the housing trust fund, and $19 billion of revenue costs for 
Neighborhood Homes Investment Credits, the President's plan proposes a 
$313-billion investment to produce, preserve, and retrofit more than 2 
million affordable and sustainable places to live for low-income 
families. It pairs this investment with an innovative new approach that 
will prevent State and local exclusionary zoning laws from driving up 
the cost of construction and keeping families from moving to 
neighborhoods with more opportunities for them and their kids. This 
complements the administration's proposed changes to LIHTCs, which 
include targeting the increase in credits towards neighborhoods of 
opportunity.

    Question. As you know, this summer the Federal Reserve plans to 
release a research on digital currency. Other countries including China 
are already moving ahead with plans to create their own official 
digital currencies as the cryptocurrency market is now valued at $1.5 
trillion and continues to grow.

    According to press reports, U.S. financial regulatory agencies are 
exploring new ways to regulate the cryptocurrency market. There are 
risks from decentralized cryptocurrencies. We have seen cybercriminals 
demand ransoms in cryptocurrencies. The cybersecurity of 
cryptocurrencies themselves can also be an issue; they can be stolen.

    In your view, what are the benefits of creating an official digital 
currency? Will the U.S. be put at a competitive disadvantage as other 
countries create their own digital currencies?

    How is Treasury working to mitigate potential risks from 
decentralized cryptocurrencies, including from transnational crime?

    Answer. The Federal Reserve is exploring the potential benefits and 
risks of Central Bank Digital Currencies (CBDCs) with a key focus on 
how a CBDC or other efforts could improve domestic payments system and 
its ability to serve the needs of households and businesses. A U.S. 
CBDC would also raise important questions about monetary policy, 
financial stability, consumer protection, and legal and privacy 
considerations.

    At the same, time we are mindful that confidence in the stability 
of the international monetary system is underpinned by broader 
considerations such as credible and longstanding public sector 
commitments to transparency, the rule of law, and sound economic 
governance. To further the continued stability of that system, Treasury 
and other U.S. authorities are actively involved in a range of 
international forums such as the G7, G20, and Financial Stability 
Board, including efforts that could guide a jurisdiction if it decides 
to introduce a CBDC.

    The potential to send cryptocurrencies, a type of virtual currency, 
nearly instantaneously and irrevocably across borders can increase 
illicit finance risks, including potential misuse by transnational 
criminals. Moreover, some cryptocurrencies can offer the anonymity of 
cash without the same physical limitations. It is also possible to 
transfer cryptocurrencies without the involvement of a financial 
institution subject to AML/CFT obligations, exacerbating the illicit 
finance risks.

    Globally, many governments have yet to follow the lead of the 
United States by putting in place laws consistent with the Financial 
Action Task Force (FATF) standards for the regulation and supervision 
of virtual assets including (i) cryptocurrencies and (ii) and virtual 
asset service providers (VASPs). The lack of effective regulation, 
supervision, and enforcement in many foreign jurisdictions can enable 
continued misuse of cryptocurrencies through jurisdictional arbitrage. 
Treasury, through the Office of Terrorist Finance and Financial Crimes 
(TFFC), is working with the FATF to encourage global implementation of 
the standards and to provide guidance on their implementation. 
Treasury's Office of Terrorism and Financial Intelligence, particularly 
TFFC and Financial Crimes Enforcement Network (FinCEN), also works with 
other jurisdictions to pursue global implementation of the FATF 
standards, as well as with the private sector to promote compliance.

                                 ______
                                 
              Questions Submitted by Hon. Thomas R. Carper
    Question. Through my work on this committee and as chairman of the 
Senate Environment and Public Works Committee, I remain committed to 
passing laws that will drive down dangerous emissions and clean energy 
costs for consumers. We know that our climate crisis demands urgent 
action. I share President Biden's belief that we must work to ensure 
that our tax code helps our Nation combat this challenge, and, in doing 
so, creates good-paying American jobs and strengthens our economy.

    This committee recently marked up Chairman Wyden's Clean Energy for 
America Act, which included a number of my top energy tax priorities--
including expanded incentives for clean hydrogen production, the 
deployment of clean vehicle refueling infrastructure, and refundability 
of our clean energy tax credits.

    Can you share how the administration's budget request and tax 
proposals will help us accelerate the transition to a cleaner economy 
and spur job creation?

    Answer. The budget makes historic investments that will help our 
Nation build back better and lay the foundation for shared growth and 
prosperity for decades to come. One cornerstone of these proposals is 
around more efficient use of existing resources. This means focusing on 
climate change and energy efficiency, infrastructure modernization and 
resiliency, surface transportation, housing supply, supply chains, 
childcare, and education, all of which are key components to job 
creation.

    The administration has proposed over $300 billion in incentives for 
clean energy and the elimination of $35 billion in fossil fuel 
incentives. (These figures do not include $174 billion in spending 
programs for related to electric vehicles and charging stations, nor 
$85 billion in additional taxes on foreign oil and gas income.) The 
administration is also calling for a clean energy standard (CES) to 
achieve 100-percent carbon emissions free electricity production by 
2035; Treasury's estimates of clean energy tax credits assume CES 
implementation. Most of the tax incentives for businesses would include 
a direct pay option which would make the incentives more efficient as 
project developers with insufficient tax liability would no longer need 
to partner with firms with sufficient tax liability to use the credits.

    Question. Now that we are emerging from the pandemic and working to 
rebuild our economy, we need to be laser focused on getting people back 
to work, as well as strengthening investment and increasing innovation 
in the United States. In order to ensure a robust economic recovery, 
changes to the tax code should encourage economic growth and help to 
create a nurturing environment for job creation. This includes making 
sure that these changes allow us maintain our competitiveness and 
support good-paying jobs.

    Can you share your thoughts on how to best maintain American 
competitiveness, and how these tax and budget proposals may impact 
economic growth and job creation?

    Answer. The budget includes the American Jobs Plan--a once-in-a-
generation investment in America that will create millions of good 
jobs, rebuild our country's infrastructure, and position the United 
States to compete--as well as the American Families Plan--a historic 
plan to help families cover the basic expenses that so many struggle 
with now, including by providing an additional 4 years of free public 
education through universal pre-school for all 3- and 4-year-olds and 2 
years of community college, lowering health insurance premiums, and 
continuing the American Rescue Plan's historic reductions in child 
poverty.

    The budget also reinvests in discretionary programs that are a 
foundation of our country's strength--from expanding economic 
opportunity and investing in education, to improving our public health 
infrastructure and tackling the climate crisis, to restoring America's 
place in the world and confronting 21st-century security challenges.

    The budget provides a fiscally responsible path for delivering a 
stronger, more prosperous economy. Under the budget's proposals, the 
cost of Federal debt payments will remain well below historical levels 
throughout the coming decade. And over the long run, the budget's 
investments are more than fully paid for through long-overdue changes 
to our tax code--reforming the corporate tax code to incentivize job 
creation and investment in the U.S., revitalizing tax enforcement to 
ensure that high-income Americans pay the tax they owe under the law, 
and eliminating loopholes that reward wealth over work.

    Over time, the savings from these reforms will exceed the up-front 
cost of the investments, and by large and growing amounts. The American 
Jobs Plan and American Families Plan together are paid for over 15 
years. And the full set of proposals in the budget reduce the annual 
deficit by the end of the 10-year budget window and reduce deficits by 
over $2 trillion in the decade after that.

    Overall, enacting the budget policies into law this year would 
strengthen our Nation's economy and lay the foundation for shared 
prosperity, while also improving the Nation's long-term fiscal outlook.

                                 ______
                                 
                Questions Submitted by Hon. Bill Cassidy
    Question. As you consider next steps in the OECD Pillar 2 project, 
it's imperative that we consider how U.S.-based companies will stack up 
against those of the world's second largest economy, the Chinese. 
Although China is not part of the OECD, my understanding is that the 
administration agrees that Chinese assent to an OECD Pillar 2 agreement 
is a key factor in whether the agreement is truly global. A Bloomberg 
News article dated June 9, 2021 entitled ``China's Likely Bid for Tax 
Exemption Poses Risk to Global Accord'' notes that the general Chinese 
corporate rate is 25 percent with a special 15-percent rate for 
technology-related income, but that there are additional incentives 
that can take that rate to 0 percent. The article also notes the 
Chinese are likely seeking a carve-out that would preserve these 
benefits.

    Have the Chinese approached you to discuss a carve-out from the 
OECD Pillar 2 agreement? Given how important these negotiations are to 
the administration's priorities, are there scenarios in which you might 
compromise with them?

    Answer. The consensus we achieved at the Inclusive Framework was 
unprecedented and signals great progress toward a historic deal on a 
redesign of the international tax system. We actively worked with all 
countries to make the consensus as broad as possible. We did not, 
however, provide any special exceptions to China in doing so.

    Question. The Chinese understandably want to preserve their 
domestic incentives for production of intellectual property. But, this 
administration has chosen to abandon policies like FDII which help 
American businesses. I fear that your administration's priority is to 
get a deal fast to raise trillions in business taxes to partially 
offset partisan new spending programs. Once again, we find the U.S. 
alone, and not aligned with the interests of U.S. companies, their 
workers, and their communities.

    Can you tell me why the U.S. is so isolated in abandoning policies, 
like FDII, while other players insist on maintaining similar policies 
that align with businesses based in their countries?

    Answer. The United States and the international community are 
nearing a comprehensive agreement on robust country-by-country minimum 
taxes, seeking to end ``the race to the bottom'' on corporate tax 
rates. Adequate taxation of internationally mobile capital helps 
governments invest in infrastructure, clean energy, and education, 
spurring future economic growth.

    There are multiple problems with FDII. First, the FDII is not an 
effective way to encourage R&D in the United States, since it provides 
larger tax breaks to companies with excess profits (those already 
reaping the rewards of prior innovation) and only targets those with 
high export sales (omitting those companies with domestic sales).

    Second, like the GILTI, the FDII deduction encourages offshoring of 
real activity, since the export subsidy becomes less generous (all else 
equal) as companies have higher U.S. tangible assets.

    Repealing FDII would generate a large amount of revenue that could 
be used to encourage research and development much more directly. As 
one example, reversing the research amortization provision in the Tax 
Cuts and Jobs Act of 2017 (and returning to expensing) would cost a 
similar amount of revenue as FDII repeal would raise, but would benefit 
not just established exporting firms, but also domestic firms and new 
startups.

    Question. Fossil fuels are integral to our Nation's economic 
vitality and national security and cannot feasibly be replaced by 
renewables at this time. Yet, the Biden administration has signaled 
hostility to the fossil fuel industry across several different 
agencies. In particular, on May 20th, the President issued an executive 
order on climate related financial risk calling for you, as chair of 
FSOC, to basically go find these yet unknown risks, whatever they may 
be. You have said that ``our pensions'' depend on proper assessment of 
climate-related risks to the financial system. At the G7, you 
announced, ``we support moving towards mandatory climate related 
financial disclosures.'' I worry this will turn into a self-fulfilling 
prophecy in an attempt to drive pension funds away from investing in 
energy companies.

    Do you agree that the fossil fuel industry continues to be and will 
continue to be critical for our national security and economic growth 
and that domestic energy production tends to be cleaner and safer than 
energy produced offshore?

    Answer. The administration is proposing to eliminate fossil fuel 
subsidies that distort markets by encouraging more investment in the 
oil and gas industry than would occur under a neutral system. This 
market distortion is inconsistent with the administration's policy of 
supporting a clean energy economy and reducing carbon emissions. 
Moreover, the subsidies must ultimately be financed with taxes that 
result in other distortions, e.g., in reductions in investment in 
other, potentially more productive, areas of the economy.

    Fossil fuel companies additionally benefit from substantial 
implicit subsidies, since they sell products that create externalities 
but they do not have to pay or bear the costs for the damages caused by 
these externalities. The administration has created a goal to create a 
carbon pollution-free power sector by 2035 and net zero emissions 
economy by no later than 2050. Meeting these goals will create millions 
of good-paying, middle-class, union jobs and build the clean energy 
economy of tomorrow.

    Question. Your budget request includes billions in resources for 
the Department of Treasury to go after the so-called ``tax gap.'' Of 
course, the last Democratic administration used the IRS to intimidate 
and attack disfavored groups.

    Federal audits can be disruptive and costly even if they end up 
finding no evidence of wrongdoing. Given the administration's posture, 
how are you going to make sure IRS won't use these billions in new 
money for enforcement to target or harass companies the administration 
has decided are problematic, such as those in the fossil fuel sector?

    Answer. The IRS has lost significant ground over the last decade, 
as its budget has declined by 20 percent, leading to a substantial 
decline in its workforce, particularly of specialized auditors who 
conduct audits of global high net worth individuals, complex 
partnerships, and large corporations. As a result, audit coverage has 
dropped off significantly. For large corporations, it has been halved 
over the last decade, declining from 98 percent in FY 2010 to around 50 
percent today. There is a one-for-one relationship between the revenue 
that the IRS is able to collect from examinations and the examinations 
that it performs. The IRS currently does not have the tools that it 
needs to pursue enforcement activities against large corporations and 
the high-income taxpayers who own them, and the President's proposal 
provides the IRS necessary resources.

    The proposal also provides much needed information that the IRS can 
use to appropriately target its enforcement activities. The IRS selects 
audits for examination based on inferences about how likely a taxpayer 
is to be noncompliant. But when the IRS has no visibility into opaque 
income streams, it lacks the ability to target enforcement activity 
effectively. Providing a lens into opaque income streams will decrease 
the likelihood of disruptive and burdensome audits for the vast 
majority of taxpayers who are already fully compliant with their tax 
obligations.

    Question. As you know, FinCEN has responsibility for combating all 
forms of money laundering. I believe FinCEN has a vitally important 
mission, and I was gratified to see that the administration is 
requesting a significant budget increase of 50 percent over last year's 
enacted levels, primarily to implement the anti-money laundering 
legislation passed last year. I am interested in Trade-Based Money 
Laundering, or TBML, in particular. As we have discussed before, TBML 
is the least understood and most pervasive form of money laundering.

    What are your thoughts on how Treasury and Congress can better 
collaborate to more effectively combat TBML? Given the new staff that 
comes with a new administration, could you connect my team with those 
on yours best suited to speak to this issue?

    Answer. The Financial Crimes Enforcement Network (FinCEN) is 
currently pursuing a comprehensive study to enhance its understanding 
of TBML-related illicit methods and vulnerabilities. We anticipate that 
this study will serve as an integral platform and leverage point for 
issuing collaborative and substantive recommendations to further 
counter this elusive threat.

    This study will include proposed strategies to combat TBML that may 
include enhanced information exchange between FinCEN and its Treasury 
partners in the sanction evasion and illicit financing realms, related 
proactive targeting and strategic assessment initiatives, the 
development and implementation of collaborative working groups, and 
providing further guidance to relevant financial and business sectors.

    I have asked FinCEN to contact your team to provide you an update 
on this important issue.

    Question. At your confirmation hearing, I asked about the 
possibility of long-term bonds issued by the Treasury to take advantage 
of historically low interest rates, and you agreed to look into this 
question. I believe these interest rates may not remain low over the 
next few years, and so want to take advantage if possible.

    Has the Treasury given consideration to the possibility of issuing 
long-term bonds? What have been your findings on the potential 
implications?

    Answer. Treasury continually evaluates the set of securities that 
it issues to finance the government at the lowest cost to the taxpayer 
over time. Treasury has given significant consideration to the 
possibility of issuing additional longer-term bonds over the past 
several years and will continue to explore this important issue, 
including conducting broad investor outreach to gain an understanding 
of market appetite.

    Treasury has specifically explored a range of potential new long-
term debt products, including 20-year, 50-year, and 100-year bonds, all 
with the goal of expanding borrowing capacity to finance the Federal 
Government at the least cost over time. In May 2020, Treasury 
reintroduced the 20-year bond, which has provided additional 
substantial long-term financing capacity, offering investors additional 
opportunities to invest and allowing Treasury to term-out the initial 
increase in short-term financing in 2020.

                                 ______
                                 
           Question Submitted by Hon. Catherine Cortez Masto
    Question. Does the Treasury anticipate removing and/or scaling back 
any of the eligible use categories for coronavirus State and local 
fiscal recovery funds if the national emergency ends prior to the 
expiration of funds?

    Answer. None of the eligible use categories for the coronavirus 
State and local fiscal recovery funds in the statute or Treasury's 
interim final rule are conditioned on the continuation of the national 
emergency declaration.

    Eligible uses under sections 602 and 603 of the American Rescue 
Plan Act are intended to support State and local governments in 
responding to the pandemic. Specifically, under the eligible use 
category for responding to the public health emergency and its negative 
economic impacts, recipients may use funds for payroll and benefits 
costs of public health and safety staff primarily dedicated to COVID-19 
response, as well as rehiring of public sector staff up to pre-pandemic 
levels. In the interim final rule, Treasury has asked stakeholders to 
comment on how long these measures should remain in place.

    Under the eligible use category for the provision of government 
services to the extent of the reduction in revenue experienced due to 
the COVID-19 public health emergency, Treasury is considering whether 
to take into account other factors, including actions taken by the 
recipient as well as the expiration of the COVID-19 public health 
emergency, in determining whether to presume that revenue losses are 
``due to'' the COVID-19 public health emergency. In the interim final 
rule, Treasury has invited stakeholders to comment on the advantages 
and disadvantages of this presumption, including when, if ever, during 
the covered period it would be appropriate to reevaluate the 
presumption that all losses are attributable to the COVID-19 public 
health emergency.

                                 ______
                                 
                 Questions Submitted by Hon. Mike Crapo
          irs funding for gathering personal bank information
    Question. The Treasury Inspector General for Tax Administration--or 
TIGTA--issued a report in 2017 on IRS criminal investigations during 
the Obama administration of suspected violations of the Bank Secrecy 
Act's anti-structuring provisions.

    The IRS was enforcing those provisions primarily against 
individuals and businesses whose income was obtained legally, and not 
against criminals, according to TIGTA. Let me quote some excerpts from 
TIGTA's report: ``. . . reasonable explanations by taxpayers were not 
investigated . . .''; ``. . . investigators were encouraged to engage 
in quick hits, where property was more quickly seized . . . rather than 
pursuing cases with other criminal activity (such as drug trafficking 
and money laundering), which are more time consuming . . .''; and 
``When property owners were interviewed after the seizure, agents did 
not always identify themselves properly, did not explain the purpose of 
the interviews, did not advise property owners of any rights they might 
have, and told property owners they had committed a crime at the 
conclusion of the interviews.''

    TIGTA determined that 91 percent of investigations it sampled where 
sources of funds could be determined were businesses and individuals 
whose funds were obtained legally. TIGTA also reported that: ``Most 
people impacted by the program did not appear to be criminal 
enterprises engaged in other alleged illegal activity;'' rather, they 
were legal businesses such as jewelry stores, restaurant owners, gas 
station owners, and others.

    With what I just discussed in mind, I wonder if you have any 
concerns about the administration's proposal to monitor Americans' bank 
accounts. One proposal is to give the IRS an unprecedented large and 
mandatory stream of funding to, in part, have private financial 
institutions gather financial information from almost every individual 
and business with flows of deposits or withdrawals of as little as $600 
in checking, savings, and other accounts, and use the information to 
determine if the IRS should target those individuals or businesses for 
extra scrutiny.

    And, I am sure you are aware of the fate of the requirement in the 
partisan Affordable Care Act mandating that businesses file Form 1099 
with the IRS for all purchases made from any vendor totaling $600 or 
more per year. Following firm rejection of that effort by the American 
people, President Obama was forced to repeal the offending provision.

    The recent and significant apparent breach of individual taxpayer 
privacy in the ProPublica alleged publication of individual private and 
personal taxpayer information raises serious concerns regarding the 
administration's bank monitoring scheme.

    Please explain how monitoring almost every taxpayer's bank 
accounts, for flows of as little as $600, with significant risks to 
breaches of privacy, is at all necessary for tax administration.

    Answer. When the IRS is able to verify the accuracy of tax filing 
with third-party reports, compliance rates are more than 95 percent. 
For opaque sources of income, where no such reporting exists, 
compliance rates are under 50 percent. A comprehensive financial 
reporting regime will finally shed a light on these income sources and 
raise nearly $500 billion in additional tax revenue in a progressive 
way, as high-end tax evaders realize that the IRS is better equipped to 
address evasion.

    The President's compliance initiatives do not constitute monitoring 
taxpayers accounts; nor do they implicate taxpayer privacy concerns. In 
fact, the proposal also includes a significant increase in resources 
for the IRS to meet threats to the security of the tax system. For 
honest taxpayers, there are no costs associated with this new regime--
only benefit. Audit rates of compliant taxpayers will decline as the 
IRS is better able to target its enforcement activities. Additionally, 
compliant small business owners--who today are at a disadvantage 
because they are forced to compete against those who do not comply with 
the tax code--will see this evasion advantage removed.
           g7 agreement on imf special drawing rights (sdrs)
    Question. The June 5th communique from the G7 finance ministers and 
central bank governors put support behind a new general allocation of 
Special Drawing Rights, or SDRs, and the IMF of $650 billion by the end 
of August. Prior to offering of support from the administration for the 
allocation, what discussions have you had with Republican members of 
Congress on the issue?

    Answer. On April 1, 2021, Treasury sent letters on my behalf to 
Congress indicating our intent to consider a new $650 billion general 
allocation of Special Drawing Rights (SDRs) by the International 
Monetary Fund (IMF) and starting the 90-day consultation process, as 
required by the Special Drawing Rights Act (``SDR Act''). I, as well as 
the Deputy Secretary and Treasury staff, have consulted extensively 
with Democratic and Republican members of Congress and their staffs on 
the allocation before and during this consultation period.
       debt limit and how long could extraordinary measures last
    Question. The debt limit was suspended in August of 2019, and will 
be reinstated on August 1st of this year at whatever level obtains on 
that date covering all prior borrowing and borrowing that occurred 
during the suspension. I understand that there are uncertainties in 
projecting how long so-called extraordinary measures could last in the 
event that the debt limit is not raised before August 1st. I also 
understand that Treasury does, and should, model various scenarios.

    As of today, what do you see as the most likely from among various 
possible future scenarios in terms of how long extraordinary measures 
would last if the debt limit is not raised before August 1st?

    Answer. The period of time that extraordinary measures may last is 
subject to considerable uncertainty due to a variety of factors, 
including the challenges of forecasting the payments and receipts of 
the U.S. government months into the future, exacerbated by the 
heightened uncertainty in payments and receipts related to the economic 
impact of the pandemic. Given this, Treasury is not able to currently 
provide a specific estimate of how long extraordinary measures will 
last. However, there are scenarios in which cash and extraordinary 
measures could be exhausted soon after Congress returns from recess in 
September. For example, on October 1st alone, cash and extraordinary 
measures are expected to decrease by about $150 billion due to large 
mandatory payments including a Department of Defense-related retirement 
and health-care investment.

                            book minimum tax
    Question. The Green Book highlights that there is a disparity 
between the income reflected on corporations' financial statements and 
the taxable income reported on tax returns. But comparing these 
concepts is comparing apples and oranges. Calculations of book income 
and taxable income are significantly different, and are prepared for 
totally different audiences. The financial statements for public 
companies are prepared for an audience of shareholders, creditors and 
stakeholders and are required to follow generally accepted accounting 
principles set by non-governmental agencies. Taxable income, on the 
other hand, is determined and defined by Congress. When businesses 
engage in certain behaviors, U.S. tax law allows them to legally make 
adjustments to reduce their tax liability. For example, the Tax Cuts 
and Jobs Act allowed businesses to immediately deduct 100 percent of 
the cost of certain business property. This incentive led to increased 
capital investment and jobs. The deduction that accompanies this 
investment could allow a company to reduce its tax as a benefit for 
engaging in this legally incentivized behavior.

    The Green Book proposes a 15-percent corporate minimum tax on book 
income as a potential solution for disparities between accounting and 
tax law. However, in 1986 a similar minimum tax concept was tried but 
ultimately failed as it was repealed after only a few years. Given 
these differences between U.S. tax law and financial accounting 
concepts, there appears to be a risk that imposing a tax on book income 
would cede a portion of Congress' responsibility for defining taxable 
income and could distort the economic benefits in the tax law. I have 
two questions on this issue.

    Do you agree that the scope of the corporate tax base and the 
definition of taxable income is best suited for Congress to determine 
and define?

