    [House Hearing, 118 Congress]
    [From the U.S. Government Publishing Office]

                          HEARING ON PRESIDENT BIDEN'S
                        FISCAL YEAR 2024 BUDGET REQUEST
                         WITH TREASURY SECRETARY YELLEN

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON WAYS AND MEANS
                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED EIGHTEENTH CONGRESS

                                 FIRST SESSION
                                   __________

                                 MARCH 10, 2023
                                   __________

                                Serial No. 118-4
                                   __________

             Printed for the use of the Committee on Ways and Means

                      [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE

    53-239                    WASHINGTON : 2024

                          COMMITTEE ON WAYS AND MEANS

                        JASON SMITH, Missouri, Chairman
    VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts
    ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas
    MIKE KELLY, Pennsylvania             MIKE THOMPSON, California
    DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut
    DARIN LaHOOD, Illinois               EARL BLUMENAUER, Oregon
    BRAD WENSTRUP, Ohio                  BILL PASCRELL, Jr., New Jersey
    JODEY ARRINGTON, Texas               DANNY DAVIS, Illinois
    DREW FERGUSON, Georgia               LINDA SANCHEZ, California
    RON ESTES, Kansas                    BRIAN HIGGINS, New York
    LLOYD SMUCKER, Pennsylvania          TERRI SEWELL, Alabama
    KEVIN HERN, Oklahoma                 SUZAN DelBENE, Washington
    CAROL MILLER, West Virginia          JUDY CHU, California
    GREG MURPHY, North Carolina          GWEN MOORE, Wisconsin
    DAVID KUSTOFF, Tennessee             DAN KILDEE, Michigan
    BRIAN FITZPATRICK, Pennsylvania      DON BEYER, Virginia
    GREG STEUBE, Florida                 DWIGHT EVANS, Pennsylvania
    CLAUDIA TENNEY, New York             BRAD SCHNEIDER, Illinois
    MICHELLE FISCHBACH, Minnesota        JIMMY PANETTA, California
    BLAKE MOORE, Utah
    MICHELLE STEEL, California
    BETH VAN DUYNE, Texas
    RANDY FEENSTRA, Iowa
    NICOLE MALLIOTAKIS, New York
    MIKE CAREY, Ohio
                           Mark Roman, Staff Director
                     Brandon Casey, Minority Chief Counsel
                                     ------

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page
    Hon. Jason Smith, Missouri, Chairman.............................     1
    Hon. Richard Neal, Massachusetts, Ranking Member.................     2
    Advisory of March 10, 2023 announcing the hearing................     V

                                    WITNESS

    Janet Yellen, Secretary, United States Department of the Treasury     4

                        MEMBER QUESTIONS FOR THE RECORD

    Member Questions for the Record and Responses from Janet Yellen,
      Secretary, United States Department of the Treasury............   121

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                       PRESIDENT BIDEN'S FISCAL YEAR 2024
                          BUDGET REQUEST WITH TREASURY
                                SECRETARY YELLEN

                                  ----------

                             FRIDAY, MARCH 10, 2023

                              House of Representatives,
                                   Committee on Ways and Means,
                                                        Washington, DC.
        The committee met, pursuant to call, at 9:03 a.m., in Room
    1100, Longworth House Office Building, Hon. Jason T. Smith
    [chairman of the committee] presiding.
        Chairman SMITH. The committee will come to order.
        Thank you, Madam Secretary, for appearing before the Ways
    and Means Committee today. I will note that last year we waited
    71 days between the release of the President's budget and your
    testimony before the committee. And so I want to commend you
    for promptly being here the day after the President's budget. I
    think you are the first cabinet secretary that is testifying on
    behalf of the President's budget, and I want to thank you for
    that.
        After two years of economic failures, the American people
    desperately want results. The budget before us today calls for
    $4.7 trillion in new taxes, and $6.9 trillion in new spending
    during a staggering debt crisis. The American people are
    struggling. We know, because they told us in Yukon, Oklahoma
    and in Petersburg, West Virginia, during hearings with this
    committee.
        Whether it is Kelly Payne, a fifth generation rancher from
    Oklahoma, or Ashley Bachman, a mother of three and small
    business owner in West Virginia, the President's inflation
    crisis is threatening their livelihoods.
        The President's budget means more pain, with $1.8 trillion
    in new taxes on Main Street businesses, many of which still
    have ``Help Wanted'' signs hanging in their windows because of
    the Democrat-fueled worker shortage.
        The $650 billion small business surtax will hit mom-and-pop
    small businesses, violating President Biden's pledge not to
    increase taxes on small businesses.
        The $77 billion increase in the death tax will force family
    farms and ranches to sell their assets or risk closing their
    doors.
        The $37 billion in new taxes on American-made energy will
    kill jobs, raise prices, and make us more dependent on foreign
    countries for our energy needs. And President Biden's global
    tax surrender to foreign governments will make it better to be
    a foreign worker or business than an American one. It is a tax
    deal only China would love.
        Working Americans are scratching their heads over how you
    will enforce these taxes, too. But I think your budget answers
    that question, too. Democrats handed the IRS an $80 billion
    raise last year. Taxpayers are now asked in this budget to hand
    the IRS another $43.2 billion. I have to ask, is that a joke?
        After a two-year inflation crisis that has cost American
    workers more than two months of pay, families need every penny
    they can get. But they can't even get their own refunds back
    because of the historic backlog at the IRS. And they can't get
    through to a human at the agency because of the terrible
    customer service.
        The IRS needs to address its trust gap. When ProPublica
    announced it had obtained a vast trove of confidential and
    private taxpayer information, the American people was rightly
    worried. What was stolen is their--what was stolen? Is their
    information safe? To this day, Treasury has provided no public
    answers.
        What they do have is Treasury's commitment to inject woke,
    racial, and climate politics in our monetary policy and our tax
    code. The Treasury Department is woefully falling short in
    fulfilling its core mission. I hope that our discussion today
    covers these topics and more in a productive way, then we are
    finally able to get answers to the questions the American
    people have been demanding.
        Chairman SMITH. I am pleased to recognize the ranking
    member from Massachusetts, Mr. Neal, for his opening statement.
        Mr. NEAL. Thank you, Mr. Chairman. We want to welcome the
    Secretary this morning to the Ways and Means Committee. As is
    always the case, it is an honor to have the Treasury Secretary
    here.
        You should know that when Secretary Mnuchin took my phone
    calls, he promptly appeared before the Ways and Means
    Committee, as well. And I met with him regularly to discuss
    policy. There is much that can be accomplished when the cameras
    are not turned on.
        Secretary Yellen is one of the brightest, most accomplished
    policymakers I have known during all my years in government.
    She is the first person in American history to have led the
    White House Council of Economic Advisors, the Federal Reserve,
    and the Treasury Department. I have sought her advice many
    times, and her leadership has contributed to the historic round
    of law-making and the rebound of the American economy. She is a
    mainstream economic thinker.
        And I also would point something out. The debacle of 2008,
    with de-regulation of markets, what happened; again, what
    happened with the pandemic, she was the one that we sought for
    counsel on how to step forward. But we didn't do it with just
    Secretary Yellen. Hank Paulson was on the call with us, as
    well. We sought a bipartisan response. And based upon the
    evidence of recovery, it worked.
        President Biden's economic plan is working, and the economy
    is growing at a solid clip. Nearly 13 million new jobs,
    including a half million in January, and 311,000 this morning.
    And the labor force participation rate ticked up.
        Labor force participation declined--it has been stubborn--
    largely because of the pandemic and the retirement of the Baby
    Boomers. That has been transformational in our economy. But
    rebuilding the economy from the bottom up and the middle out
    has been the President's push, and we agree with him on this
    side.
        The budget that he released yesterday was important, and
    now we have a blueprint, and we look forward to hearing what
    the other side has to say when, at some point, they might lay
    out their budget plan.
        Many have heard us say before that a strong recovery was
    never guaranteed. But never bet against the American worker or
    under-estimate the dignity and security of a paycheck.
        And how did we get here? We invested directly in people and
    their families. We expanded the child credit, we cut the child
    poverty rate in half, and no policy has done more to reduce
    childhood poverty than the child tax credit.
        We also take credit--I want to thank the members of the
    committee here. After a long, three-and-a-half days of markup,
    yesterday the President's budget took the Ways and Means tax
    package almost to the item.
        We sustained millions of low and middle-income families
    with the Earned Income Tax Credit and the Child and Dependent
    Care Credit, which was essential. The American Rescue Plan
    permanently increased the Federal child care investment and
    enabled workers to re-enter the workforce, and it helped to
    give parents peace of mind.
        Our work to encourage clean energy is also spurring growth
    for small businesses and for workers and their families across
    the country. And I want to say that publicly and privately, in
    Oklahoma, that position that we adopted with the Inflation
    Reduction Act and conversations I had there was pretty well
    received.
        When coupled with the Bipartisan Infrastructure Law and the
    tax credits championed by Ways and Means Democrats in the IRA,
    the clean energy economy is accelerating, and millions of green
    jobs are now on the horizon.
        I look forward to working with the Administration to
    implement the IRA as Congress intended. This was a monumental
    achievement. While free trade agreements are a purview of
    Congress, I stand ready to partner with durable and enforceable
    policies that fulfill the objectives of the IRA.
        Our multi-year investment in the Internal Revenue Service
    is making great headway already in ushering in new service for
    American taxpayers. The IRS was severely under-funded. And now,
    with the infusion of Democratic support, 99.7 percent of the
    returns are being processed, and more Americans are getting
    their service that they deserve. We are pleased that
    Commissioner Werfel is in place.
        Contrast that between our achievements and extremism, it is
    clear. Yesterday we marked up legislation signaling the intent
    of our government to default. You know better than anyone
    prioritizing debt is not an option.
        We are here today, Madam Secretary, to welcome you and
    thank you for your great gift to America: your sheer
    competence.
        Chairman SMITH. Today's sole witness is United States
    Treasury Secretary Janet Yellen.
        The committee has received your written statement, and it
    will be made part of the formal hearing record. You have five
    minutes to deliver your oral remarks. Secretary Yellen, you may
    begin when you are ready.

     STATEMENT OF JANET L. YELLEN, UNITED STATES SECRETARY OF THE
                                TREASURY

        Secretary YELLEN. Chairman Smith, Ranking Member Neal, and
    members of the committee, thank you for inviting me to discuss
    the Administration's fiscal year 2024 budget.
        The President's proposals prioritize growth-enhancing
    investments that will build on the economic progress we have
    made, along with significant tax reforms that will
    substantially reduce the deficit, improve our long-run fiscal
    outlook, and reduce fiscal risks.
        Over the past two years, the United States has experienced
    an historic economic recovery. In January 2021, our country was
    in the middle of an economic calamity triggered by the
    coronavirus pandemic. But Congress and the President took
    decisive action through the American Rescue Plan and our
    vaccination campaign.
        This January, two years after the President took office, we
    reached the lowest unemployment rate in over 50 years. We have
    seen the strongest two years of business creation in history,
    and real U.S. GDP per capita is at an all-time high.
        Now our task is to navigate our economy's transition from
    rapid recovery to sustainable growth. Our Administration's top
    economic priority remains bringing down inflation. We have seen
    some moderation in headline inflation, but more work needs to
    be done. Our Administration will continue to build on the
    actions we have taken to expand supply and provide cost relief
    in areas like energy and health care. These actions have made a
    meaningful difference for American families.
        With your partnership, we have also laid a foundation for
    long-term economic growth through an approach that I call
    modern supply-side economics. This approach seeks to boost the
    economy's productive capacity by expanding the workforce and
    increasing productivity. In just the past two years alone,
    Congress passed three transformational laws: a generational
    investment in infrastructure; an historic expansion of American
    semiconductor manufacturing; and the largest investment in
    clean energy in our nation's history.
        A strategic priority for our Administration this year is to
    work with you to effectively implement these laws, and we are
    seeing the early results. In just seven months, we have seen a
    wave of tens of billions of dollars of investment in clean
    energy manufacturing across the country. And our new investment
    in the IRS is already paying off. Taxpayers are getting
    drastically improved customer service this year. For example,
    we have answered hundreds of thousands more phone calls during
    this filing season than at this time last year.
        Our proposed budget builds on our economic progress by
    making smart, fiscally-responsible investments, and these
    investments would be more than fully paid for by requiring
    corporations and the wealthiest to pay their fair share.
        Fiscal discipline remains a central priority in our budget.
    We have proposed a minimum income tax of 25 percent on
    taxpayers with wealth in excess of $100 million. We have also
    proposed an increase in the corporate tax rate to 28 percent
    from the current 21 percent. And it will come as no surprise
    that I hope Congress will implement the United States' part of
    the global minimum tax deal. This new regime will end a race to
    the bottom in corporate taxation, and raise crucial revenue for
    essential investments like those proposed in the President's
    budget.
        On the spending side we suggest additional investments to
    boost our long-term growth potential. This includes improving
    the availability of high-quality child care, providing free and
    universal pre-school, and boosting the supply of affordable
    housing.
        We also propose restoring the Child Tax Credit and Earned
    Income Tax Credit expansions that were enacted in 2021, but
    have since expired. Importantly, with the proposed tax reforms,
    we estimate that this budget will deliver deficit reduction of
    nearly $3 trillion over the next 10 years.
        I have spoken about the promise of the President's budget,
    but I would be remiss if I did not mention a wholly separate
    issue that could threaten the economic progress that we have
    made.
        As you know, I have asked Congress to raise or suspend the
    debt limit. Since 1789, the United States has always paid its
    bills on time, and it must continue to do so. In my assessment
    and those of economists across the board, a default on our debt
    would trigger an economic and financial catastrophe. I urge all
    Members of Congress to come together to address the debt limit
    without conditions and without waiting until the last minute.
        Thank you, and I look forward to taking your questions.
        [The statement of Secretary Yellen follows:]

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        Chairman SMITH. Without--thank you, Madam Secretary, for
    your testimony.
        Without objection, each member will be recognized for
    three-and-a-half minutes to accommodate the Treasury
    Secretary's time. As always, we have to ensure that all members
    have an opportunity to ask questions of the Secretary.
        We will now proceed to questions-and-answer session, and I
    will begin with it first.
        Yesterday, Secretary, I sent you a letter asking that you
    provide this committee with legislative language that would
    accomplish the $4.7 trillion in tax increases contained in your
    budget proposal within 30 days. The American people, they
    deserve to know exactly how the Biden Administration plans to
    raise their taxes, and the impacts those policies will have on
    them.
        So without objection, the letter is entered into the record
    that I sent you yesterday.
        [The information follows:]

