[Senate Hearing 116-473]
[From the U.S. Government Publishing Office]
S. Hrg. 116-473
PRESIDENT'S FISCAL YEAR 2021 BUDGET
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HEARING
BEFORE THE
COMMITTEE ON FINANCE
UNITED STATES SENATE
ONE HUNDRED SIXTEENTH CONGRESS
SECOND SESSION
__________
FEBRUARY 12, 2020
__________
Printed for the use of the Committee on Finance
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
__________
U.S. GOVERNMENT PUBLISHING OFFICE
45-146 PDF WASHINGTON : 2021
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COMMITTEE ON FINANCE
CHUCK GRASSLEY, Iowa, Chairman
MIKE CRAPO, Idaho RON WYDEN, Oregon
PAT ROBERTS, Kansas DEBBIE STABENOW, Michigan
MICHAEL B. ENZI, Wyoming MARIA CANTWELL, Washington
JOHN CORNYN, Texas ROBERT MENENDEZ, New Jersey
JOHN THUNE, South Dakota THOMAS R. CARPER, Delaware
RICHARD BURR, North Carolina BENJAMIN L. CARDIN, Maryland
ROB PORTMAN, Ohio SHERROD BROWN, Ohio
PATRICK J. TOOMEY, Pennsylvania MICHAEL F. BENNET, Colorado
TIM SCOTT, South Carolina ROBERT P. CASEY, Jr., Pennsylvania
BILL CASSIDY, Louisiana MARK R. WARNER, Virginia
JAMES LANKFORD, Oklahoma SHELDON WHITEHOUSE, Rhode Island
STEVE DAINES, Montana MAGGIE HASSAN, New Hampshire
TODD YOUNG, Indiana CATHERINE CORTEZ MASTO, Nevada
BEN SASSE, NEBRASKA
Kolan Davis, Staff Director and Chief Counsel
Joshua Sheinkman, Democratic Staff Director
(ii)
C O N T E N T S
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OPENING STATEMENTS
Page
Grassley, Hon. Chuck, a U.S. Senator from Iowa, chairman,
Committee on Finance........................................... 1
Wyden, Hon. Ron, a U.S. Senator from Oregon...................... 3
ADMINISTRATION WITNESS
Mnuchin, Hon. Steven T., Secretary, Department of the Treasury,
Washington, DC................................................. 4
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Grassley, Hon. Chuck:
Opening statement............................................ 1
Prepared statement with attachment........................... 45
Mnuchin, Hon. Steven T.:
Testimony.................................................... 4
Prepared statement........................................... 47
Responses to questions from committee members................ 48
Wyden, Hon. Ron:
Opening statement............................................ 3
Prepared statement with attachment........................... 62
Communication
Center for Fiscal Equity......................................... 67
(iii)
PRESIDENT'S FISCAL YEAR 2021 BUDGET
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WEDNESDAY, FEBRUARY 12, 2020
U.S. Senate,
Committee on Finance,
Washington, DC.
The hearing was convened, pursuant to notice, at 1 p.m., in
Room SD-215, Dirksen Senate Office Building, Hon. Chuck
Grassley (chairman of the committee) presiding.
Present: Senators Thune, Portman, Toomey, Scott, Cassidy,
Lankford, Daines, Young, Sasse, Wyden, Stabenow, Cantwell,
Menendez, Carper, Cardin, Brown, Casey, Warner, Whitehouse,
Hassan, and Cortez Masto.
Also present: Republican staff: Andre Barnett, Tax Counsel;
Courtney Connell, Tax Counsel; DeLisa Ragsdale, Chief
Investigative Counsel; Mark Warren, Chief Tax Counsel; and
Jeffrey Wrase, Deputy Staff Director and Chief Economist.
Democratic staff: Adam Carasso, Senior Tax and Ecomomic
Advisor; Michael Evans, Deputy Staff Director and Chief
Counsel; Daniel Goshorn, Senior Counsel; Joshua Sheinkman,
Staff Director; and Jayme White, Chief Advisor for
International Competitiveness and Innovation.
OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM
IOWA, CHAIRMAN, COMMITTEE ON FINANCE
The Chairman. We are pleased to have Treasury Secretary
Mnuchin here today, testifying about the President's fiscal
year 2021 budget.
The President's budget includes proposals to confront a
number of important issues. I want to work with the President,
the Secretary, and others in Congress to address these and
other pressing issues within our committee's jurisdiction. Drug
pricing and multi-employer pension crises are two such issues
that must be dealt with.
This budget proposal comes at a time when the economy is
very strong, especially for working families. Better trade
deals, less regulation, and lower taxes from tax reform have
translated into wage increases, especially for lower-wage
earners, and a historically tight labor market.
Over 6.7 million jobs have been created since President
Trump was elected, with nearly 70 percent of the jobs gains
occurring since we passed the Tax Cut and Jobs Act.
Unemployment has fallen to a 50-year low. We have had 23
consecutive months with the unemployment rate at or below 4
percent, the longest streak in five decades.
Unemployment for Hispanic and African American workers has
set all-time record lows. The American middle class is growing,
and families are benefiting, with a family of four earning
$73,000 seeing their tax bill cut by over $2,000 after tax
reforms.
Statistics like these show that tax reform is a success.
The Treasury Department's work to implement the new tax law has
been an important part of that success. We appreciate the
diligence and of course the dedication Treasury and IRS have
maintained over the last 18 months to release extensive
guidance necessary for hardworking Americans and the business
community to file their tax returns.
Despite Treasury's steadfast efforts, however, we have
critics. And those critics have continued their assault on the
Department for doing its job--criticism that is unfounded.
While the Treasury plays an integral role when any major tax
legislation is enacted, the heavy lifting occurs when that
legislation is being implemented.
Treasury is following the same process set out in the
Administrative Procedures Act that has occurred after enactment
of other tax legislation, like for instance the Affordable Care
Act.
Critics continuously use preliminary and incomplete data to
distort the efforts of tax reform to support a political
narrative. Critics' focus on revised CBO projections of
corporate tax receipts is just the latest installment, as I
discussed in my statement yesterday to my fellow Senators.
Similarly, we all recall the misinformation campaign in
last year's filing season when critics tried to persuade the
public that tax reform was a failure because early tax refunds
were down. Of course critics conveniently ignored that the size
of the tax refund says nothing whatsoever about the tax
liability of an individual.
In the end, the criticism proved to be flat-out wrong.
Americans got tax relief, and the average size and number of
refunds ended up being closely in line with previous years.
I am hopeful that we can avoid similar scare tactics in
this year's filing season. Nothing the critics can say will
refute the fact that every income group in every State saw tax
cuts under tax reform. And this is particularly true for low-
and middle-income families, as we see statistics almost weekly
about blue-collar workers getting higher-percentage wage
increases on average than the management class.
Instead, I hope that we can work together on policies that
will benefit all Americans, including some of the President's
budget proposals. This committee has a solid foundation of
bipartisan accomplishment in recent months, including the
SECURE Act, the Taxpayer First Act, and the USMCA trade deal.
And after extensive negotiations, we came together just
before Christmas to extend a number of temporary, bipartisan
tax provisions. I wish more could have been done to resolve
them once and for all, as we did in repealing three onerous
Affordable Care Act health taxes, but hopefully our efforts in
December can lead us to success in future discussions on the
expiring provisions that are coming up at the end of this year.
I am also encouraged by the progress that has been made at
the OECD to reach a multi-lateral global tax agreement on the
digital economy. Senator Wyden and I, since a year ago, have
remained united and bipartisan in our message that unilateral
measures that discriminate against American companies cannot be
tolerated. And we continue to support the Treasury Department
in these negotiations.
As this year progresses, now we should build upon these
past successes to make sure that Treasury and our tax laws are
working for the American people. I have seen administration
budget proposals from both Republican and Democratic Presidents
alike. No matter which party controls the White House, members
will not support everything that is in that budget.
As a matter of fact, one of our former Presidents, I guess
it was President Obama's last budget, was defeated on a 99 to 0
vote. As I have said before: in our system, the President
proposes and Congress disposes. Even so, today's hearing is
part of an important process of looking for things that people
on both sides of the aisle can agree on to support the American
people in the most fiscally responsible way.
I have had my say now, and it is time for Senator Wyden.
[The prepared statement of Chairman Grassley appears in the
appendix.]
OPENING STATEMENT OF HON. RON WYDEN,
A U.S. SENATOR FROM OREGON
Senator Wyden. Thank you very much, Mr. Chairman. And, Mr.
Chairman, I appreciate also your scheduling this hearing
quickly.
The Trump administration's budget is built on policies that
pillage working families to pay for new windfalls for
multinational corporations and the wealthy. This hurtful agenda
has been on clear display over just the past few weeks in two
events I am going to touch on.
First, it recently came to light that the Trump
administration, acting on their own, found a way to milk the
2017 tax law to create more than $100 billion worth of shiny
new corporate tax loopholes.
Now, colleagues, understand these are not the same huge
loopholes that I and others warned about back in 2017 when the
bill was written. These are brand-new loopholes that are the
product of tricky Treasury Department regulatory maneuvering,
something that in my view looks like it goes beyond the
Department's legal authority.
The bottom line: it sure looks like corporate special
interests are going to make off with brand-new loopholes worth
$100 billion, in addition to the outlandish share they got from
the original $2-
trillion Trump tax law.
Senator Brown and I want to stop this fleecing of the
American taxpayer. So today, Senator Brown and I are
introducing legislation that will close these new loopholes and
fix this new source of tax unfairness. When people say the tax
code is rigged and the Trump administration has made it worse,
what I have just described is a textbook case of what they are
talking about.
Now, one additional point. Not long after the news of these
new tax loopholes broke, the President went to Davos. During an
interview there, he was asked whether during a second term he
would cut programs like Medicare, Medicaid, and Social
Security.
The President said, yes, he would.
The President called that, and I quote here, ``actually the
easiest of all things.'' So I have just given you a perfect
snapshot of this administration's policies robbing the working
families to pay off special interests and those at the top.
The President says shredding the safety net is a piece of
cake. But let us make sure we know what he is talking about. He
is talking about Medicaid, a program that pays for two out of
three nursing home beds in America. And that is taking place in
a country where growing older is really expensive, and
families--even those who have scrimped and saved--will run out
of money to pay for long-term care.
The President is talking about Medicare, without which
millions of seniors would have no hope of getting high-quality
health care, or affordable prescription drugs.
The President is talking about Social Security, which keeps
American workers from retiring into deprivation and
desperation.
The Trump budget cuts in those programs amount to more than
$1.5 trillion. It probably goes over just fine with the
ballroom crowd at Mar-a-Lago, but I will tell you, it is a
terrifying prospect for the hundreds of millions of Americans
who every single month walk an economic tightrope and count on
Medicaid, Medicare, and Social Security to be there as a
lifeline for them in tough days ahead.
Added up, it is a pretty clear picture. The Trump
administration will tune out the needs of middle-class
families, but it gives the world to any corporate lobbyist who
comes calling at the Treasury Department. You see it in
Secretary Mnuchin's stewardship. You see it in the budget. And
as I have shown, you see it in the President's own words.
Thank you, Mr. Chairman. I appreciate your holding this
hearing quickly, and I look forward to hearing from our
colleagues.
[The prepared statement of Senator Wyden appears in the
appendix.]
The Chairman. Before I introduce the Secretary, it is my
intention--we have a 2 o'clock vote--that you and I would trade
places to go vote.
Secretary Mnuchin is the 77th Secretary of the U.S.
Treasury. Prior to his current position, Secretary Mnuchin was
finance chairman for the Trump for President organization and
served as a senior economic advisor. He has very extensive
experience in global financial markets, U.S. Government
securities, mortgages, money markets, and municipal bonds.
He has held various positions in successful private
enterprises and has a longstanding commitment to philanthropy.
He was born and raised in New York City, earned a bachelor's
degree from Yale University--and I suppose there are a lot of
other things I could say about you, but I want you to take the
time now to make your statement.
And we are going to keep this meeting going during the
vote.
STATEMENT OF HON. STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF
THE TREASURY, WASHINGTON, DC
Secretary Mnuchin. Thank you very much, Chairman Grassley,
Ranking Member Wyden, and members of the committee.
I am pleased to be here with you today to discuss the
President's budget and the Treasury Department's top
priorities. President Trump's economic freedom agenda is
working. Tax cuts, regulatory reform, and better trade deals
are improving the lives of hardworking Americans.
Unemployment remains historically low at 3.6 percent. It is
at or near all-time lows for African Americans, Hispanic
Americans, and veterans. The unemployment rate for women
recently reached its lowest point in 70 years.
Before President Trump came into office, experts were
predicting that we would grow by 14,000 jobs per month. We
averaged 175,000. Wages for nonsupervisory workers rose by 3.2
percent in 2019, compared to 3 percent for all private-sector
employees, which means wages rose faster for workers than they
did for their bosses.
The improved employment environment means that more
Americans have returned to the job market, increasing labor
participation. Last month's labor participation rate of prime-
age adults reached 83.1 percent, an 11-year high.
American families are earning more each year, thanks to the
Tax Cuts and Jobs Act, and paying significantly lower taxes.
They also have more career opportunities now than ever before.
America's economic strength and competitiveness are a bright
spot in the world, as other nations experience headwinds.
In the year to come, we expect even greater economic growth
in the United States as we finalize trade deals with some of
our most important trading partners. The Phase One deal with
China results in critical, enforceable protections for our
businesses and a tremendous boost for our farmers.
The USMCA will add to our success by setting some of the
highest standards ever in a trade agreement. We are proud to
have earned the support of a broad coalition of industries. We
are pleased that it was passed by Congress with strong
bipartisan support.
I particularly want to thank the members of this committee
for their work on this important issue.
In addition, President Trump's economic policies will
result in economic growth and will reduce our national debt and
deficits over time. Federal Government revenue rose by 4
percent from 2018 to 2019. Unfortunately, in order to secure
critical funding to rebuild the military, Democrat members of
Congress insisted on increasing other government spending,
which resulted in overall spending of 8 percent.
The administration is committed to working with members
from both sides of the aisle to address spending going forward.
The President's 2021 budget for the Treasury Department makes
clear that we continue to prioritize economic growth as well as
national security.
In particular for this committee, we are requesting $12
billion for the IRS. This includes funding to implement the
Taxpayer First Act and the third year of Integrated Business
System Modernization.
We continue to bring the IRS into the 21st century by
updating systems, utilizing data analytics, and other
technology advances to enhance the effectiveness of audit
enforcement activities.
We are requesting a program integrity cap adjustment to
reduce the tax gap, with savings of over $64 billion over 10
years. We also remain focused on improving customer service for
taxpayers by reducing call and wait times and enhancing online
service capabilities.
I am pleased to be here with you today. Thank you very
much, and I look forward to answering your questions.
[The prepared statement of Secretary Mnuchin appears in the
appendix.]
The Chairman. Okay, we will do 5-minute rounds.
Mr. Secretary, critics of tax reform have suggested that
Treasury created loopholes for big companies and regulations as
part of a secretive lobbying process. The idea that the
regulatory process has occurred in secret is hard to
understand, given that the notice and comment period in the
Administrative Procedures Act gives people opportunity for
input. And I do not see how you can do your job of implementing
a new law that is so far-reaching without listening to
stakeholders.
The preamble to each set of regulations makes clear that
Treasury meticulously analyzed and addressed public comments.
Sometimes taxpayers were happy with the outcome; sometimes they
were not. I even heard some of these people in my State who
were not happy about it.
The business community certainly does not seem to think
that they have received everything for which they have asked.
So, Mr. Secretary, is it not true that the Treasury's
decisions about tax reform regulations have been based squarely
on technical analysis and legislative intent, and not by
corporate lobbyists?
Secretary Mnuchin. Yes, Mr. Chairman, that is absolutely
correct. Our job is to implement the legislation, and not to
make the legislation. On a regular basis, we meet with lots of
people to take in input. We have reached out to the committee
and its staff. And again, we go through a notice and comment
period with the public.
The Chairman. The second point is, I am pleased to see that
the President's budget calls for making the tax cuts and
reforms benefiting individuals and small business firms
permanent. This includes the doubling of the Child Tax Credit
to $2,000, nearly doubling the standard deduction, and lower
overall individual taxes. It also includes a 20-percent
qualified business income deduction, which greatly benefits
small pass-through businesses.