    Answer. Congress is responsible for legislating our tax laws, and 
they have the primary role in defining the tax base. The administration 
has proposed a limited book minimum tax that would act as a backstop 
when there are large discrepancies between what a company is reporting 
to their shareholders as financial income and what they are reporting 
in taxable income. This proposal is directed at asking very large and 
profitable companies with low or zero tax liabilities to pay their fair 
share. The proposal is designed to avoid targeting companies with low 
effective tax rates due to legitimate use of research and 
experimentation tax credits and many general business tax credits. The 
minimum book tax proposal is aimed at recapturing the tax revenue lost 
to gaming and tax avoidance.

    Question. Do you view a tax on book income as difficult, if not 
impossible, to apply to foreign-based multinationals?

    Answer. The book minimum tax would apply to very large and 
profitable corporations based on financial reporting to their 
shareholders, however certain modifications to that reporting may be 
required in the case of a foreign-based multinationals. We look forward 
to engaging with Congress on this proposal.
                        research and development
    Question. One major incentive for domestic investment is section 
174 of the Internal Revenue Code allowing U.S. businesses to 
immediately deduct research and experimental (R&E) costs. This 
provision has historically received bipartisan support as it 
incentivizes research investment and job creation in the United States. 
Beginning next year, however, U.S. businesses will be required to 
capitalize and amortize those costs over 5 years rather than 
immediately deducting them. Allowing businesses to continue to deduct 
their research and experimental costs would be a critical incentive for 
investment in innovation in the United States.

    In your response to questions for the record in January, you stated 
that you would carefully consider the concerns raised regarding the 
deductibility of research expenditures, paying particular attention to 
any effects on small businesses during the recovery.

    Given President Biden's interest in encouraging investment in 
manufacturing, jobs, and innovation in the United States, would you 
encourage Congress to maintain the current immediate deductibility of 
R&E expenses?

    Answer. The administration has proposed repealing the FDII 
deduction and using the associated revenue to more directly encourage 
research and development. One possible use of this revenue would be to 
reverse the imminent move toward R&E amortization created by the 2017 
tax law, returning to immediate expensing. Another option would be 
implementing more generous research tax credits. The administration is 
open to working with Congress on the most effective way to encourage 
research.

    There are a number of policy options that would be a more effective 
spur to domestic innovation than the FDII deduction. There are multiple 
problems with the FDII deduction. First, the FDII deduction is not an 
effective way to encourage R&D in the United States, since it provides 
larger tax breaks to companies with excess profits (those already 
reaping the rewards of prior innovation) and only targets those with 
high export sales (omitting those companies with domestic sales).

    Second, like the GILTI, the FDII deduction encourages offshoring of 
real activity, since the export subsidy becomes less generous (all else 
equal) as companies have higher U.S. tangible assets. Repealing FDII 
would generate a large amount of revenue that could be used to 
encourage research and development much more directly.
  biden pledge not to raise taxes on anyone earning less than $400,000
    Question. The President has been campaigning for his tax plans--
both before and after he was elected--on the premise that they would 
not raise taxes for ``anyone'' making less than $400,000. Or, as the 
Families Plan describes it: ``[N]o one making $400,000 per year or less 
will see their taxes go up.'' And yet, without even accounting for 
indirect effects, his plans explicitly increase taxes for persons 
making less than $400,000 in several instances.

    For example, two married taxpayers making significantly less than 
$400,000--one of whom could be making as little as $109,320--could face 
an individual income tax increase under the President's plan.

    As another example, a taxpayer who literally makes no money--even 
one with, for example, massive indebtedness or negative wealth--would 
face significant tax increases were they ever fortunate enough to 
acquire a valuable bequest or sell a valuable business.

    Do you agree with the President's assertion that his tax plan does 
not raise taxes at all on those making less than $400,000?

    Answer. The President's plan does not raise taxes on any taxpayers 
making less than $400,000. In your first example of a married couple, 
their tax rate would not increase until they earned over $500,000, and 
even then, it would only increase very modestly. In your second 
example, capital gains are a form of income, and under the 
administration's proposals, no taxpayers would face an increased tax 
rate on their capital gains unless their income exceeded $1 million. We 
are not presently proposing changes to the estate tax.
                           fairness and taxes
    Question. Another core feature of the President's tax plan is to 
require phantom gain realization for certain owners of capital assets--
for example, family businesses or farms. Perhaps recognizing the 
political blowback the phantom gain realization proposal would generate 
in this context, the President's tax plan also includes a proposal with 
self-described ``protections'' for family business or farms that allow 
family business or farm owners to defer--and do not exempt--the phantom 
gain that the proposal would generate so long as the narrowly- defined 
family group continues to both fully own and operate the business or 
farm.

    As you know, this proposal would apply to both built-in gains 
arising today as well as those that were built in decades before, so 
long as the deemed or actual transfer occurs in 2022 or beyond. This 
proposal would also catch (and tax) simple inflation.

    Thus, under this proposal working families who have simply passed 
down a farm or business over multiple generations would be particularly 
impacted, with the potential tax cascading and magnifying with each 
passing transfer. And as soon as any owner joined the business who 
could not meet the narrow definition of ``family'' or any non-
``family'' person begins to operate the business, all of this deferred 
tax would become due. Given that the businesses and farms subject to 
this proposal include ones that are generating no free cash flow, there 
will be instances, perhaps many, where businesses and farms must be 
sold or liened in order to pay the taxes due. The upshot of this 
proposed ``protection'' is to create one of the worst and most unfair 
lock-in effects I've ever seen.

    How can the protection promised in the administration's proposal be 
regarded as sufficient when it is certain that at least some family 
farms and businesses will have to be sold to pay the tax on the phantom 
gains?

    Answer. The administration's capital gains proposal provides 
generous exclusions for all taxpayers and additional protections to 
ensure that family-owned and -operated businesses are not adversely 
impacted. The proposal allows every individual a $1 million exclusion, 
which for a married couple translates to a $2 million exclusion, plus 
another total $500,000 for gains from one or more residences. The 
proposal also recognizes the critical role of family businesses and 
provides that the application of this proposal for gain realization on 
the assets of a family-owned and -operated business could be deferred 
in perpetuity while the business remains owned and operated by the 
family. In terms of the important definitional concepts surrounding 
family-owned businesses and requirements for family operation, the 
administration welcomes the opportunity to work with Congress to ensure 
that those protections are appropriately crafted.
   cap gains taxation, president's plan, and taxation on gains from 
                               inflation
    Question. As you know, the President's plan nearly doubles the 
maximum capital gains tax rate. As with many things in the President's 
plan, it justifies the change in fairness, arguing that the increase is 
necessary so that wealthy people pay a fair share. I want to focus on a 
key component of the President's plan for capital assets: the lack of 
any indexing with respect to tax basis.

    As you know, because the tax basis of capital assets is not indexed 
under the President's plan, taxpayers will owe (and pay) tax on simple 
inflation--a phenomenon that has already become all too pronounced 
since the President assumed office (and which would likely become worse 
were his massive spending proposals to become enacted).

    Do you believe that it is fair to double the tax on certain 
taxpayers' inflation?

    Answer. It is the case that capital gains taxes tax nominal, rather 
than real, appreciation, when gains are realized. (Many other features 
of our tax system are also nominal. For example, interest payments are 
deductible in nominal terms, and interest income is taxed in nominal 
terms.)

    However, under current law, capital gains taxes are not levied 
until realization occurs, and this is a substantial preference. Simply 
put, a tax deferred is a tax saved, because tax not collected on 
capital gains can continue to appreciate and accumulate returns on the 
amount of uncollected tax, resulting in larger long-term gains relative 
to a situation where each year's capital gains were taxed as they are 
earned. In contrast, labor income has no such advantage. One is not 
able to simply hold off paying tax on wage income until a future year, 
accumulating returns on the tax payment in the meantime.

    To consider the fairness of the capital tax system as a whole, it 
is useful to consider all of these features in a holistic manner.
         child tax credit severed from work in president's plan
    Question. Republicans pushed through the adoption of the CTC in 
1997 to support working families. And yet, the President's proposal to 
extend the Democratic-led changes to the CTC for 2021 for another 5 
years does not limit the enhancements to working families. In fact, the 
changes completely sever the relationship between the CTC and work.

    What does the administration have to say to the working families 
whose taxes will be increased to fund expansions of the CTC to families 
that don't work at all?

    Answer. The CTC has been a bipartisan issue for a long time, and 
expansions of it have been supported by numerous Republicans such as 
Senators Marco Rubio, Mitt Romney, and Mike Lee. Reducing child poverty 
and helping working families should not be a partisan issue. The vast 
majority of recipients are working families who are trying to raise 
strong, healthy families and this helps them in that goal. However, if 
a parent is staying home to care for a child, the parent also benefits 
from the expanded child credit. Members of both parties agree that the 
more generous child tax credit passed in the American Rescue plan (and 
the extension proposed in the American Families Plan) will dramatically 
cut childhood poverty rates.
                                 gilti
    Question. During the hearing, you suggested the administration's 
GILTI proposal would raise the effective rate on GILTI to 21 percent. 
However, under current law, only 80 percent of foreign tax credits can 
be utilized against GILTI, resulting in a 20-percent foreign tax credit 
disallowance. Kimberly Clausing, the Deputy Assistant Secretary of 
Treasury's Office of Tax Analysis, recently stated publicly that the 
20-percent disallowance would be retained under the administration's 
proposal. This would result in a 26.25-percent GILTI effective rate.

    Can you confirm whether the administration's proposal would retain 
the foreign tax credit disallowance and, if so, can you confirm that 
the effective rate on GILTI would be 26.25 percent under the 
administration's proposal?

    Answer. As proposed, the administration's GILTI reform would retain 
the 20-
percent foreign tax credit disallowance. The effective tax rate on a 
company's foreign income would depend on where that company was 
operating. If they were operating in a zero-tax country, the rate would 
be 21 percent (paid to the United States); the effective tax rate on 
foreign income very slowly rises as the foreign rate rises (with a 
declining GILTI tax paid to the United States and the remainder of the 
tax paid to the foreign country). The effective tax rate would 
eventually reach 26.25, but only when the U.S. GILTI share of the tax 
is very low, so it is not contributing very much to the overall tax 
burden. At the top end, when the foreign tax rate is 26.25 percent, the 
tax is paid to the foreign government and the United States collects no 
GILTI tax.

    Question. Is it the administration's position that the United 
States should increase the GILTI rate to an effective rate of 26 
percent before any other country has enacted a minimum tax?

    Answer. The administration has proposed a 21-percent GILTI rate. 
(The proposal suggests a deduction of 25 percent for GILTI income in 
the context of a 28-percent headline rate.) This GILTI reform is good 
policy, irrespective of the choices of our trading partners, as it 
reduces the tilt in the playing field that favors foreign earnings and 
operations over domestic earnings and operations. It also raises 
revenue, improves the fairness of our tax system, and increases 
efficiency.

    Still, the present moment is an important time for international 
cooperation in this area, and the U.S. government can lead countries 
toward a global agreement on a strong, robust minimum tax, ending the 
race to the bottom in corporate taxation.

    The United States is seeking a global agreement on a minimum tax at 
the highest possible rate. Even if it settles somewhat below 21 
percent, today the global minimum tax rate is 0, far below our 10.5-
percent GILTI rate.

    We are hopeful that many countries will find it in their interest 
to join such an agreement, but even if they do not, we are not 
powerless. The SHIELD proposal can counter foreign company profit 
shifting. And simple anti-inversion measures, or even changes through 
regulation, can be quite effective in stemming the incentive to invert, 
as shown by the U.S. experience after the anti-inversion (and anti-
income stripping) regulations of the late Obama years.

    Question. What is your position on China receiving a carve-out or 
exception to the global minimum tax?

    Answer. The consensus we achieved at the G20 and OECD Inclusive 
Framework was unprecedented and signals great progress toward a 
historic deal on a redesign of the international tax system. More work 
needs to be done; however, Pillar 2 does not need the support of every 
country to be successful. Due to the enforcement mechanism of the UTPR, 
and our domestic corollary SHIELD proposal, if enough of the world's 
GDP signs up for Pillar 2, these enforcement mechanisms will 
incentivize other jurisdictions to also adopt minimum taxes by denying 
deductions on related party payments in low-tax jurisdictions. We are 
actively working with all countries to make the consensus as broad as 
possible, but we are not providing any special exceptions that would 
undermine the robustness of the regime.

    Question. If countries do not enact a minimum tax at all, and the 
U.S. raises the effective rate on GILTI to 26 percent, don't you think 
that will make American companies less competitive globally?

    Answer. The administration has proposed a 21-percent GILTI rate. 
(The proposal suggests a deduction of 25 percent for GILTI income in 
the context of a 28-percent headline rate.)

    Concerns about the competitiveness of U.S. multinationals ignore 
the evidence. Even before the Tax Cuts and Jobs Act of 2017 
dramatically lowered U.S. corporate tax rates, U.S. multinational 
companies paid similar effective tax rates as peers in other countries. 
In recent years, the Joint Committee on Taxation shows effective tax 
rates for U.S. multinational companies of about 8 percent. And, U.S. 
corporate tax revenues are far lower than those in peer countries. Over 
10 years, the American Jobs Plan proposals increase corporate taxes 
modestly, to about 1.7 percent of GDP. In contrast, our trading 
partners raise about 3 percent of GDP in corporate taxes.

    Finally, it is important to remember that competitiveness is about 
more than the success of U.S. companies in foreign merger and 
acquisition bids. It is also about ensuring that our tax code doesn't 
incentivize foreign operations at the expense of those at home. And, it 
is about nurturing the many fundamental strengths that make the United 
States a good place to do business. Investing in our institutions, in 
the abilities and education of American workers, in the quality of our 
infrastructure, and in cutting-edge research is all important.
                                 shield
    Question. The administration has suggested that its proposed 
Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD) 
provision would compel foreign countries to enact a global minimum tax 
by disallowing deductions of companies that make a payment to a 
jurisdiction with no minimum tax.

    The only information we have on the SHIELD is the 2-page 
description in the Green Book. There appear to be no detailed 
specifications or draft language, and the concept has never been 
tested.

    Putting aside treaty or constitutionality issues, that seems quite 
ambitious, and I'm not aware of whether that concept has ever been 
tested.

    Why should this high-level idea that has not been fully developed 
or tested compel our biggest competitors, like China, to enact a global 
minimum tax without any carve-outs?

    Answer. The consensus we achieved at the G20 and Inclusive 
Framework was unprecedented and signals great progress toward a 
historic deal on a redesign of the international tax system. We 
actively worked with all countries to make the consensus as broad as 
possible. We did not provide any special exceptions to China in doing 
so. Many countries recognize that, if they do not join consensus, 
Pillar 2 includes the enforcement mechanism of the Undertaxed Payments 
Rule (UTPR) that incentivizes jurisdictions to adopt Pillar 2 to the 
extent that their profits in low-tax jurisdictions are taxed below the 
minimum tax rate. The administration's SHIELD proposal incentivizes 
countries in a similar manner.

    Question. It seems more likely that China would view this as a 
unilateral measure that will result in retaliation. Do you view that as 
a concern?

    Answer. Because SHIELD works similarly to the multilaterally agreed 
upon UTPR, it is likely to be seen in this familiar light by other 
countries.

    Question. If the SHIELD would disallow deductions paid to a 
jurisdiction with no global minimum tax, like China potentially, 
wouldn't a Chinese company opt to avoid doing business through related 
parties in countries with a minimum tax, like the U.S.; in other words, 
doesn't this just incentivize companies to plan around the U.S., 
effectively reducing the amount of U.S. business activity and 
investment?

    Answer. If enough of the world's GDP joins the Pillar 2 framework, 
then it would be impossible for companies to avoid doing business 
through related parties in countries with a minimum tax. With countries 
representing more than 90 percent of global GDP joining the Inclusive 
Framework consensus, that tipping point has now been reached and 
exceeded.

    Question. My understanding of the administration's SHIELD proposal 
is it would disallow deductions for payments made from U.S. companies 
to any company located in a country without a global minimum tax, even 
if that country is a treaty partner.

    Wouldn't the SHIELD require treaty changes because it would run 
afoul of non-discrimination clauses included in our tax treaties, and 
shouldn't the administration be working with Congress on these 
proposals given that treaty ratification would require significant 
bipartisan support?

    Answer. SHIELD has been designed to avoid conflicts with our treaty 
obligations, but we look forward to engaging with Congress to move this 
proposal forward.
                            oecd minimum tax
    Question. Under the prior administration, Treasury took the 
position that GILTI should be treated as a ``deemed compliant'' minimum 
tax under Pillar 2--in other words, because it is a robust minimum tax 
with a substance-based carve-out, similar to the minimum tax being 
proposed at the OECD, GILTI should be treated as already complying with 
any global minimum tax agreement. In fact, the Pillar 2 blueprint 
explicitly stated that the Pillar 2 global minimum tax being considered 
is actually more permissive in a number of ways than GILTI.

    Has the administration abandoned the approach of proposing that 
GILTI be treated as complying with any Pillar 2 global minimum tax 
agreement?

    Answer. The Biden-Harris administration will pursue a comprehensive 
multinational agreement to update global tax rules in ways that 
establish effective minimum taxation rules, prevent global profit-
shifting, and ensure that corporations pay their fair share. Pillar 2 
is generally consistent with theadministration's budget proposals, 
although we also anticipate a future need for deemed GILTI compliance 
given the uniqueness of many features of the GILTI framework.

    Question. If not, and the administration agrees to a global minimum 
tax that is different than GILTI, does Congress have to enact changes 
to GILTI?

    Answer. See the response immediately above. Pillar 2 includes the 
enforcement mechanism of the UTPR that incentivizes jurisdictions to 
adopt Pillar 2 to the extent that their profits in low-tax 
jurisdictions are taxed below the minimum tax rate. Whether or not 
Congress adopts the President's proposal to reform GILTI, the taxes 
paid by U.S.-parented groups under GILTI would still be taken into 
account in applying the UTPR. The amount of UTPR liability would of 
course depend on the terms of the final Pillar 2 agreement.

    Question. What would happen to U.S. companies if the U.S. does not 
have a compliant global minimum tax?

    Answer. See the response immediately above.

    Question. If U.S. companies would be subject to significant foreign 
tax because of the U.S. not having a compliant global minimum tax, 
doesn't that effectively force Congress's hand and effectively amount 
to the administration compelling Congress to enact tax legislation?

    Answer. Although the administration has committed to pursuing a 
robust global minimum tax and has consulted with congressional members 
and staff in crafting that commitment, Congress remains free to decide 
whether and how to fulfill that goal.
                         oecd and digital taxes
    Question. The initial basis for bipartisan support of Treasury's 
efforts at the OECD was to eliminate digital services taxes and similar 
unilateral measures, as I stated in my May 24th letter to you. But 
while other G7 countries appear perfectly happy asserting more taxing 
rights over large and successful U.S. companies under Pillar 1, certain 
G7 members don't seem to be taking the immediate removal of unilateral 
measures very seriously.

    Specifically, the EU doesn't seem at all interested in holding up 
their end of the bargain. Only a few days after the scheduled G20 
finance ministers meeting next month, the EU is expected to unveil a 
new gross-basis tax on digital companies with at least $300 million in 
annual revenue. What may be most concerning about this is that the EU 
has explicitly said this tax is NOT intended to be a temporary measure; 
rather it will be ``independent of'' and ``coexist with the 
implementation of an OECD agreement.'' Thus, not only do they want a 
larger piece of the tax pie from our most successful companies under 
Pillar 1 but also want to extract more from other emerging digital 
companies--many of which would likely be U.S. based. And because this 
tax will be on a gross basis, it will hit companies whether or not 
they're actually profitable.

    While the EU may justify the tax by asserting that it won't be 
discriminatory on its face (it remains to be seen whether it'll be 
discriminatory in application), the larger point is that gross-basis 
taxes that ring-fence a specific industry are unacceptable. And it 
would be unacceptable for the US to endorse any agreement that would 
allow DSTs or similar unilateral measures like an EU digital levy to 
coexist.

    Do you agree that an EU digital levy would be a unilateral measure 
that shouldn't be able to ``coexist'' with an OECD agreement under 
Pillar 1? If not, why not?

    Answer. A foundational premise of this OECD/G20 work is the 
elimination of DSTs because DSTs are discriminatory against U.S. firms. 
USTR's work on a section 301 response to DSTs is an important element 
of this. We are concerned that the EU continues to advance its own ``EU 
digital levy'' proposal, which the EU asserts would coexist with a 
Pillar 1 system. The EU asserts that the digital levy will not be 
discriminatory because it will apply to small firms and large firms 
alike. If so, the digital levy could be closer to a consumption tax or 
excise tax than a tariff. Much will depend on the details of the 
eventual European Commission proposal, which has not been released. We 
will closely monitor the developments in consultation with USTR and 
Congress.
      information and analysis on administration's oecd proposals
    Question. In my May 24th letter, I asked you to provide additional 
detail on the effect of the administration's proposed Pillar 1 strategy 
on U.S. companies and U.S. revenues. Specifically, I requested Treasury 
provide its analysis of companies that would be identified as in-scope 
using the proposed Pillar 1 quantitative scope approach based on 
publicly available information, as well as the amount of profit that 
would be allocated from U.S. companies to foreign market jurisdictions 
as well as amounts reallocated from foreign jurisdictions to the United 
States. Your response suggests that Pillar 1 would be ``largely revenue 
neutral'' but we have not received any additional company-specific 
information or any information about how profit would be allocated from 
the U.S. to foreign jurisdictions. This information is particularly 
important for Congress to understand the effect of the proposed 
approach and, without the information I request below, Congress will be 
unable to determine whether Pillar 1 would discriminate against 
American companies.

    How many of the 100 companies Treasury expects to be captured by 
Pillar 1 would be U.S. companies?

    Answer. Treasury expects approximately half of the 100 companies in 
scope to be U.S. companies.

    Question. How much profit would be allocated from the United States 
to foreign jurisdictions, and can you tell us which jurisdictions that 
profit would be reallocated to?

    Answer. The OECD Inclusive Framework has not agreed on the precise 
double tax relief methodology for Pillar 1. How much profit would be 
reallocated to and from the United States depends on these details. 
Revenue under Pillar 1 will be sourced to the end market jurisdictions 
where goods or services are used or consumed. The jurisdictions that 
stand to receive the largest reallocations from U.S.-headquartered MNEs 
are the larger markets to which U.S. MNEs source revenues, but precise 
figures depend on the various revenue sourcing factors being developed 
as part of Pillar 1. OTA has done multiple analyses of P1 as it has 
evolved, making reasonable assumptions about double tax relief 
methodology, and we have consistently found an impact on US revenues 
that was small and that included zero in the confidence interval.
                       statistics of income data
    Question. What role has the Office of Tax Analysis (OTA) 
traditionally had in the IRS's production and release of statistics of 
income (SOI) data; for example, does OTA edit or modify the 
presentation of SOI data before its release?

    Answer. SOI decides what data to release, though OTA may suggest 
topics. OTA staff with subject area expertise often review tables for 
SOI Tax Stats and articles written for the SOI Bulletin. Indeed, OTA 
staff have written articles for the SOI Bulletin analyzing specific tax 
data. OTA review typically focusses on clarifications of how the data 
were gathered or analyzed. SOI has the ultimate decision on which 
suggestions from OTA to incorporate.

    Question. Do you expect that role to change in any way with respect 
to future releases of SOI data and, if so, how?

    Answer. There is no expectation that OTA's role would change with 
respect to future releases of SOI data.

    Question. Can you commit that OTA will not influence or modify the 
presentation of future SOI data, or selectively pick which data are 
presented?

    Answer. OTA will continue to work with SOI to provide clear 
presentations of tax data to the public.

                                 ______
                                 
                Questions Submitted by Hon. Steve Daines
    Question. On May 18, 2021, Stephen A. Martin, Director of Exempt 
Organizations Rulings and Agreements at the Internal Revenue Service 
(IRS) issued a ruling determining that Christians Engaged does not 
qualify as a 501(c)(3). In the course of the ruling, Mr. Martin stated, 
``[Christians Engaged] educate[s] Christians on what the bible says in 
areas where they can be instrumental including the areas of sanctity of 
life, the definition of marriage, biblical justice, freedom of speech, 
defense, and borders and immigration, U.S. and Israel relations. The 
bible teaches are typically affiliated with the [Republican] party and 
candidates.''