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        Chairman SMITH. So, Secretary Yellen, will you commit to
    providing that legislative text within 30 days to the
    committee?
        Secretary YELLEN. Chairman Smith, yesterday the Treasury
    Department published the so-called Green Book, giving a great
    deal of detail about all of the proposed changes on the revenue
    side in this year's budget. And I believe that provides the
    detail that is necessary to consider these proposals.
        The Treasury Department always stands ready to work with
    this committee and members of Commerce--Members of Congress on
    tax legislation as you consider it.
        Chairman SMITH. So the----
        Secretary YELLEN. And of course, we stand ready to do that.
        Chairman SMITH. Yes, I have looked at the Green Book, and
    we appreciate you all giving it to us yesterday afternoon. It
    does not provide the legislative text of the tax proposals of
    $4.7 trillion that you're your budget calls for. And so what--
    we were asking for the legislative text. So you are not going
    to send us the legislative text in 30 days?
        Secretary YELLEN. I don't believe that has ever been done.
        Chairman SMITH. I was just asking. But if----
        Secretary YELLEN. Congress usually----
        Chairman SMITH. Okay.
        Secretary YELLEN. As I say, we stand ready to work with you
    as you consider particular proposals, and we will certainly
    look at legislative language and give you our feedback. But----
        Chairman SMITH. If you will present the legislative text to
    us on your $4.7 trillion in tax proposals, we would be happy to
    look at that. And we hope that, since that is in your budget,
    you will ask that.
        Last year Democrats in Congress rammed through $80 billion
    in mandatory funding for the IRS after your department asked
    for it in conjunction with the President's first budget
    proposal. Your plan called for the IRS to monitor nearly every
    American bank account, to hire 87,000 new employees, and to
    audit over a million more Americans each year, with the
    majority falling on working-class Americans.
        The IRS still hasn't given me the plan for the $80 billion,
    and how that $80 billion will be spent, even though we have
    sent several letters. We have spoken on the phone about that.
    But that can't be right, Secretary Yellen, that you all don't
    have a plan yet.
        Your budget request, that was submitted yesterday, asked
    for $14.1 billion in annual appropriations for fiscal year
    2024. But that is not all, Secretary. Buried on page 209 of
    that Green Book that you just highlighted which explains your
    proposals, Treasury is asking for an additional $29.1 billion
    in mandatory funding to ``continue IRA-funded enforcement and
    compliance initiatives and investments.'' None of that money is
    dedicated to customer service or IT modernization.
        Obviously, you all have a plan. You are already funding
    enforcement and compliance initiatives that have not been
    disclosed to Congress and the American public. You already got
    $80 billion for the IRS. Now you want $43.2 billion more, all
    without explaining what will be done with the first $80
    billion?
        The American people, they deserve to know how their hard-
    earned tax dollars are being spent, and the impact that a
    supercharged IRS will have on them. So how many more IRS agents
    will this $43.2 billion get us?
        Secretary YELLEN. So first, let me say that the strategic
    operating plan that we have promised to deliver, we will
    deliver.
        Chairman SMITH. And you will make that public to us.
        Secretary YELLEN. Yes, it will be provided to you----
        Chairman SMITH. Thank you.
        Secretary YELLEN [continuing]. In the coming weeks.
        And already we have taken very important steps to improve
    customer service. The IRS has hired 5,000 additional customer
    service representatives. I promised that the average level of
    service in answering taxpayer inquiries this tax season would
    rise to 85 percent. And while it varies from week to week so
    far, we are certainly in that 80 to 90 percent range. Tax
    assistance centers are up and operating; ones that had been
    closed due to lack of resources are in the process of being
    reopened. And many of these centers are open on Saturdays to
    provide help to consumers. Anyone this tax season, any American
    attempting to get help from the IRS is experiencing a very
    different environment.
        Chairman SMITH. That is good. So Secretary, audits is
    something that people really care about. Will there be
    increased audits on working-class families with these new
    appropriations?
        Secretary YELLEN. No, I have directed already that IRA
    resources will not be used to increase the share of households
    or small businesses earning less than $400,000 or less that are
    audited relative to historic levels. And I promise and will
    ensure that that mandate will be met.
        And let's remember----
        Chairman SMITH. So that is great news. That is great news,
    Secretary. That is one common thing that we will have. But part
    of our oversight duties will be to make sure that there is not
    increased audits for small businesses and working families.
        I do want to go on. We are getting close to two years since
    ProPublica revealed that it had obtained what is called a vast
    trove of IRS data, including extensive information on the tax
    returns of thousands of Americans sufficient to detail their
    income, taxes, investments, and even the results of audits.
        You have been asked several times about this issue in
    public, and always note that you have referred the matter to
    the inspector general and the Department of Justice for review.
    You have also said previously that you have--you take this very
    seriously, but this is not an issue that can be referred
    elsewhere and then completely ignored. The American people,
    they deserve to know that their confidential information is
    safe at the IRS, and they deserve answers about what happened.
        Other than refer the matter elsewhere, what actions have
    you taken in the last 20 months to identify and fix potential
    vulnerabilities in how the IRS maintains confidential taxpayer
    information?
        Secretary YELLEN. Listen, I want to say that I share the
    same frustration that you are expressing. I would really like
    to get to the bottom of this. We care deeply about taxpayer
    privacy, and an unauthorized disclosure of taxpayer information
    is illegal, and something to be taken very seriously.
        I am frustrated because we have taken the actions that are
    appropriate, namely to refer this matter to the appropriate
    independent investigators, and that includes Treasury's Office
    of Inspector General, the Treasury Inspector General for Tax
    Administration, and the Department of Justice. All of these
    agencies conduct their investigations independently and
    according to timelines they determine are necessary and
    appropriate for a complete investigation.
        I am waiting to see, just as you are, what the outcome of
    those investigations are----
        Chairman SMITH. So you have done no internal audits within
    Treasury yourself to see if there might have been any kind of
    leak, or any kind of vulnerabilities in protecting taxpayers'
    confidential information?
        Secretary YELLEN. The agencies that are independent, and
    should be----
        Chairman SMITH. So you are letting them do it.
        Secretary YELLEN. That is what is appropriate in this
    situation----
        Chairman SMITH. Okay. Thank you, Madam Secretary.
        As you know, we have established a portal to allow IRS
    employees to share information with this committee about any
    kind of conduct that is going on at the IRS that they think
    that we should know of, since we are the committee of
    jurisdiction for oversight. I sent a letter to the IRS and
    asked that it be shared with all IRS employees. The agency has
    thus far refused to do so. That is completely unacceptable. IRS
    employees should know the options they have to report
    wrongdoing to Congress that they may witness at work.
        This is a simple issue. It is about basic transparency and
    accountability. Will you commit to sharing information about
    our IRS whistleblower portal with IRS employees?
        Secretary YELLEN. Well, I want to say that we have very
    strong whistleblower----
        Chairman SMITH. No, I--that is what I have heard. But would
    you----
        Secretary YELLEN. And----
        Chairman SMITH. My question is will you share our
    whistleblower with the IRS employees, yes or no?
        Secretary YELLEN. I think what is important is that IRS
    employees know what their full set of----
        Chairman SMITH. Exactly. So----
        Secretary YELLEN [continuing]. Options are, and they
    certainly can report to this committee. They can report to
    other committees----
        Chairman SMITH. But will you share----
        Secretary YELLEN [continuing]. In Congress.
        Chairman SMITH [continuing]. This whistleblower information
    to your IRS employees, yes or no?
        Secretary YELLEN. I will make sure that they have the
    appropriate information, that they know what their obligations
    are, and their full set of obligations and----
        Chairman SMITH. So does that include this whistleblower
    hotline?
        Secretary YELLEN. Possibilities----
        Chairman SMITH. Does that include this whistleblower
    hotline, that that is something you will share with them?
        Secretary YELLEN. I will make sure that they know all of
    the options that they have.
        Chairman SMITH. Does that include this whistleblower
    hotline?
        Secretary YELLEN. It includes this committee, certainly.
        Chairman SMITH. And this whistleblower hotline?
        Secretary YELLEN. We will----
        Chairman SMITH. It is yes or no.
        Secretary YELLEN. We will make sure that they are aware----
        Chairman SMITH. I hope that you do, for the sake of the
    American public and for the sake of your IRS employees.
        On February 16th of this year, President Biden issued an
    executive order on advancing racial equity through the Federal
    Government. That was on February 16th.
        Treasury Department officials have repeatedly said they
    want to design tax compliance around racial equity. These
    statements create the implication that the IRS should take into
    consideration race and gender in how it manages tax compliance
    and decides who to audit. But tax returns do not ask taxpayers
    to identify themselves by race. So the IRS doesn't even have
    the data on race.
        That is where the President's executive order comes in. The
    order instructs the Federal Government to apply an equity focus
    to several areas, including to ``prevent and remedy
    discrimination, including by protecting the public from various
    discrimination.'' It seems clear that this executive order is
    instructing the IRS to change its process to make audit
    decisions based on taxpayers' race.
        Secretary Yellen, do you think there is any circumstance
    where the IRS should consider a person's race or gender when
    deciding whether someone should be audited?
        Secretary YELLEN. The IRS doesn't know an individual's
    race, and we are certainly not proposing that race be reported
    on tax returns. However, the IRS does need to be careful to
    ensure that there is fairness in tax administration. And when
    studies like some that have recently been published suggests
    that algorithms that the IRS may be using are racially biased
    in the sense they are much more likely to audit, for example,
    taxpayers of color, rather than others with exactly similar
    circumstances, it is important for the IRS to become aware of
    that, and to make sure that the procedures that they use are
    fair.
        But that certainly does not mean looking at race and
    deciding to--whom to audit.
        Chairman SMITH. So in regards to audits and fairness, you
    will never use race or gender in deciding audits.
        Secretary YELLEN. Race is not available. And as I said, it
    is important for the IRS to make sure that their tax
    administration----
        Chairman SMITH. So if race----
        Secretary YELLEN [continuing]. Is fair.
        Chairman SMITH. If race isn't available, your statement
    about the algorithmics, that goes after racial preferences.
        Secretary YELLEN. Well, the investigators were able to
    infer that the algorithm had that impact, in spite of the fact
    that they weren't certain what the race was of any particular
    individual. They used methods to infer that.
        And this is a more general matter, that algorithms are
    often used. They are sometimes used by those who provide
    credit. They are not based on race, but it may turn out that
    they are indirectly and unintentionally using race. And it is
    important to understand and correct that when it is occurring.
        Chairman SMITH. Without objection, the President's
    executive order is entered into the record.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Chairman SMITH. And I recognize the gentleman from
    Massachusetts.
        Mr. NEAL. So, Madam Secretary, I am going to ask you to use
    your time to explain some of these positions. I know you have
    to get out of here, but I want to make sure everybody gets a
    chance to ask a question on both sides this morning. That is
    really important.
        I have questioned Treasury Secretaries back to Nick Brady.
    Never did I ever ask a yes-or-no question, because I know
    events shift and change every single day, and the people that
    have had that job have been entirely competent over these
    years.
        So could you talk a bit about the child credit, and also
    the 311,000 new jobs that were created this morning?
        Secretary YELLEN. Yes, the child credit. So the child
    credit, tax credit was expanded in the American Rescue Plan.
    And that was important because the pandemic especially hit low-
    income families very hard. And it had a dramatic effect in
    lowering child poverty, according to many studies. It really
    helped families. Many families were able to use that child
    credit to get back to work to help with child care.
        The majority, the great majority of families that received
    the Child Tax Credit are working families. Others were seniors
    taking care of a grandchild or sometimes children with
    disabilities. And it had a dramatic effect in helping families
    that were impacted by the pandemic that--the President believes
    that this is something that should be in place permanently, and
    his budget recommends reinstating the credit on the terms it
    existed in the ARP.
        You mentioned about this morning's employment report. It
    showed 311,000 jobs this morning. In spite of that, the
    unemployment rate ticked up slightly to 3.6 percent. How to
    reconcile those two disparate facts, I guess I would point out
    that there was an increase--the labor force participation rate
    moved up just a tad, which is always encouraging to see people
    coming back into the labor force at this point.
        The labor force participation rates for both adult men and
    women have exceeded their pre-pandemic highs, and so when more
    people come into the labor force, that loosens conditions ever
    so slightly, takes some of the--helps address some of the
    supply demand imbalance in the labor market while creating lots
    of jobs. So what we are seeing here is a continued very strong
    labor market, putting Americans back to work.
        Mr. NEAL. Thank you, Madam Secretary. And we are always
    delighted to have the Treasury Secretary in front of the Ways
    and Means Committee, understanding that you are a successor to
    Hamilton. Thank you.
        Secretary YELLEN. Thank you. I look at his picture in my
    office every day.
        Chairman SMITH. The gentleman from Florida, Mr. Buchanan,
    is recognized.
        Mr. BUCHANAN. Madam Secretary, thanks for being here today.
        My concern is, when you look back over the last 20 years,
    over $20 trillion in debt. So I want to talk to you a little
    bit about the balance sheet.
        Also, this financial report that gets put out the last
    couple of years. You signed it, and so I would like to get your
    thoughts on exactly is it a clean opinion, what--you said it is
    unsustainable, the financial path that we are on. That is what
    you mentioned in the report. It doesn't seem like it is a very
    clean audit. I think there is, obviously, just in terms of the
    overall debt, $31 trillion, $20 trillion in the last 20 years.
        There is plenty of blame, let's put it that way, to go
    around. But I am very, very concerned about where we are at and
    where we are going. I have got two kids and nine grandkids, and
    a lot of us have children in here. And I am--someone, a top
    economist, said to me, ``At some point this ends badly.''
        You are, the way I look at it, the chief financial officer.
    You know, we get over here, we raise the debt. But looking back
    over the 20 years, I have absolutely no confidence in the way
    we do business up here. So I would like to get your thoughts
    just quickly.
        What did you mean by unsustainable path that we are on
    currently as a result--something that you put in the financial
    report, what does that mean to you?
        Secretary YELLEN. Well, a sustainable path is one that
    keeps the, in my view, the interest expense on the debt that
    Americans have to pay--we take in tax revenue, some of it needs
    to be devoted to paying interest on outstanding debt----
        Mr. BUCHANAN. How do you explain $20 trillion----
        Secretary YELLEN. And it is critical that it be manageable.
        Mr. BUCHANAN. Excuse me. How do you explain $20 trillion in
    20 years? I mean, we just keep piling up the debt--100 basis
    points on $31 trillion is $300 billion a year. I mean, we are
    kidding ourselves. So if you are at five, six percent thinking
    about raising rates, you are talking a billion--a trillion-and-
    a-half, just interest alone. So I think it is a concern.
        Secretary YELLEN. Well----
        Mr. BUCHANAN. Let me just jump to the second question
    quickly.
        Is--$1 trillion they are talking about, tax increases on
    small business. That is the proposed budget in terms of pass-
    through entities. I am very concerned. That puts the American
    dream clearly at risk. So 39.5, you add up the other things,
    you are probably 46. If you figure in New York, New Jersey--I
    am in Florida. Texas, you look a little differently, or
    California. You are close to 60 percent for pass-through
    entities. These are small businesses for the most part, 50
    employees or less.
        And it is obvious to me, personally, that many of you have
    never been in business, because you would understand that the
    cost of capital, it is not available for a lot of these small
    businesses, especially in the environment we are in today. A
    lot of people are concerned.
        But how do you think about the idea of another trillion
    dollars on our small business, medium-sized businesses?
        Secretary YELLEN. The President pledged not to raise taxes
    on any individual or small business earning under $400,000.
        Mr. BUCHANAN. Well, I am just saying that if someone has
    got a----
        Secretary YELLEN. There is not a single penny----
        Mr. BUCHANAN. Let me just finish on this point. If someone
    has got 100 employees, and they make 600, 700, the business
    does, they take out 100, they pay their taxes and they have a
    few bucks, they can help their balance sheet. And that is the
    reality in the small business world. Just because it is a small
    business and you make 600, doesn't mean you take that home. You
    need that money to grow. That is the fuel to grow your
    business.
        With that, I yield back.
        Chairman SMITH. The gentleman from Texas is recognized.
        Mr. DOGGETT. Madam Secretary, I admire your courage in
    going to Ukraine, and I am glad you are battle-tested for
    coming here to our committee.
        Secretary YELLEN. Thank you.
        Mr. DOGGETT. Let me ask you--I am hopeful that the
    Republicans will get to us their budget plan in 30 days, just
    as they have asked for commitments from you to do things within
    30 days. They seem to think that we can continue to deal with
    our debt problems by removing revenue from our vital public
    services. And I want to touch on two areas that I think the
    President and you have acted most appropriately to sustain our
    needs.
        One of those is for Medicare. They say, belatedly now, that
    they won't cut Medicare, but they seem unwilling to make the
    changes that are necessary to sustain Medicare for our
    grandchildren, as well as for our current seniors. I introduced
    legislation last year concerning the net investment income tax,
    and I have reintroduced it, and I see that is included in the
    President's budget.
        Isn't it correct that the estimates are that about 85
    percent of that increase would be paid by those who earn $1
    million or more a year, and that none of the tax burden would
    be on those below $400,000?
        Secretary YELLEN. That is correct. And the proposal
    wouldn't raise it on anyone making under $400,000. And the
    revenue would be devoted to Medicare to shoring up the hospital
    trust fund.
        Mr. DOGGETT. And the President, I believe, has a plan to
    extend it even beyond 2040. Just closing the loophole and
    correcting the mistake that was made about the net investment
    income would extend Medicare solvency to 2040. So if people
    really believe in Medicare, they would be willing to take the
    steps to ensure it is there.
        And of course, the second one, and it mystifies me at the
    creativity of our Republican colleagues in coming up with
    excuses to defend multinationals for not paying their fair
    share for our national security, though they benefit from it
    perhaps more than any other group in our society.
        So I admire your leadership on the global minimum tax. This
    newest excuse we have heard this morning is that it is going to
    all help China. They helped China yesterday with their China
    bond first program. But tell me about why it is an error to
    claim that China will somehow benefit from stopping the race to
