Transcripts For CSPAN3 Treasury Secretary Jack Lew Testimony On The Fiscal Year 2017 Budget 20160211

The committee will come to order. Todays hearing is on president obamas budget for fiscal year 2017. I particularly want to thank secretary lew for providing for appearing before us this morning and providing his time for us. While there are some hints about some of the details in advance, Congress Officially received the president s Budget Proposal yesterday. And as has been the case particularly under this administration, what we received was not a practical vision for the future. Weve going to have to have order here. As has too often been the case, what we received was a not a practical vision for the future but designed to sewuency constituencies. He looks to raise taxes on hard working americans, including some special new regressive taxes that are being packaged as, quote, fees unquote. With all the revenue going to fuel expanded government and spending that is being sold to the public as, quote, investment, unquote. No matter what terms people want to use, this budget once again taxes too much, spends too much and never balances. It presents a vision for a spending government, deaf sits as far as far as the eye can see and National Debt. That debt, by the way, currently stands at 19 trillion. As of last week, i believe it was. Close to 80 larger than when the president took office and ate lea at a relative to the economy not seen since world war ii. It contains provisions relating to puerto rico. The challenges facing puerto rico have received a lot of attention. Unfortunately, much of the debate has been overly politicized. The president s budget calls for 6. 6 billion intended to provide an earned income tax credit for residents of the island and roughly 30 billion for increased medicaid funds, some of which rare intended to offse an inequity written into the Affordable Care act. Apparently the authored write a cliff for puerto rico into the law. We are being told by some of those same authors that this funding cliff is unfair and must be undone. Unlike someone, maybe secretary lew or any member any of the members of congress who drafted and supported the health law to explain why that was done in the first place. Ive been working hard with a number of my colleagues to put together a package to help the people of puerto rico who should be our real focus in this. I have a bill with senators grassley and murkowski that offers assistance along with more than 7 billion of Fiscal Relief to the island without adding a penny to the federal deficit or debt. Since last summer, i have been asking Administration Officials as well as some of my Senate Colleagues just how much Additional Health funding they would like to see for puerto rico. In every case, specific detates ha have been withheld and congress has beened am ed amoed amonishe problem. Yesterday we finally saw specific proposed numbers from the administration. Why it took until now for these detil details to emerge is beyond me. While were on the subject of puerto rico, i do not believe the administration has been straightforward about the restructuring it is seeking. While we hear the republicans are denying puerto rico access to the bankruptcy protections offered to every municipality in the u. S. , that is not what is being sought. Specifically, the administration is advocating to provide unprecedented Debt Restructuring Authority to puerto rico with an explicit preference for public pennsylvania liabilities over debt issued by the pauerto rica government even though the territorys constitution gives preference to some of those latter debts. We need to be clear. Secretary lew, i hope to learn more about your thoughts on this today and Going Forward. I sure hope to learn more about puerto ricos pension exposures. In fact, just this morning i wrote to the governor of puerto rico asking for details since all told puerto ricos debt and its unfunded pension liabilities amount to almost 120 billion. As we know, lurking behind the recent increase in ever larger municipal bankruptcies nationwide is a growing crisis of under funded Public Pensions. The under funding of puerto r o ricos Public Pensions is striking. Another issue that i look forward to discussing today is a provision of the recently enacted fast act regarding the Debt Collection program. As we will likely hear today from senator grassley if not others, the report made clear that the intent of congress was for treasury and the irs to expeditiously implement this provision by utilizing approved private collection contract tors and Debt Collection centers. The law requires that contracts be signed within three months after enactment. That deadline is march 4, just over three weeks away. So i look forward to a status update today on the efforts to get the contract signed and the cases released and to ensure that taxpayers are made aware of the program and how it is going to be implemented. Finally, related to the large federal debt the treasury is supposed to manage, i want to make note of some disturbing revelations from the House Financial Services committee about contingency plans formulated by treasury and the federal reserve. Secretary lew, as you know, for nearly five years now ive asked treasury and the fed for details about plans the agency has had to handle debt default, whether caused by a natural disaster, terrorist attack, cyberattack or debt limit impasse. I have asked for the details in writing, in public hearings and in private conversations. In response to my inquiries you, your predecessor, fed chair yellen and former chair have cloaked plans in secrecy, sharing them in private discussions with Financial Market participants. All of you failed to provide answers to questions choosing to on few skate the issue. We know these contingency plans exist. Officials at the highest levels of the executive branch have refused to share them with congress or the American People. I find this unacceptable. Because we have received virtually no voluntary cooperation on this issue, legislation to require such cooperation and provide accountability is probably necessary. So the American People can know as much about our Debt Management as those working at treasury and the fed and in Financial Markets. So as you can see, we have quite a bit to discuss today. I look forward to a robust discussion of these and other important issues. With that, i will turn to my friend the Ranking Member for his opening statement. Thank you very much, mr. Chairman. Thank you for holding this hearing. Secretary lew, we appreciate your being here for i believe what we will one final time on this particular item of business. I would like to start, mr. Secretary you and i have talked about this, about trying to put taxes, your principal focus, in what i think is the right context. Right now in america, there are two different tax systems. The one that most working people deal with is mandatory. Their taxes come directly out of their paycheck. And then there is another system for the well connected. And under that system, it seems that you can often pay what you want when you want to. The fact is, most working americans earn one or two paychecks a month, they may have a mortgage, a few kids. Those taxpayers interact with a very small portion of the american tax code. But there are far too many shadowy, cobweb filled corners of the tax code that typical americans never have to venture into. Those corners are loaded with byzantine rules that accountants and lawyers can use to pry open loopholes. As a result of all this complexity, you have increasingly slippery definitions of Capital Gains income and an array of tax dodging strategies with names Like Washington sales and swap contracts. It is a mind numbing system. Its no wonder why somebody who works at a factory or who has a gig at the mom and pop business believes the tax code is stacked against them. I dont think anybody would make a huge bet on a complete rewrite of the american tax code this year. So as to address the entirety of the unfairness in terms of how our tax system plays out for those working families. But i do see a major opportunity for democrats and republicans in the Congress Working with the treasury and the irs to Work Together right now. And that major opportunity is to crack down on the tax avoidance schemes that have resulted in the Corporate Tax gap. Im going to have more to say about that this afternoon when the commissioner comes before the committee. But the short story is that twothirds of a trillion dollars owed in Corporate Taxes goes unpaid every decade. And in my view, every policymaker ought to be doing more to figure out why and how you are going to fix this. And i also see this as an opportunity to free up resources so as to be able to take on a number of the big economic challenges of this time. By the way, there are a number of proposals that are in the budget that are clearly going to be of significant benefit for workers. Certainly, the auto ira proposal would help a lot of workers start saving for the first time. As you know, mr. Secretary, a number of us on this committee have proposed to expand the s e savers credit. We are interested in helping those who are walking on an economic tightrope. The Community College proposals in my view are going to be quite helpful to students pushing to find that first high wage, high skill job. And you have a number of investments in Childrens Health that i think are very constructive. There are a number of smart proposals that could be a huge help to working class families and Small Businesses across the country. And i look forward to working on a bipartisan basis with our colleagues here to pursue those issues. Mr. Chairman, i also want to wrap up by thanking you. Because i think its worth noting here in the finance committee, chairman hatch has scheduled three hearings for us to come together on a bipartisan basis to examine the president s Budget Proposal. In my view, that is a major responsibility that we have and also a practical need to communicate with the administration. And thats true no matter which Party Controls the white house. And, in fact, these debates that were starting control much of the debate over the course of the year. Apparently, some other committees are not exercising this same responsibility this year. And i just want to say that i hope that does not become a precedent. Thank you very much, mr. Chairman. Thank you, senator. Before we go any farther here, i would let me give an introduction to our secretary lew. Secretary lew was confirmed to his position on february 27, 2013. Prior to his confirmation as secretary of treasury, secretary lew served as president Obamas White House chief of staff and before that director of the office of management and budget, a position secretary lew also held during president Clintons Administration from 1998 to 2001. After leaving the Clinton Administration and before joining obama in the Obama Administration as deputy secretary of state for management and resources, secretary lew served as executive Vice President for operations at New York University and was and did teach as a clinical professor in Public Administration at nyus Wagner School of Public Service until june 2006 when he was named chief operate beiing offif city group. In the middle of a long Public Service career, he received an undergraduate degree from Harvard College and a law degree from Georgetown University law center. The rest of secretary lews Public Service career would likely take the rest of this meeting. And as such let me say that it has been long and productive. I want to thank you for all you have done for our country and in your current job and continue to do. So well just take your statement at this time. Welcome to the committee. Thank you very much, mr. Chairman. Ranking member and members of the committee. This is the last time i will be presenting the president s budget. So theres a kind of nostalgic element to it. But we enter this final year with a great deal of energy because theres so much we need to get done for the American People. As the president said in his state of the union address, this is a time of extraordinary change. And to make this change work for the American People, we need to foster Economic Opportunities for all. We need to leverage new technologies to solve urgent problems. Such as climate change. We need to pursue a smart Foreign Policy that protects our national security. And we need to Work Together to improve our political discourse. What we do in each of these areas is crucial to our future as a nation. Today i will discuss the major aspects of the president s budget and how it lays out a vision for what we need to do as a country. Both now and over the next five or ten years and beyond to create growth and make sure that opportunity is truly broadly shared. In the seven years since president Obama Took Office at a time of the worst financial crisis since the great depression, we have seen a sustained economic recovery and unprecedented decline in federal deficits. Notwithstanding, some of the recent volatility that we have seen and were seeing in Financial Markets, Economic Growth continues at a solid pace. Since my testimony a year ago, our economy has continued its record breaking streak of private sector job creation which has reached nearly six consecutive years and more than 14 million jobs. Over last two years, we have experienced the strongest job creation since the 1990s. At 4. 