    Is it your position that Biblical positions are typically 
affiliated with the Republican party?

    Is it your position that educating voters on (a) what the Bible 
says and (b) how that applies to a host of public issues including the 
sanctity of life and marriage qualifies as ``prohibited political 
campaign intervention'' sufficient to prohibit a group doing so from 
qualifying as a tax-exempt 501(c)(3)?

    Answer. As you are likely aware, the Treasury Department plays no 
role in IRS ruling processes. Nonetheless, I understand from my staff's 
review of publicly available information that the taxpayer about which 
you are asking publicly disclosed that it has in fact received section 
501(c)(3) status as a tax-exempt entity and expressed its thankfulness 
to the IRS.

    Question. One of your Deputy Assistant Secretaries, Tom West, 
recently said with respect to the section 199A deduction that, ``It's 
like when somebody is shot and the bullet is lodged somewhere close to 
a critical organ, and the doctor said, `We're just going to leave the 
bullet in, because it would be too risky to pull it out, and maybe it's 
the only thing keeping the patient alive.' ''

    As you know, changes to the 20-percent pass-through business 
deduction were not included in the Green Book.

    Do you agree with Mr. West that without the 20-percent deduction, 
many businesses who survived the pandemic or who have yet to close may 
have gone out of business if not for the 199A deduction? If not, why?

    Answer. This administration has demonstrated its unwavering 
commitment to helping businesses big and small navigate the challenges 
of the pandemic, retain their employees, and build back as the economy 
reopens. The American Rescue Plan provided unprecedented aid to small 
businesses and their workers--and provided it in a timely manner. While 
existing tax deductions may certainly have helped some of the 
businesses that continued to turn a profit during the pandemic, the 
businesses that suffered the most and needed the most help to survive 
are unlikely to have benefited from section 199A, a provision that 
applies to owners of profitable businesses.

    Finally, while changes to section 199A were not included in the 
administration's Green Book proposals, that does not change the fact 
that independent analyses based on JCT reports have shown that over 60 
percent of the benefits from the provision will go to the top 1 percent 
of households.

                                 ______
                                 
               Questions Submitted by Hon. Chuck Grassley
    Question. Taxpayer information that appears to have originated with 
the IRS has been published by ProPublica. Members of this committee are 
engaged in getting to the bottom of this. I'm also looking into it in 
my role as ranking member of the Judiciary Committee. Though the 
ProPublica stories focus on the tax returns of a few billionaires and a 
candidate for public office, we don't know if that's the entire 
universe of compromised returns or if it's the first sign of a much 
larger breach or leak.

    When did you become aware that taxpayer data held by the IRS may 
have been compromised?

    Do you believe that confidential information that originated at the 
IRS was the basis for the ProPublica piece? If so, do you know the full 
scope of the leak or hack, and which, or how many, taxpayers had their 
data stolen?

    Did anyone who had advanced knowledge of the ProPublica piece, such 
as a reporter or outside expert, contact the IRS or the Treasury 
Department in advance of publication?

    Answer. With respect to the ProPublica report, I am deeply troubled 
by it. It is important to stress that unauthorized disclosure of 
taxpayer information is a crime. Upon learning of this matter, it was 
immediately referred to the FBI, Federal prosecutors, and Treasury 
Department oversight authorities--all of whom have the independent 
authority to investigate. We don't yet know what occurred--but all is 
being done to get to the bottom of this potentially criminal activity.

    Question. The President proposes to eliminate the benefit of 
stepped-up basis rules on transfers of most assets at death. This 
proposal would essentially create a second ``death tax'' by taxing 
paper gains in property immediately upon transfer at death. The 
Treasury description claims a special rule will protect family 
operations by allowing them to delay payment of the tax. However, not 
much detail has been provided concerning how this rule would work. The 
little information that has been provided on the rule reminds me of the 
Qualified Family Owned Business Interest (QFOBI) Deduction under former 
section 2057. Section 2057 was ultimately repealed as it proved 
unworkable and very few estates claimed the deduction. As Michael 
Graetz, Deputy Assistant Secretary of Tax Policy for George H.W. Bush, 
and Ian Shapiro wrote in 2005, ``Everyone now agrees--regardless of 
which side of the issue they are on--that QFOBI has been a complete and 
utter failure. . . . It did not solve anything. QFOBI has so many 
requirements, so many structures and pitfalls, that very few family 
businesses have obtained any tax relief at all because of it.''

    In what ways do you expect the definition of a ``family-owned and -
operated business'' to materially differ from the definition of a 
``qualified family-owned business interest'' under repealed section 
2057? Would you expect similar ownership rules to apply that would 
limit it's applicability to ownership interests of certain size? Would 
the value of the business interest need to constitute as certain 
percent of the decedents total gross estate to qualify?

    Can you clarify whether the proposed special rule would provide for 
a deferral of taxes owed or apply a carryover basis regime with respect 
to family business property? If it's a deferral of taxes owed, would a 
tax lien loom over the operations making it difficult to secure a 
business loan or mortgage?

    If any portion of the property is sold or transferred in the course 
of managing the business, could that trigger an immediate significant 
tax bill based on paper gains from the decedent's lifetime? Would this 
be true even where an heir swapped a parcel of land with a neighbor 
farmer given the President's also proposed to repeal like-kind 
exchanges?

    Answer. The administration's capital gains tax proposal is 
fundamentally about taxing income from wealth the same way that we tax 
income from work. There have been no proposals to change the existing 
estate tax rules, but the proposal would impose a realization event 
upon the transfer of appreciated assets, whether by gift or bequest. 
Critically, as you note, the proposal provides that family-owned and 
operated businesses should be able to defer the economic impact of the 
application of this proposal for as long as the business remains in the 
family. The administration has not suggested that existing or historic 
definitions are the most appropriate in terms of filling in the details 
of this proposal and in fact looks forward to working with Congress to 
ensure that the critical definitional concepts are appropriately 
crafted to protect family businesses.

    Question. Recently you stated interest rates have been ``too low 
now for a decade'' and that we should welcome higher rates. But, if 
interest rates do increase, that could be catastrophic given the 
trajectory of our national debt. Under the President's budget, public 
debt is projected to reach 117 percent of GDP in 2031 and continue to 
grow faster than the economy thereafter. According to CBO, with debt of 
this size, even relatively small rises in interest rates above the 
baseline can result in trillions of dollars in interest costs on the 
debt. Given this, isn't the time to get our national debt under control 
now, not after interest rates rise potentially sparking a debt crisis?

    Answer. It is imperative that we put our Nation on a sustainable 
long-term fiscal path. This requires a combination of policy decisions, 
including not only making investments that bolster our Nation's 
productivity and labor supply, but also taking action to offset the 
costs of new investments. The President's American Families Plan and 
American Jobs Plan are fully paid-for over time, which--when coupled 
with the expected gains in productivity capacity--are an important step 
towards achieving long-term fiscal health.

    Question. The President has expressed concerns about large 
corporations, including Amazon, not paying taxes. I assume this is one 
of the reasons he is proposing a corporate minimum tax based on book 
income. The President's budget indicates that certain credits, such as 
for research and development and green energy would be permitted to be 
taken against the book tax. This suggests to me the administration 
recognizes that there may be legitimate policy reasons for tax rules to 
differ from accounting rules even if it could result in a corporation 
paying little or no tax. Can you clarify when, if ever, the 
administration thinks it would be ok for a profitable corporation on a 
book basis to pay zero tax?

    Answer. The administration's proposals include a 15-percent minimum 
tax on worldwide income for financial reporting purposes (book income) 
for corporations with book income in excess of $2 billion. In 
particular, taxpayers would calculate ``book tentative minimum tax'' 
equal to 15 percent of worldwide pre-tax book income (calculated after 
subtracting unused book net operating loss carryovers from current year 
book income), less General Business Credits (including R&D, clean 
energy and housing tax credits) and foreign tax credits. The ``book 
income tax'' equals the excess, if any, of the book tentative minimum 
tax over regular tax. Additionally, taxpayers would be allowed to claim 
a book tax credit (generated by a positive ``book income tax'') against 
regular tax in future years (to the extent the regular tax liability in 
such years exceeds the ``book tentative minimum tax'' in such years).

    The administration has proposed this limited book minimum tax to 
act as a backstop when there are large discrepancies between what a 
company is reporting to their shareholders as financial income and what 
they are reporting in taxable income. This proposal is directed at 
asking very large and profitable companies with low or zero regular tax 
liabilities to pay their fair share. The proposal is designed to avoid 
targeting companies with low effective tax rates due to legitimate use 
of research and experimentation tax credits and many general business 
tax credits. The minimum book tax proposal is aimed at recapturing the 
tax revenue lost to gaming and tax avoidance.

    Question. One way Amazon is likely able to reduce its tax burden to 
zero or near zero is by claiming green energy credits. This includes 
credits for installing solar panels, purchasing electric vehicles, and 
investing in renewable energy projects. The President proposes to 
enhance and modify these credits, including by providing a ``direct 
pay'' option. ``Direct pay'' allows a taxpayer to receive a payment 
from Treasury for the value of the credit. This feature is especially 
valuable for businesses that have little or no tax liability to claim a 
credit against. Given this, do you have any concerns that a ``direct 
pay'' option could result in large profitable corporations like Amazon 
not only paying zero tax, but actually receiving a check from the IRS 
instead?

    Answer. The administration has not proposed to limit the use of 
renewable energy related tax credits by specific companies. Our Budget 
proposal would allow firms to take incentives as a direct pay option as 
opposed to reducing a firm's tax liability. The President's plan to 
make public investments in infrastructure, technology, research, and 
the green industries of the future would help lay a strong foundation 
for longstanding economic prosperity. It would also promote job 
creation in the United States, ensuring that American workers benefit 
from a robust domestic economy.

    Question. Prior to the pandemic, revenue as a percent of GDP 
averaged 17.4 percent for the past 50 years. This percent fluctuates 
year to year, but has been fairly consistent in times of higher tax 
rates and lower tax rates. Since the end of World War II, revenue as a 
percent of GDP exceeded 19 percent in only 5 years. This included 3 
years at the end of the 1990's during the height of the dot com bubble. 
Under the President's budget, revenues equal or exceed 19 percent of 
GDP each year after 2024 and are 19.9 percent of GDP in 2031. Given our 
historical experience with revenues as a percent of GDP, do you believe 
revenues at these levels would prove sustainable? Second, do you think 
taxpayers will simply accept such a high tax burden with no change in 
their economic activity or behavior?

    Answer. In historical terms, the necessary share of tax revenue has 
fluctuated with the spending side of the ledger; adding social programs 
like Social Security and Medicare that are funded by payroll taxes has 
raised the historical level of Federal revenue to GDP. It is important, 
too, to distinguish the nature in which revenue is raised, as the 
economic impacts of taxation depend critically on the design of the tax 
provisions; simply evaluating a Nation's tax code based on the level of 
GDP may overlook important aspects that can determine the code's 
efficiency. For example, the President's fiscal agenda calls for 
ambitious new programs in a wide array of programs, including 
infrastructure, long-term care, health, child care, and many others--
while committing to more than offsetting the costs over 15 years. 
Importantly, though, the President's plans do not raise taxes on anyone 
making under $400,000 a year, and millions of Americans will benefit 
from tax cuts through an expanded Earned Income Tax Credit, Child Tax 
Credit, and Child and Dependent Care Tax Credit.

                                 ______
                                 
                Question Submitted by Hon. Maggie Hassan
    Question. The American Rescue Plan contained my bipartisan bill 
with Senator Braun to provide assistance--through the Employee 
Retention Tax Credit--to new businesses that started during the 
pandemic.

    This assistance will be available starting in July, and it is 
critical that the Treasury promptly issue guidance so that small 
businesses can fully and quickly access this assistance.

    When do you expect this guidance to be issued, and will you 
continue working to ensure that new and small businesses have full 
access to the Employee Retention Tax Credit?

    Answer. Treasury staff and the IRS are working to issue additional 
guidance regarding the important American Rescue Plan Act changes that 
enhance the rules for the employee retention credit and intend to issue 
the guidance in the next few weeks. Treasury and the IRS are committed 
to issuing guidance that will ensure that recovery startup businesses 
and other eligible employers have the information needed to claim the 
employee retention credit in a timely manner for the third and fourth 
quarter of 2021.

                                 ______
                                 
               Questions Submitted by Hon. James Lankford
    Question. On June 8th, and again on June 16th, ProPublica published 
articles concerning the private tax information of several American 
citizens, while noting that the subject of their latest article is 
``among thousands of wealthy people whose tax return data ProPublica 
has obtained.''

    Section 6103 of the Internal Revenue Code provides that ``returns 
and return information shall be confidential,'' and prohibits any 
officer or employee of the Federal or State government from disclosing 
such information unless authorized by the taxpayer or provided under 
Federal law. Further, section 7213 states that the unauthorized 
disclosure of returns or return information is unlawful and is a felony 
punishable by a $5,000 fine and/or imprisonment of up to 5 years. 
Section 7213(a)(3) provides that it is unlawful for someone to whom any 
return or return information is disclosed in an unauthorized manner to 
print or publish such return or return information in any manner not 
provided by law.

    When did the Department become aware of the breach?

    Was anyone at Treasury or the IRS notified in advance that 
ProPublica would be publishing private tax return data on June 8th?

    If yes, what steps were taken to stop ProPublica from publishing 
private tax information?

    What steps were taken after you became aware?

    Have there been any corresponding updates to security systems to 
ensure this information was not accessed from the outside?

    While ProPublica states they have received this information 
anonymously, their Code of Ethics notes that they strive to identify 
all sources of information, and that ``[e]ditors have an obligation to 
know the identity of unnamed sources in our stories. . . .''

    Have any steps have been taken by TIGTA or others to contact 
ProPublica to identify the source of the information?

    Has anyone within the Treasury Department or IRS contacted 
ProPublica and asked them to refrain from publishing any additional 
private taxpayer data?

    Has anyone within Treasury or the IRS notified ProPublica that 
section 7213(a)(3) of the Internal Revenue Code states that it is 
felony for ``any person to whom any return or return information (as 
defined in section 6103(b)) is disclosed in a manner unauthorized by 
this title thereafter willfully to print or publish in any manner not 
provided by law any such return or return information,'' punishable by 
a fine of up to $5,000 and/or imprisonment of up to 5 years?

    Answer. With respect to the ProPublica report, I am deeply troubled 
by it. It is important to stress that unauthorized disclosure of 
taxpayer information is a crime. Upon learning of this matter, it was 
immediately referred to the FBI, Federal prosecutors, and Treasury 
Department oversight authorities--all of whom have the independent 
authority to investigate. We don't yet know what occurred--but all is 
being done to get to the bottom of this potentially criminal activity.

    Question. I understand that the Green Book and President's FY 2022 
budget articulate a new reporting requirement on financial accounts. 
This would require financial institutions to report data on the 
financial accounts of individuals, families, and businesses with flows 
of deposits or withdrawals of as little as $600.

    It seems to me that there are numerous occupations with variable 
receipts and income flows, and that the $600 threshold would lead to a 
massive amount of personal information flowing into the IRS.

    Can you please explain how monitoring nearly every taxpayer's bank 
accounts, for flows of as little as $600, is necessary for tax 
administration?

    What does the IRS specifically plan to use the financial account 
records for and what details will be transmitted from the financial 
institutions to the IRS under this proposal?

    Do you have any concerns regarding the pure volume of information 
that would be flowing into the IRS? Are you confident the IRS needs 
this amount of information?

    Given the news of late, are you confident that the IRS could 
adequately protect taxpayers' information under this proposal?

    Can you assure the American people that their information will not 
be leaked or used for political reasons?

    Answer. When the IRS has access to third-party reports to verify 
tax filings, compliance rates are over 95 percent. In the absence of 
third-party reporting, compliance rates are under 50 percent. The IRS 
and GAO agree that additional information reporting is one of the best 
ways to improve compliance.

    The President's proposals shed a light on opaque income streams 
without increasing taxpayer burden at all. This is accomplished by 
leveraging the information that financial institutions already know 
about their customers. This regime builds off of existing reports that 
banks already provide to the IRS on interest that accrues on their 
accounts. A bit of additional information--on account inflows and 
outflows--can help the IRS try to identify when there is a difference 
between taxpayers' reported financial positions and their true ones. 
This will decrease the likelihood that compliant taxpayers are subject 
to costly and burdensome audits. It will also benefit honest small 
businesses, who today are at a disadvantage vis-a-vis those who evade 
their tax liabilities.

    It will be important to provide the IRS the resources it needs to 
both absorb this volume of new information and effectively deploy it in 
enforcement actions, and the President's compliance initiatives do just 
this, providing the IRS with a sustained stream of mandatory funds to 
build up a new infrastructure around financial account reporting and to 
hire and train agents and researchers who will be able to glean 
insights from the information provided, by applying modern techniques 
like machine learning approaches.

    The compliance initiatives were designed with taxpayer privacy 
concerns front of mind. For example, the proposal includes significant 
resources to ensure that the IRS has the tools it needs to meet threats 
to the security of the tax system and to protect sensitive taxpayer 
information.

    Question. A few weeks ago, in a hearing with Commissioner Rettig, 
the Commissioner said that the IRS still wasn't able to use all of the 
FATCA information that the IRS receives.

    Does it seem prudent to require the IRS to collect, handle, 
process, and protect even more taxpayer information, when they aren't 
yet able to fully utilize all of the information that they already 
collect?

    Answer. As the IRS tax gap estimates make clear, when third-party 
information reports exist, compliance rates exceed 95 percent. Without 
any information reporting, compliance rates are under 50 percent. This 
creates an inequitable asymmetry in tax collections depending on the 
form in which income is accrued. The GAO and IRS agree that 
strengthening third-party information reporting is one of the best ways 
to improve tax compliance. This information will help the IRS target 
enforcement activities on evaders and decrease the likelihood of audits 
for those who are already fully compliant with their tax obligations. 
It will also create a more efficient tax system and raise substantial 
revenue.

    It is true that information alone is not enough. It will also be 
imperative to provide the IRS the resources it needs to best deploy 
this information, as well as existing information it collects--as the 
President's proposal does. For example, today the IRS cannot 
efficiently evaluate information on partnership information reports, or 
on submissions required by FATCA. With modernized IT as well as 
investment in hiring and training revenue agents capable of expending 
significant time on complex, high-end examinations, the IRS will be 
able to improve enforcement activities to the betterment of all 
compliant taxpayers.

    Question. I am very concerned about recent reports that China would 
be seeking certain exemptions from a global minimum corporate tax. 
Clearly, Beijing wants to retain the tax incentives that it sees as key 
for its own economic development and success.

    At our June 16th hearing, in response to a question from Senator 
Daines, you said ``we will not agree to any type of carve-out that 
would meaningfully weaken a robust global minimum tax regime, not for 
China and not for other countries.''

    What does ``meaningfully weaken'' mean?

    Answer. We continue to believe that modest substance-based carve-
outs are consistent with a robust global minimum tax. As applied to 
China, see answer directly below.

    Question. Can you confirm that no agreement should be reached on 
Pillar 2 where the U.S.'s biggest competitors, like China, are not 
subject to the same terms as the United States?

    Answer. The consensus we achieved at the G7 and G20 was 
unprecedented and signals great progress toward a historic deal on a 
redesign of the international tax system. More work needs to be done; 
however, Pillar 2 does not need the support of every country to be 
successful. Due to the enforcement mechanism of the UTPR, and our 
domestic corollary SHIELD proposal, if enough of the world's GDP signs 
up for Pillar 2, these enforcement mechanisms will incentivize other 
jurisdictions to also adopt minimum taxes by denying deductions on 
related party payments in low-tax jurisdictions. We are actively 
working with all countries to make the consensus as broad as possible, 
but we are not providing any special exceptions that would undermine 
the robustness of the regime, for China or any other country.

    Question. Earlier this month after your meeting in London, it was 
reported that the G7 finance ministers had come to a top level 
agreement on the allocation of taxing rights and global minimum tax 
rules. Specifically, a Pillar 1 in which market countries would be 
awarded the taxing rights on at least 20 percent of profit exceeding a 
10-percent margin for the biggest multinationals, and a Pillar 2 that 
includes a global minimum tax of at least 15 percent on a country-by-
country basis. As you know, the U.S. was the first to enact a global 
minimum tax when Congress enacted the GILTI as part of the Tax Cuts and 
Jobs Act. No other country currently has a global minimum tax.

    While there have been reports of a G7 agreement, there are many 
unanswered questions and many details yet to be determined. Further, 
the OECD Inclusive Framework includes over 135 countries and 
jurisdictions, some of which have already voiced concerns regarding the 
G7 agreement.

    Given this, do you believe that the US should increase its own 
rates on its own companies, by modifying GILTI, before a detailed OECD 
agreement is made and our international counterparts and competitors 
enact corresponding changes to their own tax laws?

    Answer. The United States is seeking a global agreement on a 
minimum tax at the highest possible rate. Even if it settles somewhat 
below 21 percent, today the global minimum tax rate is zero, far below 
our 10.5-percent rate. To the extent that foreign countries also adopt 
strong minimum taxes, that will also reduce any competitiveness 
worries, while protecting our tax base from the profit shifting of 
foreign multinational companies. Still, even absent agreement, we are 
not powerless to address these problems. The SHIELD proposal can 
counter foreign company profit shifting. And simple anti- inversion 
measures, or even changes through regulation, can be quite effective in 
stemming the incentive to invert, as shown by the U.S. experience after 
the anti-inversion (and anti-income stripping) regulations of the late 
Obama years.

    Question. Is it prudent to wait until an actual OECD agreement is 
met? Not only because it could be difficult to reach a final deal, but 
also because any resulting deal could take years to implement?

    Are you concerned that taking domestic action now could prove 
harmful to U.S. businesses?

    Answer. See answer to the immediate question above.

    Question. The administration has repeatedly referenced the SHIELD 
proposal in response to questions about increasing the U.S.'s minimum 
tax before other countries enact similar measures. There are few 
details and many questions regarding the proposed SHIELD regime, some 
of which pertain to treaty modification and constitutionality, but the 
administration continues to suggest this aggressive proposal is 
necessary.

    Are you suggesting that the SHIELD proposal, which we are still 
awaiting details on, would compel our biggest competitors, like China, 
to enact a global minimum tax?

    To my understanding, this SHIELD proposal would deny deductions for 
payments made to jurisdictions with no global minimum taxes, possibly 
China for example. However, under this example, wouldn't a Chinese 
company, instead, opt to avoid doing business in the United States 
altogether? Wouldn't this just incentivize foreign businesses to plan 
around the U.S. to avoid the SHIELD, leading to a reduction of U.S. 
business activity and investment?

    How is this end result different than a global tariff that 
similarly increases the cost of doing any business in the U.S., leads 
to higher costs passed onto U.S. consumers, or pushes business activity 
out of the U.S. altogether?

    Answer. The consensus achieved at the G7 and G20 is unprecedented 
and signals great progress towards a redesign of the international tax 
system. With countries representing more than 90 percent of global GDP 
joining the Inclusive Framework consensus, the enforcement mechanisms 
of the UTPR, and our SHIELD proposal, will incentivize jurisdictions to 
adopt minimum taxes. As a result, with enough of the world's GDP 
joining the Pillar 2 framework, it would be impossible for companies to 
avoid doing business through related parties in countries with a 
minimum tax.

    Question. I am concerned that the administration's energy tax 
proposals, which include the elimination of all oil and gas related 
provisions, could drive up the cost of energy and make us more reliant 
on imports. Moreover, increasing the cost of domestic production does 
nothing to lower domestic demand; rather, we simply would import more 
of these resources from other parts of the world and increase our 
exposure to the whims of bad actors.

    Has the Treasury Department conducted any studies about how the 
removal of these energy tax provisions, such as expensing of intangible 
drilling costs and percentage depletion, would affect the following: 
jobs; the price of gasoline; home energy costs; small oil and gas 
businesses; the inflation rate; U.S. energy independence, or 
conversely, dependence; and the level of oil and gas imports?

    What information can you provide regarding any of the 
distributional impacts listed above?

    Answer. The administration is proposing to eliminate fossil fuel 
subsidies that distort markets by encouraging more investment in the 
oil and gas industry than would occur under a neutral system. This 
market distortion is inconsistent with the administration's policy of 
supporting a clean energy economy and reducing carbon emissions. 
Moreover, the subsidies must ultimately be financed with taxes that 
result in other distortions, e.g., in reductions in investment in 
other, potentially more productive, areas of the economy.

