[Senate Hearing 118-429]
[From the U.S. Government Publishing Office]
S. Hrg. 118-429
THE PRESIDENT'S FISCAL YEAR 2024 BUDGET WITH TREASURY SECRETARY JANET
L. YELLEN
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED EIGHTEENTH CONGRESS
FIRST SESSION
__________
MARCH 16, 2023
__________
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Printed for the use of the Committee on Finance
__________
U.S. GOVERNMENT PUBLISHING OFFICE
56-992--PDF WASHINGTON : 2024
COMMITTEE ON FINANCE
RON WYDEN, Oregon, Chairman
DEBBIE STABENOW, Michigan MIKE CRAPO, Idaho
MARIA CANTWELL, Washington CHUCK GRASSLEY, Iowa
ROBERT MENENDEZ, New Jersey JOHN CORNYN, Texas
THOMAS R. CARPER, Delaware JOHN THUNE, South Dakota
BENJAMIN L. CARDIN, Maryland TIM SCOTT, South Carolina
SHERROD BROWN, Ohio BILL CASSIDY, Louisiana
MICHAEL F. BENNET, Colorado JAMES LANKFORD, Oklahoma
ROBERT P. CASEY, Jr., Pennsylvania STEVE DAINES, Montana
MARK R. WARNER, Virginia TODD YOUNG, Indiana
SHELDON WHITEHOUSE, Rhode Island JOHN BARRASSO, Wyoming
MAGGIE HASSAN, New Hampshire RON JOHNSON, Wisconsin
CATHERINE CORTEZ MASTO, Nevada THOM TILLIS, North Carolina
ELIZABETH WARREN, Massachusetts MARSHA BLACKBURN, Tennessee
Joshua Sheinkman, Staff Director
Gregg Richard, Republican Staff Director
(II)
C O N T E N T S
----------
OPENING STATEMENTS
Page
Wyden, Hon. Ron, a U.S. Senator from Oregon, chairman, Committee
on Finance..................................................... 1
Crapo, Hon. Mike, a U.S. Senator from Idaho...................... 3
ADMINISTRATION WITNESS
Yellen, Hon. Janet L., Secretary, Department of the Treasury,
Washington, DC................................................. 5
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Crapo, Hon. Mike:
Opening statement............................................ 3
Prepared statement........................................... 53
Letter from Senator Barrasso et al. to Secretary Yellen,
March 16, 2023............................................. 54
Whitehouse, Hon. Sheldon:
Letter from Senator Whitehouse et al. to Acting Director Das,
March 15, 2023............................................. 56
Wyden, Hon. Ron:
Opening statement............................................ 1
Prepared statement........................................... 59
Yellen, Hon. Janet L.:
Testimony.................................................... 5
Prepared statement........................................... 60
Responses to questions from committee members................ 62
Young, Hon. Todd:
Prepared statement........................................... 107
Young Amendment No. 3444..................................... 108
Roll Call Vote No. 335....................................... 108
Communication
Center for Fiscal Equity......................................... 113
(III)
THE PRESIDENT'S FISCAL YEAR 2024 BUDGET
WITH TREASURY SECRETARY
JANET L. YELLEN
----------
THURSDAY, MARCH 16, 2023
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 10:05
a.m., in Room SD-215, Dirksen Senate Office Building, Hon. Ron
Wyden (chairman of the committee) presiding.
Present: Senators Cantwell, Menendez, Carper, Cardin,
Brown, Bennet, Casey, Warner, Whitehouse, Hassan, Cortez Masto,
Warren, Crapo, Grassley, Cornyn, Thune, Scott, Cassidy,
Lankford, Daines, Young, Johnson, Tillis, and Blackburn.
Also present: Democratic staff: Ursula Clausing, Tax Policy
Analyst; Eric LoPresti, Detailee; Sarah Schaefer, Chief Tax
Advisor; Joshua Sheinkman, Staff Director; and Tiffany Smith,
Deputy Staff Director and Chief Counsel. Republican staff:
Becky Cole, Chief Economist; Jamie Cummins, Senior Tax Counsel;
Kate Lindsey, Tax Policy Advisor; and Mike Quickel, Policy
Director.
OPENING STATEMENT OF HON. RON WYDEN, A U.S. SENATOR FROM
OREGON, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. The Finance Committee will come to order, and
we are happy to welcome the Treasury Secretary, Janet Yellen,
this morning.
Everyone here, regardless of political views, understands
that the FDIC, the Fed, and the Treasury Department are putting
in long hours to contain the fallout of the recent bank
closures. The process is moving forward under existing law.
Investigations are underway at the SEC and the Department of
Justice.
Senator Brown, Chair of the Banking Committee and a valued
member of this committee, is determined to get to the bottom of
exactly what went wrong. Nerves are certainly frayed at this
moment. One of the most important steps that Congress can take
now is to make sure there are no questions about the full faith
and credit of the United States.
That means paying the bills incurred by Presidents of both
parties and taking a default off the table. With respect to the
budget debate, after a request from myself and Senator
Whitehouse, the nonpartisan Congressional Budget Office did the
math on the recent fiscal promises we have heard from House
Republicans.
The promises pile up, but the numbers do not add up. They
wish to balance the budget in 10 years, but they have announced
a long list of untouchables. No reductions in defense, no cuts
to Medicare or Social Security, no touching veteran's programs,
no asking the wealthy or corporations to pay their fair share.
A couple of these items could get bipartisan support, but
certainly not all of them.
Senator Whitehouse and I asked the Congressional Budget
Office to run the numbers. Is it even possible for Republicans
to stand behind those commitments? Does the math add up? Madam
Secretary, you and I have talked about this. The numbers do not
add up; not even close. What the Budget Office found is that
for Republicans to make the math work, they would have to cut
every Federal program by 86 percent.
Goodbye to Medicaid and the guarantee of nursing home
coverage, which I saw when I was director of the Gray Panthers.
The border would be unprotected. Roads and bridges would
crumble. If Republicans want to extend the Trump tax law, they
would have to cut everything else.
Given that, it is not a big mystery why House Republicans
have not yet put a budget on paper, a budget to show the
public. They are living way, way out there. Democrats are
following a smarter approach. The President has put out a
budget that is based on a simple proposition: help working
families, help the middle class get ahead, reduce the deficit
at the same time, and show that these matters are not mutually
exclusive.
I am just going to highlight a few budget matters that are
important to the Treasury. First, last week the committee had a
very good bipartisan hearing on affordable housing. This is an
area where I believe there is a clear opportunity for
bipartisan cooperation. The budget proposes expanding the Low-
Income Housing Tax Credit, creating the Neighborhood Homes
program, and other ideas.
Senator Cantwell, Senator Cardin, Senator Young--they are
championing bipartisan efforts. I am going to work with them
closely on these proposals and more. This crisis needs a
solution. There is no substitute--and you and I have talked
about this as well, Madam Secretary--for increasing the supply
of housing.
Second, the budget calls for expanding two of the most
significant sources of support for working people and families:
the Child Tax Credit and the Earned Income Tax Credit. When the
Congress passed these expansions in 2021, there were huge,
almost immediate reductions in poverty. With a little bit of
help, millions of working Americans felt like they could
breathe for the first time. I would like for them to have that
feeling of relief once again.
And third, we have talked for a long time about the need to
address the basic unfairness of America's two-tiered tax
system--one set of rules for people who work for a living:
firefighters, nurses, teachers. They pay their taxes out of
every paycheck. Then there is another set of rules for the very
wealthy, who can pay what they want when they want to and, for
years on end, little or nothing.
Although the President and I have proposed slightly
different ideas for addressing the unfairness, we are rowing in
the same direction.
One final issue. I've got serious concerns about the
administration's approach to implementing a portion of the
Inflation Reduction Act that deals with sourcing critical
minerals. Free trade agreements cannot be unilaterally decided
by the executive branch. They require consultation and consent
from the Congress. That includes any agreement on critical
minerals.
Secretary Yellen, thank you again for being with us. I know
you have a hectic schedule. We are going to have a wide-ranging
discussion. We look forward to question and answers, and I
understand that you have a hard stop at 1 o'clock, so we will
all try to keep it short and get to questions.
Senator Crapo?
[The prepared statement of Chairman Wyden appears in the
appendix.]
OPENING STATEMENT OF HON. MIKE CRAPO,
A U.S. SENATOR FROM IDAHO
Senator Crapo. Thank you very much, Mr. Chairman, and
welcome to today's hearing, Secretary Yellen. I appreciate you
appearing before the committee in a timely manner, following
the release of the President's budget.
While the budget is the focus of today's hearing, I expect
that the emergency measures that have been taken this weekend
by Treasury, the Federal Reserve, and the FDIC will also be
appropriately discussed today. It is important to learn more
about what initiated the run on Silicon Valley Bank, the impact
of the Federal Reserve holding interest rates low for too long,
and what steps were--or were not--taken by SVB and the banking
regulators.
In the meantime, I am concerned about the precedent of
guaranteeing all deposits and the market expectation moving
forward. Once started, moral hazard, like inflation, is not
easily contained and does long-lasting damage.
Inflation played a key role in the recent bank failures, as
rising interest rates and mismanaged interest rate risk led to
a liquidity crisis. Indeed, there is no issue more critical
than the unacceptably high inflation that American families
continue to face every day. Americans have now experienced 16
months of inflation at or above 6 percent. Costs of rent,
groceries, and services continue to rise. Wages cannot keep up.
Last year, the administration committed to working in a
bipartisan fashion to address this serious problem, noting the
budget must complement monetary policy.
Instead, what we have seen is a reckless tax-and-spend
agenda that was forced through Congress, rolling out trillions
of dollars in debt-financed spending and hundreds of billions
of dollars in new tax increases on U.S. job creators. The
Congressional Budget Office says the Inflation Reduction Act
will not only increase inflation in the near term, but Treasury
will collect less corporate tax revenue with the partisan IRA
in effect, despite being sold as a bill to make corporations
pay their fair share.
The Federal Reserve is having to compensate for this by
growing interest rate hikes. Rising interest rates are
impacting household budgets, the Federal Government's coffers,
and as we saw this week, our banking system.
The President's budget demonstrates the administration has
not learned from its mistakes. After 2 years of policies that
contributed to record-high inflation and excessive deficit
spending, this administration is doubling down with more of the
same.
The spending binge must stop. We must address our growing
deficits in order to put the United States' finances on a
sustainable path, and pro-growth tax policy should be a part of
the solution.
The Tax Cuts and Jobs Act led to one of the strongest
economies in generations. The TCJA introduced competitive tax
rates while broadening the base, including by enacting the
first global minimum tax of its kind and putting an end to
corporate inversions. It also contributed to record-high
corporate tax receipts, both nominally and as a share of gross
domestic product.
But instead of considering bipartisan, pro-growth policies,
the President's budget includes a whopping $4.7 trillion of new
and increased taxes on American job creators, which ultimately
means fewer jobs and lower wages. It also includes higher taxes
on American energy producers.
Earlier today, Senator Barrasso and a number of his
Republican colleagues, including myself, sent a letter to you,
Secretary Yellen, raising concerns with the over-$100 billion
in increased energy taxes proposed in the President's Fiscal
Year 2024 budget. Mr. Chairman, I ask that this letter be
included in the record.
The Chairman. Without objection, so ordered.
[The letter appears in the appendix beginning on p. 54.]
Senator Crapo. The administration's short-sighted, partisan
agenda extends to its unilateral approach to the OECD
international tax agreement. For the last 2 years, Treasury has
used the OECD negotiations to attempt to compel changes in U.S.
law without regard for the effect on U.S. revenue, U.S.
companies, and U.S. workers. Not only has the administration
failed to put a stop to digital services taxes, but now foreign
countries threaten to impose extraterritorial taxes on U.S.
companies under the global minimum tax at Treasury's
invitation.
The latest OECD guidance confirms the administration has
agreed to allow foreign countries to collect U.S. GILTI
revenue, and worse, tax U.S. companies on their U.S. profits,
in violation of our existing tax treaties. The budget fails to
consider these revenue impacts, which, if implemented, will
result in billions of dollars of lost U.S. revenue.
Meanwhile, the administration continues to hide its true
intentions for ``transforming'' the IRS. The budget doubles
down on the $80 billion already given to the IRS, including 2
additional years of plus-up funding totaling $29.1 billion
solely for ``enforcement and compliance initiatives,'' in
addition to $14.1 billion more of yearly funding. That is
another $43 billion!
Secretary Yellen, I agree with you that having a funding
plan for an agency budget that dwarfs many others is
``critical.'' In the meantime, the IRS has embarked on a
``spend first, plan later'' approach that is not transparent or
responsible, and is a sure-fire recipe for error, waste, and
mismanagement.
While we may not have all the details yet, we do know that
only 6 percent of this existing plus-up funding is for
modernization, while over 62 percent is solely for hiring--more
than 93 percent of which is enforcement hiring.
These new funds are not going to replace retiring IRS
agents, as annual appropriations already provide that funding,
and the administration has not requested any reductions in IRS
annual funding to account for replacing retirees with plus-up
up funding.
Secretary Yellen, there are opportunities for the
administration to work across the aisle on common-sense
economic policies, but nothing suggests the President is
abandoning the partisan tax-and-spend policies of the last 2
years.
This administration must recommit to working with
Republicans to develop real solutions that will stabilize the
economy and create higher wages and opportunities for American
workers.
Thank you very much.
[The prepared statement of Senator Crapo appears in the
appendix.]
The Chairman. Thank you; thank you very much, Senator
Crapo.
Our witness today will be Secretary Janet Yellen. She is
the first person to have led the White House Council of
Economic Advisors, the Federal Reserve, and the Treasury
Department. She is also the first woman to lead the Treasury
Department.
Before leading Treasury and the Federal Reserve, she was a
distinguished fellow in residence at the Brookings Institution.
She served as president of the American Economic Association.
She is a member of the American Academy of Arts and Science and
the Council on Foreign Relations. She also was a founding
member of the Climate Leadership Council.
We welcome you, Secretary Yellen, and please proceed.
STATEMENT OF HON. JANET L. YELLEN, SECRETARY, DEPARTMENT OF THE
TREASURY, WASHINGTON, DC
Secretary Yellen. Thank you. Chairman Wyden, Ranking Member
Crapo, and members of the committee, thank you for inviting me
here today. I would like to start with an update on the recent
developments in the banking system. This week, the government
took decisive and forceful actions to stabilize and strengthen
public confidence in our financial system.
First, we worked with the Federal Reserve and FDIC to
protect all depositors of the two failed banks. On Monday
morning, customers were able to access all of the money in
their deposit accounts, so they could make payroll and pay the
bills. Shareholders and debt holders are not being protected by
the government.
Importantly, no taxpayer money is being used or put at risk
with this action. Deposit protection is provided by the Deposit
Insurance Fund, which is funded by fees on banks.
Second, the Federal Reserve is providing additional support
to the banking system with a new lending facility. This will
help financial institutions meet the needs of all of their
depositors. I can reassure the members of the committee that
our banking system is sound, and that Americans can feel
confident that their deposits will be there when they need
them. This week's actions demonstrate our resolute commitment
to ensure that our financial system remains strong, and that
depositors' savings remain safe.
Now let me turn to the topic of the hearing, the
President's Fiscal Year 2024 budget. Over the past 2 years, the
United States has experienced a historic economic recovery. In
January of 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, and
today our unemployment rate is near historic lows. We have seen
the strongest 2 years of business creation in history. Now our
task is to navigate our economy's transition from rapid
recovery to sustainable growth. This includes 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.
With your partnership, we have also laid a foundation for
long-term economic growth. In just the past 2 years alone,
Congress passed three transformational laws: a generational
investment in infrastructure, a historic expansion of American
semiconductor manufacturing, and the largest investment in
clean energy in our Nation's history.
The strategic priority for our administration this year is
to work with you to effectively implement these laws. We are
seeing the early results. In just 7 months, there has been a
wave of investments in clean energy manufacturing across the
country, and our new resources for the IRS are 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. 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 of 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.
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 preschool, 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.
Thank you, and I look forward to taking your questions.
[The prepared statement of Secretary Yellen appears in the
appendix.]
The Chairman. Thank you, Secretary Yellen.
Let me begin with what I emphasized, that it is critically
important that Congress take steps to make sure there are no
questions about the full faith and credit of the United States.
This is a matter within the Finance Committee's jurisdiction.
Now on Friday, the House Ways and Means Republicans passed
a plan dealing with what they call prioritizing payments by the
Treasury. They say that when Treasury runs out of stopgap
funding, it should prioritize payments to Wall Street and
creditors and China ahead of everybody else. I am coming off
some town hall meetings in Oregon this weekend; that would not
be a big hit with anybody.
Now, setting aside the merits of this Republican plan, does
the Federal Government have the technical capacity to
prioritize some payments ahead of others? I understand there is
not even a precedent for this.
Secretary Yellen. The government on average makes millions
of payments each day, and our systems are built to pay all of
our bills on time, and not to pick and choose which bills to
pay. There is a reason that Treasury Secretaries of both
parties have rejected this incredibly risky and dangerous idea,
and it has never been tried before.
I cannot give any assurances about the technical
feasibility of such a plan. It would be an exceptionally risky,
untested, and radical departure from normal payment practices
of agencies across the Federal Government, and I consider it
essential that Congress come together to recognize that raising
the debt ceiling is their responsibility, to protect the full
faith and credit in the United States.
The Chairman. So, you have told us this prioritization
scheme is unworkable, and House Republicans do not get to
decide what qualifies as a Federal default. If the government
can meet some but not all of its obligations, isn't that
essentially the definition of a default?
Secretary Yellen. Failing to pay all of your bills when
they are due is what I think of as a default. The United States
has always paid all of its bills on time, and it should stay
that way. That has been a core American value since 1789,
regardless of party. Presidents and Congresses have always
honored all of our commitments, and prioritization is
effectively a default by just another name.
The Chairman. I appreciate you bringing us up to date on
that, Madam Secretary.
And, colleagues, the reason I have focused on protecting
the full faith and credit of the United States is, this is
explicitly within this committee's jurisdiction. So I thank
you, Secretary Yellen.
Let us talk about the double standard in tax enforcement.
Too much of the burden falls on working people and the middle
class. It is too easy for corporations and the wealthy to get
away with cheating.
Every time out, it seems that Republicans are trying hard
to keep it that way. They put out an amendment to the IRA that,
according to the Congressional Budget Office, would have led to
even more tax avoidance by the wealthy. It would have
encouraged billionaires to disguise their income so they appear
to the IRS to be typical middle-class wage earners. There have
even been Republican efforts to slow down hiring the kind of
highly trained and dogged experts that you need to crack down
on tax cheating by the wealthy and businesses that have very
complicated business structures.
Of course, the first bill out of the gate in the House was
this $114-billion giveaway to the wealthy tax cheats and the
tax-
dodging corporations. It would have in effect repealed the
funding Democrats passed in the Inflation Reduction Act.
Secretary Yellen, if Republicans had their way and repealed
the IRS funding to go after wealthy tax cheats, what would that
do to the agency's ability to really make sure that those
people at the very top paid their fair share?
Secretary Yellen. Well, it would allow the wealthy and
large corporations to skip out on taxes they legally owe and
make it harder for ordinary middle-class families who pay their
taxes to get the kind of service that they deserve from the
IRS. It would increase the tax gap and add to the deficit by
over $114 billion.
The Chairman. So, let us talk about improvements in
taxpayer services. Now the IRS funding--as of early March, the
IRS was answering 90 percent of the calls to its customer
service lines and had reduced the backlog of individual returns
substantially, in the ballpark of 90 percent. Now that is after
spending roughly 1 percent of the IRA funding.
Secretary Yellen, if Republicans were able to successfully
repeal the Inflation Reduction Act funding, what would that
mean for taxpayer services? The reason I ask that is, right now
we are in the middle of the filing season, so this is not some
kind of abstract kind of concern. What would it mean for
taxpayer services if they repealed the funding?
Secretary Yellen. Well, it just clearly would lead to worse
services for taxpayers. Phones would go unanswered, wait times
would grow, mail would be processed more slowly, refunds would
be delayed. We are undergoing a transition to digital forms,
and improved scanning would be delayed. Paper backlogs would
grow, and Taxpayer Assistance Centers that are now being
reopened and fully staffed--some of them would have to close or
be understaffed.
The Chairman. I am over my time.
Senator Crapo?
Senator Crapo. Thank you very much, Mr. Chairman.
Let me start out, Madam Secretary, with the full faith and
credit issue that my colleague Senator Wyden has raised. We
agree that we need to protect the full faith and credit of the
United States.
Frankly, as I indicated in my opening statement, the
problem that we see on the Republican side is that it is all
tax and all spending increases in terms of the administration's
approach to this. While you and the chairman just discussed a
number of concerns you have with Republican ideas with regard
to how to deal with this, the bottom line is we must stop
trying to solve this problem by massive new spending and
massive new taxes.
So, we have some disagreements about how to deal with this.
What I would ask of you is, at this point, the President has
refused to negotiate with Republicans on fiscal restraint
policies that they believe need to be put into place with a new
extension of the debt ceiling.
We must engage in negotiations to get over some of these
disagreements, and this new debt ceiling resolution must
include fiscal restraint. We have to get some kind of attention
to this. I think the American public is crying out for Congress
to pay attention to this issue and put fiscal restraint in
place.
Can you commit at least to negotiate with Republicans as we
try to move forward to finding some aspects of fiscal restraint
to put into the debt ceiling discussion?
Secretary Yellen. Senator Crapo, the President has
indicated that he considers it critically important to have a
sustainable and responsible fiscal path, and he has put on the
table in the budget a number of ideas, many ideas about how to
grow the economy while also cutting deficits.
This is a matter that he is very prepared to discuss and
negotiate with Republicans, but it cannot be a condition for
raising the debt ceiling. The debt ceiling simply must be
raised, and to put at risk the full faith and credit of the
United States and to threaten to cause an economic and
financial catastrophe is not an acceptable requirement.
Senator Crapo. Madam Secretary, I interpret your answer to
be that you are very willing to discuss the President's budget,
tax increases, and increased spending, but you are not willing
to discuss, with regard to the debt ceiling discussion, any
actual fiscal restraint in terms of spending control in the
United States.
Now, if I interpreted it wrong, I am sorry. But we have to
get negotiating on more than just whether the President's
budget is the right approach. There are other ideas, and we
need to be engaged on them. I just hope that you will take that
message back to the President.
Secretary Yellen. The President has indicated that he would
welcome discussions about the stance of fiscal policy.
Senator Crapo. All right. I appreciate that.
Let us move quickly to the SVB crisis and the banking
industry. Can we agree--at least as a starter, as we try to
understand how this is all playing out--that the issue here in
terms of risk is liquidity risk that we are facing in the
system, and that SVB had a liquidity risk issue?
Secretary Yellen. Well, there was a run on the bank. It had
high reliance on uninsured deposits, and there was a massive
withdrawal of deposits that led to liquidity problems. The bank
had to be closed for that reason.
Senator Crapo. So, do you agree then that it is a liquidity
risk that we are dealing with in this issue?
Secretary Yellen. Well, there was a liquidity risk in this
situation. You know, there will be a careful look at what
happened in the bank and what initiated this problem. But
clearly, the downfall of the bank, the reason it had to be
closed, was that it could not meet depositors' withdrawal
requests.
Senator Crapo. Because their capital was losing value and
they were not able to access their capital. And I attribute
that to the interest rate hikes that we are seeing in the face
of the inflation. Am I wrong in that?
Secretary Yellen. Well, my understanding is that the bank,
to meet liquidity needs, had to sell assets that it expected to
hold to maturity. And given the interest rate increases that
have occurred since those assets were purchased, including
treasuries and
mortgage-backed securities, they had lost market value.
Senator Crapo. All right, yes; so we are on the same page
on that then. I appreciate that.
One other question with regard to the bank failure--and
this is with regard to the efforts to get a private buyer to
help solve this issue. Regarding these issues, the solution
would have been to get a private-sector solution that protected
taxpayers, calmed the markets, and prevented the potential
assessments from being inappropriately levied against community
banks.
Press reports have indicated that some of the FDIC board
members may have slow-walked the negotiations with regard to
potential political backlash surrounding mergers and
acquisitions, and it was because of that that we were not able
to move forward promptly with obtaining a buyer. Are those
reports accurate?
Secretary Yellen. Well, this is something that is a
question for the FDIC really, rather than me. But I know that
the FDIC looked for buyers, and a merger-acquisition is
certainly something that they were open to as a way to resolve
the institution.
Senator Crapo. All right; thank you.
Very quickly on the OECD agreement, I am very much opposed
to it. Yet it seems to me that Treasury is pushing for Congress
to approve its approach to the OECD negotiations and is already
giving support to nations around the world in the OECD to tax
U.S. profits.
That would be directly in conflict with U.S. tax treaties.
Am I correct in that?
Secretary Yellen. One hundred thiry-seven countries signed
this agreement, and see it as a way to put a floor on taxation
of corporations and multinational corporations and stop a race
to the bottom. And the European Union has adopted Pillar 2, the
global minimum tax, and other jurisdictions are moving forward
and----
Senator Crapo. My question----
Secretary Yellen [continuing]. We feel it is in the U.S.'s
interest to adopt this. We have proposed----
Senator Crapo. I understand, Madam Secretary. My time has
expired, and the chairman is trying to get me to wrap up.
I do want to make one more quick statement. I would like to
express my concern about numerous proposals in the Green Book,
in the budget, that we will not have time to get into here
today.
Last year, Treasury did not provide answers to these
questions for the record for 6 months. I just would like to ask
you to pay attention to this this year and have your team
respond to us promptly as we get questions for the record on
this year's budget.
The Chairman. Senator Grassley?
Senator Grassley. You did not answer his last question
about OECD and tax treaties. Is what you are proposing in any
way a violation of the tax treaties that we have had with other
countries?
Secretary Yellen. No, there is no violation in anything we
have proposed with tax treaties. We have engaged in this. It is
something that the OECD considered very carefully, and there is
no violation of our tax treaty.
Senator Grassley. Well, we surely do not agree with your
analysis of that. Only Congress has the power to approve
treaties.
I want to go to your position as a member of the Social
Security board of trustees. You and other people put out in an
annual report, quote, ``Lawmakers should address the projected
trust fund shortfalls in a timely way in order to phase in
necessary changes gradually and give workers and beneficiaries
time to adjust to them.'' I do not disagree at all with that
statement.
President Biden has claimed that his budget reduces the
deficits, while protecting Social Security. However, the
President's budget includes no proposal to extend the solvency
of the Social Security trust fund.
Anyone who knows how things get done around here knows it
takes presidential leadership to lead major reforms to Social
Security. Forty years ago, that was President Reagan and a
Democratic Speaker of the House, Tip O'Neill, who put together
a bipartisan agreement that was overwhelmingly approved by the
Congress of the United States, and it has made Social Security
sound, at least through 2035.
So I assume that you stand by your recommendations that
lawmakers act sooner rather than later to shore up the Social
Security trust fund? So can Congress expect to see the
President's proposal to put Social Security on a sound fiscal
basis along the same lines, replicating the leadership of
President Reagan and Tip O'Neill?
Secretary Yellen. President Biden stands ready to work with
Congress to shore up Social Security and discuss possible
approaches, so that is a conversation that it is important for
us to have. He has made explicit proposals in connection with
Medicare in shoring it up, and it is important to have that
conversation about Social Security.
The President believes strongly that that should not
involve cutting benefits or going back on our commitments to
America's seniors, but certainly it is a discussion we need to
have.
Senator Grassley. I assume that both you and the President
are sincere in what you just said. It would help a lot if the
President would quit demagoguing the Social Security issue the
way he has in recent weeks.
I want to go to an extension of a conversation you and I
had in June of 2021. You defended concerns about the
President's spending proposals fueling inflation and interest
rate hikes by saying this: ``If we ended up with a slightly
higher interest rate environment, it would actually be a plus
for society's point of view and the Fed's point of view.'' I
want to emphasize ``plus for society's point of view.''
Now, when you made that statement, inflation was 5.4
percent and the Federal funds rate was effectively zero. Since
that time, inflation hit a 40-year high, and the Fed has
responded by aggressively hiking interest rates. As a result,
families and small businesses are paying the price by way of
higher interest rate costs for home loans and business lines of
credit.
Moreover, bank failures this past week highlighted how
fragile our economy is, given rising interest rates and
decades-long inflation. So, do you see still our inflation-
driven interest rate hikes as, using your words, ``a plus for
society''?
Secretary Yellen. I consider high inflation the number one
economic problem that all of us need to face and address. It is
the President's top priority. I was very supportive of the
American Rescue Plan. I think there are many factors that have
contributed to high inflation. It is critical for the Fed to
address it, and the President is doing all that he can, both
through the Inflation Reduction Act, lowering costs of
prescription drugs, lowering the cost of health care, using the
strategic petroleum reserve to try to lower and address higher
gas and energy costs for Americans.
It is critical for us to do what we can to bring inflation
down, and for the Fed to do its part as well. The Inflation
Reduction Act was enacted at a time when I believed the
greatest threat to our economy was that unemployment would
remain shockingly high, and that American families would be
scarred by long-term job loss and losing the roofs over their
heads, and I believe it was appropriate to take those actions.
Senator Grassley. My time has run out. Just let me finally
say this, that what you say about the Inflation Reduction Act
reducing inflation, within the last 3 weeks the CBO says it
increased inflation.
I yield.
The Chairman. Thank you, Senator Grassley.
Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman. And, Secretary
Yellen, welcome. Thank you very much for your service.
I have a question in regard to areas where we have
bipartisan support, where we can, I hope, make progress in this
Congress in getting some changes in our tax code, particularly
as it deals with one of the subjects that you mentioned in your
opening statement: affordable housing.
We have fallen behind in affordable housing. We were able
to make progress in a lot of areas during the last 2 years, but
affordable housing was not one of those areas where we were
able to advance. So, your budget includes three initiatives in
which there is bipartisan support.
One is to make permanent the New Markets Tax Credits. I am
working with Senator Daines on that proposal, to get
predictability to New Markets Tax Credits which would be great
for, I think,
private-sector investment.
Another is the Low-Income Housing Tax Credit, where your
budget provides for the expansion and reform of that credit.
Senator Cantwell and Senator Young have been leaders on this
committee. We joined them in that effort.
And then lastly, the Neighborhood Homes credit, which I
have been the sponsor of and Senator Young is my cosponsor. So
these are all bipartisan bills that we have a chance of moving
forward.
My suggestion is to try to see whether we can't move a
housing tax credit program separate from the other areas where
we might have more controversy. This is an area where we could
perhaps get to the finish line earlier. So, could we have your
cooperation in trying to deal with the housing tax credit bill
that could perhaps make it to the President's desk earlier
rather than later?
Secretary Yellen. Absolutely, Senator Cardin. I am very
pleased that this is an area where there is bipartisan
agreement on the need to act. I think the United States really
faces a housing supply gap, and we need initiatives to make
rents more affordable and home ownership attainable for
Americans.
All of the programs that you mentioned--the New Markets Tax
Credit, LIHTC, and the Neighborhood Homes tax credit--all of
these are important initiatives, and we would look forward to
working with Congress to try to see if we can make progress
here.
Senator Cardin. Thank you.
I want to move on to another bipartisan bill that passed in
the last Congress with overwhelming support for retirement
savings: Secure 2.0. Are you focused on helping us implement
that law as quickly as possible? It provides opportunities for,
particularly,
modest-income families to be able to take advantage of
retirement savings opportunities, particularly with the
refundable tax credits.
Are you working to make the implementation of that law as
smooth as possible, so that we can see some progress?
Secretary Yellen. Yes, absolutely. It is an important law.
It contains many provisions that are complex and do require
detailed technical analysis to produce public guidance and
regulations. But this is something that we are working hard on,
and the IRS and Treasury's Office of Tax Policy are working to
implement this.
Senator Cardin. And another area where I think there is
bipartisan support is improving the service at the IRS--and the
modernization of its capacities. The chairman already mentioned
the fact that you have made some progress. Actually, the
successful answering of calls has dramatically been increased.
Do you see continued progress being made in regards to the
service levels being provided by the IRS as a result of funds
made available through the Inflation Reduction Act?
Secretary Yellen. Absolutely. This will be a very critical
part of the IRS strategic operating plan that should be
completed in the coming weeks. It has been a priority since Day
1. I promised during the tax season that there would be 85-
percent customer service performance, and so far, we have been
in that range and modernizing the way in which IRS interacts
with taxpayers, with small businesses.
There have already been other improvements put into effect
that, for example, make it easier for small businesses to file
1099 forms online, and this will be an important priority.
Senator Cardin. I want to ask two questions for the record,
and I will just mention them. One will deal with the section
179(d) allocations. I have worked with Senator Crapo on this.
The guidance from the IRS is absolutely critical in regard to
the allocation issue. I will be asking a question for the
record on that.
And also, you mentioned small businesses. The R&D changes
in the 2017 tax bill have been very much impacting the ability
of companies to do research. I chair the Small Business
Committee. It is having a direct impact on the SBIR program,
which is critically important for innovation--and for national
defense, I might say.
So I will be asking you questions as to how we can mitigate
the adverse impact of the change in the R&D credit as it
affects small companies in the SBIR program.
The Chairman. Thank you, Senator Cardin. And this committee
is really going to dig in on this housing issue, and my view is
we start with the proposition that the only matter that is off
the table is taking a pass on it. We have got to act.
Senator Cornyn, you are next.
Senator Cornyn. Good morning, Madam Secretary.
When you testified before this committee almost 2 years
ago, you were asked whether inflation was transitory, and you
told the committee that you saw important transitory influences
at work. But you did not anticipate that inflation would be in
any way permanent.
You predicted our economy was on track to get back to more
normal operation, that inflation would decline over time--
something we all hope for. To be fair, you were not the only
person who forecast transitory inflation. The Chairman of the
Federal Reserve, Jay Powell, did the same, as did the President
of the United States.
We now know that inflation rose to a level not seen in more
than 40 years, and that inflation accelerated particularly
following the enactment of the partisan American Rescue Plan
Act in 2021--and then with the so-called Inflation Reduction
Act in 2022, which together added $2.6 trillion to our national
debt.
Obviously, all this stimulus going into a constrained
economy, with supply chains the way they were, workforce levels
down, obviously was like pouring gasoline on the inflation
fire. I know inflation has now come down to 6 percent or so,
but that is hardly good news to my constituents, who are still
struggling to keep up with rising costs.
We know both record housing costs--which we have talked
about a little bit here today--and high grocery bills are
squeezing consumers all across the country. And to make matters
worse, real average hourly earnings--the cash earnings of all
workers adjusted for inflation--declined last month and are
down over the last year.
In other words, because of inflation, workers have gotten a
pay cut. Well, first we saw high inflation, and then higher
interest rates of course, and that brings me to the failure of
the Silicon Valley Bank and another bank in this last week.
Some have suggested that this was an example of mismanagement
at the time of higher interest rates and higher inflation.
Others are saying, ``Where are the regulators? Were they
asleep at the wheel?'' Many have suggested that banking
regulators need to focus more on regulating banks, protecting
depositors and taxpayers, instead of straying off course and
examining so-called
climate-related risks and other social engineering goals. I
think these are all fair points.
When you look at the confluence of concerning economic
factors, there is one unavoidable truth. We need to get our
fiscal house in order, something that the administration pays
lip service to but seems uninterested in working with
Republicans to try to address.
The President's budget proposal, of course, just makes that
clear, because it offers more taxes, more spending, and more
debt. Spending would be at a historical level relative to the
economy. The national debt would continue to grow. Social
Security and Medicare, which are on a path to insolvency--there
is no proposal from the President to deal with these impending
disasters.
Of course, interest costs to service this debt would reach
about a trillion dollars annually. Our ability to defend our
country in an increasingly dangerous world would be diminished
because we would be spending more money paying interest to the
bondholders rather than paying to keep the American people
safe.
And Americans, of course, would be punished with trillions
in higher taxes, at a time when tax revenues are already at
historical levels. It is not that the American people are taxed
too little; it is that the Federal Government continues to
spend too much and incur too much debt, which in turn creates
this unvirtuous cycle.
One final point. Last year the administration pushed
through an $80-billion blank check for the IRS, without a
spending plan. Only in Washington, DC would Congress pass an
$80-billion spending appropriation without any plan as to how
it is going to be implemented. We were told, ``Well, it will be
forthcoming.'' That is great, but that is the opposite of what
you would do it in the real world.
First, you would want to know what is the plan, and then
you would ask how much does it take to finance or pay for that
plan. Well, now the administration wants another $29 billion,
which would bring the total up to $110 billion. This, of
course, is going to mean more audits, more red tape, and
violate the President's promise that no one paying less than
$400,000 in taxes would pay any more.
So unfortunately, the President's budget misses the mark,
which is disappointing, but unfortunately pretty consistent
with what we have seen from this administration.
The Chairman. Thank you, Senator Cornyn.
Next would be Senator Bennet, followed by Senator Cassidy.
Senator Bennet. I am going to yield to Mr. Cassidy, if that
is all right?
The Chairman. Nobody can say there is no collegiality in
the Finance Committee.
Senator Cassidy?
Senator Cassidy. Madam Secretary, the President keeps
saying he does not wish to have cuts in Social Security. Is he
aware that under current law, when the program goes broke in 9
years, that there will be a 24-percent benefit cut for those
who are current recipients? Is he aware of that?
Secretary Yellen. Well, it is clear that Social Security--
--
Senator Cassidy. But is he--I apologize for the
interruption, but I have limited time. Is the President aware
that when Social Security goes broke in 9 years, under current
law there is a 24-percent cut in benefits for people who are
currently receiving them?
Secretary Yellen. If we do not do anything about it, I
think that is about right, but the President will want, wants
to strengthen Social Security----
Senator Cassidy. In the $4.5 trillion of taxes the
President has proposed, are any of those taxes going to shore
up Social Security? I actually know that answer. The answer is,
of the $4.5 trillion in taxes he has proposed, not a dime is
going to shore up Social Security. Does the President know
personally anybody who is dependent upon Social Security, and
that if their benefits are cut by 24 percent, they will slide
into poverty? It is hard for you to know, so I will give you a
pass on that.
Secretary Yellen. The President knows many people on Social
Security.
Senator Cassidy. Then why doesn't the President care?
Secretary Yellen. He cares very deeply.
Senator Cassidy. Then where is his plan?
Secretary Yellen. He stands ready to work with Congress----
Senator Cassidy. That is a lie, because when a bipartisan
group of Senators has repeatedly requested to meet with him
about Social Security, so that somebody who is a current
beneficiary will not see her benefits cut by 24 percent, we
have not heard anything on our request, and we have made
multiple requests to meet with the President.
Now you cannot comment on that, I realize that, but that is
a fact, and if you have been told to say he stands ready to
meet, I will tell you there is absolutely no evidence, because
we have not gotten our meeting.
Secretary Yellen. Well, I believe the President does stand
ready to work with Congress----
Senator Cassidy. Well, again, empirically that is not true.
Secretary Yellen [continuing]. To address this issue.
Senator Cassidy. Now the President, in the past, has
proposed increasing taxes on those making over $400,000 to pay
for it. Although he has not made that formally, he has said
that in the past. Now he has also proposed to tax some more to
pay for Medicare, and also to close the debt and deficit.
So, what would the rates have to be on that 2 percent of
Americans who earn over 400K, in order to do Medicare, the debt
and deficit, and also to address our 75-year shortfall in
Social Security? Do you have any sense of what the rates would
have to be?
Secretary Yellen. Well, he has proposed explicit increases
in tax rates on very high income----
Senator Cassidy. But do you think it is realistic that he
can pay for Medicare, debt and deficit, and also address a 75-
year shortfall in Social Security, by only taxing, by only
going--the only thing he is going to do is to lay higher taxes
on those who make more than 2 percent.
I am sure there is a projection of how much those rates
would have to be. Do you, can you tell us what those rates
would have to be to do everything he is saying?
Secretary Yellen. I cannot tell you that, but I do know
that he has put on the table many proposals that would raise
very substantial revenues----
Senator Cassidy. But of that $4.5 trillion, not a dime is
going to Social Security. And if you have not--if you cannot
tell me, I presume that they have not actually modeled what
those rates would have to be, which tells me that he has
actually not been developing his plan.
Now, this is incredibly worrisome from a President who
should be sympathetic with someone who, under current law, is
going to get a 24-percent cut in their benefits.
Secretary Yellen. The President feels, is completely
committed to protecting seniors who rely on Social Security.
Senator Cassidy. Now, if we doubled our debt-to-GDP ratio,
just theoretically if you will--and aside from our
conversation--if we doubled that debt-to-GDP ratio, what effect
would that have on the economy?
Secretary Yellen. So right now, in the President's budget
proposal----
Senator Cassidy. No, I asked you just the theoretical--
independently of the budget proposal.
Secretary Yellen. If we were to double the debt-to-GDP
ratio?
Senator Cassidy. Yes.
Secretary Yellen. I do not see why we would need to----
Senator Cassidy. But if we did, just--you are an economist.
If we did, what would be the effect upon the economy?
Secretary Yellen. Well, it would tend to raise net interest
costs.
Senator Cassidy. Would it be a negative effect on the
economy? Of course, it would be.
Secretary Yellen. Yes.
Senator Cassidy. Of course, it would be. We have actually
modeled this. For the President to do nothing--let us assume
that we cast aside current law and we just doubled the national
debt--and that is what it would do--it would have a devastating
effect upon the economy. CBO says they cannot model the
deleterious effects that would occur because of that.
So, we have a situation where the President has not
proposed a single plan. He has turned down multiple requests
for meetings with Senators, and our options are a 24-percent
cut on a person currently receiving benefits, doubling our
national debt--which CBO says cannot be modeled and that you
agree would be a deleterious effect.
And he has not modeled the tax rates that would be required
if he just wants to raise taxes.
Secretary Yellen. Look, what I know is that the President
is committed to Social Security. He stands ready to work with
Congress, and he has put on the table many, many----
Senator Cassidy. I am out of time. I do not mean to be
rude, but since I have had multiple requests on a bipartisan
basis to meet with him and he has turned everyone down, that
rings hollow.
The Chairman. My colleague is out of time, and I would just
caution colleagues. We have plenty of differences around here,
but accusing witnesses of lying is over the line.
Senator Cassidy. I accept that, and I did not mean that for
the Madam Secretary, who is merely saying that which she has
been told. I am saying for an empiric observation, when the
President says he has ready to meet and he has turned down
multiple----
The Chairman. The time of the gentleman has expired.
Accusing witnesses of lying----
Senator Cassidy. But I did not accuse her.
The Chairman. Next, we have Senator Carper.
Senator Carper. Welcome to the Finance Committee, Secretary
Yellen.
Secretary Yellen. Thank you very much.
Senator Carper. We are normally a pretty jovial group, but
we will get back on track here in a sec. But thanks so much for
joining us. Thanks for taking on a tough job and making us
proud.
As you know, one of our country's most significant
achievements, I believe, over the last decade or so in Congress
was the passage of the Inflation Reduction Act, maybe right on
the heels of the bipartisan infrastructure legislation that
some of us right here at this table helped to write. In
particular, the clean energy tax incentives included in the
Inflation Reduction Act, which were authorized and passed by
this committee--and a bunch of us had a chance to work on
them--will help us to achieve our climate goals and hopefully
save our planet, all while creating good-paying jobs here in
the United States. That is what we call, in Delaware, a win-win
situation.
However, in order to realize the full potential of the law,
it is critical that the American people are not only made aware
of these credits, but that they have a clear guidance on their
eligibility to benefit from these credits. This is especially
true for some of the provisions in the law targeted to low-
income and rural communities.
In that spirit, how is the Treasury Department working to
increase awareness of these new clean energy incentives and
make it as easy as possible for taxpayers to understand their
eligibility for these credits?