9 , the Unemployment Rate is half of its 2009 peak. Real gdp expanded 1. 8 last year, a pace that exceeds many Major Trading partners. We continue on a sound fiscal path. From fiscal year 2009 to 2015, the deficit fell by almost three quarters to 2. 5 . Despite this progress, we have much more to do to fully address the challenges associated with our new economic. The president s 2017 budget puts forward the Building Blocks of a social compact for the 21st century, creating the conditions for sustained Economic Growth while upholding the basic american belief that everyone who works hard should get a fair shot at success. It shows that investments in growth and opportunity are consistent with and contribute to putting the nations finances on a strong and sustainable path. The budget substitutes more balanced deficit reduction and ends sequestration while making other critical investments and in addressing our fiscal challenges. I would like to focus on three key areas of the president s budget, including our proposals to reform theinfrastructure and working families. First fixing americas business tax system is essential to promoting growth and prosperity. The budget includes a number of concrete tax reform proposals to make our system more strong and more fair, including a complete reform of our International Tax system and a specific proposal to close the inversion loophole. While inverses may be legal, its wrong for companies to take advantage of our infrastructure, education, our support for research, our rule of law and then avoid paying their fair share of u. S. Taxes. I like forward to working with this committee and the congress to close the door to inverses. Second, we need to invest more in modern infrastructure that will create middle class jobs in the shortterm and meet the needs of a growing economy in the longterm. To accomplish this, the Administration Proposed a phased in 10 a barrel fee on Oil Production and import that will ensure we better manage the costs associated with fossil fuel use providing longterm solvency tore the Highway Trust Fund and offer new funding for clean energy investments. The budget also funds an expanded program and takes small steps to level the Playing Field for private investment in Public Infrastructure projects through the financing americas infrastructure program. Third, we must support working families. This budget seeks to respond to the change ing relationship between workers and employers. It proposes expanded Unemployment Insurance and introduced a Wage Insurance Program to help families stay on their feet. This budget also proposes to expand access to workplace Retirement Savings opportunities, complementing our success with the my ra program to help those without savings or retirement options begin to safe. In conclusion, the president s budget will create a stronger more inclusive Economy Today and in the future while also maintaining fiscal responsibility. Of course, we must also Work Together to respond to more immediate events. As the chairman noted in puerto rico, there is work that we need to do. I thank the chairman for working with us in december and since to try and think through an approach to dealing with this critical problem. Puerto rico faces unemployment at 12 and its experiencing an unsustainable debt crisis. Theposed a plan. I encourage congress to act with the speed that this crisis requires. This must begin with legislation to permit a financial restructuring along with new oversight. Neither of which cost any taxpayer dollars. This budget does not address every challenge we face. As the president said in the state of the union address, progress is not inevitable but rather its the product of choices we make together as a nation. We face a number of big choices in the coming years. For example, we still must take action to strength Social Security, to keep true to our commitment to previous and future generations of workers. The decade of fiscal responsibility laid out by this budget gives us the time we need to address these longterm challenges. The recent agreement on the debt limit and budget not only demonstrates that we have the capacity to find Common Ground on difficult issues but it lays a foundation to address the challenges we face. I look forward to working with this committee to make more progress together over the coming year. I look forward to answering your questions. Thank you, senator lew or secretary lew. Im demoting you. Puerto ricos general obligation debt has specific repayment priority, according to the constitution of puerto rico. Yet, your prosal, e proposal, opinion would blow through that even while you argue that their autonomy must be respected. As i understand it, euro poyou give preferential treatment to obligations of Public Pensions and would give those claimants preferential treatment relative to the general Obligation Bond holders. Of course, the issues here are very complicated. Among again Obligation Bond holders there are retirees in my home state of utah who under your formulation would be subject to less preferable treatment than puerto rico public pension claimants. I wonder if you could explain your proposal a bit more and explain your proposal to provide pr prefer e preference where in places like my state of utah who also have claims on puerto rico and thought they were protected. Senator, the financial picture that puerto rico faces is very complicated. They have 18 different series of bond issues. They are very complicated. There are Different Levels of priorities, different constitutional protections. The math is clear. With 72 billion of outsdatands bo ing bonds, theres a need for restructuring. It needs to include all of the bonds in order to be effective because if you do it on too small of a base, it doesnt work. We have never said that all bond holders get treated equally. So certainly there is the space to reflect the difference between different categories of bond holders. Even the voluntary offer that the commonwealth put forward reflects that principal. With regard to pensions, i think if you look at whats been happening in the last few months, pensions are being shifted. Pension criontributions are bei moved to pay bond hoer holders. The money is coming out to pay bond holders. Thats not going to be there for their pension. Thats not a tenable arrangement. The result in puerto ricos economy is clear. You are seeing thousands leave puerto rico. The economy cannot sustain the out migration of the people who are capable of building the Economic Future. And inknow thnoe i know we have this. Theres a crisis here that we agree needs to be addressed. How do we do it in a way that works . How do we do it in a way thats fair . We put forward a proposal that we think is comprehensive. What we have made clear is the first steps have to be restructuring authority combined with oversight. That wont completely solve all the problems, but thats where the time urgency is. We look forward to working with you on an approach to that that meets the standard of fairness that we can all defend. Thank you, sir. I often hear questions about why congress will not grant puerto rico retroactivity. The same the same chapter 9 bankruptcy tools that many municipalities across the country can access, retroactive chapter 9 authority is what senator blumentals bill and a proposal in the house involves. Your proposal which some have called super 9 is far different. A representative indicated lack of support for your super 9 proposal. No one in congress has filed legislation with the super 9 structure. State and territorial officials have expressed concerned about your proposal, including concerns about moral hazard and increased borrowing costs for states and municipalities across the country that could result from your proproosal. It seem s it has not received broad public support once the details are known. I wonder if you feel that theres support for your propropropos proposal in congress. If so, if you have any thoughts on why no one has introduced your prosal ase bill as a prop congress. I have talked to all of the Office Holders in puerto rico, the governor, legislative leaders, their representative in the house. I think there is a broad understanding and shared view that they need to have restructuring authority that will work, that will encompass the debt. I know there are concerns with how those are structured. As we have gone through this at a tech in i cn as we have gone through this at a tech in i cical level with yom and other others, we have aireds to find ways to work through this. What doesnt work is to say that puerto rico should somehow solve the fiscal dilemma that it faces without restructuring authority. Puerto ricos debt is principally the thing that is drawing down its ability to state solvent. Its a case of insolvency where the debt is just beyond what they can support. Unless its restructured in an ordinarily way, what will happen is it will go through protracted litigation where different stakeholders with different bond holder interest will be suing the commonwealth in court. You will have a lost decade where i dont know if the commonwealth can recover from a five, tenyear period of litigation. So theres an urgent need to address this. We would look forward to working with you and others in congress. I know you have had conversations probably with 50 members of the house and senate, maybe more than that. Theres a broad understanding that something needs to be done here. I guess what i just want to make clear is when we act, we have to act in a way that works or else the problem will be right back coming back at us. I dont think that will serve anyones interests. We share the concern that this be something thats per seefsce and be fair. We share the concern there be oversight to make sure the future is say path which is sustainable. I look forward to working with you and others to find a quick solution to get there. Thank you. My time is up. Thank you. Thank you very much, mr. Chairman. Secretary lew, as i indicated in my statement, you and i have talked about when it comes to finding issues that democrats and republicans ought to be able to Work Together on, this Corporate Tax gap cops front and center. I mean, twothirds of a trillion dollars owed in Corporate Taxes goes unpaid over a decade. And i recently sent a letter to the irs commissioner concerning the agencys apparent lack of tracking of these Corporate Tax issues. And i think theres questions i know we cant in five minutes get into all of the details that i think would be very helpful to get on the record. I think theres some questions about whether the agency really knows the sources, the major sources of this Corporate Tax gap. Based on your current knowledge, what are the major sources of Corporate Tax avoidance contributing to this vast sum of money that goes unpaid . Senator, i think the challenge is not just one or two causes. There are many aspects of our economy that are just not on the books. There are many aspects of our economy where businesses are organized to avoid taxes. If they do it legally, thats a different issue than if they do it illegally. And one of the basic challenges we have had at the irs over the last few years deprived of resources, we lack visibility into things we should have more visibility into. I think its a very good thing that at the end of the year we saw some restoration of a recognition that in order to have an effective tax service, you need to fund it so that you can do enforcement, you can do oversight, you can get the data you need to answer the kinds of questions that you are asking. I totally agree with you. We should be able to put more resources into working on identifying the sources of the