    Fossil fuel companies additionally benefit from substantial 
implicit subsidies, since they sell products that create externalities 
but they do not have to pay or bear the costs for the damages caused by 
these externalities. The administration has created a goal to create a 
carbon pollution-free power sector by 2035 and net zero emissions 
economy by no later than 2050. Meeting these goals will create millions 
of good-paying, middle-class, union jobs and build the clean energy 
economy of tomorrow.

    Question. I had a good conversation with Secretary Granholm last 
week in the Energy Committee about the transition to lower emission 
energy sources. She assured me that the administration does think there 
is value in transitioning to lower-
emissions fuels even if they aren't zero emission--especially in cases 
where a transition from the status quo to zero emissions sources would 
be unrealistic (e.g., where EVs don't have needed infrastructure or in 
locations where renewable sources aren't compatible with the climate). 
An example I have brought up a lot is that many areas in New England 
could lower their emissions drastically by switching from heating oil 
to natural gas, but due to the ``all or nothing'' preference of many 
environmentalists, the status quo largely remains.

    In terms of benefit to the environment, is each pound of avoided 
CO2 emissions equal? Ultimately, does it matter how the 
reduction was realized?

    Answer. I would defer to my scientific colleagues on this question. 
From a policy perspective, it's important to think about how the 
actions we take to remove or avoid a pound of CO2 emissions 
impact private capital flows, investment patterns, and other countries' 
incentives to address their emissions, or impact future emissions. This 
administration has set a net-zero economy as its goal and we must take 
actions to enable this transition.

    Question. If you agree with Secretary Granholm that there should be 
a transition period, and that lower emission sources like natural gas 
have a role to play, why does the administration propose making it more 
difficult to produce natural gas domestically through the immediate 
elimination of certain tax treatments like expensing of intangible 
drilling costs and percentage depletion?

    Answer. The administration is proposing to eliminate fossil fuel 
subsidies that distort markets by encouraging more investment in the 
oil and gas industry than would occur under a neutral system. This 
market distortion is inconsistent with the administration's policy of 
supporting a clean energy economy and reducing carbon emissions. 
Moreover, the subsidies must ultimately be financed with taxes that 
result in other distortions, e.g., in reductions in investment in 
other, potentially more productive, areas of the economy.

    Question. If generation of new sources is years out (at best), but 
we hamstring our domestic oil and gas industry with higher costs 
through modifications to our tax code, how do you anticipate our 
economy will power itself in those years in between now and when the 
new generation sources come online?

    Relatedly, how would the elimination of these oil and gas 
provisions, in conjunction with proposed increases to the corporate 
rate and changes to our international tax rules, impact our domestic 
energy producers' ability to compete with foreign-owned energy 
businesses? Are you concerned that we may actually have to import oil 
and gas to meet demand at lower prices?

    Answer. In terms of new electricity generation capacity added each 
year, renewable energy has outpaced fossil fuel capacity since 2015. 
Renewable energy is generally cheaper, and because it is produced 
locally, is preferable from a national security perspective. In 
addition, with the rapidly falling costs of battery storage, the issue 
of supply reliability is being quickly addressed.

    As detailed in the ``General Explanations of the Administration's 
Fiscal Year 2022 Revenue Proposals'' (the Green Book) released at the 
end of May, the administration is proposing to remove 13 specific 
subsidies for fossil fuel production. The proposal would repeal: (1) 
the enhanced oil recovery credit for eligible costs attributable to a 
qualified enhanced oil recovery project; (2) the credit for oil and gas 
produced from marginal wells; (3) the expensing of intangible drilling 
costs; (4) the deduction for costs paid or incurred for any tertiary 
injectant used as part of a tertiary recovery method; (5) the exception 
to passive loss limitations provided to working interests in oil and 
natural gas properties; (6) the use of percentage depletion with 
respect to oil and gas wells; (7) 2-year amortization of independent 
producers' geological and geophysical expenditures, instead allowing 
amortization over the 7-year period used by integrated oil and gas 
producers; (8) expensing of exploration and development costs; (9) 
percentage depletion for hard mineral fossil fuels; (10) capital gains 
treatment for royalties; (11) the exemption from the corporate income 
tax for publicly traded partnerships with qualifying income and gains 
from activities relating to fossil fuels; (12) the Oil Spill Liability 
Trust Fund excise tax exemption for crude oil derived from bitumen and 
kerogen-rich rock; and (13) accelerated amortization for air pollution 
control facilities.

    These provisions of the tax code are specific to the oil, gas, and 
coal industries and are estimated to cost taxpayers over $3 billion per 
year. The objective of the administration's proposal is to bring the 
tax treatment of oil, gas, and coal producers back in line with other 
firms. Research suggests that repealing fossil fuel subsidies will not 
lead to big changes in the markets for fossil fuels.

    Question. If we do become more reliant on imports of oil and gas, 
do you agree that this would actually result in more emissions since we 
would have to transport the fuels here?

    Answer. Renewable energy is the fastest-growing energy sector of 
the United States, and global, electricity generation market. This 
administration's policies leverage the cost advantage of these clean 
and green technologies to further drive deployment.

    Question. Reports out of the G7 meeting earlier this month indicate 
your support for mandatory climate financial disclosures by private 
companies and financial institutions. I also understand that, at the 
end of last month, the Biden administration put forth a related 
executive order on Climate-Related Financial Risk, setting in motion 
the first steps toward government-wide mandates on climate disclosures 
among financial regulators. I have significant concerns that such 
requirements would unduly burden community and mid-size banks, which 
are prevalent in my State, and would be detrimental to Oklahoma's 
domestic conventional energy producers, resulting in targeting, 
underinvestment, and instability.

    Do you share concerns that these requirements could be both 
unnecessarily burdensome, and lead to underinvestment in critical 
infrastructure?

    What is the goal of mandatory climate disclosures on private 
companies?

    Answer. Domestic and international investors are seeking more 
consistent, comparable, and reliable information on climate-related 
risks, impacts, and opportunities. G7 members discussed disclosure of 
climate-related financial information in a manner that is in line with 
domestic regulatory frameworks, including those in the United States.

    In line with its mandate and regular procedures, the SEC recently 
issued a request for public comment on whether and how they could 
facilitate consistent, comparable, and reliable information on climate-
related disclosures as well as the costs and benefits of different 
regulatory approaches related to climate disclosure. Investors and 
those who want to raise capital or invest in our capital markets have 
broadly noted that ensuring high-quality information to assess climate-
related financial risks is important for the efficient allocation of 
capital and financial stability.

                                 ______
                                 
              Questions Submitted by Hon. Robert Menendez
    Question. As a part of Secretary's Yellen's confirmation hearing in 
January 2021, my office sent you a series of questions related to 
diversity and inclusion at Treasury. Your office responded to my office 
on June 15, 2021, and I would like further clarification on some of 
your responses.

    Your response to question number 1 is incomplete, as it only shows 
the percentage of men and women for each race and/or ethnicity for 
departmental offices at Treasury. Could you please provide me with a 
total percentage for each race and ethnicity of employees at Treasury--
not just male and female breakdowns?

    Answer. The previous question related solely to Departmental 
Offices (Treasury Main Headquarters component). Attached is the data 
for men/women and for race/ethnicity for all of Treasury. (Note: data 
is as of the end of FY 2020.)


             Treasury Workforce by Gender Against RCLF, CLF
------------------------------------------------------------------------
                                       Treasury      RCLF         CLF
------------------------------------------------------------------------
Male                                     38.52%      36.39%      51.86%
------------------------------------------------------------------------
Female                                   61.48%      63.61%      48.14%
------------------------------------------------------------------------



               Treasury Workforce by ERI Against RCLF, CLF
------------------------------------------------------------------------
                                       Treasury      RCLF         CLF
------------------------------------------------------------------------
Hispanic                                 12.37%       8.54%       9.96%
------------------------------------------------------------------------
White                                    52.14%      74.64%      72.36%
------------------------------------------------------------------------
Black                                    27.50%      10.72%      12.02%
------------------------------------------------------------------------
Asian                                     6.54%       4.57%       3.90%
------------------------------------------------------------------------
NHOPI                                     0.18%       0.12%       0.14%
------------------------------------------------------------------------
AIAN                                      0.80%       0.90%       1.08%
------------------------------------------------------------------------
2+                                        0.46%       0.51%       0.54%
------------------------------------------------------------------------


    Question. As part of your responses to my questions related to the 
January 2021 hearing, your office responded to my third question 
related to minority representation detailed by the Office of Minority 
Women and Inclusion (OMWI), by pointing out that the OMWI numbers are 
``for Departmental Offices, not Treasury as a whole.''

    Could you please provide additional information about the 
differences provided by the OMWI office regarding the breakdown of race 
and ethnicity of employees at Treasury?

    Answer. OMWI serves as the Chief Diversity Office for Treasury's 
Departmental Offices (DO), which comprise the Immediate Headquarters 
Offices of the Secretary, Deputy Secretary, Under Secretaries, 
Assistant Secretaries, and the Office of the Treasurer. The information 
provided by OMWI relating to the SES workforce, contained only the SES 
percentages for Departmental Offices (or Main Treasury headquarters 
staff). The other percentages provided in our previous response (which 
are incorporated below) include SES and equivalent staff for the entire 
Department, which includes Treasury bureaus such as IRS, BEP, Mint, 
OCC, etc.

    The figures cited are for Departmental Offices, not Treasury as a 
whole. As of FY 2020, 76.73 percent of permanent Senior Executive 
Service (SES) positions in the Department are held by white employees. 
Below is the breakdown by bureau.


----------------------------------------------------------------------------------------------------------------
                            Total     Hispanic    White      Black      Asian      NHOPI       AIAN     2+ Races
----------------------------------------------------------------------------------------------------------------
BEP          Male            60.00%      0.00%     40.00%     10.00%     10.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(10)         Female          40.00%     10.00%     30.00%      0.00%      0.00%      0.00%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
DO           Male            72.73%      2.27%     64.39%      2.27%      3.79%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(132)        Female          27.27%      0.76%     21.21%      3.79%      1.52%      0.00%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
FINCEN       Male            80.00%      0.00%     80.00%      0.00%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(10)         Female          20.00%      0.00%     10.00%     10.00%      0.00%      0.00%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
FS           Male            54.55%      3.03%     48.48%      3.03%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(33)         Female          45.45%      0.00%     36.36%      3.03%      3.03%      0.00%      3.03%      0.00%
----------------------------------------------------------------------------------------------------------------
IRS          Male            53.67%      3.09%     39.00%      7.72%      3.47%      0.00%      0.39%      0.00%
            ----------------------------------------------------------------------------------------------------
(259)        Female          46.33%      1.93%     27.80%     15.06%      0.77%      0.00%      0.77%      0.00%
----------------------------------------------------------------------------------------------------------------
IRS-CC       Male            61.29%      3.23%     54.84%      3.23%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(62)         Female          38.71%      0.00%     35.48%      0.00%      1.61%      1.51%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
MINT         Male            91.67%      8.33%     75.00%      8.33%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(12)         Female           8.33%      0.00%      8.33%      0.00%      0.00%      0.00%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
OCC          Male            68.52%      3.70%     53.70%      5.56%      5.56%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(54)         Female          31.48%      1.85%     20.37%      7.41%      1.85%      0.00%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
OIG          Male            28.57%      0.00%     28.57%      0.00%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(7)          Female          71.43%      0.00%     57.14%     14.29%      0.00%      0.00%      0.00%      0.00%
SIGTARP      Male            71.43%      0.00%     57.14%     14.29%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(7)          Female          28.57%      0.00%     14.29%      0.00%      0.00%     14.29%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
TIGTA        Male            58.33%      0.00%     58.33%      0.00%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(12)         Female          41.67%      8.33%     33.33%      0.00%      0.00%      0.00%      0.00%      0.00%
----------------------------------------------------------------------------------------------------------------
TTB          Male            42.86%      0.00%     42.86%      0.00%      0.00%      0.00%      0.00%      0.00%
            ----------------------------------------------------------------------------------------------------
(7)          Female          57.14%      0.00%     42.86%      0.00%      0.00%      0.00%      0.00%     14.29%
----------------------------------------------------------------------------------------------------------------
Treasury     Male            61.22%      2.81%     50.00%      5.28%      2.97%      0.00%      0.17%      0.00%
            ----------------------------------------------------------------------------------------------------
(606)        Female          38.78%      1.49%     26.73%      8.42%      1.16%      0.33%      0.50%      0.17%
----------------------------------------------------------------------------------------------------------------


    Question. According to Pensions and Investments, the largest money 
managers have $54.1 trillion under management. Of those, the largest 
minority and women managers manage approximately $484.1 billion--or 
less than 1 percent of all funds.\1\ Research performed by the Knight 
Foundation shows that diverse money managers preform the same--if not 
better than non-diverse money managers.\2\
---------------------------------------------------------------------------
    \1\ ``Diversity, Equity and Inclusion: Debunking the Myths,'' 
Pensions and Investments (May 31, 2021), https://www.pionline.com/
deireport2021.
    \2\ ``Diversifying Investments: A Study of Ownership Diversity and 
Performance in the Asset Management Industry,'' Knight Foundation 
(January 28, 2019), https://knightfoundation.org/reports/diversifying-
investments-a-study-of-ownership-diversity-and-performance-in-the-
asset-management-industry/.

    How much do we have in Federal assets that are professionally 
managed and how much is managed by minority and women managers? 
Additionally, who on your staff is designated to ensure Federal assets 
are professionally managed by minority and women managers, and has that 
---------------------------------------------------------------------------
person directly engaged with Hispanic money managers and brokers?

    Answer. Treasury Departmental Offices do not currently have Federal 
assets under professional management. However, Treasury recently 
designated two investment advisory firms, one of which is a minority-
owned firm, to provide underwriting and financial advisory services 
with respect to the implementation of the $9 billion Emergency Capital 
Investment Program.

                                 ______
                                 
                Questions Submitted by Hon. Rob Portman
    Question. The G7 Finance Leaders announced support for an ``at 
least'' 15-
percent global minimum tax in their communique stemming from the 
agreement made during the Finance Ministers meeting, which you attended 
in the UK. This agreement relates to the OECD negotiations around 
Pillar 2, which also imposes the tax on a country-by-country basis. 
There seems to be some confusion on what exactly this proposal 
represents, so I would appreciate it if you would answer a few basic 
questions to clarify matters. There are obviously differences between a 
country's headline corporate tax rate and the 15-percent global minimum 
tax you are proposing. Most countries, the U.S. for example, already 
have corporate tax rates that are higher than 15 percent.

    Would you please explain the differences between our corporate rate 
and a global minimum tax?

    Answer. Currently the corporate income tax rate is 21 percent. The 
administration proposes to increase the corporate tax rate to 28 
percent.

    The U.S. version of a global minimum tax was first enacted as the 
Global Intangible Low-Taxed Income (GILTI) rules in 2017 and provides a 
50-percent deduction with respect to income of a controlled foreign 
corporation. The section 250 deduction generally results in a 10.5-
percent U.S. effective tax rate on a corporate U.S. shareholder's 
global minimum tax inclusion under the current U.S. corporate tax rate 
of 21 percent. The 50-percent deduction is scheduled to be reduced to 
37.5 percent starting in 2026. The administration proposes that the 
section 250 deduction for a global minimum tax inclusion be reduced to 
25 percent, thereby generally increasing the U.S. effective tax rate 
under the global minimum tax to 21 percent under the proposed U.S. 
corporate income tax rate of 28 percent.

    The Pillar 2 global minimum tax would operate similarly to the 
administration's proposed minimum tax. While the contours are still 
being negotiated, more than 130 countries have joined consensus on a 
Pillar 2 rate of ``at least 15 percent.''

    Question. Additionally, the administration has a proposal to impose 
a 15-percent minimum tax on worldwide book income. Would you please 
explain the difference between the book tax and the 15-percent global 
minimum tax you proposed at the OECD?

    Answer. The administration's proposal for a book minimum tax would 
impose a 15-percent minimum tax on worldwide book income for 
corporations with such income in excess of $2 billion. In particular, 
taxpayers would calculate ``book tentative minimum tax'' equal to 15 
percent of worldwide pre-tax book income (calculated after subtracting 
unused book net operating loss carryovers from current book income), 
less General Business Credits (including R&D, clean energy, and housing 
tax credits) and foreign tax credits. The ``book income tax'' equals 
the excess, if any, of the book tentative minimum tax over regular tax. 
Additionally, taxpayers would be allowed to claim a book tax credit 
(generated by a positive ``book income tax'') against regular tax in 
future years (to the extent the regular tax liability in such years 
exceeds the ``book tentative minimum tax'' in such years).

    Question. The book minimum tax proposal differs from the Pillar 2 
work or the domestic law minimum tax (GILTI) in the that the book 
minimum tax addresses the tax rate of the entire financial group owned 
by a particular taxpayer, while GILTI (and the Pillar 2 income 
inclusion rule) address only the earnings of foreign subsidiaries. 
Since the true U.S. corollary to the proposed 15-percent global minimum 
tax is the Global Intangible Low-Taxed Income (GILTI) regime, it seems 
that should be the focus.

    How would the administration's proposals line up with what you are 
proposing at the OECD?

    Answer. The United States is seeking a global agreement on a 
minimum tax at the highest possible rate. Even if it settles somewhat 
below the administration's proposed domestic GILTI rate of 21 percent, 
today the global minimum tax rate is zero. A global minimum tax 
agreement will thus reduce the differential between the domestic 
minimum rate and the global rate.

    Question. When we implemented the Tax Cuts and Jobs Act, the 
international portions stemmed from a task force I co-led back in 2015 
with Senator Schumer on international tax, which recommended that we 
make changes to the tax code to lower the rate, move to a territorial 
system and make our companies more productive and more competitive. We 
implemented a minimum tax on foreign earnings of U.S. companies--the 
GILTI provision, which removed the lock-out effect and helped bring 
$1.6 trillion back home for companies to invest here in the U.S. Today, 
the United States remains the only country which imposes a global 
minimum tax on active foreign earnings of our own multinational 
companies. Pillar 2 of the OECD negotiations advocates for a global 
minimum tax--my question is--what do you see as the timeline for the 
OECD process?

    Pascal Saint-Amans has stated the timing has slipped to October for 
an agreement, while many commentators think that it could potentially 
take years to get legislative details hammered out. In the coming 
months, the administration and my colleagues across the aisle aim to 
pass tax hikes including doubling the GILTI rate, imposing it on a 
country-by-country basis, removing the qualified business asset 
investment (QBAI) provision, and the benefit for Foreign-Derived 
Intangible Income (FDII), all before we have actually reached an 
agreement at the OECD.

    If as you assert, the GILTI changes won't make U.S. businesses 
uncompetitive because foreign nations are going to move too, should we 
really be moving to make those changes before there's written agreement 
at the OECD?

    Answer. Although a global minimum tax will reduce the disparity 
between the GILTI rate and current global minimum rate (which is 
currently zero), concerns about the competitiveness of U.S. 
multinationals are overstated. Even before the Tax Cuts and Jobs Act of 
2017 dramatically lowered U.S. corporate tax rates, U.S. multinational 
companies paid similar effective tax rates as peers in other countries. 
In recent years, the Joint Committee on Taxation shows effective tax 
rates for U.S. multinational companies of about 8 percent. And U.S. 
corporate tax revenues are far lower than those in peer countries.

    Finally, it is important to remember that competitiveness is about 
more than the success of U.S. companies in foreign merger and 
acquisition bids. It is also about ensuring that our tax code doesn't 
incentivize foreign operations at the expense of those at home. And, it 
is about nurturing the many fundamental strengths that make the United 
States a good place to do business. Investing in our institutions, in 
the abilities and education of American workers, in the quality of our 
infrastructure, and in cutting-edge research is all important.

    Question. Why should we put the competitiveness of our constituent 
businesses in the hands of foreign governments?

    Answer. See answer immediately above.

    Question. Under the prior administration, the Treasury Department 
took the position that our GILTI provision should be treated as a 
``deemed compliant'' for purposes of Pillar 2. In other words, because 
it is a robust minimum tax with a substance-based carve-out, similar to 
the minimum tax being proposed at the OECD, GILTI should be treated as 
already complying with any global minimum tax agreement and no changes 
would be needed to the provision.

    In fact, the OECD Pillar 2 blueprint explicitly stated that the 
Pillar 2 global minimum tax being considered is actually more 
permissive in a number of ways than GILTI (i.e., GILTI is more 
onerous).

    Has the Biden administration abandoned the approach of proposing 
that current law GILTI be treated as complying with any Pillar 2 global 
minimum tax agreement?

    Answer. The Biden-Harris administration will pursue a comprehensive 
multinational agreement to update global tax rules in ways that 
establish effective minimum taxation rules, prevent global profit-
shifting, and ensure that corporations pay their fair share. We have 
committed to implementing Pillar 2 in a manner consistent with the 
administration's budget proposals, although we also anticipate a future 
need for deemed GILTI compliance given the uniqueness of many features 
of the GILTI framework.

    Question. If not, and the administration agrees to a global minimum 
tax that differs from GILTI, would Congress have to enact changes to 
GILTI?

    Answer. See the response immediately above. Pillar 2 includes the 
enforcement mechanism of the UTPR that incentivizes jurisdictions to 
adopt Pillar 2 to the extent that their profits in low-tax 
jurisdictions are taxed below the minimum tax rate. If Congress does 
not adopt the President's proposal to reform GILTI, the taxes paid by 
U.S.-parented groups under GILTI would still be taken into account in 
applying the UTPR.

    Question. What would happen to U.S. companies if the U.S. does not 
have a compliant global minimum tax? If U.S. companies would be subject 
to significant foreign tax and deductions denied abroad due to the U.S. 
not having a compliant global minimum tax, doesn't that effectively 
force Congress's hand? Should the administration erode the separation 
of powers and be able to compel Congress to enact tax legislation?

    Answer. See the response immediately above. Although the 
administration has committed to pursuing a robust global minimum tax 
and has consulted with congressional members and staff in crafting that 
commitment, Congress remains free to decide whether and how to fulfill 
that goal.

    Question. The administration's proposed book minimum tax is 
dependent on the Financial Accounting Standard Board's (``FASB'') 
accounting standards for income and loss recognition. Additionally, 
under the Alternative Minimum Tax regime (pre-Tax Cuts and Jobs Act), a 
credit was available for the book minimum tax in excess of regular tax 
to mitigate the issue of timing differences between book and tax that 
would result in paying tax twice.

    Is there concern in relinquishing taxing incentives and control to 
the FASB?

    Answer. The book minimum tax, if enacted, would, to some degree, 
have the tax code leverage elements of FASB definitions (and 
potentially the International Accounting Standard Board's definitions 
as well--see response below regarding the use of IFRS). However, it is 
not clear at this time exactly how the ``book income base'' will be 
defined (i.e., whether it's simply U.S. GAAP/IFRS determined book 
income or if it is that book income amount adjusted for certain items 
that Congress deems appropriate) or how future changes to U.S. GAAP/
IFRS will impact the book income base. We would note that this would 
not be the first time that Congress has leveraged the U.S. GAAP and/or 
IFRS rules to determine a taxpayer's Federal income tax liability. For 
example, section 451(b) and (c) of the Internal Revenue Code, as 
amended by the Tax Cuts and Jobs Act of 2017, both look to the timing 
of reporting and definition of ``revenue'' in a taxpayer's financial 
statements to determine the timing of recognizing corresponding items 
of gross income for Federal income tax purposes.

    Question. How would the proposal address taxpayers that use 
accounting methods other than GAAP?

    Answer. The administration would work with Congress to describe the 
details of this proposal, and while it is uncertain at this time, the 
book minimum tax could be based on U.S. GAAP and IFRS book income (at 
least as a starting point) and could use a definition/ordering rule 
similar to that for an ``applicable financial statement'' in section 
451(b)(3) of the Internal Revenue Code. It is expected that all 
taxpayers within the scope of the book minimum tax proposal (i.e., 
having worldwide book income in excess of $2 billion) would have 
financial statements prepared under either U.S. GAAP or IFRS.

    Question. Can you provide additional details as to how taxpayers 
would account for timing differences between book and tax? Ms. 
Batchelder suggested that the book tax credit (generated by a positive 
book tax liability) cannot reduce tax liability below book tentative 
minimum tax. So, is it possible that some taxpayers may never get the 
benefit of the book tax credit for these timing differences?