Secretary Yellen. That is an important question, and let me
just say that this is a very top priority for Treasury and our
Office of Tax Policy. There are enormous benefits here for
households and for clean energy.
We need to write numerous regulations to implement the IRA
programs--from prevailing wage and apprenticeships to electric
vehicles and advanced electric energy projects--and we are
working very hard on that guidance.
When we have devised those regulations, I think they will
help to provide clarity that taxpayers need, to make sure that
the goals of the IRA are met. And we will need to find ways of
publicizing those programs, so that taxpayers know what they
are eligible for.
There are benefits for investing, for example, in electric
heat pumps or energy-efficient appliances, and we will need to
work to make sure that this information is available to
households so they can take advantage of these credits.
Senator Carper. Thanks for that response.
My second question is also relating to the IRS, but IRS
funding implementation.
Another significant accomplishment included in the
Inflation Reduction Act was the badly needed investment to
revitalize the IRS, in part to help them provide that service
to people who are going to be calling, especially as they
prepare their tax returns.
But as the chairman mentioned earlier, taxpayers are
already reaping the rewards of this funding. And, since the
passage of the law, the IRS has used, I am told, nearly $1
billion to boost taxpayer services, including hiring thousands
of workers to help answer phone calls and support walk-in tax
clinics.
Because of these investments, the IRS--listen to this. This
is worth listening to. The IRS is, I am told, answering 90
percent of phone calls from the taxpayers during this filing
season. I have a friend. You ask him how he is doing, he says,
``Compared to what?'' Well, compared to about a year ago, that
number was not 90 percent; it was 13 percent, and that is not
perfect, but it is one heck of a lot better than it was.
Secretary Yellen. Sure.
Senator Carper. And we are just getting started, and with
the IRS Commissioner Danny Werfel at the helm--my thanks to
everybody on this committee who supported his confirmation--
these investments will ensure that the IRS can modernize their
technology and their workforce to meet the needs of everyday
taxpayers, while improving the fairness of our tax system.
Question: as the IRS puts this funding to work, how should
policymakers like us evaluate the success of these critical
investments, and what outcomes can the American people expect
in the years to come? Please.
Secretary Yellen. So, a simple metric is customer service.
What fraction of phone calls are answered--and you mentioned 13
percent. I promised that this tax filing season, with the money
from the IRA, that would rise to 85 percent. We've been
measuring it, and it varies from week to week. But it has been
consistently between 80 and 90 percent, and there are other
metrics we can look at: speed of refunds that taxpayers
receive, backlogs in the amount of paper that they are dealing
with. And I believe this money will certainly lead to faster
responses to taxpayers, more efficient and easier ways for them
to, for example, deposit checks directly into their accounts.
Still, we will invent many metrics that I am sure will be
able to enable you to monitor how this money is improving----
Senator Carper. We welcome those metrics. Keep us heading
in the right direction. It is very encouraging.
The Chairman. I thank my colleague.
Senator Bennet was gracious enough to give his time to
Senator Cassidy, so the next three will be Senator Brown,
Senator Thune, and then Senator Bennet.
Senator Brown?
Senator Brown. Thank you, Mr. Chairman.
Secretary Yellen, thanks for your work this weekend and our
phone conversations, and so much of what you did for the
financial system without taxpayers footing the bill. Thank you.
On that I spoke to a number--on your recommendation really--of
small businesses in Ohio that were worried about making
payroll.
They were all over the country. Senator Romney talked about
his in Utah--everywhere. I spoke to banks and credit unions who
understand how important it was to have confidence, and what
you did gave them that confidence; so, thank you.
Bank failures are a painful reminder about the importance
of strong safeguards. It is the same thing--maybe it is just
what I am thinking about so much. But it is the same thing when
I think about the disaster in East Palestine. The railroad
lobbyists continued just aggressively to lobby this body and to
lobby the regulators, and they succeeded in weakening standards
for communities and for workers and for railroad safety.
We see the same kind of aggressive lobbying from bank
lobbyists, to weaken standards. The administration weakened
standards--the previous administration weakened, under 2155,
those standards. So I appreciate how you stand up strong on
these issues.
Just today, earlier--you have not seen it yet--I sent you
another regulator's letter urging you to do a full review of
bank failures and strengthen guard rails so this does not
happen again. So, thank you for what you have done and will
continue to do there.
Three pretty quick questions, I hope. The Inflation
Reduction Act created new tax credits to support the domestic
solar industry. As Treasury finalizes rules, will you ensure
that China's solar industry cannot profit from these credits
without developing a genuine domestic supply chain?
Secretary Yellen. Yes. The purpose of--one purpose of IRA
is to make sure that we reduce our dependence on China and have
a strong domestic capacity, and the features of the law
guarantee that. And we are working on guidance to implement the
law that will lead to that result.
Senator Brown. Thank you.
Ohio is about to have the biggest solar manufacturer in
North America. We will continue working on that.
And, Mr. Chairman, you know I cannot come to this committee
when Secretary Yellen is testifying and not bring up the Child
Tax Credit.
I want to thank you again for helping us. I mean, it was--
it was not unprecedented, but remarkable perhaps. We passed
that bill in March. President Biden signed it 2 years ago;
signed it quickly. You got it up and running, the Child Tax
Credit, by July, and 60 million children and their families
benefited from that.
It was so important. We have heard some on the other side
who find all kinds of made-up or personally made-up reasons to
oppose the Child Tax Credit. They want to cut taxes, but not
for middle-income and low-income families.
President Trump's IRS Commissioner asked Congress to give
IRS the authority necessary to establish minimum competency
standards for paid tax preparers. These issues about CTC and
EITC error rates are always exaggerated by the other side. My
question is, if paid tax preparers had to demonstrate a bare
minimum expertise, do you think we would see fewer errors with
both EITC and CTC? Do you think Congress should give IRS this
authority?
Secretary Yellen. Yes, I believe that Congress should. I
support that proposal. At present, incompetent and dishonest
paid preparers disadvantage taxpayers and undermine confidence
in the tax system, and I believe IRS should have the authority
to oversee paid preparers and make sure that they help
taxpayers file more accurate returns.
In turn, that would protect them from penalties and
interest costs from poor-quality advice that some now receive.
Senator Brown. Thank you. I wish my colleagues were as
interested in tax cheating among billionaires as they are low-
income people, but I guess that is just the way politics in
2023 seems to work.
Last question. I want to ask you about another fiasco that
should be easy to avoid: the debt limit. It is the definition
of a self-inflicted blow to the economy. Instead of ensuring we
avoid default by paying all our bills on time, some Republicans
are pursuing a path we all know will not work. I want you to
comment on it.
You said before that debt prioritization is not feasible.
You have called it ``default by another name''--your words. But
Republicans are moving forward anyway with a bill that ranks
what order payments should go out. They put Wall Street and
China at the front of the line.
If Treasury followed this Republican plan--bearing in mind
that China holds about a trillion dollars in U.S. debt--who
would get paid first, China or seniors receiving Social
Security and vets receiving VA benefits?
Secretary Yellen. Well, if that were prioritized, China
would get paid ahead of them. We believe, I believe that
prioritization of payments, as you said, is default by another
name. We need to pay our bills; we need to pay all of our
bills.
That willingness and commitment to be responsible in paying
bills that have already been incurred is what underlies the
United States' strong credit rating. And credit rating agencies
like Fitch have already weighed in that if we were to fail to
pay any of our bills, that would call into question whether or
not we deserve our current credit rating.
It is simply a recipe for economic and financial
catastrophe, to think we can pay some of our bills and not all
of them.
Senator Brown. Thank you. This debt prioritization sounds
like another version of Senator Scott's privatization of
Medicare and Social Security. It makes no sense to the country
and to most of us.
Thank you, Mr. Chairman.
The Chairman. Thank you. And I will just tell my colleague,
in red counties in Oregon over the weekend, I went through this
idea that we pay China and Wall Street first, and people were
just stunned. So I think you made a very important point.
Senator Bennet is next.
Senator Bennet. Thank you, Mr. Chairman, and thank you,
Madam Secretary. I wanted to ask you a couple of questions
about the banking situation that we are facing today. But I
just want to start, Mr. Chairman--because I have heard this
discussion on the other side about the deficit.
You know, I have been here for 14 years. The deficit and
the debt have not gotten any better over that period of time.
But the good news is, if we want to work together, we could
actually close the gap, because the gap is not that gigantic
compared to the way it has been in other places.
We could get it to a place where our government, our
deficit, was not growing faster than our GDP. That would be a
really good step forward. But I just want to point out that we
need to recognize that we have this problem today, this gap,
because of the Bush and Trump tax cuts, and the deal that made
80 percent of the Bush tax cuts permanent--80 percent of the
Bush tax cuts permanent--a deal that I and Tom Carper were the
only Democrats to vote against. There were three Republicans
who voted against it.
And when you combine that with what we did with the Trump
tax cuts, that is 2 percent plus 1 percent of GDP. That is 3
percent of GDP right there. So we would have closed that gap
and been well on our way.
So, I know that it is going to be a mix of spending cuts,
and it is going to be a mix of revenue, and that is how we get
back to a place where you get 19 percent of GDP of taxes and 19
percent of GDP of spending. That is a felicitous place for us
to be because, maybe before we are dead, we actually will move
beyond the political talking points and do something useful for
our kids and our grandkids.
But I just want the math to reflect that, and that is why I
voted against that bill. That is why I think Tom Carper voted
against that bill. I said, in my completely unnoticed campaign
for President, on a debate stage with the person who became the
President of the United States, that that was a terrible deal
that was struck between the Obama administration and Mitch
McConnell, frankly, to extend those tax cuts permanently.
So, until we get to a place where we are willing to
actually have a rational conversation about what it looks like,
what every single State in the union I am aware of, the
conversation they have to have, because they have a duty and a
responsibility to actually balance their budgets----
I am not even saying we have to balance it. Let's just get
to a place where our debt is less than 3 percent of our GDP. We
could make some progress, and there is not a committee in
Congress that is better situated than this committee to do it.
That is not even what I wanted to talk to you about. I
wanted to talk to you about the Child Tax Credit, Madam
Secretary, and all the evidence that we have that it worked. It
did what it was supposed to do, and you guys did an amazing job
of implementing it. So I am going to leave that question for
the record as well.
I just want to go to the banking issue that we have in
front of us right now, Madam Secretary. It is obvious to you
and to me that marijuana--I am going to get to the banking, but
marijuana has been legal in Colorado for 9 years. But legal
cannabis businesses are frozen out of the financial system, the
finance system. Banks refuse to provide them financial services
because of strict Federal laws and regulations that prohibit
them from offering services to cannabis businesses.
Banking regulators can permanently ban someone from working
in a bank or revoke an institution's FDIC coverage for working
with cannabis businesses, and this endangers the lives and
livelihoods of Colorado business owners who have to operate in
this kind of a situation. They have nowhere to put their cash.
Last weekend, Signature Bank failed. The other bank that
failed, Silicon Valley Bank--here is what they had to do to
fail. They had to not observe the fact that their balance sheet
had basically tripled over some period of time; not observe the
fact that they were in a volatile high-tech industry where the
tide comes in and goes out for all those tech companies at
exactly the same time, which is what we are seeing today.
They had to make a decision to lay on 10-year paper with
ridiculously low interest rates, compared to the interest rates
that are about to be changed by the Fed. I can tell you, unless
somebody around here knows something I do not know, Jay Powell
was not exactly secretive about what he was doing with them.
They had to get that through their board, they had to get
that through that audit committee, and somehow they had to get
that through a regulator, I guess, who was looking over that,
who was not saying it was insane what they were doing.
We have had all week--it has been it's Dodd-Frank, not
Dodd-Frank; 2018, not 2018. I do not know what the answer is
going to be about any of that, but I know that what they were
doing was not prudentially sound, and I hope that the regulator
would be the backstop.
I am 30 seconds over, so I will stop, to go back to my
marijuana question. Last weekend, Signature Bank failed, and
almost a fifth of its deposits came from crypto. Like they are
not allowed to do anything with marijuana, but apparently they
can lay 20 percent of this on crypto, a notoriously unstable
thing that nobody here even understands, and where the value of
the assets can soar and collapse. We have seen that in this
sector.
And my question is, what questions come to your mind when
you see that, when you have a bank that has now failed, where
20 percent of what it was relying on to claim that it was doing
the right thing by its depositors was something, I would argue,
is not even as stable as the marijuana industry in the State of
Colorado, which cannot get any approval from the Treasury
Department?
Secretary Yellen. Well, as you pointed out, in the case of
marijuana, it is against Federal law, and that is a barrier,
unfortunately, to appropriate banking services for the
industry. It is something the regulators have been looking for
solutions to.
I think we need to look into what the regulators do,
exactly what happened to create the problems that these two
banks that failed faced, and make sure that our regulatory
system and supervision is appropriately geared so that banks
manage their risks to avoid problems of the type that these
banks have suffered from.
The Chairman. Senator Bennet, thank you, and thank you for
always being there to point out when numbers do not add up,
because that is exactly what the Budget chairman, who is a
member of this committee, Senator Whitehouse, just found a
couple of days ago with respect to the health of the republic.
Senator Warner is next.
Senator Warner. Thank you, Mr. Chairman. And, Madam
Secretary, it is great to see you, and let me commend my dear
friend from Colorado. I have always noticed, Senator Bennet,
what you do, and I think you raised great issues. I think about
one of the first gangs that you and Senator Crapo and I and
others were on: Simpson-Bowles. It wasn't perfect, but man, we
would be a heck of a lot further down the path if we had taken
that.
Let me also mention--I want to talk about something I think
has not been raised on the banking issue, and I want to join a
lot of my colleagues. I think you, the Fed, the FDIC moved very
aggressively. I think the potential downside risk for
businesses across the country, for other medium-sized banks
across the industry, could have been a disaster.
I think the actions you took were bold. You stepped up and
shored up the system. I am of the belief that--echoing what
Senator Bennet said--traditional prudential regulation should
have caught this. Where was the bank management, where were the
regulators--both State and Federal--in the case of SVB? They
should have got this interest rate mismatch caught much, much
earlier.
But the one thing, though, that I worry about, whatever
regulatory system we had in place, the other half of what
happened happened sometime between Tuesday and Thursday
afternoon, where we have seen now the very first social media/
Internet-based bank run. To put this in any kind of comparison,
when WaMu failed, the largest bank failure in our country's
history, $16 billion came out over a 10-day period.
I am not sure what regulatory system anywhere, no matter
how much capital, no matter how many stress tests, would have
protected any institution from a $42-billion bank run in a
single day. That literally, at that point, was 25 cents on the
dollar of every dollar that was deposited.
You know, I think most of us have seen ``It's a Wonderful
Life.'' We realize that that money was off in small businesses
and start-up businesses around the country. The question I have
is, who was playing the role of Mr. Potter? I think there were
some--and listen, I have been supportive of the venture capital
community. I was a venture capitalist before.
But I think there were some bad actors in the VC community,
who literally started to spur this run by virtually crying
``fire'' in a crowded theater in terms of rushing all of these
deposits out. I am not sure that we have anything in our
existing regulatory structure, and I do not--and it is early
on, and we need to figure out what happened and who missed
this.
But this notion that, you know, 25 cents on every dollar
can rush out in a single day and the people who spurred this
online Tuesday and Wednesday night bear no responsibility--the
hypocrisy of some who are Libertarian until the stuff hits the
fan and then want relief is frankly more than a little
repugnant.
So early on--this is not normally within the traditional
banking regulation, but I think this will go down as history's
first Internet-driven run. Do you have any initial thoughts on
this?
Secretary Yellen. Well, you know, no matter how strong
capital and liquidity supervision are, if a bank has an
overwhelming run that is spurred by social media or whatever,
so that it is seeing deposits flee at that pace, a bank can be
put in danger of failing. Of course, there is backup liquidity,
there is the Fed's discount window.
But this really can be a threat to banks, and one of the
reasons we intervened and declared a systemic risk exception is
because of the recognition there can be contagion in situations
like this, and other banks can then fall prey to the same kinds
of runs, which we certainly want to avoid.
But this was a bank that had a very high ratio of uninsured
depositors. Insured depositors and retail customers usually do
not run. We tend not to see runs among insured depositors. But
the liquidity requirements and needs of a bank with such heavy
reliance on uninsured deposits that are runnable, I think we
need to think about that.
Senator Warner. And I agree--and a complete concentration
in an industry sector. But the notion--and again, I do not have
a solution in mind yet--but the idea that there is no
responsibility for the equivalent of shouting ``fire'' in a
crowded theater and forcing that run, using technology as a
mechanism to accelerate that, you know, presents a problem that
I think, I hope we could all kind of put our heads jointly
together on.
Thank you, Mr. Chairman.
The Chairman. I thank my colleague.
Our next three would be Senator Thune, Senator Lankford,
and Senator Cortez Masto.
Senator Thune?
Senator Thune. Thank you, Mr. Chairman. Madam Secretary,
thank you for being here.
Madam Secretary, would you characterize the pandemic as
being over?
Secretary Yellen. Well, I think we are still living with
COVID. Its impact on America has diminished, but it still
certainly exists, and it is affecting the economy.
Senator Thune. I think for all practical purposes--you
know, most people acknowledge, yes, there is some overhang, but
that it is over. So, just out of curiosity, how much of your
workforce is back in the office?
Secretary Yellen. We are basically back to business as
usual, although we have policies that enable a certain amount
of work from home, as most companies and offices do. It is a
practical and efficient way to conduct business these days.
Senator Thune. There are some things for which that may be
true--and this is not directly your purview. Maybe it is a
better question for the banking regulators. But I would be
curious to know how much of their workforce is actually back in
the office and functioning, because it seems to me that from a
supervisory standpoint, if your job is to examine banks, that
is something that you kind of have to be there to do.
And it seems to me at least--and your agency as recently as
when we were talking about the Inflation Reduction Act back in
August, my understanding at that time was that less than half
were back in the office. If that is up, I would like to know
what the updated number is on that.
Let me ask you: will you commit to keeping this committee
apprised of the Treasury's findings when it comes to SVB, what
you find there, in a timely and thorough manner?
Secretary Yellen. We certainly will keep this committee
updated. However, much of the investigation of what happened at
this bank would be done by the FDIC, and so that is an
appropriate source of information.
Senator Thune. And we will make sure we ask them that same
question. But I know that you will be involved. I mean, this
obviously is something that, you know, dramatically impacts the
economy and would be something significantly of interest, I
would think, to the Treasury Department.
And hopefully, you will stick to that commitment. In a
previous Finance Committee hearing, you gave your ``absolute
word'' to keep us updated on Treasury's findings about the
private taxpayer data that was improperly shared from the IRS
to ProPublica. It has been almost 2 years since that breach of
taxpayer data was made public, and the administration still,
still has not provided a meaningful response.
And you can answer that, but let me move on here. I want to
ask a question about the actions taken by the administration to
shore up Silicon Valley Bank and others. Treasury issued a
joint statement that stated, and I quote: ``No losses will be
borne by the taxpayer.'' Do you stand by that statement?
Secretary Yellen. Yes.
Senator Thune. And I just want to stress this is something
that is deeply important to taxpayers, and I think it is
something that I--and I expect a lot of my colleagues,
hopefully on both sides of the aisle--will be strictly holding
this administration to account on.
You, in the IRA, got an additional $80 billion, six times
the annual budget of the IRS--I should say, not directly
Treasury but the IRS--and 87,000 new employees. Now the request
in this year's budget, because that is what we are talking
about here today, is for an additional 15-percent increase,
somewhere on the order of $29 or $30 billion additional.
We still do not have the plan for the $80 billion in IRS
funding, and there was supposed to be a plan made public
several weeks ago. So, could you speak to when we might see a
plan, since there is a request now for additional funding above
and beyond what was a massive, historic amount of funding in
the IRA?
Secretary Yellen. So, the plan is almost complete, and you
should have it in the near future.
Senator Thune. And what does that mean, ``near future''?
Secretary Yellen. In a matter of weeks.
Senator Thune. Okay; all right. I hope that you can follow
through on that. And let me just ask, with respect to the use
of that $80 billion. Some of it, I know, was supposed to be
funneled towards taxpayer services, which I hope is the case,
because the IRS has had a deplorable record of getting back to
taxpayers, a 13-percent phone call return rate.
How much of that $80 billion is going to be directed to
enforcement, and does the Treasury expect that any of that
revenue is going to come from increased audits of middle-class
taxpayers?
Secretary Yellen. The President and I have committed that
there will be no increase in audit rates on individuals or
small businesses under $400,000, and I stand by that pledge. I
have issued a directive to IRS to that effect. Most of the
hiring, the large numbers that are seen, are replacement of
people who are retiring.
But there will be additional hiring, both of customer
service representatives--5,000 more were hired this season, and
the response rate has gone from the 13 percent you mentioned to
around 85 percent this tax season. We want to keep it at that
level and add other things that will make filing and
interacting with the IRS more convenient for both individuals
and for businesses.
But an important goal is greater enforcement, hiring of
skilled tax lawyers and auditors and accountants, to deal with
high-
income and high-net-worth individuals, complex partnerships,
and corporations where we think most of the tax gap is
centered.
And so, although $80 billion over 10 years sounds like a
huge investment, it is one with an enormous payoff that will
substantially lower the budget deficit, because we have a huge
tax gap that needs to be addressed.
The Chairman. Your time, my friend, has expired. We are
going to push very hard to get every Finance member a chance to
ask their questions before we go. Next will be Senator
Lankford, then Senator Cortez Masto. We have the Secretary
until 1:00.
Senator Lankford?
Senator Lankford. Thank you.
Madam Secretary, thanks for being here. There are a lot of
things that I want to be able to talk about on this. We have
some tax proposals on the table. I have a bipartisan charitable
act dealing with tax policy that we are not going to have time
to be able to talk to you about.
I would like to be able to talk about full expensing.
Senator Toomey used to be able to champion this, but it is a
big issue for our manufacturers in my State and all around the
country. I would love to get a chance to talk about that.
I would love to talk about marriage penalties in the tax
code, because, quite frankly, they are still there. That is one
of the things we have got to be able to work on. Energy
independence--I did notice a whole new set of new taxes on
energy companies in the United States that I think would hurt
our energy independence.
And there is still no definition for the $600--if you do
Venmo payments to somebody up to $600, now the IRS is going to
track you. I have noticed that you have delayed that, and the
IRS has delayed that. But there are a lot of questions with
that, and new, creative definitions of what it means to be made
in America.
We now have new treaties that are popping up that are not
really treaties, not really free trade agreements, but they are
being declared free trade agreements to allow--from the
Inflation Reduction Act--actions from Japan and Germany to now
be defined as made in America. I find that very creative. I
would love to talk about all of that.
I do not have time; I need to be able to drill down on a
couple of things. Let me start with some of the banking issues
we are dealing with on that. Will the deposits in every
community bank in Oklahoma, regardless of their size, be fully
insured now? Are they fully covered, every bank, every
community bank in Oklahoma, regardless of the size of the
deposit?
Will they get the same treatment that SVB just got, or
Signature Bank just got?
Secretary Yellen. A bank only gets that treatment if a
majority of the FDIC board, a super-majority, and a super-
majority of the Fed board and I, in consultation with the
President, determine that the failure to protect uninsured
depositors would create systemic risk and significant economic
and financial consequences.
Senator Lankford. So, what is your plan----
Secretary Yellen. I make that determination----
Senator Lankford. Right. So, what is your plan to keep
large depositors from moving their funds out of community banks
into the big banks? We have seen the mergers of banks over the
past decade. I am concerned you are about to accelerate that by
encouraging anyone who has a large deposit in a community bank
to say, ``We are not going to make you whole, but if you go to
one of our preferred banks, we will make you whole at that
point.''
Secretary Yellen. I mean, we are--that is certainly not
something that we are encouraging.
Senator Lankford. That is happening right now.
Secretary Yellen. That is happening because depositors are
concerned about the bank failures that have happened, and
whether or not other banks could also fail.
Senator Lankford. No, it is happening because you are fully
insured no matter what the amount is if you are in a big bank.
You are not fully insured if you are in a community bank.
Secretary Yellen. Well, you are not fully insured----
Senator Lankford. You were at Signature, and it just barely
met the threshold. You were at Signature.
Secretary Yellen. Well, we felt that there was a serious
risk of contagion that could have brought down and triggered
runs on many banks, and that something--given that our judgment
is that the banking system overall is safe and sound,
depositors should have confidence in the system, we took these
actions to discourage contagion.
Senator Lankford. So, there is a special assessment that
has been done on community banks in my State and all banks
across the country. Was there any discussion that that special
assessment would only apply to the larger banks, or was it
always assumed the special assessment would cover every bank,
including rural banks in my State?
Secretary Yellen. I think--I am not certain what the rules
are around that. That is up to the FDIC to determine.
Senator Lankford. It has been reported publicly that SVB
had a large number of Chinese investors that are there,
including some that were companies directly connected to the
Chinese Communist Party. Will those individuals, companies,
entities, and investors that are Chinese investors be made
whole based on assessments of my banks in Oklahoma?
So, what I am asking is, will my banks in Oklahoma pay a
special assessment to be able to make Chinese investors whole
from Silicon Valley Bank?
Secretary Yellen. Uninsured investors will be made whole in
that bank, and I suppose that could include foreign depositors.
But I do not believe there is any legal basis to discriminate
among the uninsured.
Senator Lankford. I get it, but I am just saying my
community banks are going to pay this additional fee. It is
always fascinating to me as well the conversation that
taxpayers are being made whole, and that the taxpayers are not
going to have any kind of consequence in this. I am sure my
bankers are going to be very excited to know they no longer pay
taxes, and their banks no longer pay taxes.
Credit unions do not pay taxes; banks do. So they are
definitely taxpayers as well, and all banks make their revenue
off of rates and fees and such to their account holders, which
means every Oklahoman will pay higher fees in their community
banks.
The Chairman. We are just going to have to move on.
Secretary Yellen. If we have a collapse of the banking
system and its economic consequences, that will have very
severe effects on banks in Oklahoma that will also be
threatened----
Senator Lankford. I am just worried about the--I am just
worried about the long-term consequences on our banks----
The Chairman. We are going to have to move on, or we are
not going to get all Senators in.
Senator Cortez Masto?
Senator Cortez Masto. Thank you, Mr. Chairman. Secretary
Yellen, it is always good to see you. Thank you.
Secretary Yellen. Thank you, Senator.
Senator Cortez Masto. But before we get to the banking and
the budget, let me ask you something that is important in my
State, and I think across the country, quite honestly. These
are the low-income solar tax credits, and it is a question that
I asked Commissioner Werfel regarding section 13103 of the
Inflation Reduction Act, which provides a bonus investment tax
credit for certain renewable energy investments that were made
in low-income communities.
The February guidance that Treasury put out provides that
potential applications will only be considered for this tax
credit during limited application windows, and this limit--this
is my concern--will limit solar deployment and the ability to
drive clean energy investment in these communities, because the
investments with tax credits happen when you have certainty up
front that the credit can be used.
It is especially important because the law requires that
the bonus credit that we put in the Inflation Reduction Act be
tied directly towards reductions in energy bills for consumers.
So, in light of these challenges and headwinds facing the solar
industry--and I am going to talk a little bit about that as
well--can you share anything regarding the process for revising
the guidance in the very near future, to meet the intent of
Congress--not only here with the solar tax credit, to ensure
that people can access it in a timely way before it goes away,
but the guidance in general that you have talked about?
Because everybody is waiting for guidance to be
implementing the Inflation Reduction Act proposals we put in
there, and there is concern they are going to come too late
before we can even utilize the opportunities.
Secretary Yellen. All I can say is that we are working 24-7
on the guidance and regulations that need to be written in
order to implement the various tax credits that are in the IRA.
We have no higher priority at Treasury, and we are really
working tirelessly to get this done.
My understanding is that we have committed to open the
first phase of applications for this credit in the third
quarter of this year, and we will provide detailed guidance
ahead of accepting applications.
Senator Cortez Masto. So, let me put a proposal out there,
and this is for some of my colleagues as well, because I think
in general the Inflation Reduction Act and the work that we
have been doing to lead us into this clean energy future
requires a bridge to get us there.
And let me just say this. I support the manufacturing here
in this country, and we need to build it and grow it. But when
it comes to solar, we are not there yet. I support the
manufacturing that is happening in Ohio and here across this
country. But the manufacturing for the supplies that we need to
grow out solar in this country only has a capacity of 5.6
gigawatts.
Now let me just say in 2022, we were able to actually
install--the demand was for 20.2 gigawatts. So, we are at a
deficit there, and if we do not get these supplies, if we do
not have what we need to address bringing these supplies here
from somewhere and deal with the tariffs that are out there
that are limiting our access to these supplies, we are going to
be limited in the amount that we can grow our clean energy in
this country through solar.
So that is what I would love the administration to keep in
mind, my colleagues as well, that yes, we want to make sure
that we are getting our supplies from countries that we
support, that are our friends, that are our partners--
absolutely. But until we grow our domestic manufacturing here,
we are not going to meet the demand for solar in this country
that we need right now.
Secretary Yellen. Well, there are substantial incentives in
this legislation to bring manufacturing of solar panels to the
United States, and we are certainly picking up great interest
among investors in moving manufacturing here. We are trying to
get at the regulations as rapidly as we possibly can, to make
sure that we provide the certainty that is needed for those
investors.
But there are big incentives in this package to do just
that, and we are excited to see what is happening----
Senator Cortez Masto. Thank you, and I do not mean to cut
you off. I only have so much time. Let me just talk about the
budget really quickly, what I see here. Is it true that the
Federal deficit has been reduced by over $1.7 trillion just in
the last 2 years?
Secretary Yellen. Yes, that is true.
Senator Cortez Masto. And it is also true what you said
earlier that this budget proposed by this administration looks
at also an additional deficit reduction of $3 trillion over 10
years?
Secretary Yellen. That is correct.
Senator Cortez Masto. So, this administration is concerned
about reducing the deficit; correct?
Secretary Yellen. Yes.
Senator Cortez Masto. And the debt limit that we are
talking about, everybody is talking about, that debt limit--let
us be fair; let us talk in a bipartisan way--that debt was
incurred by both previous Republican and Democratic
administrations; correct?
Secretary Yellen. Yes; we are talking about paying bills
for spending that the Congress has authorized.
Senator Cortez Masto. I appreciate that; thank you.
I know I am over my time. I will submit the rest of my
questions for the record. Thank you, Madam Secretary.
The Chairman. I thank my colleague, and I will just say,
during the 10-year odyssey of developing those clean energy tax
credits, it was always our intent to have the bonus solar tax
credit for low-income communities. So, we will continue to work
with my colleague.
Senator Warren?
Senator Warren. Thank you, Mr. Chairman.
So, on Friday, the United States faced the second biggest
bank failure in our entire history, and as panic spread among
small businesses and nonprofits that had money deposited with
Silicon Valley Bank, Treasury and other financial regulators
announced they would take emergency measures to stabilize the
system.
I am grateful for the administration's steady hand, but we
should not have had to be here in the first place. These bank
failures were the direct result of policymakers' decisions over
the last 5 years, beginning with a 2018 law signed by President
Trump with the support of both parties, to weaken the
regulations that had been put in place after the 2008 financial
crisis to ensure that big banks never again crashed our
economy.
On Monday, President Biden called on Congress and
regulators to ``strengthen the rules for banks to make it less
likely that this kind of bank failure will happen again.''
Secretary Yellen, thank you for being here today. Do you agree
with the President, that we need to strengthen our banking
rules?
Secretary Yellen. Well, I think we certainly need to
analyze carefully what happened that triggered these bank
failures, and reexamine our rules and supervision, and make
sure that they are appropriate to address the risk that banks
face.
Senator Warren. Okay. So, we want to make sure we have the
right rules in place, and pretty obviously, we need some
stronger rules here. So I want to talk about those rules, the
stress tests. Stress tests are critical tools in the regulatory
toolbox that are designed to expose banks' vulnerabilities if
bad things happen and force the banks to shore up any weak
points before it is too late.
Now, Secretary Yellen, when you were implementing the Dodd-
Frank regulations as Fed chair 6 years ago back in 2017, you
said, ``Our stress testing regime is forcing banks to greatly
improve their risk management and capital planning.'' But you
warned that because ``we can never be confident that there will
not be another financial crisis, it is important that we
maintain the improvements that have been put in place that
mitigate the risk and the potential damage.''
So I want to talk about those stress tests that you talked
about, how important they were 6 years ago. Secretary Yellen,
can regular, rigorous, well-designed stress tests help bank
regulators spot problems lurking in banks' balance sheets and
business models?
Secretary Yellen. Yes. I continue to endorse the comments
that you quoted.
Senator Warren. Good.
Secretary Yellen. I think this has been one of the most
important and consequential improvements in supervision since
the financial crisis.
Senator Warren. Okay; so two thumbs up for stress tests.
Let me just ask: when regulators spot these problems early on,
can those regulators then require the banks to clean up the
problems long before they trigger a run on the bank?
Secretary Yellen. Yes, and in that sense, they are useful.
But I would like to make one point----
Senator Warren. Sure.
Secretary Yellen [continuing]. Which is that the
supervisory stress tests focus on capital, and not on
liquidity, and in these bank failures liquidity played an
important role.
Senator Warren. Well, let us ask the question then all the
way around. If stress tests are done right, if we have robust
stress tests the way you described 6 years ago when you were
still running the Fed, do they just test one thing that might
go wrong, or do they test for lots of different problems if
they are done right?
Secretary Yellen. If they are done right, they test for
many possible problems, but they do not focus on liquidity----
Senator Warren. Okay, but they test for many kinds of
things that go wrong, is that right, potentially?
Secretary Yellen. There are different scenarios every year
and----
Senator Warren. So, let me ask you then a related question.
Is one of the problems that stress tests can expose that you
have managers who are not very good at managing risk, or
management that is otherwise doing a bad job that could put a
bank in jeopardy?
Secretary Yellen. Well, that is the purpose of supervision,
and stress tests are one tool. Supervision is another tool that
is critical.
Senator Warren. Okay; so, very important. We have stress
tests, we have supervision, we have a lot of pieces here to
make this work. In 2018 though, Trump's bank deregulation law
and the door it opened for Fed Chair Powell to further hack
away at the rules created an exception to annual Fed-
administered stress tests, letting banks from $50 billion to
$250 billion effectively off the hook.
And that meant that a bank like SVB, which had $209 billion
in assets when it failed, would be exempt from annual stress
testing. So the question I have here is, if the law had not--
let us not just do stress tests. It is stress tests; it is the
whole package: enhanced liquidity requirements that ensure that
banks have enough cash on hand to meet their obligations,
particularly in times of stress; capital requirements that
better position banks to absorb losses; regular resolution
plans to help guide regulators safely through winding down
failed banks.
All of these were weakened in 2018, and when SVB failed,
this is a part, in my view, of the Fed's actions that led to
weaker regulation. You know, over the last few days, we have
heard a lot of Republicans say that this collapse was not their
fault; it was the banking regulators who were asleep at the
wheel.
Believe me, I have questions for a lot of the banking
regulators. But Congress handed Chair Powell the flame thrower
that he aimed at the banking rules. In fact, he said so
himself. I will quote and then I will quit. When he announced
that he was weakening regulations for the banks like SVB, Chair
Powell said, and I quote: ``In the rules before us, we are
applying the discretion granted to us by the Economic Growth
Regulatory Relief and Consumer Protection Act.''
Translation: ``Congress opened the door to weaker
regulations, and I am waltzing right through it.'' That is
true. Congress needs to close that door.
I am sorry, Mr. Chairman.
The Chairman. My colleague has great experience in this,
and I apologize for having to cut people off.
Senator Johnson is next.
Senator Johnson. Did you call on me? Okay; thank you, Mr.
Chairman. Welcome, Secretary Yellen.
I just want to start--do you know how much a dollar that
you held at the start of the Biden administration in January
2021 is worth today?
Secretary Yellen. Well, we have had inflation, and it has
declined in its purchasing power.
Senator Johnson. It is worth 87 cents. In your testimony,
you said that inflation is the number one economic problem. Do
you know what the inflation rate was at the start of the Biden
administration in January 2021?
Secretary Yellen. It was substantially lower.
Senator Johnson. It was 1.4 percent. You said that
inflation has many causes. I agree with that. By the way, I
would say that the number one economic problem is our debt and
deficit, and I would say that the top three causes of inflation
are massive deficit spending; the war on fossil fuels, which
has driven energy, gasoline prices to record levels; and
obviously supply chain dislocation. That was caused by our
miserably failed and incredibly stupid response to COVID, the
pandemic. But would you agree those are the top three causes of
inflation: deficit spending, high energy costs, and supply
dislocations?
Secretary Yellen. I do not believe that deficit spending is
one of the main causes of inflation.
Senator Johnson. You do not? I mean, inflation is too many
dollars chasing too few goods. So when you are printing all
this--so do you know in the first 3 fiscal years of the Biden
administration, do you know how much the total deficit spending
is going to be?
Secretary Yellen. We had an economic collapse that was
caused by the pandemic.
Senator Johnson. Right, and we were certainly coming out of
that, because there was all this pent-up demand and the
sloshing around of trillions of dollars. So I will answer that
question for you too. The first 3 fiscal years of this
administration, the total deficits would be about $5.7
trillion.
So now you are here testifying before the committee about
the President's budget. How much are the total deficits over
that 10-year period, according to the President's budget?
[Pause.]
Senator Johnson. You do not know that off the top of your
head? I am running out of time--it is $17 trillion, okay?
Secretary Yellen. Yes, that is right.
Senator Johnson. You are going to drive the debt from
somewhere around $32 trillion up to about $50 trillion;
correct?
Secretary Yellen. Yes, but what I believe is the single
most important metric for judging the fiscal stance of the
country is real net interest as a share of GDP. We have----
Senator Johnson. Okay. So, are you concerned when you take
the debt from $32 to $50 trillion, are you concerned who is
going to buy that debt? And also, at what rate will they expect
to be compensated for buying riskier and riskier debt? Are you
concerned about that?
Secretary Yellen. Well, if the net interest, real net
interest cost of the debt remains low relative to GDP, and we
are on this sustainable fiscal----
Senator Johnson. But we are not, we are not on a
sustainable path.
Senator Cassidy was talking about the President's
demagoguery on Social Security, his unwillingness to meet to
try and save Social Security. If we do nothing and the Social
Security trust fund runs out in 2023 to 2025, at the end of the
budget period, are you concerned that we are not going to have
the financial wherewithal to plus up benefits to honor those
promises?
I mean, do you think we are going to--with $50 trillion in
debt, you know, a debt exceeding our GDP, are you not concerned
about our inability to honor those promises?
Secretary Yellen. The interest cost on the debt as a share
of our economy remains quite low throughout the 10-year horizon
of the President's budget. It remains around 1.6 percent, and
that is very manageable.
Senator Johnson. Madam Secretary, you were also the one who
said that inflation was transitory, and it certainly is not. I
think Chairman Powell certainly now agrees with the fact that
no, we have got something going on here that is going to take a
very long while, unfortunately, to wring out of our system.
Not only you, but OMB Director Young and members on the
other side keep talking about how you are cutting deficits. The
deficit in 2021 obviously was high because of the pandemic. In
2022, it was about $1.4 trillion. In 2023, we think it is going
to be about $1.6 trillion. In 2024, you are projecting $1.85
trillion, and again growing debt by--it never drops below $1.5
trillion. How can you claim that you are cutting deficits?
Secretary Yellen. Well, it always is a comparison with the
baseline of what would happen if our policies were not enacted,
and the increase in deficits would be larger. There is net
deficit reduction over 10 years.
Senator Johnson. But saying you are cutting the deficit is
just misleading the American public.
Let me ask you one final question, because we always hear
on the other side--the same thing from OMB Director Young
yesterday--that we want to make the rich pay their fair share.
So I mean, the fact is--and these are the latest figures we
have from the Treasury: in 2020, the top 1 percent made about
22 percent of income, but they paid 42.3 percent of income tax.
Now I just--I am not going to ask you the metric.
At what point--I mean, how much of the total income tax
should the top 1 percent pay before you will consider, before
President Biden will consider, they are finally paying their
fair share? I mean, they are paying double the income tax that
they are getting in income.
It is an obviously highly progressive rate. By the way, the
bottom----
The Chairman. My colleague is over his time, and I want the
witness to answer his question.
Secretary Yellen. Well, I believe that billionaires should
pay rates that are not lower than what a teacher or firefighter
pays.
Senator Johnson. Okay, the top 1 percent averages----
The Chairman. The time of the gentleman has expired.
Senator Tillis is next.
Senator Johnson. Well, my colleague got 7 minutes. The top
1 percent paid----
The Chairman. The time of the gentleman has expired----
Senator Johnson. The bottom 50 percent paid 3.1. We have a
highly progressive tax system.
The Chairman. Senator Tillis, you are next.
Senator Tillis. Thank you, Mr. Chairman.
Madam Secretary, just really quickly on this question. The
President's budget, I think, assumes 4.3 percent of inflation
through Calendar Year 2023.
Number one, can you confirm that or give me an accurate
number if I am wrong, and just describe for me how do we do
that, particularly in light of what has happened with SVB and
when I think we will continue to see monetary policy that is
going to increase incrementally until we get inflation under
control.
That creates other stressors for the banking community, but
is it 4.3 percent, and do you agree with that assumption?
Secretary Yellen. Did you say inflation?
Senator Tillis. Yes, inflation for Calendar Year 2023.
Secretary Yellen. For 2023, we assume that inflation would
run at 3 percent.
Senator Tillis. At 3 percent, and we are in the tail end of
March. So you still believe, given the inflation estimates we
got, that that is still a valid assumption?
Secretary Yellen. It is coming down on a 12-month basis
and----
Senator Tillis. Yes; okay. If you could just get to the
committee the analysis that went into that, I think it would be
helpful.
I want to go back to Senator Warren's comments very
quickly. Back in 2017, I think you were quoted before the Joint
Economic Committee with respect to Senate bill 2155 that ``the
Fed would still be able to impose enhanced prudential standards
on firms if necessary, and that the bill is a move in the right
direction. That would be a good enabling for the Fed to
appropriately tailor its supervision.'' Do you still stand by
that statement?
Secretary Yellen. I think that tailoring--I said that I
thought tailoring is appropriate, and I still believe that.
Senator Tillis. Okay.
Secretary Yellen. And I think the Fed continues to have at
least some discretion----
Senator Tillis. I guess the question that I have, because I
do not agree with Senator Warren, the premise of her questions.
It seems to me unless we--oh, and I should say that in that
same time frame, Mr. Tarullo was responsible for implementing a
bill that he publicly criticized, Senate bill 2155. He did not
like the bill. He is over there helping implement it, and
yesterday----
Secretary Yellen. Wasn't it passed in 2018? He left----
Senator Tillis. No, no, I am sorry. When you were
implementing Dodd-Frank. I am sorry. When you were implementing
Dodd-Frank, Tarullo was in play. Then we passed Senate bill
2155. He was highly critical of it.
However, he said, as late as yesterday, he does not believe
that Senate bill 2155 had anything to do with what occurred at
Silicon Valley Bank, and that his suspicion was that it was
maybe supervisors not being aggressive and potentially using
some of the discretionary regulatory regimens that were allowed
in Senate bill 2155, if you happen to have a specific bank that
had activities where you should increase the level of
supervision. So it seems to me that here, we are using 2155 as
a red herring for something that I believe, fundamentally, is
going to be a supervisory or regulatory lapse.
I want to ask a question about OECD in my time remaining,
and I do want to get close to 5 minutes. The baseline agreement
does not have what I consider to be the most basic standards
for dispute resolution, but it looks as if we still want to
move forward with congressional action absent that.