    the bottom.
        Secretary YELLEN. China will not benefit at all from this.
    China will be forced to raise their minimum tax on their
    multinationals up to the level of 15 percent on a country-by-
    country basis. And China has signed on to the agreement. But if
    for any reason China failed to enact this tax and put it in
    place, there is an enforcement mechanism built into this
    agreement by which the United States or other countries in
    which Chinese firms do business, where they have subsidiaries
    doing business, we would impose a top-up tax on Chinese
    corporations operating in the United States or in Europe, where
    they have already put the tax into place.
        So if China doesn't tax these firms, these their
    multinationals, we will do it, and we will keep the tax
    revenue. But one way or another, we will level the playing
    field so Chinese firms are on the same footing as our
    multinationals.
        Mr. DOGGETT. Thank you for your leadership.
        Secretary YELLEN. Thank you.
        Mr. DOGGETT. The gentleman from Nebraska is recognized.
        Mr. SMITH of Nebraska. Thank you.
        Thank you, Secretary Yellen. Our time is short here, so I
    will try to be quick in answering some very concise questions.
        We have serious concerns about the impact that the $80
    billion that the IRS is receiving, and its impact on families
    and small businesses. There are concerns about the funding
    stemming from the fact that we are working from disparate
    statements from the Administration. So I am glad you are here
    to help clarify.
        In 2021, Treasury released an analysis right here that
    states $80 billion in additional IRS funding would be used to
    increase the total headcount at IRS compared to 2021 by almost
    87,000 employees over the next decade. Is that accurate? Is
    that correct?
        Secretary YELLEN. The vast majority of those hires are to
    replace attrition, people who would be retiring. So----
        Mr. SMITH of Nebraska. Okay. So the attrition is about
    12,000 personnel over the last----
        Secretary YELLEN. No, it is----
        Mr. SMITH of Nebraska. 10 years.
        Secretary YELLEN. It is over 10 years. It is much larger
    than that.
        Mr. SMITH of Nebraska. Okay. The record reflects that the
    headcount decreased by 12,000 over the last decade, so that
    would leave us at 75,000 new personnel at our--at IRS. So I
    just want the record to reflect that.
        Now, regarding the audits--and the chairman talked a bit
    about this--there has been confusion about the meaning of the
    directive that you cited in the letter last August, and then
    repeated here today. So are you talking about the total number
    of audits, or are you talking about the proportion of audits on
    families and small businesses under $400,000?
        Secretary YELLEN. I am talking about the proportion of
    those small businesses and families.
        Mr. SMITH of Nebraska. Okay. So the proportion--I mean,
    just for the record, the proportion is 90 percent. So 90
    percent of the new audits will be, you know, according to the
    data, that we can expect up to 90 percent of new audits to be
    on those making less than $400,000.
        Secretary YELLEN. The----
        Mr. SMITH of Nebraska. Now----
        Secretary YELLEN. The purpose of this legislation is to
    vastly increase the audit rates----
        Mr. SMITH of Nebraska. Yes, yes, we understand----
        Secretary YELLEN [continuing]. On high-income, high-wealth,
    complex----
        Mr. SMITH of Nebraska. Right. But they are----
        Secretary YELLEN [continuing]. Partnerships----
        Mr. SMITH of Nebraska. But the data reflects that it is
    broader than that, especially given the number of personnel.
    But----
        Secretary YELLEN. To the extent that the number of
    taxpayers----
        Mr. SMITH of Nebraska [continuing]. Shifting gears----
        Secretary YELLEN. I understand, okay.
        Secretary YELLEN [continuing]. Earning less than $400,000
    increases the audit rates----
        Mr. SMITH of Nebraska. But the rates of audit----
        Secretary YELLEN [continuing]. Will not rise.
        Mr. SMITH of Nebraska [continuing]. And the commitments,
    you know, are certainly, I believe, very clear.
        Now, shifting gears, critical mineral requirements in the
    Inflation Reduction Act refer to, and I quote, ``countries with
    which the United States has a free trade agreement, in
    effect.'' As chairman of this panel's trade subcommittee, I
    have been surprised to hear the Biden Administration may take
    the view that the term ``free trade agreement'' is undefined,
    and actually open to various interpretations.
        So this committee has jurisdiction over all U.S. trade
    policies, including the negotiation and enforcement of trade
    agreements. We know exactly what a free trade agreement is, as
    do our partners, our trading partners who have actually raised
    concerns about the Inflation Reduction Act.
        So, Secretary YELLEN, please clarify. Would you define a
    free trade agreement, or at least provide a list of countries
    with whom we have a free trade agreement?
        Secretary YELLEN. Well, we clearly have a number of
    comprehensive free trade agreements that will qualify as free
    trade agreements for the purposes of this statute.
        But in December, Treasury issued a white paper that lays
    out a possible approach to identifying additional agreements
    that could potentially qualify. And we understand that the key
    goal of the IRA is to strengthen supply chains we rely on for
    energy and resources. And in order to effectuate the goals of
    the legislation, it may be appropriate to negotiate
    additional----
        Mr. SMITH of Nebraska. I understand what the IRA is
    intended to do. I fear what the actual impact will be.
        And my time is expired.
        Chairman SMITH. The gentleman from California is
    recognized.
        Mr. THOMPSON. Thank you, Mr. Chairman.
        And Madam Secretary, thank you for being here, and welcome.
    I have a couple of things I want to bring up, but first I want
    to be really clear.
        You were confirmed Secretary in January of 2021. This
    January we hit the lowest unemployment rate in 50 years. We
    went from an unprecedented pandemic to the lowest unemployment
    in decades, and you oversaw all of it. And today, as we heard,
    311,000 new jobs in February. As Mr. Neal highlighted your
    incredible resume and your history, you are truly a pro.
        Over the past couple of years, I have been privileged to
    work directly with you, so as we transition to clean and
    renewable energy, and I want to thank you for your cooperation
    and your help.
        Secretary YELLEN. Thank you.
        Mr. THOMPSON. I have got four items I want to bring up, but
    we have a limited amount of time, so I will ask two and write
    you about the other. I would like to talk to you about my top
    two priorities: disaster relief and mental health. And I will
    start with disaster relief.
        Madam Secretary, many survivors of California's wildfires
    in 2015, 2017, and 2018 are eligible for compensation from
    something called the Fire Victims Trust, which was established
    following the Pacific Gas and Electric bankruptcy. However, in
    many of these cases the survivors are being forced to pay taxes
    on a settlement award they received from the trust, including
    roughly 30 percent of the award that goes to attorneys.
        I have bipartisan, bicameral legislation clarifying that
    disaster relief payments like these from a trust fund are
    straightforwardly non-taxable. And I would like you and your
    people to work with us so we can help these folks, who haven't
    even received enough money to rebuild the homes that they lost.
        And then, second, the biggest issue, or the second biggest
    issue that we face as a people, is mental health. We see
    problems everywhere: schools, homelessness, veterans, amongst
    the elderly. Mental illness is a huge, huge problem that costs
    us trillions of dollars, and we need to figure it out.
        But treating the symptoms as we have done isn't enough, nor
    do we have all the money to do it. We have to get ahead of the
    curve. And Mr. Kelly and I have bipartisan legislation that we
    are getting ready to reintroduce that--and we shared it with
    your staff--that provides tax incentives for neurological
    research.
        Madam Secretary, do you agree that we can and should use
    the tax code to help address our collective mental health
    crisis?
        Secretary YELLEN. Well, these are critically important
    problems and, to me, appropriate priorities. And let me say
    that we will be more than happy to work with you on this
    legislation. So my staff can certainly be in touch.
        Mr. THOMPSON. Thank you. And then I will submit my
    questions about solar cells and taxpayer correspondence to you
    in writing.
        Again, thank you for the incredible job that you have done,
    and your commitment to public service.
        Secretary YELLEN. Thank you for your kind words.
        Mr. THOMPSON. Thank you, I yield back.
        Secretary YELLEN. Much appreciated.
        Chairman SMITH. The gentleman from Pennsylvania is
    recognized.
        Mr. KELLY. Thank you, Mr. Chairman.
        Madam Secretary, thanks for being here. And you do have an
    impressive resume.
        Secretary YELLEN. Thank you.
        Mr. KELLY. And your dedication to the public and trying to
    do everything you can when it comes to the economy is really
    great.
        I got to tell you, I live at a much different level. And
    there is an old saying, ``If you can't convince them, confuse
    them.''
        Now, being in the retail automobile business all my life, I
    am better on blacktop than I am on a laptop. And as we go here
    and we throw these questions out to you, I keep coming back to
    some of the things I have learned in my past life. And, you
    know, one of the things is you read the ``Tale of Two Cities,''
    and this is what we are talking about, right? It is the best of
    times, it is the worst of times.
        We talk about job creation. It is not job creation. It is
    job recovery. And I heard this not in the Trump Administration,
    but the previous Administration. We used to talk about how many
    jobs we created, and what it really was is we were just getting
    people back to work that were no longer working. And some of
    the decisions we have made it more valuable for people to stay
    at home than go to work. And it wasn't that people were lazy,
    it is just that they weren't stupid.
        You have a tough job. You have a tough job. And I often
    refer to things that just happened in my life in everyday
    things. I can remember a movie called ``A Few Good Men,'' and I
    think one of the things we--that Jack Nicholson said in that
    movie was, ``You can't handle the truth.'' I am not talking
    about you, but I am talking about the American people. Mr.
    Buchanan touched on this, and we worry about this all the time.
    It is the public debt, which is part of your job description.
    And you really answer to the President of the United States as
    a member of the cabinet.
        I am just baffled as to where we go from here, and how we
    can put a smile on our faces. Because the people I talk to
    aren't in this room. When I come out of Mass in the morning, I
    have people that stop me. When I go to Cannella's to have
    breakfast, people stop me. When I go to Cummings to get coffee,
    people stop me. You know what they ask me all the time? ``When
    the hell are you guys going to get this thing straightened out?
    My pension now is losing its value. I am dipping into my
    savings. I can't help my kids and my grandkids anymore, because
    my wife and I don't have the ability to keep up with
    inflation.''
        So I know we have all these wonderful, wonderful programs
    that we talk about, and all these wonderful ideas that we talk
    about, and it just is bizarre to me that I think we need to
    spend more time in the field. We need to go to Petersburg, West
    Virginia. We need to go to Oklahoma, and we need to talk to
    people who really service the debt. And that is our hardworking
    American taxpayers.
        I think all of us, while we have questions of you, I am
    just--I got to tell you, I don't know that I would want your
    job. I don't know that I want to be there and wondering where
    the slap is going to come from next. But you do one heck of a
    job. I would just hope that, as a committee, we don't look at
    how it is that we can make each other look bad, or to figure
    out who struck John, but to understand that it is the American
    people that are suffering right now.
        This idea of not looking into ProPublica--and I understand
    what you said, it is somebody else's thing. And I got to tell
    you, I got 10 grandchildren, so this reminds me of Humpty
    Dumpty. Humpty Dumpty sat on a wall, Humpty Dumpty had a great
    fall. All the king's horses and all the king's men couldn't put
    Humpty Dumpty back together again.
        So you just outlined for us the number of offices, the
    number of people we have to get to a simple answer is who the
    hell put the information out there? How did they get this
    information? And the longer we stay away from an answer, the
    faith, the trust, and the confidence of the American people in
    this institution is withering and dying on the vine.
        I would just suggest to all of us, I don't give a shit if
    you wear a red hat or a blue hat. Wear something that is red,
    white, and blue, and look at who it is that you represent back
    home. Because I love sitting here and listening to all the
    testimony. What I have a hard time is when I go back home and
    say, ``We are working on it, we just don't know who is going to
    answer the question for you.''
        Thank you so much. I appreciate you being here. Your
    patience and your dedication to this country is phenomenal.
    Thank you, ma'am.
        Chairman SMITH. The gentleman from Connecticut is
    recognized.
        Mr. LARSON. Thank you, Mr. Chairman. Thank you, Madam
    Secretary, for being here. And thank you also for being part of
    an administration that actually did leave the country with a
    surplus. Mr. Neal yesterday very eloquently went through that
    process.
        So I think the American people, and even our colleagues
    over here on this side of the aisle, we point with great pride
    your example, your leadership that you have demonstrated,
    including----
        Secretary YELLEN. Thank you.
        Mr. LARSON [continuing]. The 12 million new jobs that have
    been created in just the past 2 years.
        I also wanted to--because there is a lot of talk about
    fairness and debt, et cetera. And I am now the ranking member
    of the Social Security Subcommittee. And Social Security, as
    you know, is the nation's number-one anti-poverty program for
    the elderly. And hopefully we get the Child Tax Credit back.
        But absent that, it is the number-one anti-poverty program
    for children, as well. I commend the President for his budget
    that increases the opportunity, and makes Medicare more
    solvent, and also strengthens Social Security, and it does so,
    actually, by paying for it.
        And the President, in his comments, said--and you pointed
    to this--that there will be no tax increase on anyone over
    $400,000. How many Americans does that represent?
        How many people are in that area of earning over $400,000,
    and is it fair that someone who is making 30 or 50 or $75,000
    pays in the whole time, and someone like Elon Musk stops paying
    after day one for their Social Security?
        Isn't this about fairness?
        Secretary YELLEN. I think it is about fairness. And I think
    hardworking Americans who have counted on Social Security, and
    paid into it their entire lives, and dependent on it as their
    major source of income in retirement, I think we need to make
    sure that it is there for them, and that we look for additional
    revenue to Americans with very high incomes, many of whom, in
    total, pay less taxes than a teacher or a firefighter.
        And throughout the President's budget there are many
    proposals to make sure, for the sake of tax fairness, that
    those individuals pay at least a minimum. A person making 100
    million or more should pay at least 25 percent of their full
    income as taxes.
        But yes, I think it is, for tax fairness----
        Mr. LARSON. Like Mr. Kelly, I go to a lot of places. And
    everywhere I go they ask me when are we going to fix Social
    Security and, ``Why is it that I have to pay in''--and we learn
    from the President and this exchange--``Why do I have to pay in
    constantly out of every paycheck''--it is called FICA, Federal
    Insurance Contribution--``and the wealthy do not?''
        Secretary YELLEN. Agreed.
        Chairman SMITH. The only floor vote of the date has been
    called. As there is only one vote, we will keep the hearing
    going on. So please vote, and then return to the hearing
    immediately.
        The gentleman from Arizona.
        Mr. SCHWEIKERT. Thank you, Mr. Chairman.
        And Madam Secretary, the nature of the chaos of what we all
    do. We only have three-and-a-half minutes, so the tyranny of
    the clock.
        When you have high-profile elected members who will say
    things--because I have an incredible concern of messaging and
    stability in debt markets around the world--when we will say
    things like ``debt doesn't matter,'' ``print a $1 trillion
    coin,'' ``modern monetary policy, we can just keep borrowing,''
    is that helpful, as we are trying--and particularly when you
    are looking at your subscription rates and your auctions?
        Do you wish on occasion we would just not talk about things
    we don't understand?
        Secretary YELLEN. Well, look, I think it is critical that
    the United States be on a fiscal path that is responsible and
    sustainable.
        Mr. SCHWEIKERT. But--and I know this is more of a message
    from our brothers and sisters here, particularly. I have a long
    list of quotes about debt not mattering from my brothers and
    sisters on the left. And I think that is a really horrible
    messaging to debt markets when, you know, you and I, we are
    trying to convince the world we take this very seriously.
        Secretary YELLEN. I think we should take it seriously, and
    it does matter.
        Mr. SCHWEIKERT. Any--in your banking reg side of Treasury,
    any concerns over some of the stresses right now in bond
    markets, particularly, you know, your Basel Holdings--Silicon
    Valley Bank, when--you know, mark to market? Are you picking up
    any data that we should be at least cognizant of?
        Secretary YELLEN. Well, I will just say--you mentioned
    Silicon Valley Bank. There are recent developments that concern
    a few banks that I am monitoring very carefully. And when banks
    experience financial losses, it is and should be a matter of
    concern.
        Mr. SCHWEIKERT. It is--and to explain, it is the nature of
    moving interest rates all of a sudden. If you have to sell the
    bonds, you are taking quite a loss.
        In the budget, Madam Secretary, you have a little bit less
    than $5 trillion of new taxes over the 10 years. Do you have
    the wherewithal to model that to say, okay, here is our tax
    regime, and here is its economic effect on GDP growth? Were you
    able to do modeling documents?
        Secretary YELLEN. Well, we don't have a gigantic model that
    shows what the total impact----
        Mr. SCHWEIKERT. Okay.
        Secretary YELLEN [continuing]. Would be on the economy, but
    we have certainly considered the economic impact in the case of
    all of the policies that I have proposed----
        Mr. SCHWEIKERT. All right, I just--look, I spent part of my
    evening--that is why I am glassy-eyed--trying to read through.
    I was looking for--saying, okay, we are going to raise this
    much taxes, and we believe it has this much impairment on GDP
    growth over the 10. If one of your staffers ever could send
    me----
        Secretary YELLEN. There are----
        Mr. SCHWEIKERT [continuing]. Document, I would love to look
    at your math.
        Secretary YELLEN. I mean, there are----
        Mr. SCHWEIKERT. And the very----
        Secretary YELLEN. There are studies, and it is something
    that we have tried to evaluate in putting forward proposals.
        Mr. SCHWEIKERT. Yes. And the last thing, your capital gains
    tax would go up to what for very high earners?
        Secretary YELLEN. It would go up to the same rate as the
    tax on regular income.
        Mr. SCHWEIKERT. Okay. So it would match regular income,
    though----
        Secretary YELLEN. For high-income individuals.
        Mr. SCHWEIKERT. In the--Madam Secretary, but in the current
    environment capital gains are substantially affected by
    inflation. So we would be taxing non-actual gains, we would be
    taxing inflated gains--inflation gains, not actual
    appreciation.
        Should we actually do an adjustment for inflation on those
    capital gains taxes?
        Secretary YELLEN. It is something certainly to consider. I
    mean, our tax code is, in general, not inflation neutral.
        Mr. SCHWEIKERT. Inflation-adjusted, all right.
        Secretary YELLEN. And, you know, this is an area that maybe
    requires some thought.
        Mr. SCHWEIKERT. Thank you, Madam Secretary.
        And thank you for your patience, Mr. Chairman.
        Chairman SMITH. Thank you, Representative.
        The gentleman from Oregon.
        Mr. BLUMENAUER. Thank you, Mr. Chairman.
        And thank you, Madam Secretary, for being here. When I
    consider the tone with which you were greeted, I am amazed that
    you are willing to come back, and your patience. It is not just
    your resume, it is your performance.
        Secretary YELLEN. Thank you.
        Mr. BLUMENAUER. You have one of the most difficult jobs in
    America, and every American has a stake in your success.
        Secretary YELLEN. Thank you.
        Mr. BLUMENAUER. Yesterday's action by this committee,
    coming up with this fantasy that somehow the IRS can prioritize
    1.28 million--excuse me, billion--payments a year, to try and
    sidestep our responsibility to raise the debt, I apologize for
    that. It continues a trend that my Republican friends have had
    for years in terms of making the IRS job more difficult, fewer