    Answer. As stated above, we believe the administration would need 
to work with Congress to develop the details of the proposal. That 
said, this regime would not be without precedent in the context of the 
general accounting rules and prior minimum tax regimes. The proposal 
addresses timing differences between book and tax the same way that 
timing differences between the old alternative minimum tax base and 
regular Federal income tax base were addressed under the alternative 
minimum tax (AMT) regime (which had a credit regime similar to the one 
being considered as part of the book minimum tax proposal). A book 
minimum tax liability that is generated as a result of a timing 
difference (e.g., tax deduction before a book deduction) could give 
rise to a tax credit that is carried forward and used to offset regular 
Federal income taxes in a future year (e.g., the taxable year in which 
the timing difference reverses and the deduction is reflected in the 
book income base--causing the regular Federal income tax base and 
liability to exceed the book income base and the ``book tentative 
minimum tax'' amount). All else being equal, the excess of the regular 
Federal income tax liability over the ``book tentative minimum tax'' 
amount in the year the timing difference reverses should be equal to 
the amount of the credit generated in the year the timing difference 
initiated (i.e., the credit should make the taxpayer whole with respect 
to the timing difference).

    Question. The initial basis for bipartisan congressional support of 
Treasury's efforts at the OECD was to eliminate digital services taxes 
and similar unilateral measures. At the hearing, you committed to 
``pursuing absolutely every avenue toward a swift and comprehensive 
standstill and rollback of DSTs.'' However, the European Union still 
continues to move full steam ahead on its digital levy. Only a few days 
after the July G20 Finance Ministers meeting, the EU plans to release a 
new gross-basis tax on digital companies with revenue above a certain 
threshold. Even more concerning, this is not intended to be a temporary 
measure. Rather, the EU somehow believes it will be ``complimentary'' 
to an OECD agreement. While the EU may assert this tax will be 
``nondiscriminatory,'' it is difficult to understand how a gross-basis 
tax that ring-fences a particular industry is not considered 
discriminatory.

    Do you believe that the proposed EU digital levy, as it has been 
described, should survive an OECD agreement? If so, please explain how 
this is compatible with the G7's stated goal of removing all DSTs and 
relevant similar measures?

    Answer. An important premise of this OECD/G20 work is the 
elimination of DSTs because DSTs are discriminatory against U.S. firms. 
USTR's work on a section 301 response to DSTs is an important element 
of this. We are however concerned that the EU continues to advance its 
own ``EU digital levy'' proposal, which the EU asserts would coexist 
with a Pillar 1 system. The EU asserts that the digital levy will not 
be discriminatory because it will apply to small firms and large firms 
alike. If so, the digital levy could be closer to a consumption tax or 
excise tax than a tariff. Much will depend on the details of the 
eventual European Commission proposal, which has not been released. We 
will closely monitor the developments in consultation with USTR and 
Congress.

                                 ______
                                 
                 Questions Submitted by Hon. Ben Sasse
    Question. The President's proposal would repeal the deduction for 
Foreign-Derived Intangible Income (FDII). FDII is an important tool 
that encourages U.S. companies to locate IP in the United States as 
well as invest in innovative research here at home. Our competitors are 
heavily investing in R&D, and I am concerned that the elimination of 
FDII could discourage development of IP and new technologies in the 
U.S. and put American companies back at a competitive disadvantage in 
the global economy.

    In the proposal to eliminate FDII, the Green Book stated that ``the 
resulting revenue will be used to encourage R&D.'' However, no details 
were given on how this would actually occur. Could you please elaborate 
specifically on the administration's actual proposals to encourage R&D?

    Answer. The administration has proposed repealing the FDII 
deduction and using the associated revenue to more directly encourage 
research and development. One possible use of this revenue would be to 
reverse the imminent move toward R&E amortization created by the 2017 
tax law, returning to expensing. Another option would be implementing 
more generous research tax credits. The administration is open to 
working with Congress on the most effective way to encourage research.

    Either path would be a more effective spur to domestic innovation 
that the FDII deduction. There are multiple problems with FDII. First, 
the FDII is not an effective way to encourage R&D in the United States, 
since it provides larger tax breaks to companies with excess profits 
(those already reaping the rewards of prior innovation) and only 
targets those with high export sales (omitting those companies with 
domestic sales).

    Second, like the GILTI, the FDII deduction encourages offshoring of 
real activity, since the export subsidy becomes less generous (all else 
equal) as companies have higher U.S. tangible assets. Repealing FDII 
would generate a large amount of revenue that could be used to 
encourage research and development much more directly.

    Question. As the administration is moving to raise the global tax 
rate and eliminate incentives to keep and develop IP in the U.S. (such 
as FDII), China is only increasing its incentives to drive new research 
to its shores.

    In order to further their strategic focus on manufacturing 
innovation, the Chinese Government recently announced a new enhanced 
100-percent super-deduction for manufacturing enterprises. This new 
incentive came in addition to the Chinese Government extending for 3 
years the existing 75-percent super-deduction for R&D expenses.

    I am worried that the elimination of FDII, with no plan in place to 
replace it, will leave us at a severe competitive disadvantage. What 
plan does the administration have, aside from repealing current 
incentives, that would allow us to compete for high-tech innovation 
with China?

    Answer. Administration proposals are focused on improving American 
competitiveness by investing in the fundamentals of the American 
economy, including R&D, education, and infrastructure. The current FDII 
incentive is not well-targeted at encouraging new research or a 
stronger foundation for economic growth; instead, it rewards the above-
normal profits of a subset of companies, those that export. The 
administration proposes replacing the FDII incentive with an equal 
amount of tax expenditure, but targeting that tax expenditure directly 
on tax incentives that encourage new research and development.

    Question. Has the Treasury done any analysis on how their proposed 
tax changes, including the repeal of FDII, would impact U.S. 
competitiveness compared to our foreign counterparts--especially China? 
And is this analysis that Treasury plans to conduct and make available 
to Congress?

    Answer. As noted above, the structure of the FDII rewards above-
normal profits of exporting companies. We propose the same size tax 
incentive directly targeted at new R&D instead; this change should 
increase U.S. competitiveness by incentivizing R&D, a longstanding 
source of American economic strength.

    Question. How have China's R&D incentives impacted multilateral 
talks with the OECD and G20? Has there been any discussion about 
possible carve-outs for these or any other incentives?

    Answer. The consensus we achieved at the G20 and Inclusive 
Framework was unprecedented and signals great progress toward a 
historic deal on a redesign of the international tax system. We 
actively worked with all countries to make the consensus as broad as 
possible. We did not, however, provide any special exceptions to China 
in doing so. Pillar 2 allows for modest substance-based carveouts that 
will continue to allow the US and other countries to provide R&D 
incentives.
        e.o. 14302 on u.s. investment in prc military companies
    Question. E.O. 14302 shifted the responsibility for sanctions 
imposition from the Department of Defense to the Department of 
Treasury. Please describe what you see are the major benefits of this 
change. What would you say to skeptics that might be concerned Treasury 
will not prioritize national security considerations over domestic 
business interests?

    Answer. Executive Order (E.O.) 14032 amended E.O. 13959 to create a 
sustainable and strengthened framework for imposing prohibitions on 
investments in Chinese defense and surveillance technology firms. This 
improved framework provides the Secretary of the Treasury, in 
consultation with the Secretary of State, and where appropriate, the 
Secretary of Defense, with primary responsibility for making sanctions-
related determinations. Treasury's Office of Foreign Assets Control 
(OFAC) is the U.S. government's primary economic sanctions expert, 
administers more than 35 economic sanctions programs, and has extensive 
experience coordinating with interagency partners to make sound 
sanctions determinations.

    OFAC is uniquely structured and resourced to implement sanctions 
such as those in E.O. 13959, as amended by E.O. 14032, because OFAC has 
investigative, licensing, compliance, targeting, regulatory, and policy 
functions all under one roof. Treasury will continue to address the 
threat posed by the PRC's military-industrial complex and its Military-
Civil Fusion strategy, and prioritize national security considerations, 
in consultation with the Department of State and, as appropriate, the 
Department of Defense, in making determinations about which individuals 
and entities should be identified for sanctions, while balancing 
concerns about unintended economic impacts.

    Question. As a result of this new E.O., the investment ban 
targeting publicly traded securities has been removed on many entities. 
Can you please identify these companies and the evidentiary basis 
Treasury used to inform the decision to remove the investment ban on 
each company?

    Answer. Of the 48 entities that had been listed under the previous 
sanctions authority, 20 are not currently listed under the amended 
authority, and, as a result, the investment restrictions do not apply 
to them at this time. OFAC continues to evaluate companies under the 
new criteria.

    Question. Can you clarify whether U.S. investors can maintain 
existing holdings of publicly traded securities of companies designated 
under E.O. 14032? If so, what is the specific policy purpose for 
maintaining existing holdings? What market signal does it send to allow 
continued investment in entities that enable the military development 
of the Chinese Communist Party?

    Answer. While U.S. persons are prohibited, after the relevant 
effective date, from engaging in the purchase or sale of publicly 
traded securities of entities identified in or pursuant to E.O. 14032, 
U.S. investors are not required to divest existing holdings of such 
securities. The purchase and sale restrictions in E.O. 14032 are 
designed to prevent U.S. capital from flowing into the Chinese defense 
sector and Chinese companies that develop or use Chinese surveillance 
technology to facilitate repression or serious human rights abuse. The 
investment restrictions are intentionally targeted and scoped to 
achieve that objective.

                                 ______
                                 
                 Questions Submitted by Hon. Tim Scott
    Question. It seems our financial system's alarm bells are sounding 
at a deafening volume for everyone except the Biden administration. In 
May, consumer prices increased by 5 percent on an annualized basis, the 
fastest pace since 2008. Now this may not be surprising to the millions 
of working Americans who have endured as the cost of countless every 
day goods and services rose during the pandemic--items parents depend 
on to feed their families, to get to work, to maintain their homes, and 
more.

    American families are right to be concerned about the rise in the 
cost of household goods and services. They are right to be concerned 
about their paychecks suddenly not stretching as far as they did the 
month before. For those on the bottom and middle of the income scale--
and especially our seniors--price increases are not just an 
inconvenience. It's the promotion you worked all year to get just to 
see it become a wash at the end of the month. It's your retirement 
savings being pushed to limits that no one planned for. It's a 
noticeable change in the standard of living for our most vulnerable 
populations.

    While this may be transitory, it seems to me President Biden isn't 
leaving much of a margin for error.

    As Americans continue to plan for the future, how certain are you 
that higher inflation will not persist and that we won't see interest 
rate hikes?

    Are you at all concerned about the potential debt load and 
inflation risk associated with this $6-trillion-plus budget proposal 
and the strain it would have on the American economy if this isn't 
merely transitory?

    Is the administration concerned that inflationary effects and any 
rate increases will be felt especially hard by our Nation's small 
businesses and low-income families?

    How might the growth in U.S. debt and debt-servicing costs hinder 
our country's ability to respond quickly to any near-term volatility 
events?

    Answer. Throughout the pandemic, I have expected that the rate of 
inflation would be moderately higher as the economy transitioned 
between a steep recession and a healthy recovery. That expectation has 
not changed, and is consistent with the Federal Reserve and 
professional forecasters. As Treasury Secretary, I do not comment on 
the expected trajectory of the Federal Reserve's monetary policy.

    Concerning the impact of the administration's policies, I believe 
these investments are both necessary to ensuring the long-term economic 
health of our country, and a step towards fiscal sustainability given 
the President's commitment to paying for the entirely of the proposals 
over 15 years. These plans should bolster the gains to families and 
businesses through increased investment, while mitigating any economic 
harm associated with rising deficits. Under the President's plan, the 
United States can be expected to maintain the ability to respond to 
fiscal and economic emergencies given the historically low interest 
rates and full faith in our ability to make timely payments on our 
debt.

    Question. As a former small business owner, I know the burdens, 
risks, and obstacles that our Nation's entrepreneurs and small 
businesses face every day. Small businesses are the backbone of our 
economy, employing roughly half of the private workforce. This is why I 
worked hard to ensure the 20 percent deduction for pass-through 
businesses was included in tax reform. Unfortunately, throughout his 
campaign, we heard President Biden repeatedly call for the elimination 
of this important deduction. Like many, I was surprised to see that the 
Green Book actually does not propose any changes to this provision for 
small and medium-size job creators.

    You previously committed to studying the impact of the deduction on 
our Nation's small businesses. Can I assume that the Green Book does 
not modify this important deduction because Treasury found that it 
helps small businesses grow and compete?

    Answer. Our focus this year has been providing direct assistance to 
small businesses and working families to help them deal with the 
challenges of the pandemic and building back from that. The American 
Rescue Plan provided significant economic relief in the form of loans 
for small businesses, expanded tax credits to help employers retain and 
safely bring back workers, and grants to millions of the hardest hit 
businesses. In terms of the Green Book, while changes to section 199A 
were not included and we continue to consider how that provision would 
fit in a more equitable tax regime, it has not escaped notice that 
independent analyses based on JCT reports have shown that the benefits 
from section 199A accrue overwhelmingly to the wealthiest households.

                                 ______
                                 
                 Questions Submitted by Hon. John Thune
    Question. Thank you for agreeing to update me and the Senate 
Finance Committee about what steps the administration is taking to 
ensure such an IRS data breach does not happen again.

    Were you or your staff informed about the IRS data breach in 
advance of ProPublica's release of taxpayer information on June 8, 
2021? If so, can you please identify the date(s) of being informed?

    Since your Senate Finance Committee hearing on June 16th, what 
steps have Treasury and the IRS taken to ensure such a release of 
confidential taxpayer information does not happen again?

    Answer. With respect to the ProPublica report, I am deeply troubled 
by it. It is important to stress that unauthorized disclosure of 
taxpayer information is a crime. Upon learning of this matter, it was 
immediately referred to the FBI, Federal prosecutors, and Treasury 
Department oversight authorities--all of whom have the independent 
authority to investigate. We don't yet know what occurred--but all is 
being done to get to the bottom of this potentially criminal activity.

    Question. President Biden's $6-trillion budget proposes raising the 
top tax rate on capital gains from 23.8 percent to 43.4 percent for 
many Americans. The Treasury's Green Book states that the proposal 
would be effective for gains required to be recognized after the date 
of announcement, which has been interpreted by some as the date of when 
the American Families Plan was first announced.

    Can you please provide the date on which the Biden administration's 
capital gains tax increase proposal is intended to be effective?

    If the specific proposal were to be effective when the American 
Families Plan was announced, would you consider this a retroactive tax 
increase?

    Answer. In order to score any tax proposal involving capital gains 
it is necessary to set an effective date. The Green Book proposal 
assumed it was effective on the date when the American Families Plan 
was first announced. Obviously, the actual effective dates of any 
provisions that are eventually enacted will depend on Congress.

    Question. President Biden promised to protect small businesses and 
family farms from being impacted with his new step-up in basis tax 
proposal. Based on my understanding of the Green Book, the proposed 
``protections'' simply delay the tax liability--rather than provide 
real protection--for those continuing to operate the business or farm.

    Does the Biden administration's ``protections'' for family-owned 
businesses, farms, and ranches exempt them from the step-up in basis 
tax proposal or simply delay the tax?

    Answer. The administration's capital gains tax proposal provides 
multiple, generous protections for small family businesses. First of 
all, the proposal provides an exclusion of $1 million of gain for every 
individual, and when that is combined for a married couple and the 
additional exclusion for principal residences is considered, it means 
that a family can exclude up to $2.5 million in gains from any taxation 
under this proposal. The vast majority of taxpayers would therefore be 
protected from any tax liability under this provision. In addition, as 
you note, family-owned and operated businesses (including farming and 
ranching businesses) are provided even greater protection under this 
proposal. To the extent there is a realization event for an interest in 
such a business and the gain amount is above the generous, 
aforementioned thresholds, then the gain realized is not subject to tax 
as long as the business continues to be family owned and operated. This 
deferral means that the business can remain in the family for as long 
as they choose, and that tax wouldn't be imposed until there was a 
triggering event, such as a sale of the business, which would 
presumably coincide with a liquidity event that allowed for payment of 
the tax.

    Question. Under the Biden administration's step-up in basis 
proposal, the untaxed gains on investments held at death would be taxed 
at a top rate of 39.6 percent, above an exemption of $1 million per 
individual. There is a good chance that some parents might die with an 
estate that has gained $1 million-plus in value over the course of 
their lives, but their heir might be earning $40,000 or$50,000 a year.

    Under such a scenario, is it plausible that an heir earning less 
than $400,000 would be impacted by the administration's step-up in 
basis tax proposal?

    Answer. The capital gains tax on unrealized appreciation at death 
would be imposed on the property of the decedent, rather than on the 
recipient of the decedent's property. Thus, no tax imposed at death 
under this proposal would be imposed on an heir, and the basis in the 
property on which tax was imposed would be stepped-up.

    Question. The administration has requested an all-time high budget 
for the IRS of $13.2 billion, a 10.4-percent increase from last year's 
enacted level. The Biden budget also requests approximately $80 billion 
over a decade to the IRS in mandatory funding, which if enacted, would 
put the agency's funding beyond the standard appropriations process and 
not subject to congressional review. With the additional $80 billion, 
Treasury estimates a return of $700 billion in revenue--a figure that 
is drastically higher than the nonpartisan Congressional Budget 
Office's related estimate.

    As you know, CBO rules prohibit scoring hoped-for but entirely 
uncertain revenue from IRS enforcement proposals. Does Treasury's 
estimates account for CBO's scorekeeping rules with its $700 billion 
revenue projection? If not, how would the JCT-CBO scorekeeping rules 
alter Treasury's estimated projections and by what approximate amount?

    Answer. It is difficult to compare the administration's compliance 
initiatives to previous estimates because of differences in scale and 
scope of the comprehensive proposal the President has put forth to 
address the tax gap. Estimates from career economists at the Office of 
Tax Analysis suggest that providing the IRS the resources and 
information it needs to address sophisticated tax evasion would raise 
at least $700 billion in a decade. These initiatives have not yet been 
scored by official congressional scorekeepers, and we look forward to 
their thoughts on the revenue potential. We anticipate a very 
significant score, which relates to the policies designed and also the 
enormous magnitude of the problem the administration is seeking to 
address: 15 percent of taxes that are owed to the U.S. government are 
uncollected each year. That is more than $600 billion this year, and 
over $7 trillion over the next decade.

    Question. Under the President's budget, the administration 
estimates that debt would grow to 117 percent of Gross Domestic Product 
(GDP) by the end of FY 2031, compared to the 113 percent of GDP under 
the Office of Management and Budget's (OMB) baseline.

    With the debt-to-GDP ratio at 111.8 percent for 2022 and rising to 
117 percent of GDP by 2031 under the President's budget, would you 
agree there is increasingly limited fiscal space should an adverse 
shock to the economy occur?

    What type of impact will the longer-run deficit have on U.S. 
productivity capacity and productivity growth?

    What specific concerns do you have about the historically high, and 
increasing trajectory, of the U.S. deficit and debt?

    Answer. The rising debt as a share of GDP is due to combination of 
fiscal policies taken prior to the Biden administration and necessary 
emergency actions taken to protect American families and the U.S. 
economy from the devastating impacts of COVID. While this emergency 
spending was critical to resolving the health crisis and maintain the 
U.S. economy, it is imperative that we put our country on a path to 
long-term fiscal sustainability. This requires a combination of 
investments in the productivity capacity of the U.S. economy, coupled 
with prudent fiscal actions to offset the costs of those investments. 
The President's American Jobs and Families Plans achieves both these 
objectives by making generational investments in a range of priorities, 
while more than offsetting the costs over 15 years. These investments 
should raise the productivity capacity of our economy, and will 
ultimately bolster U.S. standards of living for decades.

                                 ______
                                 
             Questions Submitted by Hon. Patrick J. Toomey
    Question. In early June, ProPublica announced that it obtained 15 
years of tax return data for thousands of Americans. This represents a 
serious and unprecedented breach of privacy, and it further erodes 
trust the American people have in government institutions to safeguard 
their private information.

    Although it has not been definitively determined as to what the 
source of this leak is, ProPublica's description of the tax return data 
and the nature of the information that has been published strongly 
suggests that the information originated from within the IRS. What 
makes me even more concerned is the fact that President Biden has 
proposed requiring financial institutions to report account inflows and 
outflows to the IRS. There are steep compliance costs and serious 
privacy implications associated with this requirement. In fact, the 
reporting requirement threshold that is proposed in the President's 
Budget is just $600. According to the FDIC, the second and third top 
reasons Americans do not have bank accounts, respectively, are that 
they do not trust banks and avoiding a bank gives more privacy. I am 
concerned about the risk of additional personal financial information 
of millions of Americans being compromised.

    Please detail what additional steps will need to be taken by the 
IRS to safeguard taxpayers' account inflow and outflow data.

    Answer. The administration has designed this regime with taxpayer 
privacy concerns front of mind. That is why, as opposed to other 
compliance proposals that have been advocated by outside actors, in the 
administration's framework, information is flowing only one way--from 
financial institutions to the IRS, as is the case with existing 
information reports. Further, the proposal includes significant 
resources to protect taxpayer information, giving the IRS the funding 
it needs to invest in overhauling antiquated technology and meet 
threats to the security of the tax system, like the 1.4 billion cyber-
attacks the IRS experiences annually.

    Question. During the Senate Finance Committee hearing on June 16th, 
I noted that, according to the Biden administration's revenue proposals 
for FY 2022, there is no proposed change to the current law 80-percent 
foreign tax credit (FTC) limitation under section 960(d) of the 
Internal Revenue Code. Further, the administration has proposed 
increasing the Federal corporate income tax rate to 28 percent. When 
combined with the proposal to reduce the section 250 deduction for 
GILTI to 25 percent, the tax rate assessed on GILTI would become 21 
percent. However, once you take into account that the aforementioned 
FTC limitation remains in place, the effective tax rate on GILTI 
increases from 21 percent to 26.25 percent--double the current law 
effective rate of 13.125 percent.

    As a follow-up to my question during the hearing, can you confirm 
that the administration's FY 2022 revenue proposals assume the current 
law 80-percent FTC limitation under section 960(d) will remain in 
place? If ``yes,'' is it true that the effective GILTI rate would equal 
26.25 percent if the corporate income tax rate is increased to 28 
percent and the section 250 deduction for GILTI is decreased from 50 
percent to 25 percent?

    Answer. The administration has proposed a 21-percent GILTI rate. 
(The proposal suggests a deduction of 25 percent for GILTI income in 
the context of a 28-percent headline rate.) As proposed, the 
administration's GILTI reform would retain the 20-percent foreign tax 
credit disallowance. The effective tax rate on a company's foreign 
income would depend on where that company was operating. If they were 
operating in a zero-tax country, the rate would be 21 percent (paid to 
the United States); the effective tax rate on foreign income very 
slowly rises as the foreign rate rises (with a declining GILTI tax paid 
to the United States and the remainder of the tax paid to the foreign 
country). The effective tax rate would eventually reach 26.25, but only 
when the US GILTI share of the tax is very low, so it is not 
contributing very much to the overall tax burden. At the top end, when 
the foreign tax rate is 26.25 percent, the tax is paid to the foreign 
government, and the United States collects no GILTI tax.

    Question. In the questions for the record for your confirmation 
hearing, you were asked whether you would keep in place the Treasury 
Department's section 311 special measures on Iran if the country 
continues to finance terrorism and fails to clean up its financial 
system. You replied, ``I believe we should keep in place various 
rigorous restrictions on Iran targeting its malign support for 
terrorism until such time as this ceases.'' Please be more specific in 
order to increase congressional confidence in the administration's Iran 
policy.

    Do you agree that Iran remains the world's largest state sponsor of 
terrorism?

    Answer. I defer to the State Department on their authority to 
designate countries as state sponsors of terrorism. The Biden 
administration is committed to countering any Iranian threat to our 
forces, personnel, and vital interests, and will respond to any such 
threat using Treasury authorities.

    Question. Do you still agree with the determinations made by FinCEN 
during the Obama and Trump administrations that Iran is a jurisdiction 
of primary money laundering concern?

    Answer. As you are aware, in October 2019, FinCEN issued a final 
rule pursuant to section 311 of the USA PATRIOT Act finding Iran to be 
a jurisdiction of primary money laundering concern and imposing the 
Fifth Special Measure prohibiting the opening or maintaining of 
correspondent accounts in the United States for, or on behalf of, 
Iranian financial institutions, and the use of foreign financial 
institutions' correspondent accounts at covered U.S. financial 
institutions to process transactions involving Iranian financial 
institutions.