So, Mr. Secretary, in Treasury's estimation, have these tax
measures been important factors in the high levels of consumer
confidence and small business optimism reported since the
enactment of the tax reform? And also, would you expect making
these tax provisions permanent to have additional positive
effects on consumers, small businesses, and the economy
generally?
Secretary Mnuchin. Yes, we would, Mr. Chairman.
The Chairman. Yesterday, the House Ways and Means Committee
argued that CBO's recent adjustments in the corporate tax
receipts are evidence that tax reform costs more than
projected, largely because Treasury has provided an additional
windfall to corporate taxpayers.
However, as I mentioned in my floor statement yesterday,
the Joint Tax Committee and CBO have confirmed that one cannot
infer from CBO's projections that tax reform regulations are
inconsistent with the statute. In fact, CBO clarified that
other factors drove the change in projections--namely, the
economy abroad, trade developments, and the reduction in the
Bureau of Economic Analysis corporate tax revenue estimates
between 2016 and 2018, which then of course in turn inform
CBO's baseline.
It simply strains credibility to blame tax reform for a
change in the baseline from years before tax reform was even
enacted.
So, Mr. Secretary, is it your understanding that CBO's
downward adjustment is a result of a number of factors, and
that it is in fact too early to determine the precise impact of
tax reform on tax receipts? And also, does the administration's
budget, like CBO, project steady increases in corporate
receipts throughout the current budget window?
Secretary Mnuchin. Mr. Chairman, let me say that our
analysis has always been higher than CBO. As I have said
previously, we believe that the tax cuts will pay for
themselves over a 10-year period of time, which is how we score
them. We are 2 years in. We have updated our projections for
the next 8 years, and we believe that.
Again, let me just comment that spending is increasing as
well. But the trillion and a half dollars of tax cuts we
believe will pay for themselves.
The Chairman. Senator Wyden?
Senator Wyden. Thank you very much, Mr. Chairman.
I want to start with what I think is a clear double
standard with respect to responding to requests on
congressional oversight. I look at the record, and it seems
that Democratic requests get shoved to the back of a filing
cabinet, or somehow Republican requests get the red carpet
treatment.
So I want to give you a specific example, and give you a
chance to respond. Treasury gets two requests from
congressional committee chairs. One request is backed up by
clear statutory language in tax code section 6103 requiring the
Treasury Secretary ``shall provide tax documents'' to the
committee.
The other request does not have the same legal basis, and
certainly to me it looks political. The request from the
Democratic chair with a firm legal basis was met with nothing
but legal foot-dragging.
The request that came from the Republican chairs got VIP
treatment. They got a response out the door in a flash. So it
looks to me like there is a double standard here, and that you
all are tipping the scales of congressional oversight.
What am I missing, Mr. Secretary?
Secretary Mnuchin. Well, thank you for letting me respond
to that.
Senator Wyden. Two committee chairs, differential
treatment.
Secretary Mnuchin. Again, I think we have responded to you
multiple times on this. The most recent letter was on February
11th. And as I explained, the House disclosure of tax returns
is subject to protections in 26 U.S.C. 6103, which on the
advice of counsel, as we have documented, we had significant
concerns about.
That is very different than--I believe what you are
referring to are SARS requests, and on a bipartisan basis we
have responded to thousands of SARS requests to the committees
from both Republicans and Democrats on an equal basis.
So as we said, Treasury does not process congressional
requests----
Senator Wyden. Mr. Secretary, you are stonewalling about
stonewalling, and----
Secretary Mnuchin. Well, that is not really fair at all----
Senator Wyden [continuing]. There is a double standard.
Secretary Mnuchin. We responded significantly.
Senator Wyden. Two committee chairs. One gets no response,
with legal authority, from a Democrat. The Republican gets a
quick response.
Secretary Mnuchin. Again, that is just not fair, Mr. Wyden.
We have responded to this committee, to your request and
others, of thousands of SARS.
As I have said, we are following the law of 6103, and again
we, on the advice of counsel, we have not responded to that.
Senator Wyden. I gave you a specific example involving the
tax returns that shows a double standard----
Secretary Mnuchin. We do not have a double standard at all.
One has to do with SARS. That is under a different section,
and we have responded to your request and the Democrats'
requests on this committee, equally with the Republicans.
Senator Wyden. Let's talk about something else where, once
again, it sure looks like there are sweetheart arrangements
that do not meet the test of the public interest, and I am
talking about the deal of Turkey's state-owned bank, Halkbank,
which has been accused of a billion-dollar scheme to help Iran
evade our sanctions, and it sure looks like Erdogan and his
son-in-law have been personally implicated in it. And since
taking office, you have had seven meetings--seven--with senior
Turkish officials. Two of them were meetings in the Oval Office
with Erdogan, and one with his son-in-law. They were directly
implicated in a sanctions scheme.
You met with them. Does this not send a horrible picture to
pose in the Oval Office with sanctions violators? I mean, is it
just open season for sanctions violators in your Treasury
Department?
Secretary Mnuchin. Mr. Wyden, I have literally met with
hundreds of world leaders and finance chairs, so seven meetings
is nothing that is rare----
Senator Wyden. What were the meetings about, Mr. Secretary?
What were the meetings about?
Secretary Mnuchin. I was just about to finish----
Senator Wyden. Good.
Secretary Mnuchin. Those meetings were about many important
strategic issues. As it relates to Halkbank, I cannot comment
on the specifics because that is subject to inquiry, both by
the Department of OFAC as well as the Department of Justice.
Senator Wyden. Finally, let me be clear on these new
loopholes that were created. You have made it out like in some
way the minority was involved in this.
Our input was never sought in connection with this whole
array of loopholes. I know, because I would have been fighting
them every step of the way.
Thank you, Mr. Chairman.
The Chairman. Since you brought up the first issue with
him, I would like to give my view of that--not to defend the
Secretary, but just to state where I am coming from, because I
am the instigator of some of these requests.
Whether it is the minority generally, or whether it is
Senator Wyden right now, you publicly expressed the frustration
that Treasury has responded to the committee and produced
requested documents, but you allege that Treasury has not done
the same for the minority.
I think that that is wrong, and I have done a lot of
oversight work with Senator Wyden, and we work together on most
of this stuff, and we are even working together on this
particular issue.
As the Department itself wrote in a letter yesterday--and I
will put this letter in the record, without objection.
[The letter appears in the appendix on p. 46.]
The Chairman. To Senator Wyden, the categories and types of
documents that I have sought from Treasury have also been made
available to Senator Wyden and his side of the aisle.
My investigation with Senator Johnson has nothing to do
with 6103. We are proceeding methodically with the oversight,
instead of running fast, skipping steps, and failing to
litigate privilege claims. And at this point, privilege claims
do not even apply to our request.
So, are you asking for a rebuttal to what I just said?
Senator Wyden. Yes, and I will be very brief, Mr. Chairman,
because I am asking a question of the Treasury Department. What
we are talking about were two instances where Treasury
documents were requested by committee chairs. In one instance,
the Secretary has stonewalled the response. In the other, he
fast-tracked the request. That is what looks like a double
standard to me. Period. Full stop.
The Chairman. Okay.
Senator Lankford, and then after Senator Lankford, it will
be Senator Stabenow.
Senator Lankford. Mr. Secretary, thanks for being here.
Thanks for the insight that you bring to this. Obviously, we
will go through the President's budget proposal--as every
President's budget proposal comes to Capitol Hill and gets
reviewed and then gets set aside. It is a set of ideas, and we
will go through it. But there are a lot of good ideas as well,
and I appreciate the hard work that goes into it.
I will be interested to see how history looks at this
economy 25, 30, 50 years from now. We look back at the Reagan
economy and the Clinton economy, and to see the growth that is
happening--I am watching some pretty remarkable growth
happening in this economy since the Tax Cuts and Jobs Act.
And what you have overseen from the Treasury right now--if
I am looking at this correctly, during the previous
administration there were 3,600 manufacturing job losses.
During this administration, we are gaining 12,300 jobs in
manufacturing alone during that time period. So it is a pretty
dramatic turnaround.
Beginning in March of 2018, 21 consecutive months, there
were more job openings in America than there were people
looking for jobs in America. That is pretty remarkable. And for
the last 16 consecutive months, we have had hourly earnings for
folks who receive hourly pay at 3 percent or higher every
single month. That is a pretty remarkable economy that is
happening right now.
And so, thanks for all your work, because you have put a
lot of work into this to be able to go through the process. I
want to ask about a couple of process things in this.
I have done a lot of work, as many members of this
committee have, on ending government shutdowns, on trying to
get away from long-term CRs, and to try to get a solution on
the debt ceiling. Those are three things that hang out there.
So while we are talking about budget issues, those always tend
to be a part of the conversation there.
Can you put an estimate on the costs, financial costs, of
government shutdowns, of the cost of long-term CRs, and if
there are alternate solutions for dealing with debt ceilings?
Secretary Mnuchin. Well, I do not have the specific costs
of those, but I will tell you they are quite costly.
Particularly the CRs have a very significant cost on the
Department of Defense and their long-term planning. There is no
question that is a significant issue there.
I would also just comment, I do share your concerns about
the debt ceiling. I think that----
Senator Lankford. We have done 80 of those in the last 50
or so years.
Secretary Mnuchin. I think that everybody would agree, we
cannot ever get to a point where we would default on the U.S.
Government debt. And I would encourage Congress to think about
a process where, when we approve spending, we simultaneously
approve the necessary borrowing.
Senator Lankford. When you interact with your peers around
the world on how they handle debt ceiling, what is their
conversation with you about debt ceiling and how their
government handles it?
Secretary Mnuchin. Most people do not have debt ceilings
the way we do.
Senator Lankford. Right. And so this is a national anomaly
for us. It was designed to be something to help control
spending. But when we have had 80 of them over the last 50 or
60 years, as far as a debt ceiling increase, they are clearly
not managing our spending. They have become, as Senator
Whitehouse says so well, the bear trap in the bedroom, and
really there is no good result of having a bear trap in the
bedroom the whole time.
So it is an issue we do have to resolve. Insights you may
have on that from Treasury would be helpful to us as well.
Secretary Mnuchin. Well again, I would just say I would
appreciate this as a bipartisan issue. Obviously spending is
approved on a bipartisan basis, and it is important that we get
to a process where we increase the debt ceiling at the same
time.
Senator Lankford. Let me ask two quick questions on this:
Opportunity Zones. You have three traunches of regulations that
have come out on Opportunity Zones. Thank you for that. We have
many folks who are implementing those things.
There was a bit of an unknown at one point that I have
asked you about before. A business cannot have more than 5
percent of their income on things like alcohol sales and other
things that are listed in the code, particularly that could
have up to 5 percent of their income and still be a recipient
on the Opportunity Zones.
There is not a definition dealing with businesses that are
cannabis businesses. Are they within that 5-percent amount? Or
are they not at all, because there is a Federal prohibition on
cannabis sales?
Secretary Mnuchin. I am going to have to get back to you on
the specifics.
Senator Lankford. That would be helpful, to get clarity,
because there are cannabis businesses across the country that
are in Opportunity Zones. They will need clarification. That
one, you and I have spoken about before. It is difficult to get
a Federal tax benefit for something that is against Federal
law. But that is not clearly defined in the last traunch of the
regulations.
The other one is, there is a request in this budget to be
able to transition Secret Service from DHS back over to
Treasury, where it used to be before. Can you give us some
definition on that?
Secretary Mnuchin. Thank you. I appreciate the opportunity
to comment on that. Let me just first say that this has support
on a bipartisan basis from the current President and the last
several Presidents.
I think you know the Secret Service has a long history. It
was started at the Treasury Department to counter
counterfeiting. We think that there is tremendous integration
moving it back and working with all of our terrorist financing
activities, and working on our cyber issues. And again, this is
something that has tremendous support within the Secret
Service.
Senator Lankford. Okay. We will look forward to more
details on that.
The Chairman. Senator Stabenow?
Senator Stabenow. Thank you, Mr. Chairman. And welcome, Mr.
Secretary.
I do want to start by just talking about the view from
Michigan, because certainly the numbers you are talking about
are not what we see. And just for clarity, under the previous
administration we added about 88,000 manufacturing jobs. Up
until the last 3 quarters, we added about 12,000 under the
current administration. But for the last 3 quarters, we have
seen 2 quarters where we actually have lost manufacturing jobs.
And the last quarter was flat.
So the view from the ground is different than what you are
seeing. And certainly in Michigan, and in the Midwest, we have
not seen wages rising like you are talking about. We have a lot
of folks working one job, two jobs, three jobs, waitressing
three or four jobs, trying to hold things together. But that is
not the same as having one good-paying job where you can
actually take care of your family, which is what I would hope
would be all of our goals.
You know, when we talk about the tax code as well--I am
meeting with building construction trades this week. They are
not very happy about the fact that the tax bill does not allow
them to write off the cost of buying the tools now, which are
necessary for their job. And yet big corporations can write off
what they need.
They are not very happy about the fact that they cannot
write off mileage anymore when they move from one job to
another, or if they move from California to Michigan to get a
job. That is no longer something that they can take themselves
as a write-off. And yet, when I tried to close loopholes that
allow corporations to take jobs overseas, we could not get that
in this tax package. So my view is a little bit different.
But I want to focus on something where people did get hit
and have not yet recovered in the economy, and that is
pensions. Folks who have worked hard their whole life and
actually trusted everybody--corporations, government systems--
who said that maybe I will take a little bit less in wages, put
money in a pension plan so I have it when I can retire with my
family.
And when we saw what happened on the stock market--the
President talks all the time about how the stock market is
soaring. That is how he measures things. So that is true, the
top 10 percent wealthiest folks are doing very, very, very
well.
But one of the ways that working people and others are not
is what has been lost in the stock market with the crash, as it
results in pension reductions. So as a result of the financial
crash, we know there was over $1.2 trillion just in IRA and
401(k) loss, not counting the pension system.
And so my question relates to, what are you guys going to
do? What do you support in terms of what needs to be done for
the Pension Benefit Guaranty Corporation? We know that we have
a million and a half Americans who are going to lose the plans
that they have paid into their whole life. They are totally at
risk in the next 20 years. And all we need is one big failure
like Central States and we will see the Federal backstop go
insolvent.
And so this is a very, very big issue, and we have a
proposal put forward, passed by the U.S. House of
Representatives, called the Butch Lewis Act, that would give
them time to recover.
I mean, we certainly were willing to weigh in, our
government, to give huge loans to Wall Street, but yet the
folks who lost their pensions are very afraid and are still
waiting for somebody to recognize what they lost.
And so, what are your ideas? What are you planning to do to
protect people's pensions?
Secretary Mnuchin. Well, thank you for your comments,
Senator. I do agree with you, the pension issue is a serious
issue. I serve on the PBGC, so I am well aware of the issues
there, as well as, I think you know, we administer certain
functions associated with the multiemployers, and I acknowledge
there are some significant issues.
So I look forward to working with this committee on a
bipartisan basis to consider legislation to address these
issues. And we stand ready to provide technical assistance on a
bipartisan basis to analyze things for you.
Senator Stabenow. I guess my question would be, does the
President support the Butch Lewis Act that came over from the
House of Representatives that is now before the Senate?
Secretary Mnuchin. I cannot comment on that specifically.
What I would say is, the President is interested in looking at,
on a bipartisan basis, these pension issues.
Senator Stabenow. And in the interests of almost----
Secretary Mnuchin. And I personally have met with--I
personally have met with some of the people from these pensions
and various members of the committee.
Senator Stabenow. Well, I just want you to know that, while
we are all basically not acting at this point, other than that
we were able to come together on miners--which I thought was
very, very positive--but the reality is I have folks in
Michigan who now have gotten a 70-percent cut--70-percent cut--
in their pensions.
Now you know what? That is pretty significant and pretty
terrifying for people. So we need action. We need action. We
know what it is. We know what needs to happen. We know the
numbers. We just need to act.
And people are counting on us to do that. So I am anxious
to know what the President will do to act.
Thank you, Mr. Chairman.
The Chairman. Senator Carper?
Senator Carper. Welcome, Mr. Secretary. I just want to
start off by talking a little bit about climate change and
energy policy, tax policy, as it might help us create some jobs
and actually address climate change in an appropriate way.
I just got back from a trip with some friends who went to
Antarctica last month, and they said it was pretty warm. They
were surprised. And we were really surprised over this past
week when the temperature there was 65 degrees. It is the South
Pole in Antarctica, 65 degrees. People say, was that a record?
It sure was. And it beats a record that was set just a couple
of years earlier.