    people, and more complex returns. I am hopeful that we can get
    past that, and that we are able to engage with you in a
    constructive way to avoid economic catastrophe.
        I do have one modest area of disagreement, and I must agree
    with my dear friend, Chairman Smith, about some of the
    suggestions that we can sidestep working with Congress and
    redefine agreements as FTAs. None of us think that satisfies
    the condition. I have worked with five presidents on trade
    issues. And when we do not have a good, constructive working
    relationship and Congress playing its role, it doesn't end
    well. And I would just refer to the trade promotion, the TPP,
    as an example where it was harder, and we are still bearing the
    circumstances.
        Secretary YELLEN. I apologize for any suggestion that I may
    have made that Congress doesn't have an appropriate role.
        Mr. BLUMENAUER. Well, no.
        Secretary YELLEN. And----
        Mr. BLUMENAUER. But in terms of redefining what the terms
    are going to be, it is, in effect, sidestepping us.
        I hope that you will----
        Secretary YELLEN. I think we have been in close touch with
    this committee.
        Mr. BLUMENAUER. Yes, I understand that.
        Secretary YELLEN. My staff have been.
        Mr. BLUMENAUER. But it is different than treating our
    statutory and constitutional responsibilities.
        I would just hope that you would commit to work with me and
    Chairman Smith as we move forward in a way that is fully
    consistent with the true definition of a free trade agreement
    and the spirit of cooperation in terms of trying to get us on
    the same wavelength.
        I think your objectives are ones that I probably agree
    with, but process matters. And in terms of being able to make
    sure that the various stakeholders, some of whom don't have the
    confidence in terms of the path that you are taking, I think
    working together we can raise that confidence, we can work
    together to get the desired objectives. And I hope that you
    would commit to working with us in not just the spirit, but the
    letter of what free trade agreements are.
        Secretary YELLEN. I will make that commitment. And I agree
    with you that that collaboration and consultation is critically
    important. We are committed to it.
        Mr. BLUMENAUER. Thank you. I look forward to working with
    you and your team, who are doing a great job in trying to
    figure out how to implement the things that Chairman Thompson
    and I embedded in the tax code that has a challenge for you.
    But----
        Secretary YELLEN. Thank you.
        Mr. BLUMENAUER [continuing]. We appreciate the work.
        Secretary YELLEN. We are working very hard to implement the
    green credits in IRA, and all of the IRA provisions.
        Mr. BLUMENAUER. It is much appreciated.
        Secretary YELLEN. Thank you.
        Mr. BLUMENAUER. Thank you.
        Chairman SMITH. The gentleman from Illinois is recognized.
        Mr. LaHOOD. Thank you, Mr. Chairman.
        Welcome, Secretary Yellen. Thank you for your service to
    the country. We hope to see more of you here before our
    committee.
        I have a question for you. But before I do that, I do want
    to express to you how extremely disappointed I am in the
    Administration's budget proposal released yesterday. As I think
    about the 750,000 constituents that I represent in central
    Illinois and northwest Illinois, I can tell you that their
    priorities are vastly different than what is reflected in the
    Administration's budget proposal.
        Just to highlight a few things, eliminating the stepped up
    basis would really crush family farms in my district, and
    family-owned businesses. Quadrupling the recently-created stock
    buyback tax, which will hurt Americans with 401(k) plans and
    pensions is in there. And expanding the net investment income
    tax on small businesses that are still struggling with high
    inflation and workforce shortages again is disappointing when I
    look at the budget. It is clear that many of the real
    challenges that Americans are facing are not being heard by
    this Administration and in this budget.
        To my question, I do want to just--it was referenced
    earlier. I do want to talk about the OECD process and the
    current global tax negotiations, and specifically Pillar One,
    Madam Secretary. We understand that negotiations around Pillar
    One have stalled, and I believe we have significant risk that
    digital service taxes, which disproportionately harm U.S.
    businesses, will spread across the world. We have already seen
    that.
        Republicans have repeatedly requested from the
    Administration and from you to consult with us before making
    decisions about your negotiations with our European
    counterparts. You have not done so in terms of communicating
    with us, and it has been a source of frustration. You have not
    provided any analysis that would allow members of this
    committee to evaluate the effects of Pillar One.
        So, Madam Secretary, as you sit here today, I think you
    would agree that it is not financially responsible to purchase
    a product without knowing its price. And that is the real core
    here. So when can Congress expect to see this analysis, so that
    we know what we are actually being sold here?
        Secretary YELLEN. So let me say that we have consulted, and
    with this committee and with staff on a regular basis about
    these global negotiations. So we are keeping staff of this
    committee--our staff is keeping committee staff well informed.
        Mr. LaHOOD. Well, reclaiming my time on----
        Secretary YELLEN. That----
        Mr. LaHOOD [continuing]. Just on that point, Madam
    Secretary. I mean, so we are looking for an analysis. I would
    love to have, if you have an analysis here today you can supply
    us----
        Secretary YELLEN. Okay, let me respond on that point. What
    we have said is that we stand to gain substantially in Pillar
    One, because we are a very large market jurisdiction, and that
    means that we will get increased taxing power.
        However, there are also provisions on which we will lose,
    and it is a very fine balance. It--zero is certainly a
    possibility with respect to revenue, and there remain
    significant disagreements in the Pillar One negotiations. Until
    those are resolved, we can't do the analysis that you want.
        But what we have said is that the likely impact on U.S.
    revenues, while it could be slightly positive or slightly
    negative depending on the details, it is not likely to be
    large.
        Mr. LaHOOD. Well, I would just say your--the premise of
    what you just said there, and the justification for that,
    sounds great. But an analysis on there that we can digest and
    look at and work with your team is what we need. Thank you.
        Mr. HERN [presiding]. I thank the gentleman. The gentleman
    from New Jersey, Mr. Pascrell.
        Mr. PASCRELL. Thank you, Mr. Chairman.
        Madam Secretary, a Stanford University report found that
    Black taxpayers are disproportionately audited by the IRS. I am
    sure you have read that report. Now, this was true for Earned
    Income Tax Credit recipients, and this group is long over-
    represented in getting audited. The numbers show that.
        I am thrilled that we have a new IRS commissioner to
    effectively implement the Inflation Reduction Act to close the
    tax gap and rebuild a fair tax enforcement.
        Yesterday, our oversight subcommittee called on Mr. Werfel
    to prioritize fixing our biased and broken two-tiered tax
    system. Madam Secretary, will you commit to addressing racial
    disparities in audit selection?
        Secretary YELLEN. Yes, absolutely, we will. We need a tax
    system that operates fairly. And as you noted, our new IRS
    commissioner has promised to report back to Congress on this
    matter very promptly.
        Mr. PASCRELL. Yes. Will you ensure the IRS uses Inflation
    Reduction Act funds to stop disproportionately auditing EITC
    recipients, and focus on auditing other folks in the system, as
    well?
        Secretary YELLEN. The focus of the funds in the IRA is
    intended to be high-income, high-wealth, complex partnerships,
    corporations where audit rates have fallen to extremely low
    levels, and where most of the revenue that constitutes the tax
    gap--we know that is where it lies. That is the focus on
    enforcement.
        But on the EITC, there are high rates of improper
    payments----
        Mr. PASCRELL. Right.
        Secretary YELLEN [continuing]. Partly because firms--there
    are firms that improperly file for EITC for low-income
    individuals, and we do need to attend to that. So, it is not
    the fault of individuals, but there is an issue there that we
    need to continue to focus on, maybe through education and
    outreach.
        Mr. PASCRELL. You have provided tremendous service to our
    country.
        Secretary YELLEN. Thank you.
        Mr. PASCRELL. Mr. Chairman, I want to bring to your
    attention the fact that there is a member of the cabinet
    sitting before us who admits mistakes once in a while. I have
    never met a cabinet member that made a mistake. I say that with
    due respect.
        Secretary YELLEN. Thank you. I make mistakes.
        Mr. PASCRELL. And I think that is refreshing. And I think
    that helps bring us together more than anything else, anything
    else. I am serious.
        Secretary YELLEN. Thank you.
        Mr. PASCRELL. And I am happy to do work with you, and you
    have done a great job.
        Secretary YELLEN. Thank you, so much. I--much appreciated.
        Mr. HERN. I would like to thank the gentleman from New
    Jersey. I now recognize the gentleman from Ohio, Mr. Wenstrup.
        Mr. WENSTRUP. Thank you.
        Mr. Pascrell, I would like to agree that honesty really
    does help, no matter what we are dealing with.
        Anyway, thank you, Madam Secretary, for being here. The Tax
    Cuts and Jobs Act verifiably led to more American jobs,
    historically low unemployment, stable revenues, higher wages.
    Then COVID hit. And one of the things that COVID revealed to us
    was the vulnerability of our supply chain, and how it is a
    national security risk, it is a national health risk. Just look
    at who--where we get our pharmaceuticals from. It is China. We
    can't do it ourselves. We are trying to come back from that.
        So my question is, how does raising corporate tax rate to a
    higher level than our--than the Republic of--People's Republic
    of China--for that matter, almost any other country in the
    world, how can that make America more competitive, and solve
    our supply chain problem?
        Secretary YELLEN. Well, I believe it really is important
    that we invest in America so we can be a competitive economy.
    And you mentioned the importance of tax rules to private
    investments in equipment and software.
        But I guess I would point out--and this is what I mean when
    I use the term ``modern supply side economics''--there are
    quite a few other kinds of investments that are relevant to our
    productivity and competitiveness, and we also need to focus on
    those. So infrastructure is an example; education is another
    example----
        Mr. WENSTRUP. No, I agree with that. You have got to have
    all those things in place. And you can call them investments,
    or whatever, but also I think that making the business feasible
    here compared to somewhere else makes a big difference. And
    that is what we have to consider, as well. We have had no
    inversions since the Tax Cuts and Jobs Act, and I don't want to
    see that go away.
        But also, we talk about lowest unemployment now, and it is
    so low. But the NFIB says half of their small businesses have
    help wanted signs. Virtually every business I go to now, small
    employer, large employer, I have said, ``What is your biggest
    problem?'' It is getting workers.
        Secretary YELLEN. Agreed.
        Mr. WENSTRUP. Okay. So we have--could you explain, not only
    for me, because I think I have a good idea, but explain to the
    American people and explain to these businesses why, with such
    low unemployment, they don't have employees.
        Secretary YELLEN. Well, I mean, that is partly what the
    problem is, is that the demand for workers in this economy----
        Mr. WENSTRUP. Where did they go? They had the workers
    before COVID.
        Secretary YELLEN. Well, the COVID pandemic accelerated
    retirements. We have seen labor force participation for both
    adult men and women----
        Mr. WENSTRUP. Thank you.
        Secretary YELLEN [continuing]. Rise above previous levels.
        And the President's budget focuses on providing households
    the child care and other support they need to work. And I think
    it is really important to boost labor supply, and the
    President's budget is focused on that.
        Mr. WENSTRUP. So my point is, it is just--it is not
    completely honest if we just say, hey, unemployment is low.
    Well, yes, but it is still a problem to get employees, so we
    can't pretend----
        Secretary YELLEN. It is.
        Mr. WENSTRUP [continuing]. There is a rosy picture. We have
    got to address all these other issues.
        Secretary YELLEN. It is a problem that many businesses,
    most businesses, face and are trying to deal with.
        Mr. WENSTRUP. Thank you. I yield back. I appreciate it.
        Chairman SMITH [presiding]. The gentleman from Illinois is
    recognized.
        Mr. DAVIS. Thank you, Mr. Chairman.
        Thank you, Madam Secretary, and I thank President Biden for
    prioritizing policies that would provide meaningful relief to
    Americans, both young and old.
        I deeply appreciate the recognition that making the
    adoption tax credit refundable is essential to removing income
    as a barrier to adoption.
        I thank the President for advancing an even greater Child
    Tax Credit to lift even more children out of poverty. The CTC
    was a lifeline in my communities, and its absence makes
    children more vulnerable.
        I also want to thank you for prioritizing the improvements
    to the Earned Income Tax Credit that I have long championed in
    my responsible fatherhood legislation, and for preserving the
    protections for foster youth and youth experiencing
    homelessness.
        I thank you for permanently ending the taxation of forgiven
    student debt, and for all the other policies that would make
    our country stronger.
        I hope that you will consider the importance of direct tax
    credits for child care and rent as supplements to the strong
    budget you proposed. As we saw with the modernized child
    dependent tax credit in 2021, direct tax credits serve as an
    essential tool for helping every eligible working parent or
    cost--given the limited availability of other assistance, such
    as vouchers or low-income housing.
        And finally, like other systems in our country, the
    seemingly race-neutral tax policies and audit practices have a
    substantial, disproportionate impact on taxpayers of color. So
    I hope to work with you to identify legislation that would
    collect key demographic information about tax payers to better
    understand racial and gender equity.
        And I thank you very much.
        Secretary YELLEN. Thank you very much.
        [Pause.]
        Chairman SMITH. Do you yield?
        Mr. DAVIS. No, I will yield, of course, for the Secretary.
        Secretary YELLEN. Oh. Well, certainly, the President
    supports the Child Tax Credit and Earned Income Tax Credit, and
    would work with you to consider the Child and Dependent Care
    Credit, which was passed earlier by Congress, but--by the
    House, but isn't in the Green Book proposals, but I would
    certainly look to work with you on that.
        Mr. DAVIS. Well, thank you for all of your accomplishments.
    It is certainly a strong budget, and we look----
        Secretary YELLEN. Thank you.
        Mr. DAVIS [continuing]. Forward to continuing to work to
    make it even stronger. Thank you very much----
        Secretary YELLEN. Thank you.
        Mr. DAVIS [continuing]. And I yield back.
        Chairman SMITH. The gentleman from Texas is recognized.
        Mr. ARRINGTON. Thank you, Mr. Chairman.
        Thank you, Madam Secretary. I am the budget chairman, and
    we will have a budget. My Democrat colleagues the last four
    years did not have a budget. So it is rich when I hear them
    talk about us presenting a budget.
        The second thing I would want the American people to know
    is you all sent your budget late. And so the process is
    delayed. And we are going to take our time--and I hope you
    appreciate this--to unpack what is in this massive budget
    proposal. We are going to analyze it, and we are going to lay
    it out for the American people.
        So that will be the process. We will have a budget, and we
    will be able to compare not just the numbers, but the
    priorities, the policies, the values, and the vision that we
    differ on for the future of this country.
        A quick question, if you could, just a yes or no on this:
    Does the amount of government spending that we have been
    pushing out over the last couple of years, about $10 trillion,
    6 of that will be--is borrowed money that is adding to the debt
    about $6 trillion--does that--has that contributed to this 15
    consecutive months of record inflation?
        And as you, I am sure, are aware, inflation that is cutting
    the budgets of our working families, really devastating poor
    people and seniors on a fixed income, but is spending
    contributing to that, Federal Government spending contributing
    to that? Yes or no.
        Secretary YELLEN. Well, I believe that that was critically
    important support to make sure we didn't end up with a scarred
    labor force at a time when the risk was, we could see, a
    serious----
        Mr. ARRINGTON. So is that a yes, that spending--has
    spending contributed to inflation? Just yes or no. Forget your
    reasons why. You make that case to the American people. I will
    say that the American Rescue Plan that was Democrat-supported,
    no Republicans, jammed through, was more about bailing out
    union pensions and paying teachers unions for schools that
    never opened to our children. We can debate that point.
        Secretary YELLEN. Well, I think that----
        Mr. ARRINGTON. Did spending contribute to inflation?
        Secretary YELLEN. I believe that most of the inflation we
    have experienced represents--reflects disruptions from the
    pandemic----
        Mr. ARRINGTON. Okay, Madam Speaker----
        Secretary YELLEN [continuing]. The supply side----
        Mr. ARRINGTON. I mean, listen, Madam Secretary----
        Secretary YELLEN [continuing]. Of the economy, and----
        Mr. ARRINGTON. Madam Secretary, please, and with all due
    respect, I asked for a simple answer.
        The American people know that the spending that has flooded
    the marketplace has created this gap in supply and demand, and
    it is punishing, punishing as the worst of regressive taxes on
    all Americans.
        And here is the insulting thing. And again, with all due
    respect, this is insulting that your budget, the President's
    budget, increases spending. It is--these are--the budget has
    the highest sustained levels of spending, taxes, and deficits
    in the history of the United States of America.
        Now, I want to finish on this. You have requested $100
    billion more in just discretionary spending. If you do the
    average amount of spending that you all have requested in the
    last three years, the actual and the requested, we would be $3
    trillion over the $20 trillion that CBO is projecting. It is
    bankrupting the country, and it is insulting that your budget
    comes--you know, your proposal is more of the same.
        Secretary YELLEN. I am sorry, there is $3 trillion of
    deficit reduction over the next----
        Mr. ARRINGTON. Nobody believes that.
        Secretary YELLEN [continuing]. 10 years in this budget.
        Mr. ARRINGTON. I appreciate that on paper----
        Secretary YELLEN. And there are ways--it is one thing to
    spend when you don't pay for it, and it is another thing to
    spend when you do. And there are revenue raisers in this budget
    that more than finance the additional spending that----
        Mr. ARRINGTON. You all have added $6 trillion to the debt.
        Secretary YELLEN [continuing]. Is proposed.
        Mr. ARRINGTON. And even if I believe what you put on paper,
    you are taking off half of that--only half of the $6 trillion
    you have added, as if it is--as if you are trying to give a
    gift back to the--``Here is half of your money back. We are
    going to help save the country by giving half the money that we
    borrowed on the backs of our children.''
        I just don't believe it, and I look forward to more
    conversations, and I appreciate your service.
        Chairman SMITH. I recognize the gentlelady from California.
        Ms. SANCHEZ. Thank you.
        Secretary Yellen, thank you so much for joining us here
    this morning. You have a long and distinguished resume and
    career, and you are doing a terrific job. We applaud you. I am
    sure that, as a woman working in a traditionally dominated male
    field, you are probably no stranger to breaking firsts and
    paving the way for other women, which is why, during Women's
    History Month, it is disappointing to see some of my colleagues
    talk down to you, use profanity, and not allow you to finish
    your answers here at this hearing. And I think it is important
    to call out that kind of behavior.
        I want to refute a point that several of my colleagues have
    made with respect to the lack of workers that somehow my
    Republican colleagues want to blame the Democrats for. I want
    to remind my colleagues of a few salient points about the
    worker shortage.
        Number one is that, prior to the pandemic, we had worker
    shortages. When I used to meet regularly with my small business
    owners, they identified that as the number-one problem that
    they were experiencing.
        And then, during COVID, many Baby Boomers retired during
    the pandemic, and many are now too old to return back to the
    workforce. So that is a contributing factor.
        Additionally, the birth rate in the United States has been
    falling for years, and it is not at replacement right now. So
    we don't have the workers coming up because we simply have a
    lower birth rate.
