A few that have been here before the committee a number of times you just cant tell you what it means to us. But now we are going to shift a little bit and consider the nomination of mr. David to serve as the assistant secretary of treasury for tax policy. Welcome to the finance committee. We appreciate the willingness to adhere today and we also appreciate the willingness to serve in this capacity. Im sure the significance of this position at this crucial time is not lost on you. Its not lost on any member of the committee. Its a major focus of the committee for some time now and we agreed to have you here to discuss your thoughts on these matters. On a number of occasions i stated the president ial leadership would be a key component to any successful tax reform effort. Just last week i quoted president obama at a speech on the senate floor back in 2012 he said things like the current Corporate Tax system is outdated, unfair and inefficient. The problem was he never got around to leading out of the tax reform and i expect more on tax reform. That expectation comes in large part because of knowing him and the way that he approaches these things are the. I have to say also because he and secretary have been talking about it so much thats more than that theyve engaged with congress and the public on these issues and i believe your nomination is another way the president has further demonstrated his commitment to reforming the burdensome job killing tax code and the experience that would be a crucial part of this endeavor. Before i finish up with my remarks i also want to address another important issue, one that i want to stress that all nominees that come before the committee. Talking about tax reform and existing tax policy it is critically important that we keep open minds delete the lines of communication between the parties in congress and executive branch. My todays u. S. Senate to providing timely and responsive answers submitted by members especially as they sit on this committee. That is the expectation and quite frankly anything short of that is unacceptable. I want to thank you for being here today and i will now turn to the senator for any remarks. Thank you mr. Chairman and colleagues. This is a tax policy doubleheader for the finance committee only at the halfway mark. Hes been nominated to serve as the treasury secretary for tax policy is. It is a very tough job and especially challenging when the congress is gearing up to work on major tax legislation where i pretty much share senator mccaskills views on the importance of it being bipartisan. In my view the challenge is guaranteeing that everybody in america has a chance to get ahead, not just the fortunate few. Tax reform becomes a partisan exercise slashing rates for just the wealthy, the biggest corporations. The American People will see this as a con job. Thats because it would lead in place the root causes of the appalling unfairness. The fact is the tax code in America Today is a tale of two systems. There is one system for cops and nurses and it is compulsory and strict, and basically their taxes come out of every single paycheck. Then theres another system for the lucky few that says you can pay what you want and when you want to. And it goes without saying that the nominees for the top jobs and tax policy needed to have the knowledge and experience to fix this unfairness. Its also vital to make sure nominees havent contributed to the problems in the first place. Now, i have real concerns mr. Connor and i have talked about this about several matters that took place during his time as the director of national tax of ernst and young. The firm did a great deal of work setting up tax shelters for wealthy clients. In the process, there were and whawereemployees who were convif fraud and obstruction for covering it up. Ernst and young paid more than 100 billion in settlements for the Justice Department and Internal Revenue service over the tax shelter market. In the vetting process for the nomination, it became clear that mr. Connor was regularly informed of the decisions that allowed ernst and young to profit on the tax gaming. He told me he had no direct role in the marketing of tax shelters or representing them to the federal auditors and i remain troubled that he was at the top of a department that engaged in these practices. I look forward to the discussion. Finally, the assistant secretary for tax policy is a job that requires close communication on both sides of the committee. Over the last few months, the administration has taken a lot of hits from republicans and democrats alike for its stated policy of ignoring questions that come from democrats. I am pleased chairman hatch has spoken out against the policy as has chairman grassley. And i want to be clear that it is completely unacceptable for an administration to just stonewall the inquiries from the members of congress. They dont do this for sport. We have an obligation on behalf of the billions of people that we represent. So i expect a commitment today to respond to questions regardless of whether or not they have a d. Or r. Next to their name. Thank you for being here and visiting with me and i look forward to your testimony. Thank you. Mr. Of any comments you wish to make . Chairman hatch, Ranking Member wyden and members of the finance committee, it is an honor to appear before you today. I feel both privileged and humbled to be recommended by the treasury is secretary and nominated by President Trump to serve as the assistant secretary of treasury for tax policy. As a former tax staffer for a member of the committee, i have deep respect both for this committee and the institution of the senate. I look