Northern California--if you will remember, Northern
California had wildfires as big as my State, a place called
Paradise, which went up in smoke. Australia had wildfires last
month the size of West Virginia, where I was born. In the
Midwest, huge floods. Hard to get the crops into the ground,
seeds into the ground. In the last 5 years, it was the hottest
5 years on record. This past month of January, the hottest
January on record.
There is a great song that starts with the lyrics,
``Something's happening here; just what it is ain't exactly
clear.'' I think something is happening here, and I think it is
pretty clear what is going on.
There is way too much carbon in the atmosphere, and there
are ways that we can address that. One of those ways is through
our tax policy. The administration has proposed, as you may
know, to eliminate some clean energy tax incentives and
undermine goals that the President said over and over again
that he wants to achieve.
But the President's budget proposal to, I think
prematurely, eliminate important clean energy tax incentives
would do exactly the opposite. I will mention a couple of
those: tax incentives to encourage people to buy electric
vehicles, tax incentives to encourage people to buy vehicles
fueled by hydrogen--which creates as a waste product
HO2--a tax policy that incentivizes people to buy
vehicles powered by natural gas.
The reason why those are important is because the largest
source of carbon emissions on our planet comes from our mobile
sources. Number two is our power plants. Number three is our
buildings.
But instead of proposing tax policies that actually lead to
reducing carbon on our planet with respect to mobile sources
and buildings and so forth, we are getting just the opposite.
Why is that?
Secretary Mnuchin. Let me just comment, because you have
addressed a lot of different issues. Again, let me just say the
President very much supports clean air and clean water, and
having----
Senator Carper. But he has reduced--the administration, I
am sorry--the administration proposed reducing EPA funding by,
I think, almost a third, almost a third. But go ahead.
Secretary Mnuchin. Again, as it relates to--I think you
have addressed a whole bunch of different credits, including
electric car credits and others. Again, I would be happy to
come and talk to you about the different policies. I do not
know what you want me to comment on specifically on this.
Senator Carper. Okay. I will just be as direct as I can be.
The largest source of emissions on our planet is our mobile
sources--our cars, trucks, and vans. There are ways to use tax
policy to encourage people to drive vehicles, including trucks,
that are a lot more energy-efficient. And instead of supporting
tax policies that will do that, we get just the opposite.
The other thing I would say that would be really helpful
is, when the administration is talking about transportation
infrastructure, to actually say--when I was Governor, I would
propose--I was Governor for 8 years--we had tax cuts 7 out of 8
years and balanced the budget every year.
I proposed transportation infrastructure improvements in my
little State, but I always proposed ways to pay for them. And
we really need the support of the administration as we go
through this year figuring out what to do on roads, highways,
bridges, surface transportation, not just to say, ``Oh, this
would be great, wouldn't it?'' but to say, ``This is how we
will pay for it''--how we would pay for it. And that is a
conversation we could have maybe when we get together.
Secretary Mnuchin. I appreciate that. And the President is
very much interested in infrastructure, particularly roads,
highways, rail, and others. I have had several meetings with
Richy Neal to see if we can find certain ways to work together
on a bipartisan basis.
Senator Carper. The President actually mentioned the
Barrasso bill, which my staff and I helped to write, during his
State of the Union address. I actually held up, when he talked
about the need for transportation infrastructure, I actually
held up my wallet. He didn't see it, but if he had, it was a
reminder that it is not enough to just say we are going to do
stuff, we actually have to figure out how to pay for that.
Secretary Mnuchin. Agreed. And I was encouraged. I believe
it was passed 24 to 0, or something like that.
Senator Carper. Yes, that is fine.
The last thing I want to ask is, tax policies that pay for
themselves. When we adopted the tax package about a year ago, 2
years ago, we said it was going to pay for itself.
I think, whether it was the CBO--any number of entities
have said it does not really pay for itself. That one has not
paid for itself, and it is not going to pay for itself.
Do you have a rebuttal for that? The numbers are rather
staggering, but I think CBO said that they estimated that the
so-called tax cuts added an additional $228 billion to the
deficits for 2019.
How do you respond to that?
Secretary Mnuchin. Sure. Let me just comment. And I have
said this. Again, I stand by our comments that the tax cuts
will pay for themselves. This will be simple math. So we
measure this over 10 years. We have 8 years left. I look
forward to writing the committee a letter in 8 years going
through all the exact numbers.
The first 2 years, our numbers are right. Our projections--
as part of the budget process, we go through estimating the
next 8 years. Again, based upon our estimates of growth and
various different issues, we do believe they will pay for
themselves.
That is different than the deficit, because we have
increased government spending. And we cannot pay for it twice.
Senator Carper. Thank you.
The Chairman. Senator Menendez?
Senator Menendez. Thank you, Mr. Chairman.
Mr. Secretary, we are facing a precarious moment in our
republic where truth is under assault by partisan peddlers of
``alternative facts'' who seek to obfuscate the truth and
attack those who are there to stand up and speak it--and
gaslight the public--all in the name of ``politics,'' where
blind allegiance to a single person is valued over fidelity to
the Constitution.
So I would like to go over a few points today and correct
the record so the American people have the truth before them.
Now, President Trump claims to have inherited a, quote,
``disaster'' of an economy from President Obama. And he takes
credit for what he calls, and I quote, ``an economic turnaround
of historic proportions.''
Mr. Secretary, how long has the U.S. economy been posting
positive GDP growth?
Secretary Mnuchin. It is the longest-running economic
scenario we have been in.
Senator Menendez. Absolutely true. GDP was positive for the
past 10 years, growing for the final 7 years of President
Obama's presidency.
So it has been growing for the last 10 years, including the
final 7 years of the Obama presidency. And we can both agree
that President Trump has been in office for about 3 years. Is
that correct?
Secretary Mnuchin. That we can definitely agree on.
Senator Menendez. Okay. So the economy was already growing
for 7 years before President Trump took office.
Let us talk about jobs. President Trump claimed he will be,
quote, ``the greatest jobs President that God ever created,''
close quote. And he has repeatedly criticized President Obama's
jobs record.
Let us compare the last 3 years of the Obama presidency to
the first 3 years of the Trump Presidency. Can you guess who
created more jobs?
Secretary Mnuchin. I do not have the numbers in front of
us, but we have created substantially more jobs than the Obama
administration projected at the beginning of this
administration by a multiple of three.
Senator Menendez. Well, let us talk about what actually
happened. The economy gained 1.5 million more jobs during the
final 3 years of President Obama's presidency than the first 3
years of the Trump presidency.
So President Obama added 8.1 million jobs during his final
3 years in office. That is more than the amount of jobs added
during the first 3 years of the Trump presidency, which is
roughly about 6.6 million.
So the fact of the matter is that what we had was a growing
economy. GDP was growing, strengthened dramatically over the
last several years before this administration took over. More
jobs were created in the final 3 years of the previous
administration than when this administration took over.
And then let us talk about what it really means to
families. During the last 2 years of the Obama administration,
median household income increased by $4,800. During the first 2
years of the Trump administration, household income increased
by less than a third of that. In fact, median household income
only increased a mere $550 in 2018, far short of the $4,000 to
$9,000 gains promised by this administration.
So let me recap. Let us get to the truth: the Trump economy
created less jobs and delivered under a third of the earnings
to families than the final years of the Obama presidency, all
the while nearly doubling the deficit to a trillion dollars.
So I think there is a truth that is a real disconnect
between what the administration is saying and how people are
living. Bedrock middle-class goals of owning a home, sending
your kid to college, saving enough for a retirement, are
distant realities under this administration's economy.
So I think that is important to set the record straight.
And then finally, let me ask you. Does the Department
commit that its actions, policies, and investigations,
including sanctions, will remain free from political pressure
by the President? Because I look at the recent nominee, Ms.
Liu, who was supposed to be before the Banking Committee where
I also serve, and her nomination has been pulled. I look at
issues on the question of how we are enforcing sanctions, many
of which I helped write.
Can you tell this committee that the Department will
conduct its actions, policy, and investigations, including
sanctions, free from political pressure by the President?
Secretary Mnuchin. Well, I would be happy to answer that,
but let me just get to--and I would be happy to send you a
follow-up----
Senator Menendez. Can you answer my question first, that
question first?
Secretary Mnuchin. I just want to say, I have that the
numbers on disposable income are $4,452 from December 2017 to
2019.
In regards to your question, I will specifically say, no. I
oversee the sanctions department. Sanctions are driven by
foreign policy. Foreign policy is directed by the President.
So, no, specifically I would--I would say that sanctions, as
are other foreign policies, are by direction of the President
and executed through me.
Senator Menendez. So political considerations will take
place. I am not talking about policy considerations. I am
talking about political considerations that took place in your
enforcement of sanctions.
The Chairman. Senator Cardin----
Secretary Mnuchin. I hear you are differentiating political
from policy----
Senator Menendez. I think it is a big difference.
The Chairman. Senator Cardin?
Senator Cardin. Thank you, Mr. Chairman.
Secretary Mnuchin, welcome. It is nice to have you here. I
want to follow up on one point that my colleague has been
talking about, because we have the actual growth numbers for
fiscal year 2019. And you say that the 2017 tax bill pays for
itself based upon--and one issue is the economic growth, which
we all recognize.
You have projected, OMB, a 3.2-percent growth in fiscal
year 2019. The Congressional Budget Office said 2.4, quite a
difference. Well, we now have the actual, and it is 2.3. Very
close to CBO. Now, we do not have the actuals for any of the
other years, but the difference between CBO and OMB is pretty
dramatic on the economic numbers.
So what does CBO know that you do not know? And why were
they able to project the growth for the first year we have,
2019, when you were projecting over 3 percent throughout this
time?
Secretary Mnuchin. Well, there were a significant number of
things that impacted the growth this year. One was the global
slowdown. Two was the GM strike. Three was Boeing. So there
were a significant number of issues that dragged down GDP in
the range of 50 to 70 basis points.
At the end of the day, the projections are dependent upon
GDP and economic numbers going forward. And a big difference
between the CBO projections and ours are economic projections
going forward.
Senator Cardin. And you can understand how we are concerned
about the tax bill adding greatly to the deficit, because the
Congressional Budget Office has been much more accurate than
OMB. I just point that out, and that is why we are concerned by
these, we think, unrealistic growth numbers.
And as you said, you will be able to come back and show us.
We do not know for how many more years, but you will be able to
come back and show us, and we will see whether in fact that
holds true.
I want to say something positive about your Department,
particularly the Office of Tax Policy. At one of our hearings,
I sent a question that was answered on section 179, the energy-
efficient commercial building deduction.
For years I have heard from, particularly, small business
owners that they were required to make payments to State and
local governments in order to receive an allocation letter to
claim their deduction. That goes against the intent of our law.
And the letter that was sent back by Treasury acknowledges that
that is, quote, ``inconsistent with the policy goals of section
179 for the owner of a public building to seek, accept, or
solicit any payment from a business that is quid pro quo for
providing the written allocations,'' end quote.
So I want to thank you, because I think this letter will go
a long way, I hope, to provide the clarity we need. If it does
not, I will be back in touch with you to make sure that the law
in fact is carried out.
I also want to acknowledge that your budget does include
funds for the Taxpayer First Act. We are pleased to see that.
That is a bipartisan effort in this committee to get that done.
But you still have not appointed a National Taxpayer Advocate.
I say that because the acting advocate, Bridget Roberts,
has said that it is critical that a permanent National Taxpayer
Advocate be appointed as quickly as possible to help ensure the
IRS protects taxpayer rights and meets its obligations to
taxpayers. That is solely in your hands, the appointment of the
Taxpayer Advocate. Can you give us any indication when we might
expect that appointment to come through?
Secretary Mnuchin. I can. And let me first say, I am glad
we were able to clear up that other issue, and let us stay in
touch.
The Taxpayer Advocate is a very important position. We have
interviewed some very, very qualified people. We have made a
final decision at the recommendation of the Commissioner, and I
expect that we will be announcing that in the next few weeks.
Senator Cardin. Oh, good. I am glad to hear that.
And the last thing I will bring up is the--I am pleased the
budget has in it the modernization of IRS technology. I think
that is important. I worry about the personnel numbers.
We have seen a dramatic reduction in the last decade, about
a 20-percent reduction in the workforce, whereas you have had a
significant increase in the number of tax returns. This budget
again cuts the full-time equivalents at IRS. And I worry that
you do not have the workforce you need and will not be able to
retain the experienced workers and professionals at IRS in
order to carry out that responsibility.
So I hope we can work together. Congress has been, I think,
a little more generous in this area, so I hope we can work
together. This committee has a responsibility to make sure the
tax code is carried out effectively, that we have the audit
staff we need, et cetera. So I hope we can work--because I
think you need more help.
Secretary Mnuchin. We appreciate that. Thank you.
The Chairman. Senator Hassan?
Senator Hassan. Well, thank you, Mr. Chair. And I want to
thank you and Ranking Member Wyden for holding this important
hearing today. And thank you, Secretary Mnuchin, for testifying
today about the Treasury Department's budget proposal.
Mr. Secretary, when you testified to this committee last
year about the Treasury's budget, I spoke about the importance
of robustly funding Treasury Department programs that combat
terrorist funding streams and other forms of elicit financing.
I am pleased to see that the 2021 Treasury budget proposes
increased funding for the Office of Terrorism and Financial
Intelligence, and for the Financial Crimes Enforcement Network.
These offices play a vital role in combating emerging national
security threats. For example, terrorists and other
transnational criminal organizations are increasingly using
cryptocurrencies to finance their activities, due in no small
part to the difficulty inherent in tracing these transactions
and tying funds to specific actors.
Mr. Secretary, how will the Treasury's proposed budget
increases assist the Department in monitoring suspicious
cryptocurrency transactions and prosecuting terrorists and
other criminal organizations financing elicit activities with
cryptocurrency?
Secretary Mnuchin. Well, first of all, thank you, and thank
the committee for the generous support on the funding increases
in these areas over the last several years. We have really
built up a very dedicated career staff.
And specifically on cryptocurrencies, we are spending a lot
of time on this, on both an interagency basis and with the
regulators. We are about to roll out some significant new
requirements at FinCEN. We want to make sure that technology
moves forward, but on the other hand we want to make sure that
cryptocurrencies are not used for the equivalent of old Swiss
secret number bank accounts.
So we share your concerns, and you will be seeing a lot of
work coming out very quickly.
Senator Hassan. Well, thank you. And I would look forward
to continuing to work with you about that.
Another question: under the previous administration,
Treasury Department budgets contained proposals to improve the
research and development tax credit for new and small
businesses.
As you know, the R&D tax credit supports the efforts of
startups to invest in the development of new, innovative
products that lead to job creation and economic growth. That is
why I have introduced bipartisan legislation, along with
Senator Tillis, that would modernize and expand the R&D tax
credit for startups.
Mr. Secretary, for this year's budget, did the Treasury
consider including any proposals to improve the R&D tax credit
for small businesses? And would the Treasury be willing to look
at our bipartisan proposal to see how we can work together to
support entrepreneurs?
Secretary Mnuchin. We would very much look forward to
working with you on that. And I will have my office follow up
to make sure we are on top of it.
Senator Hassan. That would be great. What we are really
focused on is those companies that do not have a tax liability
yet but are making these critical investments.
And so, last question. I am a strong supporter of
bipartisan legislation championed by Ranking Member Wyden that
would permanently extend tax cuts and cut red tape for small
craft brewers in New Hampshire and across the country.
Last year, along with Senators Roberts, Menendez, and
Daines, I was on a task force that recommended, on a bipartisan
basis, passing permanent relief for craft brewers. As part of
this effort, it is vital that the Bureau of Alcohol and Tobacco
Tax and Trade--which is, as you know, within the Treasury--
receive increased funding to clear the backlog of approval
requests for new beverage formulas and labels.
I continue to hear from New Hampshire brewers that delays
in approvals are slowing their business growth, despite the
additional funds that Congress has provided and years of work
to cut down on the backlog.
Mr. Secretary, can you explain to the committee what
resources the Treasury's budget would provide to the Bureau to
address this backlog? And will you commit to continuing to work
with Congress on this issue?
Secretary Mnuchin. Yes, yes, and yes. And let me just say,
if Congress wants to do anything to simplify the label
approvals, I would look forward to working with you on that as
well. And I know there is tremendous bipartisan support for the
craft brewers.