I also have some concerns with the exemptions that are in
the agreement, particularly with respect to China, and I am
grossly summarizing my context to give you a chance to respond.
But let me tell you, even beyond the exceptions that benefit
China and state-owned enterprises, neither this committee nor
the Committee on Taxation has received the data and analysis
that you all used as a basis for negotiating the deal.
Can I just simply get a commitment that the Joint Committee
on Taxation and that this committee will get that data and
analysis as a part of our future consideration for the
provision that has to come before Congress?
Secretary Yellen. I am sorry. I am not sure if you are
talking about Pillar 2 or Pillar 1.
Senator Tillis. I think it is all of the above, to the
extent that they are both in the agreement.
Secretary Yellen. Well, I think the analysis on Pillar 2
has been done. Correct me if I am wrong, but I believe the
Joint Committee on Taxation has looked at that, and we have
provided estimates as well that have used standard methods, and
I can discuss that with you----
Senator Tillis. We will submit----
Secretary Yellen. On Pillar 2, we have had----
Senator Tillis. We will submit a question for the record.
My time has expired. We will submit a question for the record
to fully describe exactly what we are looking for. And, to the
extent that it is possessed by some members, then I will
stipulate that I was wrong. But I am going in with a little bit
of a skeptical position.
Thank you.
The Chairman. I thank my colleague for his courtesy, and we
will have the staff, the Finance staff, share what we have on
Pillar 1 and Pillar 2 with my colleague.
Senator Blackburn is next.
Senator Blackburn. Thank you, Mr. Chairman. Madam
Secretary, thank you for being with us today.
I want to return to the SVB issue and ask you--I have not
heard you say today, when were you first notified that there
were problems with SVB, and when did you alert members of
Congress? What was that timeline?
Secretary Yellen. I believe that I first found out about
the troubles at Silicon Valley Bank, I guess it was last
Thursday.
Senator Blackburn. Last Thursday, and then your
notification to Congress came when?
Secretary Yellen. The bank was put in----
Senator Blackburn. Why don't you just put that in writing
for me, so I do not waste my time?
I know Senator Lankford asked you about the Deposit
Insurance Fund, and how that would affect our local banks.
There is a lot of concern over this, and I know you were
uncertain about that.
If you would, run the numbers on that and let us know a
ballpark of what you think this would cost if you end up
insuring everybody's deposit. And then I have to ask you, being
from Tennessee--you know, we have a long and storied history of
opposing nationalizing the banking system. Do you see this as a
step to nationalize the banking system?
Secretary Yellen. Absolutely not. I think this is a step
toward stemming contagion that could come from the failure of
these banks that would place community banks across the country
at great risk of runs, as well that we want to----
Senator Blackburn. Thank you, ma'am.
Let me move to the Inflation Reduction Act and that
implementation. I hear a lot about this from local Mayors and
our State agencies. There is a lot of money that can be doled
out. Treasury and other agencies are going to be required to
issue guidance. That has not come, and so there is a lot of
confusion there, and I was looking at the structure.
I want to make certain that I am viewing this right. We
have you, the Deputy Secretary, the Office of IRA
Implementation within Treasury, the Office of IRA
Implementation in the IRS, and Danny Werfel, who is the new,
recently confirmed IRS Commissioner. So, with all of these
bodies involved, who is actually in charge? Who is the final
decision-maker on the guidance and the timeline for releasing
that guidance?
Secretary Yellen. Well, our Office of Tax Policy drafts
regulations----
Senator Blackburn. Okay. So, you----
Secretary Yellen [continuing]. And we go through a regular
rulemaking.
Senator Blackburn. Then do you sign off on it? Are you the
final say?
Secretary Yellen. I do, I do.
Senator Blackburn. So you are the one who has the final
say.
Secretary Yellen. I do sign off on it. We confer with many,
many people in the process of drafting that, and it will go
through full comment and review before final----
Senator Blackburn. All right.
Let me ask you something else, because the buck stops with
you. You have really praised the IRA. I want to ask you one
more thing about that, because your statements contradict
themselves somewhat. You talk about the IRA as a way to really
bring prosperity, to lower inflation, to lower the debt.
So, do you really believe that we can spend our way to
lower inflation, to debt reduction, and to economic prosperity?
Secretary Yellen. I believe that this law promotes clean
energy and R&D and investment in the United States that will--
--
Senator Blackburn. But that is not my question. Do you
believe we can spend our way to lower inflation? And I am going
to move on, obviously.
Secretary Yellen. I have never said any such--I have never
said that I think that that is a way to lower inflation.
Senator Blackburn. All right. Thank you, ma'am.
You have mentioned the IRS being able to answer more phone
calls and respond more quickly because of the IRA funding. I
was looking at the IRS data, and it shows that the IRS actually
answered 2.6 million fewer calls this March during the tax
filing season. And I know Senator Thune asked you about this.
If we could get some clarity from you and from your
testimony about this--what is the rate, how often are these
calls answered and missed, what percentage of people at the IRS
are still working remotely, and what is your timeline for
bringing them all back?
Secretary Yellen. What I can tell you is that the response
rate to customer calls has been between 80 and 90 percent every
week during this tax filing season, and that is a massive
improvement. The IRS hired 5,000 new people to put into
customer service, and that relied on funds from the IRA.
Senator Blackburn. My time has expired, but in the 8
quarters data that the IRS gave in early March, the IRS says
they actually answered 2.6 million fewer calls in this tax
filing season.
Secretary Yellen. Well, there may have been fewer calls,
but the rate of response was very much higher, substantially
higher.
Senator Blackburn. Thank you, Madam Secretary.
The Chairman. Thank you. We do need to move on.
Senator Menendez?
Senator Menendez. The Federal Reserve's emergency lending
facility is predicated upon the notion that Treasury and agency
securities have no credit risk. That facility will be extending
loans of up to a year using these securities as collateral.
The one potential problem is that unless Congress raises
the debt ceiling in the next few months, U.S. Treasury and
agency securities will face the prospect of default. Now, while
I certainly will not vote to default on the debt, I think some
of my colleagues may not feel the same way.
In light of the events in the financial system over the
past week, how damaging would a debt default be to our banking
sector, particularly to regional banks?
Secretary Yellen. It would be completely devastating, and I
do not think that Congress should for a second contemplate the
possibility of not raising the debt ceiling to pay our bills.
This is the cornerstone of what makes our financial markets the
soundest and best in the world, and people trust that the
government stands ready to pay its bills. It would be a
calamity.
Senator Menendez. And obviously, if we are using Treasury
securities to back up the loans that we are making, if those
Treasury securities default, then we have a cascading effect.
Secretary Yellen. It is beyond contemplation.
Senator Menendez. Is it possible, or I should say isn't it
possible that if Congress fails to raise the debt ceiling well
before any default, that we could run the risk of seeing more
runs on regional banks?
Secretary Yellen. Yes. Well, we have seen that the concern
about whether Congress would meet this responsibility has
provoked concern in financial markets. That was evident, for
example, in 2011, when there was a downgrading of the U.S.
credit rating because of doubts as to whether or not Congress
would act appropriately.
Senator Menendez. Well, the fact is that a debt ceiling
fight has always been dangerous. It is dangerous for our
financial system----
Secretary Yellen. Agreed.
Senator Menendez [continuing]. It is dangerous for our
businesses, it is dangerous for working families, and it is
dangerous to put at risk the U.S. dollar as the reserve of
choice in the world--which others are seeking to replace us
in--which has enormous benefits to us. Wouldn't you say that
having our dollar as the reserve choice in the world----
Secretary Yellen. Yes, I completely agree. And it is
because, in part because our financial system is so deep, and
Treasuries are regarded as so safe and liquid.
Senator Menendez. Now in 2018, Congress passed a bill which
was signed into law by President Trump that relaxed regulation
for institutions like Silicon Valley Bank. That law, which I
opposed, exempted those banks from enhanced prudential
standards and stress tests, raising the threshold at which a
bank would be considered systemically important.
So, even as the law kept Silicon Valley Bank off the list
of systemically important institutions, regulators on a
bipartisan basis rightly cited systemic risk to justify their
actions over the weekend. So, Secretary Yellen, isn't it true
that the situation at Silicon Valley Bank posed systemic risks?
Secretary Yellen. Well, look, I think it is important for
regulators, the banking supervisors, to examine what happened
at this bank. But clearly the bank had a very high proportion
of uninsured deposits, which made it vulnerable to runs, and it
experienced devastating runs.
Senator Menendez. But, Madam Secretary, if the regulators
say that the reason they are intervening is because there was
systemic risk, then it must have been systemic risk, right?
Secretary Yellen. Well, in the sense that the chances of
contagion--that other banks might be regarded as unsound and
suffer runs--seemed extremely high, and the consequences would
be very serious.
Senator Menendez. It seems to me that institutions like
Silicon Valley Bank, while we still have a lot to learn, have
the potential to be systemically important, and our laws and
regulations should treat them as such.
Let me close on the following. In the President's budget
proposal, there is yet a glaring absence of an issue critical
to families in my State and in other States in the country. The
budget continues to allow C corporations to fully deduct State
and local taxes as under current law. Isn't that the case?
Secretary Yellen. I am not sure. I think so, but----
Senator Menendez. Well, for the purposes of our discussion,
let me just assure you that the budget allows C corporations to
fully deduct State and local taxes under current law. But it
does not propose the same tax benefit for middle-class
families. Is that fair to say?
Secretary Yellen. The issue of State and local taxes is one
we think that Congress should address.
Senator Menendez. Well, I will close by saying if C
corporations can deduct State and local taxes, middle-class
families should be able to deduct State and local taxes.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Senator Scott?
Senator Scott. Thank you, Mr. Chairman. And, Secretary
Yellen, thank you for being here this morning. Thank you also
for the conversation that we had on Monday. We may not always
see eye to eye on a number of issues, but your availability was
helpful in understanding and appreciating the actions of the
administration. So, thank you for that part.
Secretary Yellen. Thank you, Senator.
Senator Scott. I am sure you have seen, and maybe even had
a big hand in proposing some of the President's budget
requests. I can honestly spend hours talking about the
President's budget, and how much I dislike it. I think it is
bad for the economy; I think it is bad for the American people.
We certainly see $5 trillion of tax increases, $7 trillion
of spending, the highest rate of taxes on individuals in the
last 40 years, and a new corporate tax rate higher than the tax
rate imposed by the Chinese Communist Party on their own
businesses, more and more policies that undermine our own
Nation's energy independence and energy security. This is not a
budget that unifies the country. This budget only seeks to
isolate and divide us. This budget, simply said, taxes too much
and spends too much.
In the midst of all this budget talk, however, we are once
again having to exercise important oversight over the Federal
regulators and agencies responsible for ensuring they are doing
the job that Congress gave them the tools to do. As such, I
want to spend some time discussing Silicon Valley Bank.
While there are many questions that must be answered, I do
know a few things for sure. First, the bank failed because of
its management and because of its board. I know that the
failure of SVB also was contributed to by a lax regulatory
environment.
I believe that the State and Federal regulators failed to
appropriately use the tools they have to supervise and regulate
the failed institutions; and finally, that Biden's handling of
the economy contributed to these bank failures. The President's
budget is further evidence of reckless taxes and spending that
will only exacerbate the highest inflation we have seen in 40
years.
This impact will be felt by everyone and everything from
grocery bills to financial institutions. It appears that the
San Francisco Fed was asleep at the wheel. They failed to meet
their basic, not enhanced, but basic supervisory
responsibilities, and therefore missed their opportunity to use
enhanced supervisory tools if necessary.
Instead of taking accountability for this blatant failure,
regulators are now forecasting that they plan to increase
regulations on the rest of the banking industry; in other
words, the banks that made responsible business decisions and
have not failed. The failure to supervise is inexcusable, and I
plan to hold the regulators accountable.
This administration's tax-and-spend reckless policies
fueled inflation and will only further lead to unmanageable
inflation and higher and higher interest rates.
Secretary Yellen, will this administration acknowledge that
their reckless tax and spending contributed to not only the
challenges that we see in everyday households, but also to
challenges that we are facing today with SVB?
Secretary Yellen. Look, inflation is too high, and it is
the President's top priority to bring it down. And there are
many contributors to why inflation is too high; importantly,
fallout from the pandemic and Russia's war on Ukraine that
boosted food and energy prices. Many countries around the world
suffer from this same problem regardless of what their fiscal
policy was.
Senator Scott. Thank you. I do not want to cut you off, but
I only have a minute left, and I want to just offer my
synopsis. There is no doubt that the pandemic was in the
rearview mirror when we saw the COVID relief response in
January of 2021 that spent $1.9 trillion.
The only thing missing in that COVID relief bill was COVID
relief. We had 1 percent for COVID vaccines, under 10 percent
for COVID-related health, but we had a lot of liberal policies
embedded in the $2 trillion of spending, which then led and
accelerated inflation to 9.1 percent or a 40-year high.
The Fed response to the high level of inflation was to have
eight rate increases, leading to a liquidity challenge that we
are now seeing the results of.
Thank you very much.
Senator Crapo [presiding]. Thank you.
Senator Hassan?
Senator Hassan. Thank you, Ranking Member Crapo, and for
holding this hearing today. A ``thank you'' to you and the
chair.
Secretary Yellen, thank you so much for being here and for
testifying before the committee. I would like to follow up on
issues that my colleagues asked about, concerning the recent
actions that the administration has taken to protect our
economy.
Last weekend, the Treasury and other agencies took several
steps to strengthen public confidence following the failure of
two banks. The priority of Federal regulators needs to continue
to be protecting families and small businesses, by ensuring the
stability of our banking system and our economy more broadly.
Given the events of the past week, I would like to
understand how Treasury is evaluating the effectiveness of its
recent action. So, what specific benchmarks are you using to
measure the success of Treasury's actions? For example, what
are the economic indicators that you are actively monitoring?
Secretary Yellen. Well, we are looking at indicators of the
functioning and stress in the banking system. We want to make
sure that the problems of these two banks do not spread to
others. So we are monitoring very carefully the situation of
banks in the United States using a wide range of indicators.
And a more general problem that concerns us is the
possibility that if banks are under stress, they might be
reluctant to lend while they worry about shoring up liquidity
and capital. We could see credit become more expensive and less
available, and there are a variety of statistics that we can
look at to judge whether or not banks are tightening credit--
things like the senior loan officers' survey of credit terms
and related statistics on the cost of borrowing, because that
could turn this into a source of significant downside economic
risk.
Senator Hassan. Well, I appreciate that. I think being
really clear about what the goals are and having transparency
about defining success is critical here, and I just want to
urge you and the administration to continue communicating with
Congress as it closely monitors the situation, to ensure that
we have a coordinated and responsible and effective response to
the entire situation.
I want to turn now to tax issues that are overseen by
Treasury. Last year, my bipartisan Home Energy Savings Act,
something I introduced with Senator Collins, was signed into
law. This bill expanded tax cuts for homeowners who make energy
efficiency upgrades, such as installing a more efficient HVAC
system in their homes, which also, obviously, lowers energy
bills.
How is the Treasury increasing awareness of these tax cuts
for homeowners, given the high energy and other costs that
families are facing?
Secretary Yellen. Well, as you point out, there are really
critical supports here for taxpayers. They can get up to $2,000
for upgrades like heat pumps, 30 percent on the cost of
installing solar panels, and so forth. We have worked with IRS
to publish plain language frequently asked questions on all of
these credits, and you can find these on the IRS's IRA home
page.
There is also a site, something called cleanenergy.gov. But
really, we want to get the word out broadly, and we would be
eager to work with you to discuss ways that we can make sure
homeowners know what they are eligible for.
Senator Hassan. Well, I would look forward to continuing to
work on that. Obviously, with high energy costs being what they
are, especially in the Northeast, it is really, really
important that we get the word out.
Last question here. Along with Senator Brown, I am leading
the effort to cut red tape for online sellers by reducing the
number of casual online sellers who receive unnecessary and
confusing 1099 tax forms. It is important that we work across
the aisle to find a bipartisan way to cut down on these
unnecessary forms.
As Congress considers various ways to address this
challenge in a bipartisan way, will Treasury provide analysis
of the impact of different proposals on online sellers?
Secretary Yellen. Certainly, we will try to work with you
on that. You know, we were trying to implement a provision of
the Rescue Plan that required reporting of transactions over
$600. It is set to take effect this year, but we realized that
there were concerns, broad concerns about that timeline.
So we have delayed. And certainly we want to reduce
confusion, and we will work with you to try to do that.
Senator Hassan. Well, I appreciate that very much, and I
see that I am over time. I will just note that there are a
number of us in Congress who want to do more than delay it. We
want to correct what we think is a bad policy----
Secretary Yellen. We would work with Congress.
Senator Hassan [continuing]. And provides lots of
confusion. So, thank you very much.
Thank you, Mr. Chair.
The Chairman. I thank my colleague.
Senator Young is next.
Senator Young. Welcome, Madam Secretary. It is good to have
you here before the committee. I want to take a moment to join
my Republican colleagues in expressing my frustration and
displeasure over the way the administration has handled the
OECD Pillar 2 negotiations. To that end, Mr. Chairman, I would
ask unanimous consent that a copy of my longer statement on
this topic be entered into the record.
The Chairman. Without objection, so ordered.
[The prepared statement of Senator Young appears in the
appendix.]
Senator Young. Thank you. So, to summarize this statement,
my concern is whether enacting the regime globally would
undermine the incentive to invest in the United States and to
grow jobs here in the United States. I fear the answer to that
question is ``yes.''
In particular, the Pillar 2 Under-Taxed Profits Rule would
uniquely disadvantage American workers and job-creating
businesses by providing our trading partners with the political
blessing to tax the U.S. activity of U.S. companies. That is
right. Let me repeat that.
Foreign countries, under the Under-Taxed Profits Rule of
these negotiations, could tax the U.S. activity of U.S.
companies. This would of course directly undercut our American
sovereignty, but it would also impact the legislative power of
tax writers to provide bipartisan, well-crafted, thoughtful
economic incentives like the research and development tax
provisions, important to our dynamic economy.
This credit, which my bipartisan colleagues and I are
fighting so hard to protect--and much more--look to be wiped
out under Pillar 2. So, Madam Secretary, American workers and
American companies deserve a better deal, and I want to begin
by asking you to go back to the negotiating table and negotiate
that deal for them.
Moving on. Madam Secretary, as you know, President Biden
has promised dozens of times that he will not raise taxes on
anyone earning less than $400,000 a year. During the budget
reconciliation exercise in August of last year--that was our
second budget reconciliation, you will recall--I introduced the
Not One Penny in Taxes Raised amendment, to allow the American
people to hold members of Congress who agreed with that pledge,
and to hold the President accountable.
That amendment passed the United States Senate by a vote of
98 to 1, 49 out of 50 of my Democratic colleagues agreed with
Republicans, we cannot raise taxes when Americans are
struggling. Mr. Chairman, I ask unanimous consent that a copy
of my amendment and the roll call votes be entered into the
record.
The Chairman. Without objection, so ordered.
[The documents appear in the appendix beginning on p. 108.]
Senator Young. Secretary Yellen, in the view of the
administration, which tax rates or other provisions from the
Tax Cuts and Jobs Act that are scheduled to sunset after 2025
must be extended in order not to violate President Biden's
pledge that no taxes will be increased on anyone earning less
than $400,000?
For the benefit of all members in understanding these
important red lines for the President of the United States,
please include all provisions that you understand would cause
the President's pledge to be violated if they are not extended.
Secretary Yellen. Well, there certainly are aspects of TCJA
that, if they sunset, would impact households or taxpayers
earning under $400,000. The President has, as you mentioned,
pledged he does not want to see taxes raised by a penny on
anyone making under that.
Senator Young. That is right.
Secretary Yellen. So, he stands ready to work with
Congress----
Senator Young. Well, no, no. The President made the pledge,
and so I want to know the administration's position on this. I
know my Democratic colleagues want to know it as well. My time
is short, so can you please provide the specific TCJA
provisions that have to be extended in order to keep President
Biden's tax promise?
Secretary Yellen. I do not know that I can provide you with
that. I think there are a lot of complicated provisions, and
exactly what happens to different taxpayers will depend on----
Senator Young. That is reasonable.
You are a reasonable person. I am known as a reasonable
person, one right now who is 2 seconds over time. So I would
just ask you, Madam Secretary, could you commit to providing me
and other members of this committee with that comprehensive
list within 2 weeks from today? It should not be difficult. You
have an army of people supporting you.
Secretary Yellen. I think it is a very complex exercise,
and I am not sure that----
Senator Young. Is it complex to keep the pledge?
The Chairman. The time of the gentleman has expired. I want
to work with the gentleman with respect to the updates on the
tax law. It is well known that on our side we opposed it, and
your side supported it. The gentleman wants to know how we are
going to proceed, and the Secretary said it is complicated. I
am going to work with my colleague.
Senator Young. Well, let us work our way through the
complications so we can all keep our pledges not to--this
cannot be violated. I have told my constituents it will not be,
so----
Secretary Yellen. And we agree with that and would like to
work with you.
Senator Young. All right. I will look forward to that list.
Thank you.
The Chairman. Senator Daines is next.
Senator Daines. Mr. Chairman, thank you. Secretary Yellen,
thanks for being here today.
Secretary Yellen. Thank you.
Senator Daines. Secretary Yellen, the President's budget
includes $4.7 trillion--with a ``t''--in total tax hikes,
including $1.8 trillion in new taxes on Main Street businesses.
The President's budget also includes a shadow tax increase on
small businesses in Montana and across the country by remaining
aptly silent on the future of the 20-percent pass-through
business tax deduction.
We must remind ourselves that 95 percent of the businesses
in the United States of America are pass-throughs. They are not
C corps, and yet this budget was silent on a 20-percent tax
increase coming for many small businesses in the course of
2026. I am planning to reintroduce my Main Street Tax Certainty
Act in the coming weeks, which will protect these businesses
from this shadow tax hike by making this important deduction
permanent.
With the President's pledge in mind, will you commit to
making the 199A deduction permanent?
Secretary Yellen. I mean, all I can really say is that the
President has pledged not to raise taxes on individuals or
small businesses making under $400,000, but no promises beyond
that.
Senator Daines. Okay. I will take that as a ``no'' and move
on to my next question.
Senator Young raised this issue of Pillar 2 of the OECD
proposal, which you spearheaded or championed. It is littered
with these complex rules that would benefit state-owned
enterprises at the expense of capitalist competitors.
Why are you a proponent for a framework that would allow
China to tax American companies--and I understand this; I was
involved with global operations for most of my 20-year career
in the private sector--tax companies on their American
operations if they fall below the minimum tax threshold, even
if they fall below the threshold by utilizing the bipartisan
tax incentives, such as the R&D tax credit.
Secretary Yellen. So, the agreement does permit--it
includes an under-taxed payments rule by which other countries
can exercise their rights to impose taxes on operations of
foreign countries----
Senator Daines. Which would include China?
Secretary Yellen [continuing]. That do not abide by the 15-
percent tax. The United States can impose a top-up tax to
ensure that those revenues end up in the U.S. Treasury instead
of in a foreign country.
Senator Daines. I will move on to the Child Tax Credits. As
you know, Secretary Yellen, the 2017 Tax Cuts and Job Act
doubled the Child Tax Credit, from $1,000 to $2,000, and
increased the refundability threshold to $1,400. I was
certainly disappointed at the time that all of my colleagues on
the other side of the aisle opposed this change and made it
impossible to make it permanent. But I am glad that we enacted
it, as Republicans, into law.
The President's budget proposes increasing the Child Tax
Credit from the current $2,000 to $3,600. It makes it fully
refundable and delivered on a monthly basis. However, I see
they did not make that change permanent. It expires in 2025,
even though there are no limitations in presidential budgets to
do so.
My question would be this. Does the President believe that
the Child Tax Credit should be made permanent at $3,600, and if
so, are you willing to then eliminate the SALT deduction, which
overwhelmingly benefits the wealthy, to give working families
an expanded Child Tax Credit that importantly never ends?
Secretary Yellen. So the President is very supportive of
the Child Tax Credit, proposes to continue it for several years
until many of the provisions in the individual income tax from
TCJA that affect exemptions and the Child Tax Credit expire.
And then there will need to be consideration of what to do as
those----
Senator Daines. Right, but he will not make that provision
permanent is what you are saying? The budget says it is going
to expire in 2025.
Secretary Yellen. That is because there needs to be a
broader consideration----
Senator Daines. There does not have to be, though. You
could put the Child Tax Credit there and make that permanent.
So, we could debate the tax cuts but----
Secretary Yellen. He is very supportive of it, and we would
look to work with you to make sure that it is----
The Chairman. The time of the gentleman has expired.
Senator Cantwell is next.
Senator Cantwell. Thank you, Mr. Chairman. Secretary
Yellen, thank you so much for not just today, but over the
weekend and all the attention that you have given to this
issue.
It really does impact small businesses, and while the name
of the bank might be Silicon Valley Bank, I guarantee you the
innovation economy comes through Seattle, and probably many
small businesses in my State were impacted by what transpired.
And that is why we need to make sure that the banking system
really does have mechanisms that help the start-up economy and
the innovators.
In my mind, that is why we did CHIPS and Science, to let a
lot of innovation unfold. But people have to get financing. So,
Jesse Salk, the grandson of Jonas Salk, is a molecular
biologist and clinical oncologist who started TwinStrand
Biosciences in the State of Washington.
He and his team at TwinStrand are developing cutting-edge
gene sequencing techniques to help us fight cancer, and he told
my office this week that ``it was a big deal to step outside my
comfort zone and start a company to help get a new genomic
technology to help treat cancer patients faster. The last thing
I expected us to need to think about was if we could rely on a
bank.''
So, the potential impact of Jesse's company having to pause
or even cease operations due to banking failure is not just
jobs or dollars lost--which are important considerations to our
economy--it is actually lives lost too. So, I again appreciate
what the Federal Reserve, the FDIC, and everyone who stepped in
did. But it never should have happened in the first place.
So my questions really are about these small businesses.
Again, I think people think of them like, ``Oh, they are going
to be giant businesses.'' But at their start, they are small
businesses. And I think Silicon Valley Bank was able to attract
and help further this. So now where do we go? Where do we go?
Are we going to push Jesse back towards a larger bank? I am
curious--one of the reasons why there was so much of a
concentration is that there was a requirement by the bank that
you have all of your holdings in that bank. And so, I want to
hear what you think about that.
How do we ensure that these small businesses feel safe, and
are we just going to see--how do we, again, treat a start-up
economy and allow these funds to work cost-effectively, and
should we get rid of this requirement by a bank that says that,
to get these terms, they have to have all their funds in that
bank?
Secretary Yellen. So, I am not aware of the requirement
that you mentioned, but certainly we want to make sure that
depositors--whether they are individuals or households or small
businesses--feel confident that the banks that they entrust
their savings to or their working balances that they use to pay
their workers, we want to make sure that they feel confident
that these banks are safe and that they can do business with
them.
And that is an important reason why we stepped in with the
FDIC and the Federal Reserve to intervene, because I do believe
the banking system in the United States is sound and resilient,
and we wanted to make sure that the problems at Silicon Valley
Bank and Signature Bank did not undermine confidence in the
soundness of banks around the country.
And we wanted to make sure that there was not contagion
that could affect other banks and their depositors.
Senator Cantwell. Yes. So, it is basically a requirement,
an affirmative covenant that they maintain all borrowers'
depositors.
Secretary Yellen. That is something imposed by the bank, I
assume?
Senator Cantwell. Yes, yes, on the start-ups, as a way to
corral. So I think this is why you had such a concentration,
and we should look at that as a particular issue.
What about Glass-Steagall? I have been a big supporter of
Glass-Steagall. And when you come to this moment--and I keep
thinking, ``Why did we ever allow us to have the commingling of
commercial and investment banking?''
It seems to me that continuing to protect depositors, and
having a system where people can take risk, and if they suffer
loss, is okay. But that is not what we have. We have such a
commingled system now. What do you think about relooking at
Glass-Steagall?
Now, I am not asking for the Treasury Secretary to make big
news here. I am really just asking if you think this same
situation would have occurred, the way it occurred, if we had
not, in 2000, gotten rid of Glass-Steagall?
Secretary Yellen. You know, we are very focused right now
on stabilizing the banking system and shoring up confidence,
and I think there will be plenty of time when it will be
appropriate to look at what happened and consider whether or
not regulatory or supervisory changes are necessary. And I look
forward to working with you and discussing what happened and
what response is appropriate.
But for now, I would like to see confidence restored in the
soundness of American banks.
Senator Cantwell. Thank you.
Well, I would just say this on this subject. I believe, in
the information age, one of America's secrets is access to
capital. So I want great access to capital formation. I do not
want to see these banks that understand start-ups go away. I do
not want it to be concentrated at big banks.
But I also want us to make sure that we have a system that
is--I think we see now from 2009 what happened, and now with
this incident, that the commingling of these things or giving
people--I am not sure that is the way we get access to capital.
I am not sure that that is--or at least we did not have a
system that protected us. It did not protect us in the end. So,
we have to get something----
Secretary Yellen. These were depository institutions; they
were not investment banks.
Senator Cantwell. Yes.
Secretary Yellen. They were normal banks.
Senator Cantwell. Yes, but blurred.
The Chairman. Madam Secretary, we have to move on. I happen
to share Senator Cantwell's views with respect to this matter.
Next is Senator Whitehouse, then Senator Casey.
Senator Whitehouse. Thank you, Mr. Chairman. Secretary
Yellen, I think you are the most available of all of the
cabinet members to come to hearings, and I just want you to
know that I appreciate it. You seem quite fearless about coming
into the lion's den, and we are always grateful to have you.
Secretary Yellen. Thank you.
Senator Whitehouse. You spoke recently to the Climate-
related Financial Risk Advisory Committee, and in your remarks
you pointed out that climate change will likely become ``a
source of shocks to the financial system that would lead to
declines. This would be precipitated by declines in asset
values that could cascade through the financial system,'' which
is a warning that Freddie Mac has also made with respect to
coastal property values.
You added that rising insured losses could cause insurers
to pull back from high-risk areas, with potentially devastating
consequences for property values.
We just had a hearing in my Budget Committee on wildfire
risk causing that effect to insurance and property markets, and
before that, coastal flooding and storm risk causing that
effect in insurance and property markets, and then the whole
thing can spill over to other parts of our interconnected
financial system--again, part of what Freddie Mac warned about,
that it would be worse than 2008.
We also heard testimony that the coastal property value
crash risk--and the wildfire property risk--could perfectly
well happen at the same time. It is not a question of one or
the other; they could both come to pass.
So we all know that shocks and panics and collapses and
disorderly transitions are notoriously hard to predict as to
exactly when they will occur. They are far easier to predict as
to what their level of severity will be should they occur.
My question to you is, setting aside timing, how serious to
the U.S. economy could the economic shocks that you warned of
in that speech be?
Secretary Yellen. So, I do not know how to quantify that
for you, but I do believe these are very serious risks. The
Financial Stability Oversight Council is prioritizing analyzing
those risks and has recognized that they pose a systemic threat
to American financial stability.
The regulators, the banking regulators, FHFA, are all
taking steps to analyze the way in which these risks could
affect the financial system, financial institutions. And we
created the committee that you referred to in order to bring
expertise into this enterprise.
But I think it is critically, critically important, and
these are severe risks.
Senator Whitehouse. Potentially deadly serious.
Secretary Yellen. Yes, very severe risks.
Senator Whitehouse. And just to--for people who are not
familiar with this particular arena, the words ``systemic
risk'' sound like a rather mild and inoffensive term. But it
actually refers to pretty devastating stuff, does it not?
Secretary Yellen. Yes, that is what systemic refers to,
exactly. Things that could cascade throughout the financial
system and have severe consequences for financial stability and
the economy.
Senator Whitehouse. Thank you.
In the time that I have left, I wanted to flag for you a
letter that I will put into the record now, if I may, Mr.
Chairman----
The Chairman. Without objection, so ordered.
[The letter appears in the appendix beginning on p. 56.]
Senator Whitehouse [continuing]. That a great number of us
on this committee signed to the Acting Director of FinCEN. The
chairman was a signatory of it; Senator Grassley was a
signatory of it; Senator Warren was a signatory of it. And we
are concerned that the development of the beneficial ownership
rule has been far less than we had hoped, and far less than we
believed the actual statutory language directed, both regarding
the so-called access rule, which is a subject of the letter,
and regarding the verification standard, and regarding the
court order requirement.
If you would, be good enough to take this back to your team
and make sure that you have a look at this, and make sure that
you approve of where they are going, because I believe they
have missed a very significant opportunity to significantly
strengthen our battle against kleptocracy with the rather weak
way in which these three parts of the rule have been rolled
out.
Thank you very much.
Secretary Yellen. Thank you.
Senator Whitehouse. That is for ``under advisement.''
Secretary Yellen. Thank you. I take it that way.
The Chairman. Senator Casey?
Senator Casey. Thank you, Mr. Chairman. Secretary Yellen,
you have been very patient. I am the last questioner, and I
will try to keep within my time, in light of your appearance
here. We are grateful for your time here. We are grateful for
your service to the country.
I do want to start just preliminarily by noting, in earlier
questioning about the phone call return rate at the IRS, there
have been statements made today, some of which went
unchallenged. Am I right to say that last year the phone call
return rate at the IRS was about a low number, like 13 percent?
Secretary Yellen. Correct.
Senator Casey. And the current number is between 80 and 90
percent?
Secretary Yellen. That is correct.
Senator Casey. That is important for the public record,
because I know there is a narrative that the other side falsely
is perpetuating. So, 80 to 90 percent is a whole lot better
than 13. You do not have to comment on that, but I will just
state that for the record.
Secretary Yellen. It is a huge, huge improvement.
Senator Casey. And that is----
Secretary Yellen. And the IRS has been tremendously under-
resourced, and the resources that Congress provided through the
IRA are critically important. They hired 5,000 customer service
representatives, have made enormous progress in working through
the paper backlog, and now we are going to see continued
improvements and great improvements in customer service.
Senator Casey. Thanks so much for that.
I want to talk to you first more broadly about energy
communities, in particular coal communities. I live in
Scranton, PA, born and raised there, still live there, and it
happens to be the hometown of the President.
But we live in a region that has basically five counties
that were so-called anthracite, hard coal counties
historically. Then in southwestern Pennsylvania, we have a much
larger number of counties that were so-called bituminous or
soft coal counties.
I do not have to tell you--most Americans know the story of
what happened to that industry. We were told, though, most
recently that the Appalachian Regional Commission reports that
coal employment has fallen by some 62 percent over the last
decade, leading to a broader decline in the region. That is
true in these communities in Pennsylvania.
The report also indicates that overall private-sector
employment in Appalachian coal counties--that would of course
go to West Virginia and several other States--has been flat
since the Great Recession, but it was increasing in the non-
coal communities. In the IRA, the Inflation Reduction Act, I
fought for an additional tax credit of 10 percent that would
encourage private companies to build new energy and
manufacturing projects in these energy communities.
To date, the Treasury Department has not released guidance
on how companies can claim these credits, or guidance on what
exact areas qualify. So, without that guidance, companies have
been reluctant to announce new projects in these coal or energy
communities, and we have seen new investment flowing to non-
energy communities.
So I would ask you to tell us, if you can, when can
Pennsylvania and other States that have these coal communities
expect Treasury to finalize the rules, the guidance, so these
coal country communities can get their share of new jobs and
investment?
Secretary Yellen. This is a tremendously important
provision. We recognize how hard hit these communities are, and
how important this bonus is. I can tell you that my staff is
working literally around the clock to write and implement these
regulations. They are tremendously complex, and we will do
this; it is a priority item. We will do this as quickly as we
possibly can.
I typically have several meetings a week with Tax Policy to
make sure that things are moving as rapidly as humanly
possible, and this is a priority item for us.
Senator Casey. Thank you, Madam Secretary. I appreciate
that.
And the next question I think I will submit for the record.
I just want to preview it for you. We have this bizarre
circumstance in the tax code where corporations are given a tax
break for activities that are often union-busting activities.
So, they get a tax break for that, and at the same time in
the 2017 tax bill passed here in the Senate, a provision for
union dues deduction and work expense deductions was taken away
from individuals. So the worker got a tax break taken away, and
big corporations have had this benefit to allow them to union
bust and get a break for it.
I have a No Tax Breaks for Union Busting Act with 30 of our
colleagues that I am trying to pass, and I will ask you a
specific question about that. But in the interest of time, I
will submit that for the record.
Thanks very much.
Secretary Yellen. Thank you, Senator Casey.
The Chairman. Madam Secretary, I very much share Senator
Casey's views. I am on his legislation for No Tax Breaks for
Union Busting. And I think you all had that dialogue about the
energy communities provision. Madam Secretary, I think we would
call this a priority. I would like to designate it a super-
priority, because Senator Casey led the effort for those energy
communities in the effort on the IRA.
I know it is extraordinarily important to a host of these
communities where there is a history of one energy policy, and
we have to get them the help Senator Casey's measure
envisioned. So, I thank him for it.
Madam Secretary, we are going to let you leave in the kind
of 2 minutes that I think we may have remaining, so we keep you
on the clock. As usual, you have accounted for yourself very
well today.
Secretary Yellen. Thank you, Mr. Chairman.
The Chairman. And I especially appreciate your saying, for
what I believe is the first time, that prioritization of debt
ceiling payments is just unworkable. That is the message that
needs to go out far and wide. In this committee--let the record
show--the Secretary has again said that is correct. This
committee has jurisdiction over these issues relating to the
full faith and credit of the United States, so I very much
appreciate what you are saying to us in your comments about
clean energy, your comments about housing.
You had the waterfront in front of you to talk about, and I
just want to make one point in wrapping up. Republicans, in
their tax amendments, these various tax amendments, define
taxable income so as to give many billionaires a free pass on
taxes.
That is really what the difference is. We feel very
strongly about protecting all those firefighters and nurses and
all the small business people. We all share that view. We are
just unwilling, as are you and the President--to your credit--
to give billionaires a free pass.
It is all about how these amendments define taxable income,
which would basically keep billionaires from getting audited or
paying little if any taxes for years on end. So, we look
forward to working with you in the days ahead.
For the information of members, questions for the record
for the Secretary are due at 5 p.m. next Thursday, March 23rd.
And the Finance Committee--and we thank you again,
Secretary Yellen--is adjourned.
Secretary Yellen. Thank you, Chair Wyden.
[Whereupon, at 12:59 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Hon. Mike Crapo,
a U.S. Senator From Idaho
Thank you, Mr. Chairman, and welcome to today's hearing, Secretary
Yellen. I appreciate you appearing before the committee in a timely
manner following the release of the President's budget.
While the budget is the focus of today's hearing, I expect that the
emergency measures taken this weekend by the Treasury Department,
Federal Reserve, and FDIC will also be appropriately discussed today.
It is important to learn more about what initiated the run on Silicon
Valley Bank, the impact of the Federal Reserve holding interest rates
low for too long, and what steps were--or were not--taken by Silicon
Valley Bank and the banking regulators.
In the meantime, I am concerned about the precedent of guaranteeing
all deposits and the market expectation moving forward. Once started,
moral hazard--like inflation--is not easily contained and does long-
lasting damage.
Inflation played a key role in the recent bank failures, as rising
interest rates and mismanaged interest rate risk led to a liquidity
crisis. Indeed, there is no issue more critical than the unacceptably
high inflation American families continue to face every day. Americans
have now experienced 16 months of inflation at or above 6 percent.
Costs of rent, groceries, and services continue to rise. Wages cannot
keep up.
Last year, the administration committed to working in a bipartisan
fashion to address this serious problem, noting the budget must
complement monetary policy. Instead, a reckless tax-and-spend agenda
was forced through Congress, rolling out trillions of dollars in debt-
financed spending and hundreds of billions of dollars in new taxes on
U.S. job creators.
The Congressional Budget Office says the Inflation Reduction Act
will not only increase inflation in the near term, but Treasury will
collect less corporate tax revenue with the partisan IRA in effect--
despite being sold as a bill to make corporations pay their ``fair
share.''
The Federal Reserve is having to compensate for this
administration's lack of budget discipline with growing interest rate
hikes. Rising interest rates are impacting household budgets; the
Federal Government's coffers; and, as we saw this week, our banking
system.
The President's budget demonstrates the administration has not
learned from its mistakes. After 2 years of policies that contributed
to record-high inflation and excessive deficit spending, this
administration is doubling down with more of the same. The spending
binge must stop. We must address our growing deficits in order to put
the United States' finances on a sustainable path, and pro-growth tax
policy should be part of the solution.
The Tax Cuts and Jobs Act led to one of the strongest economies in
generations. TCJA introduced competitive tax rates while broadening the
base, including by enacting the first global minimum tax of its kind,
and putting an end to corporate inversions. It also contributed to
record-high corporate tax receipts, both nominally and as a share of
gross domestic product.
But instead of considering bipartisan, pro-growth policies, the
President's budget includes a whopping $4.7 trillion of new and
increased taxes on American job creators, which ultimately means fewer
jobs and lower wages. It also includes higher taxes on American energy
producers.
Earlier today, Senator Barrasso and a number of his Republican
colleagues, including myself, sent a letter to you, Secretary Yellen,
raising concerns with the over-$100 billion in increased energy taxes
proposed in the President's fiscal year 2024 budget. Mr. Chairman, I
ask that the letter be included in the hearing record.
The administration's shortsighted, partisan agenda extends to its
unilateral approach to the OECD international tax agreement. For the
last 2 years, Treasury has used the OECD negotiations to attempt to
compel changes in U.S. law without regard for the effect on U.S.
revenue, U.S. companies, and U.S. workers.
Not only has the administration failed to put a stop to digital
services taxes, but now foreign countries threaten to impose
extraterritorial taxes on U.S. companies under the global minimum tax--
at Treasury's invitation. The latest OECD guidance confirms the
administration has agreed to allow foreign countries to collect U.S.
GILTI revenue, and worse, tax U.S. companies on their U.S. profits in
violation of our tax treaties. The budget fails to consider these
revenue impacts, which, if implemented, will result in billions of
dollars of lost U.S. revenue.
Meanwhile, the administration continues to hide its true intentions
for ``transforming'' the IRS. The budget doubles down on the $80
billion already given to the IRS, including 2 additional years of plus-
up funding totaling $29.1 billion solely for ``enforcement and
compliance initiatives,'' in addition to $14.1 billion more of yearly
funding. That's another $43 billion!
Secretary Yellen, I agree with you that having a funding plan for
an agency budget that dwarfs many others is ``critical.'' In the
meantime, the IRS has embarked on a ``spend first, plan later''
approach that is not transparent or responsible, and is a surefire
recipe for error, waste, and mismanagement.
While we may not have all the details, we do know that only 6
percent of the existing plus-up funding is for modernization, while
over 62 percent is solely for hiring--more than 93 percent of which is
enforcement hiring. These new funds are not going to replace retiring
IRS agents, as annual appropriations already provide that funding, and
the administration has not requested any reductions in IRS annual
funding to account for replacing retirees with plus-up funding.
Secretary Yellen, there are opportunities for the administration to
work across the aisle on common-sense economic policies, but nothing
suggests the President is abandoning the partisan tax-and-spend
policies of the last 2 years.
This administration must recommit to working with Republicans to
develop real solutions that will stabilize the economy and create
higher wages and opportunities for American workers.
______
United States Senate
WASHINGTON, DC 20510
March 16, 2023
The Honorable Janet Yellen
Secretary
Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, DC 20220
Dear Secretary Yellen:
We write with grave concern regarding the administration's continued
hostility towards American energy production. Currently, working
families and small businesses are facing immense challenges including
high energy prices. At the same time, our allies and partners across
the globe are asking for reliable American energy resources to escape
their dependence on Russian energy and to deal with the energy crisis.