forward to the opportunity of confirmed to serve this country again. I would like to take a moment to thank my family has been a constant source of information to the consideration and support. My wife cathy kathy, my two chin hillary and faith. Id also like to express thanks to the members and staff ive been able to visit with over the past couple of. If confirmed, i look forward to working with you in a bipartisan, collaborative and collegial manner. I grew up in a small move town by the name of plymouth in the coal mining region in northeastern pennsylvania. My father worked as an accountant for the coal mines and my mother was a high school teacher. I spent the majority of my career as a tax practitioner and leading the Tax Department so currently i am a partner in charge of the national tax office. I also ran the American University tax writeoff and prior to that i spent 30 years with ernst and young and finally, i am proud to say i was the senators tax accountant for over three years. Ive always be grateful to the senator for the lessons i learned and the values that he instilled in all of us on his staff. He set a standard for excellence in service that has been a source of inspiration of my entire career. Through these Career Opportunities ive worked on many aspects of the tax code. I focused on Small Business and middle income individuals. My current is focused on the middle Market Companies. Ernst and young specialized in the compensation and witnessed firsthand the challenge of keeping the companys Competitive Internationally. Comprehensive tax reform is the challenge before us. The code isnt necessarily complex and anticompetitive it takes winners and losers. America needs a simpler system filing their taxes. The middle class needs a tax cut. U. S. Businesses need a tax code that allow them to prosper domestically and at an international marketplace. Youve made great progress in identifying the policies to achieve these goals. The magnitude of the tax reform work in terms of the hearings, working groups and legislative proposals this indeed is impressive and as a result, america is on the verge of its comprehensive tax code overhaul in the general issue. Treasury has an Outstanding Team of the most talented Tax Professionals in the world. Working together with you and your staff i believe we can get tax reform over the finish line and if confirmed it would be an honor to strive to do so. Thank you, senator we are grateful that you are willing to serve. I have some questions im going to ask that i ask all of our nominees. First, is there anything you are aware of in your background that might present a conflict of interest with the duties of the office for which youve been nominated . Does not. Okay. Do you know of any reason for the store or otherwise that would in any way prevent you from fully fulfilling and honorably discharging the responsibilities of the office to which you have been nominated . No sir. Do you agree without reservation to respond to any reasonable summons to appear and testify before any constituted committee and the congress if you are confirmed . No sir. Finally do you commit to providing the response to any questions addressed to you by any senator of the committee . Yes mr. Chairman. Youve been in the tax business for many years, tax policy to Tax Consulting and compliance. Youve worked with congress and the administrations, tax practitioners, academics and other taxpayers. What is it you would like to achieve under this tax policy at the Treasury Department and how in your years of experience and interaction with all facets of the Tax Committee prepared you to do so . Mr. Chairman, one of the things ive learned over the years that sent the taxes to impact decisionmaking on businesses and individuals having an Internal Revenue code that is fair and simple should be a high priority and having a globally competitive tax is important for american businesses. If confirmed, i would focus on increasing Economic Growth through the tax code, creating good paying jobs, middleincome tax cuts and simplicity. What are some of the important Things Congress can do to help americans save their hard earned time and of course their hard earned money as well by con playing with this overly complex tax code i think a broadbased witch means eliminating certain tax productions that exist today would be very hopeful. No one can comprehend that and so the broadening the base and lowering the rate is essential for americans to feel good about the Internal Revenue code. Most americans have no understanding whatsoever of the tax laws and how they work when 90 of the population hires the tax return preparer for purchases software to prepare their returns a. I think we need to dramatically simplify as a part of tax refo reform. In the facilitation and enforcement act of 2015 the customs and Border Protection that the treasury is responsible for approving some of them is the statutormisstheir statutory. We have the commitment to ensure the regulations the deadlines thats not an issue im familiar with but the executive branch if confirmed i would do everything in my power to make sure the treasury meets the required deadlines. What are some of these businesses telling you is important to tax reform . What are the major themes in the Small Businesses alike they tend to be more globally active and so the focus tends to be on a globally competitive tax system. They are less concerned as a general matter of competitiveness of the u. S. System they are so concerned with simplicity. One of the things that surprised me most i than the current firms the middle Market Companies in how few businesses in the market have a tax professional. Businesses