Transcripts For CSPAN2 Treasury Secretary Says Lackluster Gr

To talk about funding for various Treasury Department programs. This is long over an hour and a half. Welcome to everybody. Good morning. Senator coons, senator lankford, looking at earlier. Today with the opportunity to review the budget request of the department of the treasury and the Internal Revenue service. As we begin this important hearing, we welcome our witnesses with us today treasury secretary steven mnuchin, irs commissioner John Koskinen and the treasury ig for Tax Administration, russell george. Thank you for being here. The department of the treasury ahas an important mission. Its work is to promote Economic Growth and stability and safeguard our Financial Systems, which is critical to maintaining a Strong Economy and creating economic opportunity. Equally important is its work to combat terrorism. The proliferation of weapons of mass destruction money moneylaundering, Drug Trafficking and other National Security threats. The Internal Revenue service has significant role of administering our nations tax laws come to dread the draft ree effectively context as much of the faith the irs will do its job without regard to the individuals exercise of their constitutional rights. The irs must protect taxpayers personification and privacy. As the irs continues to evolve and make changes in the Service Delivery system there must be improvements in his ability to manage that change without adversely affecting taxpayers are compromising their personal information. We look for doing from all of her Witnesses Today but the details of your budget request is will she points to address cybersecurity threats and vulnerabilities. Within treasury and in our nations financial sector. In addition we also want to learn more about treasures point to make a comprehensive approach to regulatory relief. Hopefully those efforts will spur Economic Growth and job creation. Thank you and i will now turn to a Ranking Member senator coons for his Opening Statement. Thank you, chairwoman capital for competing this hearing. I appreciate the opportunity we have to examine a very wide, diverse range of interest across many agencies and in particular the department of treasury and i look for to finding Common Ground and strengthening our partnership and i would like to welcome our witnesses secretary mnuchin, commissioner koskinen and Inspector General russell george. Thank you for joining us this morning and for your service to our nation. Today were concerned the budget request by the Treasury Department, a department that is Central Government stability and operations that could help sustain country siskel health and protect our National Security from collecting taxes and processing over 3 trillion of federal payments to pursuing financial crimes here in the United States and identifying individuals here and abroad that would promote terror. I am concerned the budget requests were considering what undermined the departments ability to fulfill all of these Critical Roles. In the not irs parts of treasury the budget request 1. 3 billion, 26 less than current levels, entergy that reduction of the budget would rely on staff cuts achieve the departmentwide hiring freeze your my concern is this might not result in a strategic realignment of resources but instead drink the departments best and brightest to meet an arbitrary budget goal. The budget also cuts common sense investments like su cybersecurity improvements and upgrades to Financial Systems that i think the entire federal government relies on for treasury services. Im also concerned about proposed cuts to the office of terrorism and Financial Intelligence which helps enforce economic sanctions and reduction in the Financial Crimes Enforcement Network which combats domestic and International Money laundering. These are all areas of your department worthy of full investment. I have continually called upon this administration and its predecessor to crack down on iran and north korea and other regimes that support terror and although there have been some mixed signals ablated administration shares in strong support these goals and ill be interested to hear whether the requested funding levels are sufficient for these vital bureaus. The budget also proposed to eliminate grants to see dfi, Community Development Financial Institutions which support to government, Craig Johnson neighborhoods around the country. And cuts funds for entities created in the wake of the financial crisis, 8 cut for fsoc, financials to Oversight Council and 25 to the office of Financial Research both of which i think have real value. Lets look at the majority of the budget before us which is the irs. No Government Agency is more visible, more impactful to the American People than the Internal Revenue service which collects the revenues to fund more than 95 of the Government Operations and public service. Each year more than 80,000 80,00 Public Servants of the irs 800s of millions of context with american taxpayers. There have been seven consecutive years of either budget freezes or cuts to irs. The proposal we are reviewing we continue that trend by cutting i think 260 million from and under resourced agency. My concerns are not based on the partisan politics of this. To put the skill of this in context President Trumps level for the irs all 400 million short of what president bush asked for in 2009. At a think the predictable impact of this reduction would be the loss of more than 4000 staff in Taxpayer Services which would significantly diminish the services for taxpayers seeking prefiling and postfiling guidance in order to timely and accurately meet their Tax Obligations. The level level of service in the upcoming year, if this cut is enacted, would drop to nearly 40 , 45 during peak filing. That would mean more than six out of ten, or than six of ten callers will not be helped on tollfree lines as they seek guidance. My office are some delawareans frese when their calls go unanswered i went takes a long time to connect with an irs official. I imagine many other Senate Offices here from constituents with similar concerns and the solution is to give the agency the resources to meet avs constituent needs. I look forward to hearing more about why the department at the irs think its a good idea to reduce the Service Delivery rates as one might do together to address that. We have a lot more to discuss today. Let me move to the end and say, in the absence of a Funding Agreement on our committee we will continue to work here. Im grateful for your service and look forward to your testimony, and i know our respective constituents expect no less than a highly efficient and well functioning irs and department of treasury. I look forward to working with you as move forward in a 2018 process. Thank you. Thank you, senator coons. Secretary mnuchin, i invite you to present remarks on behalf of the department of the treasury. Thank you and good morning. Chairwoman capito, Ranking Member coons, and members of the subcommittee, thank you for inviting me today. I look forward to working with the subcommittee on funding key priorities for the benefit of the American People. One of the president s promises to the american taxpayer whys he would make sure that their money was spent wisely. A budget should not be ending in itself but a means of improving the lives of americans. More money does not necessarily translate into better policy. The president has challenged every agency and department to identify greater efficiencies and savings that can be realized both immediately and in the coming years. The administration is participant a budget that achieves this goal. This budget make some difficult choices because of necessary constraints. We carefully evaluated thece allocation of resources to each of the departments important functions and may potential reductions where needed. These choices in no way diminish our ability to operate the government effectively. The president made it clear, National Security is a top priority, and in accordance that treasuries request prioritizes National Security and cybersecurity programs. Another top goal of treasury is creating sustain Economic Growth. This muchneeded growth will be achieved through a combination of tax reform, Regulatory Reform and trade. We will work with congress to pass legislation that allows american taxpayers to keep more of their hardearned paychecks. If we develop the right policies today, we will secure a prosperous future for our children and grandchildren. The difference between recent sluggish growth and a return to 3 or higher gdp growth is trillions of dollars into the economy, making a meaningful difference in the lives of all americans. This budget prioritizes sunday for treasurys wide array of economic and financial tools, including sanctions. As our enemies have changed, so to have our weapons to combat them. We are wholly the economic and financial tools and our arsenal to disrupt the Financial Resources and procurementd proc capabilities of those who wish to do us harm. This includes actions against destabilizing regimes, terrorist networks and drug traffickers. Stopping the flow of funding to dangerous nonstate actors, working with foreign partners keep their Financial Systems secure, protecting our own Financial System, d. C. Programs are critical to the continued safety and stability of the nation. Protecting treasury and the Financial System from Cyber Attacks is critical to our financial stability. Cyber attacks against our agency or the Financial System have the potential to impact markets, the economy at our National Security. The cybersecurity enhancement account makes investments in enterprisewide cybersecurity capabilities that allow treasury to better defend against Cyber Attacks and more efficiently respond to recover when they do occur. This account also makes investments in Critical Infrastructure protection, allowing treasury to work collaboratively with the Financial Services sector to increase their operational resilience. In recent months officer during the Financial Intelligence agreed with the gulf counterparts on the intent to establish a terrorist financials targeting center, a Bold New Initiative to fight terrorist financing. It is a key outcome of the president s will enhance cooperation with gulf countries. It will support the administrations priority tod il fight terrorism, how to irans influence and deprive terrorists globally of access to gulf countries. Ato the as i mentioned earlier tax and Regulatory Reform our marquee item for Economic Growth and job creation. It has been over 30 years since weve had comprehensive tax reform in this country. We are committed to changing that. Such reform means a simplified code that will provide simpler taxes and believe commitment, americans, while making our business competitive again. We have taken a comprehensive approach to regular release, meeting with hundreds of Business People across the financial industry, including community, regional, and large Financial Institutions, consumer advocacy groups, academics, think tanks, trade groups, and insurers. We have heard about what works and what does not. Our reforms will spur Economic Growth by increasing access to credit and providing relief for Community Banks, and making regulations more efficient, effective, and a properly applied. We will do this while ensuring our Financial System is secure and stable and does not put taxpayers at risk. We have the opportunity to do great things for the American People and i look forward to working with members of the subcommittee on these important issues. Thank you very much and unhappy to answer any questions tonights thank you, mr. Secretary. And at this time we will proceed to our questioning where each senator will have five