Instead of increasing U.S. energy production, the administration is
focused on increasing energy taxes. The administration has once again
doubled down on weaponizing the tax code against U.S. energy producers.
The Department of Treasury's General Explanations of the
Administration's Fiscal Year 2024 Revenue Proposals (Green Book) is
filled with crippling tax hikes on the production of oil, gas, and
coal.
The latest Green Book calls for $4.7 trillion in new tax increases,
which will fall on a wide range of industries, as well as workers.
These tax hikes alone will deliver a heavy blow to energy production
while simultaneously suppressing growth in numerous sectors of the
economy. The administration decided to go even further in imposing
additional burdens on energy producers by deleting virtually every
longstanding tax provision in the Internal Revenue Code designed to
support traditional energy production. Specifically, the Green Book
calls for more than $100 billion in targeted tax increases on fossil
fuels.
What is most troubling is that the administration explicitly
acknowledges its intention to chill investment in conventional energy
production, stating, ``These oil, gas, and coal tax preferences distort
markets by encouraging more investment in the fossil fuel sector than
would occur under a neutral system. This market distortion is
detrimental to long-term energy security and is also inconsistent with
the administration's policy of supporting a clean energy economy,
reducing our reliance on oil and reducing greenhouse gas emissions.''
It is alarming that the administration believes utilizing our Nation's
abundant natural resources will be detrimental to long-term energy
security. Unbelievably, the administration would willingly suppress
domestic energy production knowing it means fewer jobs and higher
prices for the American people. The Green Book proposals are neither
policy neutral nor do they give proper consideration to the fact that
fossil fuels are the highest taxed industry in the world, and pay
relatively high rates of tax to the Federal Government--as well as
State and local governments.
Many of the President's targeted tax hikes would repeal cost recovery
provisions and deny necessary and ordinary deductions which give energy
producers parity with other sectors of the economy. One example of this
is the proposed repeal for the expensing of Intangible Drilling Costs
(IDCs), which are widely utilized by independent producers to deduct
expenses related to drilling. These expenses include labor, site
preparation, repairs, equipment rentals, and survey work. Oftentimes
these items represent between 60 and 80 percent of total production
costs.
Another important cost recovery mechanism the administration seeks to
eliminate is Percentage Depletion. This is a type of depreciation for
mineral-based assets that allows for a deduction from taxable income to
reflect the declining production of reserves over time. Percentage
Depletion is in line with standard depreciation for other assets and is
necessary to recover costs associated with maintaining production on
marginal wells, mines, and deposits. The entities benefitting from
Percentage Depletion are often independent and family-owned production
companies, as well as farmers and ranchers who may rely on small
royalty payments.
There are more than a dozen other related energy tax provisions in the
cross hairs of the administration's tax plan, all of which pale in
comparison to the lavish subsidies afforded to the renewable energy
industry. These proposals undermine the very industry responsible for
providing 80 percent of the Nation's energy needs. The administration
is attacking the industry providing our allies with an alternative to
relying on and lining the pockets of dictators in Russia, Iran, and
Venezuela. These totalitarian regimes do not produce, or refine, with
the same environmental standards we see with American-made energy.
America is fortunate to have abundant energy resources. Our Nation
needs to be focused on unleashing American energy and innovation
instead of throwing away one of our biggest economic and geopolitical
advantages. When facing a whole-of-government assault, American energy
producers cannot continue to make long-term investments, which provide
stability and energy security both at home and overseas. These crushing
tax proposals, paired with the administration's heavy handed
regulations and mandates, would threaten American families' access to
affordable and reliable energy, while giving our adversaries the upper-
hand in the global energy markets.
Sincerely,
John Barrasso, M.D. Mike Crapo
U.S. Senator U.S. Senator
Cynthia M. Lummis Roger Marshall, M.D.
U.S. Senator U.S. Senator
Kevin Cramer Dan Sullivan
U.S. Senator U.S. Senator
John Cornyn J.D. Vance
U.S. Senator U.S. Senator
James Lankford Rick Scott
U.S. Senator U.S. Senator
James E. Risch Thom Tillis
U.S. Senator U.S. Senator
Mike Braun Katie Boyd Britt
U.S. Senator U.S. Senator
John Hoeven Marsha Blackburn
U.S. Senator U.S. Senator
Tim Scott Steve Daines
U.S. Senator U.S. Senator
John Kennedy Shelley Moore Capito
U.S. Senator U.S. Senator
Bill Cassidy, M.D. Ted Cruz
U.S. Senator U.S. Senator
______
Submitted by Hon. Sheldon Whitehouse,
a U.S. Senator From Rhode Island
United States Senate
WASHINGTON, DC 20510
March 15, 2023
Himamauli Das
Acting Director
Financial Crimes Enforcement Network
U.S. Department of the Treasury
P.O. Box 39
Vienna, VA 22183
RE: Beneficial Ownership Information Access and Safeguards, and Use of
FinCEN Identifiers for Entities
Docket Number: FINCEN-2021-0005; RJN: 1506-AB49/AB59; Document
Number: 2022-27031
Dear Director Das,
We write in response to the Financial Crimes Enforcement Network's
(FinCEN) notice of proposed rulemaking regarding ``Beneficial Ownership
Information Access and Safeguards, and Use of FinCEN Identifiers for
Entities.'' This rulemaking is an important step in implementing the
bipartisan Corporate Transparency Act (CTA),\1\ part of the Anti-Money
Laundering Act of 2020 (AML Act), which was enacted into law as a piece
of the National Defense Authorization Act for Fiscal Year 2021.\2\
While we appreciate the time and effort you have put into the
implementation of this critical law, we have concerns that this
proposed rule strays from congressional intent and erects unnecessary
and costly barriers to accessing beneficial ownership information (BOI)
that risk undermining the utility of the beneficial ownership
directory. We encourage you to revise the rule to ensure it tracks
closer to the text of the statute, remove excessive barriers to
accessing the directory by authorized recipients, and enhance the
utility of the directory.
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\1\ William M. (Mac) Thornberry National Defense Authorization Act
for Fiscal Year 2021, Pub. L. No. 116-283, Sec. Sec. 6401-6403, 134
Stat. 3388, 4604-4625.
\2\ Sec. Sec. 6001-6511, 134 Stat. at 4547-4633.
Enacted at the end of the 116th Congress, the CTA is the product of a
sensitive and painstaking legislative process, and its passage
represents perhaps the most important anti-money laundering reform in 2
decades. ``For years, experts routinely ranked anonymous shell
companies--where the true, `beneficial' owners are unknown--as the
biggest weakness in our anti-money laundering safeguards.''\3\ The CTA
directly tackled this problem by requiring FinCEN to create a national
directory of beneficial owners of companies within the United
States,\4\ bolstering our nation's efforts to combat ``money
laundering, the financing of terrorism, proliferation finance, tax
evasion, human and drug trafficking, sanctions evasion, and other
financial crimes.''\5\ Despite its legislative success, this
achievement can only be realized if the system works in practice. To
that end, we offer the following recommendations.
---------------------------------------------------------------------------
\3\ Press Release, Ian Gary, Executive Director, FACT Coalition,
Landmark Bill Ending Anonymous U.S. Companies Is Enacted (January 1,
2021), https://thefactcoalition.org/landmark-bill-ending-anonymous-u-s-
companies-is-enacted.
\4\ Sec. 6403, 134 Stat. at 4605-4625.
\5\ H.R. Rep. No. 116-617, at 2139 (2020) (Conf. Rep.).
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Access and Use
State, Local, and Tribal Law Enforcement
While we appreciate that the proposed rule aligns with congressional
intent by ensuring that law enforcement is defined to include the
enforcement of both civil and criminal law,\6\ we have concerns that
the proposed access procedures for State, local, and Tribal (SLT) law
enforcement create excessive and costly barriers that were considered
and rejected by Congress before enactment of the CTA. As drafted, the
proposed rule would require SLT law enforcement to obtain ``a court
order'' before requesting BOI from FinCEN.\7\ Lawmakers debated such a
requirement,\8\ but Congress ultimately rejected that language in favor
of granting access to any ``State, local, or Tribal law enforcement
agency, if a court of competent jurisdiction, including any officer of
such a court, has authorized the law enforcement agency to seek the
information in a criminal or civil investigation.''\9\ Legislators were
clear that, while approval from a `` `Court of competent jurisdiction,'
for purposes of this measure,'' required sign-off from a lawyer, it was
not limited to a court order from a judge--but rather encompassed
authorization from ``an officer of such a court such as a judge,
magistrate, or a Clerk of Courts.''\10\ The final rule should hew to
congressional intent in this regard.
---------------------------------------------------------------------------
\6\ See Beneficial Ownership Information Access and Safeguards, and
Use of FinCEN Identifiers for Entities, 87 Fed. Reg. 77404, 77454
(proposed December 16, 2022) (to be codified at 31 CFR pt. 1010).
\7\ 87 Fed. Reg. at 77456.
\8\ For example, the House Financial Services Committee considered
and rejected an amendment seeking to require State, local, and Tribal
agencies to obtain a ``court-issued subpoena or warrant'' before
accessing the beneficial ownership directory. Corporate Transparency
Act of 2019: Markup of H.R. 2513 Before the House Committee on
Financial Services, 116th Congress (June 11, 2019) (``An amendment
offered by Mr. Davidson, no. 2d, was NOT AGREED TO by a record vote of
25 ayes and 29 nays.''), https://democrats-financialservices.house.gov/
events/eventsingle.aspx?EventID=403829.
\9\ 31 U.S.C. Sec. 5336(c)(2)(B)(i)(II). Congress's decision to
allow clerks to approve access should be viewed as a one-off, due to
the relative insensitivity of this business data, and should not be
viewed as congressional approval for court clerks to be able to
authorize access to more intrusive surveillance authorities for which
authorization has been traditionally entrusted to judges.
\10\ H.R. Rep. No. 116-617, at 2140 (2020)(Conf. Rep.).
We also have concerns that the proposed rule deviates from
congressional intent by requiring SLT law enforcement agencies to file
additional information with FinCEN after obtaining authorization from a
court of competent jurisdiction that needlessly risks complicating and
slowing investigations.\11\ Moreover, asking FinCEN to collect and
manually review extra information from SLT law enforcement agencies
that was not mandated by the statute is likely to overwhelm FinCEN's
capacities, thereby undermining the usefulness of the directory and
conflicting with the clear purpose of the CTA. As such, we request that
the final rule remove these additional barriers to accessing the
directory.
---------------------------------------------------------------------------
\11\ 87 Fed. Reg. at 77456.
Additionally, we recommend amending the proposed 31 CFR
Sec. 1010.955(b)(2) to ensure the ability to use BOI in court cases
following the conclusion of any related investigation.\12\
---------------------------------------------------------------------------
\12\ 87 Fed. Reg. at 77454.
---------------------------------------------------------------------------
Financial Institutions
As drafted, this proposed rule risks impeding financial institutions'
timely access to the beneficial ownership directory. Once the database
is live, financial institutions across the country will immediately
begin requesting access to BOI for the 32 million reporting companies
in the country.\13\ It is essential that FinCEN establish an automated
process (ideally one that integrates with existing compliance systems
at financial institutions) for fielding and responding to these
requests. If FinCEN manually reviews every request from each financial
institution, it risks overwhelming the capacity of the agency,
generating major delays in the financial system, and undermining the
utility of the directory.
---------------------------------------------------------------------------
\13\ See 87 Fed. Reg. at 77408.
We also urge FinCEN to clarify in the final rule that financial
institutions are not expected to affirmatively obtain new consent from
an existing reporting company customer each time a financial
institution needs to query the directory for information on such
customer--assuming the customer previously provided the financial
---------------------------------------------------------------------------
institution with its consent to request BOI from FinCEN.
Finally, the proposed rule deviates from congressional intent by
inappropriately restricting financial institution access to and use of
BOI.\14\ The current proposal could be read to forbid financial
institutions from accessing the directory to assist with most of their
Bank Secrecy Act, anti-fraud, and sanctions screening requirements.
Congress intended that the directory be ``highly useful'' to financial
institutions, among other authorized users, and the CTA explicitly
contemplates that financial institutions will incorporate BOI into
their AML/CFT programs.\15\ Further, Congress was clear that the
purpose of the legislation was to combat the abuse of anonymous
companies writ large, including their use in sanctions evasion,
financial fraud, and myriad other illicit activity.\16\ Since
enactment, Vladimir Putin's invasion of Ukraine has only amplified the
importance of the CTA, especially with regards to sanctions
enforcement. While this proposed rule would provide national security,
law enforcement, and intelligence agencies with critical information to
aid federal implementation of sanctions against Putin and his
oligarchs, financial institutions may continue to struggle to screen
customers against sanctions lists if they are forbidden from accessing
the BOI directory for that purpose. This undermines the law and should
be changed.
---------------------------------------------------------------------------
\14\ See 87 Fed. Reg. at 77415.
\15\ Sec. Sec. 6402(6)(B), 6402(8)(C), 6403(d)(l)(B), 134 Stat. at
4605, 4624.
\16\ Sec. 6402, 134 Stat. at 4604-4605; H.R. Rep. No. 116-617, at
2139 (2020) (Conf. Rep.).
---------------------------------------------------------------------------
Treasury OIG and GAO
The draft rule drifts from the statute by failing to provide explicit
access to two key bodies tasked with conducting congressionally-
mandated audits, studies, and investigations regarding the beneficial
ownership directory: the Department of the Treasury's Office of
Inspector General (OIG) and the Comptroller General of the United
States.
The Inspector General and OIG staff are mandated with ``official
duties'' by the CTA to field complaints and comments regarding the
beneficial ownership directory, conduct investigations related to such
complaints and comments or with regard to any cybersecurity breaches of
the directory, and submit reports to Congress summarizing such
complaints and comments, detailing the findings of such investigations,
and providing critical policy recommendations.\17\ The proposed 31 CFR
Sec. 1010.955(b)(5) would authorize the Secretary of the Treasury to
provide access to any ``officers and employees of the Department of the
Treasury whose official duties the Secretary determines require such
inspection or disclosure.''\18\ However, the proposed rule does not
explicitly address the unique role of the Inspector General,
potentially causing confusion. As such, we encourage you to update the
rule to provide explicit access for OIG in accordance with the statute.
---------------------------------------------------------------------------
\17\ 31 U.S.C. Sec. 5336(c)(5)(A), 5336(h)(4)-(5).
\18\ 87 Fed. Reg. at 77454.
Further, the AML Act instructs the Comptroller General of the United
States and employees of the Government Accountability Office (GAO) with
conducting multiple audits and studies related to the beneficial
ownership directory.\19\ Congress clearly intended for Treasury to
grant the Comptroller General and GAO employees access to the directory
for their official duties related to these audits and studies, but the
proposed rule includes no mention of either the Comptroller General or
GAO. We urge you to clarify appropriate Comptroller General and GAO
access in the final rule.
---------------------------------------------------------------------------
\19\ See 31 U.S.C. Sec. 5336(c)(I0); Sec. 6502, 134 Stat. at 4626-
4628.
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Verification
We are concerned that the proposed rule does not implement the
congressional mandate that FinCEN ensure that beneficial ownership
information reported to FinCEN be accurate, complete, and highly useful
by implementing appropriate verification mechanisms. We urge you to
ensure any final rule and the processes pursuant to which BOI is
collected and maintained include verification.
In drafting the CTA, Congress was aware of deficiencies limiting the
utility of the information collected by certain foreign beneficial
ownership directories which did not verify reported information.\20\ As
such, Congress explicitly stated that one of the purposes of the CTA
was to ``bring the United States into compliance with international
anti-money laundering and countering the financing of terrorism
standards;''\21\ such standards define ``accurate'' BOI as
``information, which has been verified to confirm its accuracy by
verifying the identity and status of the beneficial owner using
reliable, independently sourced/obtained documents, data or
information.''\22\ Accordingly, the statute requires Treasury, on its
own and coordinating with other relevant federal, state, and tribal
agencies, to implement BOI verification mechanisms.\23\
---------------------------------------------------------------------------
\20\ See, e.g., Curbing Corruption Through Corporate Transparency
and Collaboration: The British Model: Briefing of the Commission on
Security and Cooperation in Europe, 116th Congress (May 29, 2019).
\21\ Sec. 1A6402(5)(E), 134 Stat. at 4604-4605.
\22\ FATF, International Standards on Combating Money Laundering
and the Financing of Terrorism and Proliferation, at 94 (2023), https:/
/cfatf-gafic.org/home-test/english-documents/cfatf-resources/14728-
fatf-recommendations-2012-updated-october-2020/file.
\23\ 31 U.S.C. Sec. Sec. 5336(d)(1)-(2).
Moreover, it is critical that this verification process be automated
and built into the BOI reporting process. If FinCEN were to manually
verify every submission of BOI, it risks overwhelming the capacity of
the agency, generating major inefficiencies for reporting companies,
and delaying access to accurate, complete, and highly useful BOI for
authorized recipients.
Outreach, Templates, and Step-by-Step Guides
As you move forward with the implementation of the CTA, we urge you to
create clear, concise templates and forms for requesting and accessing
the BOI directory tailored to each type of authorized recipient. We
also encourage FinCEN to create clear and concise training videos and
step-by-step guides tailored to each type of authorized recipient of
BOI explaining in plain language how to go about requesting and
accessing BOI information from FinCEN. The CTA will only achieve its
goals if appropriate users know how to access BOI and feel confident in
their ability to access the directory within the confines of the law.
We commend FinCEN for your work to implement this historic legislation.
Pending consideration of our feedback, we look forward to the swift
implementation of the beneficial ownership information directory.
Sincerely,
Sheldon Whitehouse Charles E. Grassley
U.S. Senator U.S. Senator
Ron Wyden Marco Rubio
U.S. Senator U.S. Senator
Elizabeth Warren
U.S. Senator
CC: The Honorable Janet Yellen, U.S. Secretary of the Treasury
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
This morning the Finance Committee welcomes Treasury Secretary
Janet Yellen for a hearing on the President's budget proposal.
Everyone here, regardless of political stripe, understands that the
FDIC, the Fed, and the Treasury Department are putting in long hours to
contain the fallout of the recent bank closures. The process is moving
forward under existing law.
Investigations are underway at the SEC and Department of Justice.
Senator Brown, chair of the Banking Committee and a valued member of
this committee, is determined to get to the bottom of exactly what went
wrong.
Nerves are frayed at the moment. One of the most important steps
the Congress can take now is make sure there are no questions about the
full faith and credit of the United States. That means paying the bills
incurred by Presidents of both parties and taking a default off the
table.
With respect to the budget debate, after a request from me and
Senator Whitehouse, the nonpartisan Congressional Budget Office did the
math on the recent fiscal promises we've heard from House Republicans.
Those promises are piling up, but their numbers aren't adding up. They
want to balance the budget in 10 years, but they've announced a long
list of untouchables. No reductions in defense spending. No cuts to
Medicare or Social Security. No touching veterans' programs. No asking
the wealthy or corporations to pay a penny more in taxes. A couple of
those items would get bipartisan support, but certainly not all of
them.
Senator Whitehouse and I asked the CBO to run the numbers. Is it
even possible for Republicans to stand by all those commitments? Does
the math add up? The short answer is ``no.'' Not even close.
What CBO found is that for Republicans to make the math work, they
would have to cut every other Federal program by 86 percent. Goodbye to
Medicaid and the guarantee of nursing home coverage. The border would
be unprotected. Roads and bridges would crumble back into the stone
age. And if Republicans also want to extend the Trump tax law, then
you'd have to cut everything else. Gone.
Given that, it's not a big mystery why House Republicans haven't
yet put a budget on paper to show to the American people. They're
living way out in la-la land.
Democrats are following a smarter approach. The President has put
out a budget that's based on a simple proposition: helping working
families and the middle class get ahead and reducing the deficit at the
same time are not mutually exclusive.
There are a few budget items I want to highlight that are relevant
to the Treasury.
First, last week this committee held an excellent hearing on the
affordable housing crisis. That's an area where I believe there's a
clear opportunity for bipartisan cooperation in this Congress. The
budget proposes expanding the Low-Income Housing Tax Credit and
creating the Neighborhood Homes Tax Credit, among other ideas. Senator
Cantwell, Senator Cardin, and Senator Young are championing our efforts
here. I'm going to continue to work with them on these proposals and
more. This crisis needs a solution, and there's no substitute for
increasing the supply of affordable housing.
Second, the budget calls for expanding two of the most significant
sources of support for working people and families: the Child Tax
Credit and the Earned Income Tax Credit. When the Congress passed those
expansions in 2021, there were huge, almost immediate reductions in
poverty. With a little financial relief, millions of working Americans
felt like they could finally breathe for the first time in a long time.
I'd like for them to have that feeling of relief once again.
And third, I've talked for a long time about the need to address
the basic unfairness of our two-tiered tax system. There's one set of
rules for people who work for a living--teachers, nurses, and
firefighters--who pay taxes straight out of every paycheck. Then
there's another set of rules for the uber-wealthy, who can pay what
they want, when they want, and potentially nothing at all. Although the
President and I have proposed slightly different ideas for addressing
this unfairness, it's clear we're rowing in the same direction.
One final issue before I wrap up. I've got serious concerns about
the approach the administration has taken to implementing the portion
of the Inflation Reduction Act that deals with sourcing critical
minerals. Free trade agreements cannot be unilaterally decided by the
executive branch. They require consultation and consent from Congress.
That includes any agreements on critical minerals.
I want to thank Secretary Yellen for joining the committee today.
______
Prepared Statement of Hon. Janet L. Yellen,
Secretary, Department of the Treasury
Chairman Wyden, Ranking Member Crapo, and members of the committee,
thank you for inviting me here today.
I'd like to begin with an update on the recent developments in the
banking system. This week, the government took decisive and forceful
actions to strengthen public confidence in our banking system.
First, we worked with the Federal Reserve and FDIC to protect all
depositors of the two failed banks. On Monday morning, customers were
able to access all of the money in their deposit accounts so they could
make payroll and pay the bills. Shareholders and debt holders are not
being protected by the government. Importantly, no taxpayer money is
being used or put at risk with this action. Deposit protection is
provided by the Deposit Insurance Fund, which is funded by fees on
banks. Second, the Federal Reserve is providing additional support to
the banking system with a new lending facility. This will help
financial institutions meet the needs of all of their depositors.
I can reassure the members of the committee that our banking system
remains sound, and that Americans can feel confident that their
deposits will be there when they need them. This week's actions
demonstrate our resolute commitment to ensure that depositors' savings
remain safe.
Now, let me turn to the topic of this hearing: the President's
Fiscal Year 2024 budget.
Over the past 2 years, the United States has experienced a 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. Today, our unemployment rate is near
historic lows. And we've seen the strongest 2 years of business
creation in history.
Now our task is to navigate our economy's transition from rapid
recovery to sustainable growth. This includes 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've taken to expand supply and provide cost relief in areas like
energy and health care.
With your partnership, we've also laid a foundation for long-term
economic growth. In just the past 2 years alone, Congress passed three
transformational laws: a generational investment in infrastructure; a
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. We are seeing the early
results. In just 7 months, there's been a wave of investments in clean
energy manufacturing across the country. And our new resources for the
IRS are already paying off. Taxpayers are getting drastically improved
customer service this year. For example, we've 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. 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've proposed a minimum income tax of 25 percent on
taxpayers with wealth in excess of $100 million. We've also proposed an
increase of 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.
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.
Thank you, and I look forward to taking your questions.
______
Questions Submitted for the Record to Hon. Janet L. Yellen
Questions Submitted by Hon. Ron Wyden
Question. President Biden is absolutely right when he says that the
tax system in America is deeply unfair. There's one set of rules that
apply to workers who pay out of every paycheck and there's another set
of rules that lets billionaires pay what they want, when they want. I
am glad to see the President agrees that we need to put an end to two
tax codes and has built on my Billionaires Income Tax with his own tax
on billionaires.
The administration's analysis found the top 400 billionaires paid
just 8.2 percent in tax on average.
How does the current tax system allow billionaires to pay so little
in tax, and how do proposals like mine and the President's billionaires
proposals make billionaires finally pay their fair share?
Answer. Under current law, some of the wealthiest Americans pay
very little tax because they receive their income as capital gains,
which are not taxed until realized and may escape income taxation
entirely at death.
The President's budget would impose a minimum tax of 25 percent on
total income, inclusive of unrealized capital gains. It would apply to
the wealthiest 0.01 percent, taxpayers with more than $100 million in
wealth. This proposal would put an end to the situation that exists
today, in which wealthy households borrow against their wealth and use
that borrowed money to finance a lavish lifestyle while at the same
time reporting that their wealth generates little income for tax
purposes.
Your proposal for a billionaires income tax would address the same
root problem using a different approach: marking-to-market the value of
publicly traded assets every year and imposing a deferral charge on
other assets. It would also put an end to the problem of wealthy
taxpayers with large investment gains reporting little income for tax
purposes.
Question. President Biden has put out a budget that reduces the
deficit by nearly $3 trillion. Meanwhile Republicans continue to push
to make Trump's 2017 tax cut for the rich permanent, which would only
add to the deficit over time.
How much would making the 2017 tax law permanent add to the
deficit, and what percentage of the tax cuts would go to just the top 1
percent of households?
Answer. The Congressional Budget Office estimates that making
permanent the individual and estate tax provisions of the TCJA would
cost $2.6 trillion over the next decade. According to the Tax Policy
Center, about one-fifth of the individual and estate tax cuts would go
to the top 1 percent.
______
Questions Submitted by Hon. Mike Crapo
Question. When outstanding debt was approaching the statutory limit
of $31.4 trillion in January, you told Congress that Treasury was ``not
currently able to provide an estimate of how long extraordinary
measures will enable us to continue to pay the government's
obligations.'' Since that time, the non-partisan Congressional Budget
Office (CBO) has estimated how long the government can pay the bills
and projected the X-Date between July and September 2023. Private
forecasters have concurred, but note the uncertainly in tax revenue,
such as filings in April.
When will Treasury be able to provide a more accurate X-Date range
to Congress?
Answer. I wrote to congressional leaders on January 13, 2023 and
communicated that although the period of time that extraordinary
measures would last is subject to considerable uncertainty, it was
``unlikely that cash and extraordinary measures [would] be exhausted
before early June.''\1\ When the government reached the debt limit on
January 19, 2023, Treasury sent a further notification to congressional
leaders \2\ and also posted online a detailed description of the
extraordinary measures Treasury was considering using during the debt
limit impasse.\3\
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\1\ https://home.treasury.gov/system/files/136/Debt-Limit-Letter-
to-Congress-McCarthy-202301
13.pdf.
\2\ https://home.treasury.gov/system/files/136/Debt-Limit-Letter-
to-Congress-20230119-McCarthy.pdf.
\3\ https://home.treasury.gov/system/files/136/
Description_Extraordinary_Measures-2023_01_
19.pdf.
Treasury committed to keep Congress informed as we approached the
exhaustion of our resources, and we sent letters to congressional
leaders on May 1st, May 15th, May 22nd, and May 26th underscoring the
importance of raising or suspending the debt limit by early June. Debt
limit projections from other organizations were generally consistent
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with Treasury's estimates.
Treasury's estimates were based on data and projections regarding
Federal receipts, outlays, and debt. As early June approached, Treasury
posted online detailed information regarding outstanding debt subject
to the limit and the amounts of remaining extraordinary resources.\4\
This information was in addition to the Daily Treasury Statement, which
provides information on Treasury's cash and debt operations for the
Federal Government.\5\ As the information shows, by June 1st,
Treasury's cash balance had fallen below $23 billion, indicating
considerable risks to the Federal Government's ability to continue to
satisfy all of its obligations, and available resources continued to
decline over the following days.
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\4\ See, e.g., https://home.treasury.gov/system/files/136/Daily-
Debt-Subject-to-Limit-Activity-2023-May-02.pdf, https://
home.treasury.gov/system/files/136/Daily-Debt-Subject-Limit-Activity-
2023_05_05.pdf, https://home.treasury.gov/system/files/136/Daily-Debt-
Subject-to-Limit-Activity-2023-05-12.pdf.
\5\ https://www.fiscal.treasury.gov/reports-statements/dts.
Question. President Biden pledged that no American earning less
than $400,000 would see any of their taxes increase while he is
President. During your testimony to the Finance Committee, Senator
Young asked you to provide a list of TCJA tax rates or other
provisions, that if allowed to sunset after 2025, would increase taxes
on taxpayers earning less than $400,000 a year, in violation of the
President's pledge. In your response to Senator Young, you stated, ``I
don't know that I can provide you with that. . . . I think that it is a
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very complex exercise, and I'm not sure.''
If Congress is to engage in sincere discussions with the President
and his team about these important provisions, and take him at his word
about the clear red line he has issued publicly many times when it
comes to Americans earning less than $400,000, then it is essential
that members of Congress on both sides have a clear understanding of
exactly where the President's red line exists when it comes to all
expiring TCJA rates and provisions. Understanding there may be
complexities involved makes it even more essential that Congress can
receive clarity from you on how the administration views each and every
one of these TCJA provisions with regard to the President's pledge.
Please provide a list of TCJA tax rate or other provisions that if
allowed to sunset after 2025 would increase taxes on taxpayers earning
less than $400,000 a year, in violation of the President's pledge.
Answer. The TCJA is a complex piece of legislation with many
interrelated parts, including both gross tax increases and tax cuts.
The net effect of the expiring provisions on a household depends on how
all expiring provisions are addressed. The President will work with the
Congress to address the 2025 expiration of portions of the TCJA, and
focus tax policy on rewarding work not wealth, based on the following
guiding principles. The President:
Opposes increasing taxes on people earning less than
$400,000 and supports cutting taxes for working people and
families with children to give them more breathing room;
Opposes cutting taxes for the wealthy--either extending tax
cuts for the wealthy or bringing back tax breaks that would
benefit the wealthy; and
Supports additional reforms to ensure that wealthy people
and big corporations pay their fair share, so that America pays
for the continuation of tax cuts for people earning less than
$400,000 in a fiscally responsible manner and address the
problematic sunsets created by President Trump and
congressional Republicans.
Question. In testimony to the House Committee on Ways and Means,
you stated that ``the European Union has adopted it [meaning, the
Pillar 2 regime] 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.'' Yet, your proposal to apply the Under-Taxed Profits Rule, or
UTPR, follows a conventional revenue estimating methodology that looks
at whether other countries have adopted the Pillar 2 rules into
domestic law. The result is a more than half a trillion dollar revenue
estimate of imposing a UTPR because other countries have not officially
adopted the Pillar 2 rules into law.
To confirm, does your UTPR revenue estimate assume that no other
country has implemented the Pillar 2 regime?
However, if other countries are moving forward with implementing
Pillar 2, as you have indicated they are, is the UTPR revenue that
actually could be collected by the U.S. much less than what you have
included in your revenue estimate?
Answer. The revenue estimate for the UTPR was done following
longstanding revenue estimating conventions and is consistent with the
policies of foreign countries at a given point in time. The estimate
would change as foreign countries enact Pillar 2.
Question. In response to last year's questions for the record
(QFRs), you responded that Treasury has briefed members of Congress and
their staff numerous times on the OECD agreement and that there has
been meaningful consultation. In reality, you have briefed Senate
Finance members only once--in 2021--on the OECD agreement and there has
been no meaningful consultation. Treasury has also repeatedly declined
to answer our questions regarding the revenue effect of the agreement,
the impact on American companies and U.S. tax incentives, like the
research and development tax credit, and the treaty implications of the
agreement. The lack of transparency and consultation with Congress is
particularly concerning given the assurances Treasury has made to other
countries that the U.S. will implement the agreement. Treasury would be
wise to remember that Congress has sole tax-writing authority, not the
administration.
Please provide the dates that Treasury has formally briefed members
of Congress, as well as congressional staff members.
Answer. Congressional input on the OECD agreement continues to be a
priority for Treasury. Our Office of Tax Policy staff has briefed
congressional staff on a bipartisan, bicameral basis throughout the
negotiations on the agreement. Congressional input has been valuable in
developing our negotiating positions and is ultimately reflected in the
substance of the current agreement.
Question. Will you commit to formally briefing Senate Finance
members at least quarterly on OECD negotiations?
Answer. My tax policy staff would be pleased to brief members on
the OECD negotiations when invited to do so.
______
Questions Submitted by Hon. John Barrasso
Question. The Green Book proposals contain numerous provisions
targeting fossil fuels production. With roughly $100 billion in total
tax increases on energy production, $31 billion falls squarely on
domestic production. The vast majority of which is cost recovery
including: expensing for intangible drilling costs, depletion,
geological and geophysical amortization, etc. Furthermore, the FY 2024
tax proposals says that ``. . . oil, gas, and coal tax preferences
distort markets by encouraging more investment in the fossil fuel
sector than would occur under a neutral system.''
Is this an admission that the administration is intentionally
aiming to limit investment in domestic energy production of oil, gas,
and coal? Has the administration given consideration to the impact that
this could have on energy prices and job creation, particularly workers
in the energy sector? Does the administration believe that less
production of energy is a positive for American families and our allies
around the world? Would taxpayers, or royalty owners, that makes less
than $400,000 be impacted, including through higher effective tax
rates, from some of these repeals?
Answer. The President's FY 2024 budget proposes to eliminate
certain special tax preferences for fossil fuel industries. As the
Green Book emphasizes, those special subsidies are detrimental to long-
term energy security and inconsistent with the administration's policy
of supporting a clean energy economy, reducing our reliance on oil, and
reducing greenhouse gas emissions. By contrast, the investments made in
clean energy industries in the Inflation Reduction Act will reduce
energy costs for families, strengthen our energy and national security,
reduce harmful emissions, and create jobs and economic opportunity.
Question. The Green Book proposals include the repeal of stepped-up
basis as well as other changes to capital gains, estate, and gift
taxation. The changes proposed create what would be a new
``supercharged death tax.''
Does the administration have any concerns that echo those of the
small business community and family-owned farms and ranch operations
regarding the forced sale of assets, massive complexity, and high tax
burdens? Does the administration have specific language to ensure that
family businesses will be protected? How complex might those proposals
be?
Answer. The stepped-up basis loophole allows some investment gains
to escape income taxation forever. The proposal to reform the taxation
of capital income in the President's budget would address this loophole
and also tax capital income for high-income earners at ordinary rates,
ensuring more equal treatment of labor and capital income.
The proposal would exclude any gain on tangible personal property
(excluding collectibles). The $250,000 per-person exclusion under
current law for capital gain on a principal residence would apply to
all residences and would be portable to the decedent's surviving
spouse, making the exclusion effectively $500,000 per couple. Finally,
the exclusion under current law for capital gain on certain small
business stock would also apply.
In addition to the above exclusions, the proposal would allow a $5
million per-donor exclusion from recognition of other unrealized
capital gains on property transferred by gift during life. This
exclusion would apply only to unrealized appreciation on gifts to the
extent that the donor's cumulative total of lifetime gifts exceeds the
basic exclusion amount in effect at the time of the gift. In addition,
the proposal would allow any remaining portion of the $5 million
exclusion that has not been used during life as an exclusion from
recognition of other unrealized capital gains on property transferred
by reason of death. This exclusion would be portable to the decedent's
surviving spouse under the same rules that apply to portability for
estate and gift tax purposes (resulting in a married couple having an
aggregate $10 million exclusion) and would be indexed for inflation
after 2023.
The proposal also includes several deferral elections. Taxpayers
could elect not to recognize unrealized appreciation of certain family-
owned and -operated businesses until the interest in the business is
sold or the business ceases to be family-owned and -operated.
Furthermore, the proposal would allow a 15-year fixed-rate payment plan
for the tax on appreciated assets transferred at death, other than
liquid assets such as publicly traded financial assets and other than
businesses for which the deferral election is made.
Question. There are many families who typically make far below
$400,000 each year, absent a one-time life event, like the death of a
parent.
Would a middle-class family in that situation, who has a one-time
windfall, be subject to the repeal of stepped-up basis, capital gains
rates of 39.6 percent (before other additional surtaxes are included),
and a taxable event from the loss of a family member?
Answer. The proposal to treat transfers of appreciated property by
gift or on death as realization events would only apply to donors that
have more than $5 million of untaxed investment gains per donor (i.e.,
more than $10 million of untaxed investments for a married couple). The
proposal to tax capital income at ordinary rates only applies to
taxpayers with income in excess of $1 million.
Question. Starting in 2022, a stricter interest expense limitation
(163(j)) went into effect that essentially acts as a tax on job
creating investments. In fact, a recent study shows that a failure to
reverse this stricter limit on interest deductibility could cost the
economy nearly half a million jobs. This is also a competitiveness
issue in that the U.S. is a global outlier in the tax treatment of
interest expense.
Will the administration support reversing this harmful policy in
order to help ensure America remains a welcome home for job creating
investments?
Answer. Under section 163(j), which was enacted as part of the Tax
Cuts and Jobs Act (TCJA), most large businesses' net interest expense
deductions are limited to 30 percent of their ``adjusted taxable
income.'' Under the TCJA, adjusted taxable income was initially based
on earnings before interest, tax, depreciation, and amortization
(EBITDA), but for taxable years beginning on or after January 1, 2022,
adjusted taxable income is based on earnings before interest and tax
(EBIT).\6\
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\6\ 26 U.S.C. Sec. 163(j)(8)(A)(v).
Because this stricter interest expense limitation is required by
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statute, it can only be changed by congressional action.
The Treasury stands ready to work with Congress on this topic and
to implement any legislation that is enacted.
Question. The previous administration had taken the position that
our current GILTI regime should be deemed compliant with the OECD
agreement. In 2021, Treasury abandoned this posture.
Why was the change in America's interest, and what, if anything,
did we get in exchange?
Answer. There was never any agreement at the OECD that our current
GILTI regime would be treated as compliant with the Pillar 2 framework;
rather the agreement ensures that taxes paid under our current GILTI
regime will be taken into account in determining whether the income of
U.S. subsidiaries is subject to a minimum rate of tax. Pillar 2 serves
the important goal of leveling the playing field for U.S. businesses,
while also protecting U.S. workers and middle-class families by ending
the race to the bottom in corporate tax rates. It will create a system
under which foreign corporations will face minimum taxes wherever they
do business, just like U.S. businesses do today. By leveling the
playing field, it will create a system in which U.S. businesses will be
more competitive than they are now.
Question. Despite having negotiated for a minimum tax of 15
percent, the Green Book proposes that U.S. companies must pay 21
percent, not including technical aspects of the foreign tax credit
regime that pushes the rate to more than 22 percent. Treasury has held
the position when asked this question that having a global minimum tax
would be a better situation for U.S. companies than what we have now.
But in talking to taxpayers affected by the proposal, it's clear they
don't see it that way--they see the administration proposing a regime
that uniquely disadvantages U.S. companies and the workers they employ.
They would much prefer the current system to the one you have proposed.
If you claim that the rest of the world is finally catching up to
the U.S., why would Treasury suddenly propose higher tax rates for U.S.
companies compared to their foreign competitors, along with more
punitive rules, when foreign countries finally move closer to adopting
a global minimum tax structure? Additionally, what percentage of the
revenue collected in a Pillar 2 minimum tax regime would be collected
from U.S. companies by foreign jurisdictions?
Answer. U.S. companies are currently subject to a minimum tax
regime that their foreign competitors are not, and despite that
difference, the United States remains a desirable jurisdiction in which
to operate, and U.S. businesses thrive. We have confidence that under
the proposals in the administration's Green Book, when combined with
the worldwide adoption of the OECD framework, U.S. businesses will be
better off than they are currently.
Treasury revenue estimates are done following long-standing revenue
estimating conventions and are consistent with the policies of foreign
countries at a given point in time. When another jurisdiction adopts
the UTPR, our UTPR proposal would ensure that the U.S. collects its
share of the tax revenue. Taken together our UTPR proposal combined
with our reformed GILTI proposal minimize the potential for foreign
jurisdictions to collect Pillar 2 minimum tax from U.S. companies.
Question. The Green Book Proposes to increase the corporate rate
from 21 percent to 28 percent. This is in addition to the recently
enacted corporate alternative minimum tax. The previous rate was 35
percent, the highest in the OECD. Moving away from a 35-percent rate
put the United States in the middle of the pack in terms of both
statutory rate and average effective tax rate. Combined with State
corporate income tax rates, this proposal to increase the rate to 28
percent would put the United States at the top of OECD once again.
Has the administration considered what this might do to
competitiveness, as well as its impact on workers and wages?
Additionally, has the administration considered the impact it might
have on small businesses, considering the fact that the vast majority
of corporations are actually smaller, main street businesses?
Answer. The administration's revenue proposals would ensure that
the wealthy and large corporations pay their fair share and, in doing
so, fully pay for the investments proposed in the President's budget
while generating $2.6 trillion in additional deficit reduction over the
next decade. In 2019, the most recent year for which data is available,
active corporations other than those filing Forms 1120S, 1120-REIT, and
1120-RIC with business receipts of $1 billion or more accounted for
more than all of the net income reported by such corporations
regardless of the size of their business receipts.
Moreover, raising the corporate income tax rate is an
administratively simple way to raise revenue to pay for the
administration's fiscal priorities. A significant share of the effects
of the corporate tax increase would be borne by foreign investors. A
corporate tax rate increase can also increase the progressivity of the
tax system and help reduce income inequality. Finally, the majority of
income from capital investments in domestic C corporations is untaxed
by the U.S. Government at the shareholder level, so the corporate tax
is a primary mechanism for taxing such capital income.
Question. The Green Book proposes changes to the Net Investment
Income Tax (NIIT) as well as increases to the Medicare payroll tax.
Specifically, the Green Book would expand the base of the NIIT to apply
to active pass-through business income, which is often small business
income, above $400,000 and increase the NIIT and Medicare payroll tax
rates from 3.8 percent to 5 percent. This proposal will hit, according
to the National Federation of Independent Businesses, more than 750,000
pass-through businesses. Combined with other changes in the Green Book,
as well as average State and local tax rates, small business owners
would be facing marginal income tax rates of 45.4 percent and capital
gains rates as high as 49.6 percent. This is far above the OECD
average, which are 42.6 percent and 18.9 percent respectively. The
changes to the NIIT and Medicare payroll tax alone equals $650 billion
in new tax hikes. This does not even include other changes to income
tax and capital gains rates.
Does the administration, especially in a time of high inflation,
economic uncertainty, and rising interest rates, believe an expanded
tax on small businesses will not have a drastic and adverse impact on
these pass-through entities and the economy as a whole? Has the
administration conducted any macroeconomic analysis of this specific
proposal? If so, what were the findings?
Answer. The President's budget would extend the life of the
Medicare Trust Fund by more than 25 years, through a combination of
fiscally responsible tax reforms and prescription drug savings.
Active owners of pass-through businesses, including S corporations
and partnerships, are treated differently for purposes of the Net
Investment Income Tax (NIIT), Self-Employment Contributions Act (SECA)
tax, and Federal Insurance Contributions Act (FICA) tax according to
the legal form of their ownership and the legal form of the payment
that they receive. While general partners and sole proprietors pay SECA
tax on earnings from their businesses, S corporation owner-employees
pay employment taxes on only a portion of their earnings, and limited
partners often pay little or no SECA tax. Although the NIIT reflects an
intention to impose the 3.8-percent tax on both earned and unearned
income of high-income taxpayers, certain income, specifically
distributions to S corporation shareholder-employees and distributions
to limited partners who claim the statutory exclusion for limited
partners, escape the combined 3.8-percent tax from FICA or SECA and the
NIIT.
These inconsistencies in the treatment of pass-through business
income are unfair and inefficient. They distort choice of
organizational form and provide tax planning opportunities for business
owners, particularly those with high incomes, to avoid paying their
fair share of taxes.