with revenue of 50, 60, 70 million have no one on their stafthe staff that focusee staff consequences of different positions they make. So i think having a simple straightforward Internal Revenue allows the businesses to make decisions to them without being unduly influenced by the tax law would be a very good place to be. So different, again, at different ends of the spectrum. It was intended to address concerns of the countries and profits shifting to sign onto thon tothe final reports to move together on peace fun. However, not long after the reports were finalized certain countries decided to go their own way and went further than the measures described. For example one of them dealt with the tax documentation that would be prepared on a country by country basis and shared with other governments. However, there is a Strong Movement to make that information public. If they collectively agreed to do one thing but then do another is the benefit of participating in these tax discussions for the consensus if you think the United States should maintain a presence of the tax discussions what font do you have on actions that can be taken to encourage jurisdictions or go further than the agreedupon framework . Its important to have a seat at the table and these discussions and i think its important for the United States to make sure those agreements we enter into our complied with so how we deal with each work. But i dont know how we could have a globally Competitive InternationalPlaying Field. When you were the director at ernst and young. It costs taxpayers millions of dollars. Your job to count the money as a part you benefited financially as the money poured in. Youve also had a handle designing the tax opinions that allowed this. It was a process that led to people going to jail. Yet up until now you have taken no responsibility for the dark chapter and in effect you said it wasnt my job to complain or blow the whistle. Now it takes courage to stand up when people around you are breaking the law so the question i want to ask is in hindsight at the feast do you wish he would handle this matter differently . I wasnt involved in the decision and i never designed or drafted one myself. Every time i think about the activity i wish that i had done things differently. At the time the firm agreed to get involved they set up the structure that didnt involve the national tax and when i took over that was the system that continued until it was dissolv dissolved. It wasnt until i was doesnt need to get the point of contact in the permanent subcommittee on investigations when i had a chance to review it in detail an email that group. What i saw greatly disappointed me and i felt members of the group that had used the level of trust. I think i should have been more vocal. I didnt speak up as forcefully as i wish i had, and i feel bad about that. Im looking at all these documents that you were seeing on. Not one, but lots of them. And im going to have to consider your answer as we go forward because when we look at what happened and the fact that you were copied on all of this as the head of the department is a major front and i may need to talk with you more about this. My next question is also on a matter that was very troubling to me. You said you would respond by phone requests made by the committee however when you spoke with these people sitting behind me. Not to respond to democratic members, and yo she would follow that directive and ignore our request. So, which would it be . Are you going to be responsive for the Committee Democrats even if directed not to do so o where are you going to break the pledge that you made the committee . It cant be both, it has to be one or the other. When they are going to pay it , what do you see as you are priority to close these kinds of loopholes and get us to a system that gives everybody a chance to get ahead rather than two systems that end up being hard on working families. Youve got some expertise here because ernst young was doing it on your watch. What would you do to stop those kinds of practices. Two things. First the activity by ernst young was a small part and only constituted less than 1 . What led to that is the complexity of the Internal Revenue code. Its all the gray in the tax law and that is not unique. There are many tax advisers who engage in similar activity , and it leads to that. My time is up. There is a lot more to this than blaming it on complexity. This is a question of whether, in this job, you will have the political will to take on these powerful interests but did so well at ernst young and are still out there today. I will need to ask more questions about that. Thank you. Senator grassley. Thank you and congratulations on your nomination. My first question deals with the whole issue of whether we ought to have lower rates and which is more important. How do you see the tradeoff between expensing and appreciation on lower rates. Do you view it as acceptable, length and depreciation to help finance a lower rate . Senator, i think different businesses prefer different things. Professional Service Businesses with low Investment Capital would prefer the lower rate. Capital intensive businesses would prefer more rapid write offs of their equipment. I think theyve developed innovative proposals with regard to writeoffs that are somewhere between current law and expensing and i think trying to simplify the rules for expensing and writing off Capital Equipment would be a good thing to do. They are exceedingly complicated and simplifying them and consolidating some of the existing rules would be a very good thing to do. What, if any restriction should be imposed on the ability to deduct