Senator Hassan. And as I understand it, the budget proposes
$5 million in funds to accelerate the processing of formula and
label applications. So it seems that there is recognition of
the issue in your budget proposal, and I just would--I think
what I have heard is a commitment to working with us----
Secretary Mnuchin. I personally looked at this label issue,
and we are trying to figure out how to streamline it.
Senator Hassan. Okay; let us keep working on that together.
Thank you very much.
And thank you, Mr. Chairman.
The Chairman. Senator Cortez Masto--I am passing over
Portman and Toomey. So if they come back, they will be ahead of
some other people who are here. Go ahead.
Senator Cortez Masto. Thank you, Mr. Chairman.
Mr. Secretary, in your comments that you provided today,
you state that the ``Federal Government revenue increased by 4
percent from fiscal year 2018 to fiscal year 2019.
Unfortunately, in order to secure critical funding to rebuild
the military, the Democratic members of Congress insisted on
increasing other government spending, which resulted in
spending growth of 8 percent from fiscal year 2018 to 2019.''
So I guess my question to you is: in order to address the
Democratic members of Congress's increase in government
spending that you cite, is that the reason why in the current
budget this administration seeks to cut $200 billion from SNAP
and TANF for women and children, cut $170 billion from student
loans, cut $90 billion from seniors on Social Security, cut $76
billion from persons with disability, and cut $59 billion from
farmers?
Is that what this administration thinks is the way to
balance this budget, on the backs of individuals because they
do not necessarily work for the military? Is that how I read
this?
Secretary Mnuchin. I do not think that is the way you read
it. The point that I was trying to make is that government
spending increased faster than we would have liked if left to
our own devices. I was integrally involved in the bipartisan
agreement to get that done.
And as it relates to Social Security, the President has
been clear that he does not want to cut Social Security; that
on Social Security there are just some savings in the increase
of growth for fraud and other issues.
Senator Cortez Masto. But you do not disagree this budget
actually requests a cut of $90 billion for seniors on Social
Security--correct?
Secretary Mnuchin. I believe it is not a cut. It is a
reduction in the rate of increase, and it is not to benefits of
people on Social Security.
Senator Cortez Masto. So I show a cut for student loans,
Social Security, persons with disabilities, for farmers, and
for women and children who seek assistance through SNAP and
TANF. If that is not a cut, then I would love to talk to you
about what it is this administration values and what they see--
how these groups and important individuals in our communities
are being affected. I would love to talk to you about that. But
I disagree.
And that is my concern: that this administration says one
thing, but their actions are just the opposite. And I think it
is important for us to really talk the true facts, and not what
you come here and read in your statements about what the
administration claims that they are doing to the benefit of our
communities.
Because I can tell you, when I go home to Nevada, there are
still people struggling. And I do want to talk to you about--
when you plan and you put together this tax bill that you have
talked about, and the economic growth, particularly when it
comes to the budget, I keep hearing you saying that you are
talking about the budget that shows gross domestic product
growth will climb to 3.1 percent. And that is your basis.
Is that correct, that you are basing it on, for the next 8
years, a 3-percent, or 3.1-percent growth?
Secretary Mnuchin. It ranges between 2.8 and 3.1. But let
me just comment on Social Security. I am looking at the
mandatory programs of Social Security starting at 1038, and it
goes up every single year through 2030 to 1906. So I do not see
any cuts.
Social Security mandatory programs are going up
consistently in our budget every single year.
Senator Cortez Masto. Good. So what I hear from you today
is there is going to be absolutely--there is no request in your
current budget to cut anything having to do with Social
Security?
Secretary Mnuchin. Again, the absolute mandatory programs
of Social Security----
Senator Cortez Masto. Well, do not read it to me. Just talk
to me. Tell me. There are no cuts to Social Security is what I
am hearing.
Secretary Mnuchin. I believe there is a cut in the rate of
increase, not an absolute cut. But again, I would be happy to
follow up and go through this----
Senator Cortez Masto. Let us talk about it, because if you
are cutting Social Security, and the resources, and the
individuals, and the time for the people who work in Social
Security to help people in need, then you are impacting the
people in need.
So let us talk about that. And I am running out of time,
but let me ask you this. If you are projecting a 3.1-percent or
2.8-percent growth for the next 8 years and you have
independent forecasters saying it is only going to be 2
percent, or 2.2 percent, and you yourself have said you have
concerns that growth might be impacted by the coronavirus, the
3-percent growth, then why are you not adjusting it downward, I
guess is my question, to ensure that we come to 8 years and the
tax bill has been paid for? How do we pay for that?
Secretary Mnuchin. Well, the coronavirus and Boeing are
just a one-time. When we did the projections, they were back in
October----
Senator Cortez Masto. What does that mean, ``one-time''?
Secretary Mnuchin. It is just a one--it will just impact
2020. So the coronavirus is not going to impact growth over the
next 10 years, nor is the Boeing issue going to impact it. It
may have an impact on one year, and again we just have not
updated the models because the whole budget process started at
the end of last year.
Senator Cortez Masto. So we hope the coronavirus does not
have an impact beyond this year, is that what you are saying?
Secretary Mnuchin. I do not expect that the coronavirus
will have an impact beyond this year.
Senator Cortez Masto. Okay; thank you.
Senator Portman [presiding]. Thank you. Mr. Secretary,
thank you for being here today. I am now sitting in the chair--
--
Secretary Mnuchin. Thank you. I see that.
Senator Portman. Senator Grassley is----
Secretary Mnuchin. You look good in that chair; you could
get used to that. [Laughter.]
Senator Portman. It is a little higher seat, actually.
Great testimony today. You pointed out that tax reform is
working, and it certainly is. So is regulatory relief, I think,
and some better trade agreements. And that combination is
improving the lives of the people we represent, and it is good
to see.
When we started off in this effort, President Trump and the
Congress said, okay, we are going to focus on tax reform
because we believe that will result in more jobs, better wages,
and leveling the playing field for U.S. companies that are
trying to compete in the global economy.
And all that has happened. Do not take my word for it. Here
is the Congressional Budget Office in April of 2018, the
nonpartisan CBO, saying in their analysis of the effects of tax
reform, ``These changes are expected to encourage savings,
investment, and work.'' CBO also estimated that that would
reduce the incentives for companies to invest overseas by $65
billion per year--so in other words, encouraging investment
right in the States that we represent.
Together, these positive effects on the economy, they said,
would result in average GDP increase of about .07 percent, and
the CBO projections have held steady. In fact, just last week--
last week--CBO said again in a new blog post that the tax
bill's effects on the economy have appeared consistent with our
initial assessment.
So that is CBO. But the numbers are clear. They are out
there. Prior to tax reform, the CBO said the economy would
create an average of 107,000 jobs per month. In 2018, we
actually got an average of 193,000 jobs. They also said that in
2019 it would be 27,000 jobs per month. So far we are 6 times
ahead of that average at 175,000 jobs.
So you know, that is great. The thing that I like best is
the wage growth. We have now seen, for 18 straight months, wage
growth of over 3 percent. And as we know from the Bureau of
Labor Statistics' information, this is primarily helping folks
who are non-
supervisory, which means blue-collar workers, mid-income, low-
income workers, and that is just awesome news. It is the
longest period we have been able to see that kind of wage
growth since before the Great Recession.
So it is working. One thing that you will talk about a lot,
I know today, is the international side. I have already heard
you talk about it some. People are bringing money home. The old
tax system encouraged those companies, as you know, to leave
their income overseas and not to bring it back and pay our
taxes.
And the international provisions were designed to end that
lockout, and that is exactly what has happened. Between January
2018 and September 2019, the last data which we have, companies
brought back over $1 trillion in overseas earnings, more than
the previous 6 years combined.
So those who say it has not made any difference, look at
the numbers, which is why, by the way, on a bipartisan basis we
all agreed we had to do this change of lowering the rate and
going to a territorial system. It is actually working. And tax
revenues are up, not down, which is another thing that you have
talked about a lot.
I think you have done a very good job of trying to
implement what was a complicated tax bill, let's face it,
particularly on the international side. And I want to commend
you for that difficult job, a whole new international tax
system--again, one that was very bipartisan in its creation,
although at the end of the day we did not get a bipartisan
vote. That part of the legislation was always something that we
believed was a good idea on both sides of the aisle. In fact,
Senator Schumer and I co-chaired the task force that came up
with an international plan that was very much along the lines
of what we ended up with.
I think you have been unfairly criticized by some who have
said, by making the implementation changes, that you are
somehow not in keeping with the tax bill. I think it is just
the opposite. And I must say that, today, I heard people
pointing to the CBO baseline as a reason to say that--evidence
of that. And I just say, that is not how the regulatory and
budget process works.
Treasury does not score tax regulations, the same way it
does not make law. We make the laws, and the Joint Committee on
Taxation scores tax legislation. And so your job is to
implement the law in accordance with the congressional intent.
And I think you have done your best to do that.
Second, the Joint Committee on Taxation is the one that,
again, provides this, not the CBO. CBO may take into account
some of the same assumptions made by Joint Tax, but they also
incorporate hundreds if not thousands of other data points.
So it is also important to note that CBO made both upward
and downward revisions in terms of the overall forecast, and
the critics only tell you about the downward revisions, which I
think is interesting.
So my sense is that the CBO downward revisions also come in
large part because companies are actually paying more in
section 965 taxes--that is the repatriation taxes--in the first
couple of years than they expected. And as a result, we gave
companies 8 years to pay it. Companies paid it more quickly
than that. So that is not a tax cut. Those are taxes already
paid.
On the GILTI, which was meant to be a guard rail in this
new territorial system, I know that you have again come under
some criticism on the way you have handled that. This is
exactly what we intended, which was that we would have the
ability to bring profits home, create that incentive--and
trillions have come back, as we talked about--but at the same
time under GILTI those companies who wanted to shift to low-tax
jurisdictions would be penalized. And that is what you have
done.
The number we used for the minimum tax in effect was 13.125
percent. And the intent of the conference report was very, very
clear on that. So critics continue to argue that your efforts
to implement that intent provided new tax cuts. I would say:
not at all. Specifically, they are saying that your new
proposed rule clarifies the connection between GILTI and the
existing subpart (f) rules providing an exception for companies
with foreign tax rates above 18.9 percent as a brand-new tax
break. That's ridiculous. Compared to our intent to exempt
companies anywhere above 13.125 percent, I would say, if
anything, your approach has been cautious, very conservative.
So I wonder if you would give us your view on that. Do you
believe you have taken a cautious and conservative approach to
this in terms of the GILTI implementation, based on the
congressional intent, the taxpayer comments, and Treasury's
regulatory authority?
Secretary Mnuchin. Our job has been to implement that part
of the tax code consistent with the intent and as prescribed by
the law, and that is what we have done.
Senator Portman. Well again, I commend you for that. I am
going to come back for a second round in a minute and give you
more chance to talk about that, and about what you have done to
faithfully implement the tax legislation.
Senator Warner?
Senator Warner. Well, thank you, Mr. Chairman. Great job on
your opening statement. [Laughter.]
Mr. Secretary, it is great to see you. I want to ask you a
couple of questions about, I think, some very good work the
Department has been doing around beneficial ownership and anti-
money laundering.
Last week, your department published the 2020 National
Strategy for Combating Terrorists and Other Elicit Financing.
And I want to--I know you have gotten a lot of criticism on
this side of the aisle, but on this I want to commend you for
putting out this strategy. I think it represents a critical
undertaking to articulate how little the U.S. Government really
knows about illicit finance risks and what are some of the
tools and some of the aspects that we need to move forward.
One of the key vulnerabilities identified in the report is
the lack of a legally binding requirement to collect beneficial
ownership at the time of company formation, a time that we
think would provide the least burdensome approach. This failure
to have this basic beneficial ownership information hinders law
enforcement's ability to swiftly investigate criminal actors,
as the report points out. But it also drives up significantly
the cost of law enforcement, in costs on both the public and
private side.
So the first question is, Mr. Secretary, do you agree that
one of our most urgent national security and regulatory
problems is that the U.S. Government still has no idea who
really controls shell companies, in many cases being used to
move billions of dollars across our economy?
Secretary Mnuchin. Well, thank you, Senator Warner. I think
this is a critical issue, and I also want to thank you because
I know you have spent a lot of time with our department on
this. And I would encourage the committee, on a bipartisan
basis, to work on legislation. I think this is critical. It is
critical not only here, but as we push forward FATF and other
policies around the world, this is a glaring hole in our own
system.
Senator Warner. Well, one of the things I would also like
to have you comment on--and I see some of the risks from my
role sitting on the Intelligence Committee--is when we see
regimes like China, Iran, North Korea, that frankly use U.S.
shell companies to hide some of their activities.
I think we have seen it a lot in terms of activities around
fentanyl production. We have seen it used--and some of our
legislation has gotten great support from the communities that
are trying to oppose sex trafficking.
Can you speak a little bit about the national security
implications, and also some of the risks that this lack of
having this information poses to our local communities?
Secretary Mnuchin. You have pointed out, there are very
significant risks. And the problem is that when someone opens
up a bank account, the beneficial ownership is kept by the
banks. But that information is not put into a centralized
database. So if we are looking at a specific entity and we want
to see who the beneficial owners are, we have no way of getting
that information other than first tracking a bank account and
then potentially pinging thousands and thousands of banks for
that.
So it is a very inefficient program, and it allows the bad
guys to hide their identities.
Senator Warner. Well, as you indicated--and I would like to
point out that both Chairman Grassley and Ranking Member Wyden
have supported efforts to crack down on anonymous shell
companies, and you were kind enough to indicate you think we
ought to be taking this up.
You may be aware that on the Banking Committee, we have a
broadly bipartisan coalition, four Democrats, four
Republicans--we named it the ILLICIT CASH Act, which would
dramatically update our AML regime and deal with this question
around beneficial ownership, we think in a way that does not
put undue burdens on businesses.
As a matter of fact, two other members of this Finance
Committee who are the ranking and chairman of the Banking
Committee, both Crapo and Brown, are both members of this
committee, and we are hoping they will move it toward a markup.
I should be smart enough to take your earlier statement
that you support this effort, but if you would like to make any
final comments on this notion of moving this legislation to the
Banking Committee--and we have worked closely with the
administration on that--I would love to hear them.
Secretary Mnuchin. Let me clarify: I very much support your
efforts on that.
Senator Warner. I will take that, Mr. Chairman, as a time
to yield back my 28 seconds that you might want to use to ask a
question. Thank you, Mr. Chairman.
Senator Portman. Thank you, Senator Warner, for your
responsible approach.
Senator Casey?
Senator Casey. Mr. Chairman, thanks very much. Mr.
Secretary, good to be with you.
I wanted to focus on one topic, the middle class, and take
you back to a meeting that you were present at, but I am sure
you may not remember, because you have had a lot of these.
We had a meeting in October of 2017. It was members of the
Finance Committee, both parties, not everyone, but most of the
committee. The President was there. You were there.
Administration officials were there talking about the tax bill.
At that time, the tax bill had not passed. It was in the
drafting stages.
I raised a question with the President about the focus of
the tax bill with regard to the middle class. And he expressed
a very positive aspiration to have the tax bill be of benefit
to the middle class. In fact, I remember him turning to you,
referring to you, I think by your first name instead of
Secretary of the Treasury, but he said we have to make sure we
focus on the middle class.
We know what happened after that. The bill passed, and we
are told--and this is just two examples of part of the middle
class--we are told by the Joint Committee on Taxation that if
you look at the 2017 tax bill and take one segment of the
middle class, which in this case is 50 million households
making under $100,000--so that is the category of people--that
those 50 million households all making under $100,000 a year
would see a tax increase or decrease, one way or the other, of
less than $9 a month in 2019. And that is from the Joint
Committee on Taxation document 10-19.
So, very little change up or down--$9 a month. Here is
another way of looking at a segment of the middle class. This
is kind of the middle of the middle, as the Tax Policy Center
goes through the quintiles. The Tax Policy Center indicated
that households earning between $48,000 and $86,000--and that
is a pretty good share of the middle class, millions of
taxpayers--got an average tax cut of about $800.
The top got a lot more, and obviously not just in terms of
dollars, but the top got a lot more, the top 1 percent got a
lot more in percentage. I do not think many people dispute
that. But the question I have is: when you track what the
President and your team, the entire administration, was saying
before the bill, after the bill, about what the impact of the
tax bill was on the middle class, and then subsequently--Larry
Kudlow was quoted on November 1st of 2019 talking about, quote,
``tax cuts 2.0'' on CNBC, saying, you know, indicating that the
intention at least, I guess, was to provide another tax cut.