Question. The World Bank and the Asian Development Bank were
created to promote economic growth in developing countries and
eliminate extreme poverty. Despite having access to capital and being
the second largest economy in the world, China is still receiving loans
and assistance from both banks. Since reaching the criteria for
graduation from lending in 2016, the World Bank approved $9.6 billion
in projects to China. The Asian Development Bank provided China with
$10.6 billion in loans and $2.4 billion in non-sovereign commitments in
China during that same time frame. When I asked Secretary of State
Blinken about the Biden administration continuing to support these
loans to China, he said, ``on that specific question, I really have to
defer to my colleagues at the Treasury Department.''
Do you believe China is a developing country? Why should American
taxpayers be supporting lending and financial assistance to China? Do
you support ending all lending to China at the World Bank and Asian
Development Bank? Is China engaging in predatory lending to developing
countries while simultaneously receiving subsidized loans from the
World Bank and the Asian Development Banks? What is your strategy to
ensure countries that meet the graduation threshold criteria are no
longer lending from the World Bank and Asian Development Bank?
Answer. We support ending all lending to China, and the U.S.
Executive Directors (USEDs) at both the International Bank for
Reconstruction and Development (IBRD) and Asian Development Bank (ADB)
oppose all project proposals for China. I believe China meets both of
those institutions' criteria for graduation, given its high per capita
income, institutional capacity, and ample access to other sources of
finance. There is not a formal process for graduating countries from
IBRD lending, and graduation from IBRD lending is effectively
voluntary. The ADB's Graduation Policy mirrors the IBRD graduation
policy and assesses readiness for graduation on three factors: gross
national income (GNI) per capita, market access, and institutional
development. China's GNI per capita has been above the IBRD and ADB
graduation threshold since 2014 and is nearing the threshold to be
classified by the World Bank as a high-income country. China holds an
A+ rating from the three major credit rating agencies and score scores
relatively high on the World Bank's Worldwide Governance Indicators,
except on the Voice and Accountability metric. China is ready for
graduation by all accounts.
China is engaging in predatory lending to developing countries.
That is why I have instructed our USEDs at the IBRD and ADB to call
attention to China's predatory lending practices through the voice and
vote of the United States on the World Bank's board of directors. In
addition, I have instructed our USEDs to advocate for World Bank
assistance to countries with building debt management capacity,
promoting debt transparency through debt data collection and reporting,
and supporting countries participating in debt relief initiatives, such
as the G20 Common Framework.
World Bank Management assesses countries' readiness for graduation
based on sustained per capita income about the graduation discussion
income threshold, creditworthiness and access to other sources of
finance, and institutional capacity. I will continue to press for
transparency in assessments of graduation readiness and targeting
assistance on addressing constraints to graduation. In the case of
China, I will continue to work with the U.S. Executive Directors to the
World Bank and ADB, as well as others in the U.S. Government to press
for the PRC's graduation.
Question. Chinese firms are the largest recipients of World Bank
contracts. Chinese firms won nearly a quarter of investment projects
between 2016 and 2020. At the same time, numerous state-owned Chinese
firms have been disqualified by the World Bank and other multilateral
development banks for violating procurement policies.
What are the risks and challenges posed by the World Bank's
reliance on Chinese firms for implementation of its development
projects? What is the administration's plan to address this issue?
Answer. Competition with China is one of the central challenges of
the 21st century, including competition with China's economic
statecraft. As we have seen, supply chain diversification is an
important global priority for numerous reasons. Investments from the
World Bank to developing countries can help with this effort.
I will work with President Biden and Congress to continue to shore
up U.S. leadership in the World Bank so that: (1) the institution
offers a high-quality, sustainable alternative to borrowing from China;
(2) there is an emphasis on increasing developing countries' capacity
to evaluate procurement bids and contracts on the basis of quality and
life cycle value-for-money; and (3) there are investments in
responsible efforts at supply chain diversification. I will also
continue to advocate for robust resourcing for the World Bank's
Integrity Unit, so that firms and individuals found to have engaged in
corruption are restricted from MDB procurement opportunities.
Question. The U.S. Department of the Treasury announced plans to
end support for fossil fuels at multilateral development bank, except
for exceptional circumstances.
What are the ``exceptional circumstances'' in which the United
States would support a fossil fuel project at the World Bank? What
actions has the United States taken to end World Bank support for
fossil fuels?
Answer. Treasury's fossil fuel guidance for multilateral
development banks (MDBs) allows support for stand-alone investments in
certain technologies such as carbon capture, use, and storage (CCUS)
and methane abatement, provided these investments do not expand the
capacity of the existing project or a significantly extend its
operational life. The guidance also allows support for the use of
natural gas and oil products for household heat generation projects, in
particular clean cooking projects, if no cleaner options are feasible.
The fossil fuel guidance at the MDBs also allows narrow support for
natural gas investments in midstream and downstream projects when
certain criteria are met. These criteria include: (1) the availability
of a credible alternatives analysis that demonstrates that there is no
economically and technically feasible clean energy alternative; (2) the
project has a significant positive impact on energy security, energy
access, or development; and (3) the project is aligned with and
supports the goals of the Paris Agreement.
The fossil fuel guidance is in addition to, and does not supersede,
other U.S. policies, considerations, and legislative provisions
regarding MDB projects.
The United States has supported projects that meet the guidance.
Question. At the beginning of this year, the new corporate
alternative minimum tax (CAMT) has gone into effect. This has created
tremendous challenges for companies doing business in the United
States. The provision claws back longstanding, bipartisan provisions of
the tax code designed to promote domestic investment. Further, the
provision is immensely complex. One, of many, particular issues facing
taxpayers is the possibility of double taxation.
How will Treasury implement the new corporate alternative minimum
tax to ensure double taxation of income does not occur? Has Treasury
considered transition rules so that income taxed under the traditional
corporate tax rules before CAMT was enacted isn't taxed a second time
under the CAMT due to differences in timing between tax and financial
statement inclusions?
Answer. Treasury has received a number of comments from
stakeholders asking for various forms of transition rules for the CAMT.
In addition, Treasury has released guidance, including Notice 2023-42,
which provides relief from penalties for failure to make a sufficient
and timely payment of estimated income tax in connection with the
application of the new CAMT. Some of the requested transition rules
would provide that items of income taxed under the corporate income tax
rules before CAMT was enacted would be excluded from adjusted financial
statement income (and therefore would not be taxed under the CAMT due
to differences in timing between tax and financial statement
inclusions). Notice 2023-64 provided interim guidance that clarified
that timing differences between regular tax and CAMT do not give rise
to duplications or omissions to be addressed by guidance, even if the
timing difference originated before the effective date of the CAMT and
reversed after that date. Treasury is considering all comments that are
provided on this rule, and will address these comments in future
guidance.
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Questions Submitted by Hon. Marsha Blackburn
Question. Will Treasury clarify in its guidance for 48(D) the
eligibility of semiconductor producers, including polysilicon
manufacturers?
Answer. Earlier this year, in coordination with the Department of
Commerce and the Department of Defense, Treasury and the IRS published
a notice of proposed rulemaking with proposed rules to implement the
section 48D investment tax credit and the special ``applicable
transaction'' recapture rule in section 50(a)(3). The NPRM expressly
requested public comment on issues like the scope of terms like
``semiconductor,'' and we will carefully consider public feedback and
work with interagency partners before issuing final rules.
Question. Can you share with the committee the process by which the
Treasury is proceeding with issuing guidance for implementing the 48D
tax credit established in the CHIPS and Science Act and the timeline
for when guidance will be issued?
Answer. Earlier this year, in coordination with the Department of
Commerce and the Department of Defense, Treasury and the IRS published
a notice of proposed rulemaking (NPRM) containing proposed rules to
implement the section 48D investment tax credit and the special
``applicable transaction'' recapture rule in section 50(a)(3). After
considering all comments received, including through the public hearing
process, we will coordinate the publication of final regulations with
the Department of Commerce and the Department of Defense, as required
by law.
Question. When were you first notified that there were problems
with Silicon Valley Bank (SVB), and when did you first alert members of
Congress to the unfolding situation?
Answer. I became aware of issues at Silicon Valley Bank on
Thursday, March 9th, the week of its failure. In testimony before the
House Ways and Means Committee the next day, I mentioned that I was
carefully monitoring developments in a few banks.
On March 12, 2023, I approved emergency systemic risk exceptions
(SREs) with regard to Silicon Valley Bank and Signature Bank upon the
unanimous written recommendations of both the Board of Directors of the
Federal Deposit Insurance Corporation (FDIC) and the Board of Governors
of the Federal Reserve System (Federal Reserve Board). I also approved
the establishment of the Bank Term Funding Program (BTFP) by the
Federal Reserve Board and the use of the Exchange Stabilization Fund
(ESF) as a backstop for the BTFP. Pursuant to these actions, all
depositors of Silicon Valley Bank and Signature Bank have been made
whole, with no losses borne by the taxpayer. Shareholders and certain
unsecured debtholders were not, and will not be, protected.
The SRE determinations and establishment of the BTFP were publicly
announced at 6:15 p.m. on March 12th. Treasury promptly notified
congressional leadership at 6:26 p.m. and scheduled a bicameral,
bipartisan briefing for shortly thereafter. At 7 p.m. that evening,
Treasury's Under Secretary for Domestic Finance briefed members of
Congress, including committee members, on the SRE determinations.
Concurrently with this briefing, the FSOC met at 7:30 p.m. to discuss
developments in the banking sector and the actions taken by the FDIC,
the Federal Reserve Board, and Treasury. Treasury further provided
written congressional notification of the SRE determinations by letter
on March 13th.
Question. How many agency staff are currently working from home?
How many workers do you expect to be back full-time in the office by
the end of the year?
Answer. Telework usage accordingly varies across offices and
bureaus, depending on mission needs and work roles. Employees
performing national security functions or engaged in the manufacturing
of currency are required to maintain a significant on-site work
presence, while other Treasury employees have been able to operate
effectively on a hybrid schedule.
For example, approximately 2,480 personnel are assigned to DO,
almost 60 percent of whom are assigned to Main Treasury (headquarters)
office space. After DO issued a post-pandemic return-to-work order in
May 2022, DO employees were required to telework only pursuant to an
approved telework agreement, as previously required before the
pandemic. The majority of DO positions allow at least some telework
flexibility, however, as mentioned, certain functions, such as those
that provide security or intelligence functions or maintain Treasury
facilities, require in-person presence. At the direction of OPM,
Treasury encourages employees in eligible positions to enter telework
agreements (including situational/episodic agreements) to allow for
continued operations during emergencies (including weather-related
events).
While the majority of DO employees have telework agreements, Main
Treasury access data shows a large number of DO employees are
performing their work on-site. Treasury reviewed a recent 8-week
snapshot (April 23rd through June 17th) of on-site passholders at the
Main Treasury Complex. Over that period, an average of 956 passholders
were on-site daily, which represents approximately 67 percent of
assigned personnel.
Question. As Secretary of the Department of the Treasury
(``Treasury''), you serve as chair of the Committee on Foreign
Investment in the United States (``CFIUS''). In its congressional
budget justification related to CFIUS, Treasury explained that:
Treasury is responsible for leading CFIUS in establishing
policies, implementing processes and functions, and managing
its daily operations. Treasury participates in every aspect of
CFIUS, including reviews and investigations, policy and
international relations, mitigation monitoring and enforcement,
non-notified transaction analysis, legal support, and national
security threat assessments.
Given Treasury's role in CFIUS, please answer the following
questions to the degree you are able, given the restrictions on the
CFIUS process.
According to recent reports, CFIUS has demanded divestiture between
TikTok and ByteDance. The reports reveal that CFIUS ``told TikTok that
the government planned to ban the app in the U.S. if its owners didn't
sell it, according to a TikTok source familiar with the situation.''
Are these reports accurate?
If so, why did CFIUS decide to offer this ultimatum now?
If the reports are accurate, what considerations went into this
decision?
Answer. Treasury is committed to keeping Congress informed about
the activities of the committee and appreciates the interest in the
acquisition of musical.ly by ByteDance Ltd. At this time, we are not in
a position to discuss the substance of any engagement with the parties
for a matter that is the subject of ongoing litigation and under active
executive branch consideration. We intend to provide a briefing on
relevant matters to members of Congress at the appropriate time.
Question. As the Treasury Secretary, you are at the forefront of
ensuring that our economy is to the best extent possible. As such, if
the FDIC were to guarantee full insurance on deposits, as they have
with SVB, how much would Deposit Insurance Fund costs need to be
raised?
What would be the total cost to insure all U.S. bank deposits?
Answer. I would refer you to the FDIC for estimates related to the
costs of insurance guarantees and associated impact on the Deposit
Insurance Fund. The FDIC's report on Options for Deposit Insurance
Reform,\7\ which was released on May 10, 2023, identifies a number of
considerations put forward for analysis by the FDIC, including Deposit
Insurance Fund costs, including the agency's analysis of several
options for reforming the deposit insurance system.
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\7\ Available at https://www.fdic.gov/analysis/options-deposit-
insurance-reforms/index.html.
Question. Are you aware of any conversations following the collapse
of SVB where regulators told Globally Systemically Important Banks
(GSIB) not to acquire SVB out of fear it could lead to GSIBs getting
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larger?
Answer. I would refer you to the Federal prudential bank
regulators--the FDIC, Federal Reserve Board, and the Office of the
Comptroller of the Currency--regarding their communications with the
banks they regulate.
Question. According to The Wall Street Journal, TikTok issued the
following statement in response to the reported CFIUS ultimatum:
``Divestment doesn't solve the problem: a change in ownership would not
impose any new restrictions on data flows or access.'' Given that (1)
CFIUS is demanding TikTok divest or be banned from the United States
and that (2) TikTok says divesture would not solve the perceived
security risk, does this mean TikTok should be banned? Why or why not?
Answer. In the Foreign Investment Risk Review Modernization Act of
2018, Congress recognized that certain transactions may expose
sensitive data of United States citizens to access by a foreign
government or foreign person that may exploit such information in a
manner that threatens national security. Furthermore, on September 15,
2022, the President issued Executive Order 14083 (Ensuring Robust
Consideration of Evolving National Security Risks by the Committee on
Foreign Investment in the United States), which underscores the risk
presented by foreign adversaries' access to data of United States
persons: ``Data is an increasingly powerful tool for the surveillance,
tracing, tracking, and targeting of individuals or groups of
individuals, with potential adverse impacts on national security.'' As
chair of the Committee on Foreign Investment in the United States,
Treasury takes this risk to national security very seriously.
Treasury is committed to keeping Congress informed about the
activities of the committee and appreciates the interest in the
acquisition of musical.ly by ByteDance Ltd. At this time, we are not in
a position to discuss the substance of any engagement with the parties
for a matter that is the subject of ongoing litigation and under active
executive branch consideration. We intend to provide a briefing on
relevant matters to members of Congress at the appropriate time.
Question. In your own opinion, how can Congress improve the CFIUS
process?
Answer. The Department of the Treasury is grateful for the
bipartisan support from Congress in passing the Foreign Investment Risk
Review Modernization Act of 2018 (FIRRMA) that strengthened and
modernized CFIUS. Consistent with the authority provided under FIRRMA,
CFIUS is reviewing more types of transactions and in some cases
requiring parties to submit transactions to CFIUS for review. CFIUS may
review any transaction that could result in foreign control of a U.S.
business; certain non-controlling, non-passive transactions by foreign
persons in certain U.S. businesses involved in critical technology,
critical infrastructure, and sensitive personal data; and transactions
by foreign persons involving real estate in proximity to sensitive
government facilities.
Utilizing the authorities and resources that Congress provided,
CFIUS is appropriately equipped with the processes necessary to fully
consider the risks to national security presented by certain foreign
investments in the United States. When a transaction is identified and
falls within CFIUS's statutory jurisdiction, CFIUS thoroughly considers
the national security effects of each such transaction and takes
appropriate action, including through legally binding and enforceable
mitigation measures or a recommendation to the President for his
decision regarding a transaction.
Question. Pillar 2's enforcement is via the ``Under-Taxed Profits
Rule'' (UTPR). There has been skepticism from the tax and legal
communities suggesting that the UTPR is inconsistent with our existing
tax treaty obligations as well as historic international norms.
How did the U.S. Treasury conclude that this extraterritorial tax
regime is consistent with the existing treaty obligations previously
negotiated by the United States?
Why did Treasury choose not to pursue a multilateral instrument to
resolve these questions?
If U.S.-based MNE claimed treaty protection related to UTPRs
asserted by our treaty partners, would the U.S. Treasury support the
U.S.-based taxpayers in these claims?
How will disputes between countries and businesses be resolved?
What protections are in place to ensure that U.S. MNEs are fairly
treated during these disputes?
Answer. When developing legislative proposals that would affect the
international provisions of the Internal Revenue Code, the Treasury
Department takes care to closely evaluate the question of the
compatibility of the proposals with the obligations of the United
States under its bilateral income tax treaties. The Treasury Department
has taken the same approach with the development of Pillar 2 and
believes that the Pillar 2 rules are compatible with U.S. tax treaties.
As a general matter, the enactment of Pillar 2 in the United States
would require the passage of legislation by the Congress without the
need for a multilateral instrument. Nevertheless, the Treasury
Department is participating in ongoing discussions at the OECD about
the possibility of a multilateral instrument that would facilitate the
resolution of disputes between countries regarding the application of
the Pillar 2 taxes.
______
Questions Submitted by Hon. Sherrod Brown
Question. One of the key objectives of the Inflation Reduction Act
was to establish a robust manufacturing supply chain--in the United
States--for clean energy technologies. In the past, our tax laws have
allowed critical components for those technologies to be sourced
outside the United States and provided a tax subsidy for those items--
including in cases where foreign governments already substantially
subsidize component manufacturing to the detriment of U.S.
manufacturers. This is particularly true of solar modules and solar
module components--which are predominantly made in China and subsidized
by the Chinese Government. Congress enacted the section 45X advanced
manufacturing tax credit and domestic content bonus credit to redress
these inequities to U.S. manufacturers and incentivize a U.S.-based
supply chain for clean energy equipment including solar modules.
As Treasury prepares regulations with respect to section 45X, will
the regulations prevent companies subsidized by China or other foreign
governments from profiting from these tax incentives without
establishing a true U.S. supply chain? If not, why not?
Answer. Building a clean energy economy here in the United States,
and reducing our reliance on China, are core goals of the Inflation
Reduction Act and the administration. The IRA contains powerful
incentives for manufacturing in the United States, and we are seeing
its effects across the country through major new investments in solar,
batteries, and other clean energy technologies. We are working on
guidance on the section 45X Advanced Manufacturing Tax Credit, I assure
you that our national security and energy security are paramount
considerations.
Question. Section 45X provides credits for each step in the supply
chain with respect to eligible components and provides that a taxpayer
will be treated as having sold an eligible component to an unrelated
person if such component is integrated, incorporated, or assembled into
another eligible component which is sold to an unrelated person--for
example, a solar manufacturer that manufacturers wafers and cells that
are integrated, incorporated, or assembled into a solar module.
Will the guidance issued by Treasury confirm that a manufacturer
that performs several steps of the supply chain will be entitled to the
full amount of credits for each of the individual eligible components
it produces--for example, credits for the wafers, the cells, and the
modules?
Answer. We are working expeditiously on guidance on the section 45X
credit, taking into careful consideration the hundreds of comments we
have received and other public input. We understand the need to provide
clarity and certainty for taxpayers to realize section 45X's powerful
incentives for domestic manufacturing, consistent with congressional
intent and sound tax administration.
______
Questions Submitted by Hon. Benjamin L. Cardin
Question. As you know, our tax code significantly changed as a
result of the 2017 Tax Cuts and Jobs Act. One of the many negative
consequences of this legislation is a provision that changed the way
companies treat research and development costs. Instead of allowing
companies to expense research and development costs in the same year
the costs were incurred. The 2017 Tax Cuts and Jobs Act requires that
R&D costs be capitalized and amortized over 5 years for domestic costs.
The TCJA change in treatment of R&D costs will cause many small
businesses to incur a larger tax burden on their R&D investments in the
short term. As a result of these changes coming into effect recently, I
have heard from numerous small businesses that participate in the Small
Business Administration's Small Business Innovation and Research
program and the Small Business Technology Transfer Program expressing
how detrimental the 2017 TCJA change is to their small business's
ability to continue to operate and innovate. Unlike large companies,
these small companies do not have the flexibility and are more
susceptible to short-term cash disruptions than large companies.
How can we mitigate the impact of this change on small businesses
participating in the SBIR program to ensure their continued innovation
and retain their important contributions to national security?
Answer. The TCJA requires domestic R&D expenses incurred after
December 31, 2021 to be amortized over 5 years instead of being
immediately deductible. On September 8, 2023, Treasury and the IRS
issued Notice 2023-63, which provided interim guidance to address this
change in law so that businesses may file their tax returns with
certainty. Treasury and the IRS intend to issue additional guidance
under section 174 to address this change in law to provide additional
certainty to businesses.
Question. As I have stated before at different hearings and in
letters to the Department of the Treasury, entities cannot seek,
accept, or solicit payments from designers in exchange for providing
section 179D allocation letters. The Treasury Department has already
confirmed the Finance committee's intent.
The issuance of a section 179D allocation letter shall not be used
as leverage to request a payment from a designer; allocation letters
should be duly issued once the applicable design services have been
performed.
The Senate Finance Committee appreciates the comments regarding
this issue that Senator Crapo and I received in the 116th Congress on
our Tax Task Forces, making clear that industry is concerned by the
behavior of some State and local government entities, asking for return
cash benefits in order for them to issue the allocation letter. I also
appreciate your response last Congress, highlighting that a project was
included to address this issue on the IRS priority guidance list.
These actions run counter to the intent of section 179D(d)(4)'s
express direction to allow the allocation of the section 179D deduction
``. . . to the person primarily responsible for designing the property
in lieu of the owner of such property.''
Consistent with congressional intent, the section 179D allocation
letters are administrative in nature and serve to formalize the
allocation of the tax deduction to the eligible designer.
It's an issue that doesn't seem to go away.
Will you commit to working with us to complete the project listed
to address this issue on the IRS priority guidance list this year? Can
you provide an update on this project?
Answer. Treasury and IRS are actively working on guidance on the
Inflation Reduction Act's energy efficiency incentives, including
guidance under the section 179D Energy Efficient Commercial Buildings
Deduction to clarify the definition of designer and other issues. In
October, we released Notice 2022-48, requesting public input on the
IRA's energy efficiency incentives for residential and commercial
buildings, including the section 179D deduction. In December, we
published Announcement 2023-1, updating the applicable reference
standard used for determining the section 179D deduction. We are
pleased to stay in touch with you and your staff as further guidance is
issued.
Question. In 2012 in my home State of Maryland, the Bank of Eastern
Shore was closed by the Maryland Commissioner of Financial Regulation
and the Federal Deposit Insurance Corporation was named receiver in
order to protect depositors and the public. The problem then was a lack
of capital, which is quite different than the situation that we find
ourselves in with Silicon Valley Bank, but the outcome is the same. A
lack of faith from depositors and the need to deal with both insured
and uninsured deposits.
In 2012, the FDIC stated that Eastern Shore depositors will receive
full payment only for insured deposits up to $250,000 aside from
certain entitlements and types of accounts that may be insured above
this limit. Today, the administration is ensuring that all deposits in
Silicon Valley Bank even those above $250,000 will be insured.
I appreciate the administration protecting taxpayers, instilling
confidence in our banking system with these actions, and placing any
cost associated with these actions on the banking community. The
actions taken ensure confidence for the depositors and allow these
companies to make payroll to their workers.
However, I would like to know the administration's view on what
these actions mean for the future. Has Treasury considered how these
actions will set a precedence for insuring deposits over $250,000 in
future bank failures, including ones similar to the 2012 Maryland bank
failures?
Answer. On March 12, 2023, the Secretary of the Treasury approved
emergency systemic risk exceptions (SREs) with regard to Silicon Valley
Bank and Signature Bank upon the unanimous written recommendations of
both the Board of Directors of the Federal Deposit Insurance
Corporation (FDIC) and the Board of Governors of the Federal Reserve
System (Federal Reserve Board).\8\ The Secretary also approved the
establishment of the Bank Term Funding Program (BTFP) by the Federal
Reserve Board and the use of the Exchange Stabilization Fund (ESF) as a
backstop for the BTFP. Pursuant to these actions, all depositors of
Silicon Valley Bank and Signature Bank have been made whole, with no
losses borne by the taxpayer. Shareholders and certain unsecured
debtholders were not, and will not be, protected.
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\8\ Under section 13(c) of the Federal Deposit Insurance Act, the
FDIC generally must comply with the least-cost requirement when
resolving a failed bank. Under the SRE authority in section 13(c)(4)(G)
of the Federal Deposit Insurance Act, the FDIC is not required to
comply with the least-cost requirement if, upon the written
recommendation of the FDIC board and the Federal Reserve board (upon a
vote of not less than two-thirds of the members of each board), the
Secretary of the Treasury, in consultation with the President,
determines that (1) the FDIC's compliance with the least-cost
requirement with respect to an insured depository institution for which
the FDIC has been appointed receiver would have serious adverse effects
on economic conditions or financial stability; and (2) any action or
assistance under the SRE would avoid or mitigate such adverse effects.
After an SRE determination has been made, the FDIC ``may take other
action or provide assistance under [section 13 of the FDIA] for the
purpose of winding up the insured depository institution for which the
[FDIC] has been appointed receiver as necessary to avoid or mitigate
such effects.'' 12 U.S.C. 1823(c)(4)(G)(i).
The decisive actions that the Federal Government took in March 2023
to protect depositors and provide additional liquidity to the system
mitigated the very serious risk of broader financial contagion in the
banking system. These steps were not taken to aid specific institutions
or classes of institutions. Rather, these actions were necessary to
prevent the difficulties facing two specific banks from spilling over
to other banks--including community banks across the country. We
continue to closely monitor conditions and are prepared to take further
actions if needed, including if smaller institutions suffer deposit
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runs that pose the risk of contagion.
Since our actions in March, the FDIC has issued a public report on
Options for Deposit Insurance Reform,\9\ which identifies a number of
considerations with respect to options for reforming the deposit
insurance system. Treasury is reviewing the FDIC's report, and
consistent with our shared commitment to support the resilience of the
broader financial system, we look forward to further collaboration with
the FDIC, Federal Reserve, and other agencies and stakeholders to
evaluate recent events and consider potential policy responses.
---------------------------------------------------------------------------
\9\ Available at https://www.fdic.gov/analysis/options-deposit-
insurance-reforms/index.html.
The economic progress that we have made over the past 2 years has
been premised on the fact that communities are able to access the
credit they need. Community banks have been at the forefront of this
effort, as they have been for decades. The Treasury Department will
continue to promote actions and policies that are supportive of a
strong banking system and advance the economic well-being of the
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communities we serve.
______
Questions Submitted by Hon. Thomas R. Carper
Question. One impactful way that the IRS can make life easier for
everyday Americans is by expanding access to simplified and low-cost
tax filing options.
How will recent investments in the IRS help facilitate more direct
tax filing options?
Answer. It can take an average of 13 hours to file an individual
income tax return and hundreds of dollars. We can and must do better.
It is critical that IRS work on strategies and devote resources to make
tax filing easier, simpler, and less burdensome for taxpayers. As
required by the IRA, the IRS has established a Task Force to study the
option of taxpayers filing their taxes directly with the IRS. The
report examined the feasibility of the IRS providing a direct file
service and the associated costs. It also included survey results to
understand taxpayer opinion, expectations of and level of trust in an
IRS direct file service, as well as user research into taxpayer
interest in an IRS filing option and challenges to launching the
program. Given the results of the study, Treasury directed the IRS to
develop a limited scope pilot that would provide a Direct File option
for some taxpayers for filing season 2024.
Question. In 2021, Congress passed the Corporate Transparency Act,
which is aimed at cracking down on money laundering and terrorist
financing by requiring entities to report beneficial ownership
information to the Financial Crimes Enforcement Network (FinCEN).
FinCEN recently promulgated regulations to implement these reporting
requirements, which go into effect on January 1, 2024.
While I support FinCEN's efforts to establish a new beneficial
ownership reporting regime, I am concerned States will serve as the
``first line of defense'' as individuals navigate this new process,
fielding a significant number of questions, requests, and concerns. I
believe it will be critical for FinCEN to closely coordinate with the
States and provide resources to address concerns, field questions, and
eliminate confusion when the regulations go into effect in January.
How does FinCEN intend to partner with the States to ensure they
have the resources they need to assist with implementation?
Answer. Ensuring that all parties understand the new beneficial
ownership rules is a top priority for FinCEN, and we are conducting
broad outreach to a variety of stakeholder groups. With respect to
States, we have had a number of discussions with Secretaries of State
through the National Association of Secretaries of State (NASS),
including meetings with the NASS Business Services Committee and NASS
corporate affiliates, and other stakeholders during the Annual
Executive Strategic Planning Conference for registered agents, to share
information on the new Reporting Rule and related guidance documents
and to hear their questions and concerns. FinCEN has similarly engaged
with the International Association of Commercial Administrators (IACA),
a professional association for government administrators of business
organization and secured transaction registries at the State,
provincial, territorial, and national level.
FinCEN intends to continue these engagements as implementation
progresses to clarify reporting requirements and educate the public.
FinCEN is also planning to conduct outreach to a variety of other State
and local government stakeholders that regularly interact with the
public, including, for example Governors, Mayors, and State financial
institution supervisors.
Question. Will FinCEN commit to providing the States with materials
to help educate staff and direct individuals and small business owners
to the appropriate resources?
Answer. Yes. FinCEN is working to issue guidance materials and
establish a help line that will assist small business owners in filing
beneficial ownership information (BOI) reports and minimize burden.
Prior to the effective date of the Reporting Rule, FinCEN will publish
guidance documents and materials, including a Small Entity Compliance
Guide, in an effort to lessen the burden on small businesses and States
by explaining in clear, plain language what small businesses need to
report. FinCEN published the first of these guidance materials on March
24, 2023, which included (1) an initial set of frequently asked
questions; (2) two infographics outlining the six key questions on BOI
reporting and key filing dates; and (3) a video introduction to raise
awareness of the BOI reporting requirement. We plan to provide further
guidance materials in the form of additional frequently asked
questions, infographics, and videos throughout implementation of the
CTA, and to make key information available in multiple languages where
possible. We also intend to conduct webinars and issue technical job
aids to support reporting companies with filing their BOI reports.
FinCEN is committed to assisting reporting companies through various
mediums, including a contact center. The contact center will provide
multiple channels of communication to support reporting companies
through the beneficial ownership reporting process.
FinCEN's robust engagement strategy also includes public outreach
through a number of other channels (including discussions with State
agencies, professional organizations including, among others, the
American Bar Association and American Institute of Certified Public
Accountants, and small business organizations) as a complement to the
issuance of comprehensive guidance.
Question. Will FinCEN commit to regular briefings with the States
both before and after the regulations go into effect on January 1,
2024?
Answer. FinCEN will continue to have broad-based and active
outreach to stakeholder groups, including relevant State agencies and
associations. In addition, we would welcome any proactive outreach and
ideas from our State partners to ensure the smoothest possible launch.
Question. What funding is needed from Congress to ensure States are
properly equipped with the resources needed?
Answer. We appreciate the resources Congress has provided to FinCEN
and are working intensively to ensure that States have comprehensive
information to provide to their constituents on the beneficial
ownership reporting requirements. We would defer to the States on their
specific needs but look forward to continuing to work in a
collaborative manner with Congress to address any additional resource
needs.
Question. Over the years, Taiwan and the United States have forged
close ties, with Taiwan as one of our top trading partners. Our
relationship with Taiwan has never been stronger, yet our international
tax policy fails to reflect the strength and importance of this
relationship. With no formal income tax treaty between our two
countries, Taiwanese and U.S. businesses are double-taxed, placing an
undue burden on these businesses and hindering further investment
opportunities.
In your view, how would an income tax agreement with Taiwan
encourage economic growth and investments in both Taiwan and the United
States and further deepen our ties with a trusted partner?
Answer. Taiwan is a vital trading partner with the United States.
Cross-border investments between Taiwan and the United States are
substantial in size. The administration is actively considering
alternative approaches that could reduce tax-
related barriers to cross-border investments between Taiwan and the
United States.
______
Questions Submitted by Hon. Robert P. Casey, Jr.
Question. The White House Task Force on Worker Organizing and
Empowerment is a cross-agency body, headed by Vice President Harris,
which has drawn valuable attention to the issues of workers' rights and
the ways that the Federal Government can and should be working in a
whole-of-government approach. In February 2022, the task force
submitted over 70 recommendations to President Biden, which he
approved. I fully support the work of this task force and look forward
to seeing all its recommendations implemented. Implementing these
recommendations so far has helped increase the number of Federal
employees in a union by 20 percent, and has led to the development of
economy-wide standards which will raise wages, working standards, and
promote worker empowerment.
Now a year after the President approved these recommendations, the
task force has released an ``Update on Implementation of Approved
Actions.'' Of the four recommendations submitted to the Department of
the Treasury, one appears to be completed, one partially completed, one
remains in progress, and the status of the fourth is unclear. The
latter recommendation was for the Treasury to ``identify and evaluate
additional proposals to be included in next year's Green Book,'' such
as ``proposals to make union dues eligible for a tax credit or an
above-the-line deduction'' or ``to deny deductions for expenses paid or
incurred by employers or other taxpayers to further activities that
impede or inhibit workers' efforts to organize.'' No proposals similar
to these recommendations are included in this year's Green Book.
While I applaud Green Book recommendations to improve the Earned
Income Tax Credit and the Work Opportunity Tax Credit, it is important
that our tax code do more to support workers and worker organizing,
especially in light of the expressed goals of this administration.
Can you provide an update on the Treasury Department's progress in
implementing the Presidential recommendations from the Task Force on
Worker Organizing and Empowerment?
Answer. The Treasury Department strongly supports the Worker
Empowerment Task Force. The Office of Tax Policy continues to review
proposals related to the Task Force's mission. In August, Treasury and
the IRS issued proposed regulations detailing the prevailing wage and
apprenticeship requirements of the Inflation Reduction Act.\10\
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\10\ Available at: https://www.federalregister.gov/documents/2023/
08/30/2023-18514/increased-credit-or-deduction-amounts-for-satisfying-
certain-prevailing-wage-and-registered.
Question. Related to the previous question, how do you believe our
tax code could better support worker rights, including ``the right to a
free and fair choice to join a union'', which is the ``guiding
principle of the White House Task Force on Worker Organizing and
Empowerment''? Can we expect proposals to this effect in the next Green
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Book?
Answer. The development of the revenue proposals for the next Green
Book are ongoing. Treasury appreciates your leadership on this issue
and will take this comment into consideration as we work to develop the
next Green Book.
Question. Over the next 10 years, the Inflation Reduction Act is
going to put America back at the forefront of clean energy technology
and manufacturing. This once-in-a-generation investment in our climate
future will create millions of well-paying jobs in manufacturing,
boosting our domestic production of wind, solar, and clean vehicles.
Across the Nation and around the Commonwealth, the IRA will help
stimulate communities where manufacturing once thrived and support new
jobs for electricians, technicians, mechanics, construction workers,
steel and iron workers, and many others. This magnitude of job creation
is only made possible by the domestic content credit enhancements that
Congress included in this legislation. These credit enhancements will
ensure that the full value of these investments are realized by an
American supply chain with American workers. Companies are already
beginning to plan and implement their investments in clean energy
technology, deployment, and manufacturing but require certainty around
domestic content requirements.
What barriers stand in the way of Treasury issuing guidance on
domestic content credit enhancements? And how can industry, Congress,
and Treasury better work together to ensure swift rollout of guidance
that builds the U.S. manufacturing base over the long term?
Answer. Treasury and the administration share your enthusiasm and
support for the IRA's job incentives. The domestic content credit
enhancements have been a top implementation priority. On May 12, 2023,
the Department of the Treasury and Internal Revenue Service released
initial guidance that describes rules Treasury and the IRS intend to
propose relating to the domestic content bonus under the Inflation
Reduction Act for clean energy projects and facilities that meet
American manufacturing and sourcing requirements.
Question. Section 508 of the Rehabilitation Act of 1973 requires
Federal departments and agencies to ensure that information and
communication technology is accessible for people with disabilities.
Over the last year, I have used my position as chairman of the Aging
Committee to examine compliance with this law, and assess the
accessibility of Federal technology, including Federal websites, for
people with disabilities, older adults and veterans. In December 2022,
I released Unlocking the Virtual Front Door, an investigation that
found troubling examples of inaccessible technology across the Federal
Government, and which issued 12 recommendations to improve
accessibility. In February 2023, the Department of Justice (DOJ)
responded to my calls for greater transparency of section 508
compliance, releasing data that confirmed the findings of my report.
I am concerned that people with disabilities are being locked out
of government services and are not given a level playing field in
Federal workplaces due to inaccessible technology at the Department of
Treasury (Treasury). According to data Treasury submitted to DOJ, 82
percent of Treasury's 28,969 Internet webpages are compliant with
section 508 accessibility requirements, while 74 percent of the 3,839
intranet webpages are compliant. Moreover, 25 years after section 508
was signed into law, Treasury reported that each of its program areas--
acquisition, electronic information technology lifecycle activities,
testing and validation, compliance process, and training--are not at
the General Service Administration's (GSA) highest program maturity
level. Given these concerns, please answer the following questions.
How does Treasury plan to improve section 508 compliance for its
external websites, internal websites, and other electronic and
information technology?
Answer. Treasury prioritizes updates to our information technology
resources, balancing mission priorities with technical, operational and
security requirements. As part of our normal IT investment governance
practices, accessibility and 508 compliance are among the significant
factors considered when prioritizing our IT investment portfolio. In
addition to our ongoing governance reviews and prioritization efforts,
Treasury procured a website accessibility tool (Monsido) to better
manage 508 compliance for its public web presence. We are also
leveraging the Social Security Administration's Open Source tool called
ANDI to assist with identifying opportunities for improving the
accessibility of our myTreasury intranet portal. We are presently
pursuing budget proposals to further expand utilization of Monsido and
considering comparable investments for our internal content management
(intranet, collaboration sites, etc.)
What follows are some examples of recent enhancements to our public
facing websites.
In 2021 and 2022, and on into 2023, Public Affairs staff partnered
with the Office of the CIO (OCIO) in advocating for and promoting
accessibility. OCIO's Digital team developed the following materials to
assist policy offices in creating accessible documents: accessible
document templates; accessible tables and images templates; full-length
authoring documents guide; accessible document cheat-sheet/checklist;
and training sessions as needed with policy office staff.
OCIO's Digital team incorporates section 508 compliance from the
beginning of the public site development process and iteratively
revisits 508 compliance throughout the migration of existing, and the
creation of new, public facing websites. From 2020 through 2023,
Digital developed several new, 508 compliant, high-profile public
facing applications in support of multiple assistance programs
established by the Coronavirus Aid, Relief, and Economic Security
(CARES) Act, the Coronavirus Response and Relief Supplemental
Appropriations Act of 2021, and the American Rescue Plan. In 2022
Digital also, in cooperation with the Bureau of Engraving and Printing,
redesigned and migrated the BEP.gov website, and in cooperation with
the Bureau of Fiscal Service, migrated the Treasury Financial Manual
Website. In 2023, Digital, in cooperation with the Treasury Office of
Terrorism and Financial Intelligence, created a new .org website for a
multinational anti-terrorism task force. Digital incorporated 508
compliance into the redesign/design process for all of these
aforementioned sites.
Finally, Treasury is continually pursuing efforts to consolidate
management of its forward-facing web presence to optimize delivery,
provide common experience and better leverage tools/products for
content delivery, digital design, and 508 compliance. In the last 24
months, Treasury Departmental Offices OCIO has assumed management
responsibility for BEP.gov, SIGPR.gov, and multiple Fiscal Service
sites (Home | TFX: Treasury Financial Experience https://
tfx.treasury.gov/ and TFM Home | Treasury TFM https://
tfm.fiscal.treasury.gov/) and is evaluating TTB.gov and USMint.gov for
further consolidation. Treasury is intentionally centralizing the
content delivery, content management and cloud hosting to reduce costs,
secure environments and promote improved accessibility.
Question. When does Treasury expect to meet GSA's highest program
maturity level for each of the five program levels?
Answer. While ensuring the accessibility of Treasury's services is
of significant importance to Treasury, we must balance those
requirements with ensuring those services are delivered securely and
reliably. To that end, we do not have defined dates for achieving the
highest program maturity level in each of the program areas, but
instead ensure that it is one of the significant priorities evaluated
as new investments arise. It should also be noted that some of
Treasury's services are built on vendor supplied solutions. In those
cases, we are very much dependent on the timeframes within which those
vendors improve the 508 compliance of their platforms.
Question. Treasury reported evaluating 28,969 Internet webpages and
3,839 intranet webpages, respectively. What percentage of Treasury's
total internet and intranet webpages were evaluated?
Answer. In compliance with GSA's section 508 compliance website
(www.
Section508.gov), Treasury does not track total pages as part of our
conformance metrics, but instead samples content across key Inter/
intranet sites.
Question. Please describe the existing pathways for employees and
the public to file section 508 complaints with Treasury at a
departmental level, as well as the Internal Revenue Service? Please
provide the number of section 508 complaints Treasury has received for
each of the last 5 fiscal years?
Answer. Treasury's public website (www.treasury.gov) allows the
public to file section 508 complaints via its ``Accessibility'' link on
the site's top banner which initiates an email to
[email protected]. Likewise, the IRS offers guidance here
Protecting Taxpayer Civil Rights|Internal Revenue Service (https://
www.irs.gov/about-irs/protecting-taxpayer-civil-rights) and provides
the public a 508 Accessibility user guide for irs.gov as well as its
public-facing IRS applications. This approach is commonly deployed
across the Treasury public facing portfolio with redirects to the
Treasury.gov site where appropriate and supporting text for filing
complaints. Accessibility hyperlinks are typically available at either
the header or footer of the primary landing page with subpages offering
supplemental detail regarding complaint filing instructions and
relevant parties.
For internal Departmental Offices employees and contractors, there
is no formal guidance posted on the intranet for 508 compliance
complaints. Individual requests are addressed upon receipt with
technical remediations applied when possible. Reasonable accommodations
are considered as appropriate through the formal RA program. Within
IRS, the IRM on section 508 details the complaint process in section
2.30.1.11 2.30.1 section 508 Compliance|Internal Revenue Service
(https://www.irs.gov/irm/part2/irm_02-030-001#idm139645857543856).
Departmental Offices does not track the annual quantity of 508
compliance complaints submitted however the occurrences are infrequent
and typically are single digit in sum. Note that all IRS and Treasury
508 complaints are included with the total Treasury EDI complaints in
the FY 2021 Management Directive 715 report. FY 2021 Management
Directive 715 (MD-715) Report (https://home.treasury.gov/system/files/
306/FY-2021-MD-715-Report.pdf).
______
Questions Submitted by Hon. Bill Cassidy
Question. The administration's stated goal when placing a cap on
the price of Russian crude oil was to avoid market disruption. While I
support the use of a price cap, I have concerns about cap
implementation and the administration's goals in helping Ukraine win in
the fight against Russia. I believe the administration could take
additional steps towards helping Ukraine succeed.
There have been various reports regarding the significance of the
impact of the G7 price cap on Russia's economy, given that China and
India have become Russia's two major export markets.
Which specific economic impacts to Russia's economy have the
administration and G7 seen since the price cap was implemented?