tax gap, if there are Enforcement Mechanisms to get at it, to use your enforcement tools to do that. But enforcement is people. You know, you dont enforce by turning on a computer. You enforce by having revenue agents. You enforce by having teams that can do investigative work. Im grateful for the increase we got. Frankly, it wasnt for those purposes. The increases we got was for very important things. Dealing with Cyber Security, being able to answer our phones. We still have gaps in the irs budget that just dont give us the resources we need to enforce as effectively as we should. Does the irs in working with the treasury have a modern database to track the major sources of the Corporate Tax gap . Because based on the letter and the communication we have had with the irs, i dont think thats clear. Im going to get into it this afternoon. I know you look at that very substantial sum of money as i do and say, not only is that not right, its not fair to t taxpayers who as i indicated, just have their taxes pulled out of their paycheck directly. It also would be an opportunity to show that we can make tough choices. We can make tough choices. We can raise money certainly by collecting taxes owed and make judgments about future priorities. Is there a database, a modern database to track the sources of Corporate Tax avoidance . Dwwe do have databases at th irs. As you know, they old systems. They are systems that i think the team at the irs does a very good job making look more modern than they are by making it more accessible to taxpayers and others who are looking for information. But behind it is a very old Computer System. One of the things that we will be doing mostly with the focus for Cyber Security and Identity Theft is upgrading the Computer System with some of the additional funds we have. But this has been an ongoing issue at the irs that it is an old Computer System. I dont want to say it cant give us the ability to do the analysis. I would defer to the commissioner on the details of what needs there could be in terms of the Data Processing capacities. Overall, it is a system that needs investment. One last question if i might. As you know, theres a big difference between the tax on wages and the tax on Investment Income. And the gap, of course, has increased. Particularly it ought to be put in the context of the last major tax reform when Ronald Reagan decided in conjunction with a lot of democrats, a host of people, that he was going to have equal treatment in terms of taxes for somebody who makes a wage and somebody who has investments. In your view, what does the president s budget do to begin the effort to close this gap in taxation between taxes on a wage and taxes on Investment Income . The budget does a number of things. Some are repeat proposals from the past, things like changing the Capital Gains tax rate, like dealing with stepped up basis. Some are new. Like our provisions that try to get at all forms of income no matter how its structured so that you cant avoid selfemployment taxes or taxes that were put in place to pay for healthcare by categorizing your income a certain way. I think its a real problem in terms of the concentration of income we see today at the very top and the fact that the income comes in a form that is very is taxed very differently. The system doesnt look fair to working people who just pay a tax on every dollar that comes in. That doesnt mean we should have a punitive standard towards unearned income. But you can convert earned income into unearned income to get a lower tax rate, it creates a problem. My time super. I just think its worth noting that in the last tax reform effort, democrats and republicans said there was an opportunity for everybody in america to get ahead. And one of the ways was to treat wage income and Investment Income the same. Thank you. Thank you. Senator roberts . Mr. Chairman, thank you very much for holding this hearing. Mr. Secretary, welcome back. I just want to register right off the bat my strong opposition to the proposal to place a new tax on oil. I know thats popular, certainly popular given the situation with the president ial race. I dont think its extraordinary opportunity. I think its another blow to the oil and gas industry, which is hurting. I have read and heard the economists placing a tax on carbon in order to, quote, address market failures and to properly account for the alleged costs of carbonbased energy sources. Same economists content this would have little impact on the economy and that these costs, which they acknowledge will be passed through to consumers. Can be implemented in a manner to minimize the impact on lower income taxpayers. I have heard it said that with the price of oil so low, now is the best time to implement an oil tax. Fewer people this is a quote. Fewer people will notice this tax. You know, i know, they may see it but they will feel it. Just because the tax would be less visible under the current Market Conditions does not mean its impact would be less severe. I want to take a quick look at how this proposal will impact kansas where we endeavor to produce oil and gas despite the war against oil and gas by the administration. The oil and gas industry is a major component of the kansas economy. Our producers invest over 700 million annually in the state. 10 of the work force is employed in oil and gas production, either directly or downstream industries. Thats 118,000 workers that would be affected. That amounts to 12 of kansas payroll and over 15 of the states tax revenue. All told, this is about 3 billion in Family Income in my state. Its no secret that Global Oil Prices and supply and demand issues have hit the kansas oil and gas industry hard as well as many other states. Some of the states oil and Gas Service Companies have laid off 50 of their work force. Some producers have seen layoffs of 20 to 25 of their work force. Kansas production has dropped about 5. 5 and state tax revenue from the industry has dropped by over 50 . These are real impacts. Very severe impacts happening right now. This is just directly within the industry, think about the related manufacturing and service industries. Its a massive new tax and make no mistake, it would burden the economy, spilling over into gas prices, almost Everything Else produced or transported within our economy. The kansas oil and gas industry is hurting. I think this proposal would only make things worse. I find that unaccessible and hope we certainly do not approve this. My question as described in your treasury general explanation, 15 of the revenue from the tax would be dedicated for relief for households with particularly heavy industry costs. Sort of like a new national program. I do not view this as an extraordinary opportunity. In kansas most of the Oil Exploration and Production Companies are considered by any standard Small Businesses. My question is, does your department propose to set aside any of the revenue from this tax to assist oil and gas industry workers or workers who lose their jobs or otherwise are harmed by the new oil tax . Senator, i think if you look at the price of oil over the last year, over the last even days, you have seen movements that are far more dramatic than the impact of the 10 fee over five years. 10 would be phased in over five years. I think we all know that we watch oil prize prices moving b bigger than that every day. I dont think we should exaggerate what the size of the fee is. We do think its important at a time when particularly when oil prices are low to put in place a mechanism that will both help to capture the benefit of making the price signal one that contributes to better usage. But also to put in place a mechanism for us to invest in the technology and the infrastructure we need Going Forward in this country. It would but our Highway Trust Fund in a more balanced, safe, sound place. And it would give us the Renewable Technologies and the new technologies of the future. It would apply to imported oil as well as to u. S. Developed oil. It doesnt have a differential impact. Are you going to set aside part of this to help the oil and gas industry with regards to Small Businesses that would be hurt by this tax . We obviously have set aside resources to deal with those who are low income who have no ill t ter naive but to face higher prices. Im happy to look at a proposal that would you have on those lines. I would think i would be happy to get into a discussion about it. If its low income folks you will try to help, i think you ought to take a look at the harm that this tax will have on the oil and gas industry and maybe actually help those folks as well. First, we dont know what the exact amount that will be passed on in prices. My time has expired. I appreciate your response. Thank you. Senator schumer. Thank you, mr. Chairman. My first question is on tax reform. International tax reform. You and i have talked about that at great length over the last year. To summarize, i think we need it for two reasons. First, American Multinational Companies should pay the taxes they owe. Right now our Companies Making profits overseas can keep that stashed offshore, avoid taxation all together. Thats unacceptable. Second, we have to protect american jobs in the future of our nations economy. As you are aware and probably more than anybody else, more and more of the nations Multinational Companies are leaving our shores all together. Partnering with Foreign Companies to pay lower taxes in foreign jurisdictions, moving headquarters and property overseas. You secretary lew and the administration, the president have put forward a very Serious International proposal, tax reform proposal that would transition to a new form of International Taxation. House republicans have proposed similar solution solutions. I have been pleased to work with a bipartisan committee, including on this committee. Were trying to bridge over, of course, the divide between existing proposaproposals. Theres Common Ground. I remain at the table ready to work. I assume thats the case for you as well. Absolutely, senator. We continue to thats called a softball question. You are allowed to answer it. We continue to believe that working together to get Business Tax Reform done is absolutely a high priority. We got closer last year than people outside thought. There were very good conversations going on where there was a pretty broad sense of where there might be an agreement on international Business Tax Reform. In a way where we use a onetime revenue to pay for infrastructure that we want to be able to support, not build kind of future liabilities into the tax system that are unsustainable in terms of cost. It was disappointing that at the end of the year there seemed to be pulling away from that. Our budget puts in place the proposal its the same proposal as last year. The number of treasuries modelling from 205 billion to 350. Thats for the International Tax provision. Thats because more companies are moving overseas and keeping their money overseas. Is that right . Its a technical estimate of how much we think money is being kept overseas. And how much its being subject to tax overseas and what would come here when the tax is put in place. We need to deal with the problem. That increase in revenue means lost jobs here. It should be a warning signal shot across the bow to us. One final point. This is for our republican colleagues. I have worked with senator portmans and others on this proposa proposal. That is, i know the administration feels strongly as do many of us on this side that International Reform must be coupled where investments in this country because thats the way to take not all of the money but at least some of the money that we gain from getting these revenues and without it its going to be hard to pass something. So has your view stayed the same that we wont get a deal on International Tax reform this year or ever without pairing it with some degree of investment . Senator for several years, we have been advocating linking those issues for two reasons. One is, if you dont use that revenue for a onetime expenditure like an investment in infrastructure, you cant cut rates with that that amount or losing revenue in the long run. So we think that that solves the structural problem of how do you deal with onetile revenue. Secondly, we have an enormous infrastructure need. If we ever get a Business Tax Reform bill that has real bipartisan support, it has to include the infrastructure. Were very much of that view. I agree and and now speaker but then ways and means chair ryan understood that completely. I just hope people on the other side wont pull away from that because that will make it much harder to pass it. My final go ahead. I was going to say, while were going to put every effort we can into getting full Business Tax Reform done, i want to under score the inversions. Were seeing more and more stories of Companies Going overseas, large companies. We cant wait a year to deal with this. Agreed. We need to deal with it and deal with it now and you could deal with inversions on its own. I dont think thats ideal. We should deal with Business Tax Reform. I dont want to be leaving in a year watching more companies having moved overseas and i dont think anyone in this committee wants to look at that, either. The answer is you need legislation. I agree. Can you answer this yes or no because my time is running out. Essential to getting puerto rico back on track, it is necessary, may not be everything is a chapter nine bankruptcy provision. That is the or a broad bankruptcy provision, not a chapter nine and that is the view of many of us here on this side of the isle, is it administration. Absolutely. There are multiple ways of drafting it. It doesnt have to be drafted. It could be drafted in terms of legislation that applies to the territori territories. The affect would have to be broad restructuring. Thank you. Senator . Welcome. Wonder to feel have you before the committee and let me thank you for working with me and leaders in my state to help us in a number of different areas. We very much appreciate it and as i start, when you were talking about the Unemployment Rate when president Obama Took Office in michigan, it was 15. 