    FinCEN's jurisdictional 311 was based in part on: (1) evidence that 
terrorists and entities involved in missile proliferation transacted 
business in Iran, citing in particular the role of Central Bank of Iran 
officials in facilitating terrorist financing, including for the Iran 
Revolutionary Guard Corps (IRGC) QodsForce and Hizballah; the IRGC's 
abuse of the international financial system; Iran's support for several 
terrorist organizations and its pursuit of ballistic missile 
technology; (2) the endemic corruption of Iran's government; (3) the 
significant deficiencies in Iran's AML/CFT programs; and (4) the lack 
of a mutual legal assistance treaty with the U.S. and any law 
enforcement/regulatory cooperation. The Biden/Harris administration 
remains concerned about these issues and will remain so until such time 
as there is information available to confidently assess those factors 
are no longer applicable to Iran.

    Question. Since Iran has maintained its support for terrorism and 
remains a jurisdiction of primary money laundering concern, will you 
commit to keeping in place the section 311 special measures on Iran?

    Answer. As I previously mentioned, the jurisdictional 311 was 
imposed via rulemaking after finding that Iran constituted a primary 
money laundering concern for reasons related to the financing of 
terrorism, endemic government corruption, AML/CFT deficiencies and the 
lack cooperation between the United States and Iran. Any changes to the 
final rule must address these findings in accordance with applicable 
legal requirements. I commit to undertake careful and deliberate 
assessment of any changes prior to any discussions surrounding this 
section 311 rulemaking finding Iran to be a jurisdiction of primary 
money laundering concern.

                                 ______
                                 
              Questions Submitted by Hon. Elizabeth Warren
    Question. The OECD recently estimated that the United States is one 
of only two major economies that have returned to pre-pandemic income 
levels and one of only a handful of countries to leave the pandemic on 
a higher growth path than it entered.\3\ That is, growth will actually 
be higher following our response to the COVID-19 pandemic, despite the 
challenges the pandemic posed to American workers, families, and 
businesses.
---------------------------------------------------------------------------
    \3\ OECD, ``No Ordinary Recovery: Navigating the Transition,'' OECD 
Economic Outlook, May 2021, https://www.oecd.org/economic-outlook/may-
2021/.

    How have the stimulus measures of the past year contributed to the 
---------------------------------------------------------------------------
resilience and recovery of the U.S. economy?

    Given that government stimulus and emergency measures were able to 
maintain growth even through the pandemic, what does that suggest about 
the impact that government investments in critical infrastructure--
roads and bridges, but also broadband, child care, and green energy--
could have had pre-pandemic and could have now?

    Do you think we will be able to reach lower unemployment and higher 
labor force participation levels than those pre-pandemic and, if so, 
what will it take to get us there?

    Answer. The support provided by the American Rescue Plan was 
unambiguously critical to preserving the health of the U.S. economy, in 
addition to saving lives. Numerous economic analyses have confirmed 
that our economy trajectory is substantially higher than it would have 
been in the absence of this legislation, and this is confirmed by 
comparisons with other countries that undertook more muted measures to 
preserve their health of their economies.

    Of the many lessons that emerged during the pandemic, one was the 
importance of providing a safety net to vulnerable populations. The 
Biden administration and Congress committed to a collection of 
policies--including childcare support, nutrition assistance, expanded 
unemployment assistance, and improved access to broadband--aimed at 
bolstering economic inclusion and mitigating the negative impact of the 
economic downturn. These policies will deliver economic gains for years 
to come.

    The labor market outlook from before the pandemic, as confirmed by 
the Congressional Budget Office and other forecasters, included the 
projection that the labor force participation rate would decline over 
time, largely due to a gradual aging of the population. During the 
pandemic, we have witnessed a downturn in employment. An explicit goal 
of the Biden administration's policies is to mitigate many of the 
barriers to labor force participation, like high child care costs and 
lack of paid leave, that drive down U.S. participation relative to our 
economic competitors. If enacted, a large economic literature confirms 
that these policies can be expected to raise participation and improve 
the livelihoods of workers, especially women.

    Question. Some conservative pundits and politicians are arguing 
against further government investments in critical infrastructure, 
citing inflation fears. However, the interest rate on 10-year Treasury 
bonds stands at approximately 1.50 percent and has sunk as low as 1.35 
percent, lower than before the COVID-19 crisis and lower than 
essentially tenure at the Federal Reserve.\4\ Economists tell us that 
real inflation fears should drive up bond yields as investors divest 
from bonds, which have fixed income, thereby forcing down prices. That 
is clearly not what is happening.
---------------------------------------------------------------------------
    \4\ Tommy Stubbington and Joe Rennison, ``U.S. Treasuries have best 
week in a year,'' Financial Times, June 11, 2021, https://www.ft.com/
content/6f0d541d-3a47-481f-810b-d41dab13a2c2; Vicky McKeever, ``10-year 
Treasury yield touches 3-month low of 1.35 percent before rebounding,'' 
CNBC, June 21, 2021, https://www.cnbc.com/2021/06/21/us-bonds-10-year-
treasury-yield-falls-to-two-month-low.html.

    What do these data and other economic indicators say about the 
benefits of further government investments, including investments in 
critical infrastructure like roads and bridges, broadband, child care, 
---------------------------------------------------------------------------
and green energy?

    Answer. Real interest rates are currently negative, and nominal 
interest rates are exceptionally low by historical standards. While the 
administration projects these rates to rise over time, the projection 
is also that rates (in both real and nominal terms) will remain low by 
historical standards. At the same, while the recovery has featured a 
modest elevation in price indices, the consensus expectation is that 
these price pressures will abate in the near term and return to levels 
that are consistent with the Federal Reserve's target. This outlook 
indicates that the additional investment in critical public programs 
should be viewed as opportunity to expand the productive capacity of 
the U.S. economy, rather than a threat to the bond market. And members 
of Congress who are concerned about the long-term fiscal trajectory 
should be encouraged by the President's plans to more than offset the 
cost of the American Families and Jobs Plans over 15 years.

    Question. On June 12th, The New York Times published an 
investigation of how infrequently the IRS audits private equity firms 
and partnerships, despite the pattern of tax avoidance among firms.\5\ 
How would the Treasury Department's proposed tax compliance agenda 
impact investigations of tax avoidance and evasion among private equity 
firms and partnerships?
---------------------------------------------------------------------------
    \5\ Jesse Drucker and Danny Hakim, ``Private Inequity: How a 
Powerful Industry Conquered the Tax System,'' The New York Times, June 
12, 2021, https://www.nytimes.com/2021/06/12/business/private-equity-
taxes.html.

    Answer. The President's tax proposals are designed around a central 
objective: creating an equitable tax regime, where the wealthy and 
large corporations and other businesses pay their fair share. The New 
York Times investigation detailed various ways in which that is not the 
case today, with a particular focus on the private equity industry. The 
Biden administration has a multi-pronged approach to address the 
avoidance and evasion at play here. Ensuring capital gains income is 
taxed at ordinary income rates, like wage and salary income; and 
repealing the benefits that accrue to private equity employees who make 
use of the ``carried interest'' provision would work to address 
avoidance concerns. With respect to evasion, the President has called 
for a substantial increase in IRS resources over a multiyear period to 
rebuild the agency after a decade of budget cuts have caused audit 
rates to drop substantially for high-earners and the businesses they 
own. For example, more than 4 million partnership returns were filed 
last year but the IRS began only 7,500 partnership examinations. A 
steady stream of resources will allow the IRS to hire, train, and 
retain talented enforcement personnel to untangle complex multi-tiered 
partnership structures and invest in technology to support these 
investigations, such as software that can map out the relationships 
between partnerships so auditors can visualize and better investigate 
---------------------------------------------------------------------------
complex business entity structures.

    Question. In May 2020, TIGTA released an audit finding that high-
income nonfilers owing billions of dollars are not being worked by the 
IRS.\6\ The report found that ``the IRS did not work 369,180 high-
income nonfilers, with estimated tax due of $20.8 billion'' and that 
``510,235 high-income nonfilers, totaling estimated tax due of $24.9 
billion, are sitting in one of the Collection function's inventory 
streams and will likely not be pursued as resources decline.''
---------------------------------------------------------------------------
    \6\ ``High-Income Nonfilers Owing Billions of Dollars Are Not Being 
Worked by the Internal Revenue Service,'' Treasury Inspector General 
for Tax administration, May 29, 2020, https://www.treasury.gov/tigta/
auditreports/2020reports/202030015fr.pdf.

    How would the Treasury Department's proposed tax compliance agenda 
---------------------------------------------------------------------------
impact investigations of tax evasion among high-income nonfilers?

    Answer. The report referenced is striking. Between 2014-2016, just 
a few hundred high-income nonfilers cost the government $10 billion in 
unpaid tax liabilities over this period, and they were not even pursued 
by the IRS. The IRS is already working to address this issue: in 2018, 
it established a program to pursue all high-income nonfilers from tax 
years 2016 through 2019, and it intends to select all high-income 
nonfiling cases for enforcement action for tax years 2020 and beyond. 
But this particular case is reflective of broader problems that the IRS 
faces in the current environment. Its budget has declined by 20 percent 
(in real terms) in the last decade, leading to substantial workforce 
attrition, with the largest losses for complex revenue agents who are 
capable of examining global high net-worth individuals and multiyear 
partnerships. The result is that enforcement actions have decreased 
most at the top of the income distribution. This is problematic as a 
matter of revenue- raising, efficiency, and equity. That is why the 
President's compliance initiatives provide the IRS the resources and 
information needed to pursue this sophisticated evasion. This involves 
a stream of multi-year funds to recruit and train agents to undertake 
complex examinations, modernized technology to pursue evaders, and 
additional information to help target enforcement actions 
appropriately.

                                 ______
                                 
                 Questions Submitted by Hon. Todd Young
    Question. Prior to the Tax Cuts and Jobs Act (TCJA), the U.S. 
combined corporate income tax rate was the highest among developed 
countries. Post-TCJA, the U.S. corporate tax rate is close to average, 
as the 11th highest corporate tax rate out of the top 36 developed 
countries.

    As I noted during our interaction in the hearing, I am concerned 
that a combined 32.5-percent tax rate, as proposed by President Biden, 
will leave U.S. businesses uncompetitive on the world stage. I find it 
hard to believe that other OECD nations--who currently have an average 
corporate tax rate of 23.5 percent--will raise their rates in a 
meaningful way, especially considering multilateral conversations 
aren't leading to a global minimum above 15 percent. Second, it is 
ludicrous to think that China will increase its 25-percent tax rate, so 
we will yet again be hamstringing our domestic economic development 
while bolstering China's.

    Given that the current 21-percent U.S. corporate income tax rate 
makes the United States an economically competitive environment that 
naturally discourages profit shifting to lower-tax jurisdictions, 
wouldn't an increase in the corporate tax rate be misplaced and lead to 
higher unemployment rates and less domestic investment as the U.S. 
economy recovers from the COVID-19 pandemic?

    Answer. The American Jobs Plan's corporate tax provisions 
incentivize job creation and investment here in the United States. 
Unlike the 2017 tax law--which created new incentives to shift profits 
and jobs overseas--this reform includes a strong global minimum tax on 
multinational corporations and measures that will end the global race 
to the bottom on corporate tax rates.

    This way, we can reward companies that help to grow the U.S. 
economy and create a more level playing field between domestic and 
multinational companies. The revenue from these reforms will be used to 
make investments in infrastructure, R&D, manufacturing, boosting the 
long-term competitiveness of the U.S. economy.

    Finally, the corporate income tax generally operates as a profits 
tax, and as such, it is strongly countercyclical. Typically, companies 
only pay corporate tax when they are profitable, and companies earning 
losses (or carrying them forward from prior years) generally pay no 
corporate tax. In contrast, other sources of tax revenue normally fall 
more heavily on typical American workers and families, regardless of 
economic conditions.

    Question. During the hearing, as is reiterated in the Department of 
the Treasury's Green Book, you advocated for repealing the Foreign-
Derived Intangible Income (FDII) deduction and replacing it with other 
research and development (R&D) incentives. FDII was enacted as part of 
the Tax Cuts and Jobs Act (TCJA) to encourage U.S. companies to retain 
intangible property, and related jobs and economic activity, in the 
United States. Since TCJA, I have heard a number of encouraging 
examples of companies returning intellectual property (IP) and jobs to 
the United States, or engaging in cutting-edge development of new IP in 
the United States as a result of TCJA reforms like FDII.

    Neither the Green Book nor your testimony before the committee 
provided any detail on what those R&D incentives would entail. My 
American Innovation and Jobs Act would provide additional incentives to 
encourage small businesses and startups to invest in R&D activity in 
the United States, but I view those proposals as complementary to FDII, 
not as a replacement.

    Can you please specify the exact R&D incentives the administration 
is proposing?

    Can you please confirm whether any of the proposals in my American 
Innovation and Jobs Act are included in the administration's plans?

    Answer. The administration has proposed repealing the FDII 
deduction and using the associated revenue to more directly encourage 
research and development. One possible use of this revenue would be to 
reverse the imminent move toward R&E amortization created by the 2017 
tax law, returning to expensing. Another option would be implementing 
more generous research tax credits. The administration is open to 
working with Congress on the most effective way to encourage research, 
and we are happy to review the provisions in the American Jobs and 
Innovation Act toward that end.

    Either path would be a more effective spur to domestic innovation 
that the FDII deduction. There are multiple problems with FDII. First, 
the FDII is not an effective way to encourage R&D in the United States, 
since it provides larger tax breaks to companies with excess profits 
(those already reaping the rewards of prior innovation) and only 
targets those with high export sales (omitting those companies with 
domestic sales).

    Second, like the GILTI, the FDII deduction encourages offshoring of 
real activity, since the export subsidy becomes less generous (all else 
equal) as companies have higher U.S. tangible assets. Repealing FDII 
would generate a large amount of revenue that could be used to 
encourage research and development much more directly.

    Question. You also mentioned during your hearing testimony the 
important role played by other tax incentives, such as the R&D Tax 
Credit, which my American Innovation and Jobs Act seeks to expand. 
Credits like that one are effective tools to encourage activity; 
however, that incentive is diminished once tax liability can't be 
reduced any further.

    Do you believe that a global minimum tax should recognize the 
important role played by these tax credits, or should a company that 
invests in incentivized activity be limited in reducing their tax 
liability to whatever global minimum rate is agreed upon?

    Answer. The United States and the international community are 
nearing a comprehensive agreement on robust country-by-country minimum 
taxes, seeking to end ``the race to the bottom'' on corporate tax 
rates. Adequate taxation of internationally mobile capital helps 
governments invest in infrastructure, clean energy, and education, 
spurring future economic growth.

    There are multiple problems with FDII. First, the FDII is not an 
effective way to encourage R&D in the United States, since it provides 
larger tax breaks to companies with excess profits (those already 
reaping the rewards of prior innovation) and only targets those with 
high export sales (omitting those companies with domestic sales).

    Second, like the GILTI, the FDII deduction encourages offshoring of 
real activity, since the export subsidy becomes less generous (all else 
equal) as companies have higher U.S. tangible assets.

    Repealing FDII would generate a large amount of revenue that could 
be used to encourage research and development much more directly. As 
one example, reversing the research amortization provision in the Tax 
Cuts and Jobs Act of 2017 (and returning to expensing) would cost a 
similar amount of revenue as FDII repeal would raise, but would benefit 
not just established exporting firms, but also domestic firms and new 
startups.

    Question. There has been a lot of concern regarding the recent 
international tax framework agreed upon by the G7 nations. While there 
is much more to be agreed to as the plan is taken up by the G20 and the 
OECD, a pillar of this framework is support for the global minimum 
corporate tax of at least 15 percent. As negotiations continue, it will 
be important to be wary of high-tax, developed nations pushing for a 
higher global minimum tax, such as your own administration's request 
for a 21-percent global minimum, while developing nations are left with 
fewer tools to attract economic activity.

    Given the resistance from countries like Ireland who have benefited 
from attractive, pro-business tax rates, what do you believe is the 
likelihood of universal adoption of a global minimum tax, especially if 
it lies somewhere above 15 percent?

    Answer. The consensus we achieved at the G20 and Inclusive 
Framework was unprecedented and signals great progress toward a 
historic deal on a redesign of the international tax system. More than 
130 countries have already joined consensus on a minimum tax of at 
least 15 percent, representing more than 90 percent of the world's GDP. 
Importantly, these countries represent both developed and emerging and 
developing economies alike. The diversity of economies represented in 
the consensus reflects Pillar 2's balance between preserving national 
sovereignty while putting a floor on tax competition.

    Question. Do you believe competitors like China will increase their 
corporate tax rates in response to any increase by the United States, 
especially when such countries are enjoying a competitive advantage 
from their current lower rates?

    Answer. See response above.

    Question. How would a global minimum tax that is only partially 
adopted by our country's peers and competitors leave U.S. businesses 
that seek to compete in the global market?

    Answer. Pillar 2 does not need the support of every country to be 
successful. Due to the enforcement mechanism of the UTPR, and our 
domestic corollary SHIELD proposal, if enough of the world's GDP signs 
up for Pillar 2, these enforcement mechanisms will incentivize other 
jurisdictions to also adopt minimum taxes by denying deductions on 
related party payments in low-tax jurisdictions. Already, more than 130 
countries representing more than 90 percent of the world's GDP has 
joined consensus on Pillar 2, thus meeting and exceeding this tipping 
point. We are actively working with all countries to make the consensus 
as broad as possible, but we are not providing any special exceptions 
that would undermine the robustness of the regime

    Question. Section 321(b) of the Economic Aid to Hard-Hit Small 
Businesses, Nonprofits, and Venues Act (title III of division N of 
Public Law 116-260) requires the Secretary of the Treasury to testify 
before the U.S. Senate Committee on Small Business and Entrepreneurship 
regarding the implementation of the Act and the amendments made by the 
Act no later than 120 days after enactment. To date, you have not 
appeared before the Small Business Committee as required by law, 
despite repeated requests by the ranking member. I understand that you 
have offered lower-level officials to appear in your place, but have 
not made yourself personally available despite the clear language of 
the statute. As a member of the Small Business Committee, I am 
concerned by this and sincerely hope that you will agree to testify 
before the committee as required by law.

    Will you commit to testifying personally before the U.S. Senate 
Committee on Small Business and Entrepreneurship as required by section 
321(b) of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, 
and Venues Act as soon as possible, but no later than August 5, 2021?

    Answer. I am committed to providing the Senate Committee on Small 
Business and Entrepreneurship the resources it needs to conduct proper 
oversight of its programs. Small businesses play a critical role in our 
economy by supporting millions of U.S. jobs and contributing 
meaningfully to the communities they serve. I look forward to continued 
engagement with the committee on these important matters.

    Question. On May 10, 2021, the U.S. Department of the Treasury 
released an interim final rule implementing the $350 billion in Federal 
funds for State and local recovery provided by the American Rescue Plan 
Act (ARPA). As part of this rule, Treasury released a factsheet 
detailing eligible ways in which the money can be used, including 
replacing lost public sector revenue, supporting COVID-19 response 
efforts, and addressing negative economic impacts of the public health 
emergency for households and businesses.

    The interim final rule and fact sheet also address how funding can 
be used for eligible construction projects, including broadband, water, 
and sewer infrastructure. This explanation includes the following 
language promoting the use of government-mandated project labor 
agreements, local hire, and Davis-Bacon/prevailing wage regulations:

        It is important that necessary investments in water, sewer, or 
        broadband infrastructure be carried out in ways that produce 
        high-quality infrastructure, avert disruptive and costly 
        delays, and promote efficiency. Treasury encourages recipients 
        to ensure that water, sewer, and broadband projects use strong 
        labor standards, including project labor agreements and 
        community benefits agreements that offer wages at or above the 
        prevailing rate and include local hire provisions, not only to 
        promote effective and efficient delivery of high-quality 
        infrastructure projects but also to support the economic 
        recovery through strong employment opportunities for workers. 
        Using these practices in construction projects may help to 
        ensure a reliable supply of skilled labor that would minimize 
        disruptions, such as those associated with labor disputes or 
        workplace injuries.

        To provide public transparency on whether projects are using 
        practices that promote on-time and on-budget delivery, Treasury 
        will seek information from recipients on their workforce plans 
        and practices related to water, sewer, and broadband projects 
        undertaken with Fiscal Recovery Funds. Treasury will provide 
        additional guidance and instructions on the reporting 
        requirements at a later date.

    I am concerned these provisions will both increase the cost of 
construction and unfairly disadvantage qualified nonunion firms and 
workers in favor of union labor from out of State. These provisions are 
particularly concerning given that 87 percent of the U.S. construction 
workforce currently does not belong to a union.

    Since these labor guidelines were not included in the original 
statute, can you please confirm that States and localities are not 
required to comply with the labor standards in order to access ARPA 
funding?

    Answer. Treasury's interim final rule encourages use of strong 
labor standards, but these policies are not requirements to access 
funds. Use of strong labor standards, including project labor 
agreements and community benefits agreements that offer wages at or 
above the prevailing rate and include local hire provisions, not only 
promotes effective and efficient delivery of high-quality 
infrastructure projects but also supports the economic recovery through 
strong employment opportunities for workers. Using these practices in 
construction projects may help to ensure a reliable supply of skilled 
labor that would minimize disruptions, such as those associated with 
labor disputes or workplace injuries. Reporting responsibilities of 
recipients are described in the Compliance and Reporting Guidance 
(https://home.
treasury.gov/system/files/136/SLFRF-Compliance-and-Reporting-
Guidance.pdf). Please see page 21 for reporting responsibilities 
related to workforce plans and practices for eligible infrastructure 
projects.

    Question. When do you expect Treasury will provide additional 
guidance on reporting requirements?

    Answer. Treasury released the Compliance and Reporting Guidance on 
June 17, 2021.

    Question. Will this be addressed during this interim final rule 
rulemaking or during another rulemaking?

    Answer. The interim final rule is open to public comment through 
July 16, 2021. Treasury expects to release a final rule after taking 
into account comments received.

    Question. As you know, America's affordable housing crisis is not 
just an urban problem, but it's a rural problem, as well as a suburban 
problem, and it's inhibiting economic growth in Indiana and nationwide. 
The lack of affordable housing is preventing hardworking Hoosiers from 
pursuing the American dream. For example, right now, in my State, a 
worker making minimum wage has to work over 70 hours a week just to 
afford a modest one bedroom apartment and over 178,000 households pay 
over 50 percent of their income on rent.

    I am determined to solve this crisis, which is why I am proud to 
lead critical legislation, along with my colleagues Senator Cantwell, 
Chairman Wyden, and Senator Portman, called the Affordable Housing Tax 
Credit Improvement Act (S. 1136). This bipartisan legislation is 
focused on expanding and strengthening the Low-Income Housing Tax 
Credit (LIHTC) and aligns with some of the priorities the 
administration has outlined when it comes to improving and increasing 
the supply of affordable housing.

    I certainly do not agree with everything in the American Jobs Plan 
or the President's budget proposal, but on the topic of expanding the 
needed resources for LIHTC--an essential public-private partnership--I 
hope we can continue to work together.

    Will you commit to working with me and my Senate colleagues on the 
important, broad-based, bipartisan proposals of the Affordable Housing 
Credit Improvement Act, which will increase LIHTC resources to finance 
the production or preservation of more than 2 million affordable rental 
homes across the United States?

    Answer. The administration is committed to working with Congress to 
help make affordable housing a reality for more Americans. The 
President's budget includes a proposal to expand LIHTCs, including a 
more than 100-percent allocation increase for the credits in 2022 
through 2026. The administration expects that these new LIHTCs will 
support the construction or rehabilitation of tens of thousands of 
affordable residential rental units for low-income tenants. Combining 
the $55 billion revenue cost of these credits with investments 
including $80 billion in HUD's HOME Investment Partnership program and 
the Housing Trust Fund, and $19 billion of revenue costs for 
Neighborhood Homes Investment Credits, the President's plan proposes a 
$313-billion investment to produce, preserve, and retrofit more than 2 
million affordable and sustainable places to live for low-income 
families. It pairs this investment with an innovative new approach that 
will prevent State and local exclusionary zoning laws from driving up 
the cost of construction and keeping families from moving to 
neighborhoods with more opportunities for them and their kids. This 
complements the administration's proposed changes to LIHTCs, which 
include targeting the increase in credits towards neighborhoods of 
opportunity.