Answer. The price cap policy has dual goals: reducing Russian
revenues and stabilizing global energy markets. There is consistent
evidence from data, statements, and policy changes coming out of Russia
that the price cap and other sanctions policies have dented the
Kremlin's revenues. According to the Russian Ministry of Finance,
Federal Government oil revenues from January through March of 2023 were
45 percent lower than a year prior. Further, Russian Deputy Prime
Minister Alexander Novak and the Russian Central Bank have also openly
acknowledged that the price cap policy is hindering Russia's ability to
fund its war. Lastly, Russian oil now trades at a significant discount
to other global oil--a discount which expanded significantly when the
price cap was implemented. As the price for Russian oil has plummeted,
the Kremlin has repeatedly reengineered Russia's tax code to squeeze
more revenue out of a shrinking tax base.
Question. Is the G7 considering lowering the price cap from $65 to
a number that may be closer to Russia's per-barrel marginal cost of
production, which we are told may be in the range of $35?
Answer. The crude oil price cap of $60 per barrel has made
significant progress toward our dual goals. The price cap on Russian
crude oil has helped stabilize global energy supplies while
simultaneously reducing Russia's revenues. According to the Russian
Ministry of Finance, Federal Government oil revenues from January
through March of 2023 were 45 percent lower than a year prior. Russian
export levels have been steady and Russian oil has traded at a
meaningful discount.
The price cap policy is only beginning to fully come into effect in
recent months. While we are encouraged at the initial trade data we are
observing, we are mindful that energy prices and supply can fluctuate
due to the many shocks permeating global markets. We will continue to
monitor global energy market conditions before making any changes to
the price cap policy.
______
Question Submitted by Hon. John Cornyn
Question. I wish to follow up on an issue that I have previously
raised with you. Revenue Procedure 2005-62 allows utilities to finance
certain costs that can be recovered from ratepayers over time through a
special purpose financing entity owned by a utility but not by a State.
When a major storm or natural disaster hits, whether it is a
hurricane, wildfire, or devastating winter storm, utilities are
required to take prompt action to remediate damage as quickly as
possible. Typically, utilities will recover the costs of the repairs
from ratepayers over time through regulator-approved surcharges. Recent
laws enacted in Texas and other States allow these storm remediation
costs to be securitized through an instrumentality owned by the State.
This will mean lower borrowing costs and a lower utility bill for
individuals and small businesses across Texas.
For over 15 years, guidance from the IRS has facilitated the
ability of utilities to finance these costs over time through a special
purpose financing entity owned by the utility. However, such guidance
would not apply to a special purpose vehicle owned by the State of
Texas.
Will you commit that you and your team will examine broadening
Revenue Procedure 2005-62 guidance to cover State owned special purpose
vehicles and follow up with my office within 60 days with an analysis?
Answer. Staff from the Office of Tax Policy and the IRS Office of
Chief Counsel have been studying the issue of how to update Revenue
Procedure 2005-62 for recent laws enacted in Texas and other States.
The Office of Tax Policy would welcome a conversation with your office
to discuss this issue.
Questions Submitted by Hon. Catherine Cortez Masto
Question. A group of House Republicans recently released a list of
demands that would be required for them to vote to avoid a catastrophic
default on our debt. Among other things, it called for Congress to
immediately pass legislation to return non-defense discretionary
funding to fiscal year 2019 levels. That would mean an immediate
drastic reduction in funding for your Department, but it would also
include things like veteran's benefits, border security, Pell Grants,
infrastructure, and more.
How would a plan to immediately return to FY 2019 non-defense
discretionary levels impact both your Department and the broader
economy?
Answer. Spending reductions like these would undermine critical
services provided by the Treasury Department that the American people
rely on in their everyday lives. Treasury and its bureaus conduct
essential financial functions such as payments, providing tax refunds,
and taxpayer assistance. Any proposal to return appropriations to lower
funding levels--such as FY 2019--would be devastating to American
families, small businesses, and taxpayers.
Treasury is also responsible for revenue collection, financial
management, borrowing, and debt collection for the entire government.
It promotes international economic stability, protects the integrity of
the financial system, and combats global financial crime and
corruption. In March, for example, the government took decisive and
forceful actions to strengthen public confidence in our banking system.
Reductions to Treasury funding would significantly impair our ability
to monitor such risks and ensure an effective and unified approach to
promoting financial stability and growth. Reduced investments in
initiatives by Treasury's Office of Terrorism and Financial
Intelligence (TFI) would jeopardize our national security by impacting
Treasury's ability to craft, implement, and enforce sanctions,
including the historic sanctions program targeting Russia's illegal war
in Ukraine. Reductions at FinCEN would reduce the Department's ability
to enforce anti-money laundering and corporate transparency laws, and
disrupt development and implementation of the beneficial ownership
database system. Further, any cuts to Treasury's programs would also
mean significantly fewer resources for Community Development Financial
Institutions (CDFI) grants and assistance, thus harming the economic
vitality of America's most economically disadvantaged communities by
reducing small business lending, affordable housing, and the provision
of consumer products and services.
Additionally, across-the-board reductions to all programs would
force the Internal Revenue Service (IRS) to divert funding provided in
the Inflation Reduction Act (IRA) to cover steady-state operations,
significantly undermining the improvements taxpayers have seen,
including an exponential increase in service. In this scenario, IRS
would not have the resources it needs to achieve the congressional
objective of modernizing its technology, dramatically improving
customer service, and building up enforcement capacity to pursue high-
end tax evaders.
Question. Post-pandemic, a higher number of workers report that
lack of child care is causing them not to join the workforce. Many of
our peer nations have more generous child benefits than the U.S. and
also have higher labor force participation rates. Do you agree that
providing more generous child benefits, such as the enhanced Child Tax
Credit, can help boost labor force participation in the U.S.?
Answer. A number of academic researchers and third-party studies
have found that the expanded Child Tax Credit and introduction of
monthly payments reduced financial instability and poverty but did not
discourage work. Data featuring the voices of families themselves has
even found that some families saw parents identify the payments as a
source of support to enable work. For example, the Child Tax Credit
could be used to balance paid work and caregiving by covering child-
care costs or helping hard-pressed families cover the costs of
transportation to and from work.
Question. Breaching, or even coming close to breaching, the debt
limit later this year could raise borrowing costs for the Federal
Government by causing interest rates to rise.
Does the Department of Treasury believe such a scenario would
increase our Nation's Federal debt and if so, does it have any
estimates of how much long term borrowing costs could increase?
Answer. The Treasury Department is pleased that Congress passed
bipartisan legislation to suspend the debt limit and prevent a first-
ever default by the United States. This legislation protects the full
faith and credit of the United States and preserves our financial
leadership, which is critical to our economic growth and stability. Had
Congress not acted to suspend the debt limit, a default would have
caused severe hardship for American families, potentially leading to
the loss of millions of jobs and trillions in household wealth, and
higher financing costs for American taxpayers for years to come.
Congress has a duty to ensure that the United States can pay its bills
on time, and the full faith and credit of the United States must never
be used as a bargaining chip.
______
Questions Submitted by Hon. Steve Daines
Question. Under Pillar 2, foreign companies are able to exclude
some income from taxation based on the number of workers they employ in
their country. Such an exclusion does not currently exist under the
GILTI regime in the U.S. tax code. The administration has proposed a
number of changes to GILTI in its budget, but it did not include this
exclusion for employing American workers among them.
Do you believe the absence of parity on such an exclusion creates
an incentive for companies to ship jobs overseas?
Answer. U.S. companies are currently subject to a minimum tax
regime that their foreign competitors are not, and despite that
difference, the United States remains a desirable jurisdiction in which
to operate, and U.S. businesses thrive. We have confidence that under
the proposals in the administration's Green Book, when combined with
the worldwide adoption of the OECD framework, U.S. businesses will be
better off than they are currently.
Question. Understanding that we differ on the merits of the
spending proposed in the President's budget, do you believe the
President's $4.7 trillion in proposed tax hikes will have a positive
impact on growth in the next 5 years?
Answer. The President's proposed budget builds on our economic
progress by making smart, fiscally responsible investments. 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 the budget. The budget proposes a minimum income
tax of 25 percent on taxpayers with wealth in excess of $100 million.
It also proposes an increase of 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.
On the spending side, the budget proposes additional investments to
boost our long-term growth potential. This includes improving the
availability of high-quality child care, providing free and universal
preschool, 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.
______
Questions Submitted by Hon. Chuck Grassley
Question. During your nomination hearing, I asked you to commit to
provide a prompt response in writing to any questions addressed to you
by any Senator of the committee, and you agreed to that.
On Friday, February 10, 2023, you finally responded to written
questions sent to you after a June 7, 2022, hearing on the President's
Fiscal Year 2023 budget request. Aside from not being prompt, the
response included the disclaimer that ``Secretary Yellen's responses to
these questions for the record reflect information available as of the
date of receipt of these questions, June 16, 2022.'' Considering the
responses were received nearly 8 months after the questions were asked,
I do not think this disclaimer is appropriate.
Do you pledge to respond to all questions, including these
questions, and letters promptly and with information that is as current
as reasonably available?
Should you have any difficulty in fully responding to any of my
requests or questions, will you work with my staff to reach an
acceptable accommodation rather than providing a woefully outdated or
incomplete response?
Answer. The Department of the Treasury is committed to responding
to congressional inquiries and to providing informative answers to
questions for the record in a timely manner. As always, my staff is
available and willing to work with your staff to provide helpful
information.
Question. At the hearing, I asked you whether any aspects of the
OECD Pillar 2 agreement violated our bilateral tax treaty obligations.
You answered my question by blankly asserting, ``No, there is no
violation in anything we proposed.'' Your response is yet another
example of Treasury failing to provide a well-reasoned substantive
response to legitimate questions and concerns raised by members of the
Finance Committee. I understand Treasury has asserted that Pillar 2 is
compliant with tax treaties, but it has failed to provide any legal
analysis to justify that assertion. This is unacceptable. As I, and
other congressional Republicans, indicated in a joint letter to you on
December 14, 2022, ``there is growing consensus among tax experts,
including former Treasury officials, that the Pillar 2 Under-Taxed
Profits Rule (UTPR) is inconsistent with our bilateral tax treaties.''
Congress has sole tax-writing authority. Treasury must engage in a two-
way conversation with Congress on how Pillar 2 comports with our tax
treaties. Treasury is not the sole arbiter of whether or not Pillar 2
is consistent with our international commitments approved by Congress
through treaty.
Treasury has justified its position that Pillar 2 is consistent
with tax treaties by merely pointing to ``a consensus statement by all
Inclusive Framework members that Pillar 2 was intentionally designed so
that top-up tax imposed in accordance with those rules will be
compatible with common tax treaty provisions.'' Please provide the
analysis on which this statement is based. If no substantive analysis
has been performed, how can Treasury be certain that Pillar 2 is in
fact consistent with framework members ``intent'' to be compliant with
common tax treaty provisions?
When can Congress expect Treasury to engage in substantive
discussions with Congress at both the staff and member level on Pillar
2 and how it comports with our tax treaties?
Answer. When developing legislative proposals that would affect the
international provisions of the Internal Revenue Code, the Treasury
Department takes care to closely evaluate the question of the
compatibility of the proposals with the obligations of the United
States under its bilateral income tax treaties. The Treasury Department
has taken the same approach with the development of Pillar 2 and
believes that the Pillar 2 rules are compatible with U.S. tax treaties.
The existing statements speak to intent because no analysis can be done
with respect to a specific country's treaty obligations until that
country enacts Pillar 2 legislation. Members of the Office of Tax
Policy are willing to discuss with you and your staff the analysis of
the compatibility of the Pillar 2 model rules with our treaty
obligations.
Question. The last time you appeared before the Finance Committee,
I asked you two questions for the record pertaining to the treatment of
business credits under the 15-percent global minimum tax you negotiated
as part of Pillar 2. As I mentioned, and your response did not dispute,
ordinary non-refundable business credits are treated less favorably
under the agreement than refundable credits or direct cash grants.
Given that the majority of business tax credits in the U.S. are non-
refundable this put the U.S. at a disadvantage with many other members
of the OECD, including China, that generally provide more refundable
credit or cash subsidies to businesses.
My first question asked why you negotiated an agreement that puts
the U.S. at a disadvantage with many of our major trading partners.
Your response blamed the Trump administration. This is unacceptable;
President Biden and his administration were in charge during the bulk
of substantive negotiations on Pillar 2. Did you, or any of your
representatives that negotiated Pillar 2, ever raise this disparity as
a concern with other Framework members? If not, why not?
Answer. The Pillar 2 rules must take into account credits and other
tax incentives to be meaningful. At the same time, Pillar 2 was not
meant to, and does not, address all forms of government spending. The
Pillar 2 rules therefore require a rule to distinguish tax incentives
from other forms of government subsidies, and that rule follows the
financial accounting treatment of credits: nonrefundable credits reduce
tax expense and refundable credits are like government grants and are
therefore treated as income.
The decision to follow the financial accounting distinction between
refundable and non-refundable tax credits in determining the effective
tax rate for Pillar 2 purposes was made in the Pillar 2 blueprint,
which was agreed and published in 2020 during the prior administration.
Since that decision was made, the Biden administration has worked
within that framework to protect key U.S. tax incentives. Treasury has
secured agreement protecting U.S. credits in a number of cases,
including (i) carryforward of the full benefit of existing stocks of
credit carryforwards due to the transition rules (ii) protection of
low-income housing tax credits and green incentives through tax equity
investments, and (iii) protection of transferable credits and direct
pay credits in the commentary to the Pillar 2 rules.
The U.S. Treasury continues to engage multilaterally on this issue
through the ongoing discussions at the OECD.
Question. My second question asked for your views on whether direct
cash subsidies and refundable credits are more desirable than overall
lower tax rates or non-refundable credits. Instead of addressing my
question, your response discusses financial accounting rules. Please
address my question. In your view as an economist, ``are direct cash
subsidies or refundable credits more desirable than overall lower tax
rates or non-refundable tax credits? Please explain.
Answer. There are tradeoffs both in determining whether a credit
should be provided for an activity and whether that credit should be
refundable (or take the form of a direct cash subsidy) or non-
refundable. The correct policy solution is therefore context-specific.
Taken as a whole, the historic international agreement to implement a
global minimum tax will help end the race to the bottom in corporate
tax rates and level the playing field for U.S. businesses while
protecting U.S. workers.
Question. The IRS budget was supersized by nearly $80 billion in
the partisan Inflation Reduction Act. The President's FY 2024 budget
seeks to continue a mandatory stream of funding for the IRS through
2032 and 2033 with a request for a total of more than $29 billion in
additional mandatory spending. According to supporting documents of the
budget request, zero dollars of this new funding would be allocated to
Taxpayer Services.
Why isn't any of this new mandatory spending allocated to taxpayer
services?
Answer. The funding provided by the IRA will bring the IRS into the
21st century over the next several years, and it will allow the IRS to
dramatically improve customer service, modernize decades-old computer
systems, and improve enforcement with respect to complex partnerships,
large corporations, and wealthy individuals. Together, this
transformation will ensure taxpayers receive world class service and
reduce our deficits by hundreds of billions of dollars.
However, without further legislative action, the agency will be
confronted with a fiscal cliff in Fiscal Year 2032. This decline would
force the IRS to cut back on audits of large corporations and complex
partnerships and would increase the deficit. The budget provides
additional funding in Fiscal Years 2032 and 2033 to continue IRA-funded
enforcement and compliance initiatives and investments. (There is no
IRA funding in these years.) We also look forward to working with
Congress to ensure IRS has sufficient funding to provide the world-
class service taxpayers deserve. The FY 2024 discretionary proposes an
investment that, along with planned IRA spending, will allow the IRS to
provide an 85 percent LOS in the 2024 filing season.
Question. The proposed budget requests roughly $29 billion in
additional mandatory spending for the IRS in FY 2032 and FY 2033. The
budget allocates that funding mostly to enforcement with some going to
operations support.
How many direct civilian full-time equivalent employees and
reimbursable full-time civilian employees does Treasury project would
be funded by the additional mandatory request, per budget account, and
job function?
How many additional auditors does Treasury project would be hired
with the additional requested mandatory budget authority?
Answer. IRS faces an urgent need to replace retiring staff and
train the next generation of IRS employees. Over the FY 2023 to FY 2025
time period alone, around 26,000 IRS employees are expected to retire
or leave the agency. About half those departures (14,500) are expected
in the taxpayer service area and about 30 percent (8,000) are in the
enforcement area. These losses equate to roughly 30 percent of the
employees working at IRS at the end of FY 2022. IRS will need to hire
to both backfill for these losses and bring on additional staff in
priority areas where it has historically lacked sufficient resources
like taxpayer service and enforcement staff focused on wealthy and
corporate tax evaders. From FY 2022-FY 2025, IRS expects to achieve a
net increase of about 32,000 new employees, with more than 60 percent
of that staffing focused on taxpayer services, energy security
implementation, operations, and IT. (Note: these figures are net of
expected attrition.) FY 2025 will see IRS ramp up hiring of
accountants, data scientists, attorneys, and other staff focused on
high-income individuals, large partnerships, and large corporations.
Question. The President's budget attributes more than $105 billion
in deficit reduction stemming from the additional mandatory funding
requested for the IRS of $14.3 billion in FY 2032 and $14.8 billion in
FY 2033. Please describe how the increase in revenues was calculated
and provide the specific calculations and academic research justifying
them that underlie these assumptions.
Answer. Estimates for the effect of IRS resource changes on
enforcement revenue (revenues associated directly with increased audit
or collection activity) are based on IRS estimates of the return on
investment (ROI) of enforcement activity. The IRS estimates the ROI for
most of its enforcement activity based on historical enforcement data.
The IRS collects this information on an ongoing basis. These
conventional revenue estimates do not include any deterrent effect of
increased IRS resources, notwithstanding the evidence that such effects
exist.
Question. The IRS was provided nearly $80 billion in mandatory
spending mostly allocated to enforcement in the Inflation Reduction
Act. Recently, the IRS missed a deadline set by yourself to provide a
plan for spending the extra money. However, supporting documents of the
budget request provides estimates of how the $80 billion in mandatory
funding will be spent by year throughout the budget window and also
show outlays in FY 2022 and projected outlays in 2023.
How have spending decisions up to the present been made and by what
individuals? Please describe in detail how any of the $80 billion in
mandatory budget authority has already been spent, and is projected to
be spent throughout FY 2023.
Has the administration already decided how the $80 billion in new
funding will be spent regardless of whatever plan the IRS comes up
with?
Will the IRS be able to decide how to spend the $80 billion the IRS
was provided or will the Treasury Department, the Office of Management
and Budget, or the Biden administration decide and dictate to the IRS
how the money will be spent?
Answer. Shortly after enactment of the Inflation Reduction Act,
Treasury and the IRS initiated an effort to develop the Strategic
Operating Plan. The planning process leveraged prior IRS planning
efforts, including the Taxpayer First Act Report to Congress and new
thinking around best practices and available technology capabilities.
Treasury and the IRS also sought input from a wide range of
stakeholders in tax administration, including IRS employees and their
representatives, technology experts, small business groups, tax
professionals, and more. The IRS Strategic Operating Plan (https://
www.irs.gov/pub/irs-pdf/p3744.pdf) was released on April 6, 2023,
showing how the IRS will use IRA resources to provide taxpayers with
world-class customer service and reduce deficits by hundreds of
billions by pursuing high-income and high-wealth individuals, complex
partnerships, and large corporations that are not paying the taxes they
owe.
In conducting the financial analysis to support this plan, we
recognized that planning over a 10-year horizon involves considerable
uncertainty stemming from a rapidly changing labor market, impact of
productivity gains from overdue technological investments, and business
process improvements. The ultimate cost of the initiatives outlined in
this plan will be refined, and the specific estimates of the funding
required to achieve our vision may change over time. Despite this
uncertainty over the exact impact of future productivity enhancements
on the workforce or modernized operations, we have included our full
aspirations in this plan while we continue to refine specific labor and
cost projections over the life of the plan.
Question. As noted, last August you directed the IRS to develop a
spending plan for the $80 billion in new mandatory budget authority.
This report has not been delivered and it isn't clear when it will be
completed.
When will this report be completed and how are you holding the IRS
accountable to produce it? Do you pledge to release this report to
Congress as soon as it is completed?
Answer. The IRS Strategic Operating Plan was released publicly on
April 6th. It is available here on IRS's website: IRS Inflation
Reduction Act Strategic Operating Plan|Internal Revenue Service
(https://www.irs.gov/pub/irs-pdf/p3744.pdf).
Question. In a letter of August 10, 2022, to then IRS Commissioner
Rettig regarding the additional $80 billion in mandatory funding
provided by the Inflation Reduction Act, you wrote, ``I direct that any
additional resources--including any new personnel or auditors that are
hired--shall not be used to increase the share of small business or
households below the $400,000 threshold that are audited relative to
historical levels.''
However, a number of open questions remain as to how the IRS will
implement this directive, including what measure of income will be used
(i.e., AGI, MAGI, taxable income, etc.) and what metrics will be used
to determine past and present audit rates.
Please provide a detailed explanation of how you intend for this
directive to be implemented, including identifying what measure of
income and audit metrics will be used to comply.
Please also describe how you define a ``small business.''
Would this or any similar directive apply to the additional
mandatory budget authority requested in the FY 2024 budget request?
Answer. In August 2022, I requested that then-Commissioner Rettig
prepare an operational plan for the use of these funds. On April 6,
2023, Treasury and the IRS released the Strategic Operating Plan, a
comprehensive roadmap to transform the IRS using Inflation Reduction
Act resources. The Strategic Operating Plan shows how the IRS will use
these long-term resources to provide taxpayers with world-class
customer service and reduce the deficit by hundreds of billions by
improving enforcement among high-income and high-wealth individuals,
complex partnerships, and large corporations that are not paying the
taxes they owe.
As you note, my letter of August 10, 2022 to then-Commissioner
Rettig directs the IRS not to raise audit rates above historical levels
for households making less than $400,000. The Strategic Operating Plan
complies with that directive. Moreover, the IRS has no plans to
increase the audit rate for households making less than $400,000. As
Commissioner Werfel stated when the plan was released: ``We have years
of work ahead of us where we will be 100-percent focused on building
capacity for higher-income individuals and corporations. During this
time, the audit rate for average taxpayers will not be increasing and,
as a result, we will not come close to hitting or exceeding any
historic average rate.''
Question. The IRS Funding Accountability Act authored by Senator
Thune and me would require the IRS to regularly update Congress on
audit rates and other enforcement actions by income group.
Will you direct the IRS to provide quarterly reports to Congress on
audit rates and enforcement actions? Also please indicate if you would
be willing to include the following in such reports:
An analysis identifying historic and current audit rates by income
group, including a group reflecting the IRS calculation of taxpayers
earning less than $400,000, beginning in 2018 through the current
fiscal year.
A detailed description of what constitutes an ``audit'' to the IRS,
and whether and how that definition differs from how the National
Taxpayer Advocate, the Comptroller General of the United States, or the
Treasury Inspector General for Tax Administration defines an audit.
A categorization of the number of audits for each income group
which were, correspondence audits, office audits, field audits, audits
under the Tax Compliance Measurement Program, and any other audits.
A description of all taxpayer compliance actions or initiatives
expected to be undertaken using funding provided by the Inflation
Reduction Act that do not rise to the level of an audit.
Answer. The IRS annually issues a Data Book that reports audit
rates by Total Positive Income (TPI) levels. The Data Book has
historically included audit rate information on taxpayers with TPI of
$400,000 as part of the $200,000 to $500,000 population segment range.
The IRS published final audit rates for tax year 2018 in the IRS Data
Book using this historical format. The IRS is exploring how to provide
additional information as appropriate in light of my directive on audit
rates.
The IRS Data Book also reports the number of examinations conducted
by correspondence and by field examination type. It does not separately
report office audits as they are face-to-face audits just like field
examinations. Similarly, it does not separately report Tax Compliance
Measurement Program (now called the National Review Program) audits as
they are field examinations.
IRS currently conducts education and outreach, and other activities
to improve voluntary compliance. Using funding provided by the IRA, the
IRS will build on this existing work to help taxpayers file accurate
returns and claim the credits and deductions they may be eligible for.
For example, for the first time, IRS will help taxpayers identify
potential mistakes before filing and quick fix errors that delay
taxpayer refunds. By minimizing and quickly correcting errors, improved
customer service will reduce the burden on working families
The IRS is committed to an ongoing dialogue with Congress, the tax
community, and the public on the implementation of the IRS's Strategic
Operating Plan (Plan). The IRS will prepare an annual update of the
Plan based on lessons learned, progress made, and any changes needed.
The IRS will also provide updates at least annually to external
stakeholders--including Congress and the public--through existing
reporting and review processes like the Annual Performance Plan and
Report, the President's budget and related materials, and the IRS Data
Book. The IRS welcomes the opportunity to discuss progress more
regularly with Congress and other stakeholders.
Question. Even though a multiyear reauthorization of surface
transportation programs was enacted last Congress, the highway trust
fund is still on a path to insolvency. Based on the most recent
information provided by CBO, payments from the trust fund will need to
be delayed during FY 2027. In the avalanche of paper released over the
past 2 weeks by the administration, I have not found any proposal to
make the highway trust fund solvent.
What proposal is the administration considering to either increase
revenues to or decrease spending from the highway trust fund?
Answer. The Bipartisan Infrastructure Law (BIL) (enacted as the
Infrastructure Investment and Jobs Act) ensured the highway trust fund
(HTF) is sufficiently resourced to fund the authorized programs through
Fiscal Year (FY) 2026. However, a long-term solution to the
insufficiency of HTF revenues to meet the needed level of investment in
surface transportation infrastructure was not enacted. The
administration is committed to working with Congress on a bipartisan
basis to find a responsible way of funding surface transportation
programs supported by the HTF in the next authorization, which would
begin in FY 2027.
The BIL does include pilot programs and studies designed to inform
future solutions to HTF solvency. For example, BIL includes $75,000,000
in funding over 5 years for the Strategic Innovation for Revenue
Collection program, which requires the Department of Transportation to
establish a program to test the feasibility of a road usage fee and
other user-based alternative revenue mechanisms through pilot projects
at the State, local, and regional level. BIL also requires the
establishment of a Federal System Funding Alternative Advisory Board,
which will provide recommendations regarding a National Motor Vehicle
Per Mile User Fee Pilot. These efforts will provide information on new
types of revenue collection and could inform future legislation
regarding how to support the long-term solvency of the HTF.
Question. In the Public Financial Disclosure Report you completed
and filed as part of your nomination to be Secretary of the Treasury,
you noted several million dollars in speaking fees from large financial
institutions, such as Citi, Barclays, and Credit Suisse. Recently
Credit Suisse, which paid you $360,000 in speaking fees, was acquired
by UBS in a deal reportedly brokered by the Swiss Government.
In your ethics agreement dated December 29, 2020, you acknowledged
that you would have a ``covered relationship,'' under impartiality
regulations, for a 1-year period, with the entities that you received
honoraria from.
Despite the passage of the 1-year period, will you pledge to seek
written authorization from ethics authorities should you at some point
seek to make any decision pertaining to those entities, similar to your
decision to guarantee Silicon Valley Bank depositors their full
deposits?
Answer. I have no financial interests in any of my former clients
(including firms from which I received one-time honoraria for speaking
engagements). When I was confirmed, I complied with the requirements
set forth in my ethics agreement to terminate certain outside positions
and divest certain financial interests. I have dedicated my career to
serving and protecting our country. I will always seek to serve the
good of our country and the good of the American people. I have made
extensive ethics commitments as requested by the Office of Government
Ethics and documented in a written agreement, which I have signed. My
ethics agreement and the President's ethics pledge required me to
recuse myself for a period of 2 years from participating personally and
substantially in any particular matter involving specific parties in
which I knew that a former employer or client identified in my ethics
agreement was a party or represented a party, unless I was first
authorized to participate by the appropriate ethics official. I
ensured, and will continue to ensure, that I have a robust screening
process in place to help implement my recusal obligations. I am mindful
of not only the legal requirements that govern my conduct but also of
appearances to ensure that the public has no reason to question my
impartiality. I believe that these existing rules are appropriate and
sufficient to protect the public interest.
I will continue to consult with career Department ethics officials
on these issues and require everyone who serves with me to ensure
public service is and will remain a public trust.
Question. Did you or the Treasury Department have any involvement
in the deal by which UBS has agreed to acquire Credit Suisse?
Answer. Treasury maintains regular contact with our international
counterparts on a variety of issues. Treasury coordinated with the U.S.
regulatory agencies and its international counterparts, including Swiss
authorities, to monitor the Credit Suisse situation closely. This is
the regular course of action in the event of stress at an international
bank of this size, which can impact both U.S. and global markets. We
continue to follow the situation closely and support Swiss authorities
in their efforts to maintain financial stability.
Question. Given your experience at both Treasury and the Fed, you
are uniquely positioned to answer why Silicon Valley Bank's failures
were not caught by regulators. The bank's failures should not have been
a surprise, and the Fed has been making its aim of raising rates
crystal clear. Multiple private-sector analysts even raised concerns
about SVB's practices. But instead of keeping a closer eye up front,
the San Francisco Fed oversaw a bank run after it was already too late.
Why weren't Silicon Valley Bank's risks caught beforehand?
Answer. The Board of Governors of the Federal Reserve System
(Federal Reserve Board) has issued a detailed report,\11\ to which I
would refer you, regarding factors that contributed to the failure of
Silicon Valley Bank in March 2023 and the role of the Federal Reserve,
which was the primary Federal supervisor for the bank and its holding
company, Silicon Valley Bank Financial Group.
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\11\ https://www.federalreserve.gov/publications/review-of-the-
federal-reserves-supervision-and-regulation-of-silicon-valley-bank.htm.
Question. After a bank run, the typical answer is for another bank
to purchase the struggling institution. However, it has been reported,
and even stated directly on a call between members of the Senate and
Treasury, that there were offers to buy SVB. SVB was obviously not
purchased, leading to a whole host of problems we continue to deal with
today. Were there offers to buy Silicon Valley Bank and, if so, why
---------------------------------------------------------------------------
wasn't an offer to buy SVB accepted?
Answer. On March 12, 2023, the Department of the Treasury, the
Federal Deposit Insurance Corporation (FDIC), and the Federal Reserve
Board took decisive actions to protect the U.S. economy by
strengthening public confidence in our banking system. After receiving
a recommendation from the boards of the FDIC and the Federal Reserve,
and consulting with the President, Secretary Yellen approved actions
enabling the FDIC to complete its resolution of Silicon Valley Bank
(SVB) in a manner that fully protects all depositors through invocation
of the systemic risk exception (SRE) in section 13 of the Federal
Deposit Insurance Act.\12\ This action, as well as the other actions
taken on March 12th, have ensured that the U.S. banking system
continues to perform its vital roles of protecting deposits and
providing access to credit to households and businesses in a manner
that promotes strong and sustainable economic growth. Through our
actions, all depositors of SVB were made whole, and shareholders and
certain unsecured debtholders were not, and will not be, protected. No
losses will be borne by the taxpayer.
---------------------------------------------------------------------------
\12\ 12 U.S.C. 1823(c)(4)(G).
Since our actions in March, the FDIC has announced an acquirer for
a significant portion of SVB's assets and liabilities, including
deposits.\13\ As receiver for SVB, the FDIC is responsible for
transactions involving failed bank assets and liabilities, including
the bidding process. Consistent with the FDIC's statutory
responsibilities, I would refer you to the FDIC for any questions on
those matters.
---------------------------------------------------------------------------
\13\ https://www.fdic.gov/news/press-releases/2023/pr23023.html.
Question. Some have attempted to argue that a bailout of depositors
at SVB will not be borne by the taxpayer. However, it is clear that if
there are not enough assets in SVB to make wealthy depositors whole,
regulators will tax banks that have acted more responsibly to make up
the difference. The argument is that this money will not come from
taxpayers, because there will be a new ``special assessment'' on banks
instead. You are a serious economist, and you know as well as I do that
a tax on banks will be passed to bank customers. Iowa banks, and Iowa
bank customers, should not be paying for the bad decisions of SVB and
---------------------------------------------------------------------------
their customers with over $250,000 in the bank.
Is it correct that while tax revenue may not be involved, a bailout
of Silicon Valley Bank depositors will ultimately be paid for by all
Americans who are customers of a bank?
Answer. Under section 13 of the Federal Deposit Insurance Act, the
FDIC must recover the loss to the Deposit Insurance Fund arising from
any action taken or assistance provided using the SRE authority from
one or more special assessments on insured depository institutions,
depository institution holding companies, or both, as the FDIC
determines to be appropriate.\14\ On May 11, 2023, the FDIC issued a
notice of proposed rulemaking that would implement a special assessment
to recover the cost associated with protecting uninsured depositors
following the closures of Silicon Valley Bank and Signature Bank.\15\
Under the FDIC's proposal, banking organizations with total assets over
$50 billion would pay more than 95 percent of the special assessment,
and no banking organizations with total assets under $5 billion would
be subject to the special assessment.\16\ The comment period on the
FDIC's proposed rule ended on July 21, 2023. For more information on
the proposed special assessment, please refer to the FDIC.
---------------------------------------------------------------------------
\14\ 12 U.S.C. 1823(c)(4)(G)(ii).
\15\ https://www.fdic.gov/news/financial-institution-letters/2023/
fil23024.html.
\16\ https://www.fdic.gov/news/fact-sheets/systemic-risk-
determination-5-11-23.html.
Question. I have heard from wholesale businesses in Iowa concerned
about whether laws prohibiting manufacturers of alcohol products from
providing inducements to retailers are being enforced, particularly in
light of new entrants into the alcohol market who already produce non-
alcoholic products. I have also heard concerns that alcoholic products
seen as similar to non-alcoholic products from the same manufacturer
---------------------------------------------------------------------------
are being displayed together.
Is the Alcohol and Tobacco Tax and Trade Bureau ensuring that all
manufacturers of alcohol products are complying with all applicable
laws and regulations, including those applying to inducements, as
manufacturers new to the alcohol space bring new products into the
market?
Answer. TTB has had numerous conversations with various
stakeholders regarding their concerns about this issue and has
repeatedly made clear that the trade practice provisions of the Federal
Alcohol Administration Act (FAA Act) (27 U.S.C. Sec. 205) apply to all
industry members, irrespective of their tenure in the industry. I
understand that TTB has invited specific information from concerned
stakeholders that may lead to investigatory findings. As part of its
voluntary compliance efforts, TTB has engaged in outreach efforts with
new members and, in that context, emphasized the proscriptions and
obligations under the Act, including potential areas for compliance
concerns. TTB continues to monitor the market to ensure that all
industry members comply with the trade practice provisions of the Act.
I would be happy to have TTB discuss the issue in greater depth
with your staff.
Question. There are substantial differences in the Congressional
Budget Office/Joint Committee on Taxation (JCT) estimate of the on-
budget effects of last year's reconciliation act (Pub. L. 117-169) and
the administration's cost estimate of the law entered on the Statutory
PAY-As-You-Go Act scorecard. The Office of Management and Budget
informs me that this is largely due to differences between JCT's score
of the act's revenue provisions and Treasury's estimate of those
provisions.
Please provide Treasury's provision-by-provision cost estimate of
the act's revenue provisions and a crosswalk to JCT's estimate so that
we can better understand difference in estimates.
Answer. Treasury is currently focused on implementing the Inflation
Reduction Act. We expect to release updated tax expenditure estimates
later this year, as we do every year, that will provide updated
information on all tax expenditures, including clean energy tax
incentives.
Question. As you know, the Social Security Trustees estimate the
Old-Age and Survivors Insurance trust fund will exhaust in 2034, at
which point millions of beneficiaries will see their benefits cut
unless action is taken. Despite claims that the President's budget
``protects and strengthens'' Social Security, the budget includes no
proposals to extend the solvency of the Social Security trust fund and
prevent these cuts. In fact, your budget includes a $22 billion
reduction in Social Security payroll tax revenues relative to baseline
projections over the 2024-2033 window.
What policies in the budget are responsible for the decrease in
Social Security revenues? By how many days does the budget's reduction
in dedicated Social Security taxes hasten the insolvency of the Social
Security trust fund and the resulting cuts to benefits?
Answer. The budget relies on the Social Security Trustees Report
for characterizing the trust funds' financial outlook, including
projections of program revenues and costs, including payroll tax
revenue. The President has made clear he will not support proposals
from Congress that cut benefits for Social Security.
Question. The budget proposes redirecting revenue from the net
investment income tax (NIIT) from the general fund to the Hospital
Insurance trust fund. How much revenue is shifted from the general fund
to the Medicare trust fund under the budget?
Answer. The budget would extend the solvency of the Medicare trust
fund by more than 25 years. The increase in the Medicare tax rate for
taxpayers with income above $400,000 raises about $350 billion. Closing
Medicare tax loopholes saves nearly $400 billion. The prescription drug
reforms save about $200 billion over the first decade.
Question. In June of 2021, you defended concerns about the
President's spending proposals fueling inflation and interest rate
hikes saying, ``If we ended up with a slightly higher interest rate
environment, it would actually be a plus for society's point of view
and the Fed's point of view.'' When you made this comment, inflation
was 5.4 percent and the Federal funds rate was effectively zero. Since
that time, inflation hit a 40-year high and the Fed has responded by
aggressively hiking interest rates. As a result, families and small
businesses are paying the price by way of higher interest costs on home
loans and business lines of credit. Moreover, recent bank failures
highlight how fragile our economy is given rising interest rates and
decades-high inflation. At the time of your June statement, you were
advocating in favor of President Biden's multi-trillion-dollar Build
Back Better plan. Most of the proposals from that failed plan have
reappeared in the President's budget, despite the fact they were
rejected by members of his own party as ``too extreme.'' This includes
$2.5 trillion in new mandatory social welfare spending that would
inevitably fuel consumer demand and increase inflation pressures. The
Fed is currently walking a tight-rope in its attempt to increase
interest rates enough to cool inflation while not causing a recession.
Do you have any concerns that spending trillions more on social
programs could cause the Fed to hike interest rates even more,
potentially tipping us into recession?
Answer. At the outset of the Biden administration, we faced
enormous economic challenges, and a generation of workers were looking
at potential deep economic scarring. We acted swiftly and our economic
plans allowed us to achieve the strongest economic recovery in modern
history.
Today, the administration's budget represents long-term
investments, like infrastructure, universal pre-K, and affordable
housing, spent at a gradual pace over the coming decade. The President
has proposed revenue increases to accompany the planned investments.
These long-term investments will help expand the supply side of the
economy, spurring stronger economic growth while reducing price
pressures.
That said, the Federal Reserve has primary responsibility for price
stability. I have a deep appreciation for the Fed's independence and
will not comment on Fed policy.
Question. In looking through the President's budget I see a lot of
proposals that even Democrats rejected when they controlled Congress.
How much of this budget's proposed $4.7 trillion tax hike is from
proposals in the failed Build Back Better bill?
If these tax hikes couldn't pass muster in a Democrat-controlled
Congress, why does the President expect them to fare any better now
that there's a Republican-
controlled House?
Answer. The revenue proposals in the President's budget would
reduce the deficit, expand support for working families, and ensure the
wealthy and large corporations pay their fair share. More broadly, the
President's budget lays out a vision for how to grow the economy from
the bottom up and the middle out and to give families some breathing
room, all while reducing the deficit by $2.6 trillion over the next 10
years. We welcome a conversation with members of Congress about these
proposals or alternative proposals that members of Congress put
forward.
Question. Revenues in this budget climb to 20.1 percent of gross
domestic product by 2033. That exceeds the post-World War II record of
20 percent set at the height of the dot-com bubble in 2000. For the
past 50 years revenues have averaged 17.4 of GDP and never exceeded 19
percent for more than 3 years in a row. Under the President's budget,
revenues exceed 19 percent from every year after 2024.
In your view, are there any negative economic effects from the
government taking such an exceptionally large bite out of our economy?
Answer. The administration's agenda represents long-term
investments, from infrastructure to universal pre-K to affordable
housing, spent at a gradual pace over the coming decade. The President
has proposed revenue increases to accompany the planned investments.
Revenues as a share of GDP are low in the United States relative to
other advanced economies and it is prudent for Congress to consider
spending policies that will promote growth and productivity for the
U.S. economy. The administration has proposed sound tax policy measures
to pay for programs, including improvements to our country's corporate
tax code, taxes on wealthy individuals, and enhanced enforcement to
make sure that people pay the taxes they owe.
Question. According to a report published by your own Treasury
Department: ``A progressive tax system is one in which average tax
rates rise with income. Total Federal taxes are progressive, ranging
from a combined average rate of less than 1 percent for the bottom
decile of families to 26 percent for the top decile of families and 32
percent for the top 0.1 percent in 2022.''
If Treasury already agrees our tax code is very progressive, with
the rich paying far more than those at the bottom, how much higher will
taxes on high-earners have to be before you think they're paying their
fair share?
Answer. As you note, Federal taxes are progressive overall.
However, more must be done to ensure that the wealthy and large
corporations pay their fair share. The President's budget would impose
a 25-percent minimum tax on billionaires, reform the taxation of
capital income, increase the tax rate on buybacks from 1 to 4 percent,
and strengthen taxation of corporations' foreign profits. Proposals
like these would address shortcomings of our tax system that allow
high-income and high-wealth taxpayers to pay less than they should.
Question. Since your appearance before the Finance Committee to
discuss the FY 2023 budget proposal, Congress, with this
administration's support, enacted several ``direct pay'' tax credits
that operate through the tax code, but are essentially cash grants.
This includes an Investment Tax Credit for the semiconductor industry
as part of the CHIPS Act and several credits included in the partisan
Inflation Reduction Act.
Given this, is the administration considering providing ``direct
pay'' for other business credits? If so, which credits would this
administration support making ``direct pay.''
Answer. As you note, the CHIPS Act and the Inflation Reduction Act
provided legal authority for ``elective payment'' of certain general
business credits in sections 48D(d) and 6417 of the Internal Revenue
Code. The Department does not have authority for ``direct pay'' outside
of these enumerated provisions.
Question. The President has often voiced concerns about
corporations paying zero tax. Won't ``direct pay'' tax credits make it
easier for profitable companies to pay zero tax, or even receive a tax
refund in excess of any taxes paid?
Answer. The Department is implementing the ``elective payment''
provisions enacted in the CHIPS Act and the Inflation Reduction Act, as
provided for by the legislation. We cannot speculate at this time as to
which taxpayers will make an election for such a payment or how that
will impact their tax liability.
Question. In addition to expanding ``direct pay'' for several tax
credits, the IRA broadly made green energy credits ``transferrable.''
This means companies that have no tax liability to claim the credit
against can sell the credit to others, including banks, private equity
firms, and wealthy investors. Moreover, these credits can be used to
reduce the Corporate Minimum Book Tax included in the IRA. Do you have
any concerns that ``transferability'' will result in even more
profitable corporations and wealthy individuals reducing their tax
liability to, or near, zero?
Answer. The Department is implementing the transferability
provision (section 6418 of the Internal Revenue Code) enacted in the
Inflation Reduction Act, as provided for by the legislation. We cannot
speculate at this time as to which taxpayers will purchase the
specified tax credits or how that will impact their tax liability.
______
Questions Submitted by Hon. James Lankford
Question. The FDIC is required to conduct a rulemaking to recover
losses to the Deposit Insurance Fund and to establish rates to insured
depository institutions. Under the process, the FDIC is required to
consider ``the types of entities that benefit from any action taken or
assistance provided under this subparagraph; economic conditions, the
effects on the industry, and such other factors as the Corporation
deems appropriate and relevant to the action taken or the assistance
provided.''
What is your best projected loss of assets for Silicon Valley Bank
and subsequent loss to the Deposit Insurance Fund?
What is your best projected loss of assets for Signature Bank and
subsequent loss to the Deposit Insurance Fund?
Using authority under 12 U.S.C. 1823, do you support an exemption
for institutions under $10 billion from being assessed a rate in
recovering losses from Signature Bank and Silicon Valley Bank?