Can you tell me, where is that? Is there going to be a tax
cut that is real, substantial, I hope even transformative, for
the middle class? Or are we still going to see a tax bill that
is very limited to $800, or whatever number a lot of the middle
class got?
Secretary Mnuchin. Well, I am happy to follow up and go
through all the numbers with you, but on my numbers the typical
family earning $75,000 saw their tax reduced by more than
$2,000, or what was typically by more than half. So I do not
agree with your numbers that the tax cuts were not significant
for the middle class.
Senator Casey. Well, I am just saying--let me interrupt for
one second--I think what you are disagreeing with is not me but
the Tax Policy Center. So that is fine.
Secretary Mnuchin. Well, I am looking at the Tax Cuts and
Jobs Act distribution chart. And again, I would be happy to
follow up with you and go through the specific numbers. I am
looking at Tax Policy Center numbers. We could look at other
numbers.
So I do not know which ones you are specifically looking
at.
Senator Casey. Well, I would hope--I hope that is not your
final answer. I would hope that the administration would be
focused on giving a tax cut which really improves people's
lives, not either the $9 one way or the other per month for 50
million people under $100,000. So that is one.
And then let me just finish with one reference to--I think
Senator Menendez was talking about jobs by way of comparison to
administrations. I think the data shows that, if you look at
the first 36 months under President Trump, basically February
2017 through January of this year, it is about 182,000 jobs per
month. The last 36 months of the same time period, the last 36
months of President Obama's administration, that number is
224,000 jobs per month in those 36 months. So 42,000 more jobs
under Obama, adding up to more than a million and a half more
jobs.
So I do not think there is anything wrong with the
President trying to commend the work of his administration
about job growth, but I think we ought to be clear that if he
is going to constantly compare himself to President Obama, he
ought to at least acknowledge that the last 36 months under
President Obama were stronger than his first 36 months. Maybe
month number 37 and up will be better, but I think that is what
the record shows.
Secretary Mnuchin. Well, actually the economy was not
stronger. The economy was slower. And as to jobs, when you
start with a higher unemployment rate, it is easier to create
more jobs.
Senator Casey. Well, you guys did not walk into an
unemployment rate of 10 percent, either, which President Obama
did.
Secretary Mnuchin. I am just saying--again I am looking at
a 4\1/2\ versus a 3\1/2\. Obviously, as you get down to low
unemployment rates, it is harder and harder to create jobs
without increased participation.
The Chairman. Senator Cassidy?
Senator Cassidy. Mr. Secretary, thank you for being here.
45Q is a program I am interested in to incentivize carbon
capture sequestration. Louisiana's geology is well-suited for
this, and then we have lots of industry that would therefore
benefit and, in so doing, decrease global greenhouse gas
emissions.
We keep hearing that the guidance will be expected within
weeks. But weeks pass and--what is the current timetable for
releasing this guidance? And, given the short time frame that
remains to capture the credit, can we be sure it will be
released soon?
Secretary Mnuchin. Yes, so let me just comment. And I know
there have been delays on this. I am not giving excuses. It has
been coordinated with two other departments, the Department of
Energy and EPA. I did review this as recently as yesterday.
There will be guidance that is coming out in the next few
weeks. My team has committed to that. And then there are other
regulations that were supposed to come out in April, but I told
them they needed to have them come out in March. So we are very
focused on this, and it is an important issue.
Senator Cassidy. Sounds great. Thank you.
Electric vehicles. I am sure you are aware that the
Treasury's Inspector General released an audit report in
September finding, one, taxpayers improperly claimed $72
million in EV tax credits; and two, the IRS does not have an
effective process to identify and prevent these erroneous
claims.
And these have doubled in size in that year since first
reported. You know, I always figure that electric vehicle tax
cuts are tax cuts for millionaires and billionaires, right? It
is the top 1 percent who are buying all the electric vehicles.
And the guy driving the 1974 Ford pickup truck is the one
paying in the tax credit.
So what have the IRS and Treasury done in terms of program
integrity to be able to identify, or to eliminate this problem?
Secretary Mnuchin. Well, I agree with you on the first
part, particularly people who are buying expensive Teslas. And
I was one of those people who do not need the tax credits.
I think also we have an unfair situation right now where
certain U.S. companies still have tax credits and others do
not.
But we are working with the IRS on the audit issue and what
we do to fix that.
Senator Cassidy. Would it be helpful--one, do you need any
authority from Congress, number one. And number two, it seems
as if VIN numbers would be--I am assuming there is a database
of VIN numbers somewhere out there. It seems like a simple
solution would be some sort of cross relationship. But again,
do you need any sort of authority from Congress to do any of
this?
Secretary Mnuchin. We will always take a little bit more
money from Congress to fix these things and collect taxes. But
no, we do not need any authority. But it is, unfortunately, a
complicated audit situation.
Senator Cassidy. I am also interested in the rise of e-
commerce and with the counterfeit goods that are being sold on
Amazon and other platforms that are a risk to both health and
safety.
Now related to that, these counterfeit sellers, sellers of
counterfeit goods, are less likely to pay taxes that they are
supposed to pay. Now we are approaching this in a variety of
ways, but could you tell me about any efforts Treasury is
making, perhaps in tandem with the Department of Justice, to
address the tax gap that counterfeits create?
Secretary Mnuchin. Well, let me comment on two things. The
counterfeit issue is an issue that the White House is focused
on. That is not really directly a Treasury issue. But we do
share the concerns of counterfeit goods.
I think one of the questions that needs to be considered is
the people who are selling these counterfeit goods on
marketplaces. Should the e-commerce companies bear certain
responsibility for better monitoring on this? Because this is a
real problem for consumers.
And ultimately, as it relates to the tax gap, this is one
component of the tax gap that we are very focused on--what we
can do on the tax gap overall.
Senator Cassidy. And then, can you just comment
specifically on the impact that counterfeit goods have on the
U.S. economy?
Secretary Mnuchin. It has a very big economic impact. It is
lost revenues. It is hurting companies and small businesses
that sell legitimate items. It is ripping off consumers who
think they are buying something that they are not getting.
Senator Cassidy. I appreciate your answers, and I yield
back.
The Chairman. Senator Daines?
Senator Daines. Thank you, Mr. Chairman.
Welcome to you, Mr. Secretary. I want to spend a few
moments and talk about the historically strong State of our
economy. Watching what has happened under President Trump with
Republican leadership's commitment to tax reform, cutting
burdensome regulations, this economy is booming.
And it is benefiting Montanans. It is benefiting the
American people. I am struck by the job creation number, Mr.
Secretary. Over 6.7 million jobs have been created since
President Trump was elected.
Interestingly, about 70 percent of those jobs, 4.6 million
of the 6.7 million jobs, have been created since we passed tax
reform and reached an unemployment rate of 3.6 percent, near a
50-year low.
There is a reason I left the private sector to come into
public service: it was to see outcomes, to see results, results
like this. Wages are growing for workers across the board. But
importantly, we are seeing this blue-collar boom. Low-income
Americans are experiencing the largest wage gains. And average
wage growth for workers now outpaces the wage growth for
managers. Americans are getting back to work. This is good for
Montana; it is good for our country.
Mr. Secretary, my question for you is, as you look at the
tax policies that we moved forward with, as we have seen now an
outcome that was predictable--we saw this when President
Kennedy through his leadership cut taxes, we saw it under
President Reagan through this leadership cutting taxes and
growing the economy and seeing wage growth and more jobs
created--which tax policies do you see as being some of the
most important in keeping our economy growing?
Secretary Mnuchin. I think there is no question, the change
on the corporate side to a territorial system, and encouraging
companies to bring their cash back here and build jobs here,
has been very important.
I think there is no question the pass-through deduction for
small businesses has been critical. And I think there is no
question the tax cuts for the middle class have put a lot of
money back into people's pockets that they can save or spend.
Senator Daines. So you brought up the pass-through issue. I
would like to talk a little bit about that--we call it the Main
Street tax relief. As we were having discussions back before we
passed the bill between the C corp side and the pass-through
side, or I like to call it the Main Street business side--in
Montana, 90 percent of our businesses are actually small
businesses. They would be on the pass-through side.
In fact, according to a recent Square/Gallup Survey, just
last month 69 percent of small business owners said their
businesses benefited from the 2017 tax law--69 percent. More
than seven in 10 say they reinvested over one-quarter of the
savings that resulted from the tax law back into their
businesses.
And I can tell you, that is why myself, along with Senator
Roberts, Senator Thune, and Senator Blackburn, introduced the
Main Street Tax Certainty Act, which would make that 20-percent
deduction with the Tax Cuts and Jobs Act permanent. I think it
is critical we work towards this on behalf of our small
businesses.
The question for you, Mr. Secretary, is how does making
this 20-percent deduction permanent, as the President's budget
proposes, help to increase business certainty and provide
confidence for job creators to invest and grow their
businesses?
Secretary Mnuchin. Well, as you have commented, those small
businesses are the backbone of a large part of the economy, not
just in your State but in other States. And providing that tax
relief gives those businesses more money to put back into their
businesses, to hire additional people, and to go out and make
capital investments.
Senator Daines. I want to shift gears for a moment--and I
agree with you--shift gears for a moment to talk about the
trade situation.
I have just been struck by the success you all have seen in
the last 120 days. Remarkable. I was there in the White House
with the President when he signed the historic Japan deal in
October. In fact, I had a Montana cowboy hat in the room with
me. One of my cow/calf producers, Fred Wacker, from Miles City,
was there.
It was followed then by the Phase One China deal. Followed
then by the Canada and the Mexico trade agreement. The trade
with these four countries is over $2 trillion, and if you rank
the top four trading partners in the United States, you hit
them all: one, two, three, and four.
I applaud the focus. We have made great progress on trade,
and I want to congratulate you and the team to that end. I look
forward to continuing to work with you and this administration
to hold China accountable now for these existing commitments
that have been made and to get these Phase Two negotiations
completed, as well as what you are doing here now with the UK,
with the EU, India, and other critical markets.
Let us see how many more we can get done here before the
end of the year. Thanks, Mr. Secretary.
The Chairman. Senator Brown?
Senator Brown. Thank you, Mr. Chairman.
Welcome, Mr. Secretary. I want to--I got word last night
that Jessie Liu, with whom we were going to do a hearing in
Banking for her nomination, she was inexplicably and suddenly
withdrawn for nomination by the President last night.
When did you learn the President was withdrawing the Under
Secretary of your Department?
Secretary Mnuchin. I believe it was 2 days ago.
Senator Brown. Two days ago. Can you tell me why her
nomination was withdrawn?
Secretary Mnuchin. I think you know nominations are at the
President's direction, and we do not comment when nominations--
as a matter of policy--when nominations are withdrawn, which
happens for a variety of different reasons at different times
when that is done.
Senator Brown. So you do not have any opinion or knowledge
of why she was withdrawn?
Secretary Mnuchin. Again, what I have said, as a matter of
policy, the White House----
Senator Brown. Okay, I was just going to give you a second
chance, Mr. Secretary.
Prior to her position, you may know this--or maybe you do
not, I do not know--she was U.S. Attorney for the District of
Columbia. She was involved in the cases of three of Mr. Trump's
convicted political operatives--Mr. Gates, Mr. Stone, Mr.
Flynn. Absent any plausible explanation for his withdrawal of
this nomination, even though you claim--I hope you know you are
more or less under oath--you claim to have known it for 2 days.
It appears this is another stop on the President's personal
retribution tour, an attempt to ensure that she did not come
before the Banking Committee tomorrow to answer under oath
questions about those prosecutorial decisions.
With prosecutors scaling back sentencing recommendations on
Mr. Flynn, with senior DOJ officials suddenly intervening
yesterday to reverse and make more lenient the sentencing
recommendations of career prosecutors, four of them withdrew,
one of them actually resigned--it tells us a lot.
I mean, this personal retribution, this PR tour for the
White House, this personal retribution tour the President is
engaged in started with the Prayer Breakfast of all places and
then the East Room. And then his attacks on Colonel Vindman,
mocking his accent. Senator Portman and I work a lot with the
Ukranian community, and I am proud that so many Ukranians have
called America home, leaving the Soviet regime. And he was
serving this country, and the President mocks him.
The unannounced, the surprise, unexplained withdrawal of
Jessie Liu--and I would hope you would give an explanation that
is counter to the one that everyone assumes, and that is that
she is part of the President's personal retribution tour.
So I am hopeful that either at this hearing or later you
will help us and tell us the real reason.
Mr. Chairman, I want to shift to another question that
Senator Wyden has been a leader on. I appreciate your response
to the letter I sent you last month about the international tax
regulations. Since I wrote you, the nonpartisan CBO revised its
corporate revenue projections so that over the next 10 years
they are projecting $110 billion less in revenue than
previously thought.
The report says CBO reduced its projection of the amount of
income subject to tax under certain provisions related to
international business activities. These changes, which lowered
corporate receipts, reflect the implementation of the law--they
go on. I am most interested in the regulations affecting U.S.
tax obligations of multinational corporations on their foreign
income.
Before Treasury issued these regulations, did Treasury do
any analysis of how much revenue would be lost?
Secretary Mnuchin. Treasury doesn't do analysis as part of
the regulations. But what Treasury does do is, when we update
the budget and there are specific regulations or technical
changes, we do take that into account.
Senator Brown. So did you estimate how much? Did you have
any estimate about how much revenue would be lost on those
regulations?
Secretary Mnuchin. Again, what I would say is now, having
re-analyzed those relative to the overall receipts, we do not
think there are significant material changes----
Senator Brown. Well, $110 billion is pretty significant.
And when you look at----
Secretary Mnuchin. Oh, I do not think there are hundreds of
billions, just to be clear.
Senator Brown. I did not say ``hundreds.'' I said $110
billion.
Secretary Mnuchin. I do not think there are----
Senator Brown. Well, when the President--you do know this.
When the President put out his budget Monday, after your tax
cuts about which you brag and always forget to mention this
would never happen during periods of economic growth--when the
budget deficit explodes the way it does, something that your
administration does not seem to care about--the President then
goes to Davos and announces it, and then takes it back. Then he
goes in his budget and makes huge cuts in Medicare, Social
Security, Medicaid, and all kinds of things that matter to
working-class families, while the rich in this country get
richer. And that seems to be the way this administration seems
to want to go.
Thank you.
The Chairman. Senator Cantwell?
Senator Cantwell. Mr. Treasury Secretary, we have had a
chance before to talk about the problem we have in the United
States of America with the lack of affordable housing. I
particularly wanted to ask you about the Low-Income Housing Tax
Credit.
The tax credit has two different credits: 9 percent, which
is mainly used for new construction of affordable housing; and
4 percent, which is used for new construction, mostly workforce
and rural housing rehabilitation of existing affordable
housing.
The 4-percent accounts for about 53 percent of all the
affordable housing built in the United States. The tax credit
writ large--about 90 percent of the affordable housing that is
built in the U.S. is built with the tax credit, which means if
we do not expand the capacity for the credit, we are not going
to get more supply. And we certainly have a supply problem.
So right now, the 4-percent credit is challenged, because
it is not trading at 4 percent because it is a variable rate.
Right now it is trading at 3.2 percent. So one of the things
that my colleague, Senator Young, and I have been working on is
making that 4 percent a floor on the tax credit, a fixed rate.
This would help us immediately provide more affordable
housing in the marketplace by just the value of that credit
being fixed for those making these investments and getting the
tax credit.
So could you give me some feedback on that as the Treasury
looks at this issue, and whether you would support the 4-
percent fixed rate?
Secretary Mnuchin. We would definitely be happy to work
with you on that.
Unfortunately, Senator Brown just left, but I was going to
make the comment that we do care about affordable housing, and
I am hoping--it is a different committee--that we can work on
housing finance reform, because affordable housing is a big
component of that. But we would definitely be willing to work
with you on the issue you just brought up.
Senator Cantwell. On the 4 percent? It is the easiest thing
to do right now. We would certainly appreciate the Treasury
looking at a larger investment beyond just fixing the 4
percent. We think that the supply side of the equation clearly
shows that we are not getting the job done across America, for
lots of different reasons, lots of different changes in
demographics.
It is clear that the population who does not have
affordable housing is costing us a lot of money too. It is
probably 25 percent more to deal with the same population in
emergency situations: the hospitals, shelters, you know,
incarceration.