7 and we were at the verge of losing the Major Foundation of manufacturing in the country and with administrations help, the president s help we turned that around. Unemployment is now 5. 1. From 15. 7 to 5. 1 is a huge change. The challenge, as you know all too well is that not everyone is feeling theni recovery and so wn people lost the equity of their home, the primary way that middle class families save or lost or job or even in the Auto Industry took major cuts to save the industry and those who have been threatened on all sides, its very difficult even though the broad numbers are incredibly positive. I want to speak about one of the areas and ask your comments regarding one area of incredible insecurity for people around pensions. And i know that colleagues of mine, as well, have spoken with you and i share the concern about the united mine workers. I am particularly from the standpoint of michigan concerned about the multi Employer Pension Plans and the reform legislation that passed at the end of last year, which as you know gave administratiors of plans the ability to apply cuts to earned pension benefits for the First Time Since 1974 and it was unfortunately part of a must pass appropriations bill to avoid a government shut down at the time that didnt give us, didnt give Congress Time to debate the impact on retirees and from my perspective, a pension is a promise and key corner stone how we have had a middle class and the dignity and respect of work in this country, and i am deeply concerned about what we now face. On monday treasury held a public meet income detroit to hear from retirees that would be directly affected, more than 500 people showed up for that meeting. They went into great detail how they would be hurt by huge cuts in some cases 50 to 70 of their proposed pension. These are folks that gave up increases, annual increases in pay to have a secure pension for the future. So this is incredibly concerning. Its an outrage and id like to know what administration would propose to address this incredibly serious issue and really, broken promises for folks who have worked hard all of their lives and are trying to figure out how to go on in retirement. Senator, as you and i have discussed, this is a terrible problem and there is no easy or good answer and as a result of the legislation you described written in cosponsored and asked by congressman kline and miller, that responsibility falls to the Treasury Department to review the plans for working through multi employer plans that are not able to make their payments. You know, the challenge is they all go to an underfunded Pension Benefits Guarantee Corporation fund and if there is not enough money in the fund to pay the benefits, the question is do you drain that fund and have nothing for anyone . We are in the process through the hearings you described. We appointed ken feinberg to administer this for us. He is going around listening and hes listening to heartbreaking stories and in the end, well have to review the propels that come forward from the plans and as actions are taken and, you know, the first one will come up for review, i believe, in may. Well continue looking at what options there are to in terms of how to review them, but at the core is this tension between not enough money to pay the benefits and very, very difficult changes in benefit structure to make the plans last longer. Since we dont have additional money to inject into the system, it doesnt give us the option of just saying, you know, continue as we are because that would end up hitting more people. These are terribly difficult and i appreciate ken feinberg taking the task to report to me on that and ill continue to stay close working with all of you. Thank you. Mr. Secretary and chairman, one of the things i hope we will look at is the accounting changes, laws changed in the last several decades that allowed over funded plans to be available and changes that nothing to do with workers that have created a large part of this so that now were talking about funding but there is a lot more to it in terms of how pensions got to this particular point and i think weve got a lot of hard questions to look at and decisions that were made. Thank you, mr. Chairman. Thank you, ms. Chairman. Just a couple general observations about the budget. 3. 4 trillion in new taxes, revenues to gdp at 20 , which is only happened once in the last 50 years. The 50 year average is 17. 4 revenue to gdp. Spending goes up to 22. 6 of gdp. Thats only happened five times in the last half century. The 50 year average there is 22. 6 . And so spending is up. Taxes are up. And at the end of the decade, the debt goes from 19 trillion today to 27. 4 trillion. So the budget really is more spending, more taxes, and more debt. And it just seems to me that you guys are on your way out. This was a chance to go big and bold and i see it as another missed opportunity to do something that really matters about what we know the fiscal crisis facing the country is, thats mandatory accounts and mandatory spending. In fact, the budget shifts more spending over into the mandatory accounts. Its just some general observations, expressing frustration and disappointment. I do have a question, this comes back to slightly changing gears here for just a moment. With how the u. S. Financial Services Companies are treated under the trade agreements, my understanding is that the Treasury Department opposed the idea of providing u. S. Financial Services Companies the same protections with data flows most u. S. Other companies will benefit from. I wonder if you can clarify on the issue. Do you believe that u. S. Financial Services Firm should be protected from foreign laws and impose restrictions on where they can transfer or process Customer Data . Senator, this is a provision that weve been working on talking with the Financial Services community on, but also, with our own regulators and the requirements and in terms of how they view what they need prudential reviews of Financial Institutio institutions. We cant give away something that our financial regulators would need here in the United States. Were working with industry and with regulators as we go through this. Were sensitive to the concerns. It is certainly not something that is designed to put a burden on was meant to put a burden on u. S. Financial institutions. We bargained very hard in tpp to get terms very favorable generally to institutions on a global basis. This is actually a case where what we in the United States, we meaning the not treasury but our independent regulators require in terms of Data Availability is one of the issues we have to work around. On cross border data flow, thats things we prioritize and seems it was a different standard what youre telling me is that thats actually something that youre working with the industry and the regulators yeah, weve in other aspects of tpp, been very aggressive to make sure that a local data requirements arent put in place, for example, to restrict the ability of a global system like a credit card system to work effectively because we have Big Industries in that area. This is a kind of sub issue because of the regulatory requirements in the United States but were working through it and sensitive to the concerns. Okay. If i might, senator, just go back to your observation and i dont mean to take your time. But you will. [ laughter ] it is true the budget would trend back up to a 20 revenue, percentage of gdp. I remember well when 20 of revenue i was budget director at the time and we were on a path towards paying down the National Debt and great Economic Growth. When you look at the growth of spending, you have to recognize medicare and medicaid will grow and we have to look at are we doing what we need to do . We dont spend any money we dont offset. Physically its balanced. These are important conversations this year and beyond. I would say the tough choices with regard to those parts of the budget that we all know are growing dramatically and in a matter of a few years is going to be entitlements and interest on the debt that eats up all of our revenue that comes in and everything that we spend for defense and discretion is going to be borrowed money, which is why we end up with a huge debt at the end. If part of it, of course, is weve got to figure out how to meaningfully reign in, reform the programs so they fit the demographics of the future and get growth up to a higher level, which obviously comes back to issues which im out of time and wont have a chance to get into but i think tax reform goes squarely at. When youre growing at 1 to 2 and slightly you were saying 2. 3, 2. 6 over the course of the next decade, doesnt get us there fast enough. So thank you, mr. Chairman. Time is expired. Thank you. Senator . Thank you, mr. Chairman. I guess a little bit of what im going to do is vent, also. Senator laid the president for being able to do that. When you said this is your last presentation here before the committee of a budget. Youre welcome to have [ laughter ] particularly related to the budget, i would think not to have to come back and both parties got one vote, im not sure who that was previous years got zero votes. You must think to some point, what a waste of time and effort goes in to coming up here and presenting a budget and not having support from either party. Thats just an observation of mine. You state on your first page here that this is a vision for the future and i look at this as something that is totally disconnected with the reality of where we are. Senator talked about the big gorilla in the room we havent been able to deal with, that is mandatory spending and as you know, over the last five or six years, the congress together, the president tried to come to some solution to put some longterm reforms in that would keep us from becoming involve vanlt and our children and grandchildren wont have the opportunities and its a failure and will put us in a very difficult situation. Why do we go through this charade . Simply say, you guys are spending stuff we no longer accept and whether its the Democrat Party or republican party, there are messages being sent out there saying, you know, we caught onto the shell game that goes on in washington. They sit there and talk about how to fix the future and the future looks more dim so why cant we sit down here and talk about the problems we face and simply saying and you said because everything we are going to spend in the future is offset. Its offset by 3 trillion of more taxes. And i dont know of an economist that says the way to prosperity and receiving invasion and supporting middle class families and lower class is not to raise taxes 3 trillion over the next ten years. I gus, using most of my time to vent but i would like responses because i just think based on what we watched last night, the public is saying this is a bunch of gibberish going on here in washington and we want Something Different and radically different from both