Following your emergency determination on systemic risk, how do you
intend to factor repayment of loss to the Deposit Insurance Fund for
depositors from the People's Republic of China and deposits with
backing from the Shanghai Pudon Development Bank?
Answer. On March 12, 2023, the Department of the Treasury, the
Federal Deposit Insurance Corporation (FDIC), and the Board of
Governors of the Federal Reserve System took decisive actions to
protect the U.S. economy by strengthening public confidence in our
banking system. After receiving a recommendation from the boards of the
FDIC and the Federal Reserve, and consulting with the President,
Secretary Yellen approved actions enabling the FDIC to complete its
resolution of Silicon Valley Bank (SVB) and Signature Bank (Signature)
in a manner that fully protects all depositors of those institutions
through invocation of the systemic risk exception (SRE) in section 13
of the Federal Deposit Insurance Act.\17\
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\17\ 12 U.S.C. 1823(c)(4)(G).
Under section 13 of the Federal Deposit Insurance Act, the FDIC
must recover the loss to the Deposit Insurance Fund arising from any
action taken or assistance provided using the SRE authority from one or
more special assessments on insured depository institutions, depository
institution holding companies, or both, as the FDIC determines to be
appropriate.\18\ On May 11, 2023, the FDIC issued a notice of proposed
rulemaking that would implement a special assessment to recover the
cost associated with protecting uninsured depositors following the
closures of SVB and Signature.\19\ In the FDIC's proposed rule, it
estimates that at SVB, for which 88 percent of deposits were uninsured
at the point of failure, the portion of the total estimated loss of
$16.1 billion that is attributable to the protection of uninsured
depositors is $14.2 billion.\20\ The FDIC estimates that at Signature,
for which 67 percent of deposits were uninsured at the point of
failure, the portion of the total estimated loss of $2.4 billion that
is attributable to the protection of uninsured depositors is $1.6
billion.\21\ Under the FDIC's proposal, banking organizations with
total assets over $50 billion would pay more than 95 percent of the
special assessment, and no banking organizations with total assets
under $5 billion would be subject to the special assessment.\22\ The
comment period on the FDIC's proposed rule ends on July 21, 2023. For
more information on the proposed special assessment, please refer to
the FDIC.
---------------------------------------------------------------------------
\18\ 12 U.S.C. 1823(c)(4)(G)(ii).
\19\ https://www.fdic.gov/news/financial-institution-letters/2023/
fil23024.html.
\20\ Special Assessments Pursuant to Systemic Risk Determination,
88 Fed. Reg. 32694, 32696 (May 22, 2023), https://www.fdic.gov/news/
board-matters/2023/2023-05-11-notice-dis-a-fr.pdf.
\21\ Id.
\22\ https://www.fdic.gov/news/fact-sheets/systemic-risk-
determination-5-11-23.html.
Since our actions on March 12, 2023, the FDIC also has announced
acquirers for a significant portion of SVB's and Signature's assets and
liabilities, including deposits.\23\ As receiver for both institutions,
the FDIC is responsible for transactions involving failed bank assets
and liabilities. Consistent with the FDIC's statutory responsibilities,
please refer to the FDIC for any questions on those matters or
regarding depositors of SVB and Signature.
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\23\ https://www.fdic.gov/news/press-releases/2023/pr23021.html;
https://www.fdic.gov/news
/press-releases/2023/pr23023.html.
Question. On March 12th, Iran's foreign minister said that the
United States and Iran were on the cusp of a ``prisoner swap,'' with
media reports adding that the exchange could include a U.S. ransom
payment to Tehran. The administration denied the claim, but the White
House also released a statement saying that Special Presidential Envoy
for Hostage Affairs Roger Carstens would travel to Qatar on March 13th-
16th to discuss ``wrongful detention and hostage cases worldwide.'' We
must work diligently to secure the release of all Americans who are
wrongly detained, but I am concerned that Iran is using these Americans
as bargaining chips to secure sanctions relief from the Biden
administration and that you all are prepared to provide that. Sanctions
relief will have a devastating effect on the terrorism situation in the
Middle East and provide new liquidity to Iran to sponsor regional
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terrorism and support Russia in its assault on Ukraine.
Is sanctions relief on the table for any negotiation to secure the
release of American hostages?
Answer. We defer to the State Department on questions related to
consular matters.
Question. Has your Department drafted or are you actively drafting
the necessary licenses, authorizations, and other materials to permit
and facilitate any transaction with Iran regarding blocked funds held
in the U.S. or other jurisdictions?
Answer. In general, OFAC does not comment on, or make public,
license applications or requests for authorizations.
Question. The GAO reported that 33 percent of the applications and
23 percent of the software instances in use at the IRS are legacy
systems. I asked now-
Commissioner Werfel during his confirmation process about his systems
modernization priorities.
What are your top priorities for systems modernization at the IRS?
Answer. One of the keys to unlocking the IRS Americans deserve is
delivering secure, accurate, and real-time data to taxpayers about the
status of their returns and correspondence. The IRS Strategic Plan lays
out the roadmap to get there. The plan discusses how IRS will use IRA
funding, along with its annual discretionary budget, to deliver
cutting-edge technology, data, and analytics to operate more
effectively. This includes priorities like: adopting modern systems to
support real-time tax process; modernizing IT infrastructure; improving
access to and use of data, while ensuring continued security and
privacy of taxpayer data; and harnessing data and analytics to drive
operations and decision-making.
Question. How do you think the $80 billion for the IRS in the
Inflation Reduction Act should be used for systems modernization?
Answer. IRA funding--along with sufficient IRS discretionary
funding for IT modernization--will enable IRS to make dramatic
improvements to our IT infrastructure. The multiyear nature of the
funding will allow us to successfully plan and deliver. We will design
and deliver modern technology platforms that center around data and
applications, with natively integrated protective and detective
security controls. For example, in the first 5 years of the 10-year
plan, the IRS will eliminate the possibility of future paper backlogs
that have delayed taxpayer refunds by digitizing forms and returns when
they are received and transitioning to fully digital correspondence
processes. This was an acute issue during the pandemic and we are
committed to changing the technology to ensure it doesn't happen again.
IRS will also retire outdated components of our core tax processing
systems, replacing them with modern platforms that will enable
transactions to be processed quickly and securely. More broadly, on
cybersecurity the IRS will continue to follow all cybersecurity
standards issued by the National Institute of Standards and Technology,
the Cybersecurity Infrastructure and Security Agency (CISA), and the
Office of Management and Budget (OMB). The IRS continuously validates
its security posture through third party assessments, including threat
hunts and red teams conducted by CISA and NSA. The certainty provided
by these resources will permit the holistic, system-wide upgrades IRS
has been unable to do. For too long, IRS technology has been beholden
to a funding cycle that has limited the agency's ability to capitalize
technology investments. Resources for upgrades have also been diverted
time and again to cover basic operations, limiting the IRS's ability to
manage and modernize its technology.
______
Questions Submitted by Hon. Robert Menendez
Question. You and I have spoken before about the need to increase
Hispanic representation at the Treasury Department, and that starts
with targeted recruitment efforts, which have been sorely lacking.
Treasury did not allocate a single dollar for recruitment and hiring
during fiscal years 2018 through 2020.
What changes have you made to Treasury's hiring and recruitment
plans since taking over at Treasury?
Answer. In light of quantitative data and empirical evidence
illustrating opportunities for improvement in Treasury's recruitment
and hiring endeavors, the Department has taken immediate and strategic
actions to improve our recruitment and retention outcomes. In Objective
5.1 of our FY 2022-2026 strategic plan, we have committed to the
modernization of our operations to enable Treasury to enhance our
ability to hire and retain a workforce that reflects the diversity of
citizens in the communities we serve.
We have established the Treasury Recruitment Service through a
combined $1.1 million investment in recruitment and hiring this fiscal
year, supported by financial contributions from each Treasury bureau.
The Treasury Recruitment Service will enable the Department to connect
and engage with top-tier talent under a unified Treasury brand,
representing each bureau and using data-driven, innovative outreach
strategies emphasizing improving applicants' knowledge of the Federal
hiring process.
Our immediate priorities this fiscal year under our Treasury
Recruitment Service initiative include the following:
1. Establishing a unified Treasury brand and marketing
cadence to foster awareness, build interest, and create
creative marketing campaigns. We will highlight the benefits of
working at Treasury, inform applicants of how to apply, and
ultimately encourage a diversified array of individuals to
apply to vacancies at the Department of the Treasury;
2. Improving accessibility and awareness of Treasury job
opportunities by establishing a dedicated careers page
(www.treasury.gov/jobs);
3. Establishing a full-time Treasury presence on leading
business and
employment-focused social media platforms;
4. Closely collaborating and aligning recruitment efforts
with Treasury's recently established Office of Diversity,
Equity, Inclusion, and Accessibility;
5. The solicitation and cross-functional analysis of our
bureaus' FY24 staffing plans to ensure their strategic hiring
actions align with overall mission needs, suggested actions
from our Office of Diversity, Equity, Inclusion, and
Accessibility, and optimized use of hiring flexibilities and
recruitment/talent outreach strategies;
6. Establishing a Treasury Recruitment Council, consisting
of recruitment personnel across bureaus to identify best
practices, common challenges and opportunities to collaborate
within the Department;
7. Developing an active live outreach program to effectively
target underrepresented communities by creating awareness,
interest, educating applicants on the application process, and
development of centers of influence who can partner with
Treasury and refer applicants;
8. Training for bureau recruitment teams to develop and
enhance current skillsets; and
9. Establishing a departmental ambassador program to ensure
recruitment is conducted with a common message and brand. The
program will also allow for more diversity among those that are
representing the bureaus and when conducting recruiting
activities.
Question. What impact have these changes had on the representation
of Hispanics at Treasury?
Answer. Treasury does not establish hiring goals or quotas based on
race, ethnicity, or sex. However, Treasury utilizes benchmarks for
comparison of demographic representation, i.e., Hispanic representation
within the Federal Government workforce (9.8 percent), within the
civilian labor force (13 percent), and within the relevant civilian
labor force (10 percent). In FY 2022, the representation of Hispanic
employees across the entire Treasury Department (including headquarters
and bureaus) was 14 percent, which is above all three benchmarks.
It is also noteworthy that the representation of people of color
among the senior executive ranks in Treasury Headquarters (Departmental
Offices) has increased substantially to 20 percent of all executives,
largely attributable to political non-
career appointments made under the current administration. One third
(33 percent) of the political non-career executives are people of
color, including 11 percent who are Hispanic.
______
Questions Submitted by Hon. Tim Scott
Question. In the Boechler v. Commissioner case, the IRS fought all
the way to the Supreme Court--and lost 9 to 0--to argue that a taxpayer
loses if they file their petition with tax court even 1 day late. But
by my count, the IRS's report to you on how they will spend the $80
billion is 5 weeks late and counting.
When will this report be publicly available, and will the IRS stop
fighting taxpayers on deadlines until they start meeting theirs?
Answer. The Strategic Operating Plan was released publicly on April
6th, and is available on IRS's website at: IRS Inflation Reduction Act
Strategic Operating Plan|Internal Revenue Service (https://www.irs.gov/
about-irs/irs-inflation-reduction-act-strategic-operating-plan).
Question. The new IRS Commissioner reports to you. Have you
discussed with him any of the longstanding unimplemented
recommendations from the National Taxpayer Advocate that you want to
see him move forward on? If so, which ones?
Answer. The National Taxpayer Advocate has long recommended service
improvements to improve the taxpayer experience. The IRS agreed with
many recommendations but lacked the resources to implement. Now, with
IRA funding, the IRS will move forward with many high-priority taxpayer
service improvements. For example:
For several years, the NTA has recommended the IRS improve
service levels and decrease wait times for taxpayers calling
into the phone lines. Due to IRA funding, the IRS was able to
hire 5,000 customer service representatives for filing season
2023. During filing season, these assistors consistently
provided a high level of service, answering between 80-90
percent of calls with average wait times of less than 5
minutes. Due to sustained IRA funding and assumed IRS receives
sufficient annual discretionary funding, the IRS will continue
to maintain high levels of service and short wait times to
ensure taxpayers get the help they need when they need it.
In 2021 and 2022, the NTA recommended that the IRS improve
status tracking tools like Where's My Refund? to improve
transparency. The IRS previously agreed to implement if budget
and resources allowed. Now, with IRA resources, the IRA will
improve status tracking tools for filing season 2024 with
continued improvements over the next 5 years to include
personalized information about the status of refunds, return
processing, audits, and more.
Each year since 2016, the NTA has urged improvements to
taxpayer online accounts, including recommendations that the
IRS make payment histories available, launch business online
accounts, make more notices available online, incorporate
taxpayer alerts, enable secure two-way communications, and
more. The IRS agreed with many of the recommendations but
lacked the resources to implement. Due to IRA funding, the IRS
will significantly enhance online accounts to deliver these and
other long-sought capabilities to individuals, business, and
tax professionals.
In 2020, the NTA recommended the IRS enable e-filing of
all forms. The IRS agreed to study this recommendation and
adopt increased e-filing capabilities depending on resources.
Now, with IRA resources, the IRS will move forward with making
all forms available for e-filing.
Question. The Treasury Inspector General has a report estimating
that getting every tax form able to be electronically filed would save
the IRS $200 million a year in data entry costs and avoid keypunch
errors. Save $200 million, not cost. Is 100 percent of tax forms online
a top 3 priority, a top 10 priority, or not even in the top 10?
Answer. Our goal is to make Modernized e-File available whenever
possible and encourage taxpayers to file electronically whenever
possible to minimize errors and reduce processing time. This will save
taxpayers and the IRS time and money and allow us to process returns
and refunds more quickly for taxpayers. Specifically, it is now our
goal that by the 2025 filing season, the IRS will achieve paperless
processing, which means digitizing all paper-filed returns as soon as
they are received. Achieving this milestone will enable up to 76
million paper documents to be processed digitally every year. For the
2024 filing season, we are giving taxpayers new tools that will help
them go paperless should they choose. Being able to digitally submit
their correspondence and responses and other paper means taxpayers will
have the potential to digitally submit up to 125 million paper
documents each year.
Question. As a member of both this committee and the Foreign
Relations Committee--which is responsible for reviewing international
treaties--I am concerned with the continued lack of transparency around
the OECD tax agreement.
Despite repeated requests, you have provided no detailed
information to this committee on how the OECD agreement would be
implemented. Two years ago, you suggested the agreement could be
implemented through a tax treaty, domestic legislation, or
congressional executive agreement.
While it has always been clear that Pillar 1 requires changes to
every one of our existing bilateral tax treaties, in our December
letter, we highlighted treaty concerns with Pillar 2. Treasury ignored
that letter and never provided a response. However, the latest OECD
guidance makes the assertion that Pillar 2 is consistent with our tax
treaties, with no additional analysis.
Will you commit to providing this committee with your analysis?
Will you further commit to provide a detailed implementation plan for
both Pillar 1 and 2, including the legislative changes and treaty
changes that would be required?
Answer. When developing legislative proposals that would affect the
international provisions of the Internal Revenue Code, the Treasury
Department takes care to closely evaluate the question of the
compatibility of the proposals with the obligations of the United
States under its bilateral income tax treaties. The Treasury Department
has taken the same approach with the development of Pillar 2 and
believes that the Pillar 2 rules are compatible with U.S. tax treaties.
Members of the Office of Tax Policy are willing to discuss with you
and your staff the analysis of the compatibility of the Pillar 2 Model
Rules with our treaty obligations.
The administration's Fiscal Year 2024 budget, released on March 9,
2023, includes proposals that would align U.S. tax rules with the OECD
Pillar 2 agreement. Negotiations regarding Pillar 1 are ongoing but are
expected to result in an agreement to draft a multilateral convention
that would, if signed and ratified, make the necessary changes to our
treaties necessary to comply with any Pillar 1 agreement. Any Pillar 1
agreement and related multilateral convention would be made available
to Congress for consultation.
Question. The bipartisan objective that justified entering the OECD
negotiations was the elimination of discriminatory unilateral measures
that unfairly target U.S. companies. The U.S. Trade Representative
determined that digital services taxes (DSTs) discriminate against U.S.
companies and are inconsistent with international tax principles as
well as our current bilateral tax treaties. However, rather than use
the tools at our disposal, the administration's agreement allows
foreign countries who moved early on to enact DSTs (essentially,
rewarding first movers on bad behavior) to continue to collect DSTs
with no threat of section 301 measures, and U.S. companies will only
receive a credit for taxes paid if Pillar 1 is implemented by the end
of 2023. The U.S. Senate is not going to agree to a multilateral
convention by the end of this year--particularly given the lack of
meaningful, congressional consultation by this administration. Further,
even the OECD recently acknowledged that this timeline is unrealistic
given the amount of work that remains to be done under Pillar 1, and
the deadline has already shifted to 2024 at the earliest.
What happens to DSTs given that Pillar 1 will not be implemented by
the end of 2023? Don't the terms of the agreement you've reached allow
foreign countries to collect discriminatory DSTs from U.S. companies
with impunity?
Answer. The administration views the Pillar 1 negotiations as the
best path forward on resolving the issues, as any agreed upon solution
under the Pillar 1 framework will prohibit discriminatory DSTs. We are
working to bring those negotiations to conclusion as soon as possible
and to ensure protections for American business against discriminatory
DSTs for any interim period before the Pillar 1 provisions can be
approved by Congress.
Question. Financial services entities, including the insurance
companies, are awaiting additional guidance with regards to calculating
the Corporate Alternative Minimum Tax (CAMT) as enacted by the
Inflation Reduction Act of 2022. As Treasury continues the development
of implementation regulations in calculating the CAMT, I would like to
call your attention to the need for additional guidance to address
issues related to the treatment under the CAMT of items that are marked
to market for financial statement purposes. Under generally accepted
accounting principles (GAAP), corporations, including insurance
companies, are required to include the change in unrealized gains and
losses for certain securities in net income. This effectively requires
the unrealized gains and losses from publicly traded equities and
financial instruments to be included within net income on insurers'
GAAP financial statements.
What is the expected timeline for regulatory guidance from Treasury
regarding the application of section 56A(c)(2)(C) to explicitly exclude
unrealized gains and losses from AFSI?
Answer. On February 17, 2023, Treasury and the IRS released Notice
2023-20, which provided interim guidance on the treatment of certain
unrealized gains and losses for CAMT purposes to help avoid substantial
unintended adverse consequences to the insurance industry. On September
12, 2023, Treasury and the IRS released Notice 2023-64, which among
other things clarified that unrealized gains and losses reflected in
Other Comprehensive Income are excluded from adjusted financial
statement income. Treasury and the IRS are actively studying the extent
to which other unrealized gains and losses from publicly traded
equities and financial instruments are excluded from adjusted financial
statement income under section 56A(c)(2)(C) or other provisions under
section 56A and expect to issue guidance on this issue in proposed
regulations or other guidance as part of Treasury's efforts to
implement the CAMT.
______
Questions Submitted by Hon. Elizabeth Warren
Question. House Republicans are holding the U.S. economy and
millions of workers hostage by threatening not to raise the debt limit
unless Democrats agree to massive cuts to critical government programs.
Certainly, default would be catastrophic: according to a recent
analysis, even a days-long debt ceiling breach would trigger a
recession and cost nearly 1 million Americans their jobs--or, if it
dragged on for months, cost roughly 7 million jobs and push
unemployment beyond 8 percent.\24\ But caving into Republican demands
for massive cuts would be no less disastrous: austerity would trigger a
year-long recession and put 2.6 million people out of work.\25\ It
would also diminish gross domestic product (GDP) by almost 3 percent
over the next decade, the equivalent of putting the entire U.S. economy
on pause for a full year.\26\ As part of a recent congressional
inquiry, Federal agencies revealed that even in the short term, capping
fiscal year (FY) 2024 spending at FY 2022 levels would cut roughly a
quarter of Federal childcare slots, push nearly 30,000 people out of
opioid use disorder treatment (including veterans), eliminate hundreds
of thousands of public housing vouchers, and cut the Social Security
Administration (SSA) workforce by 6,000, adding months to wait times
for retirees and people with disabilities.\27\
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\24\ Moody's Analytics, ``Going Down the Debt Limit Rabbit Hole,''
Mark Zandi, Cristian deRitis, and Bernard Yaros, March 2023, https://
www.moodysanalytics.com/-/media/article/2023/going-down-the-debt-limit-
rabbit-hole.pdf.
\25\ Id.
\26\ Id.
\27\ Office of Congresswoman Rosa DeLauro, ``DeLauro Receives Biden
Administration Responses Highlighting Impacts of Proposed House
Republican Cuts,'' press release, March 20, 2023, https://democrats-
appropriations.house.gov/news/press-releases/delauro-receives-biden-
administration-responses-highlighting-impacts-of-proposed.
Both of these options are non-starters. Congress must reject House
Republicans' hostage tactics and vote to raise the debt ceiling
cleanly--just as Republicans did three times for President Trump.\28\
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\28\ The Washington Post, ``How GOP debt ceiling votes decline
under Democratic presidents,'' Aaron Blake, January 20, 2023, https://
www.washingtonpost.com/politics/2023/01/20/debt-ceiling-votes-white-
house/.
Do you agree that the two options Republicans are presenting--
---------------------------------------------------------------------------
default and massive spending cuts--are economically dangerous?
Answer. Yes. Both options are bad for economic growth and will
raise unemployment. Had Congress not acted to suspend the debt limit, a
default would have caused severe hardship for American families,
potentially leading to the loss of millions of jobs and trillions in
household wealth, and higher financing costs for American taxpayers for
years to come. Congress has a duty to ensure that the United States can
pay its bills on time, and the full faith and credit of the United
States must not be used as a bargaining chip.
Question. Why would a default risk a recession and cost millions of
Americans their jobs?
Answer. Even approaching a default could cause an increase in
borrowing costs and other financial stress, while an actual default
would spark a financial crisis and global downturn of unknown but
substantial severity. We have learned from past debt limit impasses
that waiting until the last minute to suspend or increase the debt
limit can cause serious harm to business and consumer confidence, raise
short-term borrowing costs for taxpayers, and negatively impact the
credit rating of the United States.
Question. Why would slashing government spending also risk a
recession and cost millions of Americans their jobs?
Answer. According to analysis by Moody's Analytics,\29\ government
spending reductions would cut essential government services that tend
to go to lower-income households that have high marginal propensities
to consume, meaning that they are more likely to quickly spend the
benefits they receive. Cutting this vital spending means not only harm
to the households who need this support, but it also means less
spending in the economy more generally, which means fewer jobs.
---------------------------------------------------------------------------
\29\ Moody's Analytics, ``The Debt Limit Drama Heats Up,'' Mark
Zndi and Bernard Yaros, April 2023, debt-limit-drama.pdf (https://
www.moodysanalytics.com/-/media/article/2023/debt-limit-drama.pdf).
Question. Who are the types of workers that would lose their jobs
---------------------------------------------------------------------------
in the event of massive spending cuts? Would it be the wealthy?
Answer. According to academic research,\30\ job losses in
recessions tend to particularly affect Black and Hispanic workers,
youth, and those with less education. These groups tend to have lower
incomes and wealth and are thus particularly negatively impacted by job
loss.
---------------------------------------------------------------------------
\30\ NBER working paper ``Who Suffers During Recessions?'', Hilary
W. Hoynes, Douglas L. Miller, and Jessamyn Schaller, March 2012,
https://www.nber.org/papers/w17951.
Question. Any serious conversation about reducing the national debt
must start with rebalancing our tax system, and not with how to inflict
economic pain on working people. Republicans conveniently ignore their
role in growing our national debt through shoveling massive tax breaks
to the richest Americans and the biggest corporations. Thanks to
corporate handouts like the Trump-era Tax Cuts and Jobs Act of 2017,
which increased the deficit by more than $1.5 trillion,\31\
billionaires today pay just 3 percent of their wealth each year in
Federal income taxes \32\--less than half the rate that 99 percent of
America pays. Giant corporations have lobbied their way from paying 6
percent of the cost of running our country to paying about 1 percent of
the cost of running our country.\33\ And Republicans don't want to stop
there--their latest proposals would add another $3 trillion to the
national debt, while raising costs for working families in the
process.\34\ In contrast, President Biden's budget for FY 2024 would
reduce the deficit by nearly $3 trillion by imposing a new minimum tax
on billionaires; raising the domestic corporate tax rate and doubling
the tax on corporations' foreign earning; quadrupling the stock buyback
tax rate; and rolling back the 2017 income and capital gains tax breaks
for the wealthy.\35\ And it would accomplish all of this without
raising taxes on a single American making less than $400,000 per year;
in fact, the proposed budget would lower the tax burden on working
families by restoring the Child Tax Credit and Earned Income Tax Credit
expansion.\36\
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\31\ Tax Policy Center, ``How did the TCJA affect the federal
budget outlook?'', https://www.taxpolicycenter.org/briefing-book/how-
did-tcja-affect-federal-budget-outlook.
\32\ ProPublica, ``America's Highest Earners and Their Taxes
Revealed,'' Paul Kiel, Ash Ngu, Jesse Eisinger, and Jeff Ernsthausen,
April 13, 2022, https://projects.propublica.org/americas-highest-
incomes-and-taxes-revealed/.
\33\ Testimony of Gabriel Zucman to the U.S. Senate Committee on
the Budget, March 25, 2021, https://www.budget.senate.gov/imo/media/
doc/Gabriel%20Zucman%20-%20Testimony%20-
%20US%20Senate%20Budget%20Committee%20Hearing.pdf#page=9.
\34\ CBS News, ``White House claims GOP plans would add $3 trillion
to national debt,'' February 15, 2023, https://www.cbsnews.com/news/
biden-national-debt-republican-plans-white-house/.
\35\ The White House, ``Fact Sheet: The President's Budget for
Fiscal Year 2024,'' press release, March 9, 2023, https://
www.whitehouse.gov/omb/briefing-room/2023/03/09/fact-sheet-the-
presidents-budget-for-fiscal-year-2024/.
\36\ Id.
Moreover, Moody's Analytics Chief Economist Dr. Mark Zandi
testified earlier this month before the Senate Banking, Housing, and
Urban Affairs Committee that these sorts of tax increases on the
wealthiest individuals and corporations would have marginal economic
impacts, and certainly not the significant hits to growth and
employment that Republicans' proposed spending cuts would have.\37\ And
in a 2021 analysis of President Biden's Build Back Better plan--which
contained similar tax provisions to those in the President's FY 2024
budget--Dr. Zandi found that the investments President Biden has
proposed would grow our economy, and that ``the financial benefits of
that added growth largely accrue to hard-pressed lower-income and less-
wealthy Americans.''\38\
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\37\ Office of U.S. Senator Elizabeth Warren, ``ICYMI: At Hearing,
Warren Warns Republicans' Debt Ceiling Hostage Demands Would Cut 2.6
Million Jobs and Trigger Recession,'' press release, March 8, 2023,
https://www.warren.senate.gov/newsroom/press-releases/icymi-at-hearing-
warren-warns-republicans-debt-ceiling-hostage-demands-would-cut-26-
million-jobs-and-trigger-recession.
\38\ Moody's Analytics, ``The Macroeconomic Consequences of the
American Families Plan and the Build Back Better Agenda,'' Mark Zandi
and Bernard Yaros, May 2021, https://www.moodysanalytics.com/-/media/
article/2021/American-Families-Plan-Build-Back-Better-Agenda.pdf.
Can you explain why the President's proposals to raise taxes on the
wealthiest individuals and largest corporations would not have the same
negative impact on the economy as Republicans' proposals for massive
---------------------------------------------------------------------------
spending cuts would?
Answer. Legislation enacted in recent years has 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 2 years alone, Congress passed three
transformational laws consistent with this approach: a generational
investment in infrastructure; a historic expansion of American
semiconductor manufacturing; and the largest investment in clean energy
in our Nation's history.
The President's budget would further build on our economic progress
by making smart, fiscally responsible investments. 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've proposed a minimum income tax of 25
percent on taxpayers with wealth in excess of $100 million. We've also
proposed an increase of the corporate tax rate to 28 percent from the
current 21 percent. Finally, we've proposed reforms that would
implement 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.
Modern supply-side economics is far more promising than the old
supply-side economics, which I see as having been a failed strategy for
increasing growth. Significant tax cuts on capital have not achieved
their promised gains. In contrast, modern supply-side economics
prioritizes labor supply, human capital, public infrastructure, R&D,
and investments in a sustainable environment. These focus areas are all
aimed at increasing economic growth and addressing longer-term
structural problems, particularly inequality.
Question. Congress passed the Corporate Transparency Act (CTA) in
2021 to end the abuse of anonymous U.S. shell companies by requiring
entities to name their true, ``beneficial'' owner to a directory
administered by the Financial Crimes Enforcement Network (FinCEN),
housed within your department. However, FinCEN's proposed second and
third rules, regarding access to the database and the beneficial
ownership information (BOI) disclosure form, respectively, impose
serious roadblocks to key potential users of the database and provide
an ``escape hatch'' for businesses to simply choose not to comply with
the law.
The proposed access rule veers away from the goal of the CTA by
requiring State, local, and Tribal law enforcement agencies to obtain a
court order before they can access the database (as opposed to simply
receiving ``authorization'' from a ``court officer''). In addition, the
rule does not clarify whether FinCEN will include mechanisms to verify
the data that is submitted by covered persons and entities. Finally,
the proposed rule that contains the form for collecting and reporting
BOI gives businesses subject to the CTA the option to state that they
are essentially ``unable to obtain'' the BOI--providing the millions of
individuals and businesses subject to the CTA's BOI disclosure
requirements with a clear path for evading its core requirements.
These rules, as they are currently written, deviate from both
congressional intent and the letter of the CTA. They will make it more
difficult for companies to disclose the information required by the law
and will hamper the database's intended users--law enforcement,
financial institutions, and more--from accessing and utilizing this
information efficiently and effectively.
On what grounds (statutory, regulatory, or any other) did FinCEN
include a requirement that law enforcement agencies obtain a ``court
order'' to access the BOI database?
Answer. The CTA provides that a State, local, or Tribal law
enforcement agency may receive beneficial ownership information (BOI)
from FinCEN if a court of competent jurisdiction has authorized the
agency to seek that information in a criminal or civil investigation.
The proposed requirement that a State, local, or Tribal law enforcement
agency submit a copy of a court order as evidence of the agency's court
authorization was intended to facilitate FinCEN's audit and oversight
of requests for BOI, consistent with the requirements of the CTA, and
FinCEN specifically sought comments on the scope of this provision as
part of its Notice of Proposed Rulemaking. FinCEN is carefully
considering the public comments as part of an active rulemaking
process. Because we are in an active rulemaking process, we are unable
to comment on any particular policy decision at this time.
Question. Is FinCEN planning to include measures to verify the data
that companies submit?
Answer. Commenters to the beneficial ownership rulemakings have
highlighted the importance validating beneficial ownership information
(BOI) to ensure that the BOI database is accurate, complete, and highly
useful. FinCEN has engaged in substantial consultations regarding
validation of BOI. FinCEN's validation of BOI presents several complex
challenges, including information availability, technical requirements,
resource constraints, and legal considerations. FinCEN continues to
review the options available for it to validate BOI within the legal
constraints of the CTA.
Question. For what reason did FinCEN include an option in the BOI
form proposed rule for companies not to comply with the CTA?
Answer. The ``unknown'' checkbox was not intended to provide any
exception to the reporting obligation. To be clear, reporting companies
have a regulatory obligation to submit accurate and complete beneficial
ownership and company applicant information to FinCEN. The proposal to
include an ``unknown'' checkbox was intended to facilitate compliance
and enforcement by creating a mechanism for FinCEN to track incomplete
reports and to follow up regarding missing information.
As part of its obligations under the Paperwork Reduction Act (PRA),
FinCEN issued a notice and request for comment on the BOI reporting
form. At the conclusion of the comment period, FinCEN received valuable
feedback on the form from a variety of stakeholders. FinCEN is working
to issue an updated BOI reporting form as soon as possible. As part of
that process, FinCEN is reviewing all comments received in response to
the notice and is focused on the concerns raised about the unknown
checkbox. We are considering all options, including removal of the
check box, to ensure that it is clear that reporting companies have an
obligation to submit all BOI and to ensure that the form can be used in
a way that maximizes FinCEN's ability to conduct compliance and
enforcement reviews.
Furthermore, we intend to ensure that the reporting company user
experience makes clear that the reporting company submitter is required
to ensure that reports are accurate and complete and that all
information is submitted.
Question. Given these shortcomings, do you believe either or both
of these proposed rules to be consistent with Congress's intent in
passing the CTA as well as the language of the CTA as written?
Answer. FinCEN's priority is to implement a highly useful
beneficial ownership reporting regime, while minimizing burden on
reporting companies (particularly small businesses) and financial
institutions, as required by the CTA. FinCEN is carefully reviewing
comments received in response to the BOI access Notice of Proposed
Rulemaking and the associated BOI reporting form. Because FinCEN is
engaged in an active rulemaking process, we are unable to comment
further on any particular policy decision at this point.
Question. Do you agree that businesses being able to opt out of
answering 14 out of 16 questions in the BOI collection form will
significantly diminish the utility of the database? Why or why not?
Answer. To be clear, reporting companies have a regulatory
obligation to submit accurate and complete beneficial ownership and
company applicant information to FinCEN. Willful violation of that
requirement can result in civil and criminal penalties. Furthermore, we
intend to ensure that the reporting company user experience makes clear
that the reporting company submitter is required to ensure that reports
are accurate and complete.
Question. With the passage of Democrats' Inflation Reduction Act
(IRA) last August, the Internal Revenue Service (IRS) received roughly
$80 billion in new funding, with around $3 billion earmarked for
addressing the agency's significant backlog (3.8 million returns during
the 2022 filing season) and improving taxpayer services. The IRS
urgently needed the new cash infusion: Republican attacks have left the
agency chronically underfunded and short-staffed, leading to longer
wait times and possibly disastrous consequences for families and
businesses in need of immediate assistance.
Many tax filers have faced significant delays in receiving their
refunds in the past several tax filing seasons. For example, through
conversations with my constituents and with the National Taxpayer
Advocate, I have learned that it is common for applicants for the
Employee Retention Tax Credit (ERTC) to have to wait more than 18
months to receive the tax credit, potentially forcing some businesses
to close their doors for good and put even more Americans out of a job.
Already, the IRA funding has helped the IRS to make significant
progress in addressing the backlog. At the start of 2022, the agency
had a backlog of 4.7 million individual unprocessed paper returns; by
late December of the same year, 4 months after the IRA's passage, that
figure had dropped to roughly 400,000, or more than 90 percent.\39\
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\39\ CNBC, ``After `misery' for tax filers in 2022, IRS to start
2023 tax season stronger, taxpayer advocate says,'' Kate Dore, January
12, 2023, https://www.cnbc.com/2023/01/12/irs-to-start-2023-tax-season-
stronger-taxpayer-advocate-says.html.
Do you agree that the new IRS funding included in the IRA has
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helped, and will continue to help, address these issues?
Answer. Yes. The IRA funding, along with IRS's annual discretionary
funding, has been essential for improving service this filing season,
including working down IRS's paper inventory. The IRS has processed all
original paper and electronic individual and business returns received
prior to January 2023. In addition, the three IRS processing centers
have been opening mail within normal time frames all year. IRA funding
allowed IRS to hire over 5,000 new customer service representatives,
bringing phone staffing to its highest level ever. During filing
season, these IRS live assistors consistently answered 80-90 percent of
customer calls, up from 18 percent last filing season, and average call
wait times are down to 4 minutes, down from 30 minutes last filing
season. In addition, IRS has used new resources to deploy online tools
that save taxpayers time and money, and create efficiencies. For
example, IRS launched a new tool that allows small businesses to e-file
their 1099 forms for the first time. The IRS hit a major milestone in
adopting new technology that will enable the automation of the scanning
of millions of individual paper returns, scanning 480,000 940 forms as
of April 7th. In the first quarter of the year, IRS scanned 80 times
more returns than in all of 2022. Taxpayers are now able to respond to
notices online and have new online filing options. Until this filing
season, when taxpayers received notices for things like document
verification, they had to respond through the mail. Taxpayers are now
able to respond to nine of the most common notices for credits like the
Earned Income and Health Insurance Tax Credits online, saving them time
and money. Finally, IRS created a direct-deposit refund option for
1040X amended returns. These refunds were previously only available by
paper check, delaying taxpayers' receipt of their refund.
Question. What is the IRS's plan to continue to address the backlog
and shorten wait times for families and businesses?
Answer. Assuming IRS continues to receive sufficient discretionary
resources--including funding to cover inflationary costs and additional
needs in taxpayer services, operations, and IT--along with the planned
IRA spending, IRS will fundamentally transform its services and
technology. In the first 5 years of the 10-year plan, the IRS will
eliminate the possibility of future paper backlogs that have delayed
taxpayer refunds by digitizing forms and returns at the point of
receipt and transitioning to fully digital correspondence processes.
This was an acute issue during the pandemic and IRS is committed to
changing the technology to ensure it doesn't happen again. The agency
has already made progress on this front, by scanning 480,000 940 forms
as of April 7th. As a result of hitting this milestone, IRS is
expanding scanning to the most used forms, the 1040 and 941. The IRS is
on track to scan millions of returns this year, which will result in
faster processing and refunds. While the IRS will preserve paper filing
options, digitizing all returns at the outset will allow IRS to focus
on customer service, not processing paper. In addition, the IRS is
working to fully staff all Taxpayer Assistance Centers (TACs)
nationwide by next year and ensure TACs are open for additional hours
that help working families access in-person service, such as by having
some TACs open on Saturdays during filing season. IRS will also
continue to improve phone and other services for taxpayers building off
the successes of this filing season.
______
Questions Submitted by Hon. Todd Young
Question. As I mentioned during the hearing, President Biden has
repeatedly promised not to raise taxes on anyone making less than
$400,000 per year. As you stated during the hearing, ``there certainly
are aspects of TCJA that, if they sunset, would impact households where
taxpayers are earning under $400,000.'' However, the President's FY
2024 budget does not extend any provision of the 2017 Tax Cuts and Jobs
Act (TCJA) past 2025.
During the hearing, you committed to providing my office with a
list of TCJA tax rates and other provisions that, if they were to
expire in 2025 as currently scheduled, would violate President Biden's
pledge not to raise taxes on anyone earning less than $400,000.
Can you please provide a comprehensive list of such tax rates and
other provisions? Please note that during the hearing, I requested that
you provide me with this list within 2 weeks of the hearing date.
Answer. The TCJA is a complex piece of legislation with many
interrelated parts, including both gross tax increases and tax cuts.
The net effect of the expiring provisions on a household depends on how
all expiring provisions are addressed. The President will work with the
Congress to address the 2025 expiration of portions of the TCJA, and
focus tax policy on rewarding work not wealth, based on the following
guiding principles. The President:
Opposes increasing taxes on people earning less than
$400,000 and supports cutting taxes for working people and
families with children to give them more breathing room;
Opposes cutting taxes for the wealthy--either extending
tax cuts for the wealthy or bringing back tax breaks that would
benefit the wealthy; and
Supports additional reforms to ensure that wealthy people
and big corporations pay their fair share, so that America pays
for the continuation of tax cuts for people earning less than
$400,000 in a fiscally responsible manner and addresses the
problematic sunsets created by President Trump and
congressional Republicans.
Question. The President's FY 2024 budget proposes raising the top
Federal income tax base rate to 39.6 percent, and applying this rate to
all income above $450,000 for joint filers, $425,000 for heads of
households, and $400,000 for single filers. These dramatically lowered
top income tax rate brackets are a serious mismatch with current law
income tax rate brackets and would likely also violate the President's
pledge to not raise taxes on anyone earning less than $400,000.
The last time the 39.6-percent rate was reinstated was in 2013,
during President Biden's tenure as Vice President. Was the 2013 bracket
structure the brackets Treasury assumed are in place when you made your
estimates regarding this FY 2024 proposal? If not, please provide the
specific brackets that you assumed were in place when you made your
estimate.
Answer. The President's budget would increase the top marginal tax
rate to 39.6 percent. The 39.6-percent rate would apply to taxable
income over $450,000 for married individuals filing a joint return,
$400,000 for unmarried individuals (other than surviving spouses),
$425,000 for head of household filers, and $225,000 for married
individuals filing a separate return. After 2024, the thresholds would
be indexed for inflation using the C-CPI-U, which is used for all
current thresholds in the tax rate tables. The proposal would make no
changes to the tax rates or brackets that apply below these thresholds.
Question. When you came before the Senate Finance Committee last
year regarding President Biden's FY 2023 budget, I asked you in a
question for the record why the Biden administration had agreed to
rules at the OECD that would substantially diminish the value of our
research and development (R&D) tax credit. In your answer, you stated
that when determining the effective tax rate, ``[f]ailure to account
for credits and other incentives would render the minimum tax
meaningless.'' My concern is that by the design of the current Pillar 2
agreement, we are directly disincentivizing U.S. companies from
engaging in important activities in the U.S. by allowing outside
countries to increase taxes on U.S. entities for U.S. activities.
Can you please detail what efforts the U.S. Treasury Department
made to protect U.S. interests by advocating that U.S. tax credits
should not decrease a company's effective minimum tax rate in the U.S.
under the Pillar 2 agreement?
Answer. The Pillar 2 rules must take into account credits and other
tax incentives to be meaningful. At the same time, Pillar 2 was not
meant to, and does not, address all forms of government spending. The
Pillar 2 rules therefore require a rule to distinguish tax incentives
from other forms of government subsidies, and that rule follows the
financial accounting treatment of credits--nonrefundable credits reduce
tax expense and refundable credits are like government grants and are
therefore treated as income.
The decision to follow the financial accounting distinction between
refundable and non-refundable tax credits in determining the effective
tax rate for Pillar 2 purposes was made in the Pillar 2 blueprint,
which was agreed and published in 2020 during the prior administration.
Since that decision was made, the Biden administration has worked
within that framework to protect key U.S. tax incentives. Treasury has
secured agreement protecting U.S. credits in a number of cases,
including (i) carryforward of the full benefit of existing stocks of
credit carryforwards due to the transition rules (ii) protection of
low-income housing tax credits and green incentives through tax equity
investments, and (iii) protection of transferable credits and direct
pay credits in the commentary to the Pillar 2 rules.
The U.S. Treasury continues to engage multilaterally on this issue
through the ongoing discussions at the OECD.
Question. Why were other countries, like Great Britain, more
successful in protecting their tax incentives? How do their successes
instruct your Department's approach to renegotiations on this subject?
Answer. The U.S. Treasury continues to represent U.S. interests in
the ongoing multilateral negotiations at the OECD, which is the best
forum for protecting those interests.
Question. The current OECD Pillar 2 agreement will be especially
problematic for S corporation ESOPs, which were intentionally created
by Congress to encourage employee ownership and help workers build
retirement savings. Pillar 2 would create an entity-level tax on
multinational S ESOPs, even when they are employee-owned and their
owners are already taxed at ordinary income rates when they realize the
value of their interests. I am concerned that this tax will negatively
impact employee-owners and their retirement accounts directly.
What will the Treasury Department do to ensure the OECD does not
move forward with a global minimum tax that includes employee-owned S
corporations?
Answer. The U.S. Treasury continues to participate in the ongoing
negotiations at the OECD. We are engaged on this issue and are pursuing
a multilateral resolution.
Question. As you know, I have worked with my Senate Finance
Committee colleague, Senator Hassan, on restoring research and
development (R&D) tax incentives. We recently reintroduced our American
Innovation and Jobs Act which, among other things, would make full and
immediate expensing of R&D expenditures under section 174 permanent.