Secretary Mnuchin. We agree with that.
Senator Cantwell. So getting this solution would be a big
boost to economies across the United States, because the rural
communities are facing just as much of a challenge as the urban
centers.
So I would like it if you could give us feedback on that as
well.
I think I am going to stop right there. Thank you, Mr.
Chairman.
The Chairman. Okay. Senator Toomey came back, so I am going
back up to the top of the list. Senator Toomey, go ahead.
Senator Toomey. Thank you very much, Mr. Chairman. Mr.
Secretary, welcome, and thank you.
Let me just say off the top, I want to say I really
appreciate the way you have consistently engaged in a dialogue
with Senators to, I guess inform the judgment of the folks at
Treasury in the implementation of our tax reform. I appreciate
that ongoing dialogue. I think it is very constructive.
Related to that point, you know one of the things that I
always thought was most constructive and pro-growth about our
tax reform was moving to enabling business to fully expense
capital expenditure in the year in which it occurs, rather than
having these various depreciation schedules depending on the
type of the asset.
As you understand very well, for peculiar reasons, we have
these expensing provisions phase out over time in the next
several years. I have introduced--actually, I will be
introducing tomorrow a bill that will make those expensing
provisions permanent and provide businesses with the assurance
that they will be able to fully expense the capital investment
that they make.
My view is that that enhances--it effectively lowers the
after-tax cost of capital. Doing that means more gets invested.
That means workers are more productive and end up getting
higher wages.
So just quickly, I think I know the answer, but are you
generally of the view that encouraging that full expensing is
good for the economy?
Secretary Mnuchin. Yes, I agree.
Senator Toomey. Okay. And related to that is the issue
which we know around here by the acronym of QIP, which stands
for the Qualified Improvement Property. So this alludes to the
technical error in the drafting of the tax reform by which
improvements--leasehold improvements for business--instead of
being able to fully expense them when they occur, because of
the drafting error, they have to be depreciated over a very,
very long period of time. And that raises the cost for anybody
making leasehold improvements.
And as you know very well, retailers especially,
restauranteurs to a very large degree, have regular needs to
make substantial leasehold improvements. And that category of
investment has, really unsurprisingly, actually had a negative
impact, while the rest of CapEx has grown.
So I know you have been supportive of this, and I just want
to ask you to continue to work with us to get this technical
fix into the tax code as soon as we can.
Secretary Mnuchin. Yes, I am just going to comment on that.
I mean, I think both Democrats and Republicans acknowledge that
that was a drafting mistake; that it was not intended to be a
policy change.
We unfortunately cannot fix that through our regulations,
and I have constantly brought this up with members on both
sides of the aisle. This should not be a Democrat or a
Republican issue. There is a segment of the economy that was
unfairly hurt by this mistake, and this is our number one
request to get a congressional fix for.
Senator Toomey. Well, I completely agree, and I appreciate
your support on this.
Then finally, I wonder if you could just--and I apologize
if you have already covered this, but if you have not, I would
love to get an update on where we are with the OECD and the
talks about tax policy. And specifically I am very concerned
about the digital services tax that some European countries are
attempting to impose as a practical matter on American
companies.
I want to commend you for your work in helping to reach
what looks to me like kind of a truce for now. The French have
agreed not to impose these taxes on us. We have agreed not to
impose tariffs on their products. I am hoping that that gives
us a moment to negotiate an agreement, but I also think it is
best if it is done with respect to the entire OECD rather than
on a strictly bilateral basis.
Anything you can share with us on the status of those
discussions?
Secretary Mnuchin. So I think, as you know, these
international tax issues are probably the most complex issues
there are. But the President has been very clear that we think
that the digital service tax is an unfair attack on U.S.
companies, and discriminates. And he has been personally
involved in this, with discussions with President Macron and
others.
As a result of his involvement, we have reached what I call
a truce with France where they will not be collecting this this
year, while we continue at the OECD. The good news is that the
UK also will not be collecting it this year. And I think all
these countries have agreed, if we have an OECD solution, they
will replace the DST with the OECD's solution.
So we are actively working on that, and that is a priority
for us for the balance of this year.
Senator Toomey. Thank you very much. Thank you, Mr.
Chairman.
The Chairman. Senator Whitehouse?
Senator Whitehouse. Thank you, Mr. Mnuchin. Let me add to
the bipartisan chorus of urging you to get 45Q done. It has
taken 2 years, which I think is inexcusable. Somebody has done
a rather poor job of quarterbacking that within your
organization, but I am glad you say it will be done in a few
weeks. Please--did you hear us?
Secretary Mnuchin. It will, I assure you. And there is no
excuse for why it has taken as long as it has. So I assure you
it will be done.
Senator Whitehouse. Thank you. So on another issue where we
agree is incorporation transparency and the problem of the
shell corporations that bedevil so many American interests.
At the moment, we probably have two Republican votes for
the Judiciary version of the incorporation transparency bill.
And I do not know that we have any from the Banking Committee.
So your people and your administration need to make a bigger
effort politically to emphasize the national security and
economic security prerogatives behind your support of the
incorporation transparency legislation because, at the moment,
it is jammed up.
I think it is jammed up because there are a lot of slippery
interests that make a lot of money off of this rather creepy
shell corporation international crookedness clyptocracy
economy. And they are working through lobby groups to try to
jam this up.
I hope you agree with me that they ought not to succeed.
But I want you to know that they are going to succeed unless
this administration makes it quite clear that this is a bill
that the President really wants to pass, that this is important
to our national and financial security.
So I offer you that heads-up, and I hope you act on it.
I have been in contact with the Banking Committee about a
set of economic warnings that are out there, and I will give
you a copy of the letter that I wrote to Chairman Crapo and
Ranking Member Brown. But I want to take a minute and read you
some parts of it.
It was prefigured by a December letter that I wrote based
off the warnings about a coastal property values crash that
have come from a number of sources, but in particular Freddie
Mac--a fairly credible source for a warning like that--and of a
carbon asset bubble crash led primarily by the Bank of England.
As you know, they have been at this for quite some time.
There are now over 30 sovereign and central banks echoing
those warnings. So between December 2nd when I sent the first
letter, and February 6th when I sent this one, the Bank for
International Settlements came out with a very significant
warning that the physical and transition risks associated with
climate change would affect the stability of the financial
sector and could be irremediable by ordinary methods. The
impacts could be so great as to--here is their language--``make
quantifying financial damages impossible,'' that the effects
would be, and I quote them again, ``catastrophic and
irreversible; that these climate-related risks will remain
largely unhedgeable as long as system-wide action is not
undertaken.'' And it emphasizes that this is a systemic
financial risk.
The words ``systemic financial risk'' mean something fairly
significant, do they not? They do. And it is a severe warning,
is it not, the warning of systemic financial risk? Is it or is
it not a severe financial warning of a systemic financial risk?
Secretary Mnuchin. I am not following what the question is.
So I understand, obviously, what systemic risk is.
Senator Whitehouse. And it is serious?
Secretary Mnuchin. Systemic risk, by definition, is
serious.
Senator Whitehouse. Thank you. That is all I needed to
hear.
Then we went on in that same time period to the BlackRock
letter in which CEO Larry Fink wrote, ``Climate change has
become a defining factor in companies' long-term prospects;
that we are on the edge of a fundamental reshaping of finance,
compelling investors to reassess core assumptions. And that in
the near future, and sooner than most anticipate, there will be
a significant reallocation of capital.''
That is another pretty ominous phrase, is it not?
Secretary Mnuchin. That is his opinion. I do not take it as
an ominous phrase, but, yes----
Senator Whitehouse. Well, it will be interesting to see. It
goes on, ``McKinsey recently warned that climate change could
make long-duration borrowing unavailable, impact insurance
costs and availability, reduce terminal values, and trigger
capital reallocation and asset repricing.''
The World Economic Forum put out its Global Risks Report in
the same month, listing the top five most likely risks facing
the world over the next 10 years, and all five were climate-
related risks.
And last--sorry, Mr. Chairman--last, the Stanford Graduate
School of Business report of January noted again that the
financial risks from climate change are systemic, singular in
nature, and that global economic losses from climate change
could reach $23 trillion, three or four times the scale of the
2008 financial crisis.
My question to you is, have you ever heard so many and such
severe warnings from so many, and such respected sources, about
a looming risk of economic crash, ever?
Secretary Mnuchin. Well, let me just say, every time
everybody agrees on financial risks, sometimes they turn out
not to be the case. And when people do not see them, it is the
worst you can expect.
There was a lot of discussion on this issue when I was at
Davos. I will say it is something that, both on an
international basis and at the FSOC, we continue to talk about
and monitor.
I think one of the big questions is, how does technology
change over the next 20 years? And what is the cost of carbon
recapture? There are a lot of very extremely interesting
potential technologies that will reduce the cost of carbon
recapture quite dramatically.
The Chairman. Before I call on Senator Sasse, I want to
say, since I am a partner with Senator Whitehouse on beneficial
ownership, I want to thank you for your support, and I hope you
can talk loudly about it, because we have to overcome a lot of
special interests to get that thing passed.
Senator Sasse?
Senator Sasse. Thank you, Mr. Chairman. Thank you, Mr.
Secretary, for being here.
Let us talk about China a little bit. We had Chairman
Powell at the Banking Committee this morning. And when he was
asked a series of questions about the coronavirus, he said that
it was--not quoting here but paraphrasing--that it was too
early to tell if the public health event would materially
change China's economic relationship with the rest of the
world.
So I have two questions about that for you. The first is,
do you agree that it is too early to tell what the impacts of
coronavirus are going to be? But more significantly, what kind
of data would the Treasury Department be looking for to see the
earliest signs of whether or not China may be undergoing some
sort of changed relationship with the rest of the world?
Obviously, it is going to overlap with a bunch of trade
questions we should explore.
Secretary Mnuchin. Well, let me just say, Chair Powell and
I have spoken about this recently, and I think we both share
similar views.
So any time you are modeling something like this, you have
to start with what the impact is of the virus and the way it is
spreading. I think on the one hand, there are certain aspects
of it that are much more concerning than SARS. On the other
hand, I think China started dealing with this much earlier.
So I think that the scientific data--when we have another 2
to 4 weeks' worth of data, we will have a much better ability
to extrapolate this. There is no question it is having a
significant impact in China. To what extent the virus spreads,
the rate it spreads, is something we are obviously monitoring
very carefully. And to have the economic impacts of this, I
think we need another 3 to 4 weeks of data to be able to
extrapolate in a more specific way.
Senator Sasse. Thanks. And I appreciate your point that
they have tackled this earlier than SARS. But we should just
have a shared understanding in this room and in the broader USG
context that this disease, 9-ish weeks old, got no attention
for over 5 weeks from the Chinese Communist Party because they
have this myth that Chairman Xi can preside over China. I think
their language at their most recent party conference was,
``from east to west, from north to south, across all sectors of
the economy, he is functionally all-knowing.''
Well, if you believe that kind of BS, then obviously you
would need to hide the emergence of a global pandemic, because
1.4 billion Chinese, 90 million members of the communist
party--and as he consolidates more and more power at the top,
this myth that he is able to centrally plan everything that
happens in their civilization means if you have something
horrible, a natural disaster like a disease, the Communist
Party essentially becomes a great incubator to spread that
disease by lying to your people about the competence of the
leadership.
So they may have addressed it faster than SARS. They still
addressed it way too late, and there are people both in China
and beyond dying because of the malfeasance and
maladministration of the Communist Party.
Could you distinguish a little bit between what you see as
the victories of Phase One on the China deal that are real, and
what you hope could be the most front-end, realizable goals in
the Phase Two agreement and how you see that timeline, please?
Secretary Mnuchin. Well, I think the Phase One agreement is
quite significant. It is the first time that there have been
serious commitments. It is everything from the forced
technology issue, patent protection, agricultural structural
issues, financial services issues, currency provisions, and a
real enforcement provision.
So I think they are quite significant. Obviously, our
biggest focus is implementing Phase One. That to a certain
extent has slowed down, given the virus, as expected. And I
think Phase Two--the good news is Ambassador Lighthizer and I
have the entire Phase Two chapters dealt with, and we have said
we may roll them out as Phase Two A, B, C, D. It does not
necessarily have to be a big bang. But we know what we want to
get in Phase Two.
Senator Sasse. When you say you have those chapters dealt
with, have you looked at Phase Two A, or whatever the piece
that is the earliest batch--what is the earliest and the worst
case scenario time line you envision?
Secretary Mnuchin. We really have not determined that. I
mean, the President has been very clear he wants us to execute
on Phase One. He wants us to make sure as we move to Phase Two
we get what we need to get and does not want to set arbitrary
timelines.
So I think, as you know, the President kept significant
tariffs on to create an incentive for them to do Phase Two, and
those will not be reduced until we do that.
Senator Sasse. Thanks. You mentioned that there have been
real commitments about IP theft and forced technology transfer
in Phase One.
I want to start by saying I have a lot of skepticism of
whether or not the Chinese Government will keep their
commitments. But I applaud the President for having been one of
the first people to push on the fact that China has been a bad
actor and that we needed to shine a brighter spotlight on them.
So I applaud the President for having done that. But it is
also the case that they have made pledges many, many times in
the past about IP and technology that they have not kept their
word on. Have you seen personally any evidence of things like
Chinese ownership for past wrongdoings?
So the Equifax indictments that were announced by the
Department of Justice and the Attorney General this week,
really great stuff, that more than one-third of--great news
that they had been, that they are being indicted. The event
itself is horrific, the 2017 hack of Equifax that led to the
personally identifiable financial information of more than a
third of Americans being stolen. It is great that the Attorney
General and the Justice Department are focused on that, but in
any of your dealings with them, as you have these conversations
about getting honest and getting real about IP, intellectual
property, more broadly in the future, do they ever own any of
their past wrongdoing?
Secretary Mnuchin. Well, let me just comment. Obviously the
Equifax thing, which is obviously quite concerning--and that is
a law enforcement issue, so we have not had specific
discussions with them around Equifax.
I will say that, as it relates to specific technology
things, I think there is a legitimate interest internally in
China by a large group of their area, that they want to put
these protections in place, because they realize their economy
cannot move forward without them.
Now as you said, there have been commitments they have made
in the past that they have not honored. The difference here is,
this agreement has real enforcement provisions built into it.
Senator Sasse. I am at the kids' table, and I recognize you
see me as the most junior member, basically behind your
shoulder here. I do not want to upset the Chairman----
The Chairman. You are not so junior. You get the same 5
minutes everybody else gets.
Senator Sasse. That is a good way of pointing out to me
that the clock is ticking at 6\1/2\ minutes. I will follow up
with you separately about some other IP issues.
The Chairman. Senator Young?
Senator Young. Thank you, Mr. Chairman. Thank you, Mr.
Secretary, for your service and for being here today as well.
Since tax reform, our economy has absolutely been roaring.
It has really been encouraging. We have been able to sustain,
along with regulatory reform and implementation of USMCA
forthcoming, the longest period of economic expansion in
American history.
And I know folks back home in my State are really enjoying
the fruits of our prosperity. Since tax reform, real disposable
personal income for an average household in the State of
Indiana has risen around $6,000. Moreover, average hourly
earnings have grown at a rate of 3 percent or higher for 16
consecutive months, with the largest wage gains concentrated in
the bottom quarter of the wage scale.
So that is something I will continue to tout, and I commend
you and your Department for your hard work to help effect this
change.
As you know, Mr. Secretary, there are skeptics still,
despite these hard numbers, of the Tax Cuts and Jobs Act, who
are trying to draw attention away from our outstanding economic
results and push concerns of stagnant wages, and I just want to
give you an opportunity to sort of respond to this narrative we
hear out there and elaborate on how changes in investment
behavior matter for ordinary Americans like those I just
described.
Secretary Mnuchin. Well, thank you. I think there is no
question we think that the tax cuts are having a real impact on
the economy, and a real impact on wages, as you have pointed
out--and that the average American is seeing real economic
gains.
Senator Young. That about says it. Well, thank you.
And as you continue to implement the Tax Cuts and Jobs Act,
I stand ready, this committee stands ready, to help you and
also to help our taxpayers navigate the new changes and make
sure that businesses and individuals alike have the necessary
guidance.
So I would like to turn to a distinct topic, but a really
important one, and it is the emergence of cryptocurrency and
the challenges that creates for the U.S. Government in various
ways.