minutes. So im going to begin the question at a want, would like to welcome you and thank you also for the visit, recent visit to my office. Appreciate the opportunity to get to know you and see your vision of where the department of the treasury is going to go. Lets talk about Regulatory Reform. He mentioned it in your remarks. I know you talk to stakeholders all around the country, independent, regional, large banks, regulate, fsoc members come consumer advocates, academics, and unless and investors. The whole range to get a clear picture of what the Regulatory Framework is now. What would you say is your most significant challenge that youve encountered to this point to getting real meaningful regulatory relief . So thank you very much. First of all let me just say, under the president s executive order we examined regulatory changes for the Financial System. Changes from the Financial System and the wildest looks at many aspects and goes further we are pleased we delivered the first report and Credit Unions if we look forward to delivering the three reports as it impacts other areas. For us the biggest challenge is making sure and making sure they are working together to. We look forward to working with congress on changes particularly Community Banking. I think you know the top institutions account for 50 of the assets in the Banking System in the United States. We need to create a system where Community Banks and regional banks can thrive and we also look forward to working with the regulators on many of the proposals. Thank you. And i appreciate your emphasis on Community Banks as coming from a smaller state where Community Banks really are the lifeblood of a small community, access to credit, familiarity with regions and customers and we want to preserve the model for those of us who dont have large Bank Entities close by. And i know, as a former member of the Financial Services committee on the house side, this was a topic of great of great concern to all of us, to make sure that we can provide flexibility and reasonable regulation and not a one size fits all. So, i appreciate that. I would like to first of all, we talked the other day that im proud of the work being done in parkersberg, West Virginia at bureau of Fiscal Services. We have 2000 folks there that are doing a lot of great things. One of the things theyre doing is promote government efficiency through a shared Services Model. I would like to first of all, invite you to come and visit parkersberg, and the bureau of Fiscal Service there, but just to see a commitment from you that youre willing to push that concept of shared services. Its successful in the beginning and wed like to see it grow up for obvious reasons. Do you have any comments on that, first of all, thank you for the invitation, ill take you up on that. Great. I look forward to visiting the facility, its a very important facility of ours. I very much appreciate the model we have of Treasury Department<\/a> programs. This is long over an hour and a half. Welcome to everybody. Good morning. Senator coons, senator lankford, looking at earlier. Today with the opportunity to review the budget request of the department of the treasury and the Internal Revenue<\/a> service. As we begin this important hearing, we welcome our witnesses with us today treasury secretary steven mnuchin, irs commissioner John Koskinen<\/a> and the treasury ig for Tax Administration<\/a>, russell george. Thank you for being here. The department of the treasury ahas an important mission. Its work is to promote Economic Growth<\/a> and stability and safeguard our Financial Systems<\/a>, which is critical to maintaining a Strong Economy<\/a> and creating economic opportunity. Equally important is its work to combat terrorism. The proliferation of weapons of mass destruction money moneylaundering, Drug Trafficking<\/a> and other National Security<\/a> threats. The Internal Revenue<\/a> service has significant role of administering our nations tax laws come to dread the draft ree effectively context as much of the faith the irs will do its job without regard to the individuals exercise of their constitutional rights. The irs must protect taxpayers personification and privacy. As the irs continues to evolve and make changes in the Service Delivery<\/a> system there must be improvements in his ability to manage that change without adversely affecting taxpayers are compromising their personal information. We look for doing from all of her Witnesses Today<\/a> but the details of your budget request is will she points to address cybersecurity threats and vulnerabilities. Within treasury and in our nations financial sector. In addition we also want to learn more about treasures point to make a comprehensive approach to regulatory relief. Hopefully those efforts will spur Economic Growth<\/a> and job creation. Thank you and i will now turn to a Ranking Member<\/a> senator coons for his Opening Statement<\/a>. Thank you, chairwoman capital for competing this hearing. I appreciate the opportunity we have to examine a very wide, diverse range of interest across many agencies and in particular the department of treasury and i look for to finding Common Ground<\/a> and strengthening our partnership and i would like to welcome our witnesses secretary mnuchin, commissioner koskinen and Inspector General<\/a> russell george. Thank you for joining us this morning and for your service to our nation. Today were concerned the budget request by the Treasury Department<\/a>, a department that is Central Government<\/a> stability and operations that could help sustain country siskel health and protect our National Security<\/a> from collecting taxes and processing over 3 trillion of federal payments to pursuing financial crimes here in the United States<\/a> and identifying individuals here and abroad that would promote terror. I am concerned the budget requests were considering what undermined the departments ability to fulfill all of these Critical Role<\/a>s. In the not irs parts of treasury the budget request 1. 3 billion, 26 less than current levels, entergy that reduction of the budget would rely on staff cuts achieve the departmentwide hiring freeze your my concern is this might not result in a strategic realignment of resources but instead drink the departments best and brightest to meet an arbitrary budget goal. The budget also cuts common sense investments like su cybersecurity improvements and upgrades to Financial Systems<\/a> that i think the entire federal government relies on for treasury services. Im also concerned about proposed cuts to the office of terrorism and Financial Intelligence<\/a> which helps enforce economic sanctions and reduction in the Financial Crimes Enforcement Network<\/a> which combats domestic and International Money<\/a> laundering. These are all areas of your department worthy of full investment. I have continually called upon this administration and its predecessor to crack down on iran and north korea and other regimes that support terror and although there have been some mixed signals ablated administration shares in strong support these goals and ill be interested to hear whether the requested funding levels are sufficient for these vital bureaus. The budget also proposed to eliminate grants to see dfi, Community Development<\/a> Financial Institutions<\/a> which support to government, Craig Johnson<\/a> neighborhoods around the country. And cuts funds for entities created in the wake of the financial crisis, 8 cut for fsoc, financials to Oversight Council<\/a> and 25 to the office of Financial Research<\/a> both of which i think have real value. Lets look at the majority of the budget before us which is the irs. No Government Agency<\/a> is more visible, more impactful to the American People<\/a> than the Internal Revenue<\/a> service which collects the revenues to fund more than 95 of the Government Operations<\/a> and public service. Each year more than 80,000 80,00 Public Servants<\/a> of the irs 800s of millions of context with american taxpayers. There have been seven consecutive years of either budget freezes or cuts to irs. The proposal we are reviewing we continue that trend by cutting i think 260 million from and under resourced agency. My concerns are not based on the partisan politics of this. To put the skill of this in context President Trump<\/a>s level for the irs all 400 million short of what president bush asked for in 2009. At a think the predictable impact of this reduction would be the loss of more than 4000 staff in Taxpayer Services<\/a> which would significantly diminish the services for taxpayers seeking prefiling and postfiling guidance in order to timely and accurately meet their Tax Obligation<\/a>s. The level level of service in the upcoming year, if this cut is enacted, would drop to nearly 40 , 45 during peak filing. That would mean more than six out of ten, or than six of ten callers will not be helped on tollfree lines as they seek guidance. My office are some delawareans frese when their calls go unanswered i went takes a long time to connect with an irs official. I imagine many other Senate Offices<\/a> here from constituents with similar concerns and the solution is to give the agency the resources to meet avs constituent needs. I look forward to hearing more about why the department at the irs think its a good idea to reduce the Service Delivery<\/a> rates as one might do together to address that. We have a lot more to discuss today. Let me move to the end and say, in the absence of a Funding Agreement<\/a> on our committee we will continue to work here. Im grateful for your service and look forward to your testimony, and i know our respective constituents expect no less than a highly efficient and well functioning irs and department of treasury. I look forward to working with you as move forward in a 2018 process. Thank you. Thank you, senator coons. Secretary mnuchin, i invite you to present remarks on behalf of the department of the treasury. Thank you and good morning. Chairwoman capito, Ranking Member<\/a> coons, and members of the subcommittee, thank you for inviting me today. I look forward to working with the subcommittee on funding key priorities for the benefit of the American People<\/a>. One of the president s promises to the american taxpayer whys he would make sure that their money was spent wisely. A budget should not be ending in itself but a means of improving the lives of americans. More money does not necessarily translate into better policy. The president has challenged every agency and department to identify greater efficiencies and savings that can be realized both immediately and in the coming years. The administration is participant a budget that achieves this goal. This budget make some difficult choices because of necessary constraints. We carefully evaluated thece allocation of resources to each of the departments important functions and may potential reductions where needed. These choices in no way diminish our ability to operate the government effectively. The president made it clear, National Security<\/a> is a top priority, and in accordance that treasuries request prioritizes National Security<\/a> and cybersecurity programs. Another top goal of treasury is creating sustain Economic Growth<\/a>. This muchneeded growth will be achieved through a combination of tax reform, Regulatory Reform<\/a> and trade. We will work with congress to pass legislation that allows american taxpayers to keep more of their hardearned paychecks. If we develop the right policies today, we will secure a prosperous future for our children and grandchildren. The difference between recent sluggish growth and a return to 3 or higher gdp growth is trillions of dollars into the economy, making a meaningful difference in the lives of all americans. This budget