interest. As you know house blueprint makes it a business expense in exchange for going to full exchange on capital assets. You view this as an acceptable tradeoff, should any restriction on interest be considered to finance lower rates were faster depreciation . I think as part of tax reform, everything should be on the table. We should look at the deductibility of interest. There is concern among many that the Current Treatment of Interest Deductibility leads businesses to excessive leverage. If something is done with respect to interest expense, i dont think it would be wise to do it is a simple acrosstheboard change. I think there are some aspects of the economy that depend very heavily on interest and its critical they have availability. The interest to debt and the deductibility of other interest expense. A key simplification of the income tax being considered is increasing the standard deduction. For example, the ministration proposed doubling it while only maintaining the deductions for charitable contributions and mortgage interest. At the end of the day to increase standard deductions means only around 5 of taxpayers with itemized to take advantage of these remaining deductions. How should reform balance simplification with longterm policy goals of incentivizing Charitable Giving and homeownership . Think as part of tax reform, if for going to do it right, each individual tax provision needs to be viewed in terms of the revenue code. Looking at every provision of the tax law, i think that makes sense, and figuring out a new Internal Revenue code for the future, which is substantially simpler with lower rates i think would benefit the economy and all the taxpayers a great deal. There is a broad agreement that passthrough tax rates need to be lowered in conjunction with any reduction of the Corporate Tax rate. In your view must a Corporate Tax rate in passthrough Business Rates be equal to provide a level Playing Field . Thank you. Ive actually written on that and testified before the house Small Business committee on that. Over the years ive spent a lot of time focused on passthrough businesses and when i was at American University, the focus of the tax center i headed was on Small Businesses and middleincome taxpayers. At the time, two or three years ago, there was a lot of discussion about eliminating a broad a ray of business expenses and business deductions, and using that revenue to lower the corporate rate. My concern was many of the flowthroughs are Small Businesses. I proposed at the time that maybe what we should have is a single business rate structure for all businesses. For flowthroughs as well as C Corporations. It could be a graduated rate structure, but i proposed a single rate structure for all business entities. At the time i realize there are some significant problems. The biggest one is whether personal Service Income should be subject to those lower flowthrough rates. Think thats a . Which people can differ, but i think its significant. If its agreed personal Service Income should be subject to a lower pastor rate, i think we need ways to prevent individuals from converting wage income into passthrough income, but the Biggest Issue may be that i think there has to be a realization that C Corporations have two levels of tax and passthroughs only have one. While i would like to see the pastor rate as low as it could be, i think we have to take into account the fact that there is a second level of tax on C Corporations that does not exist for passthrough. Is that same it would not be some, and this is my last question, that, what you just said in the tail end is that youre giving some consideration to a lower rate for passthrough as opposed to salaries, or not. Yes, sir, but going back to my first point, i really think theres a serious question whether that lower pastor rate should apply to personal Service Income. In other words, if theres a corporate attorney in a Corporate Tax department performing exactly the same services as an attorney with the law firm, it doesnt seem right to me that the attorney with the law firm pays at a lower rate of tax than the employee pays. Thank you. Senator casey. Thank you, mr. Chairman. We appreciate you being here i note for the record that you are a lucerne county native. We dont have that happen very often around here so its good to see you. Ill have some questions for the record regarding the line of questions that senator wyden pursued with ernst young, but i wanted to ask you particularly about the code and where we go from here. In particular i wanted to start with productivity in the code. Have you view that issue, were you to be confirmed. Thats been part of the Internal Revenue code since its enactment. I think it sounded social and sound tax policy. My focus will be on a middle income tax cut. I think producing taxes from low income taxpayers, simplifying the law, encouraging Economic Growth and generating good paying jobs are what i would focus on so i believe in progressivity and i believe it should continue to exist after tax reform. I hope that would be the perspective or the view of the administration, that they are going to focus on middleclass tax cuts. Im afraid that might not be widely shared in terms of a goal because weve seen over a number of years that when Congress Enacts substantial, and sometimes grossly excessive tax cuts for the wealthy, other parts of our society pay or other parts of the budget, schools pay, research, investments pay for that. Cuts or limitations on investment, everything from meals on wheels to programs that are now up for elimination by the administration. I hope the administration would adapt the view that the middle class should