sides. Both candidates got shillacd and say they are frustrated with d. C. , im not talking d or r, these people failed and why cant we get on to something more related to reality . Senator, i recognize that we have different views of how we should address the future but i think this budget is a very clear picture of how we believe we should address the future. I think weve also shown over the last couple years that when we sit down and engage on difficult issues, we find pathways to Work Together and make Real Progress. We made Real Progress last year on a number of important issues. I actually think its quite relevant. It is part of system there are different approaches to what the answer of the future is and if we could get back to the place where you take those differences and figure out where to Work Together, we ought to be able to do Business Tax Reform. There is a lot of over lap between the two sides of the isle here and administration and republicans and congress on how to think about it. We should just sit down and do it. People would feel better if we had a tax system where we didnt have inversions anymore. A lot in the budget we might be better able to do it if you bring forward a budget that gets at least majority of support on a bipartisan basis when you bring forth budget year after year after year and gets zero votes from democrats or republicans, does it ever give you pause maybe your vision for the future is not selling with the American People . Ive been working on budgets for most of the last 40 years and i havent known a year when there hasnt been that difference between parties beginning of the year and then you go to work on the things where you can get work meaningfully done. Regarding the major issue we all face both sides, mandatory spending, over the last 40 years, we have not addressed that. We actually have over the last 40 years done a lot of things on mandatory spending that made a difference. I was part of the security form in 1983 that made a real difference. Thats legitimate and 1983. I think the you look at the Affordable Care act while we may not agree on the policy, its clear it helped reduce spending on health care and medicare and extended the life of the trust fund and the most important turning of a corner on spending in health care in decades. That doesnt mean we dont have more work to do but i actually think when we have an environment where we can Work Together and the thing where is there is room to make progress, we can give the American People something they should be proud of. When its shut downs and fighting and crisis, its not hard to understand how people get fed up with that. Chairman has been very generous with my time. I yield back. But thank you. Secretar secretary. Senator menendez. Thank you for your good work. I want to talk about puerto rico. 3. 5 million american citizens and i under line that, american citizens that fought in our armed forces in just about every conflict this country has had for the last century. If you walk to the vietnam wall, you will see name ounce that wa wall. The citizens are in dire straights and threatens to explode into a full force human tar yin calamity. I hear it from Puerto Ricans living in the state of new jersey that have loved ones there that tell me about their challenges of their families on the island. Now some say puerto rico shouldnt be able to restructure the debt even though they had the right in the law one time and stripped out and no one knows why, but they had that right and instead that they should simply raise taxes and cut spending to a degree to get their books in order. The problem is the debt payments in puerto rico are 36 of puerto ricos annual revenue. Six times the u. S. Average. So it seems any solution that doesnt include restructuring will be willfully inadequate and, you know, i know some people say this is being poll lit sized with the hedge funds, bottom feeders that bought cheap and want to maximize profits. That has nothing to do with those american citizens in puerto rico and were seeing Puerto Ricans coming to the mainland where they will enjoy the rights and responsibilities of any other u. S. Citizen, which by the way, will be far more costly. I want to get from administration on the record to make this clear and in fact, if puerto rico didnt have to make the debt payment, it would run a billiondollar surplus so do you agree that providing puerto rico with the tools to restructure the debt is a necessary component of any successful recovery package . Senator, i totally agree. There are things that need to be part of the comprehensive plan in the long run but there is an immediate crisis in puerto rico. I met with business leaders. I met with working people. I met with all the public officials. Its not a future crisis. Its a current crisis. They talk about hospital wards being shut down, schools being closed and pensions being drained of many people paying into Pension Funds that are being emptied out to pay for bond payments. This is not sustainable. People are leaving the island and the economy cant recover if the economy shrinks because people leave. When youre insolvent, your bond payments cannot be supported any longer and you have to restructure. Thats what happens in the private sector. It happens when cities become insolve insolvent. Puerto rico is complicated. There is 18 different series of debt. They could be in court from five to ten years with litigation. I dont think the economy could recover. There wont be an economy to talk about. If it was good enough crisis if it was good enough for trump, its good enough for the people of puerto rico. Ill leave the comparisons for others. 3. 5 million americans in chaos. Let me ask you very briefly, chapter nine authority opened to municipalities, that doesnt it doesnt really work. It addresses about a third of the debt. With large debt payments due in may and july, isnt there going to be a point where we will face the consequences if we continue to delay an act . You know, they have only managed to be in default on small bond issues by doing things almost unthinkable in terms of financial management. When you talk about prematurely emptying out Pension Funds to pay bondholders, that is not something you do if youre not already bankrupt. When you talk about taking money dedicated to one bondholder and shift it to pay another bondholder, that cant go on for very long. I cant tell you at what point they run out of those extraordinary and very unhealthy kinds of tools but it cant go on forever and restructuring authority has to be in place enough in advance to restructure to meet may and july as they come. So i think the First Quarter is a meaningful period if the deadline, the speak et set for the house to act is very important. We are willing to work with everyone and anyone that approaches us with the intention of solving the problem. We know that there is going to have to be oversight with restructuring. I do believe doing something on the medicate reimbursement is important but i totally agree with you without restructuring, there is not a solution. Mr. Chairman, there is a fierce urgency of now on this issue and i just dont get the sense that many of my colleagues understand that and i hope we can awaken them to that fierce urgency of now and the rights that 3. 5 million american citizens have and would have if they were living here in the United States. Its just fundamentally wrong and so you ask people to shed their blood, risk their lives and cant treat them with the same dignity and respect they would have here on the mainland. Something is fundamentally wrong about that. I hope we can i hope we can prick the conscience of the senate to move on this issue, mr. Chairman because this is really consequential to millions of people. You raise aid lot of good points and to be honest, were in the process of doing that. Im going to come up with a different bill than the one we filed which would do the job to a large degree or get us started on it in time to do it even more thoroughly. I hope i can enlist your support when we finally get this there is no politics as far as im concerned. I want to get it done, and mr. Chairman, youll have my support if at the end of the day, what we are going to do is give the people of puerto rico the same opportunity than any United States citizen has here. Im happy to work with the chairman towards that goal. I just have a real fierce of urgency and i cant elaborate on that enough to drive that point home. Before the end of march. Well see what we can do. Senator brown, youre next. I want to throw in the words about the 3. 5 million citizens emphasizing these are american citizens and that this should be done quickly and fierce urgency of now senator menendez talked about. Thank you for the work youre doing that i have in my state. Senator port mans state and city of lorraine and cleveland. Lorraine at one point had a higher percentage of Puerto Ricans where 500 workers right after world war ii, 500 men came to lorraine to work in the u. S. Steel and their girlfriends and families followed to the point there is a vibrant community there and so many of them were still very connected to the island of puerto rico as american citizens. I want to talk for a moment, mr. Secretary, about something this committee did, mr. Chairman so very, very important. Part of the bipartisan package we made permanent the temporary extensions of the earned income tax credit and child tax credit, whether measured in terms of the additional money they have earned in low income families pocke pockets. This is the largest anti poverty advance since the 1993 budget act saved the Affordable Care act. Other than the Affordable Care act, what this committee did last year on the itc and ctc was the most important anti poverty advance that this country had. I want to focus on the earned income tax credit in 2013 the most recent year for which comple complete, 6. 2 Million People were lifted out of poverty. Half were children. Worker whose dont claim children are the only workers who can be taxed more deeply into poverty, which is ironic considering we brag about rewarding work and when we make our speeches around here. Its wrong, nobody who works fulltime should live in poverty that is a fundamental should be a fundamental American Value and i think is. 44 of 43 of my colleagues and i including many of us introduced a proposal to correct the problem. Speaker ryan offered similar propels as has administration. Give us thoughts, if you would, on the proposal, the need it would address and particularly, the impact on the economy. I agree with your assessment of the significance of making the refundable credits permanent. There is nothing more important we could have done to deal with poverty in the country and create an incentive to work, which is why there is historically bipartisan support. I think that there ought to be a way to work in a bipartisan way to get something done. I talked to speaker ryan and since about this many times. The president as has been reported. I think that this is an area where if we could put some other issues aside and concentrate, we could create a model for how you deal with problems of shared that help deal with inequity and help people get back into the work force. If you tax people back into poverty, you cant complain people arent becoming part of the work force. Its not one of the reasons the itc was created was to make work pay and make it so people wouldnt have this ization of going to work at low wages. I dont know there is more elaborate economic response. I think you put a pretty accurate point on it if you have a tax thats taxes people into poverty, its not a good tax. And if you have a solution, it is one that there ought to be bipartisan support for because everybody supports work and the earned income tax credit was created in a administration and budget agreements for many decades that ive been involved with. I hope this can be the next chapter and do it this year. Senator bennett. Thank you so much for your leadership and service over so many years. I want to start with an unrelated issue, whether you can describe for the committee we got a vote on the customs bill and whether you could describe the enforcement provisions in that bill and their importance. Yes, senator, thank you. I think that the enforcement provisions are very important because while it is critically important to have creative agreements that open borders for free trade, its equally important that we have meaningful tools to enforce fair trade and that we use those tools. I mean, anti dumping, duties are important