        And then I would remind my colleagues on the other side of
    the aisle that lack of movement on immigration reform that
    creates legal pathways for immigrants to come to this country
    also exacerbates the worker shortage.
        So let's just be real clear about what some of these
    contributing factors are. Instead of just blanket-blaming
    Democrats for the lack of workers, it is some of the actual
    things that are outside of our control, which is demographics,
    but also things that are within our control, like immigration
    reform.
        Secretary Yellen, I wanted to ask you about the Inflation
    Reduction Act, because Treasury has embarked on some critical
    mineral agreements with Japan and the European Union, and I
    understand that the intent is to address their concerns on EV
    tax credits, but that is not exactly happening in a vacuum. Our
    allies have said that they will build on their existing climate
    subsidies in response to the IRA. I think that all of us who
    helped write this law agree that we need to work with our
    allies on shared climate goals.
        But I also want to stress that the unprecedented way these
    agreements were written--with this exercise, we continue to
    upend the separation of power on trade authorities. These
    agreements have been written in a manner that gives the
    Secretary the power to guarantee specific tax cuts, with USTR
    signing off on your behalf. So I want to focus on those
    agreements and how they will affect the domestic union supply
    chains that we are trying to foster as our partners try to
    expand their investments.
        Madam Secretary, California is home to one of the largest
    untapped lithium reserves in the world, which is close to the
    Salton Sea. And so how may this select buyers club have the
    potential to undermine investments back home?
        Secretary YELLEN. Well, the Inflation Reduction Act creates
    very strong incentives to produce, develop minerals for
    batteries in the United States, and to develop their capacity
    to process those minerals.
        However, the global demand for these minerals in the years
    to come will be enormous, and we are highly dependent on China.
    And so we have seen, as one of the goals of the IRA, to broadly
    strengthen supply chains for these critical minerals and their
    processing. And so the agreements that we are discussing with
    Japan and with Europe would potentially, if it is possible to
    form such agreements, permit our close allies to also
    contribute minerals and their processing that would be eligible
    for use in electric vehicles that are assembled in North
    America.
        But this is going to be a vast and growing market, and
    there are huge incentives for development of minerals in the
    United States.
        Ms. SANCHEZ. I thank you for your answer, and I yield back.
        Chairman SMITH. The gentleman from Georgia is recognized.
        Mr. FERGUSON. Thank you, Mr. Chairman, and thank you, Madam
    Secretary, for being here today.
        You know, early on in your remarks you threw out a term I
    had not heard called modern supply side economics. I did a
    little quick research on that. I believe you are calling a duck
    a squirrel. That is nothing more than modern monetary theory.
    And I would suggest that the American people don't go for that.
        But anyway, that is not really what I wanted to get to. You
    know, you have got $80 billion for 87,000 new IRS employees.
    You are asking for another $43 billion. And, you know, we--I
    just--number one, I don't see where those--you know, where the
    plan for the previous employees are. Number two, how do we know
    that these employees won't be looking into the bank accounts of
    our fellow Americans?
        Our friends on the other side of the aisle tried to get an
    IRS surveillance program into the banking system in the last
    Congress, and we successfully blocked it. But we have had to go
    so far as to introduce a bill, H.R. 1010, Prohibiting IRS
    Financial Surveillance Act. Can we have your assurances that
    none of the money that has been appropriated to the IRS will be
    used to implement a financial surveillance system with the
    banking system snooping into the bank accounts of our fellow
    Americans, unless it is directed by Congress? Yes or no, do we
    have your commitment that you won't go around the back of
    Congress and implement that program?
        Secretary YELLEN. Of course not. We require legislation----
        Mr. FERGUSON. Good. Thank you, thank you. I appreciate
    that, Madam Secretary, and I appreciate the directness of the
    answer.
        Second thing, you know, we--I still don't get the fact that
    under the Constitution the power of taxation lies with
    Congress, and yet you are negotiating U.S. tax policy, and you
    are ceding U.S. tax policy and revenue to countries around the
    world with the OECD. I will tell you, I have said this, and I
    think I said this the last time you were here. We are about
    making America the most competitive place in the world to do
    business, and we should be winning both on the manufacturing
    side and the export side. We should be importing treasure from
    around the world to the United States of America. And I don't
    think that we should give up one dime of our U.S. revenue to
    foreign countries with this.
        When we have a debt crisis that is looming, okay, real
    quickly, can you explain--can you tell me, will the GILTI
    revenues, if your Pillar Two is implemented, will those
    revenues go down here in the U.S.?
        Secretary YELLEN. Well, if the United States implements the
    GILTI tax, which would involve----
        Mr. FERGUSON. As a function of Pillar Two----
        Secretary YELLEN. In Pillar Two----
        Mr. FERGUSON [continuing]. Would you see a decrease in tax
    revenue coming into the U.S. from that.
        Secretary YELLEN. It would be a huge increase in tax
    revenue----
        Mr. FERGUSON. Ah, okay.
        Secretary YELLEN [continuing]. If we implement the GILTI
    tax.
        Mr. FERGUSON. Okay.
        Secretary YELLEN. Our tax revenue would----
        Mr. FERGUSON. I think that has yet to be determined. Now--
    --
        Secretary YELLEN [continuing]. Would clearly rise.
        Mr. FERGUSON [continuing]. One final thing, Madam
    Secretary. You know, Americans, really--over the years, of all
    of the alphabet agencies up here, they tend to fear the letters
    I-R-S more than most. And one of the things that we find
    disturbing is that the IRS has been buying up a tremendous
    amount of ammunition and firearms over the years. Two things.
        Number one, can you provide a report to this body that will
    explain why the IRS has purchased so much nine millimeter
    ammunition?
        And will you commit to not buying a single bullet or a
    single gun in that agency until you get your customer service
    right?
        Secretary YELLEN. Look, there----
        Mr. FERGUSON. Yes or no, will you look into that?
        Secretary YELLEN. No, I won't, because----
        Mr. FERGUSON. Okay. Thank you. Madam, my time has expired.
        Mr. Chairman, I yield back.
        Chairman SMITH. Thank you. The gentleman from Kansas is
    recognized.
        Mr. ESTES. Thank you, Mr. Chairman, and thank you, Madam
    Secretary. Over here, we are doing two for--I am sorry. Thank
    you, Madam Secretary, for joining us today.
        You know, as we were meeting today, you know, we just got
    the Administration's budget yesterday, and tried to dig through
    the numbers and get an understanding. But, you know, just from
    top line over the next 10 years, we are spending $8.2 trillion
    in spending; we are raising in revenue, or bringing in in
    revenue, $65 trillion, which equates to a corresponding deficit
    of $17 trillion. Now, I know you have said that we are having a
    $3 trillion cut in the deficit, but just because we are not
    making a $20 trillion deficit, it is still a $17 trillion
    increase over the 10-year period.
        And we talked earlier a little bit about the 15 percent
    increase in the department after already getting the $80
    billion last year, and with us being in debt and--actually,
    next year, over $1 out of $4 that is being spent in the 2024
    suggested budget is borrowed. It is almost $1 out of $3 is
    borrowed, 30 percent of the spending next year.
        So today I want to focus a little bit and follow up a
    little bit on my colleague from Georgia, who talked about the
    OECD, and particularly talked a little bit about the OECD
    Pillar Two and the impact on the U.S. competitiveness in the
    world. And what is being negotiated is some radical changes in
    the international tax system, and we have sent a letter to my--
    or there was a letter that you sent back to my office
    indicating you look forward to working with us to implement
    this.
        I can tell you that Congress isn't in favor of this. As
    several of us have mentioned, we have very main concerns, and
    Congress doesn't want to implement something that will make
    America weaker and less competitive.
        So, you know, last year, the Democrat majority in Congress
    wouldn't even pass the Pillar One--or the Pillar Two, an OECD
    provision. So have you informed the other countries that we are
    negotiating with that, you know, you--it wouldn't pass last
    year, and it is probably not going to pass under a Republican
    Congress this year?
        Secretary YELLEN. Well, my understanding is that there were
    Members of Congress that did not want the United States to go
    first in implementing a 15 percent minimum tax country by
    country. We already have a 10.5 percent GILTI or minimum tax on
    earnings of American multinationals abroad. And now the
    European Union has adopted it, and other countries are moving
    forward. Japan, the United Kingdom, Singapore, many countries
    are going forward with this. So the issue of our going first
    and will others follow no longer exists.
        Mr. ESTES. Well, it----
        Secretary YELLEN. And it is critically important for us
    to----
        Mr. ESTES. It does change, though, if we----
        Secretary YELLEN [continuing]. To put this in----
        Mr. ESTES. Before I run out of time, if the proposal is to
    raise our GILTI to 21 percent, when everybody else is doing 15
    percent is all that they have to do, I mean, that is going to
    make American businesses less competitive.
        Secretary YELLEN. Well, no, it is not----
        Mr. ESTES. And in the meantime, with the--under tax
    provisions, it is going to actually allow other countries to
    still race to the bottom through this process.
        Secretary YELLEN. That isn't right, because right now we
    have a 15 percent tax and no other country has any tax
    whatsoever. So there is a 15 percent gap. Now they are all
    going to have a 15 percent gap, and we are proposing that we go
    to 21, which is a much smaller gap of 6 percent.
        We are a competitive, attractive place to do business, and
    having a lower tax rate on the earnings of American companies
    abroad than they would pay at home is an incentive to shift
    jobs out of the United States abroad. And we are more
    competitive, and we are narrowing that gap, which makes it more
    attractive to invest in the United States.
        Mr. ESTES. It really is.
        Chairman SMITH. All right.
        Secretary YELLEN. And a disadvantage----
        Mr. ESTES. We would agree on that, that U.S.
    competitiveness is hurt, and that is what was addressed.
        And I have run out of time, but I will yield back, Mr.
    Chairman.
        Chairman SMITH. The gentleman from New York.
        Mr. HIGGINS. Thank you, Mr. Chairman.
        Madam Secretary, yesterday this committee held a hearing on
    the technicality of a proposal where there was a lot of talk
    about debt, deficit, and priorities. At the same time, the
    President released a $6.9 trillion budget plan, a 182-page
    document, that aims to cut the deficit by $3 trillion over the
    next decade.
        Bloomberg Economics put out a comprehensive report last
    month saying that President Biden was on track to becoming the
    greatest jobs-producing President in U.S. history, nearly 13
    million jobs in the past 26 months, including 504,000 in
    January, and 311,000 that was announced this morning for the
    month of February. They forecast that, while inflation was at
    9.1 percent in June of last year, the forecast for this time
    next year is 2.25 percent. Ninety-two percent of Americans now
    have access to affordable health care. And we are beginning,
    through the Inflation Reduction Act, to compete, in a real
    sense, with China.
        You know, the Stone Age didn't end because we ran out of
    stones. And the oil age won't end because we run out of oil.
    The oil age will end when we find a way to do it that is
    cleaner, quicker, and more competitive.
        The Inflation Reduction Act includes two major pieces. One
    is a $7,500 tax credit for Americans to purchase electric
    vehicles, and also a tax credit for American manufacturers of
    batteries that is estimated to reduce the cost of an electric
    car by an additional $9,000. It seems as though, you know, we
    finally got the message that we need to be tough about China,
    but we need to be tougher on ourselves about China, as well.
    And these initiatives in the Inflation Reduction Act and in
    this budget, I think, go a long way to doing that.
        You are the 78th Secretary of the Treasury. You were
    appointed in January of 2021. And just your thoughts about
    these and other efforts that are in the budget toward the goal
    of increasing American competitiveness accruing to the
    advantage of the American people and the American consumer.
        Secretary YELLEN. Well, thank you for your comments. I
    strongly agree with your assessment of the Inflation Reduction
    Act. It is already having a dramatic effect on investment in
    the United States and job creation, and will make us more
    energy secure and more competitive, and deal with the really
    national security threat that reflects our over-dependence on
    China for the provision of many--both battery components and
    electric batteries, solar panels, wind turbines, what we need
    to feel--be energy secure, to promote clean energy.
        So this is a huge step. The Semiconductor and CHIPS Act
    addresses our dependence in China and reduction in
    competitiveness in manufacturing semiconductors in the United
    States. And that is having a huge effect already in job
    creation. And the Infrastructure Act is really shoring up our
    competitiveness by finally repairing roads and bridges that are
    decaying in the United States and really need to be upgraded,
    and also what is necessary for a modern economy to have digital
    access all over the country.
        And these bills are shoring up our competitiveness, and the
    budget will add to the provision of funding for R&D innovation
    in the United States and other things.
        Mr. HIGGINS. Thank you. I yield back.
        Chairman SMITH. The gentleman from Pennsylvania is
    recognized.
        Mr. SMUCKER. Thank you, Mr. Chairman.
        Madam Secretary, thank you for your service to our country.
    I was pleased to hear, in response to one of my colleague's
    questions earlier just a little while ago, you said that the
    debt, these matters--and I quote--``should be should be taken
    seriously.''
        When you and I talked last year during this hearing, you
    said--and again, I quote--``it is desirable to reduce
    deficits.'' Do you still feel that way, Madam Secretary?
        Secretary YELLEN. Yes, I do.
        [Chart]
        Mr. SMUCKER. The chart I have here--and I don't know if you
    can see it; hopefully can catch it. But this is the next 10
    years, and compares the 2023 proposal by the President, budget
    proposal, and 2024. I have directly from the budget these
    sheets. And what it shows is that this proposal--2024, compared
    to 2023--increases deficits further, year over year. And the
    orange on here is your new proposal compared to what you were
    proposing last year. You see some significant difference in the
    early years, but it never is reduced over the proposals from
    last year.
        And on your totals on this sheet, you are proposing over
    the next 10 years today $17 trillion in additional deficits and
    debt, as opposed to 12 months ago you were proposing $14
    trillion total in deficits and debt.
        So my question is today, why are you proposing three
    trillion higher deficits than you proposed last year?
        Secretary YELLEN. Well, the budget contains a table, table
    S2, that shows the effect of the budget proposals on projected
    deficits. And that illustrates quite clearly----
        Mr. SMUCKER. Do you disagree with my----
        Secretary YELLEN. I do.
        Mr. SMUCKER [continuing]. My characterization?
        Secretary YELLEN. I do disagree, because what this table
    shows is that the President's proposals result in additional
    deficit reduction relative to the 2023 baseline of close to $3
    trillion. And----
        Mr. SMUCKER. Could you point out which year there are----
        Secretary YELLEN. I am sorry, I can barely see your chart,
    but I can----
        Mr. SMUCKER. Well, could you----
        Secretary YELLEN. I can tell you----
        Mr. SMUCKER. Could you look at your sheet and tell me which
    year there are----
        Secretary YELLEN. I can tell you----
        Mr. SMUCKER [continuing]. Lower deficits than what you had
    proposed last year?
        Secretary YELLEN. Well, for example, starting in 2025, the
    projected deficits in the baseline were 6.7 percent. And in the
    President's proposal----
        Mr. SMUCKER. That was not your baseline last year. That is
    CBO's baseline, which is far higher than what you were
    projecting last year.
        So essentially, you are saying our policies created higher
    deficits than you had projected last year, and now we are going
    to take credit for reducing those higher deficits by $3
    million. Am I right on that? Or $3 trillion.
        Secretary YELLEN. Relative to where we were before this
    budget was issued, and the deficits that we would have seen,
    this budget projects----
        Mr. SMUCKER. Nobody under----
        Secretary YELLEN [continuing]. Three trillion less.
        Mr. SMUCKER. Nobody outside of the Beltway will look at
    your proposal compared to the proposals last year, will look at
    your proposal compared to what has actually happened, will look
    at a chart like this, which is taken directly from your
    numbers, and say that we are reducing the deficit.
        And it is a shame, because we both agree that, long term,
    we are on a wrong fiscal trajectory, we must do something about
    it. And this budget does nothing. In fact, it adds to the
    deficits and debts that we have been experiencing.
        So, again, no one else would believe that we are reducing
    the deficits with your budget. Thank you.
        Chairman SMITH. I recognize the gentlelady from West
    Virginia.
        Mrs. MILLER. Thank you, Chairman Smith and Ranking member
    Neal.
        And thank you, Secretary Yellen. I hope you take that cough
    drop. It is from me.
        Secretary YELLEN. Thank you, thank you very much.
        Mrs. MILLER. In your fiscal year 2022 revenue proposals,
    you recommended that Congress lower the 1099-K threshold from
    the time-tested standard of $20,000 to just $600 with no
    transaction minimum in order to, and I quote, ``close the tax
    gap.'' Congressional Democrats heeded your request, and
    included the provision without any debate or consideration.
    President Biden signed it into law, and he touts the
    accomplishments of that bill to this day.
        In December of last year, your IRS delayed the
    implementation of the provision that you recommended for a full
    year. The IRS cited the difficulty in administering the program
    as just one reason for this delay. Your IRS had a full year to
    prepare and to send taxpayers a bill that they likely didn't
    owe, and you could not handle the burden. If this policy was
    too difficult for the IRS to get right after a year of work
    with your 87,000 new agents, not all of which are even back in
    the office yet, how do you expect an individual--say he is
    selling his couch, or drum set, or old furniture--to handle the
    cost and the compliance burden?
        Secretary YELLEN. Well, this was enacted into law in the
    American Rescue Plan, as you pointed out, and the IRS began to
    implement it as required, and heard a number of concerns by
    individuals and organizations that this was confusing.
        Mrs. MILLER. Oh, absolutely. I hate to interrupt you, but
    it is a nightmare for people that pass money back and forth.
    You know, one pays the rent, one does such and such, and they
    Venmo back and forth.
        I have spent the better part of two years trying to fix the
    mess that the Democrats created with this provision. And I want
    to thank every one of my Republican colleagues for cosponsoring
    my bill, H.R. 190, and I certainly hope that my Democrat
    colleagues will do the same thing to protect all of our
    constituents from an undue burden on--just a bad policy.
        Secretary Yellen, in May of 2021, just after the Biden
    Administration pushed through the $1.9 trillion spending bill
    on a partisan vote, you claimed that five percent inflation at
    the time would be transitory, meaning temporary and brief. And
    I am sure that the Biden Administration based decisions on your
    analysis.
        But a year later, in June 2022, inflation then hit a 40-
    year high of 9.1 percent. A few weeks ago this committee held
    its first hearing in my home state, and all of our witnesses
    said that their number-one hardship is--dealing now in 2023--is
    still inflation, the direct result of the failed economic
    policies of the Biden Administration.
        Obviously, inflation is not transitory. You were wrong, and
    the people that are suffering as a result would really like to
    know if you might apologize for saying that, and being wrong,
    and misleading them.
        Secretary YELLEN. Well, inflation is the President's top
    priority to bring it down. And it is certainly too high. It has
    come down off its highs a year ago. Over the last year we have
    made progress, and in part that reflects--what I meant at the
    time was there were disturbances from the pandemic on supply