be the priority. Let me ask it this way in terms of the tax cuts for the wealthy. If the administrations tax plan is not deficit neutral, how would you wave unpaid tax cuts for programs and services at that level. My personal belief is that tax form should be revenue neutral. Saying that, i think we should take dynamic scoring into account, but i think adding to the deficit as part of tax reform is not the best way to go. We might have a difference of opinion on dynamics to scoring. We can get about another day. As you know, what we have from the white house is a one pager. It doesnt tell us much, but it does give broad outlines. Our sense is that the proposal the administration would move forward would be a repeal deduction save three, charitable home interest and retirement, and this would result in an above the line deduction being repealed. Here are some examples of what that could lead too. In that scenario repealing deduction for Higher Education expenses like tuition. If the overall tax plan gives a tax cut to those making over a million dollars, how is that an appropriate tradeoff when it comes to a deduction that benefits those who need Higher Education . The discussion so far has been on itemized deductions and education can pull into that. I think everything should be on the table as part of tax reform and i would not rule anything in or anything out. The challenges and the complexity and we would be happy to work with you and your staff. There are subject areas or parts of the deductions where. [inaudible] travel expenses incurred by army reserve and expenses in our classrooms and others. Im wrapping up, but i just ask one final question. Can you guarantee, on average, there will be no absolute tax cuts for the wealthy. Im not in a position to make that commitment. I will tell you my focus is on the middle income taxpayer and thats why i agreed to take on this job, if confirmed, and i will give you my word that is my primary concern. Thank you, mr. Chairman. Senator cantwell. Thank you, mr. Chairman. Congratulations on your nomination. We had a chance to talk about how i look at tax reform in trying to best think about an information age, that obviously, one of the things we want to harness is the level of innovation and continued development of new products and services. What do you need to do to make sure as we look at tax reform we are focused on the error that we live in and how to best capitalize on that. We also had a chance to talk about some of the challenges that comes with that, and i mention two things, the Apprentice Program and Affordable Housing and wondered if you had a chance to think anymore about those two issues, ways in which we might incentivize a more rapid uptake of training to and sent companies to hire and train as opposed to the challenges we face today so i didnt know if you had a chance to look at that. Senator, ive not developed my thinking any further in that but if confirmed i look forward to working with you and your staff to try to develop something without make made sense. I will say, i am sympathetic to that. As someone who was a University Professor as part of my career and believes in the importance of education, i am a believer that education can make a difference in the apprenticeship programs which i think you have focused on and pioneered in your home state have made a difference in many lives and id like to see that extended. To think they are ready to go and make a change in people dont know where to make the investment so if we can shortcircuit that by getting companies to hire and then train. Weve taken a lot of consternation out of the system. I agree. I think thats a serious issue for the u. S. Economy and our competitiveness and i would look forward to working with you to try to develop something we could put in the tax law that would not be unduly complicated and effective and efficient to deal with that issue. On the Affordable Housing issue, any more opportunity to think about that in the context of that we really have a crisis in america for Affordable Housing. Low income tax credit has been a great tool. I think the one thing thats missing is the discussion of how much we been impacted as a nation in the growth of americans who are in this unaffordable category that weve added shift in the context of how Many Americans retired and are now looking at Affordable Housing, returning veterans, people will of fallen out of the economy. We literally have a 60 increase in the demand of people saying im paying more than 50 of my income for housing. The low Income Housing tax credit isnt something ive spent a lot of time on in my career. From what i seen its worked pretty well and is part of tax reform, we should look at whether it can be made more effective and more efficient, i think everything should be considered as part of that effort. I understand the goal of the low Income Housing tax credit and i think its a worthwhile goal. I think this case what were looking for is your feedback, and maybe you can think about it and give us something for the record, the tax credit drives 90 of the Affordable Housing. If you dont increase that we wont be able to increase the supply. This is more of analysis of the shift change in the population that is now experiencing these dire situations and whether its a Worthy Investment to increase the capital behind the tax code. One other note is that the discussion of ta reform is actually suppressing the amount of capital. That discussion is basically hurting us in this discussion because people are sitting on their capital instead of making the necessary investments. Senator, it may be possible that low income. [inaudible] thank you. Thank you for