The bill already enjoys considerable bipartisan support, and our list
of bipartisan cosponsors continues to grow.
Do you agree it is important to support domestic R&D activities
here in the United States to remain competitive against our
international rivals, including China, yes or no?
Will you commit to supporting the Hassan-Young American Innovation
and Jobs Act, yes or no? Why or why not?
During the recent House Ways and Means Committee hearing on the
President's FY 2024 budget, when asked whether you would commit to
helping Congress restore section 174 R&D expensing, you said you were
``working with Congress to put something more effective in place.''
Please provide specifics detailing how you have been working with
Congress on this vague alternative. As a leader on the R&D issue, I for
one have not heard from you or anyone at Treasury on this alternative
proposal.
Please provide specific details on this ``more effective'' R&D
proposal you and President Biden are hoping to implement in lieu of
section 174 and other R&D incentives.
Answer. Research and development are one of many types of
investments that are critical drivers of competitiveness and long-run
growth. The President's budget proposes a range of investments to boost
our long-term growth potential, including improving the availability of
high-quality childcare, providing free and universal pre-school, and
boosting the supply of affordable housing.
When it comes to tax policy, the President strongly believes that
any bill that cuts taxes for big corporations must also cut taxes for
working people and families with children. As you note, the budget
proposes to repeal the foreign-derived intangible deduction and use the
revenues raised to encourage R&D.
Question. In response to my question for the record following last
year's budget hearing, when asked about the apparent leak of
confidential information to ProPublica, you stated: ``As I have said
publicly, I remain deeply concerned about this matter. In an effort to
get to the bottom of what happened, I ensured that it was immediately
referred to the Office of Inspector General, the Treasury Inspector
General for Tax Administration, and the Department of Justice. These
authorities conduct their investigations independently.''
Do you still agree with your above statement, yes or no?
I received your above response to my question for the record on
February 10, 2023, via the Senate Finance Committee majority staff.
Since February 10, 2023, have you requested a status update on the
ProPublica investigation from the Office of Inspector General, the
Treasury Inspector General for Tax Administration, and/or the
Department of Justice, yes or no?
If your response to the previous question is ``yes,'' please
provide details as to the dates and relevant offices for each and every
status update request you have placed during that time. If your
response to is ``no,'' please explain why you have not requested a
status update despite ``remain[ing] deeply concerned about this
matter.'' If you requested status updates prior to February 10, 2023,
please provide details on those inquiries.
At any point following the June 8, 2021, publication of the
ProPublica article that contained the confidential taxpayer data, have
you or anyone on your staff briefed the Senate Finance Committee
chairman or majority staff on the matter, yes or no? If your answer is
``yes,'' please provide dates and attendee details.
Answer. As you know, I ensured this matter was immediately referred
to the appropriate authorities, which conduct their investigations
independently. I would refer you to the Treasury Inspector General for
Tax Administration and the Department of Justice for more information,
including about any briefings provided to Congress.
Question. Section 107 of the CHIPS and Science Act of 2022
established the Advanced Manufacturing Investment Credit (AMIC)
codified in section 48D of the Internal Revenue Code. Briefly, the AMIC
allows for a 25-percent credit on any qualified property ``integral to
the operation of [an] advanced manufacturing facility'' for which the
``primary purpose is the manufacturing of semiconductors or
semiconductor manufacturing equipment.'' The Department released a
Notice of Proposed Rulemaking (NOPR) on March 23, 2023.
How is the U.S. Treasury Department, together with the Internal
Revenue Service, engaging with stakeholders and Congress to determine
eligibility requirements for the AMIC, specifically as it pertains to
eligibility for the semiconductor ecosystem at large and congressional
intent?
Answer. Earlier this year, in coordination with the Department of
Commerce and the Department of Defense, Treasury and the IRS published
a Notice of Proposed Rulemaking with proposed rules to implement the
section 48D investment tax credit and the special ``applicable
transaction'' recapture rule in section 50(a)(3). The NPRM expressly
requested public comment on issues like the scope of terms like
``semiconductor,'' and we will carefully consider public feedback and
work with interagency partners before issuing final rules.
Question. How is the delay in issuing final regulations affecting
the semiconductor industry (e.g., in terms of project delays)? What
steps are being taken to remedy the negative impact of this delay on
the industry?
Answer. Consistent with the Administrative Procedure Act, the
proposed regulations are going through a rulemaking process that
provides the public notice and an opportunity to comment before we
issue final regulations. We will carefully consider public feedback and
work expeditiously with interagency partners to issue final
regulations.
Question. Ultimately, how does the delay in issuing final
regulations affect the primary goal of the CHIPS Act--securing
America's global leadership in the production of next generation chips?
Answer. Based on public reporting of announcements by semiconductor
manufacturers that are investing hundreds of billions of dollars in
U.S. semiconductor manufacturing, we are not aware of any such impacts.
Question. What steps are the Treasury Department and the Internal
Revenue Service taking to ensure that future regulations are issued
swiftly?
Answer. Consistent with the Administrative Procedure Act, the
proposed regulations are going through a rulemaking process that
provides the public notice and an opportunity to comment before we
issue final regulations. We will carefully consider public feedback and
work expeditiously with interagency partners to issue final
regulations.
Question. Last year, my Democratic colleagues enacted a 1-percent
excise tax on stock buybacks as part of the Inflation Reduction Act. At
the time, my constituents expressed concern over the lack of clarity as
to how that tax would be applied to preferred stocks. While there was
initially an indication that the IRS would exempt preferred stocks from
this excise tax, recently released guidance indicates that the IRS is
going to take the position that the tax does apply. This interpretation
seems out of line with the general intent of the new law.
As an example, let's say a corporation has outstanding common stock
that is traded on an established securities market, as well as
mandatorily redeemable preferred stock that is not traded on an
established securities market. The preferred stock is stock for Federal
tax purposes. On January 1, 2023, that same corporation redeems the
preferred stock pursuant to its terms. Under some practitioners'
interpretation of the IRS's Notice 2023-2,\40\ redemption by the
corporation of its mandatorily redeemable preferred stock would be
considered a repurchase and is therefore taxed as such.
---------------------------------------------------------------------------
\40\ https://www.irs.gov/pub/irs-drop/n-23-02.pdf.
Do you agree with the interpretation that, pursuant to the IRS's
initial guidance, the 1-percent excise tax would apply in this
---------------------------------------------------------------------------
circumstance, yes or no? Why or why not?
Answer. Yes, Notice 2023-2 explicitly addresses the fact pattern
that you described above in order to provide clarity as to how the
excise tax applies to preferred stock, although this initial guidance
only describes regulations that the Treasury Department and the IRS
intend to propose.
Example 1 of Notice 2023-2 \41\ provides a fact pattern in which a
corporation (Corporation X) has outstanding common stock that is traded
on an established securities market, as well as mandatorily redeemable
preferred stock that is not traded on an established securities market.
Example 1 further provides that (i) the Corporation X preferred stock
is stock for Federal tax purposes, and (ii) on January 1, 2023,
Corporation X redeems the preferred stock pursuant to its terms.
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\41\ Notice 2023-2, section 3.09(1) (entitled ``Example 1:
Redemption of Preferred Stock'').
Based on this fact pattern, Example 1 provides the following
analysis and conclusion: ``The redemption by Corporation X of its
mandatorily redeemable preferred stock is a repurchase because (i)
Corporation X redeemed an instrument that is stock for Federal tax
purposes (that is, mandatorily redeemable preferred stock issued by
Corporation X), and (ii) the redemption by Corporation X is a 26 U.S.C.
Sec. 317(b) redemption.''\42\
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\42\ Id.
Accordingly, the proposed regulations described in Notice 2023-2
would provide that a redemption by a corporation of its mandatorily
redeemable preferred stock is a repurchase and therefore is taxed as
such under the excise tax statute. However, we will carefully consider
public feedback in accordance with the Administrative Procedure Act as
our rulemaking process on the implementation of this excise tax
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proceeds.
Question. If your answer to part (a) is ``yes,'' please explain
whether you believe this outcome is consistent with the Inflation
Reduction Act.
Answer. The first rule of the excise tax statute provides that the
tax is imposed on ``the fair market value of any stock of the
corporation which is repurchased by such corporation during the taxable
year.''\43\ Similarly, that statute defines a ``repurchase'' to mean
``a redemption within the meaning of 26 U.S.C. Sec. 317(b) with regard
to the stock of a covered corporation'' and any transaction determined
to be economically similar to such a redemption.\44\ Congress's
decision not to provide any exception for preferred stock (or any other
type of stock) is confirmed by 26 U.S.C. Sec. 4501(f)(2), in which
Congress explicitly requested the Treasury Department to consider
regulations or other guidance to address special classes of stock and
preferred stock.
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\43\ 26 U.S.C. Sec. 4501(a) (emphasis added).
\44\ 26 U.S.C. Sec. 4501(c)(1) (emphasis added).
Notice 2023-2 mirrors the excise tax statute by defining the term
``stock'' in relevant part to mean ``any instrument issued by a
corporation that is stock or that is treated as stock for Federal tax
purposes at the time of issuance.''\45\ To implement Congress's request
that the Treasury Department consider special treatment for preferred
stock and other special classes of stock, Notice 2023-2 provides the
following request for public comments:
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\45\ Notice 2023-2, section 3.02(25) (providing a definition for
the term ``stock'') (emphasis added).
Are there circumstances under which special rules should be
provided for redeemable preferred stock or other special
classes of stock or debt (including debt with features that
allow the debt, whether by the issuer, the holder, or
otherwise, to be converted into stock)? If so, please provide
objectively verifiable criteria that such special rules should
incorporate to provide certainty for taxpayers and the IRS.\46\
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\46\ Notice 2023-2, section 6.01(1) (under the heading entitled
``Comments Regarding Rules Included in Notice'').
The Treasury Department will carefully consider such public
comments in developing the proposed excise tax regulations, which will
also go through a public notice-and-comment process before any final
---------------------------------------------------------------------------
regulations are issued.
Question. Though I disagree wholeheartedly with much of the
administration's proposed FY 2024 budget, there are some areas where we
are in agreement on expanding affordable housing production through the
Low-Income Housing Tax Credit (LIHTC)--a bipartisan, effective, and
ready-to-go tool. I have heard from businesses, families, and
individuals in urban, suburban, and rural areas about the need for more
affordable housing and the benefits of LIHTC in their communities.
However, despite estimates showing a shortage of 7 million
affordable homes to serve our constituents in need, we let a cut to
LIHTC, the primary tool for affordable housing production, stand with
the expiration of the 12.5-percent increase at the end of 2021. To meet
this crisis head-on, I am proud to partner with Senator Cantwell,
Chairman Wyden, and this year, upon Senator Portman's retirement, our
new Senate Finance Committee colleague Senator Blackburn, to expand
LIHTC resources and enact bipartisan and effective policies to increase
affordable housing supply. These reforms include increasing LIHTC
allocations and increasing access to LIHTC equity by reducing the
number of bonds needed for shovel-ready developments.
All of this is critical to any progress we have made working
together on the CHIPS and Science Act, because if the workforce housing
is not there we will be unable to fuel the critical expansion of
manufacturing in our Nation.
Will you commit to working with us to enact a much-needed expansion
of affordable housing production that will directly impact not only
working families struggling with their budgets, but also help
businesses, farms, and communities on the workforce housing front to
enhance local economic growth?
Answer. As you know, the administration's revenue proposals include
two items that are also mentioned in your question: an increase in the
potential credits available for allocation and a reduction in the level
of tax-exempt financing needed for bond-derived LIHTC eligibility. We
welcome the opportunity to work with you to see these necessary changes
enacted.
Question. In addition to the administration's support of the LIHTC
program, I also appreciated the inclusion of a proposal in line with
Senator Cardin's and my Neighborhood Homes Investment Act (NHIA). Our
bill creates a Federal tax credit that covers the cost between building
or renovating a home in distressed areas and the price at which they
can be sold. The legislation also caps the price of sales for each home
to ensure that they are affordable housing options in the community.
The NHIA would also help existing homeowners in these neighborhoods to
renovate and stay in their homes.
Do you agree that it is important to help revitalize communities
from within so that distressed neighborhoods are not permanently
subjected to blight?
Will you commit to working with me and Senator Cardin as we seek to
pass our Neighborhood Homes Investment Act into law this Congress?
Answer. The President's budget includes a proposal for a
Neighborhood Homes Credit. We would welcome further engagement with
your staff on this important issue.
______
Prepared Statement of Hon. Todd Young,
a U.S. Senator From Indiana
Secretary Yellen, I want to voice my continued frustration over the
way the administration has handled the OECD Pillar 2 negotiations. Over
the years, on a bipartisan, bicameral basis, tax writers have focused
on what the agreement would mean for the U.S. tax base. After all, if
we get that wrong and the U.S. tax base is harmed, we would be enabling
further Federal fiscal deterioration. Our constituent workers, job-
creating businesses, and taxpayers will pay the price if we get it
wrong. Yet here we are, almost a year and a half after your fellow
finance ministers and you reached agreement on Pillar 2, and you have
not made the case that U.S. workers and the job-creating businesses
that employ them will be better off if the U.S. Congress and the world
adopt Pillar 2. I am not asking whether a Joint Committee on Taxation
table would show revenue gains if we enacted the Biden administration's
more onerous per-country Global Intangible Low-Taxed Income (GILTI)
system. I am asking, would we undermine the incentive to invest and
grow jobs in the U.S. if this regime were enacted globally?
Suffice it to say, I have my doubts in large part because the
Pillar 2 Under-Taxed Profits Rule (UTPR) would uniquely disadvantage
American workers and job-
creating businesses by providing our trading partners with the
political blessing to tax the U.S. activity of U.S. companies. This
would directly undercut our sovereignty as a Nation and the legislative
power of tax writers to provide bipartisan and well-established
economic incentives, such as the research and development tax credit or
even incentives such as transferable renewable energy credits enacted
just a few months ago, solely on the votes of our friends on the other
side of the aisle.
These and more look to be wiped out under Pillar 2. When asked last
week during the House Ways and Means hearing, you said those incentives
would be lost under the current Base Erosion and Anti-abuse Tax (BEAT)
regime, but I have checked and that is at best a theoretical risk that
exists only in the minds of an academic with no practical experience.
U.S. companies can and will generally take great pains to avoid losing
credits to the BEAT. But the only way they could avoid losing credits
to the UTPR is to stop doing the R&D or investing in renewable energy
sources. I cannot understand why we allowed other countries to protect
their incentive regimes while throwing ours to the wolves. How is that
possibly in America's interest?
Madam Secretary, with all due respect, I think the Treasury
Department has gotten the policy process backward. Instead of
proceeding from longstanding bipartisan, bicameral principles I've
mentioned, they have negotiated an agreement at odds with those
principles and now want to force Congress to act. But this Congress
will do no such thing. Our negotiating partners need to know that while
they may have bested us in the negotiations, this Congress will not
blindly ratify such an awful result. If there is to be any hope of
Congress acting on these matters, it will only be after Treasury
returns to the negotiating table to work out an agreement that actually
serves the interest of U.S. workers and their employers, and I would
urge you to do so at the first available opportunity. Failing that, I
fear we are headed to more tax and trade disputes that will only
undermine our collective economic interests.
______
Young Amendment No. 3444
August 10, 2021 CONGRESSIONAL RECORD--SENATE
S6359
----------
SA 3444. Mr. YOUNG proposed an amendment to the concurrent
resolution S. Con. Res. 14, setting forth the congressional
budget for the United States Government for fiscal year 2022
and setting forth the appropriate budgetary levels for fiscal
years 2023 through 2031; as follows:
On page 53, line 8, strike the period and insert ``, except that no
adjustment shall be made pursuant to this subsection if such
legislation raises taxes on people making less than $400,000.''.
______
United States Senate
Roll Call Vote 117th Congress--1st Session
_______________________________________________________________________
Vote Summary
Question: On the Amendment (Young Amdt. No. 3444)
Vote Number: 335 Vote Date: August 10, 2021; 09:51
PM
Required For Majority: \1/2\ Vote Result: Amendment Agreed to
Amendment Number: S. Amdt. 3444 to S. Con. Res. 14 (No short title on
file)
Statement of Purpose: To prevent tax increases that would violate
President Biden's repeated promise to not impose a single penny in tax
increases on people making less than $400,000 per year.
Vote Counts: YEAs 98
NAYs 1
Not Voting 1
* Information compiled through Senate LIS by the Senate bill clerk
under the direction of the Secretary of the Senate
Alphabetical by Senator Name
Baldwin (D-WI), Yea Cassidy (R-LA), Yea Graham (R-SC), Yea
Barrasso (R-WY), Yea Collins (R-ME), Yea Grassley (R-IA), Yea
Bennet (D-CO), Yea Coons (D-DE), Yea Hagerty (R-TN), Yea
Blackburn (R-TN), Yea Cornyn (R-TX), Yea Hassan (D-NH), Yea
Blumenthal (D-CT), Yea Cortez Masto (D-NV), Hawley (R-MO), Yea
Yea
Blunt (R-MO), Yea Cotton (R-AR), Yea Heinrich (D-NM), Yea
Booker (D-NJ), Yea Cramer (R-ND), Yea Hickenlooper (D-CO),
Yea
Boozman (R-AR), Yea Crapo (R-ID), Yea Hirono (D-HI), Yea
Braun (R-IN), Yea Cruz (R-TX), Yea Hoeven (R-ND), Yea
Brown (D-OH), Yea Daines (R-MT), Yea Hyde-Smith (R-MS), Yea
Burr (R-NC), Yea Duckworth (D-IL), Yea Inhofe (R-OK), Yea
Cantwell (D-WA), Yea Durbin (D-IL), Yea Johnson (R-WI), Yea
Capito (R-WV), Yea Ernst (R-IA), Yea Kaine (D-VA), Yea
Cardin (D-MD), Yea Feinstein (D-CA), Yea Kelly (D-AZ), Yea
Carper (D-DE), Nay Fischer (R-NE), Yea Kennedy (R-LA), Yea
Casey (D-PA), Yea Gillibrand (D-NY), Yea King (I-ME), Yea
Klobuchar (D-MN), Yea Paul (R-KY), Yea Smith (D-MN), Yea
Lankford (R-OK), Yea Peters (D-MI), Yea Stabenow (D-MI), Yea
Leahy (D-YT), Yea Portman (R-OH), Yea Sullivan (R-AK), Yea
Lee (R-UT), Yea Reed (D-RI), Yea Tester (D-MT), Yea
Lujan (D-NM), Yea Risch (R-1D), Yea Thune (R-SD), Yea
Lummis (R-WY), Yea Romney (R-UT), Yea Tillis (R-NC), Yea
Manchin (D-WY), Yea Rosen (D-NY), Yea Toomey (R-PA), Yea
Markey (D-MA), Yea Rounds (R-SD), Not Tuberville (R-AL), Yea
Voting
Marshall (R-KS), Yea Rubio (R-FL), Yea Van Hollen (D-MD), Yea
McConnell (R-KY), Yea Sanders (I-VT), Yea Warner (D-VA), Yea
Menendez (D-NJ), Yea Sasse (R-NE), Yea Warnock (D-GA), Yea
Merkley (D-OR), Yea Schatz (D-HI), Yea Warren (D-MA), Yea
Moran (R-KS), Yea Schumer (D-NY), Yea Whitehouse (D-RI), Yea
Murkowski (R-AK), Yea Scott (R-FL), Yea Wicker (R-MS), Yea
Murphy (D-CT), Yea Scott (R-SC), Yea Wyden (D-OR), Yea
Murray (D-WA), Yea Shaheen (D-NH), Yea Young (R-IN), Yea
Ossoff (D-GA), Yea Shelby (R-AL), Yea
Padilla (D-CA), Yea Sinema (D-AZ), Yea
Grouped By Vote Position
YEAs--98
Baldwin (D-WI) Cruz (R-TX) King (I-ME)
Barrasso (R-WY) Daines (R-MT) Klobuchar (D-MN)
Bennet (D-CO) Duckworth (D-IL) Lankford (R-OK)
Blackburn (R-TN) Durbin (D-IL) Leahy (D-VT)
Blumenthal (D-CT) Ernst (R-IA) Lee (R-UT)
Blunt (R-MO) Feinstein (D-CA) Lujan (D-NM)
Booker (D-NJ) Fischer (R-NE) Lummis (R-WY)
Boozman (R-AR) Gillibrand (D-NY) Manchin (D-WV)
Braun (R-IN) Graham (R-SC) Markey (D-MA)
Brown (D-OH) Grassley (R-IA) Marshall (R-KS)
Burr (R-NC) Hagerty (R-TN) McConnell (R-KY)
Cantwell (D-WA) Hassan (D-NH) Menendez (D-NJ)
Capito (R-WV) Hawley (R-MO) Merkley (D-OR)
Cardin (D-MD) Heinrich (D-NM) Moran (R-KS)
Casey (D-PA) Hickenlooper (D-CO) Murkowski (R-AK)
Cassidy (R-LA) Hirono (D-HI) Murphy (D-CT)
Collins (R-ME) Hoeven (R-ND) Murray (D-WA)
Coons (D-DE) Hyde-Smith (R-MS) Ossoff (D-GA)
Cornyn (R-TX) Inhofe (R-OK) Padilla (D-CA)
Cortez Masto (D-NV) Johnson (R-WI) Paul (R-KY)
Cotton (R-AR) Kaine (D-VA) Peters (D-MI)
Cramer (R-ND) Kelly (D-AZ) Portman (R-OH)
Crapo (R-ID) Kennedy (R-LA) Reed (D-RI)
Risch (R-ID) Shaheen (D-NH) Tuberville (R-AL)
Romney (R-UT) Shelby (R-AL) Van Hollen (D-MD)
Rosen (D-NV) Sinema (D-AZ) Warner (D-VA)
Rubio (R-FL) Smith (D-MN) Warnock (D-GA)
Sanders (I-VT) Stabenow (D-MI) Warren (D-MA)
Sasse (R-NE) Sullivan (R-AK) Whitehouse (D-RI)
Schatz (D-HI) Tester (D-MT) Wicker (R-MS)
Schumer (D-NY) Thune (R-SD) Wyden (D-OR)
Scott (R-FL) Tillis (R-NC) Young (R-IN)
Scott (R-SC) Toomey (R-PA)
NAYs--1
Carper (D-DE)
Not Voting--1
Rounds (R-SD)
Grouped by Home State
Alabama:
Shelby (R-AL), Yea Tuberville (R-AL), Yea
Alaska:
Murkowski (R-AK), Yea Sullivan (R-AK), Yea
Arizona:
Kelly (D-AZ), Yea Sinema (D-AZ), Yea
Arkansas:
Boozman (R-AR), Yea Cotton (R-AR), Yea
California:
Feinstein (D-CA), Yea Padilla (D-CA), Yea
Colorado:
Bennet (D-CO), Yea Hickenlooper (D-CO), Yea
Connecticut:
Blumenthal (D-CT), Yea Murphy (D-CT), Yea
Delaware:
Carper (D-DE), Nay Coons (D-DE), Yea
Florida:
Rubio (R-FL), Yea Scott (R-FL), Yea
Georgia:
Ossoff (D-GA), Yea Warnock (D-GA), Yea
Hawaii:
Hirono (D-HI), Yea Schatz (D-HI), Yea
Idaho:
Crapo (R-ID), Yea Risch (R-ID), Yea
Illinois:
Duckworth (D-IL), Yea Durbin (D-IL), Yea
Indiana:
Braun (R-IN), Yea Young (R-IN), Yea
Iowa:
Ernst (R-IA), Yea Grassley (R-IA), Yea
Kansas:
Marshall (R-KS), Yea Moran (R-KS), Yea
Kentucky:
McConnell (R-KY), Yea Paul (R-KY), Yea
Louisiana:
Cassidy (R-LA), Yea Kennedy (R-LA), Yea
Maine:
Collins (R-ME), Yea King (I-ME), Yea
Maryland:
Cardin (D-MD), Yea Van Hollen (D-MD), Yea
Massachusetts:
Markey (D-MA), Yea Warren (D-MA), Yea
Michigan:
Peters (D-MI), Yea Stabenow (D-MI), Yea
Minnesota:
Klobuchar (D-MN), Yea Smith (D-MN), Yea
Mississippi:
Hyde-Smith (R-MS), Yea Wicker (R-MS), Yea
Missouri:
Blunt (R-MO), Yea Hawley (R-MO), Yea
Montana:
Daines (R-MT), Yea Tester (D-MT), Yea
Nebraska:
Fischer (R-NE), Yea Sasse (R-NE), Yea
Nevada:
Cortez Masto (D-NY), Yea Rosen (D-NY), Yea
New Hampshire:
Hassan (D-NH), Yea Shaheen (D-NH), Yea
New Jersey:
Booker (D-NJ), Yea Menendez (D-NJ), Yea
New Mexico:
Heinrich (D-NM), Yea Lujan (D-NM), Yea
New York:
Gillibrand (D-NY), Yea Schumer (D-NY), Yea
North Carolina:
Burr (R-NC), Yea Tillis (R-NC), Yea
North Dakota:
Cramer (R-ND), Yea Hoeven (R-ND), Yea
Ohio:
Brown (D-OH), Yea Portman (R-OH), Yea
Oklahoma:
Inhofe (R-OK), Yea Lankford (R-OK), Yea
Oregon:
Merkley (D-OR), Yea Wyden (D-OR), Yea
Pennsylvania:
Casey (D-PA), Yea Toomey (R-PA), Yea
Rhode Island:
Reed (D-RI), Yea Whitehouse (D-RI), Yea
South Carolina:
Graham (R-SC), Yea Scott (R-SC), Yea
South Dakota:
Rounds (R-SD), Not Voting Thune (R-SD), Yea
Tennessee:
Blackburn (R-TN), Yea Hagerty (R-TN), Yea
Texas:
Cornyn (R-TX), Yea Cruz (R-TX), Yea
Utah:
Lee (R-UT), Yea Romney (R-UT), Yea
Vermont:
Leahy (D-VT), Yea Sanders (I-VT), Yea
Virginia:
Kaine (D-VA), Yea Warner (D-VA), Yea
Washington:
Cantwell (D-WA), Yea Murray (D-WA), Yea
West Virginia:
Capito (R-WV), Yea Manchin (D-WV), Yea
Wisconsin:
Baldwin (D-WI), Yea Johnson (R-WI), Yea
Wyoming:
Barrasso (R-WY), Yea Lummis (R-WY), Yea
______
Communication
----------
Center for Fiscal Equity
14448 Parkvale Road, Suite 6
Rockville, MD 20853
[email protected]
Statement of Michael Bindner
Chairman Wyden and Ranking Member Crapo, thank you for the opportunity
to address Secretary Yellen's testimony.
The national debt is the issue of hour. The limit needs to be
abolished. It was only established because previously, each bond issue
was authorized by Congress. That day has long since passed. In the
first attachment, we detail who owns the national debt by income class.
The bottom 60% of households own the debt held by Social Security as
beneficiaries. The top 0.1% of households hold about a third of managed
fund and bond assets, with the rest of the top 10% holding half and the
bottom 90% one sixth. Federal Reserve, bank and long-term assets are
divided in roughly half between the top 20% and the bottom 80%.
If the debt were to be defaulted on, a great deal of the damage would
be to the top 10% of households. Managed fund and bond holders in the
top 1% would take the biggest hit. The debt itself is owed by income
tax payers. For every dollar of income tax paid, nineteen are owed.
Those who pay and those who owe are the same people: capitalists.
Without the national debt, leveraging private banking, debt and
investment--especially the intrinsically worthless assets in secondary
markets--is impossible. This is far above historical averages and is
unsustainable. The answer to this is increased revenue.
Inflation is the other big economic issue of the day. As Dodd-Frank
rules are being restored, the NYMEX oil trading floor is again an
honest market. Prices will go down and stay down to reflect the real
availability of oil and gas. This is not to say that higher interest
rates were not needed, but this is only so that families, especially
retirees, earn a fair return on their savings.
How the pain of inflation is borne is more important. Households making
under the 90th percentile have been losing ground for almost half a
century, while incomes above that amount have increased on a regular
basis.
The source of inequality, aside from abandoning the 91% top marginal
tax rate, is granting raises at an equal percentage rather than by an
equal amount. When the 91% rate was repealed, incomes were fairly
equal, so it was not an issue.
The federal government plays an outsized role in how salaries are
determined through percentage-based cost of living adjustments to
government workers, beneficiaries, government contractors. The
government can change this with the stroke of a pen. The private sector
will follow suit with a higher minimum wage, adequate child tax credits
(as described below) and paying individuals in training from ESL to
community college the minimum wage to purse their studies.
From here on in, adjust for cost of living on a per dollar an hour
rather than on a percentage basis (or dollars per month or week for
federal beneficiaries). Calculate the dollar amount based on inflation
at the median income level. No one gets more dollars an hour raise no
one gets less dollars per hour in increases. Increase the minimum wage
as above and consider decreasing high end salaries paid to government
employees and contractors. Even without decreases, simply equalizing
raises will soon reduce inequality. Why is this necessary?
Prices chaise the median dollar. The median dollar of income is
actually at the 90th percentile, rather than the 77th percentile (which
is about where the median is). This strategy will reduce inflation in
both the long and short terms as prices adjust to decreases in higher
salaried income.
Let me repeat this--prices chase income dollars, not income earners.
On the tax side, limit bracket indexing in the same manner--by dollars
per bracket, not percentages.
Staying in economics, last year we projected another depression, which
we define as a drop-in asset values below what is borrowed against
them. We no longer have to project, given the falling price of
valueless crypto-currency and the realization that mortgage backed
securities holding single family rental properties are nowhere near
what they are rated--and that they have been hidden in exchange traded
funds. The recent bank failures are only the beginning.
Aside from raising income taxes to end the production of junk assets,
the answer to the coming depression is enactment of the proposed
increase in the child tax credit proposed by the President, although we
would make it $1,000 per month and phase it out from the median income
to the 90th percentile.
Some of the bipartisan opposition in the Senate came from those who
consider direct subsidies from the IRS to have the ``stink of
welfare.'' I advise such Senators in both parties to raise the minimum
wage so that no one is having to work just to receive this credit and
that the best way to distribute the credit is with wages.
For middle-income taxpayers whose increased credits are less than their
annual tax obligation, a simple change in withholding tables is
adequate. Procedures are already in place to deliver refundable credits
to larger families.
Employers can work with their bankers to increase funds for payroll
throughout the year while requiring less money for their quarterly tax
payments (or estimated taxes) to the IRS. The main issue is working out
those situations where employers owe less than they pay out. This is
especially true for labor intensive industries and even more so for low
wage employers. A higher minimum wage would make negative quarterly tax
bills less likely. Again, no one should have to subsist mainly on their
child tax payments.
Please see the second attachment for the latest version of our tax
reform proposals, beginning with how the proposed rates are
synergistic. Note that we propose ending corporate income taxes and
reporting of business income on personal income taxes. We replace these
with consumer paid goods and services and employer-paid subtraction
value-added taxes.
The income tax for individuals with wage, dividend and salary income
under $75,000 would be eliminated. A surtax on employer paid
subtraction value-added taxes would be paid by employers, but filing of
individual income tax would not occur until $450,000 of salary,
interest paid and dividend income. Spousal income would not be included
in this levy.
We propose ending the capital gains tax on short- and long-term income
and full repeal of the inheritance (death) tax with an asset value
added tax. There are two debates in tax policy: how we tax salaries and
how we tax assets (returns, gains and inheritances). Shoving too much
into the Personal Income Tax mainly benefits the wealthy because it
subsidizes losses by allowing investors to not pay tax on higher
salaries with malice aforethought, tax transactions, not people!
Ending the machinery of self-reporting of asset returns also puts an
end to the Quixotic campaign to enact a wealth tax. To replace revenue
loss due to the ending of the personal income tax (for all but the
wealthiest workers and celebrities), enact a Goods and Services Tax. A
GST is inescapable. Those escapees who are of most concern are not
waiters or those who receive refundable tax subsidies. It is those who
use tax loopholes and borrowing against their paper wealth to avoid
paying taxes.
For example, if an unnamed billionaire or billionaires borrow against
their wealth to go into space, creating such assets would be taxable
under a GST or an asset VAT. When the Masters of the Universe on Wall
Street borrow against their assets to avoid taxation, having to pay a
consumption tax on their spending ends the tax advantage of gaming the
system.
This also applies to inheritors. No ``Death Tax'' is necessary beyond
marking the sale of inherited assets to market value (with sales to
qualified ESOPs tax free). Those who inherit large cash fortunes will
pay the GST when they spend the money or Asset VAT when they invest it.
No special estate tax is required and no life insurance policy or
retirement account inheritance rules will be of any use in tax
avoidance.
Tax avoidance is a myth sold by insurance and investment brokers. In
reality, explicit and implicit value-added taxes are already in force.
Individuals and firms that collect retail sales taxes receive a rebate
for taxes paid in their federal income taxes. This is an
intergovernmental VAT. Tax withheld by employers for the income and
payroll taxes of their labor force is an implicit VAT. A goods and
services tax simply makes these taxes visible.
Should the tax reform proposed here pass, there is no need for an IRS
to exist, save to do data matching integrity. States and the Customs
Service would collect credit invoice taxes, states would collect
subtraction VAT, the SEC would collect the asset VAT and the Bureau of
the Public Debt would collect income taxes or sell tax-prepayment
bonds. See the last attachment for details on this.
Until tax reform occurs, IRS Statistics on Income tax tables should be
adjusted for inflation to get a better idea of the distribution of
income. Between $50,000 and $100,000, there should be five groups.
Between $100,000 and $200,000, there should at least be four so that
the border between the fourth and fifth quintiles can be more
adequately expressed. Every tax wonk in the nation will appreciate
this.
Thank you, again, for the opportunity to add our comments to the
debate. Please contact us if we can be of any assistance or contribute
direct testimony.
Attachment One--Debt Ownership as Class Warfare, February 16, 2022
Visibility into how the national debt, held by both the public and the
government at the household level, sheds light on why Social Security,
rather than payments for interest on the debt, are a concern of so many
sponsored advocacy institutions across the political spectrum.
Direct household attribution can be made by calculating direct bond
holdings, income provided by Social Security payments and secondary
financial instruments backed with debt assets for each income quintile.
Responsibility to repay the debt is attributed based on personal income
tax collection. Payroll taxes create an asset for the payer, so they
are not included in the calculation of who owes the debt. Using 2019
tax data and the national debt as of COB February 15th, 2022. the ratio
is $19 of debt owed for every dollar of income tax paid. Note well that
the adjusted gross income of the bottom 80% is just over that garnered
by the top 10%.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The bottom 80% of taxpaying units hold few, if any, public debt
assets in the form of Treasury Bonds or Securities or in accounts
holding such assets and only take home one-third of adjusted gross
income. Their main national debt assets are held on their behalf by the
Government. They are owed more debt than they owe through taxes. The
next 10% (the middle class), hold more in terms of long-term
investments and mutual fund and bond assets. They hold a bit under a
fifth of social insurance assets.
The top 10% pay more than half of income taxes (the dividing line is
about 97.5%--and has been for a while). Asset shares within the top 10%
are estimated using the same breakdown as the entire population, that
is, the top 1% hold 54% of Federal Reserve and Long-Term Investment
Assets and 77% of mutual funds and bonds as held by the top 10%. A
similar fraction is used to estimate holdings by the top 0.01%--which
is consistent to how much income they receive (note that I did not say
earn.
This illustration shows who benefits the most from having a national
debt, therefore who has the most to lose through default. The relative
shares of debt ownership, however, are current as reflected in the 2019
Federal Reserve Survey.
Attachment Two--Tax Reform, Center for Fiscal Equity, March 24, 2023
Synergy: The President's Budget for 2024 proposes a 25% minimum tax on
high incomes. Because most high-income households make their money on
capital gains, rather than salaries, an asset value added tax replacing
capital gains taxes (both long and short term) would be set to that
rate. The top rate for a subtraction VAT surtax on high incomes (wages,
dividends and interest paid) would be set to 25%, as would the top rate
for income surtaxes paid by very high-income earners. Surtaxes
collected by businesses would begin for any individual payee receiving
$75,000 from any source at a 6.25% rate and top out at 25% at all such
income over $375,000. At $450,000, individuals would pay an additional
6.25% on the next $75,000 with brackets increasing until a top rate of
25% on income over $750,000. This structure assures that no one games
the system by changing how income is earned to lower their tax burden.
Individual payroll taxes. A floor of $20,000 would be instituted for
paying these taxes, with a ceiling of $75,000. This lower ceiling
reduces the amount of benefits received in retirement for higher income
individuals. The logic of the $20,000 floor reflects full time work at
a $10 per hour minimum wage offered by the Republican caucus in
response to proposals for a $15 wage. The majority needs to take the
deal. Doing so in relation to a floor on contributions makes adopting
the minimum wage germane in the Senate for purposes of Reconciliation.
The rate would be set at 6.25%.
Employer payroll taxes. Unless taxes are diverted to a personal
retirement account holding voting and preferred stock in the employer,
the employer levy would be replaced by a goods and receipts tax of
6.25%. Every worker who meets a minimum hour threshold would be
credited for having paid into the system, regardless of wage level. All
employees would be credited on an equal dollar basis, rather than as a
match to their individual payroll tax. The tax rate would be adjusted
to assure adequacy of benefits for all program beneficiaries.
High-income Surtaxes. As above, taxes would be collected on all
individual income taxes from salaries, income and dividends, which
exclude business taxes filed separately, starting at $400,00 per year.
This tax will fund net interest on the debt (which will no longer be
rolled over into new borrowing), redemption of the Social Security
Trust Fund, strategic, sea and non-continental U.S. military
deployments, veterans' health benefits as the result of battlefield
injuries, including mental health and addiction and eventual debt
reduction.
Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes
and the estate tax. It will apply to asset sales, exercised options,
inherited and gifted assets and the profits from short sales. Tax
payments for option exercises, IPOs, inherited, gifted and donated
assets will be marked to market, with prior tax payments for that asset
eliminated so that the seller gets no benefit from them. In this
perspective, it is the owner's increase in value that is taxed. As with
any sale of liquid or real assets, sales to a qualified broad-based
Employee Stock Ownership Plan will be tax free. These taxes will fund
the same spending items as high income and subtraction VAT surtaxes.
There will be no requirement to hold assets for a year to use this
rate. This also implies that this tax will be levied on all eligible
transactions.
The 3.8% ACA-SM tax will be repealed as a separate tax, with health
care funding coming through a subtraction value added tax levied on all
employment and other gross profit. The 25% rate is meant to be a
permanent compromise, as above. Any changes to this rate would be used
to adjust subtraction VAT surtax and high income surtax rates
accordingly. This rate would be negotiated on a world-wide basis to
prevent venue seeking for stock trading.
Subtraction Value-Added Tax (S-VAT). Corporate income taxes and
collection of business and farm income taxes will be replaced by this
tax, which is an employer paid Net Business Receipts Tax. S-VAT is a
vehicle for tax benefits, including
Health insurance or direct care, including veterans' health care
for non-
battlefield injuries and long-term care.
Employer paid educational costs in lieu of taxes are provided as
either
employee-directed contributions to the public or private unionized
school of their choice or direct tuition payments for employee children
or for workers (including ESL and remedial skills). Wages will be paid
to students to meet opportunity costs.
Most importantly, a refundable child tax credit at median income
levels (with inflation adjustments) distributed with pay.
Subsistence-level benefits force the poor into servile labor. Wages and
benefits must be high enough to provide justice and human dignity. This
allows the ending of state administered subsidy programs and
discourages abortions, and as such enactment must be scored as a must
pass in voting rankings by pro-life organizations (and feminist
organizations as well). To assure child subsidies are distributed, S-
VAT will not be border adjustable.
As above, S-VAT surtaxes are collected on all income distributed over
$75,000, with a beginning rate of 6.25% and replace income tax levies
collected on the first surtaxes in the same range. Some will use
corporations to avoid these taxes, but that corporation would then pay
all invoice and subtraction VAT payments (which would distribute tax
benefits). Distributions from such corporations will be considered
salary, not dividends.
Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on
purchase invoices. The rate varies according to what is being financed.
If Medicare for All does not contain offsets for employers who fund
their own medical personnel or for personal retirement accounts, both
of which would otherwise be funded by an S-VAT, then they would be
funded by the I-VAT to take advantage of border adjustability.
I-VAT forces everyone, from the working poor to the beneficiaries of
inherited wealth, to pay taxes and share in the cost of government. As
part of enactment, gross wages will be reduced to take into account the
shift to S-VAT and I-VAT, however net income will be increased by the
same percentage as the I-VAT. Inherited assets will be taxed under A-
VAT when sold. Any inherited cash, or funds borrowed against the value
of shares, will face the I-VAT when sold or the A-VAT if invested.
I-VAT will fund domestic discretionary spending, equal dollar employer
OASI contributions, and non-nuclear, non-deployed military spending,
possibly on a regional basis. Regional I-VAT would both require a
constitutional amendment to change the requirement that all excises be
national and to discourage unnecessary spending, especially when
allocated for electoral reasons rather than program needs. The latter
could also be funded by the asset VAT (decreasing the rate by from
19.25% to 13%).
Carbon Added Tax (C-AT). A Carbon tax with receipt visibility, which
allows comparison shopping based on carbon content, even if it means a
more expensive item with lower carbon is purchased. C-AT would also
replace fuel taxes. It will fund transportation costs, including mass
transit, and research into alternative fuels. This tax would not be
border adjustable unless it is in other nations, however in this case
the imposition of this tax at the border will be noted, with the U.S.
tax applied to the overseas base.
Attachment Three--Tax Administration, Treasury Budget, February 12,
2020
Shifting to a single system for all business taxation, particularly
enacting invoice value-added taxes to collect revenue and employer-
based subtraction value-added taxes to distribute benefits to workers
will end the need for filing for most, if not all, households. Any
remaining high salary surtax would be free of any deductions and
credits and could as easily be collected by enacting higher tiers to a
subtraction VAT.
Subtraction VAT collection will closely duplicate the collection of
payroll and income taxes--as well as employment taxes--but without
households having to file an annual reconciliation except to verify the
number of dependents receiving benefits.
Tax reform will simplify tax administration on all levels. Firms will
submit electronic receipts for I-VAT and C-VAT credit, leaving a
compliance trail. S-VAT payments to providers, wages and child credits
to verify that what is paid and what is claimed match and that children
are not double credited from separate employers.
A-VAT transactions are recorded by brokers, employers for option
exercise and closing agents for real property. With ADP, reporting
burdens are equal to those in any VAT system for I-VAT and A-VAT and
current payroll and income tax reporting by employers.
Employees with children will annually verify information provided by
employers and IRS, responding by a postcard if reports do not match,
triggering collection actions. The cliche will thus be made real.
High-salary employees who use corporations to reduce salary surtax and
pay I-VAT and S-VAT for personal staff. Distributions from such
corporations to owners are considered salary, not dividends.
Transaction based A-VAT payments end the complexity and tax avoidance
experienced with income tax collection. Tax units with income under
$84,000 or only one employer need not file high salary surtax returns.
Separate gift and inheritance tax returns will no longer be required.
State governments will collect federal and state I-VAT, C-VAT, S-VAT
payments, audit collection systems, real property A-VAT and conduct
enforcement actions. IRS collects individual payroll and salary surtax
payments, performs electronic data matching and receive payments and
ADP data from states. SEC collects A-VAT receipts.
I-VAT gives all citizens the responsibility to fund the government. C-
VAT invoices encourage lower carbon consumption, mass transit, research
and infrastructure development. A-VAT taxation will slow market
volatility and encourage employee ownership, while preserving family
businesses and farms. Very little IRS Administration will be required
once reform is fully implemented. All IRS employees could fit in a
bathtub with room for Grover Norquist.
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