    Question. When the Treasury Department and the IRS announced the 
launch of the Non-filer tool to sign up for the advanced portion of the 
Child Tax Credit, you stated that, ``We know working families can't put 
off paying for doctor's visits or grocery bills, and this new tool will 
help more people get their tax credit every month, starting in 
July.''\7\ Now, just a few weeks out from the first payments going out, 
I am hearing from my constituents that the IRS systems are clunky and 
burdensome. For example, Hoosiers may be wary of sharing their driver's 
license through a portal that was so quickly put together--especially 
as the IRS is currently in the news for its inability to protect 
taxpayer privacy--and I am hearing that the process can get held up by 
phone number verification, including where the text message 
verification codes never arrive. I agree that there should be secure 
safeguards to protect against fraud and abuse, but I am concerned that 
Hoosiers will be exhausted by this onerous process and ultimately give 
up on pursuing, or conversely, opting out of these credits. With that 
as a background, I'd like to ask a few questions about what the IRS and 
Treasury are going to do to help Hoosiers receive the new credit.
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    \7\ https://home.treasury.gov/news/press-releases/jy0227.

    What is Treasury doing to streamline these online tools in the next 
few weeks before a launch of payments going out the door? What actions 
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will continue through the next filing season?

    Answer. On June 30th, the IRS announced an upgrade to a key online 
tool available on IRS.gov, called the ``Child Tax Credit Update 
Portal'' or ``CTC UP.'' This upgrade enables families to quickly and 
easily update their bank account information and receive their monthly 
advance Child Tax Credit (CTC) payments through direct deposit. Any 
updates made on CTC UP by August 2nd will apply to the remaining 
monthly payments for 2021, starting with the August 13th payment.

    Families will receive their July 15th payment by direct deposit 
into their bank account based on their information currently on file 
with the IRS. Those who are not enrolled for direct deposit will 
receive a check. The IRS encourages people who have not provided their 
current bank account information to the IRS to update their information 
through CTC UP so they can receive their advance CTC payments sooner.

    To streamline the advance CTC payment experience, families may use 
CTC UP to perform several account actions, including: (1) confirm their 
eligibility for advance CTC payments; (2) determine if they are 
enrolled to receive their monthly payments by direct deposit; (3) 
change their direct deposit bank account information for monthly 
payments starting August 13th; and (4) provide their bank account 
information to enable them to switch monthly payment delivery from 
paper checks to direct deposit into their bank account.

    The IRS urges any family receiving checks to consider switching to 
direct deposit. With direct deposit, families can access their money 
more quickly. Also, direct deposit removes the time, worry, and expense 
of cashing a check. In addition, direct deposit eliminates the chance 
of a lost, stolen, or undelivered check.

    To ensure families are aware of their options, taxpayers will 
receive several letters regarding the 2021 advance CTC payments. The 
IRS is sending letters to eligible families who filed either a 2019 or 
2020 Federal income tax return or who used the Non-filer tool on 
IRS.gov to register for an Economic Impact Payment (EIP). These 
personalized letters will confirm the family's eligibility, the amount 
of payments that they will receive, and the July 15 payment start date. 
Families who receive these letters generally do not need to take any 
further action. These letters follow up on the 2021 advance CTC 
outreach letter mailed in early and mid-June to every family who 
appeared to qualify for advance CTC payments.

    IRS communications, outreach, and assistance will continue through 
the 2022 filing season. To provide the latest information to taxpayers 
about the 2021 CTC and advance CTC payments, the IRS developed a 
special page on IRS.gov called ``Advance Child Tax Credit Payments in 
2021.'' This site includes direct links to CTC UP as well as two other 
online tools (the Child Tax Credit Non-filer Sign-up tool and the Child 
Tax Credit Eligibility Assistant), several sets of frequently asked 
questions and answers, and other useful resources.

    In addition, the IRS is hosting Advance CTC Free Tax Prep Days and 
CTC outreach events in select cities. During these events, IRS 
employees, key community stakeholders, and volunteers will help 
eligible families by providing them with useful information and, if 
needed, assisting them in filing a 2020 tax return so that they can 
begin receiving their monthly advance CTC payments. This 2020 return 
also will enable these families to receive any first- or second-round 
EIPs that they have not received, but to which they are eligible, as 
well as to sign up for the third round of EIPs.

    Question. Are taxpayers and non-filers able to make an appointment 
at a Taxpayer Assistance Center (TAC) to sign up for these payments or 
update their information in person?

    Answer. Taxpayer Assistance Center (TAC) employees can assist 
taxpayers in using the CTC tools made available on IRS.gov, including 
CTC UP, the Child Tax Credit Non-filer Sign-up tool, and the Child Tax 
Credit Eligibility Assistant. In addition, TAC employees can help 
taxpayers determine their qualifications for the CTC and advance CTC 
payments, as well as provide them with information and assistance with 
IRS Free File. If a taxpayer did not file a 2020 or 2019 tax return 
claiming the CTC, they can qualify for advance CTC payments by filing a 
2020 tax return. IRS Free File is available for taxpayers to file a tax 
return on IRS.gov. Taxpayers can make an appointment at a TAC to obtain 
assistance with filing requirements and CTC qualifications. In 
addition, frequently asked questions listed on the ``Advance Child Tax 
Credit Payments in 2021'' page on IRS.gov provides additional 
information on how to file a tax return to determine eligibility for 
the CTC and advance CTC payments.

    Question. Of the 10 TACs in Indiana, 7 remain closed. How long will 
taxpayers be required to rely on glitch-ridden online systems and dead-
end phone calls to remedy their tax troubles?

    Answer. IRS customer service representatives can assist taxpayers 
who are unable to access, or experience difficulty using, the Child Tax 
Credit Update Portal (CTC UP). Taxpayers can call the phone number 
provided in their CTC outreach letter that they received from the IRS 
in June, or they can make an appointment with their local TAC, to 
receive assistance in (i) determining their eligibility for CTC and 
advance CTC payments, as well as (ii) using IRS Free File and CTC UP.

    Of the 10 TACs located in Indiana, 6 are open to the public. In 
addition, there is one virtual service delivery site located in 
Lafayette, IN. Two locations (South Bend and Terre Haute) of the four 
closed locations will reopen for service once newly hired employees 
have completed their training.

    Question. What other non-web-based options to sign up for payments 
or update information will be available by program's launch? What 
options will be available before the end of the year, and when will 
these roll out?

    Answer. To receive advance CTC payments, taxpayers generally do not 
need to take any special steps if they are eligible to receive these 
payments based on either of their filed and processed 2020 or 2019 
Federal income tax return.

    Information entered into the Non-filer tool on IRS.gov for EIPs in 
2020 created a simplified 2019 tax return. Therefore, individuals who 
used the Non-filer tool for EIPs filed a 2019 tax return. Generally, 
all taxpayers who filed a 2020 or 2019 tax return, including those who 
used the Non-filer tool for EIPs, will automatically receive the 
Advance CTC payments without needing to take any additional action.

    Taxpayers must take action if they have not filed a 2020 or 2019 
tax return. The IRS has launched a new online Non-filer Sign-Up tool 
that will allow individuals who weren't required to file (and have not 
filed) a tax return for 2020 to file a simplified tax return. This 
simplified tax return will allow eligible individuals to register for 
Advance CTC payments and the third EIP, as well as claim the 2020 
Recovery Rebate Credit. Individuals who cannot access the Non-filer 
Sign-Up tool may file a simplified tax return on paper.

    For questions regarding eligibility and the status of payments, IRS 
customer service representatives can assist taxpayers unable to access 
the CTC Update Portal. Taxpayers can call the phone number on the CTC 
Outreach letter they received in June or they can make an appointment 
with their local TAC.

    Question. Where will taxpayers with questions be able to turn to 
for real-time, customized guidance on claiming the credit?

    Answer. The IRS will continue to provide robust communications and 
outreach to families throughout 2021 to provide information and 
resources to help them understand and sign up for the advance CTC 
payments for which they are eligible. In particular, the IRS has 
created a special Advance Child Tax Credit 2021 page on IRS.gov, which 
the IRS has designed to provide the most up-to-date information about 
the credit and the advance CTC payments.

    The IRS deployed a web-first strategy for the 2021 CTC and advance 
CTC payments. In June 2021, the IRS mailed letters to taxpayers who may 
be eligible for the CTC that provided a link to the Advance Child Tax 
Credit 2021 page on IRS.gov. The letters also provided a toll-free 
number for live assistance to help taxpayers understand the frequently 
asked questions listed on IRS.gov, as well as how to unenroll from 
advance CTC payments.

    Question. Does Treasury anticipate any of the issues it faced in 
distributing the Economic Impact Payments to affect the distribution of 
the advance CTC? What steps have the IRS taken to minimize errors?

    Answer. The IRS stands ready to serve the Nation's taxpayers--
continuing on the assistance that the agency provided throughout the 
implementation of the Coronavirus Aid, Relief, and Economic Security 
Act, the COVID-Related Tax Relief Act of 2020 (enacted as part of the 
Consolidated Appropriations Act, 2021), and the American Rescue Plan. 
As an administrative agency, the IRS will work to deliver all that the 
CTC and advance CTC statutes require, and leverage the experience 
gained by the agency while successfully delivering three rounds of 
EIPs. Similar to EIP implementation, the IRS has put into place a 
robust communication and outreach strategy to provide information and 
resources to taxpayers and the IRS's partners. In addition, the IRS 
continues to engage in extensive collaboration with stakeholders, 
including the Bureau of the Fiscal Service and other Federal agencies, 
in preparing for the timely issuance of the first round of advance CTC 
payments.

    Question. If a constituent has an issue with their payment--whether 
the constituent cannot sign up or opt out, receives the wrong payment, 
the payment is sent to the wrong bank, etc.--what is the fastest and 
most secure avenue to rectify such issue? Will missed payments that 
result from such errors be retroactively repaid?

    Answer. The Child Tax Credit Update Portal (CTC UP) allows families 
to verify their payment eligibility and, if needed, update their bank 
account information. They can also unenroll from receiving the monthly 
payments and instead receive a lump sum when they file their 2021 
Federal tax return during next year's filing season. Additional 
functionality will be added to CTC UP later this year to enable 
individuals to update their mailing address, add or subtract the number 
of their qualifying children, report a change in marital status, and 
report a change in income. IRS customer service representatives can 
assist taxpayers who are unable to access, or experience difficulty 
using, CTC UP. Taxpayers can call the phone number on the CTC Outreach 
letter they received in June or they can make an appointment with their 
local TAC.

    Taxpayer eligibility for advance CTC payments is based on their 
2020 or 2019 Federal income tax return (including information entered 
into the Non-filer tool for EIPs in 2020). If the taxpayer's 2020 tax 
return has not been processed yet, their payment amount may begin or 
change after the IRS processes their 2020 tax return. The IRS will 
adjust the remaining payments in 2021 to increase or decrease the total 
amount of advance CTC payments that should be disbursed during the 
year.

    If CTC UP indicates to an individual that an advance CTC payment 
was disbursed to that individual, but the individual has not received 
it within the applicable timeframe listed below, the individual can 
request a payment trace to track the payment. However, the IRS will not 
be able to trace a payment unless: 5 days have elapsed since the 
deposit date for the bank account on file with the IRS, and the bank 
provides that the bank has not received the payment; 4 weeks have 
elapsed since the payment was mailed by check to a standard domestic 
address on file with the IRS; 6 weeks have elapsed since the payment 
was mailed, and there is a forwarding address on file with the local 
post office; or 9 weeks have elapsed since the payment was mailed to a 
foreign address.

    To initiate a payment trace, the taxpayer can mail or fax a 
completed Form 3911, Taxpayer Statement Regarding Refund.

    Question. What is Treasury doing to educate taxpayers on this new 
CTC process, including raising taxpayer awareness that the monthly CTC 
payments may result in a smaller refund at tax filing time, or may even 
result in the taxpayer owing money back to the Federal Government?

    Answer. In May, the IRS began distributing information to the 
agency's Volunteer Income Tax Assistance (VITA) and Tax Counseling for 
the Elderly (TCE) partners regarding the 2021 CTC and advance CTC 
payments. Although most VITA and TCE sites closed at the end of the 
filing season, VITA and TCE partners were asked to share information 
about the 2021 CTC and advance CTC payments directly with their 
clients, as well as post information on their web pages, social media 
accounts, and other media sources. The IRS frequently sends 
communications to its VITA and TCE partners regarding tax statutes 
enacted as part of the American Rescue Plan Act of 2021, including the 
2021 CTC and advance CTC payments. These partners can then customize 
the IRS communications to deliver that information most effectively to 
the communities that they serve.

    Question. I understand that the IRS is hosting Advance Child Tax 
Credit Free Tax Prep Days in select metropolitan areas, none of which 
are in Indiana and none of which are designed to assist rural 
taxpayers. While I appreciate the IRS is recognizing that assistance in 
onboarding individuals is important, what steps is the IRS taking to 
provide outreach and resources to those outside of these metro areas, 
including rural taxpayers that may not have reliable broadband to 
access the IRS online tools?

    Answer. Although most Volunteer Income Tax Assistance (VITA) and 
Tax Counseling for the Elderly (TCE) sites closed at the end of the 
filing season, all VITA and TCE sites were encouraged to partner with 
the IRS to share information about the IRS's Advance Child Tax Credit 
Free Tax Prep Days. VITA and TCE partners were asked to market the 
events by posting information on the events through their social media 
sources, as well as choosing to prepare returns. On June 25th and 26th, 
participating IRS partners hosted events in 12 identified cities. Over 
80 VITA and TCE partners across the Nation provided free tax return 
preparation services during these events. The IRS and its partners will 
again conduct Advance CTC Free Tax Prep Days in July. During these 
events, IRS employees, key community stakeholders, and volunteers will 
help eligible families file a 2020 tax return, if needed, to begin 
receiving their monthly advance CTC payments.

    Question. As the leading state sponsor of terrorism in the world, 
the Iranian economy is of central importance to slowing Iran's 
terrorist activities. I believe that the administration should provide 
no sanctions relief, including relief that could be provided through 
waivers or general licenses, that directly or indirectly benefits the 
Central Bank of Iran until such time as the Treasury Department 
determines the CBI is no longer connected to the IRGC or Iran's terror 
finance activities.

    Do you agree?

    Answer. As the Biden-Harris administration has said, if Iran 
implements its nuclear commitments under the JCPOA, the United States 
would implement its commitments under the JCPOA to lift sanctions. At 
the same time, it is important that Treasury continue its work to 
enforce U.S. sanctions and combat Iran's support for terrorism, abuse 
of human rights, weapons of mass destruction (WMD) proliferation and 
ballistic missile development, as well as the regime's destabilizing 
activities in the region.

    Question. Do you agree with the role that National Iranian Oil 
Company plays in the regime's economy?

    Answer. Treasury has previously taken action to target NIOC under a 
variety of authorities, including blocking NIOC for being owned or 
controlled by the Government of Iran since 2008.

    Question. Do you also agree that the administration should provide 
no sanctions relief, including relief that could be provided through 
waivers or general licenses, that directly or indirectly benefits the 
National Iranian Oil Company, until such time as the Treasury 
Department determines that NIOC is no longer connected to the IRGC or 
Iran's terror finance activities?

    Answer. I believe Iran should only enjoy sanctions relief under the 
JCPOA if it takes the appropriate steps to resume compliance with its 
nuclear commitments under the JCPOA. At the same time, it is important 
that Treasury continue its work to enforce U.S. sanctions and combat 
Iran's support for terrorism, abuse of human rights, weapons of mass 
destruction (WMD) proliferation and ballistic missile development, as 
well as the regime's destabilizing activities in the region.

    Question. Do you agree that the United States has the right to 
impose terrorism sanctions, that is sanctions imposed pursuant to E.O. 
13224, on any entity for which sanctions relief was initially provided 
under the JCPOA, including the Central Bank of Iran and the National 
Iranian Oil Company?

    Answer. Even under the terms of the JCPOA, Treasury would retain 
the right to impose sanctions related to Iranian support for terrorism, 
human rights abuses, WMD proliferation and ballistic missile 
development, as well as the regime's destabilizing activities in the 
region.

    Question. I believe that it is of utmost importance that the IRS 
safeguard confidential taxpayer information against unauthorized 
disclosures. Taxpayers must have faith that their sensitive financial 
information will be protected by the IRS and not exploited for 
political or other gain. To that end, I recently joined my Senate 
Finance Committee Republican colleagues in sending a letter to the 
Inspector General for Tax Administration regarding the June 8, 2021, 
ProPublica article titled, ``The Secret IRS Files: Trove of Never-
Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.''\8\ 
That article strongly suggests that the taxpayer information described 
therein originated from within the IRS, which, if true, constitutes a 
serious breach of privacy and is a criminal violation of our tax laws. 
My Senate colleagues and I requested that Inspector General George 
immediately investigate this apparent leak.
---------------------------------------------------------------------------
    \8\ https://www.propublica.org/article/the-secret-irs-files-trove-
of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-
tax.

    Do you commit to ensuring the Treasury Department, including the 
IRS, cooperates fully and promptly with any investigation into the 
ProPublica data release, including but not limited to investigations by 
the U.S. Department of Justice and the Inspector General for Tax 
Administration, and do you commit to taking immediate action to remedy 
---------------------------------------------------------------------------
any shortcomings identified by any such investigation?

    Answer. With respect to the ProPublica report, I am deeply troubled 
by it. It is important to stress that an unauthorized disclosure of 
taxpayer information is a crime. Immediately upon learning about this 
matter, it was referred to the FBI, Federal prosecutors, and Treasury 
Department oversight authorities, all of whom have the independent 
authority to investigate. We are fully cooperative with their efforts 
and are interested in doing all possible as quickly as possible to get 
to the bottom of this potentially criminal activity.

    Question. Since the onset of the coronavirus pandemic, the United 
States government has pumped trillions of dollars into the economy and 
swelled the money supply. After pushing through a nearly $2-trillion 
so-called ``COVID relief'' bill, while a trillion of authorized relief 
remained unspent, President Biden has laid out an unprecedented $6-
trillion budget that is only partially paid for with tax hikes that 
will hamper our economic recovery. Earlier this month, the Bureau of 
Labor Statistics released its May CPI data--a 5-percent increase over 
the last year.

    You have indicated that the White House should revise its inflation 
estimate to 3 percent for the year, and the Federal Reserve has raised 
its prediction to 3.4 percent. Do you still hold your earlier 
assessment that this inflation is simply a transitory effect?

    Are you concerned about any effects that further spending--as 
proposed by the President, despite the trillions in deficit spending 
already signed into law--will have on our economy over the next few 
years?

    Answer. My view on the inflation outlook has been, and remains, 
that inflation is transitory as the economy pivots from a steep 
recession back into recovery. This view is consistent with that of the 
Federal Reserve, the Congressional Budget Office, and professional 
forecasters, as measured through the Blue Chip forecast and other 
metrics.

    The fiscal proposals advanced by the President, which are fully 
offset over 15 years, would expand the productivity capacity of the 
U.S. economy by raising labor participation and bolstering 
productivity. And I worry that in the absence of the proposed 
investments in areas like infrastructure and policies to mitigate 
climate change, our economy will begin to suffer the negative impacts 
of insufficient public investment.

    Question. I would like to get your thoughts on the ongoing 
negotiations regarding a global tax agreement. Since the agreements 
announced by the G7 nations earlier this month, France and others have 
indicated that they still intend to continue their digital services tax 
(DST), which the United States Trade Representative has found to 
violate section 301.

    Do you believe that the United States should move forward with 
tariffs on nations imposing discriminatory DST? Shouldn't nations that 
are entering into good faith negotiations be encouraged to drop their 
own DSTs?

    Answer. We share your goal of making discriminatory DSTs a thing of 
the past, and we have made substantial progress here. At the Inclusive 
Framework and G20, we've achieved consensus that there will be a 
removal of all DSTs and other relevant similar measures on all 
companies. Additionally, we have changed the norms surrounding DSTs, 
conveying to our trading partners that the discriminatory nature of 
these taxes is unacceptable to the United States. By conveying this 
message multilaterally rather than through threats and retaliation, we 
have also prevented a series of trade disputes that are harmful to U.S. 
businesses, workers, and consumers. That being said, we are also 
retaining all options for discouraging the use of DSTs. The USTR has 
started trade retaliation procedures via investigation and sanctions 
under section 301, and we are keeping that tool available to use if it 
were to become necessary. While we very much hope to avoid trade 
conflicts, this tool remains a useful lever to bring countries to the 
bargaining table.

    Question. Is there validity to the argument that the Pillar 1 
agreement proposed by the G7 is mostly a repackaging of the digital 
services tax?

    Answer. We have carefully designed our Pillar 1 scope proposal so 
that it does not ringfence U.S. digital companies, and instead brings 
in many non-U.S. companies. Regarding Pillar 1, one of the primary 
benefits of the U.S. comprehensive scoping proposal is that it would 
only apply to multinational corporate groups that satisfy objective 
quantitative criteria such as size and profitability thresholds, and 
does not discriminate against certain business sectors. And, 
importantly, by eliminating a chaotic array of digital unilateral 
measures, Pillar 1 stabilizes the current regime in a way that will 
benefit businesses and will provide tax certainty to them.

    I would also note that we have not completed a detailed analysis of 
the economic impact of Pillar 1 since the OECD Inclusive Framework has 
not agreed on a profit reallocation formula for, Pillar 1. However, 
based on earlier work for the October 2020 Blueprint scoping, the 
possibility of no U.S. revenue impact was within the confidence 
interval examined by the Office of Tax Analysis. This is largely due to 
the U.S.'s position as both having a goods trade deficit and a services 
trade surplus, which have offsetting revenue effects.

    Question. Despite the Biden administration's commitment not to 
raise taxes on the middle class, the Democrats' so-called COVID relief 
package--passed this March with zero Republican votes-- prohibits 
States from lowering tax rates over the next 4 years if such State 
accepted COVID relief funding. The Treasury Department has since 
announced that States will have to justify any tax cut by demonstrating 
such cut was offset by other revenues.

    The State of California, which is set to receive more than $27 
billion in this latest COVID relief package--more than any other 
State--recently announced a budget surplus of up to $76 billion, and 
expects to be providing certain families with rebates of up to $600.

    Do you believe there is a meaningful difference between a tax 
decrease and a tax rebate?

    Answer. Section 602(c)(2)(A) provides that States and territories 
may not use funds provided under the State and Local Fiscal Relief Fund 
from offsetting a reduction in net tax revenue resulting from a 
``change in law, regulation, or other administrative interpretation 
during the covered period'' that ``reduces any tax . . . or delays the 
imposition of any tax or tax increase.'' Treasury's interim final rule 
implements this provision as directed by Congress, including guidance 
on the scope of changes covered under this provision. To determine 
whether a change would be covered, a State or territory would consider 
whether a change was made to law, regulation or other administrative 
interpretation that was enacted during the covered period and that the 
State or territory would assess or predict to have the effect of 
reducing tax revenue. An assessment on this question is not possible in 
the abstract; further details on the specific parameters of each policy 
would be needed to determine whether there are relevant economic, 
policy, or practical differences.

    Question. If enacted, do you believe California's rebate proposal 
would violate the ``no tax cut'' rule that was included in the American 
Rescue Plan Act?

    Answer. The net tax offset provision of the American Rescue Plan 
Act does not prohibit any particular tax policies, and no tax cut or 
other tax policy on its own would be sufficient to result in recoupment 
of American Rescue Plan funds. As discussed further in the interim 
final rule, implementing such policies would not result in recoupment 
provided that States and territories that choose to implement them 
could demonstrate that they have been paid for with other sources of 
funds, including other tax increases, certain spending cuts, or 
increased tax revenues resulting from economic growth.

                                 ______
                                 

                             Communication

                              ----------                              


                        Center for Fiscal Equity

                      14448 Parkvale Road, Suite 6

                          Rockville, MD 20853

                              301-871-1395

                      [email protected]

                      Statement of Michael Bindner

Chairman Wyden and Ranking Member Crapo, thank you for taking my 
comments. Our comments repeat those provided to the House Budget 
Committee on June 9th, which were based on the topics presented in 
their Committee backgrounder. This document hits the high points in the 
budget. Additional options presented for consideration, either now or 
in the future. Our revenue proposals impact how the Administration's 
priorities are funded, which is why they are discussed first. Please 
see attachment one for the details of our tax reform plan. Spending 
items not under the purview of the Finance Committee are omitted.