being willing to serve in this position. I enjoyed meeting with you and visiting and learning and i appreciate your experience and im pleased we have a nominee that understands the challenges that businesses face in this complex tax code. In fact, to even understand the tax code, you probably already noted that anyone with expertise coming through these committees has a lot of problems. There is a lot of background that can be looked at and picked apart. I would like to mention that president obama assistant secretary of tax policy had these words to say about our nominee. Beyond the Technical Knowledge which is essential, dave would bring great leadership, abilities and a calm measured thoughtful approach to controversial issues. I can think of higher praise that somebody could get than that coming into this position. I also noted that you talked about businesses with no financial expertise, ones with 50 or 60 million a year dont have a cfo and i would mention that we have a lot of agencies that dont have any cfos as well. I noted that i wanted to congratulate the superintendent of yellowstone park. I think hes the first superintendent of a national park. I noticed in this mornings paper, casper wyoming is going to consider eliminating their assistant city manager for having a chief financial officer. It does help to have somebody that can look through financial documents and figure them out. There are a lot of people that dont have that kind of expertise. You have that expertise and you have worked in taxes. Im also the budget chairman and nine or nation is on an unsustainable fiscal path. I appreciate your comments about having tax reform be budget neutral. The Congressional Budget Office has made it clear that if current laws governing tax and spending do not change, the United States will face deadly federal inc. Crease. That rise of 86 of gdp in 2026 and 141 in 2046, exceeding the historical peak that occurred after world war ii. The prospect of such large debt presents policymakers with significant challenges. We need to take steps to reform our broken tax code and lay the foundation for longterm prosperity for all americans, and ive been working on International Tax reform for some time so that we can be competitive overseas. If we do that, something in the international area, it will help right the ship by pulling our International System into the 21st century , making us more competitive overseas and having the possibility of more revenue back in the United States to be invested in american businesses. Ive been working with senator portman to make that happen. From a broad perspective, can you explain what the administration believes is the appropriate way. The goal of the administration is to make tax reform to develop a Competitive International tax system. In 1986 the irs code with stateoftheart. Other countries admired what we had done. We had a broad base, low rates and they went to school on what congress had enacted in 1986 and they have broadened their bases and lowered their rates and they went a step further. In 1986, a worldwide system of taxation was stateoftheart. Today its a territorial system is what most of our partners have move too. With a worldwide system, u. S. Systems are at a competitive disadvantage as. Their strengths and weaknesses of any systems whether its territorial or worldwide, but the fact of the matter is we are out of step with the rest of the international community. If we dont move to a similar system, i think we will be at a competitive disadvantage. Thank you. Again i appreciate your background and know that a less burdensome tax code will help businesses and individuals to prosper. It is a thrill to have somebody that has handson accounting experience, and i appreciate you making it through the tough stuff that you have to go through, but i look forward to working with you. Let me make a couple points here. Then senator wyden will close out the hearing. Its important that we not cloud the record concerning his works at ernst young. For nearly three decades, david connor was a professional at ernst young and the committee has seen no evidence whatsoever i would call into question the honesty, his honesty, his integrity or his good judgment during his work there. Number two, the firms tax activities were the subject of a permanent subcommittee investigation inquiry includinincluding hearings. No part of this inquiry found any wrongdoing or reflected negatively on him in any way. Mr. Connor has told the committee both in writing and in person that he had no involvement in greeting tax shelters. We have no reason whatsoever to doubt him and got to leave for meeting with the japanese and ambassador but i want to thank everyone for their contribution today. Todays schedule with a bit more demanding than normal and i think everyone for their participation. Mr. Connor thank you for your professionalism and responsiveness. I hope we can process your nomination in short order and continue the bipartisan work of this committee. We turn now to senator stone and i understand when hes done the Ranking Member before you leave, for 30 seconds, as mr. Connor said today, and something i will be weighing in the days ahead, he wouldve handled the matter of what happened at ernst young differently when i was taken by that statement. We will have to have some more discussion about it, but i wanted to record to note that. Thank you. I think thats good for you to point out. Let me begin by thanking mr. Connor for appearing before the committee and for your willingness to serve for assistant secretary for tax policy. We appreciate your participation in this hearing and obviously the position to which you would ascend