prioritizes sunday for treasurys wide array of economic and financial tools, including sanctions. As our enemies have changed, so to have our weapons to combat them. We are wholly the economic and financial tools and our arsenal to disrupt the Financial Resources<\/a> and procurementd proc capabilities of those who wish to do us harm. This includes actions against destabilizing regimes, terrorist networks and drug traffickers. Stopping the flow of funding to dangerous nonstate actors, working with foreign partners keep their Financial Systems<\/a> secure, protecting our own Financial System<\/a>, d. C. Programs are critical to the continued safety and stability of the nation. Protecting treasury and the Financial System<\/a> from Cyber Attacks<\/a> is critical to our financial stability. Cyber attacks against our agency or the Financial System<\/a> have the potential to impact markets, the economy at our National Security<\/a>. The cybersecurity enhancement account makes investments in enterprisewide cybersecurity capabilities that allow treasury to better defend against Cyber Attacks<\/a> and more efficiently respond to recover when they do occur. This account also makes investments in Critical Infrastructure<\/a> protection, allowing treasury to work collaboratively with the Financial Services<\/a> sector to increase their operational resilience. In recent months officer during the Financial Intelligence<\/a> agreed with the gulf counterparts on the intent to establish a terrorist financials targeting center, a Bold New Initiative<\/a> to fight terrorist financing. It is a key outcome of the president s will enhance cooperation with gulf countries. It will support the administrations priority tod il fight terrorism, how to irans influence and deprive terrorists globally of access to gulf countries. Ato the as i mentioned earlier tax and Regulatory Reform<\/a> our marquee item for Economic Growth<\/a> and job creation. It has been over 30 years since weve had comprehensive tax reform in this country. We are committed to changing that. Such reform means a simplified code that will provide simpler taxes and believe commitment, americans, while making our business competitive again. We have taken a comprehensive approach to regular release, meeting with hundreds of Business People<\/a> across the financial industry, including community, regional, and large Financial Institutions<\/a>, consumer advocacy groups, academics, think tanks, trade groups, and insurers. We have heard about what works and what does not. Our reforms will spur Economic Growth<\/a> by increasing access to credit and providing relief for Community Banks<\/a>, and making regulations more efficient, effective, and a properly applied. We will do this while ensuring our Financial System<\/a> is secure and stable and does not put taxpayers at risk. We have the opportunity to do great things for the American People<\/a> and i look forward to working with members of the subcommittee on these important issues. Thank you very much and unhappy to answer any questions tonights thank you, mr. Secretary. And at this time we will proceed to our questioning where each senator will have five minutes. So im going to begin the question at a want, would like to welcome you and thank you also for the visit, recent visit to my office. Appreciate the opportunity to get to know you and see your vision of where the department of the treasury is going to go. Lets talk about Regulatory Reform<\/a>. He mentioned it in your remarks. I know you talk to stakeholders all around the country, independent, regional, large banks, regulate, fsoc members come consumer advocates, academics, and unless and investors. The whole range to get a clear picture of what the Regulatory Framework<\/a> is now. What would you say is your most significant challenge that youve encountered to this point to getting real meaningful regulatory relief . So thank you very much. First of all let me just say, under the president s executive order we examined regulatory changes for the Financial System<\/a>. Changes from the Financial System<\/a> and the wildest looks at many aspects and goes further we are pleased we delivered the first report and Credit Unions<\/a> if we look forward to delivering the three reports as it impacts other areas. For us the biggest challenge is making sure and making sure they are working together to. We look forward to working with congress on changes particularly Community Banking<\/a>. I think you know the top institutions account for 50 of the assets in the Banking System<\/a> in the United States<\/a>. We need to create a system where Community Banks<\/a> and regional banks can thrive and we also look forward to working with the regulators on many of the proposals. Thank you. And i appreciate your emphasis on Community Banks<\/a> as coming from a smaller state where Community Banks<\/a> really are the lifeblood of a small community, access to credit, familiarity with regions and customers and we want to preserve the model for those of us who dont have large Bank Entities<\/a> close by. And i know, as a former member of the Financial Services<\/a> committee on the house side, this was a topic of great of great concern to all of us, to make sure that we can provide flexibility and reasonable regulation and not a one size fits all. So, i appreciate that. I would like to first of all, we talked the other day that im proud of the work being done in parkersberg, West Virginia<\/a> at bureau of Fiscal Service<\/a>s. We have 2000 folks there that are doing a lot of great things. One of the things theyre doing is promote government efficiency through a shared Services Model<\/a>. I would like to first of all, invite you to come and visit parkersberg, and the bureau of Fiscal Service<\/a> there, but just to see a commitment from you that youre willing to push that concept of shared services. Its successful in the beginning and wed like to see it grow up for obvious reasons. Do you have any comments on that, first of all, thank you for the invitation, ill take you up on that. Great. I look forward to visiting the facility, its a very important facility of ours. I very much appreciate the model we have of Fiscal Service<\/a>s where it provides shared services across the government and i think that its our obligation to look at other areas that we can use a similar approach. One of them, i believe, is technology. And we have too many Different Technology<\/a> departments in the different agencies. We dont have Consistent Technology<\/a> and i fully support a shared Services Model<\/a> of for technology across the executive branch, amongst other ideas. Sounds great, sounds great. Thank you very much. I know we are going to have other questions on Cyber Security<\/a> so id like to kick it off because i think were all very probably each one of us on the dias has been affected in some way, a breach of our personal information or our Financial Access<\/a> to maybe one of the cards that we have. Very frustrating, from a consumer standpoint and at the same time, can be very frightening and damaging to an individuals financial stability. I know youre doing a lot. Is there one particular thing youd like to highlight that might make us rest a little bit easier at night on this particular issue . Well, unfortunately, i dont want to let you rest too easy on it because it is a significant issue. I will tell you, its something that ive spent a lot of time on. I do have experience in technology, having served as the cio of goldman sachs, i do Bring Technology<\/a> experience to the treasury. I am very focused on two aspects of it. One is our internal infrastructure, whether it be at the irs, or the a treasury, were obviously responsible for keeping many taxpayers information secure. So, within the budget, we have prioritized Technology Spending<\/a> within the irs, and ive also worked very closely with the financial infrastructure of our Banking System<\/a>s. Whether its through our interagency processes, we are very focused on various mechanisms to make sure we can respond to a Technology Crisis<\/a> within the financial sector. Thank you so much. Senator coons. Thank you, share woman capito, id like consent that from the employees union be presented into the record. Thank you. And secretary mnuchin, thank you for your service and five questions, if i might. Theres been some concern that the administration is directing cabinet secretaries not to respond to the Minority Party<\/a> despite a longstanding, will you respond to the majority and minority . I will and i believe weve been responsive to that already. And i will continue to do so. Thank you. I want to talk about the office of financial terrorism and Financial Crimes Enforcement Network<\/a> and you tftc, you meps mentioned in your opening remarks. I think its a Critical Role<\/a> that your department plays, but the budget proposes modest, but reductions in the funding of theys agencies. Did you think this budget provides sufficient funding for these bureaus given their Vital Missions<\/a> and weve talked about sudan and other places youre not prioritizing them because theres so many others, russia, korea or sanctions enforced on other nations. Do you think youve asked for sufficient funding for these two bureaus . Let me comment, i very much believe in the sanctions, authorities and what we do, and spending probably 50 of my time on this area because its so important and so critical to what were doing. When we submitted the budget, and again, we had to manage the president s priority, which was additional money for military, look for cuts where appropriate. When we did that, the intent was to keep tfi flat. I think actually it went down slightly because we got a little bit more money this year than we had expected at the time. So the intent was to keep it flat, was not to reduce it. Now, i might add, as i mentioned to you when we had the opportunity to meet, since weve submitted the budget, we do have other requirements. One of them, as i mentioned, is the terrorist Financing Center<\/a> where were seeking additional funds for that. I think its a very, very important investment over the next ten years and this is something that secretary tillerson and secretary mattis fully support. Thank you, i look forward to exploring that further, but i think we have a shared inthew inthewes enthusiasm for sanctions. Fund has strong support because they leverage federal funds roughly 121 in the last oversight analysis, investigating 3 billion a year, thats why last years appropriations bill increased funding 6 , but fy 18 budget proposes to eliminate them. With you commit the following congressional intent an and the funds we provide in the fy 17 appropriations and help me understand why you with eliminate a program of Economic Growth<\/a>. Was this making tough choices in the context of a difficult budget environment or you think they actually should not be funded . This was, as i mentioned, in the context of making difficult choices. So i do agree that cdfis have pretty good an Important Role<\/a> in the community. This is function of us making difficult decisions across. One thing i would also add, that when we came out with our recommendation on financial reforms, one of the areas that i recommended that we look at is the Community Reinvestment<\/a> act. One of the things we want to make sure is as banks are dedicating significant money under the cra, that its being used appropriately and we want to make sure we meet with Community Groups<\/a> and advocates because thats a big area of investment that we think can be more effective. Two quick questions, if i might, mr. Secretary. First, i want to make sure youve answered the question. Will you commit to follow congressional thank you. Theres proposed cuts to alcohol and Tobacco Trade Bureau<\/a> and