    chains that would eventually resolve. And due to the
    President's efforts and the passage of time, those supply chain
    disturbances have largely resolved.
        Mrs. MILLER. Please.
        Secretary YELLEN. Shipping costs have come down----
        Mrs. MILLER. They haven't, they have not.
        Secretary YELLEN [continuing]. Substantially, inventories
    that had been depleted have largely been rebuilt.
        Mrs. MILLER. I really think that the words that----
        Secretary YELLEN. But there remain inflationary pressures--
    --
        Mrs. MILLER [continuing]. We really should hear is that I
    am sorry.
        Secretary YELLEN [continuing]. That need to be dealt with.
    And Russia's war on Ukraine has also exacerbated inflation----
        Mrs. MILLER. I yield back.
        Secretary YELLEN [continuing]. All over the world.
        Chairman SMITH. The gentlelady from Washington is
    recognized.
        Ms. DelBENE. Thank you, Mr. Chairman.
        And thank you, Madam Secretary. I am all the way on the
    other side here. Thank you for your time today, and for just
    all of your attention to the needs of working families and
    struggling Americans. And, in particular, I want to thank you
    for recognizing the importance of affordable housing by
    introducing in the budget an increase in the Low-Income Housing
    Tax Credit, or the housing credit, and a reduction in bond
    financing necessary to trigger more housing credit equity.
        These core proposals are for legislation that I have
    introduced, the Affordable Housing Credit Improvement Act,
    which we will be reintroducing again this year with
    Representatives LaHood, Beyer, and Wenstrup, so a very strong
    bipartisan proposal. These provisions would finance the
    production and preservation of over two million additional
    affordable homes, and support three million jobs over the next
    decade.
        I wondered if you could speak to how increasing the supply
    of affordable housing will increase our economy's long-term
    growth potential?
        Secretary YELLEN. Well, I think we really have a serious
    shortage of affordable housing, and it really makes it very
    difficult to hire workers to be able to support business
    expansion when lower-income workers are unable to even afford
    to be able to live anywhere near where they work. And I think
    that has been a failing of our housing policy that we believe
    should be corrected.
        Ms. DelBENE. Well, thank you so much for including that.
        I wanted to switch gears a little bit. Last year this
    committee held a hearing to discuss ways to strengthen economic
    relations with Taiwan. One way to do so would be by negotiating
    an income tax agreement, which would boost investment and
    create jobs by reducing double taxation on U.S. and Taiwanese
    businesses. I wondered if you could update the committee on how
    Treasury is evaluating Taiwan's requests for an income tax
    agreement with the United States.
        Secretary YELLEN. We are looking--we recognize that there
    is a problem there, and are looking at potential ways to
    address it. But I don't have anything specific to offer in
    terms of a way forward.
        Ms. DelBENE. Well, we look forward to and hope you will
    continue to consult with Congress on that----
        Secretary YELLEN. Certainly.
        Ms. DelBENE [continuing]. Since that is clearly a very
    important issue.
        And then lastly, during yesterday's markup of the
    Republicans' debt prioritization bill, I asked the majority
    staff a technical question that they couldn't answer regarding
    the logistical possibility of debt prioritization. And so I
    just wanted to ask you, Madam Secretary. Is it feasible for
    Treasury's payment systems to prioritize payments to bond
    holders over debt?
        Secretary YELLEN. I think that we should not think that
    prioritization is a solution to the debt ceiling issue.
    Prioritization is simply not paying all of the government's
    bills when they come due. That is something we have never done
    since 1789, and that really is just default by another name.
        So what is critical is that we maintain our commitment to
    pay the government's bills, all the government's bills, when
    they come due. And if we don't do that and think that there is
    some shortcut around it that will avoid economic chaos, we are
    kidding ourselves because not paying the government's bills
    will produce economic and financial collapse. And I would say
    that Fitch has already made clear in comments that they issued
    that a failure to pay all of the government bills would
    potentially prompt a downgrade of our debt.
        Ms. DelBENE. Thank you, Madam Secretary. I appreciate that.
        I yield back, Mr. Chairman.
        Chairman SMITH. The gentleman from Oklahoma is recognized.
        Mr. HERN. Madam Secretary, over here. Madam Secretary, I
    really appreciate you being here today.
        Madam Secretary, with all due respect--and we have talked
    about this both times you have been here--your going along OECD
    negotiations have been a failure. Your Democrat-majority House,
    Senate, President did not adopt these rules last year. Here we
    are, and there is no way in the world that Republicans are
    going to adopt this. I don't know how you think that
    circumventing Congress would be a way to do this.
        I think you would acknowledge that both of our jobs is to
    protect the U.S. worker, the U.S. taxpayer, and the U.S. fisc,
    but you are making it much harder by not allowing us to be a
    part of this process, as we are supposed to do here on Ways and
    Means.
        And there is no reason that we should expect that China is
    going to play nicely with these rules. I mean, they are kicking
    out Western auditors right now, and we are just thinking that
    we are going to know exactly what--their state-owned, state-
    regulated enterprises are going to participate and be
    transparent? I mean, trust me, we would like to know their
    transparency, but we simply do not.
        How does this ability to--we are--this is a rhetorical
    question, but I guess we are trying to figure out because we
    don't know how, in your OECD negotiations, you plan on holding
    them accountable.
        You know, Madam Secretary, the American people need to know
    this. I mean, we are transferring and redoing our entire
    international tax system--your words, not mine--to stop the
    race to the bottom. And we have asked repeatedly--myself, Kevin
    Brady, others--I would like to once again submit another letter
    for the record requesting information.
        Chairman SMITH. Without objection.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. HERN. Thank you.
        Madam Secretary, what are you doing to prevent China from
    cheating?
        Madam Secretary, when are you going to release the analysis
    of the impact of Pillar One and Pillar Two tax frameworks on
    the U.S. fisc?
        And do you have the revenue modeling data, or are you just
    not sharing it, or do you not have the data at all?
        And I will give you the remaining 1 minute and 34 seconds
    to respond to all of those questions.
        Secretary YELLEN. We have presented in the budget estimates
    of the impact of Pillar Two, which we urge adoption of by
    Congress. Other countries are adopting Pillar Two. The European
    Union has already adopted it and put it into effect, and this
    is a huge positive for the United States.
        Of course, it is up to Congress to decide if we should come
    into compliance with Pillar Two or not, but we are the only
    country in the world that imposes any tax at all on the foreign
    earnings of domestic corporations. No other country does that.
    And what the OECD agreement does is 137 countries agreed that
    they will start to do what we already do, and they have agreed
    to impose a higher tax rate than we currently----
        Mr. HERN. So, Madam Secretary----
        Secretary Yellen [continuing]. Than we currently put in
    place.
        Mr. HERN. Madam--with all due respect, Madam----
        Secretary YELLEN. How is that bad for the competitiveness--
    --
        Mr. HERN. Madam Secretary, I agree. You know, that sounds
    all great. But if you--we have asked time and time again for
    you to give us this information for the last two years, when we
    were not even in the majority.
        Secretary YELLEN. But we have consulted regularly with this
    committee.
        Mr. HERN. Excuse me?
        Secretary YELLEN. We have consulted regularly with this
    committee.
        Mr. HERN. You have not responded with the information we
    have requested.
        Madam Secretary, in the remaining seven seconds answer the
    question how we are going to hold China accountable. We can't
    even keep balloons from flying across the United States. How
    are we going to hold them accountable to the OECD framework?
        Secretary YELLEN. If China is not accountable, we will tax
    the income of Chinese companies operating in the United States,
    and the same is true for all other countries that adopt Pillar
    Two and its associated under tax payments rule. That is the
    strong enforcement mechanism that is built into this agreement,
    that a country that is non-compliant and decides they wish to
    be a tax haven, that other countries have the ability to punish
    that by taxing those firms themselves.
        Mr. HERN. You are assuming a fair playing field.
        Chairman SMITH. The----
        Mr. HERN. I yield back.
        Chairman SMITH. Thank you. The gentleman from North
    Carolina is recognized.
        Mr. MURPHY. Thank you, Mr. Chairman.
        Thank you, Madam Secretary, for coming. Is the workforce
    participation rate a different statistic than the unemployment
    rate?
        Secretary YELLEN. Of course.
        Mr. MURPHY. Yes. So our unemployment rate may be the same
    as it was pre-pandemic, but our workforce participation rate is
    a full percentage lower, which means 2\1/2\--more than 2\1/2\
    million workers are not in the workforce. You have said you
    think a great number are retirees.
        I would submit that is not the case. We right now--because
    Biden's continuation of the public health emergency continues
    with 18 million people on Medicaid who do not qualify for
    benefits and, therefore, are not going into the workforce.
        Second is that retirees that left, our stock market has
    crashed, inflation has gone through the roof. So I don't see
    those people staying at home. So it is disingenuous to say that
    we are in the same situation as we were pre-pandemic. We have
    been paying people and enticing them not to come back to work.
        Second point, the Inflation Reduction Act passed without a
    single Republican vote. It was done behind doors, a very
    partisan piece of legislation. Fortunately, Senators Thune and
    Sinema dropped an amendment which passed 57-43. The Thune
    amendment fixed a provision that said that small and medium-
    sized businesses, which are in my district, could be subject to
    the book's--fix this--if not, they would have been subject to
    the book's minimum tax administrative and financial burdens.
        I think that the congressional intent was very clear. I
    think this Administration has done everything it can to run
    around congressional intent. I ask unanimous consent to insert
    into the text the amendment debate and the final vote tally for
    the record, Mr. Chairman.
        Chairman SMITH. Without objection, so ordered.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Mr. MURPHY. Secretary Yellen, as you remember, there was a
    bipartisan amendment to clarify this in small business. Do you
    agree it was the intent of Congress and the Thune amendment was
    to maintain the current law aggregation rules, yes or no?
        Secretary YELLEN. I want to make sure I understand what--
    you are talking about the corporate alternative minimum tax?
        Mr. MURPHY. Would stay in its current state.
        Secretary YELLEN. So it only applies to corporations with
    financial statement or book income in excess of $1 billion.
        Mr. MURPHY. All right, thank you. On another topic I have
    heard from many small businesses in my district, I have a very
    research-and-development-strong district and state in North
    Carolina. I am very concerned about the lapsed R&D expensing
    loss. This is a major problem for new startups when they are
    trying to develop new cures and new drugs.
        This is supported in the House and the Senate by Democrats
    and Republicans. But as far as I can tell, the R&D expensing
    was omitted from the budget. Will you commit to helping us get
    section 174, the R&D expensing, across the finish line so that
    these companies will not be hurt?
        Secretary YELLEN. Well, we are in favor of support of R&D.
    Currently, the FDII, which is part of the taxation system for
    firms with derived intangible----
        Mr. MURPHY. So it has really hurt our young businesses that
    are trying to start out----
        Secretary YELLEN. We suggest repealing that, and working
    with Congress to put something more effective----
        Mr. MURPHY. I appreciate that, because it hurts small
    businesses that are trying to put new molecules, new cures when
    they have no income coming in.
        Secretary YELLEN. Well, we are----
        Mr. MURPHY. Lastly, can you explain to me what the
    rationale is of taxing unrealized gains? We are taxing
    something that someone has not even realized yet, what--in the
    future that number could actually be a loss. And so we are
    going to go after them for a potential--it is like putting
    somebody in jail for a potential murder that they might do. So
    what is the rationale?
        Secretary YELLEN. We have a situation where hardworking
    teachers and firefighters are paying a higher share of their
    income in taxation than billionaires who derive most of their
    income from unrealized capital gains.
        Mr. MURPHY. Well, they have to realize them to gain income.
        Secretary YELLEN. Well, we are suggesting a tax on
    individuals earning more than $100 million that would
    essentially be a pre-payment of taxes that are due upon death.
        Mr. MURPHY. So we want to get the money in now, so we can
    spend it now, so there will be even further deficit in the
    future.
        Secretary YELLEN. Well, I--it is--I think it is entirely
    fair that extremely wealthy people should----
        Mr. MURPHY. Well, I am not--thank you. I have used up my
    time, but it is--I am not talking about the wealth of the
    person, I am talking about the actual theory of attacking
    somebody before they have actually gained their money. And
    again, it is like putting somebody in prison before they have
    done the murder.
        Chairman SMITH. We want to thank the gentleman.
        Mr. MURPHY. So thank you. With that, Mr. Chairman, I will
    yield back.
        Chairman SMITH. Yes, the lady from--the gentlelady from
    California is recognized.
        Ms. CHU. Secretary Yellen, I thank you for being here. Last
    year, during our fiscal year 2023 hearing, I asked you what
    Treasury was doing to address the unacceptable fact that low-
    income EITC filers were getting audited 4.5 times more
    frequently than all other taxpayers earning under $500,000. You
    answered this. You said the resources available to the IRS have
    been simply gutted, and it does not have the capacity to
    enforce our tax laws as they apply to high-end evaders. It also
    meant that taxpayer experience was unacceptably poor, with long
    wait times for calls and a backlog of unprocessed returns.
        Well, we heard you. And thanks to the Inflation Reduction
    Act, we put in $80 billion to the IRS to improve these
    functions, and we can already see the positive effect. Contrary
    to the massive misinformation by those on the other side of the
    aisle, there has been a sea change. And in fact, The Washington
    Post just did an article earlier this week saying the IRS
    braces for the unthinkable, a normal tax season. And in fact,
    it said the IRS's massive funding boost has begun to reach the
    front lines of the tax season. It has vaulted the agency from
    more than a decade of disarray to a once unimaginable position:
    a functioning tax service.
        The IRS is answering 90 percent of its phone calls, has
    squashed its backlog of overdue returns, introduced new online
    taxpayer tools to keep pace with private software companies,
    and processed 99.7 percent of returns filed this tax season.
    And not only that, but tax professionals are also saying that
    now the agency will be able to keep up with phone calls and
    written correspondence and, most importantly, disburse refunds
    in a timely manner.
        So I just have to say phone calls are getting answered with
    an average wait time of seven minutes only. And also, of the
    $850 million spent by the IRS, more than half of the funds have
    gone directly to taxpayer services.
        Secretary YELLEN. Yes.
        Ms. CHU. I also want to address an issue from earlier,
    which is the IRS does have a law enforcement team that they use
    for extremely serious cases on non-compliance.
        Earlier the gentleman from Georgia demanded there be no
    additional ammunition purchases. But actually, these law
    enforcement officials need ammunition to even qualify for their
    job. This demand from the gentleman from Georgia would actually
    put law enforcement officials in harm's way, and is actually
    anti-police.
        So can you address both issues about the increased
    functioning of the IRS and this law enforcement issue?
        Secretary YELLEN. Well, I agree with what you said on both
    scores, and I appreciate the description you gave of all of the
    ways in which taxpayers' service has improved since the IRA
    provided this funding. It is a high priority, and there will be
    more to come.
        And we--there will also be a focus on hiring skilled tax
    attorneys and accountants who will be able to audit the returns
    of high-income and wealthy taxpayers, complex partnerships,
    corporations where we know there is very substantial under-
    reporting of income, and there will be an increased payoff to
    that over time, and that will be another important focus that
    you will see play out in terms of a reduction in the tax gap
    over time.
        With respect to the officers and the bullets, it is true
    there is a small cadre of--essentially, they are trained as law
    enforcement officers, individuals who do carry weapons to deal
    with very----
        Chairman SMITH. The gentlelady's time has expired.
        Ms. CHU. Thank you.
        Chairman SMITH. The gentleman from Texas--Tennessee is
    recognized.
        Mr. KUSTOFF. Thank you, Mr. Chairman.
        Thank you, Madam Secretary, for appearing today. I want to
    go back and talk about the Inflation Reduction Act, and follow
    up on Congressman Adrian Smith's questions, and maybe
    Congressman Drew Ferguson.
        When we have been asked--asked you about the number of
    audits specifically of those taxpayers making less than
    $400,000, your reply has been something to the effect that it
    won't increase compared to historical levels. My question to
    you is, isn't it right that the actual number of taxpayers
    making more--or less than $400,000, those audits will increase?
    Isn't that right?
        Secretary YELLEN. Well, I don't----
        Mr. KUSTOFF. The actual number?
        Secretary YELLEN. I don't have that information. But if the
    size of that population goes up and you maintain a constant
    audit rate, the number would probably rise.
        Mr. KUSTOFF. Fair enough. And that is as a result of the
    passage of the Inflation Reduction Act, correct?
        Secretary YELLEN. Well, I am not sure what you mean by
    that. I mean----
        Mr. KUSTOFF. Well, I mean, we just--we voted--I voted
    against--the creation of the Inflation Reduction Act, which
    increases the number of audits. We have established more than
    400--those taxpayers more than $400,000. I asked you about the
    number--not at historical levels, the actual number--of
    taxpayers making less than $400,000. You gave me your answer,
    and I am asking you isn't that----
        Secretary YELLEN. But, you know----
        Mr. KUSTOFF. Ma'am, I am asking you, isn't that a direct
    result of the passage of the Inflation Reduction Act?
        Secretary YELLEN. It depends on what the policy is. I have
    directed the IRS not to raise audit rates on individuals or
    small businesses earning under $400,000.
        And what has happened is the IRS has been starved for
    resources. It has----
        Mr. KUSTOFF. Let me ask you this.
        Secretary YELLEN [continuing]. Cut dramatically----
        Mr. KUSTOFF. This is in relation to the letter that was
    sent by the Congressional Budget Office to then Ranking Member
    Kevin Brady, and then ranking member of the Budget Committee,
    Jason Smith, dated August 25th, 2022. ``How will taxpayers with
    incomes less than $400,000 be affected by the act?''
        And I realize you don't have the letter in front of you.
    ``The act will affect taxpayers with incomes less than $400,000
    in several ways. Activities other than audits such as
    collections and automated screening and document matching are
    not constrained by the Secretary's directive. And under the
    2022 Reconciliation Act, the amounts they generate will be
    greater for taxpayers with all amounts of income,'' CBO
    projects.
        My question to you is you don't have any reason to doubt
    what CBO cites in this letter, do you?
        Secretary YELLEN. Look, we want taxpayers to be able to
    pay, and to pay the amounts that are due. And presumably,
    improvements in technology may raise compliance in ways that
    are not directly related to the fraction of individuals that
    are audited.
        And, you know, the failure of----
        Mr. KUSTOFF. Automatic screening and document matching for
    those taxpayers----
        Secretary YELLEN [continuing]. An agency----
        Mr. KUSTOFF [continuing]. Under $400,000 will be increased.
    You don't disagree with the CBO report, do you?
        Secretary YELLEN. I haven't read it in detail, but----
        Mr. KUSTOFF. Fair enough.
        Secretary YELLEN. I--you know, we have----
        Mr. KUSTOFF. I will submit this for the record. My time
    has----
        Chairman SMITH. Without objection.
        [The information follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