So these technological advancements and the increasingly
interconnectedness of our world financial institutions are
addressed in the President's budget. In fact, he proposes to
move the Secret Service back to Treasury to create new
efficiencies. And recently, the IRS has increased enforcement
and released additional guidance related to crypto.
Proponents of crypto believe it can benefit the everyday
consumer by lowering transaction costs for online purchases,
increasing protection from identity theft, and breaking down
various financial barriers.
How does your Department, Mr. Secretary, plan to respond to
this rapidly evolving technology of cryptocurrency and other
digital assets?
Secretary Mnuchin. Well, thank you. And as you have
commented, we are very supportive of bringing the Secret
Service back home to the Treasury where it started, and the
efficiencies of having it together.
We are spending a lot of time on the issue of
cryptocurrencies and digital payment systems. It is a crucial
area. And there are a lot of different things that get grouped
together into this one area. So let me just be brief.
But on pure cryptocurrencies like Bitcoin--and there are
others--we want to make sure that these are not used as the
equivalent of secret bank accounts. So we are working with
FinCEN, and we will be rolling out new regulations to be very
clear on greater transparency so that law enforcement can see
where the money is going and that this is not used for money
laundering.
There is another component of the market, which people
refer to as ``stablecoins,'' where we do think technology can
be used to reduce payment processing quite considerably,
particularly for small-dollar payments cross-border.
And then there is a third component that people are looking
at, which is Central Bank issued currency. That is something
that Chair Powell and I do not think the U.S. needs to consider
now but could consider again down the road.
Senator Young. You preempted my follow-up question there as
it relates to central bankers. There is a concern that they
could use these virtual currencies to operate outside of the
current international financial system, right?
Well, as the Department stands ready to begin working on
that, I look forward to engaging with you on that issue. So
thank you so much. I yield back my 5 seconds.
Senator Wyden [presiding]. All right. Mr. Secretary, here
is where we are. The chairman had to be out of the room for a
couple of minutes, so Senator Thune is going to ask his
questions. I have one additional area I want to explore with
you that should be quick. I appreciate your patience, and we
will recognize Senator Thune. And I think the chairman will be
back.
Senator Thune. Thank you, Mr. Chairman. And thank you,
Secretary Mnuchin, for being here today.
As has already been pointed out, in the 2 years since tax
reform has passed we have seen, and continue to see, the
benefits of that. Last week's jobs number was great, another
225,000 jobs created. And probably most importantly of all is
just the annual hourly wage growth that we have seen that has
been north of 3 percent again for 18 months now in a row. And
unemployment is at 4 percent or under for 23 months in a row.
So these are not blips on the radar. These mark sustained
progress and a fundamental shift in the trajectory of the
economy in an era where lackluster growth is no longer the new
normal.
And so we believe the policies are working, and we want to
continue to make life better for American workers. And I hope
that our friends across the aisle will put partisanship aside
and join us in creating even more opportunities for American
workers. And one way to start, of course, would be to very
thoughtfully engage on some proposals that you have put before
us today.
And before I get to my question, I want to mention too, to
thank you for your efforts to thread the needle on the 199A
regulations and ensure that the ``grain glitch'' deal that we
struck with stakeholders is clearly reflected in those
regulations. So thank you for your attention to that.
The President's fiscal 2021 budget once again seeks to
improve clarity in worker classification, an issue particularly
important in today's gig economy. And as you know, I have
introduced legislation that would help develop clarity
surrounding the tax treatment of this new generation of
workers. And the administration's proposal includes many
elements of this legislation.
The bill, the New Economy, works to guarantee independence
and growth, and the NEW GIG Act addresses the classification of
workers--independent contractors versus employees--and creates
a worker safe harbor based on a set of objective tests. The NEW
GIG Act also modernizes information reporting requirements and
provides for voluntary withholding by independent contractors.
Mr. Secretary, do you agree that one way we can address the
tax gap is by updating our tax reporting laws to ensure that
the IRS has the information it needs to enforce our tax laws
while also respecting the traditional distinction between
employees and independent contractors?
Secretary Mnuchin. Yes.
Senator Thune. So this is a follow-up to that. How
important is it, in your mind, that Congress modernize the tax
code to respond to the changing nature of our economy and the
evolving nature of how goods and services are increasingly
provided?
Secretary Mnuchin. We look forward to working with you. We
think it is a significant issue.
Senator Thune. Good. Okay. We hope so. We would like to see
this change get made and get enacted.
In a post-Wayfair world, there remains a potential for
discriminatory and duplicative taxes on digital goods and
services such as online downloads of music and cloud computing
services. And while my home State of South Dakota was careful
in the way it crafted its sales tax law, the potential for
multiple and discriminatory taxes levied on these types of
goods and services could threaten the growth and innovation of
this important sector of the economy, something that I have
worked with Ranking Member Wyden on in the past.
And we have introduced the Digital Goods and Services Tax
Fairness Act, a bill which would provide some rules of the
road, if you will, for taxing digital goods and services, and
it establishes a framework across multiple tax jurisdictions.
Mr. Secretary, do you agree that more certainty on these
and other interstate commerce issues is needed after the
Wayfair decision?
Secretary Mnuchin. We look forward to working with you on
that as well.
Senator Thune. Well, we are going to give you that
opportunity. We are going to have a hearing on that really soon
in the Commerce Committee.
The last thing I will say is, we appreciate the work that
you did last year to implement changes to Treasury guidance for
high-
deductible plans used with HSAs. The inclusion of chronic
disease management as preventive care is an important step in
helping patients with conditions like diabetes or asthma better
manage their health, and I look forward to continuing to work
with you on that.
And we have one other issue that is related to that. I have
a bill called The PHIT Act, and it would allow HSA dollars to
be used toward expenses related to physical activity. And I
think that is something that is on the preventive side that we
can do that would really help in the curve when it comes to
reducing health-care costs.
And I would just simply ask you, in response, would you
commit to working with me and my staff on ways that we can
address that issue through legislation, or through further
administrative fixes?
Secretary Mnuchin. We will; thank you.
Senator Thune. Great. That was easy. I got all my questions
answered.
Mr. Chairman, I yield back.
Senator Wyden. Thank you, Senator Thune.
One additional area, Mr. Secretary. Senator Menendez and I
both asked you about whether the Treasury Department was being
tough enough on sanction violators. And Senator Menendez asked
if sanctions decisions would be free from political
considerations, and you simply said, ``no.''
Now President Trump has one of his Trump Towers in
Istanbul, and senior Halkbank officials have offices there. In
a letter that your office sent to me in November--and I am
going to put that into the record now.
[The letter appears in the appendix on p. 63.]
Senator Wyden. You said that when President Erdogan asked
Trump to go easy on Turkey, President Trump referred Erdogan's
request to you.
So my question to you is, did President Trump ask you to
intervene and assist with Turkey's sanctions' violation?
Secretary Mnuchin. So I want to just clarify one thing on
the first part. When the question was asked about political, I
was using the word ``political'' and ``policy''
interchangeably. So I just want to be clear in my response, I
was not differentiating. And perhaps policy was the right
response, and not political.
As it relates to--and again, I want to be careful about how
I respond to this, because this is subject to ongoing law
enforcement with both OFAC and with the Department of Justice.
The reason why the President referred Halkbank to me and to DOJ
was because there were ongoing issues, and the portion of the
OFAC fell under my responsibility. That was the reason why it
was referred to me.
Senator Wyden. So my question is, did President Trump ask
you to intervene and assist Turkey with their sanctions
violations?
Secretary Mnuchin. He didn't ask me to intervene. What he
asked me to do was to--again, he knew that I was responsible
for overseeing the OFAC provision of it, okay? And again, I
can't go into the specifics of the investigation. Again, this
was a violation--sanctions violation, as you're aware of--as it
relates to Halkbank.
And it would not be irregular for us to talk to government
officials, specifically where there are areas under my
responsibility.
Senator Wyden. Well, you told me that there were seven
meetings. Now I know enough, having served on the committee,
the Treasury Secretary is a pretty busy fellow. Seven meetings?
What happened in these meetings?
Secretary Mnuchin. Well, I just want to say, my calendar is
public. So there is no surprise. I assume the seven number is
correct. But again----
Senator Wyden. That is what you told me.
Secretary Mnuchin. But again, I meet with finance
ministers. I meet with world leaders with the President on a
constant basis. So, many of these discussions had nothing to do
with sanctions issues, or Halkbank issues, whatsoever. They had
to do with financial issues--we were having trade discussions
with Turkey. We were having discussions around foreign policy
issues. We were also having other foreign policy discussions.
So again, these are not--I do not want to in any way imply
that these were all Halkbank discussions, whatsoever. Almost in
every G20 we have been at, we have met with Turkey on a regular
basis, on a bilateral basis.
Senator Wyden. Okay; we will leave it at that for now. Some
meetings were about Halkbank and some were about other matters,
based on your last answer.
Thank you, Mr. Secretary, for your testimony today on the
President's fiscal year 2021 budget. We are going to ask
members on both sides of the aisle--I think the staff knows--to
submit any written questions for the record by close of
business on Wednesday, February 26th.
And with that, the hearing is adjourned.
Secretary Mnuchin. Thank you, very much.
[Whereupon, at 3:19 p.m., the hearing was concluded.]
A P P E N D I X
Additional Material Submitted for the Record
----------
Prepared Statement of Hon. Chuck Grassley,
a U.S. Senator From Iowa
We are pleased to have Treasury Secretary Mnuchin here today to
testify on the President's Fiscal Year 2021 budget proposal.
The President's budget includes proposals to confront a number of
important policy issues. I look forward to working with the President,
the Secretary, and others in the Congress to address these and other
pressing issues in the committee's jurisdiction. Drug pricing and the
multiemployer pension crisis are two such issues.
This budget proposal comes at a time when the economy is strong,
especially for working American families. Better trade deals, less
regulation, and lower taxes from tax reform have translated into wage
increases, especially for lower-wage earners, and historically tight
labor markets.
Over 6.7 million jobs have been created since President Trump was
elected, with nearly 70 percent of the job gains occurring since we
passed the Tax Cuts and Jobs Act. Unemployment has fallen to a 50-year
low. We've had 23 consecutive months with the unemployment rate at or
below 4 percent, the longest streak in nearly 5 decades. Unemployment
for Hispanic and for African American workers has set all-time record
lows. America's middle class is growing, and families are benefiting,
with a family of four earning $73,000 seeing their tax bill cut by over
$2,000 after tax reform.
Statistics like these show that tax reform is a success. The
Treasury Department's work to implement the new tax law as we intended
has been an important part of that success. We appreciate the diligence
and dedication Treasury and IRS have maintained over the last 18 months
to release extensive guidance necessary for hardworking Americans and
the business community to file their tax returns.
Despite Treasury's steadfast efforts, however, the critics have
continued their assault on the Department for doing its job--criticism
that is unfounded.
While Treasury plays an integral role when any major tax
legislation is enacted, the heavy lifting occurs when the new
legislation is implemented. Treasury is following the same process set
out in the Administrative Procedures Act that has occurred after
enactment of other tax legislation, like the Affordable Care Act.
Critics continuously use preliminary and incomplete data to distort
the effects of tax reform to support their political narrative. Their
focus on revised CBO projections of corporate tax receipts is just the
latest installment, as I discussed in my statement yesterday on the
Senate floor.
Similarly, we all recall the misinformation campaign in last year's
filing season when critics tried to persuade the public that tax reform
was a failure because early tax refunds were down. Of course, they
conveniently ignored that the size of a tax refund says nothing about
the tax liability of an individual or family. In the end, the criticism
proved to be flat-out wrong. Americans got tax relief, and the average
size and number of refunds ended up being closely in line with previous
years.
I'm hopeful that we can avoid similar scare tactics in this year's
filing season. Nothing the critics can say will refute the fact that
every income group in every State saw a tax cut under tax reform, or
the fact that this is particularly true for low- and middle-income
families. Instead, I hope we can work together on policies that will
benefit all Americans, including some in the President's budget
proposal.
We have a solid foundation of bipartisan accomplishments in recent
months, including the SECURE Act, the Taxpayer First Act, and the USMCA
trade deal. And, after extensive negotiations, we came together to
extend a number of temporary bipartisan tax provisions. I wish more
could have been done to resolve them once and for all, as we did in
repealing three onerous Affordable Care Act health taxes. But hopefully
our efforts in December can lead us to success in future discussions on
the expiring provisions that are coming up at the end of this year.
I'm also encouraged by the progress that has been made at the OECD
to reach a multilateral global tax agreement on the digital economy.
Senator Wyden and I have remained united and bipartisan in our message
that unilateral measures that discriminate against American companies
cannot be tolerated, and we continue to support Treasury in these
negotiations.
As this year progresses, we should build upon these past successes
to make sure Treasury and our tax laws are working for the American
people.
I've seen administration budget proposals from Republican and
Democrat Presidents alike. No matter which party controls the White
House, members won't support everything that they see. As a matter of
fact, one of former President Obama's last budgets was defeated on a
99-0 vote.
As I've said before, in our system, the President proposes and the
Congress disposes. Even so, today's hearing is part of the important
process of looking for things that people on both sides can agree on to
support the American people in the most fiscally responsible way.
______
DEPARTMENT OF THE TREASURY
Washington, DC 20220
assistant secretary
February 11, 2020
The Honorable Ron Wyden
U.S. Senate
Washington, DC 20510
Dear Senator Wyden:
I am writing as a follow-up to the Department of the Treasury's January
10, 2020 response to your December 5, 2019 letter. A recent public
statement attributed to your office indicates you may have overlooked
our response, which explained how the Department accommodates
congressional requests for information collected and maintained by
Treasury's Financial Crimes Enforcement Network (FinCEN), including
Suspicious Activity Reports (SARs).
Treasury takes very seriously the obligation to protect the
confidentiality of information collected and maintained by FinCEN
pursuant to the Bank Secrecy Act (BSA), particularly SARs. Disclosure
of such information is limited to the circumstances prescribed by
statute and regulation. The applicable regulations provide that the
Secretary of the Treasury may ``within his discretion'' disclose this
information ``for any reason consistent with the purposes'' of the BSA.
In addition, the regulations explicitly authorize the disclosure of
such information in response to a written congressional request that
meets certain specifications.
As our prior letter explained, Treasury does not process congressional
requests for FinCEN records on a partisan basis. Over the past year,
the Department has provided FinCEN records in response to requests from
both sides of the aisle. Most of those productions have been in
response to requests made or joined by Democratic members. Due to the
sensitivity of FinCEN records, it would be inappropriate to comment
further on these productions.
The recent statement attributed to your office also appears to
reference congressional requests for confidential tax returns and other
return information. Disclosure of tax returns and return information is
generally prohibited under the stringent protections of 26 U.S.C.
Sec. 6103, subject to a carefully delineated list of statutory
exceptions. Treasury takes its obligations to protect taxpayer
confidentiality seriously, and accordingly takes care to ensure that
returns and return information are not disclosed unless one of these
statutory exceptions is available.
Sincerely,
Brian T. McGuire
cc: The Honorable Charles E. Grassley
______
Prepared Statement of Hon. Steven T. Mnuchin,
Secretary, Department of the Treasury
Chairman Grassley, Ranking Member Wyden, and members of the committee,
I am pleased to be with you today to discuss the President's Fiscal
Year (FY) 2021 budget and the Treasury Department's top priorities.
President Trump's economic freedom agenda is working. Tax cuts,
regulatory reform, and better trade deals are improving the lives of
hardworking Americans. Unemployment remains historically low at 3.6
percent and is at or near all-time lows for African Americans, Hispanic
Americans, and veterans. The unemployment rate for women recently
reached its lowest point in nearly 70 years. Before President Trump
came into office, experts were predicting that we would only grow by
14,000 jobs per month in 2019.\1\ We averaged 175,000 jobs per
month.\2\
---------------------------------------------------------------------------
\1\ Congressional Budget Office (August 2016). ``An Update to the
Budget and Economic Outlook: 2016 to 2026.''
\2\ Bureau of Labor Statistics (February 7, 2020). ``The Employment
Situation--January 2019.''
Wages for non-supervisory workers rose by 3.2 percent in 2019, compared
to 3.0 percent for all private-sector employees, which means that wages
rose faster for workers than they did for their bosses.\3\ The improved
employment environment means that more Americans have returned to the
job market, increasing labor participation. Last month's labor force
participation rate among prime-age adults reached 83.1 percent--an 11-
year high.\4\
---------------------------------------------------------------------------
\3\ Ibid.
\4\ Ibid.