it helped them get their products to market faster. Are you concerned that those budget cuts would reverse an area where the industry actually supports more action by the Treasury Department<\/a> . Let me just emphasize i have personally met with that group. I think they perform a very important function. Its actually quite effective what they do. They manage under a reasonable budget and again, we scaled back their budgets slightly. This is in no way intended the signal, quite frankly, its important what they do. Thank you. As we spoke about the u. S. Reach and the debt limits in march and using extraordinary measures to avoid default. Do you agree, allowing the government to default on its debts is a terrible idea that would have significant consequences for market and economy, and even the threat of default has the potential for costly implications for the government and undermines our credibility . Senator, yes. Thank you for asking that question, which is on one of my favorite subjects, and has also been one of the previous secretarys favorite subjects. So, let me again emphasize that the United States<\/a> credit is of utmost importance. We are the reserve currency and we must pay our bills on time. And so, as i have suggested in the past, based upon our best estimate at the time, we do have funding through september, but i have urged congress to take this up before they leave for the recess. Now, i appreciate your leadership on that. And ill ask one last question, if i might or should i youre the Ranking Member<\/a>. Im the fillin chairwoman. Youre the fillin chairwoman for the most. Level of service about the irs. As you heard in my opening remarks, im concerned that the proposed cuts to the irs would reduce service levels. Do you think its acceptable to provide a level of service more than four out of ten callers wont connect to the representative as theyre looking to pay their taxes . Major tax reform is a major focus of ours, to simplify tax reform. And 95 of americans will be able to fill out an on a simple post card. My view, the solution is twofold, one is lets simplify our tax system so not as many people need to call and two, how do we use technology more effectively as opposed to having to use call centers. How can we communicate with the tapes electronically. Thank you, mr. Secretary. Senator. Thank you, let me ask you a couple of questions, i want to pick up where senator coons left off on debt ceilings. Were using extraordinary measures, do they have a cost to taxpayers . Yes, we do. Give me an idea when we move past the debt ceiling time period and wait and delay that decision and that action . Well, there is a significant cost and its twofold. So the first cost is a real cost which is right now, effectively, as opposed to borrowing in the market at lower rates, were borrowing and making our trust funds whole at slightly higher rates. So there is a real cost of doing that. Theres also an implied cost of uncertainty into the market and the longer we wait, the more that uncertainty will be. So, again, i fully urge congress to deal with this issue as soon as possible. So, i talked to a couple of things on that. The best guess i have in working with your team and trying to get an accurate cost of extraordinary measures is around 2 1 2 billion dollar to the taxpayer in real dollars that we pay in because were covering our own interests to be able to do that. Thats a significant cost and a loss to the taxpayer. The second thing, as you and i have spoken before we should and do a debt limit issue when budgets are made, theres something that has to be resolved. My question to you to be able to work with congress and figure out a way when we get to a debt limit moment we do address the issue of debt because we cant just i go more that and continue to pile on debt and assume there is no consequence, but those key moments should be with the fiscal year issues that we make and how to resolve the issues and find some sort of consistent calendar. What i have recommended is a twoyear debt limit time period that every two years, we have to address this and it has to come up and to try to determine do we have the deficit going up or down. If the deficit is going down, then the president has the authority to be able to make the decision on the debt limit. If the deficit is rising or static, then congress has to debate it. That forces us to try to get back to how are we doing with the issue of deficit. For me, we have half a trillion dollars overspending this year. We cant just pretend thats going away. We have to address that and i believe that the debt ceiling moment is a moment to address it. If were cutting away at the deficit. I think it should be a process thats ongoing and very, very predictable, the only time its not is when the deficits are rising or static, then something has to be addressed at that moment and we have to be able to take that on. Well have further conversations on that because i want to continue to press on this. Let me ask you a question, following up on some of the things that senator coons was saying as well about some international actions. Jut line the steps for me that the treasury is taking right now to deal with the finances of hezbollah. This has been a focus in previous administrations that i think needs continued attention. What are we doing currently to be able to do with the finances of a known terrorist organization like hezbollah and what are we doing to limit their access to the world market. Well, let me just assure you that its a major focus of ours. I dont want to go through in this public environment the specifics of what were doing, but im happy to meet with you privately and have you have a classified briefing, but i can assure you that its a major focus of mine and this administration. Terrific, well get a chance to visit another time on closed session to that. You had mentioned to senator capito as well, some of the actions youre taking to deal with Community Banking<\/a>. Id like to ask you two specific issues on that. If were going to release the economy and some of the issues you mentioned both in public statements and written statement today, one of the things is going to be Community Banking<\/a> and Community Lending<\/a> again. What recommendations would you make to congress of actions that we need to take that youre limited on and cant respond to the issues with Community Banking<\/a> that we need to respond to. And the second one is, the qualified mortgage issue, what can be able to do to help in my state there are very few banks that do mortgage lending anymore which use to be the anchor for a real state like oklahoma and very few banks can do it anymore because of the qm rules. So recommendations youd make to congress that we need to do for the Community Banking<\/a> and the qm rules . So, thank you, those are very important issues and i look forward to working with you on it. So, we do have a laundry list of items that we recommended to congress, some of them i would highlight are raising the 50 billion threshold so we can have regional banks that can continue to grow. I think thats too low of a limit. Under the current doddfrank rules. And i know theres been bipartisan support for raising that so i look forward to working with congress on that. You also mentioned the qualified mortgage exemption, thats also something we think needs to be looked at. And more importantly, housing reform. So, right now, we have fannie mae and freddie mac that have existed in conservatorship. As ive said publicly before, i am committed that we have a longterm solution to housing and that these are not controlled by the government for the next four years. And also, looking at fha as part of that. Im concerned that fha has gone from 10 market share to 20 market share and has displaced proper bank lendingment Community Banks<\/a> know how to make loans, they should be encouraged to make loans and keep them on their Balance Sheets<\/a> and not forced to make loans and turned to securi securityized or fannie mae and freddie. And 40 of the banks in oklahoma no longer make mortgage loans, 40 and rising because of the qm rules put on them. Thats very toxic for these communities. Senator manchin. Thank you, secretary for being here. The National Debt<\/a> almost 20 trillion dollars, no end in sight. 2027 wed have an annual debt of 1. 5 trillion and i know you all have worked on a proposal, a tax proposal which i agree wholeheartedly. Im concerned about the seriousness of working on this debt. I mean, that debt is going to eat us alive and the question i asked the first time i was here in senate was mike mullens, who was head of joint chiefs of staff and whats the greatest threat that United States<\/a> faces. I thought hed say china or one of the countries, he said the National Debt<\/a>. You have a rate of 15 corporate you were talking about, three rates of 10, 25, 35, and there was no rate on repatriation and it was kind of vague, but i can follow the path you were going. Everybody scored that as adding a tremendous more amount of debt to us and i know you would probably be youre probably looking at more dynamic scoring to help raise or change that which we cant score dynamically. Whats your thought process on the debt load were carrying. Senator, first of all, thank you, i think thats a very important question youve raised. First of all, i share your concern about the National Debt<\/a>, the fact its gone from 10 trillion to 20 trillion is very concerning and i think it is critical for congress to look at this in the longterm issues and thats one of the reasons why the administration has submitted a budget that eventually gets to a billion dollar budget. So, i think thats critical. I would say that the number one threat is not the debt. The number one threat is Economic Growth<\/a>. If we continue to have lackluster Economic Growth<\/a>, that will not fund our economy and opportunities. Were americans and our leadership in the world. Were very focused on creating Economic Growth<\/a>. Having said that, were also sensitive to increasing the debt. And i look forward to working with you, and other senators, we are very close to releasing a detailed plan and i can assure you that we believe that that detailed plan will be responsible as we look at the impact on the economy and the cost to the debt. The bolt simpson movement a few years back was the only one that went in depth to trying to find a way forward bipartisan. It failed, but it was close. Im thinking some type of a commission. Do you support some kind of a bowl simpson, more support could help . I dont a view whether it should be a commission or not a commission, but i have a view toward getting toward a balanced budget is a very important goal. Let me ask another question. Marketplace fairness. Im sorry . Marketplace fairness, taxation, 50 of goods sold or purchased in states and we receive no income from that to support our local state functions, and we expect every established business in our state to collect that tax for us. You all support fair taxation on Internet Sales<\/a> for state by state, which is marketplace fairness . So, this is an issue that weve been looking at very carefully within the administration and we expect to come out with a position shortly. I will tell you that i think, as you know, many states do have a use tax that goes along with the sales tax. This is really more of a function of collection. I am encouraged that amazon is now charging tax, i believe, on their own sales, but not the marketplace. Not sure i understand the consistency on that, but, you know, i respect the states ability that theres an awful lot of money thats not being collected that is in fact due to them under a use tax and this could be a very important means for the states to fund infrastructure. Which is critical. Its