tools and, you know, the customs conference report comes, you know, after weve taken some action at the end of last year where we added to the resources we have in our departments to implement the anti dumping and counter vailing duty laws. Now when the conference report on customs is passed, will there be another round of enforcement tools . It would give it would create accountability for future administrations, this administration and future administrations for the prosecution of cases of duty evasion. The bill creates deadlines by which the customs and Border Patrol have to notify you of actions taken to investigate allegations. It gives the Border Patrol extra tools to protect property. It stream lines operations that facilitate the flow of leg legitimate trade and it gives us tools on an issue that you had helped to craft to bring currency issues into sharp focus so we can be even more effective pushing back on any unfair practices in that area. Appreciate your help on that provision. I wanted to go back to senator was talking about. Because we are at the moment cutting across the board, cutting defense spending. And americans and that certainly simultaneously weve now had 19 trillion of debt on the Balance Sheet which from the point of view of the next generation of americans as a combination is toxic. I wonder, id like to give the opportunity to tell us what issue you give your successor for how they could lead this congress in a bipartisan way to actually begin balance. That we are prosing to place on the next generation of americans. The time has come to get this work done. Whats your advice. Whoever takes my place will be coming into a very different situation than my predecessor and you were the budget direc r director. The deficit 10 climbing the debt would cross. We had a full blown crisis. Steady economy, we have to start moving toward deficit reduction both economy recovery and were delivering we got the deficit below 3 of gdp and rejections of the deficit and around 75 of gdp. A hockey stick going off. Whoever takes my situation where, you know, hoeflfully its long term and you can say ten years down the road where do we want to be . Its a blueprint. We got to invest in the debate about what do you do about longterm investments. So many people feel left out tod today. What do we do when there is real needs, real needs of education and training and research that were not meeting. We got to fill that space. The budget agreement give us a period of time. The budget lays out ideas, lets get progress done on the ones we can agree on and whoever comes in will hopefully be able to take the debate forward. Its not a debate that begins and ends. It goes on. As i said to senator thoon, we have to be realistic about the mix of revenue and end andiing. When we balanced butt get. We had 20 of gdp revenue as pointed out. That was consistent with running what was projected to be a 5. 5 trillion surplus. If youre looking at a period now where we have the baby boom retiring. It shouldnt be as a surprise to anyone that the demographics are rougher. When my generation was born, everybody knew that 60 years later, people would be 65. What we could have done in the 2010 period is Carry Forward the fiscal position we were in in 2001. We didnt do that. Then we had a financial crisis and a recession but were now in a more stable place so i actually think it is if we can make progress on the short and medium term. We have to work towards politics and permits the kind of civil debate to deal with issues in a bipartisan basis. Thank you senator casing. Thank you, mr. Chairman. Ill be ill just brief because i have to run. I want to commend you for your Public Service. Now this is your third or fourth chapter significant Public Service and were grateful its a hard job in any environment but especially the current climate in washington so we command you. I was talking to you earlier today about an issue i think, i know you work on every day in the administration does as well and enough attention. The strategy to focus on Terrorism Financing or our efforts to cut off financing to terrorists and especially now the challenge that isis presents. I guess id ask about the current efforts. And if there is anything you hope we would do in addition to t the, you cant be tough on terrorism and issue in your department so in addition to putting an important commercial or focus we should confirm and enough isis financing. I appreciate your calling attention to the urgent need to confirm the secretary for this critical responsibility our world dealing with financing and we have to provide information to countries, we should have it under secretary is confirmed to do the job asfectively and your support. Let he give you a little background of current state of where we are in the counter aisle of in terms, isil involved over the last couple years. They started by concurring bank vaults. They developed Oil Resources and ex portion taxes and to goat renew renewable work with the close 90 branchs of banks and isil territory. We worked with our military and in their control. We worked to close the resources so that its much harder if not impossible to sell that, the trade with syria in particularly and when you look at what were doing now in terms of title wave two, were not just striking the refineries, were striking at the oil tanker trucks which they use to move the oil to the border and been working with the government to shut down into the system and retirees who arent getting because they live in isil control territory. These things are very hard on the nonisil people and towards funding. I cant say that were done. They are always evolving but what they have done is grown so that they need they cant continue to grow. We have to keep cutting back on their sources of Renewable Funding make it harder and harder and obviously, military and what we can do on the finance side. And the first time in history the finance ministers from around the world met in the security counsel and together with russia we sponsored i sponsored a resolution that had the whole world and sanctions. We have an aggressive effort. And keep their financial flows up to their needs. Weve turned to hard to stay where they are. And powerful tools to do it. Its a different entity. There is a lot of work we need to do by latterly. We shut down cement trade and not like trucks come and middleman and was to make middlemen liable so that its not just the isil forces themselves that can be sanctioned and we are working very hard and adam is leading the effort for us. Thank you, mr. Chairman, secretary, thank you for your extraordinary Public Service and the manner in which you handled treasury very proud of your work. Were here on the budget, some of the tax propels in the budget under the jurisdiction of this committee and certainly, support what youre trying to achieve in Higher Education and make you more affordable to make pensions easier for individuals to accumulate funds for senator portman and i are working on ideas. Some Energy Propels making permanent 179 dealing with Energy Efficient and retro fit. That is good. New market tax credit and the state i represent low income spend. I just want to use my time to talk about fundamentals and you have on the competitiveness of the tax code globally, you are making certain recommendations made in the last budget certainly deal with parts of the problem. And but it doesnt deal with the fundamental issues. The two fundamental problems we have is one, we have two tax codes. One for the wealthy and one for the rest of us and wealthy figure outweighs to get around the changes we make and two steps ahead of us. But if we past that, they will figure out something else. And the second is we have high marginal rates compared to the countries. The 35 corporate rate you deal with and try to get it lower. 39. 6 individual rate. And whats amazing about that is that this nation among the nations we compete with relies less on the government sector so why should we have the largest rate . So i want to know why were not considering something fundamentally different where we could have the lowest marginal tax rates in the world by 500 on both income and consumption. We could get a corporate rate down to 17 , individual rate down to 28 . We can do this in a revenue neutral way. Youre not going to lose revenues. Its paid for in the tax code. Not trying to take it from one sector to the other. All within the tax code itself. It rewards savings and very efficient. You can you dont use the tax code as much as you used today for policy but use it to collect revenue. That may seem strange to use the tax code to collect revenue. Its progressive, more progressive than the current tax code. Id say thats not necessarily a high bar but more progressive than our tax code, which i would think most people would want. One of the complaints we hear about it is thats visionary, longterm, what can we do in the shortterm . Weve been talking about this for 30 years. This is your last opportunity to give us good advice and i would hope you would be visionary. One last point before i give you your time to respond, there are now democrats and republicans both proposing this type of tax reform, so this is not something that cant happen. It can happen. The more and more people look at it, they say gee, why arent we doing this . Why isnt america the only industrial nation that doesnt use consumption taxes . I understand the political hurdles. I tell you this, your propels have political hurdles. Some are so common sense. Everything has political hurdles. Why not try to correct the problem . Senator, obviously the question of income tax versus consumption tax is very serious analytical one. We have never endorsed a consumption tax. Many other countries do and their overall tax burden may not be lower than ours. Its just the way its paid is through different mechanisms. Their income tax is lower but total tax may be higher. You know, we do, as you know, well have sales taxes at the state and local level in many parts of the country so this is an area where, you know, where there has been a federal income tax and state and local authorities have tended to use sales taxes. Its not by the basic nature that a consumption tax is more progressive by its basic nature, it could potentially be less progressive. One would have to design. The two to make it progressive. We introduced a bill to do this. This is not hypothetical. The two design factors, revenue neutral. Wont grow. It will be revenue neutral and the second it will be more progressive than the current tax code because you tax out the benefits to make the tax code progressive. I understand those are the objectives behind the proposal you designed. Im saying inherently in the design of consumption taxes, people at low income levels consume 100 of their income. People at high new mexiincome l dont. You have to overcome that by design. Not something weve supported or we are working on a proposal for. Obviously, its an area of intel lex well but not an area were currently looking at putting propels forward. I didnt expect you to embrace it. That was not the purpose for the question. The purpose is this, we will have hurdles getting any of this done and weve been arguing about this for a long time and its no longer thou etheory. We should have an advantage in the tax code. When you add up the tax burdens of the countries we compete with, they have a higher tax burden than we do. Why are we losing companies to Great Britain for example . I think, senator, the business tax system is the reason were losing companies, not not over 90 of the business pay in at personal rate. Those arent the companies some are. Senator, your time is up. Senator portman. Thank you, chairman and secretary lou, good to have you back with us. Youre probably having nightmares about the budget hearings youve had in the past and this is relatively easy. To many fewer notebooks. Yes. I always hated those hearings. Senator carten talked about the competitiveness and tax code and schumer talked about it. I agree, we have got to have a broader reform of the tax code but in the meantime, we know as you have said today that weve got a real problem with regard to our business tax as it relates to sea corporations and they are competitive. My one concern is you focus about invernsions. Thats not the biggest problem. The biggest problem is they are not competitive and when you cant invert because we put regulations out there, we continue to have the problem and i, you know, would reference shyer, which as you recall was going to do an inversion