is one of the most important. Thank you for your willingness to serve. The issue of worker classification has taken on greater force. I urged legislation to provide more certainty for the entrepreneurs who are building an economy today. Do you share my belief that we cannot continue looking past the worker class and the tax reform is an opportunity to modernize it for traditional models as well. The new models are propelling the gig economy and whatever comes next. I would agree with that. The rules governing classification between employee and independent contractor have been uncertain for decades. The irs issued a procedure in the late 80s which is stateoftheart for classifying. It has 20 factors. Some of those factors are income preventable. I think bringing greater clarity for classifications between employees and independent contractors is an important thing to do. I think tax reform is the right time to do it. If you were confirmed, would you work with me to address this issue as part of tax reform. Yes or. We have a once in a Generation Opportunity not only to modernize the tax code but to refocus it on sustained longterm Economic Growth. I believe the two most powerful things we can do to achieve that goal are to lower business tax rates for both corporations and pastors and to allow businesses to recover their cost of investments as quickly as possible. Both of these changes will allow companies to deploy capital and earnings in the business growth. You will do you agree with this view on lower business. You agree these changes will have a macroeconomic effect on tax revenues that we should take into account as we develop tax reform legislation. I do believe both those changes would have a negative effect on the economy . I think striking the right balance is an imprecise science. I think we need to focus on both as part of tax reform. I hope as we get into this debate that we will look at the macroeconomic impact that these changes could have on tax revenue and as we develop that legislation, but recognizing again that lower rates, faster Cost Recovery are the two things that will get the biggest economic pop from and we will do everything to grow the economy. Thank you. Mr. Potter, do you support the proposition in the president s proposal to eliminate state and local tax reduction. I think as part of tax reform we should look at every individual provision in the Internal Revenue code and i think what we do should be viewed as comprehensive so i think every provision should be on the table and components of the tax reform package are interdependent. I appreciate that. Im asking you specifically about this one. I get the broad picture, its all interrelated. What are your views on this one. I would say that it should be considered, its hard to answer that question frankly in isolation but i think it depends on what the comprehensive package looks like. What is the purpose of the state and local property tax reduction. In my experience, it has been to avoid double taxation on the amounts paid into state and local governments. So in your views of everything should be on the table, should the foreign tax credit, which is basically a subsidy for u. S. Corporations, the bigger credit they receive against u. S. Taxes reduced as revenue to the treasury, actually goes in essence to benefit the countries in which they are getting their deductions from, do you think that should be on the table as well. Yes, sir. What are your views on it. I give you the same answer i give you with respective state and local tax, with isolation i can see the benefit of a foreign tax credit and i can see the document. I think the key is how it fits into a comprehensive overall tax reform package. Let me express what ive expressed to several nominees in different forms on different communities. Its a little difficult to vote on someone because i understand, at the end of the day anyone whos a nominated by the administration will ultimately pursue what the administration decides is its policy. Thats clear, but, this is a very significant decision and you will have the ability to advocate internally at treasury and interagency processes, and its hard to vote for someone if you cant clean from them what they will be advocating. Thats a problem with your answer. Let me ask you a different thing for for multiple congresses and many members of this committee on a bipartisan basis have urged the Treasury Department to withdraw irs notice 2007 55 in order to encourage more investment into the u. S. Commercial real estate market. In fact, 40 senators cosponsored the Foreign Investment and Real Property tax act, a bill that i and others introduced in 2013 which would have repealed the notice. These days, thats an almost unheard level of bipartisanship. Despite significant reforms we passed in 2015, the notice still has a Chilling Effect on investments in commercial property. It stuns investments from foreign pension funds, sovereign wealth, investors who want to invest in and develop american property. Since this was done as executive action and not legislatively, you, if confirmed, are in the position to influence the potential repeal of this irs notice. Will you actively review the feasibility of withdrawing this notice after you are confirmed. Senator, its not an issue ive focused on a lot in my career, but i would welcome the opportunity to take a close look at it and work with you and your staff. A me ask you one last question. If you are confirmed, you would be the point person in the Treasury Department for tax reform, which i share the views of many on the committee thats both longoverdue and desperately needed. It hasnt been updated in more than 30 years to