almost going to be salvation to most of the states, real estate dont have the expertise or the far range ability to chase down the Internet Sales<\/a> coming in. If it was a national movement, we think wed give the support at that we need to make sure that the collections would be made and i would hope that you would look at that for the salvation of our states. The final question i have is on sifius. You all just you have oversight on sifius, this Committee Examines<\/a> the National Security<\/a> implications of certain Foreign Investment<\/a> transactions, usually involves Critical Infrastructure<\/a>, proximity to trade secrets. You approved the sale to a chinese conglomerate of the chicago stock exchange. Can i have your thoughts on that . Again, let me assure you that i take my role as chair of sifius very seriously, that ive examined many transactions since ive been in office. Theres many transactions that have been withdrawn. And it is a confidential process so i am not comfortable talking about any one transaction, but i can assure you, its something i take very seriously. Now, one other thing i may advocate is i have had the opportunity to meet with members in congress about talking about certain changes to the legislation of sifius, that i think are important to consider. One of the areas in particular are joint ventures, are not covered, and i think they should be. Theres other areas. I know that theres many people in congress who want us to look at a lot more transactions and one of the things, i think, perhaps as we get through the next budget cycle is perhaps sifius should have central funding because its a very important function that can be doled out on the interagencies, but again, we fully support the sifius function and think this is something at that we need to work with congress to review. I was just concerned about sifius taking the approach maybe of not National Security<\/a>, but having a chinese conglomerate having all of this information into our Financial Economic<\/a> wherewithals, very concerning to me. Again, i can assure you when we look at sifius case we take into account National Security<\/a> very seriously and again, in this setting, i cant comment on any particular transaction. We can talk about that in postsession. Thank you. Chairman moran. Thank you, i would join chairman manchins comments on sifius. I corresponded with you on a sifius case and you responded. I applaud the seriousness behind my request. I would follow up with the chairwoman, as long as senator langfords comments about Community Banks<\/a>. As a member of the Banking Committee<\/a> ive visited with your predecessors and all of those that affect your Financial Institutions<\/a>, Credit Unions<\/a> and banks in particular and i would highlight just how important you know how it is, youve heard in a third senator. Senator lankford talk about lack of mortgage regulations, banks dont make loans because its not a credit worthy borrower. They dont make loans because of the overregulation, the burd burden, and costs of a minor error. Thats not anything that Rural America<\/a> in particular can withstand. Weve looked to our local lenders to be the pillars of our community to provide funding for someone who wants to buy, remodel or build a home and its not happening. Particularly today, with prices in the Agriculture Sector<\/a> the levels that they are, i have great concern that because of consequences of todd frank and just the Regulatory Environment<\/a> generally, that what has happened in the past when times are tough is that long time relationships between lenders and farmers and ranchers know the family, know the business plan, have a sense of their character, that has been a part of the Decision Making<\/a> that occurred when loans are made. If we get to the point in which Community Banks<\/a> are making loans based upon some kind of Computer Program<\/a> and you punch in the numbers, and none of the other factors are taken into account, we will not survive the agriculture crisis that we face today with low commodity prices. Well have a financial crisis as well. Particularly damaging to places like my home state. Im please today hear you reit rat, you dont need to do it a third time, the efforts underway it alter. Im here to encourage, insist, demand. I have asked every regulator thats been in front of me, give me an example of something youve done to reverse with a community bank. Theyll talk about how a committee, a task force, someone to advise them on Community Banking<\/a>, but nothing seems to happen much at the fed, at the fdic or the office of the comptroller of currency so i would ask you to redouble your efforts in that regard. On a much more specific topic, let me turn to a question that i asked the sec chairman clayton in a similar setting just here a few days back. Im concerned about the negative impact that the European Unions<\/a> regulations can have on the ability of u. S. Firms to provide investment, research in the eu. Many small and mid Cap Companies<\/a> depend on that research to attract investment. And eu rules that impede the provision ever research could have an impact on job creation in the United States<\/a>. I just wanted to gauge your awareness of that issue and given your broad responsibilities at treasury, would you commit to me that youre willing to work with the eu and sec that could provide a path forward for impacts on u. S. Markets and kcompanies. You see brokering some kind of agreement so u. S. Entrepreneurs and innovators are not excluded from this important analysis. Thank you. Well, let me first say, i will take an opportunities to mention for the third time how much i appreciate the encouragement of Community Banking<\/a> from this committee. This is something i have personal experience in having managed banks and i look forward to working with this committee and with others to make sure we get the right regulatory balance that Community Banks<\/a> can lend and that theyre safe and particularly in the agriculture communities that these are the parts of our country that need to have access to credit. And Community Banks<\/a> know how to lend. They do this. Its not a function of just relationship lending, its a function of they understand the agricultural market. And these are not loans that should be securitized and sold off. These are loans that should be on the books of the banks and be held. I liked your previous two answers, and i especially appreciate your third. On the eu issue, ill be happy to working with you and happy with brokering a solution. Thank you very much. Senator van hollen. Appreciate you being here and weve had a chance to talk in the Budget Committee<\/a> and Banking Committee<\/a>. I hadnt planned it say anything in the overall budget, but you made the statement that the Trump Administration<\/a> budget balanced in ten years, its important that the public know that the cbo said that just isnt so and that youre way off. I want to say that i appreciate your efforts on the debt ceiling and i think its important that Congress Know<\/a> the engage in political games with something that has such impact on our economy. So, thank you for your voice in that debate. I want to reinforce the comments that senator croons made regarding cdfis. I was please today hear that was not a cut made on merits, but just didnt meet your everall priority list in the budget. I would say in maryland, many countries around the country, cdifs play an Important Role<\/a> in Economic Development<\/a> so i hope this committee will work to restore those cuts. Just on inversions and senator durbin has been very involved in this. I know were looking to tax reform. In the meantime, i hope we can do Everything Possible<\/a> to prevent people engaging in inversions and the Obama Administration<\/a> put in place some provisions, some rules to reduce that. I hope youll reserve those rules. Wed like to go further in shutting down some of these inversions. And let me say a word about north korea and first, i want to thank your team of treasury, senator toomey and i have been working on bipartisan legislation. In fact, weve introduced a bill on north korean sanctions, being the Banking Committee<\/a> we appreciate the input weve gotten from your team on that. As you know, in the other report on Washington Post<\/a> today. The north korea and icbm program moving at a faster pace than people previously anticipated. Already have nuclear weapons. I appreciate the action that the administration took with respect to the bank, and we also know from the february report of a u. N. Panel of experts theres incredible leakage in the sanctions regime of north korea. China is clearly the number one culprit in this effort. I think were going to need to move much more aggressively with respect to letting china know that theyre going to continue to evade the international sanctions, theyre not going to have such access to their banks to our markets. I understand the challenges there. Let me ask you this, the house has passed the sanctions bill in north korea. Does the Administration Support<\/a> that part of the bill . So, again, thank you for your comments. I do want to just comment on the cbo scoring. I think the issue with the cbo, they believe in lower growth than we do. Mr. Secretary, its not a question of belief. Its a question of reasonable projections. We and i was going to let that but your projections are out of line with the projections of every institution in our country and overseas with respect to growth rates and i know youre going to say all the policies you guys are going to put forward are going to somehow change that trajectory. What we have is a onepage document about your tax reform bill. Can we just go to north korea we can, but im just going to say, well note for the record that we respectfully disagree on this and i would just comment that our financial projections of growth are significantly lower than what the Obama Administration<\/a> used. So, i hope we all have a call to get back to 3 gdp and can Work Together<\/a> on that. But in any event, on north korea, i will tell you, i spent a lot of time on this issue. Weve had very significant discussions at the National Security<\/a> council. Ive participated in a try with the president in japan and south korea. I can tell you that this is a very big issue that the president is focused on. The bank was is big effort that was considered previously and concerns about doing. When this action came to my attention, we moved forward with it very quickly. I can assure you without highlighting what well do Going Forward<\/a>, there are lots of things we are looking at and we will continue it use sanctions to the maximum amount allowable by law independent of what bills get passed by congress. If i could, do you does the Administration Support<\/a> the north korean sanctions legislation by the house which i actually think is not as strong as it should be, but is an important first step. And do you also support the russian sanctions and just a question, yes or no. Yes, and we will use sanctions to the maximum amount available. We have certain concerns about the reach into the executive powers and certain limitations, but we fully support sanctions on north korea, on russia, on iran. We will use these super aggressively. Mr. Secretary, will the president signed by the legislation passed by the house if adopted by the senate. I havent had that discussion with the president so i cant comment on it. So, again, there is concern about limitations on the executive authority on sanctions, which through both democrat and republican president s they have previously had. Thank you. Senator. Thank you, madam chair and thank you for holding this important hearing. We appreciate you being here. I appreciate, also, your obvious knowledge of Community