with shyer. These are two huge pharmaceutical companies and didnt move forward because they didnt want to go through the hoops that you require. So whats happened. They bought four u. S. Companies, said five. Well just start buying them and globaling up u. S. Companies. The last one, 32 billion acquisition. And as you know, they take investments and jobs with them when they do this. So we have got to get at the underlying problem. We talked about it and we have worked together on this. You worked well with us on trying to come up with frame work. Im happy about some parts of the budget and not others and i think we need to keep an open mind. I may be the last who believes we have to get something done this year. We have to. Its not so much its the right thing to do but we have to because if we dont, well continue to lose more people overseas. Its workers, wages, benefits, thats what gets affected based on the studies ive seen. I didnt mean you should we should talk about that. I didnt mean to suggestion inversions are the only problem, they are a big problem and indicative of the competiti competitiveness concerns and i am totally with you that we ought to get something done this year. I mean, we had conversations last year where reasonable people could see a pathway forward. I dont think that any of us should feel comfortable just watching more american businesses leave the United States, be purchased by Foreign Companies thank you because we failed to make the effort. I appreciate your comments and i think lets be honest. A lot of people said well, the leadership in congress and the white house put this off and what you just told me is you arent putting it off. Youre prepared to roll up your sleeves and get reengaged and do something this year. If we wait a couple years which is what a lot of people say, well lose so many more businesses, every week or so well lose one particularly when people figure out were not going to deal with it because in the boardrooms, the shareholders and pushing and Investment Banking firms offering big propels that makes the owners of the company and the Board Members well off but hurts the workers, i think it will be more pressure. Let me ask you something else, hardest fit funds. Ensuring at the end of the year that we had a better allocation for funds who put more funding in, you got 2 billion. Senator brown and we have worked on this issue. This is something that affects ohio a lot and michigan a lot. 91 of the allocation is drawn down. We have so Many Properties out there. These are abandoned homes not just a magnet for crime but they are also reducing the value of everybody elses homes in the neighborhood. Could you tell us today what you are doing with regard to distributing the funds . We would like them to be directed to the states and made available for elimination purposes but could you tell us about the allocation form la . Thanks senator and thank you for the work that you and senator brown did to make this funding available and we are working as quickly as we can to make sure that we get it allocated. Were looking at a combination of approaches to get some money out quickly, as quickly as possible through an automatic formula approach but also to keep a mechanism to target based on where the need is the greatest on specific applications. Were very close to completing the process of putting that together. Its obviously only a few weeks since the provision was enacted. Ive made it clear to my team that i view this as an urgent issue because id like to be able to commit the money and get it out there and use this year. That was the intention of the legislation and im very proud of the work that has been done on blight removal using hardest hit funds. It was something that was at the time an innovative interpretation of the hardest hit fund, but i totally agree with you. If you have a house on a block with blighted housing on it, if you dont remove the blighted housing, your chance of staying above water are really tough because blighted housing brings down the values. So the economics of it are very strong thank you. Were doing our best to get it out quickly. We appreciate your commitment. We have 100,000 homes in ohio that are vacant in the institute that need help now and ready to be demolished and appreciate your commitment and hope this funding will go toward blythed communities. Were very much keeping in mind how to be consistent with the purposes congress had in the legislation and as i say very close to being ready to time is of the essence. We dont want this to become march, april, may. Thank you. Thank you, senator. Thank you, mr. Chairman and secretary, thank you for being here. I had a chance to talk to you earlier but i want to reiterate my concern with the budget on the 190 million 19. 2 cut to the hand ford cleanup. Its very important we dont miss cleanup deadlines and we make sure technically difficult aspects of the project are met and that the river corridor remediation is actually, the challenges of that continue to have great focus. I know that everybody always looks at the budget and thinks there is ways to get money, big numbers and cleanup but this is the largest cleanup project in the world and it has taken a long time and needs to happen and we need to have the continued support. So i appreciate, you know, hearing your comments on that and i know youll tell me youre going to get back to me because of your position but i want to put the administration on notic this is something we have great concern about and want to work with you on it. I also would like if you would comment on where we are with trade promotion, im sorry, the tpp bill i supported trade Promotion Authority because i believe in a global economy, the number of buy laterals being done without us was not where we needed to be and that we should allow a lot of different ideas to come before the congress with different propels. So i want to hear where you think we are for the rest of the year with that because i hope that were not going to have a delay by our colleagues on the republican side of the isle on moving forward on that legislation. I know some people would like to put it off until the next election, but to me, we should use, if we truly believe this is about an effort of the United States making sure that china doesnt become the dominant player in a developing what aro to make sure that there is Market Access to u. S. Products and goods that are important in the asian market. And last, not to throw all of this complexity at you in a variety of subjects, this issue of puerto rico, because my other responsibility is Ranking Member on the oversight of territories. To me, it seems Like Congress needs to really act on the restructuring. Your Budget Proposal reflects comments that the Administration Made before the Energy Natural Resources Committee that again has oversight over territories. So we appreciate that that budget reflects a restructuring plan. But if you can comment on why it is so important that the structuring plan takes over immediately, we really need to act now. And if you could address it i would so appreciate it. So senator, let me try to cover quickly all three questions. On hanford, ill take back the comments and share with you when i was omb, and noted something that was not directly mine. But ill take back your comment. On ttp, the signing of the agreement was it an important step . The customs bill being taken up tomorrow is another important step. And were going to continue to press forward to have a vote on ttp. Obviously, were working very hard to make sure when the vote comes up we have the support to pass it. If i could take one step back and look at where we were in early december, or middle of last year and where we are now weve done a lot of important things to promote the u. S. Economic leadership in the world and u. S. Economic strength. Were not looking at an Export Import Bank that is unfunded. Hugely important. Were not looking at forms that are creating friction with the United States and the rest of the world. Weve done our part and kept our commitment. And with ttp now signed and cued up for a vote this year, u. S. Leadership in the world economically is part of what makes our country strong and part of what makes our economy strong. And open the trade agreements that provide opportunities for the u. S. To participate in the future of global growth. Our critical part of that ttp is that. Puerto rico, to begin by thanking you for the efforts that you have been making for months now to try and make sure this issue gets the kind of attention it deserves. I believe it is a crisis. I believe there is a need for action, immediately on restructuring authority on oversight. I think there are other aspects which we address in our plan which if we can get them done, theyre urgently needed. But we cant put off restructuring and oversight. And we look forward to working with you in your other committee, whatever Committee Congress chooses to address this. But i think the people of puerto rico need us to act. That is 3. 5 million american citizens who will be plunged into chaos if congress does not act. Arent we at the point now where this could cost the economy millions and millions of dollars if more and more people migrate to the United States . Theyre american citizens, they dont need any permission. They have rights to come anywhere and should have those rights because theyre american citizens. What is terrible is that it is further hurting the economy of puerto rico, and people who are part of the Economic Future leave the island and it does shift the cost burden to where those people go, if it is costs on the Public Health system or public authorities. The only path to a stable future for puerto rico has to involve them restructuring their debt. There is a variety of ways that they could be legislated. We look forward to meeting with you and others to work on bipartisan support. We have to remember the court if they dont get to restructure the debt, theyre insolvent. Without restructuring authority they will just default on one after another series of debts. They will be locked up in five or ten years of ugly litigation. And that is something that will set the economy back even more. So the deadline, set for the committee to act in the First Quarter of the year was very important. Well work with them and you to engage with the chairman to get something done. We cant just call it a solution. It has to work. Thank you. Mr. Chairman, thank you, ill take my 30 minutes now. First of all, thank you very much for holding this hearing and thank you for your commitment to tax reform. I want to thank the secretary for being here and thank you for your patience to get to where we are now. The comments made by senator schumer are very reflective. You and i had discussions earlier when we talked about the highway bill and the way we deal with infrastructure in this country. With the passage of the highway bill supported by the administration is there a different use now for those revenues . You keep talking about this, but is there another use for it . So senator, you and i discussed the fiveyear reauthorization is important because going year to year is terrible. But they did not have sufficient funding to provide for the types of expanding of infrastructure we need in parts of the west. So for us to be able to have opportunities to build the infrastructure we need for the 21st century were going to need more funding. We think that using the Funds Associated with Business Tax Reform are a win win. First of all, the biggest advocates are the u. S. , we need that. The bipartisan basis for agreement were still very much of the view that bringing them together is essential. I am pleased that you have continued to get something done this year. I dont know what the possibilities are, that is probably up to the chairman more than it is up to me. I certainly hope we keep open minds on this process. I want to turn to another subject. That is the irs. Gao report provided a quote, the lowest level of Telephone Service during the fiscal year of 2015. You have oversight. Only 38 of the ages are terrible. What is the new threshold . What is the new one you want to meet . My goal is for everybody to get their call in. If you visited an irs call center you would have empty seats. It takes people during tax season to answer the phones. At the end of the year we have an increase in appropriations that gave us the ability. We are hiring people and worked as quickly as we could. This tax season well have more people in place to answer calls. It wont be perfect, we