believe Something Like that should be done and open transparent forms of the public to see . Do you believe the finance committee should hold legislative committees and markup something as important as tax reform . Is regular order preferable in order to obtain longlasting reform . I believe that congress does its best work when it works and i collaborated manner. When i worked here years ago thats how we worked. The senator i worked for required every tax bill that i worked on to have a democratic senator. I thought it made the legislation stronger and better in my personal fiber and commitment to you is that if confirmed, i will do everything i can to always have an open door and to work across the aisle and to give access to both sides. Thank you. Thank you senator menendez. A couple different areas, just get your thoughts, the administration seems to think that tax cuts pay for themselves. To share that view . I believe that taxes do affect economic behavior. I have seen it, and i think most economists believe that taxes do affect economic behavior. There is a wide variety of view as to what that impact is in a complex economy. I do believe in dynamic scoring. Do tax cuts pay for themselves. The reason i am asking if i happen to share the view that behavior is relevant. I had asked him about the proposal and he said yes, we will score thoughtful bipartisan proposals is generating growth in revenue. That is very different than the proposition of tax cuts paying for themselves. So, staying with this issue that, in my view is different than saying behavior is relevant with respect to activity in a private economy, but do tax cuts pay for themselves . I guess i would say that ive never tried to resolve that issue even at its full extent, but i do believe it affects behavior. I just dont know if it pays for itself. If youre confirmed i assume you will have to resolve that issue. Certainly the people that you would join seem to share that view. Let me ask you, with respect to another matter that we talked about, and that is who ought to get the lions share of tax relief . To me, making sure the middle class gets most of the benefit in an economy where the middleclass consumer drive sai said, that should be the central focus of tax relief. In your view, should the middleclass get the lions share of the benefits from tax reform. I do believe the middleclass should be the primary focus of tax reform. Okay. I want it clear that i am not going to announce a counter rule because we have had the experience of having mr. Nguyen embraced the role, and im just going to hold you to it because thats what we talked about in the office. I think that is the clear reality. I dont know of any other place that you can go to drive the kind of growth that we want without zeroing in on the middleclass. You are being spared having a rule that the middleclass art to get most of the benefit. Im grateful for your forbearance. But i want you to understand that were going to hold due to the fact that the middleclass ought to be the focus of tax relief, which frankly is not what we saw in the campaign. In campaign we saw lots of rhetoric, but when you start adding up the numbers it looked like most of the relief went to the fortunate few and then weve got this one page proposal which i call shorter than the typical drugstore receipt where its very detailed with respect to the fortunate few and not very detailed with respect to the middleclass. Anything else you would like to add. No, just to express my gratitude again for the time that youve given me and, i will say in closing, i think some of the work that you and your staff have done are some of the most creative and thoughtful work, and if confirmed i would generally look forward to working to you and your staff. I appreciate that. We will have some more things we want to talk about in terms of discussion today, but i appreciate your saying that, not just because i think dragon dance coa dan coats, legislators who felt strongly about this, if you are confirmed youll really be playing catchup because the reality is, in the 86 tax refor reform, by this time in the yea year, they had a very extensive bipartisan effort underway where they were regularly bringing together democrats and republicans and there had been a judgment that have been made that there would be a bipartisan bill, it had to be bipartisan and it reflects the, you made about Jack Danforth who i also like very much, feeling strongly about that. Here we are sitting in july and senator mccaskill is saying when is there going to be some bipartisan discussion. When you opened up your wall street journal last week, it basically had all of the described as big six making all the tax decisions. The reality is, you can probably find some opportunities to bully your way to 51 vote strategy with reconciliation. It doesnt make it sustainable and in the case of the area you want to work in, it wont bring the certainty and predictability we need for real growth. What will happen is if its just a partisan bill, everybody will say that will turn around and get repealed the next time Something Else is in the majority. To get the certainty and predictability that you really need for private sector growth, its got to be bipartisan and its got to focus on the middleclass and ending this tale of two taxed codes because something is way out of whack when its taken in a compulsory way and people handle it much differently. On behalf of chairman hatch, i want to make it clear for the record that members of the finance committee, we asked that they be submitted by close of Business Today and with that, the hearing is adjourned. [inaudible conversations] [inaudible conversations]