        Secretary YELLEN [continuing]. A $7 trillion tax gap. And
    the IRS really needs to close that, because it undermines the
    fairness and effectiveness of our tax system not to have a
    system that collects taxes that are owed and due.
        Chairman SMITH. The gentleman from Pennsylvania is
    recognized.
        Mr. FITZPATRICK. Thank you, Madam Secretary, for being
    here, and for your time today. We appreciate it. I want to
    address a separation of powers issue and concerns with the IRA.
        The IRA's free trade agreement requirement, specifically
    for critical mineral inputs on batteries, was clear. And
    congressional intent upon the passage of the IRA with respect
    to that was clear. And yet the Administration is now seeking to
    redefine free trade agreements--which everyone knows to do that
    would require approval by the members of this body--now
    referring to it as a ``free trade area'' in order to extend the
    law's benefits to Japan and the European Union, with which the
    United States does not have a congressionally-approved free
    trade agreement.
        Madam Secretary, are you aware that during the pandemic
    semiconductor chip shortage, Japan and Germany withheld
    semiconductor chips from U.S. automakers here in our country in
    favor of their own automakers?
        Secretary YELLEN. I wasn't aware of that, but I----
        [Pause.]
        Mr. FITZPATRICK. Are you aware, also aware that the United
    States accepts Japanese vehicle certification on imports from
    Japanese autos into our country, however, Japan does not
    reciprocate?
        Secretary YELLEN. I am not aware. I am not aware of all of
    those----
        Mr. FITZPATRICK. Japan--in fact, Madam Secretary, Japan's
    rules intentionally do not conform to U.S. car regulations.
    U.S. car manufacturers must navigate a very complex environment
    when exporting to Japan. These are non-tariff barriers that
    disadvantage autos made here in the United States.
        The next question: Are you aware that just this week the
    U.S. ambassador to the World Trade Organization stated that
    Japan must take bold steps to lower trade barriers regulated--I
    am sorry, related--to autos and agricultural products?
        Secretary YELLEN. So, look, with respect to the IRA and
    Japan, Japan does process and extract critical minerals that
    are used by American car makers. And the thought is that, in
    order to improve the security of our supply chains, the United
    States might negotiate agreements pertaining to critical
    minerals--not to say that the conditions are there now, but
    that there would be negotiations of agreements with countries
    like Japan or with European countries. There would have to be
    requirements. They wouldn't--presumably a requirement is that
    you couldn't put export controls in place that----
        Mr. FITZPATRICK. I understand that. But with----
        Secretary YELLEN [continuing]. In a crunch would prevent--
    enable a country to----
        Mr. FITZPATRICK. Understood.
        Secretary YELLEN [continuing]. Withhold exports. So this
    would be a matter of arriving at agreements. They might have
    labor or environmental standards----
        Mr. FITZPATRICK. But surely you understand that that
    requires----
        Secretary YELLEN [continuing]. that promote free trade.
        Mr. FITZPATRICK. That requires congressional approval,
    correct?
        Secretary YELLEN. It----
        Mr. FITZPATRICK. This misinterpretation is essentially a
    balance of power--or a separation of power issue.
        Secretary YELLEN. I think we need to be in close
    communication with the committee.
        Mr. FITZPATRICK. Understood.
        Secretary YELLEN. Absolutely.
        Mr. FITZPATRICK. But I just want to point out the
    disparity. Are you aware that U.S. autos exported to the EU
    incur a 10 percent tariff, however the United States only
    imposes a 2.5 percent tariff on European auto imports?
        Secretary YELLEN. This all--may all be true, but what we
    are talking about are critical minerals, and attempting to meet
    the objective of Congress in passing this legislation----
        Mr. FITZPATRICK. My time is about to expire. Last question.
        Secretary YELLEN [continuing]. To improve supply chains.
        Mr. FITZPATRICK. Last question. Are you also aware--this is
    to my point--that China is the biggest supplier of battery
    technology and production to both Japan and EU, the countries I
    am referencing?
        Secretary YELLEN. We are trying to reduce our dependance on
    China with this legislation.
        Mr. FITZPATRICK. My time is expired. I yield back.
        Chairman SMITH. The gentlelady from Wisconsin is
    recognized.
        Ms. MOORE of Wisconsin. Thank you so very, very much, and
    thank you for appearing, Secretary Yellen. I have so enjoyed
    our relationship back from when you were chair of the Fed, and
    really--you are so qualified to appear before this committee
    and answer some of our important questions.
        I have a couple of questions, and if I have repeated things
    that others have already made inquiry about, please forgive me.
    I was called away for other business not more important than
    you, but just other business.
        Recognizing tribal sovereignty, I was really pleased to see
    that the Biden Administration included a recommendation to
    include tax parity for Indian Health Services scholarships. And
    I am working with Mr. Schweikert here on the committee, and Mr.
    Kildee here, and Congressman Kelly, looking forward to going
    forward on tax parity for tribal nations, unconstrained by
    artificial and arbitrary essential government function test, so
    that we can increase the effectiveness of the Low-Income
    Housing Tax Credit and the New Markets Tax Credits on tribal
    communities.
        So I am so happy that you are moving forward with that, and
    how do you think that will inform--will improve our GDP?
        Secretary YELLEN. I think it is an important initiative.
    The Low-Income Housing Tax Credit is critical, and I think
    improving situation with respect to housing and tribal lands
    addresses a critical need.
        Ms. MOORE of Wisconsin. It really does, because the
    infrastructure needs on Indian land are tremendous. And so this
    would create a lot of economic activity.
        I wanted to ask you--and you are Secretary of Treasury now,
    but, again, you are very brilliant and----
        Secretary YELLEN. Thank you.
        Ms. MOORE of Wisconsin [continuing]. You have been chair of
    the Fed.
        You say that the Biden budget will cut the deficit by
    nearly $3 trillion over 10 years, and I am delighted to see
    that you are not proposing doing that with austerity tactics
    like just eliminating--you know, of course, we are getting out
    of the emergency stuff, but the EITC is expanded, the Child Tax
    Credit is here. SNAP you haven't talked about reducing. You
    certainly are protecting the ACA, recommending childcare. And
    yes, you want people to get back to work, but the dignity of
    work doesn't necessarily mean working at $7.25 an hour.
        How are you able to reduce the deficit by three trillion
    without austerity?
        Secretary YELLEN. So the President's focus is on
    hardworking families who are struggling to make ends meet, and
    providing them with the tools they need to make life a little
    bit easier, whether it is improvements in the cost of health
    care, lowering prescription drugs, educating their children by
    adding a year of preschool, a child tax credit, making
    childcare affordable.
        These are ways of giving working families some breathing
    room, and the budget focuses on that, and it doesn't raise
    taxes by a penny on any household or small business earning
    less than $400,000. And it pays for those initiatives by
    remedying what I think is an unfairness about our tax system
    that lets wealthy individuals, very high-income individuals,
    and corporations off with lighter tax loads than a school
    teacher or a firefighter or a policeman have to pay.
        And so it raises additional revenue in a variety of
    different ways by asking those high-income, wealthy
    individuals, and corporations to pay their fair share.
        Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman,
    and I would yield back.
        Chairman SMITH. I recognize the gentlelady from New York.
        Ms. TENNEY. Thank you, Mr. Chairman. And before I get
    started, I just wanted to say thank you to Ms. Sewell, Mr.
    Davis, and Mr. Kelly, and I look forward to working with you on
    this crucial legislation relating to the new markets tax
    credit, and making it permanent. The credit has delivered for
    districts in my own upstate New York district, and I am
    committed to pushing this priority across the finish line.
        Secretary Yellen, I just want to say thank you for
    appearing here today, and thank you for your service.
        There are so many important topics that we need to be--need
    to be addressed, and Americans are suffering from the biggest
    price increases in over 40 years. Small businesses like mine
    and all of upstate New York are feeling the pain of labor
    shortages and Democratic tax hikes. Taxpayers' personal
    information is being exposed in massive leaks, and your
    Treasury Department is actively working to bypass Congress and
    cede U.S. tax authority to foreign countries.
        U.S. companies and workers need an international tax
    landscape that offers certainty, promotes investment and
    innovation, and incentivizes critical research and development
    here in America. Instead, it seems like Treasury has
    unwittingly bitten off more than it can chew by negotiating a
    deal with the Organization for Economic Cooperation and
    Development, the OECD, that gives away our tax revenues,
    reduces the competitiveness of U.S. companies and workers, and
    erodes overall economic strength. And I know many of my
    colleagues have talked about this. If this deal were finalized,
    it would result in fewer jobs and less prosperity for millions
    of Americans and their families.
        Secretary Yellen, Treasury has the responsibility of
    negotiating at the OECD, but why do you believe that Treasury
    has the authority to do so without proper consultation with
    Congress?
        And I might add you have testified today that you have
    reported to Congress, but you have not consulted or
    collaborated with Congress in a way before cutting these deals
    with Europe. And don't you agree that you are appointed to this
    position, not anointed to this position?
        Secretary YELLEN. I certainly am appointed, not anointed,
    absolutely agree. And we have consulted, and not only informed.
        Ms. TENNEY. Can you explain where you get this----
        Secretary YELLEN. We have had ongoing----
        Ms. TENNEY. Can you explain where the consultation and
    collaboration has been done so in a public forum with both
    sides, where we have seen this----
        Secretary YELLEN. I----
        Ms. TENNEY [continuing]. And that has--I just--we have not
    seen that. We have seen reporting. Reporting is not
    consultation.
        Secretary YELLEN. Our staff have regular briefings with
    staff of this committee. And I have had many conversations with
    the chair and ranking member of this committee on ongoing
    developments whenever there is something new that occurs in the
    negotiations.
         And I don't know if you are talking about Pillar One or
    Pillar Two of the tax agreement. Pillar Two is certainly
    something that cedes no taxing rights, is an international
    agreement by which other countries have----
        Ms. TENNEY. If I may reclaim my time, you have allowed
    other countries to tax our own countries, and not--you stood
    a--again, the United--the GILTI tax, and also the book minimum
    tax, you have--we got these, and then you didn't fight for a
    fair treatment of these and these negotiations. So why didn't
    you protect these taxes, and why are other foreign entities and
    countries in the agreement allowed to now tax our U.S.-based
    countries?
        Secretary YELLEN. Well, look----
        Ms. TENNEY. Companies, excuse me.
        Secretary YELLEN. We have every right to tax our companies
    as we see fit. Congress is not obliged to do anything. But the
    Pillar Two does allow punishment by countries that participate
    in the agreement in the sense of countries that----
        Ms. TENNEY. So wait. You are----
        Secretary YELLEN [continuing]. Decide they wish to be tax
    havens by--they may undertake--and this is one of their taxing
    rights--to impose additional taxes----
        Ms. TENNEY. So let me reclaim my time. You are admitting--
    --
        Secretary YELLEN [continuing]. On firms that----
        Chairman SMITH. The gentlelady's time is expired.
        Ms. TENNEY [continuing]. That we have given our priorities
    up to foreign countries.
        Secretary YELLEN. We haven't given any----
        Chairman SMITH. The gentlelady's time is expired.
        Secretary YELLEN. We haven't given anything up.
        Chairman SMITH. The gentlewoman from Minnesota is
    recognized.
        Mrs. FISCHBACH. Thank you very much, Mr. Chair, and thank
    you, Secretary, for being here today, and I just--I want to
    talk a little bit--I know we talk a lot about big things in
    D.C., but we don't always talk about what is happening in real
    America.
        And I--you know, most of the work in my district is done by
    small businesses, family farms, small manufacturers, and they
    and I are very concerned that the taxes in the President's
    budget will hurt them. It will affect them, no matter what we
    say. It is going to affect them. And, you know, they are
    already faced with increased costs: fuel, for farmers input
    costs due to inflation in the economy right now.
        And the President's budget includes more than $300 billion
    in new taxes on non-corporate taxpayers. Secretary, why does
    the President believe that now, as we are just emerging from
    the economic destruction of COVID, we should increase taxes on
    small, family-owned businesses?
        Secretary YELLEN. The President's budget doesn't contain a
    penny of new taxes on any individual earning under $400,000, or
    small business earning under $400,000. So, the taxes that are
    raised are all on high-income, especially very high-income
    individuals, and on corporations that are not small businesses,
    and that benefit from many tax preferences and lower tax rates.
        In some cases, income isn't taxed at all, and it results in
    a situation where many of your constituents who are concerned
    about rising costs, and health care costs, and the cost of
    education, and are burdened by such costs, it results in a
    situation where they are paying higher tax rates, a higher
    fraction of their income than a billionaire who earns most of
    their income----
        Mrs. FISCHBACH. I reclaim my time. And Secretary, with all
    due respect, I mean, we are facing limits. And so I just wanted
    to--because I think we disagree on that. And I think that we
    are reading things differently in understanding what is in the
    proposal. And I think that is why the chair earlier asked for
    the legislative copy, the legislative language of it, because--
    and I am reading the Green Book, I am----
        Secretary YELLEN. I am sorry, the Green Book contains as--
    --
        Mrs. FISCHBACH. I am looking at it.
        Secretary YELLEN [continuing]. Much description as you
    could----
        Mrs. FISCHBACH. Ma'am, I am looking at it. Secretary, I am
    looking at it right now. But I think that is--so that we are
    looking at the same thing, because we have a much different
    understanding of how the taxes are going to affect those people
    in my district.
        And just, you know--so I will say, with the tax increases
    that are included and the death tax included in the President's
    budgets, you know, I really--I got to wonder, how does the
    President expect family farms to survive with all of the things
    that we are burdening them with? And I have a real concern
    about that.
        And I know that last year we fought very hard regarding the
    stepped-up basis, and I believe it is back in here. Like I
    said, I am continuing to read, because we got the green sheet,
    or whatever you call it, yesterday. So we are continuing to
    read. But I--if we have your assurance that these people are
    not going to pay any more taxes, they are not going to see
    those death taxes--but I have real concerns.
        And with that, I yield back. My time is up.
        Chairman SMITH. The gentlelady from Alabama is recognized.
        Ms. SEWELL. Thank you, Mr. Chairman.
        Madam Secretary, thank you for being here today to provide
    further insight into this Administration's budget request.
        It is my belief that our federal budget must present
    opportunities for all Americans to achieve economic prosperity.
    This is done so with the commitment of significant investments
    in communities, especially those communities that have lived on
    the margins, due to the--due to economic circumstances. I can
    think of no better tool to achieve the kind of leveling the
    playing field in marginalized vulnerable communities than the
    New Market Tax Credit.
        I want to join Representative Tenney in applauding
    President Biden's proposed budget for including a permanent
    extension of New Market Tax Credits. This crucial tax credit
    has been instrumental in promoting economic growth and
    development in under-served communities, creating jobs,
    expanding businesses, and including access to health care, job
    training, child care, and other important social services.
        The New Market Tax Credit is a valuable tool that has
    enabled investors to inject much-needed capital into distressed
    communities. Since its inception, this program has delivered
    over $120 billion--with a B--in total project investments,
    providing a lifeline to businesses and communities that have
    been long overlooked.
        In my hometown of Selma, Alabama, the New Market Tax Credit
    is supporting the expansion of a business called GMI, which
    produces silicone-based alloys and other strategic materials
    which feed our nation's supply chain for semiconductors, solar
    energy products, military energy storage, and the like. The
    expanded facility in my hometown generated 100 skilled jobs. It
    is this level of success that I would like to see replicated in
    districts all around the country.
        I know that this is currently in the proposed budget, but I
    want to assure you that it has bipartisan support. In the 117th
    Congress, I introduced the bipartisan legislation to make the
    New Market Tax Credits permanent, H.R. 1321, and we had 126
    cosponsors. I look forward to working with my colleagues, like
    Congresswoman Tenney, in also reintroducing a similar piece of
    legislation.
        Last Congress I also introduced the Rural Jobs Act with
    Chairman Jason Smith to expand the program and to provide $1
    billion in New Market Tax Credit allocation targeted to
    persistent under-served rural communities.
        My question is, can you elaborate on how this tool can be
    used, why it is so important that we make it permanent, and how
    you see this affecting under-served communities all across this
    country?
        Secretary YELLEN. Well, I agree with you. I think it is a
    very important tool to promote investment in communities that
    have historically been left behind, and can be a real spur to
    economic development. And that is why the budget does propose
    to make it permanent.
        And I would say, more broadly, a priority of the Biden
    Administration has been a focus on place-based policies so that
    communities that historically have suffered--we have had areas
    of the country that have grown very rapidly, seen big----
        Ms. SEWELL. Absolutely.
        Chairman SMITH. Thank you.
        Secretary YELLEN [continuing]. Increases in income, and
    others that have lagged. And many of the acts that have already
    been passed, the IRA, the Infrastructure Act, the
    Semiconductors Act, and the ARP that increased funding of
    community CDFIs----
        Chairman SMITH. To respect the----
        Secretary YELLEN [continuing]. And MDIs----
        Chairman SMITH. The--time expired, Secretary. To respect
    your time and to make sure we get----
        Secretary YELLEN. Yes.
        Chairman SMITH [continuing]. Every one of these, when that
    clock hits----
        Secretary YELLEN. Sorry, apologies.
        Chairman SMITH. Let's just stop talking.
        Secretary YELLEN. Okay.
        Chairman SMITH. The gentleman from Utah is recognized.
        Mr. MOORE of Utah. Secretary Yellen, thank you for being
    here. This is substantive work. It is important for our nation.
    I appreciate you--willing to come so quickly after the budget
    was released, and I hope you have felt that we do respect your
    expertise.
        I am going to talk something--about something very
    personal, something that--I think that this entire committee is
    supportive of, and that is those individuals that are in the
    adoption space, and the adoption tax credit.
        According to a GAO report from 2011 and a taxpayer advocate
    report from 2012, families claiming the Adoption Tax Credit in
    those years faced an audit rate nearing 70 percent, a 69
    percent of audit rate. The national average is 0.8. So, I mean,
    the discrepancy here is enormous, and it is concerning. So,
    this is a specific example of what we want to talk about,
    because a lot gets said here in this--in the concept of audits,
    but these are staggering numbers.
        I haven't been able to find any data more recent than 2012.
    What has been the audit rates for families claiming the
    Adoption Tax Credit over the past five years?
        Secretary YELLEN. So, I don't have that information at my
    fingertips, but I would be glad to get back to you. And I think
    the issue that you are raising is certainly a legitimate one
    that I would try to work with you on and better understand.
        Mr. MOORE of Utah. These are families that are watching----
        Secretary YELLEN. Sure.
        Mr. MOORE of Utah [continuing]. What is going on. They are
    concerned that this is only going to ramp up, as opposed to go
    away.
        Secretary YELLEN. Sure.
        Mr. MOORE of Utah. And that is a staggering issue. Is--the
    fact that you don't have it here is okay--is it something that
    is being collected over the past several years, to your
    knowledge?
        Secretary YELLEN. I honestly--I need to look into that. I
    just am not certain. I assume that that data is available, but
    I----
        Mr. MOORE of Utah. I joined----
        Secretary YELLEN. I need to check into it, and----
        Mr. MOORE of Utah. I joined this committee----
        Secretary YELLEN [continuing]. We will get back to you.
        Mr. MOORE of Utah. Thank you, Secretary. I joined this
    committee with real legislation that should be hugely
    bipartisan to help address this, this and other issues with our
    folks that are out there adopting foster care and--you know,
    from infancy. And I mentioned that this is very important for
    us.
        One piece of your testimony--and I am going to keep to time
    here--one piece of your testimony, it talked about the race to
    the bottom with respect to corporate tax rates. I can give
    specific examples from Procter and Gamble, from Nucor. These
    are rural-based companies in my district. And I have met and
    sat down with each of them. When they talk to me about when
    their taxes become globally competitive--so from the Tax Cut
    and Jobs Act, you know, the things--the two things that they
    highlight the most is, one, their ability to pay middle-class
    and frontline workers more salary. And they have been able--
    they have got the data that shows that they raised those wages.
    And the second thing is what they have been able to do to give
    back to their communities: ambulances for Box Elder County, a
    specific example that sticks out to me.
        I am concerned at the communication that just raising--
    going ahead and not looking at what actually happened with some
    of these tax rates when we became globally competitive, and
    just going ahead and raising them just to cover more spending
    that we are seeing from the President's budget, what am I to
    tell these companies right now, as there is a potential from 21
    to 28 percent increase, which is enormous, and it will be a
    very impactful increase, what am I to tell these individuals?
        Secretary YELLEN. Well, I think that the tax cut on the
    corporate level that was introduced by the Tax Cut and Jobs
    Act, I think it was appropriate to cut corporate tax rates. It
    wasn't--we had one of the highest rates globally, and it needed
    to come down, and it wasn't very effective in raising corporate
    tax revenue, but it came down too much. And I don't think we
    have seen the economic payoff from that in the form of great
    increases in investment spending.
        Mr. MOORE of Utah. Thank you.
        Secretary YELLEN. And we----
        Mr. MOORE of Utah. I am going to--and thank you so much for
    that.
        Chairman SMITH. The gentlelady from California is
    recognized.
        Mrs. STEEL. Thank you, Chairman Smith, for holding this
    important hearing.
        And thank you for your service, Secretary Yellen.
        Progressive spending has led to record inflation, and now
    this Administration wants to add fuel to the fire. I was
    alarmed yesterday when I discovered that President Biden's
    request includes a 15 percent increase to the IRS annual
    funding. That is a $2.1 billion increase over the enacted
    funding levels for 2023, on the top the extra $80 billion
    progressive gave to the IRS last year. The IRS exists to serve
    Americans, not to make the lives of taxpayers harder.
        It has been reported that millions of tax returns from
    previous years are still not processed. In my district that--we
    have been getting a lot of inquiries about how to get the
    refunds from the IRS. If the IRS owes my constituents money, it
    could take years from them to receive their return.
        Many have expressed concerns about the IRS snooping on
    their private bank records and transactions heightened with
    sensitive personal information being released in years past.
        You claim that you are not going to--going after lower and
    middle-class Americans, yet progressives have been working
    behind the census (sic) lowered the 1099-K threshold. Why
    should every Americans who are dealing with record inflation,
    pay their rent, and repay for their ticket events--event
    tickets now go out of their way to file unneeded, burdensome
    tax forms with lack of proper security?
        And why are you in favor of adding more unnecessary filing
    when the IRS is already dealing with the endless backlogs?
        Secretary YELLEN. Well, the objective of this legislation
    with respect to 1099-Ks was to make sure that Americans have
    the information they need to accurately file their returns and
    pay the taxes that are due because there are Americans who
    receive money from businesses--business that they do--may be
    relatively small--and most Americans receive reports they use
    to file their income taxes on their wages and salaries, their--
    --
        Mrs. STEEL. Madam----
        Secretary YELLEN [continuing]. Interest in dividend income,
    and this is----
        Mrs. STEEL. Madam Secretary----
        Secretary YELLEN [continuing]. Other income on which taxes
    are due.
        Mrs. STEEL. I reclaim my time. I totally get that, but we
    already have that in the law right now. That 1099-K, when you
    receive more than $600 transaction, then you have to file it,
    that is adding another burdensome to the taxpayers. That is----
        Secretary YELLEN. It was lowered in the ARP from, I
    believe, $20,000 to $600, because many Americans who earned
    less than $20,000 probably weren't getting that information and
    paying the taxes that were due.
        And it is--you know, this was in the law. The IRS needed to
    implement what is in the law.
        Mrs. STEEL. And my time----
        Secretary YELLEN. And it is up to Congress to decide what
    the right----
        Mrs. STEEL. I yield back. Thank you.
        Chairman SMITH. The gentleman from Michigan is recognized.
        Mr. KILDEE. Thank you, Mr. Chairman.
        And Madam Secretary, thank you. It is good to see you.
        First, let me just comment. I listened to Mr. Fitzpatrick's
    questions and comments regarding trade authority, and I just
    want to state for the record that we don't agree on everything
    across the aisle, but I think there is general concern about
    the direction of trade negotiation, and where that authority
    lies. And I look forward to further conversation with the
    Administration to provide greater clarity, and to protect the
    prerogatives of Congress in that in that respect.
        Secretary YELLEN. That is fair.
        Mr. KILDEE. We learned a lot, Madam Secretary, during the
    pandemic about supply chains, what can go wrong when we rely
    too heavily on other countries, particularly China, for
    example, for critical goods and components that are essential
    to our economy. And I was really proud to work with the
    Administration on the CHIPS and Science Act, the Inflation
    Reduction Act, both of which will support American workers
    bringing manufacturing jobs back to our country.
        In my district, I happen to have a company, Hemlock
    Semiconductor, that makes polysilicon, a base material for both
    semiconductors and for solar panels. Included in the CHIPS and
    Science Act, is a tax credit to onshore production of these
    really important materials. As Treasury drafts its guidance for
    this credit, does Treasury plan to include the entire supply
    chain of semiconductors, including polysilicon?
        Secretary YELLEN. So I don't--I think we are in the process
    of drafting those regulations. I don't have the answer to your
    question, but we would value your input on this, certainly take
    it into account, and get back to you on this matter.
        Mr. KILDEE. I appreciate that. I am certainly not in a
    position, as a single Member of Congress, to express
    congressional intent. But I know, as I was working on this
    legislation, this is certainly the sort of application that we
    had in mind for the credit. And so I would ask you to take a
    very close look at that.
        Secretary YELLEN. Certainly, we will do that.
        Mr. KILDEE. The Inflation Reduction Act also supports
    domestic manufacturing of solar panels----
        Secretary YELLEN. Yes.
        Mr. KILDEE [continuing]. Right here in the U.S., instead of
    relying on those produced in China. I worked on legislation to
    do this because it makes sense for us to trade foreign
    dependence on oil to a foreign dependence on solar panels. We
    don't want to do that.
        Secretary YELLEN. Of course.
        Mr. KILDEE. Our legislation includes a domestic content
    bonus to spur domestic manufacturing, not just domestic jobs
    for installing solar panels. So a strong domestic content
    standard will enable larger investment in U.S. solar
    manufacturing. Does Treasury plan to issue any guidance that
    incentivizes domestic manufacturing for across the solar panel
    value chain? A similar question to my first question.
        Secretary YELLEN. So I believe we are in the process of--we
    have rules that we have to write in connection with claiming
    those credits. And there are an enormous number of rules that
    we need to write. We have prioritized some of the most urgent
    ones, but we will be producing a rule on that.
        Mr. KILDEE. Thank you very much. I appreciate that, and
    thank you for being here.
        I yield back the balance of my time.
        Chairman SMITH. I recognize the lady from Texas, the
    gentlelady from Texas.
        Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
        You know, for a party that can't even define what a woman
    is, I find it rich that some of my Democrat colleagues want to
    highlight International Women's Day and go after--as if we are
    supposed to go soft on the Secretary today. I am going to
    demand that everybody treat us as equals, and don't demean us
    just because we are born with ovaries. I don't care if it is
    International Women's Month.
        It is disturbing that this Administration continues to
    peddle the big lie that people making less than $400,000 are
    not paying more in taxes. You said it yourself this morning
    that people making less than $400,000 won't pay a penny more in
    new taxes, not a penny more. And maybe you need to get out of
    D.C. more, because a lot of us are paying more in new taxes.
        Let's just review a few. Income taxes. Wages have
    artificially increased but, because of inflation, the dollar
    value has actually decreased. So many people that are making
    less than $400,000 that saw wage increases are now paying more
    in income taxes, correct?
        Secretary YELLEN. Well, it is--we don't have perfect----
        Ms. VAN DUYNE. Fuel taxes. Gas prices have increased from a
    national average of $2.35 when Biden took office to now $3.41 a
    gallon this week. So, are people making $400,000 paying more in
    fuel taxes?
        Secretary YELLEN. More in fuel taxes?
        Ms. VAN DUYNE. Correct, yes.
        So sales taxes. Groceries have increased by 12 percent.
    Eggs have increased by nearly 60 percent. Flour is up over 21
    percent. Used cars are up over nine percent. Are people making
    less than $400,000 paying more in sales taxes for simple things
    like food?
        [No response.]
        Ms. VAN DUYNE. Okay. Ad valorem taxes. Housing prices have
    more than doubled in many markets around the country. A lot of
    times that is dependent on how much people are paying in ad
    valorem taxes. So would you agree that people making more than
    $400,000 and own a house are paying more in ad valorem taxes?
        Secretary YELLEN. Well, these are often state or local
    taxes----
        Ms. VAN DUYNE. Oh, sure.
        Secretary YELLEN [continuing]. That you are talking about.
        Ms. VAN DUYNE. But we are talking about taxes. And here is
    the problem. When you are stuck in D.C., we don't see beyond
    D.C. But people are being taxed to death, and are absolutely
    sick of it. And when you said people who make more than
    $400,000 are not being taxed a penny more, I guarantee you they
    would disagree with that.
        Secretary YELLEN. What I said was that the President's
    budget----
        Ms. VAN DUYNE. People are paying more than they have in
    taxes, even if they are making less than $400,000, and it is a
    direct result of policies that have come out of this
    Administration. And it is alarming that you all don't seem to
    understand that over-regulating, over-spending, and increasing
    debt contributes to increased inflation.
        All of us are suffering from increased inflation, 14.4
    percent. And yet, this Administration keeps throwing its hands
    up and saying, ``It is not our fault, we didn't do anything.''
    You have had party rule for the last two years. Take some
    responsibility.
        Secretary YELLEN. The President has said----
        Ms. VAN DUYNE. Last June, you told this committee that
    spending had come down, and that there was no doubt that
    inflation was too high. And yet, the Inflation Reduction Act
    that you just lauded used budget gimmicks and, in fact, added
    $745 billion in new spending. And now the President has come
    out with a massive budget, $7 trillion almost, of spend, and
    then $4.7 trillion of new tax hikes. That makes--that meets the
    very definition of tax and spend. And is that not a return to
    increase in spending?
        Secretary YELLEN. The President's budget in the----
        Ms. VAN DUYNE. I yield back my time, thank you.
        Secretary YELLEN [continuing]. And the laws that have been
    passed reduce many burdens on American households. It makes
    health care through the ACA far more affordable than it was.
        Ms. VAN DUYNE. I yield back my time. Thank you, Mr.
    Chairman.
        Chairman SMITH. The gentleman from----
        Secretary YELLEN. It prevented an increase in premiums.
        Chairman SMITH. The gentlelady has yielded back her time.
    The gentleman from Iowa is recognized.
        Mr. FEENSTRA. Thank you, Secretary Yellen, for being here
    today. I greatly appreciate it.
        Both Congress and the U.S. companies have been sounding
    alarms about Pillar Two since the model rules were released in
    December of 2021. You know the concerns, obviously, of how it
    was negotiated and also what was exactly agreed to, but I want
    to focus on probably the most common issue that I am hearing
    about from our companies.
        Under the agreement, non-refundable tax credits can bring a
    company's U.S. Pillar Two effective tax rates below a 15
    percent minimum. As you know, our tax laws are full of non-
    refundable business tax credits enacted by this committee over
    the decades, most notably the R&D credit. Other countries, like
    the United Kingdom, were able to protect this credit in their
    negotiations, and I am trying to understand why the Treasury
    Department would agree to curb and eliminate this incentive
    created by Congress to encourage investment because we saw it
    beneficial to this economy.
        So the question is this. Secretary Yellen, why did the U.S.
    Treasury not try to negotiate rules that protected the U.S. R&D
    incentives in the same way the UK did, in the same way other
    European countries did, and we lost ours?
        Secretary YELLEN. Well, I think that some of these
    incentives would have been lost under the BEAT, and our
    proposal would repeal the BEAT in favor of the under-taxed
    payments rule consistent with the model agreement, and in that
    sense is more favorable for R&D than what would otherwise have
    been the case.
        Mr. FEENSTRA. So, in all fairness, so you are saying you
    are fine with it, that you are not going to go to bat for this
    R&D tax credit, you are not going to ask other countries to
    accept it?
        Secretary YELLEN. Well, we have said that we would look
    forward to working with Congress on an R&D credit that would be
    effective.
        Mr. FEENSTRA. Yes, but you know and I know that is a
    refundable tax credit. That is never going to happen, because
    that is worth, you know, billions and trillions of dollars.
    That is just not going to happen.
        I mean, this is a big deal. I mean, this is a really big
    deal to every company, when they can't take this R&D credit,
    part of--to lower that 15 percent minimum, and yet the UK did
    and other countries did. I mean, we are at a tremendous
    advantage (sic).
        Now, I hear what you are saying. I hear what you are
    saying, and it is sort of capitulation. But, I mean, do you
    understand what these companies are asking here?
        Secretary YELLEN. Well, most companies are able to make use
    of it because they don't come under these rules.
        Mr. FEENSTRA. That is not the case.
        Mr. Chairman--Secretary Yellen, thank you for those
    comments.
        Mr. Chair, I would like to submit a letter for the record
    stating that R&D is the manufacturing industry's number-one
    priority. And the--this committee has already received that
    letter.
        Thank you, and I yield back.
        Chairman SMITH. Without objection, so ordered.
        [The information follows:]