didnt get enough money to solve all the problems what is your expectation. The commissioner will be here, he will probably be able to give you a better estimate. We want to substantially reduce the wait time and drop wait. Because frankly i believe its unacceptable for taxpayers to call their government and not get an answer. It wasnt because we didnt want to answer the phones, we were not given the money he and i talk about this issue, i advocated for the funding that we got in december. So i very much am engaged in making sure that we do better here. But what neither he nor i can say is that we can get the phones answered if we dont have enough people. I mean, ill tell you the truth so what is the expectation i guess is what im trying to get at . I dont have a number off the top of my head. We all have the same goals, but what is the expectation . The expectation is it will be 70 whether it will hit 70 , the commissioner can maybe give you a little bit more i mean, ill tell you the truth, they were recruiting people before the appropriation passed in the hope that the appropriation was passed. But they could not hire anyone until they had the money. Were talking about the end of the year until now. Standing up new personnel to be in place trained to answer questions. Lets change topics real quick, i dont have a lot of time here, he is not giving me the 30 minutes. On the omnibus, as you know there is a twoyear delay on the cadillac tax. Can you explain the geographic adjuster . Yeah, the idea behind the cadillac tax was just to hit the most expensive plans and say this was a way to bend the cost curve. It had had geographical disparities in different areas, there was broad concern it was getting beyond the price plans. Where the proposal we have addresses the concerns about the geographical disparity, it also makes sure it applies to the most expensive plans. It is very clear if we are to get our hands on the entitlement plan we talked about part of that is the tax care, and the entitlement plan helps you do that. Is there any other plan that has a geographical adjuster to it . Im not sure if that im looking at my tax counsel. It is i would have to go back and check if there are others. Here is my concern, it may california or new york, but i have a feeling its not going to affect nevada. Our unions, public employees, will all be affected. Our Senior Citizens will all be affected by this cadillac tax in a couple of years. And if this geographical adjustment doesnt affect nevada, i have some concerns. The way it will work, the threshold will be set at the gold plan level. The states with the higher cost will get a higher threshold. I have to check where nevada fits we can get back to you. It was meant to address it knin fair way across the country making sure the gold plan reflected the local costs. But we can get back to you. Thank you for being here. Thank you, mr. Chairman . I want to just follow up. I had not planned to raise this, but the senator, however, has raised the issue of cadillac tax. I remember five or six years ago when we debated on the Affordable Care act, having the economist here to the left, and mr. Secretary to the right. From a wide spectrum. They said if you do nothing else on the Health Care Reform the one thing you need to make sure you do at some point in time when the cost of the Health Care Coverage for a person on a policy reaches a high level, at some time it should not be treated as an entirely free taxfree benefit. There has to be consequences. They all agreed on that. It ended up with this like jerry rigged cadillac tax to try to scratch that itch. But i applaud your efforts to do something geographically we have the support of all the economists. They sure have, we got their names. I think senator, ill also mention the infrastructure and whether or not the repatriatior, should be used for that purpose. I said to the president and will certainly say to you if the congress wanted to pass and i supported the national tax reform, part of the working group led by senator schumer and senator portman. But i said if we could actually pass that and use that money for a while for infrastructure, that would be fine by me. Although it runs counter that weve done for 50 years, and that is pay for the people that use the roads, highways, bridges, it actually pays for them. Its not a wild, crazy idea. It seems to have worked for half a century. I was intrigued by the five dollar a barrel fee. Drill down on it too much but im intrigued by it. I bought gas last weekend for my mini van, the chrysler town and country mini van with 413 miles on it, and filled it up god knows how many times. Its the cheapest gas i bought for my mini van, i think a buck 73, i was just thinking if we raised the gas tax four cents a year for four years, gas would still only be a buck 89 in this country, maybe we should have done that but we did not. Just make the case for me for this proposal if you would. Yeah, i think the fee makes sense for two reasons. First, it does reflect the cost associated with fossil fuel use, can is something that makes good sense. And it would at a time when we particularly have low oil prices, give us the ability to phase in gradually a fee that gives us the ability to invest more in infrastructure, to give a boost to the Highway Trust Fund. And to invest in new technology, which we need to have energy independence, foreign to the future. So we view it as being something that will serve multiple objectives. Understand its not a proposal without controversy. But it also meets a number of very important policy objectives. All right, thank you, i was just coming from a hearing on the Environmental Public Works Committee and were focused on the work that the army corps of engineers do a lot of important infrastructure work, mostly on our coasts but also in the rivers and so forth. And they were bemoaning the fact that there was not enough money for the army corps of engineers to do their work. They talked about it many times, the transportation. And we have folks at the irs, we dont have enough folks at the irs who are there to answer questions for people on the phone, help with tax questions or their concerns because we dont provide enough money. We provided some money, a bumpup, but its not nearly enough money. Correct me if im wrong, but were always looking for pay fors around here, to pay for tax cuts or to pay for spending. And ill ask john on this when he comes in later today to testify. But i think a pretty good pay for would actually be to provide Additional Resources for the irs, so that it would actually pay for itself. There is a multipliemultiplier. There is a tax sense where people have a sense of fairness where everybody is treated the same way. So i have been a big advocate for tax reinforcement from many different seats of government. I approve that message, we made a good start last fall but we need to do more. And the folks calling our offices who are not getting the kind of services that they want. Its the right thing to do for our country. I remember the 90s when the problem was, the Social Security administration, at the time i considered it critically important if you had called Social Security you had to get your phone call answered. It was the point of contention that people have. The irs is right up there. Its not just acceptable to have a system where citizens cant get through to the two parts of the government that they actually touch in their lives. And by doing this, we actually provide some more resources for irs. It actually helps us reduce our budget deficit in the end. So its a win win. Thank you, thank you, mr. Secretary. Thank you, senator carper, we appreciate you. Mr. Secretary, with regard to inversions, i doubt seriously that they will be able to get through it before the end of the year. The Territorial Recovery of monies. For many reasons, some of which are political, some of which are just time concerns, and some of which comes from being difficult to get both sides together. But were working on a corporate Integration Program that may very well put a stop to inversions that really if we could go on a bipartisan basis could make a real didnt in those problems this year. Now, were stuck right now because we have to wait until a joint tax comes up with its analysis. So far it looks good. And i hope that youll keep an open mind with regard to that because its something that i think is doable. And it would put a real crimp in the inversions that are going on in our society, the clipper inversions. And i think we would get Companies Back once we do it. We all know that the best way to solve that problem is to cut the Corporate Tax rates so that were competitive. But that is another matter that is very difficult to do under current circumstances with the problems between both of the parties here in the senate. Im looking for ways to bring people together with the administration and see if we can solve these problems. So when we get a little farther down the line i want you to come up and go over with me this corporate Integration Program that i think might very well be something that would help you help the administration and help this country to resolve these inversions that have been going on. Youre willing to do that, i know. Mr. Chairman, im not familiar with the details of the proposal, and i look forward to see how it addresses inversions without looking at it. But i would be happy to look at it as we have that conversation. Also we can talk about whether the antiinversion provisions and the earning strip provisions may be doable, even if we cant reform the tax i am looking forward to that, because this would solve a lot of the problem. It would not solve it all but it would give us time to really do what needs to be done. I think you and i would agree on that. I would ask you to look at the jct analysis of the earned income tax credit for puerto rico that i have made public just this morning. So if you will look at that. I havent seen it. Im happy to look at that. I know you would, and i would appreciate it in the meantime. I wonder if you have given any thoughts to the difficulties of administering which you propose and are very well concerned about improper payments that could easily arise under your proposal. I think we have a great deal of experience deal willing the earned income tax credit well, 25 of the payments are wrongfully made. I think we would be able to work with the commonwealth to implement it in a way that was designed to have the compliance rate be higher. One of the things that congress enacted last year was the provision of giving the treasury to provide assistance in a more robust way to puerto rico. And we have people working with them so we would endeavor to work with them and set things up so that it is run in a very sound way. I would be happy to follow up with you on that and do everything in my power to solve it. There are good people down there, i think we ought to get it out of politics. There were good people quite to blame too when they took the tax credit away it cost 100,000 jobs as i estimated. I think we have to resolve this problem, i hope we can keep it out of politics. I agree, i hope we can deal with it on a bipartisan basis. Lets hope we can do it before the end of march. That would be my goal, too. We would work with you. Let me just say i would like to thank my colleagues and you, mr. Secretary, for participating in this hearing. I think we have had a good discussion today and i hope we can continue working together in the future. If any member wishes to submit written questions for the records please have them do so by the close of business on wednesday, february 17th. And so mr. Secretary, you have been very patient to go through this long, arduous hearing. And i just want to thank you for your patience. And with that well recess until further notice. Thank you. Mr. Chairman. Well have more from the Senate Finance Committee Thursday when they question health and Human Services secretary sylvia burwell. Watch it live here on cspan 3 at 10 00 a. M. Eastern time. Every weekend on American History tv on cspan 3, we feature programs that tell the american story. Here are some of the highlights for this president s day weekend. Saturday afternoon at 5 00 eastern, author Margaret Oppenheimer talks about one of the richest women in the 19th century new york. Her unusual life, including a second marriage to former Vice President aaron burr. What brought these two celebrities together . On both side of the altar, the undoubted attraction was money. A marriage to eliza jumel will give him a big pot of