Banks<\/a> and what they represent. We hear a lot about Small Business<\/a> being the backbone of america, but the backbone of Small Business<\/a> is the community bank. So, again, id like to say thank you for understanding and continuing to work on that. Id like to talk a little about iran and tell us the steps the treasury is trying to respond to in the sense of, you know, their illicit activities with all the things we know, terrorism, arms trafficking, human rights abuses, et cetera. Can you tell us exactly what youre doing in regard . Whats treasurys response in helping out in that area . Sure, well, let me first comment, you know, the activities on iran are very concerning and as the president has said, and i agree with him, we have significant concerns about the jcpoa. My opinion is that sanctions worked, thats the only reason why they came to the table and i wish wed held out for a significantly better deal. Having said that, at the moment. We are working within the constraints of the agreement which allows us to do sanctions outside of the nuclear efforts. Weve just continued the roll out sanctions on areas of ballistic missiles. On areas of terrorism. So we will continue to aggressively pursue sanctions. Ive also had conversations with all of my foreign counterparts about this and our view of working together and i can assure you, as youve heard from the president , the agreement is top of mind every time it comes to the certification, theres a lot of discussion, and we will aggressively pursue our options against iran. So part of the omnibus appropriations bill that, you know, many of us supported requested that you review all sanctions, you know, designations, over the past two years and determine whether there theres theyve engaged in prohibited activity since removal of sanctions and then also treasury was requested to either sanctions in engaged activities or explain why not. Are you committed with following through on that process then . Again, would he look forwa forward we look forward to working with you, whether the bill is passed are not. And as i comment we didnt have the terrorist financing request, the extent the bill is passed well come back for additional funding to work with you. But we believe in the sanctions, as ive said, to the maximum amount available. So that is current law though. Im sorry . So, that is current law. Yes, and under the current law we will continue to work with you as we are. Absolutely. Do you have an estimate of what, has treasury done an estimate of what sanctions relief the impact thats had on their economy . Again, we have done analysis on both the impact of the jcpoa and other areas on their economy and again, in a classified session, were happy to come and talk to you about some of the intelligence issues. Thank you very much. Again, thank you for being here. Thank you, madam chair. Thank you. Senator durbin. Thank you, madam chair, let me say at the outset with you in the chair seat and acting ranking, this is the boldest move for West Virginia<\/a> since robert byrd left the appropriations committee. Are you saying it takes two of us . Ill let you be the judge of that. I got it. Let me ask you first on the marketplace fairness bill, ive been cosponsoring for years, passed in the senate and bogged down in the oust, the use tax problem is obviously. We have a use tax in illinois, you know what it says, when i file my income taxi volunteer how much i owe in sales tax in the state. Compliance is very low. If you have collection at point of sale its dramatically different and amazon does collect. They support marketplace fairness and amazon does collect sales tax on their sales. On third party vendors, no. On their sales, yes. I hope youll take a look at that, its very important. I can assure you, we are looking at it. Weve had a lot of discussions on it. And again, i may be one of the few people in the world who have actually filed use tax. So, i am aware of that. Well, because and again, you know, im not sure why amazon is not collecting it on the marketplace. They can voluntarily start doing that. This he did voluntarily and their direct sales, but they support the bill, in fairness to them. As i said, the administration is looking very closely at this issue. We look forward to having discussions with you and we understand the issue and we do think that the states getting their money in one format or another is very important. Thank you. Id like to hit two issues and ive got three minutes, it may not be possible, but ill try. Economic growth, here is the reality, corporate profits in the United States<\/a> of america, as a share of gdp, have never been higher. Corporate taxes, as a share of gdp have never been lower. Now, were talking about cutting Corporate Tax<\/a> rates. What were missing in this conversation is an element of growth that really touches people and its this despite the growth in corporate profits in america, there has not been a parallel growth in earning power and wages of the people who are working for these corporations. Simply devising a strategy to reduce Corporate Tax<\/a>es and increase corporate profits and ceo salaries is no guarantee that the average working family in america will feel this growth and they havent for more than a decade. So, i urge you, as you take a look at Economic Growth<\/a>, look at it not in terms of the boardroom, but look at it in terms of the family room. And the families that are working and falling further and further behind, despite their best efforts. I hope youll translate your thinking in Economic Growth<\/a> in that area. Well, thank you, senator. And i assure you, i am. I had the opportunity to travel extensively with the president during the campaign and i did see that. So, this has been the last eight years have been a terrific time for rich people and financial markets, but the average american has not seen their wages increase and that is something we are very, very focused on with Economic Growth<\/a>. I will just tell you, theres a problem that we have right now with the Corporate Tax<\/a> system. We have one of the highest Corporate Tax<\/a>es in the world, but the effective rate is much, much lower. Many of our corporations leave money off shore because they get to defer the tax and not pay anything here, and our main priority is to change that system to a territorial system so trillions of dollars come back and be invested here and it will benefit workers. In our last experience in repatriation prove unless youre careful how you do that, the money and profits will be repatriated and go out the back door in salaries and instead of reinvesting in the economy. Im sorry im running out of time here. One last issue noted. Corporate inversions. When corporations decide to move their headquarters, its hurtful to our revenues and hurtful to the economy and fundamentally unfair. Theyre still working in the United States<\/a>, and the best markets in the world. They use our infrastructure and count on our national defense. They just dont want to pay taxes so the Obama Administration<\/a> decided to go at that headon and changed regulations in the department of treasury and made it more difficult for these inversions to take place and slowed down dramatically. President trump on the campaign trail was outspoken on this issue. He think he may have even tweeted on this issue, he feels so passionately about it, about these inversions. How do we explain the executive order from this administration, which really weakens the regulations and changes that came out of the last administration when it came to inversions . It seems like the president is saying we dont want them yet his executive order is saying theyll start to look the other way. Well, senator, i look forward to working with you on this, and first of all, let me say that i assure you that the president is very focused on us fixing the problem, not just through a regulation, but as i mentioned, to changing the tax system. Now, i can tell you this may be the first president thats ever picked up the phone and called ceos when factories moved. So, i can assure you that it catches his attention when headquarters move and hes going to do everything in his power, whether its in our trade negotiations or whether its in our tax plans, make sure every American Company<\/a> is here. Excuse me, everything in his power, why would he weak en those that lessen the number of inverses. If he does everything in his power, it would be not only his Regulatory Power<\/a> and statutory suggestions. Wouldnt he do both . Again, i look forward talking to you more about this. I can assure you, well make sure that American Companies<\/a> stay here. Thank you. Senator. Thank you, madam chair, secretary mnuchin, welcome. And nothing is more selfdefeating than tax code. I say that as somebody who spent most the time running global operations. Its a relic of 1986. No one in congress will stand by the status quo, from base erosion, the fundamental fairness the tax code seven bracket overall rates simply arent competitive in the 21st Century Global<\/a> economy. I spent time in asia and china with prkt proctor and gamble. We need wake up and realize its game on for American Companies<\/a> to win and i applaud your efforts Going Forward<\/a> on reforming our tax code. Tax policy has a tremendous impact on appropriations, bus its congresss reinvesting public funds, whether its health care or defense. The question, secretary mnuchin, you stated were one of the few countries with an overall Corporate Tax<\/a> rate in excess of 35 . 75 countries, 75 countries have Corporate Tax<\/a> rates between zero and 20 . How much Economic Growth<\/a> do you estimate well accrue by reducing overall rates 20 . Thank you, senator. I think significantly. So, and i might comment, as youve highlighted, although our tax rate is 35 , many, many Multinational Companies<\/a> dont pay anything close to that, as ive mentioned, because of either the issue of deferrals or tax havens, so we look forward to working with you on that. Now that youve highlightled you spent six years in china, im going to come and visit you and put you to help us on our china negotiating team. Well, thank you, id be happy to do that. I believe its theyre the second largest economy in the world now. When i was over there with Procter Gamble<\/a> in the 90s, their gdp was 500 billion. Today, 11. 3, 11. 4 trillion. Ill be happy to work with you together as we go forward. The question is what place does everall tax rate reduction play in President Trump<\/a>s efforts and the administration to attain a 3 plus Economic Growth<\/a> . Tax reform is an enormous part of that. You know, as i mentioned, its a combination of tax reform, regulatory relief and trade, but tax reform is critical and i very much look forward very soon to working with congress, as i mentioned, weve been working since january on coming out with a combined plan with the house and the senate and we look forward to working with you and getting this passed this year. One of your observations, which i completely agree with, is a high tax rate then drives behaviors. And trying to find ways to reduce that rate, to get a lower effective rate. One issue in particular to me is certainly keeping us competitive and doing that by having a territorial tax i am system. Were the only developed country with a worldwide tax system, which incentivizes foreign takeovers. 2015 alone, at least 12 corporations have inverted overseas and in your discussions with the white house, where is the transition to territorial tax system in your priorities . Very, very, very high. I like the additional two verys on that, thank you. Calculating the growth spurred by such a policy . We have over 100 people working on the tax plan in treasury. We are scoring lots of different scenarios, and, yes, were working closely on that. Thank you for the three verys, ill add one more, the fourth very on that. In montana winter wheat is one of our biggest crops and truly does feed the world. 