Ensure big corporations pay their fair share. Corporate income taxes 
would be discontinued and replaced by an employer-paid subtraction 
value-added tax on all businesses, thus taxing both labor and capital 
at the same rate for the first tier, with a proposed rate between 13% 
and 20%. No net revenue would be collected. Rather, this tax would fund 
an expanded refundable child tax credit at more generous than the 
President's proposal, as well as health care costs for employees and 
their families. Some employers will overpay, while others will get a 
refund. Higher tier salary taxation will be collected with this tax.

A matching state tax would supplement the child tax credit in higher 
cost states, while providing funds for education through the junior 
college and vocational levels. States would collect both state and 
federal taxes. These items will be discussed below.

End tax loopholes for the wealthy. Provide the IRS with the resources 
it needs to crack down on wealthy tax cheats and improve taxpayer 
services. In general, we propose ending personal income taxation for 
all but the wealthiest taxpayers. The threshold for salary taxation 
will be $85,000, however it will be collected by employers with tax 
rates ranging from 12.5% to 25% at and above $340,000 per year. 
Personal salary taxation will begin at $425,000 at 12.5%, increasing to 
25% at $680,000, for an overall rate of 50% from both revenue streams. 
The salary surtax could be remitted in advance by purchasing tax 
prepayment bonds. This would reduce future net interest costs, which 
are the main driver of future budget imbalance.

The largest loophole for the wealthy is not mentioned in the 
President's Budget. If there is a third rail in income taxation that 
mirrors the third rail in Social Security, this is it. The largest boon 
to the wealthy is the exclusion of mutual funds from payment of capital 
gains and income taxation. This ensures the accumulation of wealth by 
the rich at the expense of everyone else. By our calculations, 28% of 
mutual fund (and bond) assets are held by the top 1,450 families. Over 
half of these assets are held by the top 0.01%. The bottom 90% hold 
only 23% of such assets, and many of these are likely held by well-off 
retirees.

Shifting taxation to an asset value-added tax from personal income 
taxation at 25% (which is the rate currently being discussed in budget 
negotiations) would tax capital gains, dividends at distribution, and 
interest at distribution. Rental and real property assets will be taxed 
at the state level. The federal tax would be remitted to the Securities 
and Exchange Commission, while states would collect rental income 
monthly and capital gains taxes at closing.

Asset VAT would be marked to market (not gain) at option exercise and 
at the first sale after inheritance, gift and donation. The estate tax 
would be repealed. Family businesses and assets would not have to be 
sold to pay estate taxes, but once the family business is sold, any 
advantage will be ended. There will be no loopholes, save one, and no 
need for extra audit resources. The only loophole would be zero rating 
sales to qualified Employee Stock Ownership Plans.

Cash inheritances would not be taxed, but because a goods and services 
taxes will be established (increased minimum wages and child tax 
credits will hold the working class harmless), heirs will no longer 
evade taxation forever. Most tax dodges, such as large insurance 
policies, will lose their allure.

Instead of an internationally agreed upon corporate minimum tax 
corporate income tax, asset VAT rates will be coordinated so that 
international market shifting will not occur based on tax rates.

Note to Republican Members: President Bush 41 was not denied a second 
term because he went back on his no new taxes pledge. Indeed, the 1990 
Tax Act began the period of growth in the 1990s, which were accelerated 
by President Clinton. As we come out of the COVID recession, higher 
taxes on the wealthy are desirable, and will occur.

The wealthy need to want to pay more. The current debt is 
unsustainable, not because of COVID spending but because the rich 
themselves are receiving more interest from the debt than what they owe 
on it. The world will not tolerate this for long. See the final 
attachment for more information on this.

Build world-class transportation infrastructure. Infrastructure should 
not be paid for by the rich. Such funding is not sustainable over time. 
Increased motor fuel taxes, with a return to projects coordinated 
between members of Congress and local governments, is the traditional 
approach until the late-Senator McCain led the charge against ``pork 
barrel'' funding. The reality was the high taxes were considered 
tolerable when paired with bringing home the bacon. Even Congressman 
Ron Paul realized, at my urging, that agreed upon spending was 
preferable to spending based entirely in the federal contracting and 
grant sectors.

Motor vehicle fuel prices are generally inelastic to about $4.00 per 
gallon or more. Taxes that result in fuel taxes below that point will 
not affect revenue. Paired with improvements in public transit, the 
emission of greenhouse gases, as well as more acute emissions, will be 
served by higher prices.

Market manipulation of oil prices in the New York Mercantile Exchange 
is not unheard of. Indeed, it likely had a cause in the Great 
Recession, as oil traders tried to tap mortgage-backed securities when 
prices dropped due to the examination of market practices by Congress. 
The deregulation undertaken by Mr. Mulvaney in his service (if that is 
what you want to call it) at the Consumer Finance Protection Bureau 
undid the market reforms enacted in Dodd-Frank. Restoring these reforms 
must be a priority.

With the rise of electric vehicles, some form of mileage based tax is 
appropriate, although developing it is problematic. We must raise gas 
taxes first while we develop the concept.

Invest in the knowledge, technologies, and actions needed to tackle the 
climate crisis and lead in the clean energy economy. A carbon value-
added tax should fund improvements in technology. A VAT, rather than an 
embedded tax, allows consumers more information in making their 
consumption decisions. The possibilities for funding research have 
already been submitted to the Energy and Water Development 
Subcommittee. I suggest two initiatives:

Fusion is a game changer and should be funded on a crash basis before 
we have to turn out the lights to avoid treading water. Helium-3 is 
promising and there is even some noise about cold fusion on a larger 
scale. Energy companies like how cheap coal is and how much cheaper and 
more popular natural gas is. Utilities (and even coal producers) need 
to be offered a way to hedge their bets. To move fusion, set up a 
public-private partnership to sink in more money in exchange for the 
right of first use. Any practical use of fusion will be big-industry. 
It was never going to be any other way. Funds should be increased for 
fusion now, with a promise of ever greater funding once industrial 
partnerships are created.

One use for such cheap power is a new transportation system. We can 
pilot this now, in cooperation with the Departments of Commerce and 
Transportation, automobile manufacturers, utility companies and 
eventually selected local governments. I described the project in my 
CJS appropriation testimony.

To best utilize clean energy (even natural) automated cars with central 
control (rather than their own AI) and energy distribution (rather than 
being hampered by economically damaging battery development). The 
latter is old technology, i.e., electric trains and buses.

The same consortia that fund the project can be the backbone for 
implementing it. Individuals could own cars, while some would be for 
hire (with monitoring, but not drivers). Debit cards or a link to 
checking accounts would pay for the car itself (either to rent or own), 
the roadway and the use of energy and computer services.

Prices would vary based on congestion and vehicles could be taken to a 
public transportation hub (which might be located at their children's 
school), with the vehicle returning home empty or going to the next 
fare. If congestion is low, it may be affordable to drive to work. If 
it is high, prices for public transit and commuting would be adjusted 
accordingly. We can do this now. The technology is already available. 
We need only be willing.

Make transformative investments in a renewed electric grid and energy-
related economic development. Energy infrastructure to power an 
integrated electric car system would also carry household energy that 
relies on an effective grid. We agree on all initiatives in the 
President's Budget. These should eventually be funded by a carbon value 
added tax. Such a tax will be easier to pass with vigorous enforcement 
of environmental regulations, with punitive fines. Industry will beg 
for such alternatives.

In the interim, while tax reform is in negotiations and development, 
these projects should be funded by increased debt (which is appropriate 
for capital projects), with increased taxation of the wealthy, both 
immediately and through asset value-added and higher tier subtraction 
VAT in the longer term.

Revitalize American manufacturing and small businesses, creating 
economic and job growth across the country. From our usual comments on 
international trade: Consumption taxes could have a big impact on 
workers, industry and consumers. Enacting an I-VAT is far superior to a 
tariff. The more government costs are loaded onto an I-VAT the better.

If the employer portion of Old-Age and Survivors Insurance, as well as 
all of disability and hospital insurance are decoupled from income and 
credited equally and personal retirement accounts are not used, there 
is no reason not to load them onto an I-VAT. This tax is zero rated at 
export and fully burdens imports.

Let us look at small business more closely. The cure for franchising, 
which is designed to insulate large companies from inventory, property 
and organized labor risks, would be less attractive with enactment of 
an employer-paid subtraction value-added tax. Large firms would want 
these tax benefits for themselves.

Gig work and the misuse of 1099 employment would also be reduced, which 
will greatly decrease the number of small businesses as currently 
measured. Federalizing the enforcement of existing labor law and 
increasing both funding and fines for violation will also allow a focus 
on true small businesses. Aid to small businesses can then be focused 
to where it is needed.

Invest $400 billion in home or community-based care for seniors and 
people with disabilities. Home and community-based care should be 
funded by goods and services taxes as part of a newly created Medicare 
Part E. Senior Medicaid should be entirely federalized, with other 
clients insured through the President's proposal for a public option.

President Reagan's New Federalism proposal would have removed Medicaid 
from state budgets in exchange for ending or block granting other 
federal programs. This was a good idea then and a better idea now. 
Medicaid Part E should be created to both relieve states and the 
District of Columbia (or Washington, Douglass Commonwealth) from 
providing Medicaid for seniors and the Disabled and seeing to the 
enforcement of practice standards for nursing homes who receive these 
funds.

President's Budget: Support workforce development; provide four 
additional years of free education. Make historic investments in 
education. Local welfare programs will channel clients to appropriate 
educational programs (with no legal residency requirement), training 
through workforce investment boards or other social services. One Stop 
programs should really be handled in one stop. Programs, both public, 
private and sectarian, should be funded by a state-level employer-paid 
subtraction VAT. They will include the following:

      English as a Second Language.
      Expanded Job Corps.
      General Education Degree preparation.
      Technical and vocational training.
      Psychiatric and occupational rehabilitation programs.
      Community College and the first two years of four year programs 
to an Associate's Degree or through sophomore year.

All of the above should include a stipend at the minimum wage (pending 
satisfactory performance and be tuition free). Education providers will 
be the conduit to tax benefits and any other state or federal 
subsidies.

Medicaid for poor families should be distributed, where possible, 
through the health insurance plan of their educational providers or the 
plan for state and local government employees. SNAP payments should be 
abolished, as well as TANF, except for people who cannot be enrolled in 
another program. For these, SNAP must include a cash benefit, thus 
ending the incentive to sell food stamps in order to buy toilet paper 
or gasoline.

President's Budget: Make critical investments in child care. Childcare 
is best provided by the employer or the employee-owned or cooperative 
firm. On-site care, with separate spaces for well and sick children, as 
well as an on-site medical site for sick employees, will uncomplicate 
the morning and evening routine. Making yet another stop in an already 
busy schedule adds to the stress of the day. Knowing that, if problems 
arise, parents can be right there, will help workers focus on work.

Larger firms and government agencies can more easily provide such 
facilities. Indeed, in the Reeves Center of the District Government, 
such a site already exists. When the crisis is over, a staff visit 
would prove illuminating. Smaller firms could make arrangements with 
the landlord of the building where offices or stores are located, 
including retail districts and shopping malls. For security reasons, 
these would only serve local workers, but not retail customers.

These programs should be paid for with increased employer-paid 
subtraction value added taxes, with credits for companies that provide 
these benefits and higher taxes for those who do not. A tax on 
employers would help society share the pain for requiring paid leave. 
Firms that offer leave would receive a credit on their taxes 
(especially low-wage firms).

Extend key tax benefits for lower- and middle-income workers and 
families. The child tax credit level passed in the American Recovery 
Act should be made permanent and doubled, with distribution through 
private sector payrolls, unemployment insurance benefits, emergency 
benefits for families and paid participation in educational programs.

There are two avenues to distribute money to families. The first is to 
add CTC benefits to unemployment, retirement, educational (TANF and 
college) and disability benefits. The CTC should be high enough to 
replace survivor's benefits for children.

The second is to distribute them with pay through employers. This can 
be done with long term tax reform, but in the interim can be 
accomplished by having employers start increasing wages immediately to 
distribute the credit to workers and their families, allowing them to 
subtract these payments from their quarterly corporate or income tax 
bills.

Deliver nutrition security to America's vulnerable families. Build and 
retrofit buildings across the country for energy efficiency and 
expanded housing options. Increase the supply, quality, and 
affordability of rental housing. The best option for food security and 
low income housing is to increase incomes by increasing the minimum 
wage, increasing the child tax credit and monthly payments for old-age, 
survivors and disability recipients. For the latter, rebasing past 
wages to wage increases will help, but shifting the employer 
contribution and disability insurance to funding with a border 
adjustable goods and services tax, crediting past and future 
contributions on an equal dollar basis (rather than as a match for the 
employee contribution. VAT funding means a larger tax base and easier 
rate increases.

Increasing the minimum wage to $10 should take effect immediately, 
phasing to $12. You can argue about a $15 or $18 minimum after the 
midterm elections. Higher minimum wages increase job growth, as lower-
wage employees spend every dime of the increase, as do higher-wage 
workers below the middle-management level whose wages will also rise. 
Provisions should also be included in law to hold franchisers harmless 
if minimum wage increases impact their own livelihoods.

Meeting National Defense Needs. In general, we recommend that non-
strategic air and ground units based in CONUS be funded from the goods 
and services tax, while sea, overseas (OCO) operations and veterans 
benefits be funded with asset VAT and higher tier employer-paid 
subtraction VAT revenues, which will also fund net interest and paying 
down the Social Security and Medicare Trust Funds.

Essentially, federal defense spending which benefits the homeland will 
be paid by American taxpayers, but not by exports. The current regime 
can be seen as an unconstitutional export tax. Department of Defense 
product and logistic commands will be funded based on where units are 
assigned and based. Strategic systems will be nationally funded.

Overseas deployments and war are generally put on the national credit 
card. It is generally better to tax higher income individuals rather 
than paying them interest instead. The cash flows are the same, but 
taxation means that the cash need not be paid back at interest.

Thank you for this opportunity to share these ideas with the committee. 
As always, we are available to meet with members and staff or to 
provide direct testimony on any topic you wish.

Attachment--Tax Reform, Center for Fiscal Equity, March 5, 2021

Individual payroll taxes. These are optional taxes for Old-Age and 
Survivors Insurance after age 60 for widows or 62 for retirees. We say 
optional because the collection of these taxes occurs if an income 
sensitive retirement income is deemed necessary for program acceptance. 
Higher incomes for most seniors would result if an employer 
contribution funded by the Subtraction VAT described below were 
credited on an equal dollar basis to all workers. If employee taxes are 
retained, the ceiling should be lowered to $85,000 to reduce benefits 
paid to wealthier individuals and a $16,000 floor should be established 
so that Earned Income Tax Credits are no longer needed. Subsidies for 
single workers should be abandoned in favor of radically higher minimum 
wages.

Wage Surtaxes. Individual income taxes on salaries, which exclude 
business taxes, above an individual standard deduction of $85,000 per 
year, will range from 6.5% to 26%. This tax will fund net interest on 
the debt (which will no longer be rolled over into new borrowing), 
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the 
result of battlefield injuries, including mental health and addiction 
and eventual debt reduction. Transferring OASDI employer funding from 
existing payroll taxes would increase the rate but would allow it to 
decline over time. So would peace.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes, 
dividend taxes, and the estate tax. It will apply to asset sales, 
dividend distributions, exercised options, rental income, inherited and 
gifted assets and the profits from short sales. Tax payments for option 
exercises and inherited assets will be reset, with prior tax payments 
for that asset eliminated so that the seller gets no benefit from them. 
In this perspective, it is the owner's increase in value that is taxed. 
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will 
fund the same spending items as income or S-VAT surtaxes.

This tax will end Tax Gap issues owed by high income individuals. A 26% 
rate is between the GOP 24% rate (including ACA-SM and Pease surtaxes) 
and the Democratic 28% rate. It's time to quit playing football with 
tax rates to attract side bets. A single rate also stops gaming forms 
of ownership. Lower rates are not as regressive as they seem. Only the 
wealthy have capital gains in any significant amount. The de facto rate 
for everyone else is zero.

The mutual fund exemption will be repealed. It is the biggest tax 
shelter is the use of money market funds to accumulate capital gains 
and income without taxation. This practice must end if salary surtaxes 
no longer include non-salaried income. 75% of such funds are held by 
the top 10% of households as measured by the 2019 Survey of Consumer 
Finance by the Federal Reserve. I suspect the other 20% are held by 
high income retirees. The working class will not be harmed. Applying 
the Pareto Rule to higher income households leaves the top 1450 
households with 30% of wealth. The proof of this proposition is the 
shareholders list of Berkshire Hathaway.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net 
Business Receipts Taxes. S-VAT is a vehicle for tax benefits, 
including:

      Health insurance or direct care, including veterans' health care 
for non-
battlefield injuries and long-term care.
      Employer paid educational costs in lieu of taxes are provided as 
either 
employee-directed contributions to the public or private unionized 
school of their choice or direct tuition payments for employee children 
or for workers (including ESL and remedial skills). Wages will be paid 
to students to meet opportunity costs.
      Most importantly, a refundable child tax credit at median income 
levels (with inflation adjustments) distributed with pay.

Subsistence level benefits force the poor into servile labor. Wages and 
benefits must be high enough to provide justice and human dignity. This 
allows the ending of state administered subsidy programs and 
discourages abortions, and as such enactment must be scored as a must 
pass in voting rankings by pro-life organizations (and feminist 
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, 
provided that these accounts are insured through an insurance fund for 
all such accounts, that accounts go toward employee ownership rather 
than for a subsidy for the investment industry. Both employers and 
employees must consent to a shift to these accounts, which will occur 
if corporate democracy in existing ESOPs is given a thorough test. So 
far it has not. S-VAT funded retirement accounts will be equal-dollar 
credited for every worker. They also have the advantage of drawing on 
both payroll and profit, making it less regressive.

A multi-tier S-VAT could replace income surtaxes in the same range. 
Some will use corporations to avoid these taxes, but that corporation 
would then pay all invoice and subtraction VAT payments (which would 
distribute tax benefits. Distributions from such corporations will be 
considered salary, not dividends.

Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on 
purchase invoices. The rate varies according to what is being financed. 
If Medicare for All does not contain offsets for employers who fund 
their own medical personnel or for personal retirement accounts, both 
of which would otherwise be funded by an S-VAT, then they would be 
funded by the I-VAT to take advantage of border adjustability. I-VAT 
also forces everyone, from the working poor to the beneficiaries of 
inherited wealth, to pay taxes and share in the cost of government. 
Enactment of both the A-VAT and I-VAT ends the need for capital gains 
and inheritance taxes (apart from any initial payout). This tax would 
take care of the low-income Tax Gap.

I-VAT will fund domestic discretionary spending, equal dollar employer 
OASI contributions, and non-nuclear, non-deployed military spending, 
possibly on a regional basis. Regional I-VAT would both require a 
constitutional amendment to change the requirement that all excises be 
national and to discourage unnecessary spending, especially when 
allocated for electoral reasons rather than program needs. The latter 
could also be funded by the asset VAT (decreasing the rate by from 
19.5% to 13%).

As part of enactment, gross wages will be reduced to take into account 
the shift to S-VAT and I-VAT, however net income will be increased by 
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will 
replace pass-through and proprietary business and corporate income 
taxes.

Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility, 
which allows comparison shopping based on carbon content, even if it 
means a more expensive item with lower carbon is purchased. C-VAT would 
also replace fuel taxes. It will fund transportation costs, including 
mass transit, and research into alternative fuels (including fusion). 
This tax would not be border adjustable.

Summary

This plan can be summarized as a list of specific actions:

    1.  Increase the standard deduction to workers making salaried 
income of $425,001 and over, shifting business filing to a separate tax 
on employers and eliminating all credits and deductions--starting at 
6.5%, going up to 26%, in $85,000 brackets.

    2.  Shift special rate taxes on capital income and gains from the 
income tax to an asset VAT. Expand the exclusion for sales to an ESOP 
to cooperatives and include sales of common and preferred stock. Mark 
option exercise and the first sale after inheritance, gift or donation 
to market.

    3.  End personal filing for incomes under $425,000.

    4.  Employers distribute the child tax credit with wages as an 
offset to their quarterly tax filing (ending annual filings).

    5.  Employers collect and pay lower tier income taxes, starting at 
$85,000 at 6.5%, with an increase to 13% for all salary payments over 
$170,000 going up 6.5% for every $85,000- up to $340,000.

    6.  Shift payment of HI, DI, SM (ACA) payroll taxes employee taxes 
to employers, remove caps on employer payroll taxes and credit them to 
workers on an equal dollar basis.

    7.  Employer paid taxes could as easily be called a subtraction 
VAT, abolishing corporate income taxes. These should not be zero rated 
at the border.

    8.  Expand current state/federal intergovernmental subtraction VAT 
to a full GST with limited exclusions (food would be taxed) and add a 
federal portion, which would also be collected by the states. Make 
these taxes zero rated at the border. Rate should be 19.5% and replace 
employer OASI contributions. Credit workers on an equal dollar basis.

    9.  Change employee OASI of 6.5% from $18,000 to $85,000 income.

Attachment--Debt as Class Warfare, September 24, 2020

Visibility into how the national debt, held by both the public and the 
government at the household level, sheds light on why Social Security, 
rather than payments for interest on the public debt, are a concern of 
so many sponsored advocacy institutions across the political spectrum.

Direct household attribution exists through direct bond holdings, 
income provided by Social Security payments and secondary financial 
instruments backed with debt assets. Using the Federal Reserve Consumer 
Finance Survey and federal worker and Social Security payment and tax 
information, we have calculated who owes and who owns the national debt 
by income quintile. Federal Reserve and Bank holdings are attributed 
based on household checking and savings account sizes.

Responsibility to repay the debt is attributed based on personal income 
tax collection. Payroll taxes create an asset for the payer, so they 
are not included in the calculation of who owes the debt. Calculations 
based on debt held when our study on the debt was published, 
distributed based on the latest data (2017) from the IRS Data Book show 
a ratio of $16.5 of debt for every dollar of income tax paid.

This table shows a summary level distribution of income, national debt 
and debt assets in three groupings based on share of Adjusted Gross 
Income received, rather than by number of households. This answers the 
perennial question of who is in the middle class.


------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                        Amounts (Billions)
                                                                 -------------------------------------------------------------------------------------------------------------------------------
      Descending Cumulative         Millions of     Millions of                                                       Held by
           Percentiles             Returns Filed  Returns Paying                    Income Tax      Gross Debt        Federal                         Held in         Held in      Assets Net of
                                                        Tax             AGI            Paid          (Factor)       Reserve and    Held in Bonds     Personal       Government    Debt Liability
                                                                                                       16.55           Banks                         Accounts          Debt
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
All returns total                          143.3            99.4          10,937           1,601          26,500           5,238           4,222           3,854           5,384         (7,802)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Top 5% IRS, 8.5% CPS, $208,053               7.2             7.2           3,995             947          15,671           2,926           3,693           2,411             294         (6,347)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5%-25% IRS, 8.5%-37.2% CPS,                 28.7            28.3           3,566             432           7,146           1,399             529           1,046           1,238         (2,934)
 $83,682
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Bottom 75% IRS, 62.8% CPS, $0              107.5            63.9           3,375             223           3,683             913               -             397           3,852         (1,479)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------


The bottom 75% of taxpaying units hold few, if any, public debt assets 
in the form of Treasury Bonds or Securities or in accounts holding such 
assets. Their main national debt assets are held on their behalf by the 
Government. They are owed more debt than they owe through taxes.

The next highest 20% (the middle class), hold few bonds, a third of 
bond-backed financial assets and a quarter of government held 
retirement assets.

The top 5% (roughly 8.5% of households) own the vast majority of non-
government retirement holdings and collect (and roll-over) most net 
interest payments. This stratum owns very little of retirement assets 
held by the government, hence their interest in controlling these 
costs. Their excess liability over assets is mostly attributable to 
internationally held debt. Roughly $4 trillion of this debt is held by 
institutions, with the rest held by individual bond holds, including 
debt held by members of this stratum in off-shore accounts.

Source: Settling (and Squaring) Accounts: Who Really Owes the National 
Debt? Who Owns It?, available from Amazon at https://www.amazon.com/dp/
B08FRQFF8S.

                                   [all]