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        Chairman SMITH. The gentleman from Pennsylvania is
    recognized.
        Mr. EVANS. Thank you, Madam Secretary.
        Chairman SMITH. Would you turn on the mic?
        Mr. EVANS. Thank you, Mr. Chairman.
        Madam Secretary, I would like to agree that the President's
    budget reflects the progress that we have made, and I want to
    make sure that he knows I thank him for his leadership and what
    you are doing. So, I sincerely thank you very much.
        I want to speak about an issue I have spoken to you in the
    past about, an issue that really concerns around school
    buildings and facilities. I want to raise the issue about the
    rehabilitation historical tax credit, and that is the issue I
    have been working on for a long period of time.
        We have two high schools in my congressional district that
    discovered life-threatening asbestos. And basically, what I
    have been attempting to do is to see if we can put together--
    the school buildings are at age 70, and I have basically been
    attempting to find ways to deal with school.
        So, what I want to do is get your thoughts on our nation's
    public schools access to historical tax credit, and to use that
    tool is the issue I have consistently been raising. I would
    like to get your thoughts on it.
        Secretary YELLEN. Well, I think you are raising a very
    important issue in terms of dealing with school buildings, and
    it is something the Administration thinks is important, as
    well. And we can discuss what might be appropriate to deal with
    that issue----
        Mr. EVANS. Okay.
        Secretary YELLEN [continuing]. And work with you on that.
        Mr. EVANS. Good. I want to thank you, Madam Secretary, for
    coming before the committee. Thank you for your honestness.
    Thank you, again.
        I yield back, Mr. Chairman.
        Secretary YELLEN. Thank you.
        Chairman SMITH. The gentlelady from New York is recognized.
        Ms. MALLIOTAKIS. Madam Secretary, you know my district very
    well because you were born in Bay Ridge, Brooklyn. Your alma
    mater is Fort Hamilton High School. So you also know that my
    district is one that is home to hardworking Americans who are
    trying to make ends meet during record-high inflation.
        As this Administration continues to recklessly print and
    spend money, it is pushing American people to the limits. This
    Administration is literally giving money with one hand, and
    then they are taking it with the other when people are paying
    higher costs, whether it be the supermarket, the gas pump, the
    utility bills, et cetera.
        Seniors in my district--and you know Bay Ridge is home to
    many seniors--are struggling to stay in their homes, and it is
    nearly impossible for young families to buy their first home.
    And CNBC reports credit card debt is at an all-time high,
    putting households near a breaking point. And all this while
    the Fed continues to raise interest rates, and Democrats
    continue their spending spree.
        The public deserves to know, as do the members of this
    committee, how long you are aware that the massive spending
    packages were pushing us closer to the debt limit, and why you
    stayed silent for so long.
        As you know, on December 23rd, 2022, Congress, under the
    Democrat control, passed $1.7 trillion omnibus spending
    package, which came after 2 years of aggressive, unchecked
    spending and record deficits. However, you waited nearly a
    month, until January 13th, to send a letter to Speaker McCarthy
    in saying that we had reached--we will be reaching the
    statutory limit, and that you would have to take extraordinary
    measures.
        Yes or no, did you warn the President at the time that he
    was jamming through this package that you were going to be
    reaching that limit?
        Secretary YELLEN. Well, look, we have run deficits for most
    of our history, and it is clear that we continually need to
    issue more debt in order to finance them. So----
        Ms. MALLIOTAKIS. But did you warn the President that we----
        Secretary YELLEN [continuing]. When Congress----
        Ms. MALLIOTAKIS [continuing]. Were going to be hitting the
    debt limit, or did you wait? Did you purposely wait, or did you
    tell the President----
        Secretary YELLEN. The President knows very well that we----
        Ms. MALLIOTAKIS. Okay.
        Secretary YELLEN [continuing]. Would reach the debt limit,
    and Members of Congress know that, as well.
        Ms. MALLIOTAKIS. Why did you wait until January 13th to----
        Secretary YELLEN. And we sent you----
        Ms. MALLIOTAKIS [continuing]. Make it public?
        Secretary YELLEN. We sent Congress, as we always do, a
    notification when it became clear that we would reach the debt
    limit, and need to use----
        Ms. MALLIOTAKIS. Were you told by anyone in the White House
    not to say anything during that time of negotiation?
        Secretary YELLEN. Of course not. And it is very clear what
    the outstanding debt is. It is all--it is entirely public
    information.
        Ms. MALLIOTAKIS. Now, it is true, but I find it odd that
    that three-week period between when that package passed--or
    when it was even negotiated, that you didn't say anything as a
    Treasury Secretary to sound the alarm that we were heading down
    this--that we were going to hit the--you were going to have to
    take extraordinary measures. It seems like something that the
    American people would want to know while they were jamming
    through this excessive package.
        But I will move on to say that the Federal Reserve
    continues to raise interest rates to slow the amount of money
    circulating through the economy, to drive down demand for goods
    and services, with the goal of lowering prices and reducing
    inflation. But this, as you know, will not work. It does not
    work when government spending and the printing of new money
    continues at unsustainable levels, reducing the value of the
    dollar.
        Isn't it kind of like trying to pour water on a fire, while
    also pouring gasoline? I mean, you admitted you were wrong when
    you said inflation was transitory. Will you be honest with the
    American people today, and just tell them the truth, that the
    inflation will not reduce--return back to the 1.4 percent of
    2021 as long as government continues to print and spend?
        Secretary YELLEN. No, I certainly wouldn't agree with that.
    And this year the Federal budget has--the deficit has declined
    substantially, and there has been a reduction in fiscal impetus
    toward inflation.
        Ms. MALLIOTAKIS. I understand. We are still at 6.4 percent,
    and we were at 1.4 percent at the beginning of this
    Administration. I believe, as long as we keep printing this
    money, we will never get back down to that inflation. And so, I
    hope you will pass that on to the Administration. Thank you.
        Chairman SMITH. I thank the gentlelady. The gentleman from
    Ohio is recognized.
        Mr. CAREY. Madam Secretary, thank you for being with us
    today, and I appreciate your service to the country.
        Secretary YELLEN. Thank you.
        Mr. CAREY. I am going to go through a statement. I am going
    to try to keep my time brief. I am a firm believer that those
    who don't know history are doomed to repeat it, and so I am
    just going to go back, as we have time, to go through the Green
    Book and, obviously, look at all the--dive into the budget.
        But, on March of 2021 you said there was only a small risk
    that inflation would be a problem. And on May 2nd of 2021 you
    said you don't believe that inflation will be an issue. On May
    27th, you stated that the recent inflation we were seeing at
    the time would be temporary. You also said that you believed
    interest rates would stay low. Then, on October 29th of 2021,
    you said that monthly inflation rates would return to levels
    close to 2 percent towards the second half of the year.
        When referring to the Biden Administration's infrastructure
    spending proposals, you actually said, ``I don't think these
    investments will drive up inflation at all.'' You even went as
    far as to say that these spending packages were actually anti-
    inflationary.
        Finally, on June 1st of 2022, you conceded that you were
    wrong about the path that inflation would take and, as we all
    know, we were also wrong regarding your projections of the
    interest rates. And as the Fed right now is signaling that more
    rate hikes will probably happen until inflation gets under
    control, it makes me wonder when we are going to get off the
    spending merry go round.
        But with that, I really would like to focus on just a
    couple of things, because energy is something that is very
    important. But perhaps the biggest failure I have seen in U.S.
    sanctions over the last two years has been the inability to
    stop Iranian oil exports to China. And I appreciate the
    Administration's recent sanctioning of the companies involved
    in the Iranian illicit oil trade, however, I am concerned that
    these efforts are insufficient.
        So a real quick question, and then I am going to yield
    back. Would you agree our sanctions have been ineffective in
    stopping Iranian oil from being exported to China?
        Secretary YELLEN. My sense is that there is--you know, I
    need to look into that more fully. But probably our sanctions
    have not been fully effective. We are constantly looking to
    enforce them better, and to step them up in order to meet this
    objective, so----
        Mr. CAREY. Thank you. Thank you, Madam Secretary. Mr.
    Chairman, I yield back.
        Chairman SMITH. The gentleman from Illinois is recognized.
        Mr. SCHNEIDER. Thank you, Mr. Chairman.
        Madam Secretary, thank you. Thank you for giving us a
    little bit of extra time so we all have a chance to ask a
    question. It is greatly appreciated.
        And I want to commend the Administration's work bringing
    the world together to try to address tax policy. The
    multilateral Pillar One/Pillar Two processes aim to provide
    certainty and predictability for U.S. companies operating
    abroad. That said, I do believe we have to ensure that the U.S.
    remains committed to following through on these efforts,
    working with Congress, and protecting the competitiveness of
    U.S. firms to ensure that we not only are growing American
    companies, but we are starting new companies and inspiring
    other countries to come here. So I thank you on that.
        I want to ask a quick question on the debt ceiling. I will
    go home this weekend, and I will hear from all of my
    constituents what is going to happen, what is going to happen.
    Can you just remind us--I know we have talked about it--what do
    I say to Illinois taxpayers when they ask, ``What is going to
    happen if we don't address the debt ceiling?''
        Secretary YELLEN. I think we are going to be faced with
    economic and financial catastrophe.
        The United States Government has always paid its bills
    since 1789. And not just some bills, but all bills that come
    due. U.S. Treasuries are the safest asset in the entire
    financial system, and the U.S. dollar serves as the reserve
    currency. If there is a thought that Congress would allow the
    United States to default on its payments that it has to make,
    that will call into question the safety of these assets, and
    potentially lead to a financial crisis.
        And if we got to the day when we are not able to make our
    payments, and somehow, we have to no longer make good on our
    obligations to Social Security recipients, and veterans, and
    the military, and to all those providers----
        Mr. SCHNEIDER. And I apologize. With limited time----
        Secretary YELLEN. And interest rates will spike. We saw
    that in 2011.
        Mr. SCHNEIDER. It will be painful.
        Secretary YELLEN. And U.S.----
        Mr. SCHNEIDER. So let me just ask a follow-up question.
        Secretary YELLEN. We were downgraded, and that was a hit to
    the interest rates that all Americans have to pay----
        Mr. SCHNEIDER. Right. As someone once said, if we don't
    learn from history, we are going to repeat it. We saw it in
    2013.
        We talked yesterday. We had a markup on this idea of
    prioritization, paying some of our bills, not all of our bills.
    Does paying some of our bills--is it feasible? And even if it
    was, would that still result in default?
        Secretary YELLEN. It is still a default, because I think
    most Americans would think--and most people in financial
    markets would feel that a country has obligations, and they are
    looking to see if the country meets the obligations it has, not
    some of the obligations, but all of the obligations.
        Mr. SCHNEIDER. Great. And my last comment is thank you. In
    the Inflation Reduction Act my legislation on sustainable
    aviation fuel was a part of what is the greatest investment we
    have ever made in addressing climate change. I look forward to
    working with you and your department, making sure that we get
    that in place so that----
        Secretary YELLEN. Great.
        Mr. SCHNEIDER [continuing]. America can lead the way in
    sustainable aviation fuel.
        Secretary YELLEN. We are working hard on that.
        Mr. SCHNEIDER. I yield back.
        Secretary YELLEN. Thank you.
        Chairman SMITH. The gentleman from California is
    recognized.
        Mr. PANETTA. Thank you, Mr. Chairman.
        Thank you, Madam Secretary. It seems that right now you
    have policymakers trying to bring about a managed slowdown of
    our economy, and you have investors trying to figure out if the
    economy is going to have a hard landing or a soft landing. But
    also, it seems, because the economy is so stubbornly successful
    right now, we are trying to figure out if the economy is going
    to land at all.
        And so that is because the American economy right now is
    strong for a number of factors. And consumers and firms,
    especially in major economies, they are in good financial
    health.
        Secretary YELLEN. Yes.
        Mr. PANETTA. But the acceleration of our economy means that
    the recession may not be imminent is what we are seeing right
    now.
        So, despite some of the complaints that we are hearing, it
    seems that we do still have to figure out a way to slow down
    the economy by bringing down inflation so that we can bring
    down inflation. And we have to figure out, you know, does that
    mean we raise interest rates to get inflation to that two
    percent target?
        Now, as you know, when you talk about rate adjustments and
    when they are made, there are long and variable lags for which
    and how they work. But experts are thinking that the previous
    interest rates that were just made, they might have been
    already played out. So looking forward now, looking forward,
    where do we go?
        Do we accept this continued inflation, or do we have to
    continue to raise interest rates for a second year in a row?
        And if we raise those rates, what is appropriate, Madam
    Secretary?
        Secretary YELLEN. So, you know, this is a matter we leave
    up to the best judgment of the independent Federal Reserve.
    Having worn that hat in a prior life, I know that the kinds of
    judgments you are asking me to make are very difficult ones,
    and require tremendously careful analysis of the economy, what
    is playing out, and how monetary policy operates.
        I know that my colleagues at the Fed are engaged in these
    discussions every day, and want to do the best they can. They
    are clearly committed to bringing inflation back to their two
    percent target.
        Mr. PANETTA. Okay, thank you. Thank you.
        Secretary YELLEN. They also have a commitment to----
        Mr. PANETTA. Thank you. I got a minute left, and it is----
        Secretary YELLEN. The----
        Mr. PANETTA [continuing]. Your last minute, so just--I am
    going to make it real quick. What should our long-term goals
    be, Madam Secretary, when it comes to our debt?
        Secretary YELLEN. That we have a sustainable fiscal
    trajectory. And to me, the single best metric is real net
    interest burden of the debt. And that is something we have
    focused on carefully in this budget. Historically, it is been
    at or a little bit above one percent.
        And if you look at the budget, with the deficit reduction
    it contains, it--we keep the real net interest burden as a
    share of GDP right around one percent. So, to me, that is a
    sustainable budget path, and it is one I use to evaluate fiscal
    sustainability.
        Mr. PANETTA. Thank you, Madam Secretary.
        Mr. Chairman, I yield back. Thank you.
        Chairman SMITH. Thank you.
        Madam Secretary, thank you for your testimony. Sorry we
    went 12 minutes over, but we appreciate that you stayed for all
    of it.
        Please be advised that members have two weeks to submit
    written questions to be answered later in writing. Those
    questions and your answers will be made part of the formal
    hearing record.
        With that, the committee stands adjourned.
        [Whereupon, at 12:12 p.m., the committee was adjourned.]

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