70 of the harvest goes overseas, primarily to asia. Low prices are dogging our farmers, and i think who put President Trump<\/a> in the white house, it was hardworking American People<\/a> fighting daytoday the month is often longer than the paycheck, including our farmers and ranchers. One in the white house blueprint, tax implications, simplification and helping the ranchers and farmers bottom line. How likely is it that an immediate expensing would be included . Well, it is some things that were having active discussions on, and although no decisions have been made, were very sensitive to this as relates to farms and agricultural and Small Business<\/a>es. So were very focused on that issue. Even more so than we are on that issue for giant multinationals. Thank you, secretary mnuchin. Well, thank you for your testimony today, secretary mnuchin. Were going to excuse you, secretary mnuchin and call forward our next panel. Commissioner koskinen and secretary russell george. Thank you so much. Given the time constraint, summarize your statements. Thank you very much, mr. Secretary. Au. All right, lets get started. Commissioner koskinen, thank you for coming. Id ask you to summarize your remarks on behalf of the irs. Thank you for the opportunity to appear to you for the last time. Ill summarize my Opening Statement<\/a>, but would submit my full Opening Statement<\/a> to the record. Well submit that without objection. Well look for the irs funding level for the next fiscal year. My term as irs commissioner ends in november so all, but a few weeks of the agencys fiscal year 2018 budget will cover the term of the next irs commissioner. I feel its my obligation to do everything i can to make sure the new commissioner starts with sufficient resources for the agency to meet its responsibilities to the government and to taxpayers. The president s fiscal year 2018 budget request for the irs is 10. 975 billion, a 260 million cut from our 2017 budget. While we support the administrations budget reform efforts, its also important to note the years of sustained funding reductions have left the irs with critical personnel and infrastructure requirements. Our budget is now 900 million below the level eight years ago in 2010. We are now 18,000 fulltime employees fewer than we had in 2010 and under the proposed budget we expect to lose another 3000 employees this year. The effects have been felt throughout the agency. For example, by not hiring any significant number of new employees since 2010 we only have 3000 employees underage 30 out of a work force of 80,000 creating a major challenge in years to come as we look for the next generation of irs executives and manager. Weve lost referrvenue agenciesd criminal investigators. A proposal in fiscal 2018, down from 1. 2 in years past and decline of hundreds of criminal investigations and prosecutions. The irs fiscal 2018 budget submission seeks less costly ways of delivering Taxpayer Service<\/a> and enforcement, using internal training and efficiencies. Even with the efforts to maintain current performance levels from fiscal 2018, the irss budget would need to be 220 million above fiscal year 2017 just to cover scheduled pay raises and inflationary costs. In highlighting these critical needs, i would point out that the irs understands how important it is for us to be careful stewards of funding we receive from congress. In that regard, the irs has achieved major savings and efficiencies in many areas. For example, as people more people file returns electronically weve reduced the number of locations where we process tax returns from ten to five and well further reduce location five to two. And the irs has reduced space inventory by approximately 3 million square feet. If we still occupied that space the cost would be 81 million more for rent. The and taxpayers services. In response to taxpayer demand weve been increasing demand for those who interact jn line. Hundreds of millions of hit on our irs application, where is my refund. Online sources is significant savings. It costs us 50 to answer a question on phone or in person and less than 50 cents to provide that same information online. I would note a critical problem facing the irs and earlier. As i began years ago, is the Identity Theft<\/a> and false filing of refund claims. Thanks to good work of employees and contributions through our new partnership with the private partnerships and the number of identifying themselves as victims of Identity Theft<\/a> 2016 dropped by 46 from the previous year. We were delighted and somewhat amazed to see that number of victims dropped. Another almost 50 this past filing season. The overall decline in victims has been reduced by twothirds. Along with providing Adequate Funding<\/a> for the irs, Tax Administration<\/a> renewing streamline critical pay, adding for specific areas and giving irs authority to require minimum qualifications for paid tax preparers. That concludes my statement. Ill be happy to take your questions after hearing from the Inspector General<\/a>. The testimony addresses the fiscal year 2018 budget request significant Cyber Security<\/a> challenges confronting the agency for the increase of 260 million from the fiscal year 2017 and active the request irs realigned approximately 17 179 million m the Business Systems<\/a> appropriation to the Operations Support<\/a> appropriation to address needed technology, hardware and software updates. There are many challenges facing the irs. The top challenges protecting security over taxpayer data. The irs processes and stores a vast amount of taxpayer data that is a prime target for domestic and international criminals. For example, in march 2017 we saw suspicious activity, there is deactivated online free application for federal student aid data retrieval tool. This tool is designed to be used by students and parents to obtain Tax Information<\/a> needed to complete a student aid application. This incident is just the latest in several brazen attempts by bad actors to steal taxpayer data, to file fraudulent tax returns and receive illegitimate tax refund. Since may 2015 the arrest has experienced breaches to its transcript and attendee protection personal informationc number application. For online taxpayer assets the irs has a difficult task of balancing the need to authenticate a taxpayer identity with the need to make thethe apl application accessible and taxpayers need them. Nee the Threat Landscape<\/a> against the irs is everchanging. Bad actors continually seek different ways to take advantage of systems and processes and an effort to access Tax Information<\/a> without proper authorization. Therefore come the arrest must continue update of systems and processes to combat the threat. The risk of unauthorized access to tax accounts will continue to be significant as ir the irs increases its efforts to deliver new online tools to taxpayers by its future state initiative. These efforts to exploit online systems have also highlighted the need to seek the capabilitye to improve or build better systems. One element toward the end of hiring individuals with proven skills, knowledge and abilitywld related to cybersecurity. The irs streamline Critical Pay Authority<\/a> expired at the end of 2013. 2013. We review, the government wide critical pay position of authority which has been available since 1990 to fill technical positions such as those within it cybersecurity operation. We found the irs had not used this authority which could assist in recruiting highly qualified experts. Ould a tigta continues to be concerned about cybersecurity in general at the irs. Our orders at shown some problematic areas audits. An audit from 2016 showed significant improvements are needed with security monitoring to detect efficiencies which could lead its an computer structure multiple. We also found improvements are needed to ensure that all systems have secure configurations and that security vulnerabilities are addressed on a timely basis. We are also concerned about the significant percentage of Information Technology<\/a> infrastructure and i arrest that is beyond its useful life. Such hardware is prone to failure over time. Moreover, Older Technology<\/a> rings unnecessary security risks to an organization because manufacturers may not provideon active support, and hackers have a longer time to identify and exploit vulnerabilities. We have an ongoing audit that will evaluate how effective the irs is addressing the operational challenges of replacing outdated hardware in the computer area. We expect issue this report in september of this year. This concludes my statement. Chairwoman capito, senator manchin, thank you for the opportunity to share my views. Thank you both very much for your Opening Statement<\/a> and i will begin the question of portion. In your Opening Statement<\/a>, commissioner, you talked about Taxpayer Services<\/a> and the ease at which to do an automated reply as opposed to a person replying to an individual request for assistance, how an online reply is much cheaper. We know that. Senator manchin and i are from a very. We do a challenges on our broadband deployment, deep challenge to our access, and i guess i would put a plug in for that person to person assistance still being a very vital part f Taxpayer Services<\/a>. How do you view this and how do you balance at . And what d. C. For the future in terms of being able to maintain that personal its an important issue as i said. While were try to give taxpayers who would like to have an online accounting equivalent to what they have already with the banks or Financial Institutions<\/a>, we are not like a bank or financial institution. We cant take a group of customers and say lets forget about them, they dont provide enough revenue, they arere difficult to deal with. We have an obligation we happily accepted it with every american to provide them communication opportunities in a way that they desire. Weve tried to make it clear as were moving people who want to be online with us in a digitally involved and barbiturate what that does is not cause us do away with call centers or Taxpayer Assistance Centers<\/a> but what it allows us to do is provide Better Services<\/a> on the phone and inperson for those people who need to be there, it also those people who want to be there or have to be there. This last to read almost 80 of people filed electronically. That meant we will have received 1518,000,000 paper returns. If thats the easiest and most appropriate way for people to file, we are happy to have him do that if we recognize all of us know people either dont have availability to the internet ort have really a great concern about using it. We are always willing and able to provide them those services. So Going Forward<\/a> i would just stress we will always have Call Services<\/a> available. We will always have in Person Services<\/a> available. Because what will happen is we will be able to provide as much better if for instance, like wheres my refund, we had 300 million hits on it are those used to be calls. No longer calls. We can now more deal effectively with more people. Leverages i would like to say that the Taxpayer Advocate<\/a> and the Assistance Center<\/a> we have in parkersburg West Virginia<\/a>, a lot of times what it calls into our Office Asking<\/a> for assistance. As soon as we call them they have been very responsive. I just want to thank them, enjoy the head of the ships i want to thank them on my behalf for West Virginia<\/a>s because they have really, theres a hidden jewel in some way. People dont know they are there, can be accessed as quickly. So we do know if they are there and we appreciate they are there and im sure we keep them very busy. So thanks for that. I did notice in the paper the other day a little paragraph that said more filings than ever had ever been filed in the irs. Are you familiar with that statistic . The number of individual tax returns this you will be we estimate 152 million. We are ever youre getting more returns. When you go back to the famous 2012010 which i keep siding, sie then with 10 million more taxpayers. Re part of our challenge is keeping up with technology, its keeping up with the increased volume. And Inspector General<\/a> comes you talked a lot about security of data. I shared a personal story witha you on the way in about an issue or something that was personally with. And instance to me i thought really interesting, that the more the agency changes, and where the bad actor can change ahead of are you satisfied that the irs is on the cutting edge of all this . Or is it more of a reactive situation . The irs has certainly made progress in this area, and to its credit weve not found a single instance in which the irs system itself have been breached. So that is something that needs to be pointed out and lauded and credit given to the irs. That said, it is imperative that taxpayers have complete trust in the integrity or security of their information which they provide to the Internal Revenue<\/a> service. And to that end there is still a major concern about the ability of the irs to authenticate who it is theyre dealing with as a relates to Tax Information<\/a>. Now, authentication could be in the form of e authentication as the irs progresses to more online types of activity. That presents a set of problems, but even prior to that if an individual, because they are either rumbled through somebodys garbage or was able to consent someone in a different form completely to provide names, Social Security<\/a>, date of birth, they in the past that had the ability to gain information from the irs or engage in transactions that they should not have or they should not be able to. Now, in the context of the eauthentication the irs is learned through trial and error that they need to do more checking than just name, date of birth, Social Security<\/a> number. There has to be a multifactorti way of gaining information to confirm that the person they aro getting information to or ultimately giving refunds to is the person who deserves that pe information. So the bottom line is, the more that the irs does, great, but again the bad guys are still very aggressive and its an international problem. Thank you. Senator manchin. Inspector george come what is the greatest risk facing the i rested it and what can congress to to support the medication of these risk . Thats a massive area in which to address your question. Thirty seconds. [laughing] i within. 2 authentication now, sir. Again i dont repeat everything i have said. That in my view, yes. To commissioner im sorry, with addition to additional resources, sir, its imperative that taxpayers be able to comply with their Tax Obligation<\/a>. Mply wit and if the tax code is too complicated or if they cant get through to the irs to try to get a simple question answered, they are less likely to comply then if the opposite were the case. Thank you. Commissioner, senator capito just touchstone, Rural America<\/a>, rural West Virginia<\/a>, sometimes broadbent is not what it could be and should be and people are unfamiliar or not comfortable, elderly population, so i appreciate you all still understanding the importance of receiving the mail and working through the traditional lights if you medication. L i just in. As the chairman knows i grew up in ashland kentucky not far from so those of people i understand and however, it still frustrating too many the way we communicate by mail. 10 of our irs notices dont reach their intended audience which represents a total failure of communications at roughlyie twice the industry average. When a taxpayer receives a notice, it is often and indecipherable block of text using lockley which in no visual or graphical clues as to what the taxpayer should do or why. Moreover, irs has plans to address this high failure rate which involve moving the Online Communications<\/a> are destined to be incomplete. Solutions of what we just talked about. Of wha so my recommendation for it would be working irss to learn to learn from the best practices as using industry. When we all get statements from the credit card or our utilities, they use a monographic and the clear text because credit card and utility knows its in the best interest for all of us, for me to be able to understand the information. So is the irs, have plans to implement collar and a con in order to make its notices more understandable to this population which is spoke about . At this point where look at without a longstanding plain english goal come when you get a letter from the irs to be clear, makes it clear why youre getting the letter. The we are going to call her, that the resource is just budgeting thinker we have an antiquated system. With applications running when john f. Kennedy was president but it is critical and think your point is well taken that when people get a notice from us it should not be unnecessary confusing or frightening. It ought to say youre getting this letter for the following reasons. Even when were sending as just an update notice to people, they found a mistake and in the future they should ignore. Whatever we say, whenever we say this is just for informationwhev people always call us. We expect probably have people who get in the key medication will thats appropriate but whats most important is for the letter to be clear. For the notice to be understandable by anyone. What about the 10 that are not even receiving their notices by mail . Our biggest problem is people move. You speak 20 of people moved every year. Its dropped somewhat because people are less mobile than it used to be. But they will often leave a forwarding address with post office but we never quite get that notice. It is a problem. Especially when were trying to provide information to taxpayers knowing where they are and where they were last year is important to us. My final question will be about the economy. Its a whol whole nother challee and for many people are freelance drivers with uber or lift over or liftoff relates innkeepers with airbnb, then nature of employment has graphicalldrastically shifted. This has created, we must also find a way to classify this type of work that both addresses the growing portions of americans engaging in this work and is appropriate for the workers themselves. So how does the treasury and irs plan to ensure fair tax treatment for the incomes of those engaged in a new gig economy . Its an important question, a growing area of the economy. Many other people people in that economy, airbnb, over, lift, might realize there taxpayers and if you make one of youre supposed a taxpayer over a year ago would put up a special section of our website visit if youre in the gig economy here are obligations, heres advice as to how you can, in fact, make sure you have good records to make sure you and factor meeting their obligations and what you dont have to do. Wonder the things were lookingg at is whether for people who are regularly in that business, even on an irregular basis, whether if they got a 1099 at the end of the year it would help them understand how much revenue they had and if they kept a good records and would try to help them with that, they would know what the expenses were and they would know what the Tax Obligation<\/a> was the most be want to be compliant support of our job is trying to help them understand what their Tax Obligation<\/a>s are and then try to make it as easy as we can for them to meet those obligations. I know im out of time. Real quickly, since its just the two of us, maybe i can have some exception here. Finding some these people, lets say some of them just dontle know, just dont understand they have to get a business license usually. Im sure you have tab of business license to be an uber driver, but . Im not sure. Its a matter of state law. They have to have a drivers license obviously but we dontli have control over do we know from, im sure you are auditing uber. You hit the big boys i would think. We track that, but in terms of licensing thats really a state and local issue as to what business if youre renting aa house out its a question of whether the local Business Licenses<\/a> and requirements are. If i run into airbnb who youre going to be targeting because you know they are, do you all not check in to find out how the people at the want to be a part and other internet that i had to have a license that i am filing . No. We actually are happy to have you filed whether you are properly licensed or not. What our job is i know that but again, coming from a rural state, sometimes we would prefer not to. I understand that. The vatican want one of our thought is with you catch me if i prefer not to. With the coordinating potters, uber, the headquarters come if they provided 1090 nines to you they would be providing 1099s to us as well. Having a thirdparty information we do have a reasonable number of people every year who are nonfilers and we know that because we get thirdparty information you can with those people we rejected and pick sometimes we speed is the only thing i would say to that is that when i was governor of the state of West Virginia<\/a> and we had Budget Constraints<\/a> and we had to adjust our budgets a little bit, i never would cut back on the auditing staff that i would always increase the budget. Every dollar i spent i can 100 in return. So i made i made sure we were auditing targeting a making suru those people were paying. They guys you can get, ive got to be connected into them one way or another. Im using the uber or lift or airbnb because its one of my great concerns and as im reading a predilection of what he understands that concern it your point. People want to be compliant but part of reason people arent compliant is because they thinkt the system is fair, fair in the sense that everybody is banker to the extent our audit rate dropped from 1. 2, the. 5 can we do have the resources to effect a tragic the people go try not to be compliant i. Some point it is corrosive to compliance. And i would just simply note to what the commission stated, senator, weve had numbers that demonstrated that when income is reported by a thirdparty via 1099s or other source, compliance rates are in the upper 90 , but when people operate on a cash only basis, the compliance rate falls dramatically, meaning 20 , around that area. So that is a key issue that we have raised. Thank you. Well, i thank you all for participating in preparing for this. I will have to say as recipient of a letter from the irs, we all recognize that black and white print in little envelope who its from. And so i appreciate your service to the irs, this country. If we dont meet again i want to thank you for your service. I appreciate hearing from the top officials at dresher, irs, inspector joes office and and having the opportunity toaring explore number of important sugar todays discussion will be helpful as a look at the 2018 funding. At this time i ask unanimous consent that a statement by the Taxpayer Advocate<\/a> nina olson be included for the hearing record. Since im the only one year i would give myself unanimous consent. If there are no further questions the hearing record remain open until august, wednesday august the second at noon for subsequent questions, the subcommittee members who can submit statements and questions to the witnesses for the record. Again i thank you all and the subcommittee is hereby adjourned. 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