American families are earning more each year and--thanks to the Tax
Cuts and Jobs Act--paying significantly lower taxes. They also have
---------------------------------------------------------------------------
more career opportunities now than ever before.
America's economic strength and competitiveness is a bright spot in the
world as other nations experience headwinds. In the year to come, we
expect even greater economic growth in the United States as we finalize
trade deals with some of our most important trading partners. The Phase
One deal with China will result in critical, enforceable protections
for our businesses and a tremendous boost for our farmers.
The USMCA will further add to our success by setting some of the
highest standards ever included in a trade agreement. We are proud to
have earned the support of a broad coalition of industries, including
manufacturing and agriculture, as well as labor. We are pleased that it
passed Congress with strong bipartisan support. I particularly want to
thank many members of this committee for their work on this important
issue.
In addition to improving our business environment, President Trump's
economic policies will result in economic growth that will reduce our
national debt and deficits over time. Federal Government revenue
increased by 4 percent from FY 2018 to FY 2019.\5\ Unfortunately, in
order to secure critical funding to rebuild the military, Democratic
members of Congress insisted on increasing other government spending,
which resulted in spending growth of 8 percent from FY 2018 to FY
2019.\6\ The administration is committed to working with members from
both sides of the aisle to address spending going forward.
---------------------------------------------------------------------------
\5\ Bureau of Fiscal Service (October 2019). ``Final Monthly
Treasury Statement.''
\6\ Ibid.
The President's FY 2021 budget for the Treasury Department makes clear
that we continue to prioritize economic growth as well as our critical
role in national security matters. Of particular interest to this
committee, we are requesting $12 billion for the Internal Revenue
Service (IRS). This includes funding to implement the Taxpayer First
Act and the third year of the Integrated Business Systems Modernization
Plan. We continue to bring the IRS into the 21st century by updating
systems and utilizing data analytics and other technological
advancements to enhance the effectiveness of audit enforcement
activities. We are requesting a program integrity cap adjustment to
reduce the tax gap, with net savings of $64 billion over 10 years. We
also remain focused on improving customer service for taxpayers by
reducing call and wait times and enhancing the IRS's online service
---------------------------------------------------------------------------
capabilities.
I am pleased to join you today to discuss ways for us to work together
to make our economy even stronger by creating more jobs and higher
wages for hardworking Americans. Thank you very much, and I look
forward to answering your questions.
______
Questions Submitted for the Record to Hon. Steven T. Mnuchin
Questions Submitted by Hon. Chuck Grassley
Question. As you know, last year Senator Scott and I introduced a
bipartisan Opportunity Zones reporting bill called the IMPACT Act. The
bill, in part, directs Treasury to make publicly available a report
that tracks various outcomes and economic indicators.
If enacted, can we count on the Treasury Department to provide the
information required in the IMPACT Act to both guard against abuse as
well as track the success of the Opportunity Zones program?
Answer. If enacted, Treasury will work to report any information
required by the Improving Medicare Post-Acute Care Transformation Act
(IMPACT) Act. In its current form, though, several items in the bill
may provide challenges to data collection and reporting, and we would
be pleased to work with your staff on those issues (which are
summarized below).
First, in section 3(a), the bill requires that qualified
opportunity funds (QOFs) must annually report information about
investments. Included among the data items requested are the following:
``the approximate number of residential units (if any) for real
property held by such corporation or partnership'' and the ``average
monthly number of full-time equivalent employees of such corporation or
partnership for the year.'' Both measures are of characteristics of
businesses that were attractive investment opportunities for QOFs.
Treasury believes that total residential units and employment
statistics are better measured at a longer time interval, and over a
wider area. Note that looking specifically at businesses that receive
funding will overestimate the effect of the opportunity zone incentive
if those businesses attract employees that would have otherwise worked
at another job in the area, and will underestimate the effect of the
incentive if other businesses are able to expand as a result of the
incentive. Similarly, the construction of residential units may be
funded through opportunity zones QOFs, but the total affordable housing
in the greater community may not change by the same amount.
Second, the public reporting of information as described in section
3(b) would require substantial masking of tax data to ensure compliance
with section 6103 of the Internal Revenue Code taxpayer protections.
Without legislating a waiver of section 6103 protections, data from
many census tracts and industries will require such censoring.
Treasury appreciates the changes made in 3(b)(3)(B) in response to
our prior conversations about data aggregation and reporting. A 5-year
window will indeed provide a much clearer picture of local economies
due to data availability.
Question. Despite the positive economic growth and record-low
unemployment numbers I mentioned in my opening statement, some have
argued that the tax cuts aren't benefiting workers and the middle
class.
However, according to the White House Council of Economic Advisors,
net worth of households has increased 12.1 percent (more than $12
trillion) during the first 11 quarters of the Trump Administration--
more than any other president's first 11 quarters in office since this
data was reported.
Importantly, the net worth of the bottom 50 percent of households
has increased by 47 percent--more than three times the rate of increase
for the top 1 percent of households.
Clearly there's more to be done, especially on policies that will
encourage wage growth and discourage wealth inequality. But, Mr.
Secretary, wouldn't you agree that workers and the middle class are
benefiting from tax reform?
Answer. Workers and the middle class are absolutely benefiting from
the administration's tax reform. After the passage of the Tax Cuts and
Jobs Act (TCJA), real wages \1\ grew by 1.5 percent per year, compared
to the average from 2009 through 2016 of 0.6 percent. If we restrict
our focus to wages for production and nonsupervisory workers--
reflective of the middle and working class--the numbers are 1.7 percent
for the post-TCJA period, and 0.6 percent for the previous
administration. These numbers reflect wage growth that is over 2\1/2\
times as strong after the passage of the TCJA. This wage growth wasn't
mandated in the TCJA; instead it was a result of powerful growth
incentives in the TCJA causing a labor market as strong as any seen
since the 1960s, as measured by the unemployment rate.
---------------------------------------------------------------------------
\1\ Average hourly earnings deflated by personal consumption
expenditure prices.
Moreover, the TCJA's strong supply-side incentives are designed to
encourage investment and thereby boost wages far into the future.
Beyond reductions in the statutory rate for large corporations, changes
include providing owners of smaller, unincorporated businesses with a
20-percent tax deduction, scheduled to expire in 2026, which helps them
compete with large corporations. Further, the 2017 Act provided full
expensing for equipment investment through 2022. By encouraging capital
deepening, all these measures will improve labor productivity, and thus
---------------------------------------------------------------------------
increase wages, for years to come.
Workers also benefited from individual tax reform. Council of
Economic Advisors (CEA) has estimated the average household experienced
increased income worth $4,000 as a result of the law. For tax year
2018, Tax Policy Center estimated that 65 percent of households had
lower individual income tax burdens as a result of TCJA, while only 6
percent, mostly upper-income households, had higher burdens. The 15-
percent rate paid by many working and middle-class families was cut by
20 percent, whereas the top tax rate paid by the richest families was
cut by 7 percent and the second-highest tax rate was not cut at all.
Question. Mr. Secretary, the budget calls for a $400-million cap
adjustment for IRS tax enforcement programs.
I know that IRS Commissioner Rettig has stated publicly that the
IRS will be ramping up enforcement of the tax code with regard to
suspected tax evasion techniques, such as syndicated conservation
easements.
How does such an increase in the budget help with tax enforcement,
especially with regard to enforcement against higher-income
individuals?
Answer. The FY 2021 request includes resources to help target the
tax gap and provide robust civil and criminal enforcement to protect
against those who pursue overly aggressive tax positions, while
ensuring honest taxpayers have access to the services they need.
The budget proposes a $400-million discretionary program integrity
cap adjustment in FY 2021 to fund investments in expanding and
improving the effectiveness and efficiency of the Internal Revenue
Service's (IRS's) overall tax enforcement program. The budget proposes
$280 million for the Enforcement account and $120 million for the
Operations Support account. Additional adjustments are provided in
future years to fund new initiatives and inflation. These investments
will generate $79 billion in new revenue over 10 years and will cost
$15 billion for net revenue of $64 billion over 10 years.
The cap adjustment includes additional examination employees. The
decline in staffing since FY 2010 has led to a decrease in the
individual audit coverage rate from 1.1 percent in FY 2010 to 0.45
percent in FY 2019, which increases the risk to the integrity of the
Nation's voluntary tax compliance system. As audit coverage rates
continue to decline, individuals and businesses may decide that the
chance of the IRS auditing them is minimal, and take riskier positions
on their tax reporting, especially since the IRS's audit coverage
decline has been widely reported and is public. The additional
resources will fund a broad range of compliance priorities and allow
for earlier case assignment and resolution.
Question. Mr. Secretary, there have been accusations that Treasury
issued tax reform regulations that it didn't have the authority to
write.
As you know, Treasury has broad authority to issue regulations
under section 7805 and many other specific provisions of the Internal
Revenue Code. Historically, Treasury has asserted significant authority
to administer and implement the tax law, regardless of whether the
administration was Republican or Democratic.
While that authority has limits, the proposed regulation in
question relating to the new Global Intangible Low-Taxed Income, or
GILTI, rules seems squarely within Treasury's regulatory authority. The
GILTI rules are intended to prevent companies from generating profits
in zero or low-taxed jurisdictions without paying some U.S. tax.
The high-tax exemption that is the subject of the Democrats' recent
criticism is targeted at preventing double taxation where companies
have already paid high levels of foreign tax. This regulation is
consistent with the intent of GILTI and with pre-existing anti-abuse
rules targeting low-taxed foreign earnings.
Mr. Secretary, doesn't Treasury thoroughly consider statutory
authority and congressional intent when writing regulations, and wasn't
this the case with the proposed high-tax exemption?
Answer. The Treasury Department treats questions of statutory
authority with the utmost thoroughness and seriousness. That was
certainly the case with respect to Global Intangible Low-Taxed Income
(GILTI) high-tax exception mentioned in your question. As explained in
a February 11, 2020 letter from Deputy Assistant Secretary Vaughan,
Treasury's regulations are fully consistent with governing law in
substance as well as process. The GILTI regulation was reviewed and
approved by several members of Treasury's Office of Tax Policy and the
IRS's Office of Chief Counsel, in addition to Treasury's General
Counsel. The legal authority for the rule was clearly explained in the
regulation's preamble, which was issued in final form this summer. In
short, we strongly agree with your assessment of the statutory
authority for the high-tax exception.
______
Question Submitted by Hon. Chuck Grassley and Hon. Ron Wyden
Question. We understand that historically OMB has listed IRS
whistleblower awards as subject to sequestration under the Budget
Control Act of 2011. We question that decision, as awards under 7623(a)
of the Internal Revenue Code are discretionary, but awards under
section 7623(a) are mandatory with no discretion. Whistleblower awards
made under section 7623(b) are paid from collected proceeds and are not
paid from appropriated funds. Therefore, applying sequestration to
these amounts overrides the mandatory nature of these awards, as
Congress enacted into law. We know recently OMB reconsidered whether
AMT-based tax refunds would be subject to sequestration and arrived at
the correct answer that such refunds should be exempt. Are you willing
to ask OMB to make a similar examination of IRS whistleblower awards
under section 7623(b) and work with our staffs and other experts in
this area to consider whether they should be exempt from sequestration?
Answer. The Treasury Department is always willing to work with your
staffs to consider legal and policy issues, including the treatment of
whistleblower awards under section 7623(b). It is important to note,
however, that the determination of whether various provisions are
subject to sequestration under the Budget Control Act of 2011 is made
by the Office of Management and Budget (OMB) and any change in position
would need to be made by OMB.
______
Questions Submitted by Hon. John Cornyn
Question. Secretary Mnuchin, in 2018 I led the effort to modernize
the Committee on Foreign Investment in the U.S., also known as
``CFIUS,'' via the enactment of the Foreign Investment Risk Review
Modernization Act or FIRRMA. FIRRMA gave CFIUS broad authority to
review and assess foreign investments coming into the U.S. by expanding
its regulatory authority and by granting the committee its own budget.
Last year, the committee received its own independent budget for the
first time, totaling $20 million, with about half derived from user
fees.
Can you describe how the transition for CFIUS is moving along and
provide some insight into the cases CFIUS is reviewing?
How much does CFIUS expect to receive in user fees this fiscal year
and how much has been collected to date?
CFIUS reviews increased significantly from 2010 through 2018. But
it appears there are no statistics available for the number of cases
CFIUS reviewed in 2019. Can you provide my office with an estimate of
funds by object class and full-time equivalents for FY 2020, FY 2021,
and updated caseload for 2019?
Answer. Implementation of the Foreign Investment Risk Review
Modernization Act (FIRRMA) will help ensure that identified national
security risks arising from certain foreign investments are effectively
addressed. Implementation has involved several primary lines of effort:
regulatory implementation, staffing, and infrastructure. Several
highlights include:
Regulatory Implementation: In January 2020, Treasury issued
two final regulations implementing FIRRMA that became effective in
February 2020, meeting the statutory deadline. In April 2020, Treasury
issued an interim rule establishing a fee for transactions filed as a
formal written notice. In May 2020, Treasury issued a proposed rule
revising the scope of mandatory declarations for certain transactions
involving critical technologies.
Staffing: Since FIRRMA's enactment in August 2018, Treasury's
Office of Investment Security and Office of General Counsel have
utilized FIRRMA's special hiring authority to increase CFIUS-related
staff from 23 employees to 74 staff and contractors. The expanded
resources have allowed the CFIUS to process cases more efficiently,
conduct more work identifying non-notified transactions, and
proactively promote investment screening mechanisms with numerous U.S.
allies and partners.
Infrastructure: In FY 2020, Treasury began renovations within
Main Treasury to accommodate the expanded Investment Security staff in
secure workspaces. The first phase was completed in August 2020, and
additional renovations should be completed in FY 2021 and early FY
2022. In May 2020, Treasury implemented a new Case Management System
that facilitates the filing of transactions through a secure online
portal, enabling more efficient and effective review and management of
case load.
In calendar year (CY) 2019, 231 notices were filed with the
Committee on Foreign Investment in the United States (CFIUS).
Additionally, in CY 2019, CFIUS processed and completed action for 94
declarations submitted under the ``pilot program'' related to critical
technology transactions. In July 2020, Treasury submitted its Annual
Report to Congress for CY 2019, providing further detail regarding the
transactions that CFIUS reviewed last year.
On April 27, 2020, Treasury issued an interim rule establishing a
fee for the filing of a formal written notice. On May 1, 2020, Treasury
began collecting fees. The rule applies a tiered fixed-fee schedule
based upon transaction value--with fees ranging from zero to $300,000.
Through November 13, 2020, Treasury has collected $5.6 million in
filing fees.
The total amount of fees collected per fiscal year will depend upon
the number and nature of formal written notices that are filed--factors
that are largely outside of CFIUS's control. Informed by historical
data, the President's Budget for FY 2020 estimated collection of $10
million in fees in FY 2020. This estimate was developed before both the
issuance of FIRRMA's implementing regulations (including the interim
filing fee rule) and the severe disruption of global economic activity
by the COVID-19 pandemic.
On May 15, 2020, Treasury released the public unclassified CFIUS
Annual Report to Congress for CY 2018, along with summary data for CY
2019. The report and the file, ``Notices, Withdrawals, and Presidential
Decisions for Covered Transactions'' are accessible at https://
www.treasury.gov/cfius/.
In CY 2019, 231 notices of covered transactions were filed with
CFIUS. Additionally, in CY 2019, CFIUS processed and completed action
for 94 declarations submitted under the ``pilot program'' related to
critical technology transactions.
Treasury's spending plan estimates for FY 2020 and FY 2021 are as
follows, based on projected expenditures during the fiscal year, using
both single year and no-year appropriations:
------------------------------------------------------------------------
Category FY 2020 FY 2021
------------------------------------------------------------------------
Salary and Benefits $10,360,000 $18,900,000
------------------------------------------------------------------------
IT Infrastructure $6,800,000 $9,600,000
------------------------------------------------------------------------
Facility Construction $8,740,000 $3,300,000
------------------------------------------------------------------------
Other Direct Costs * $8,396,000 $10,896,000
------------------------------------------------------------------------
Total $34,296,000 $42,696,000
------------------------------------------------------------------------
Projected FTE 58 102
------------------------------------------------------------------------
* Other direct costs include data subscriptions, travel, training,
computer/phone seat costs, processing of security clearances and
badging, and other personnel shared services. FTE is a driver for
several of these costs and is expected to increase in FY 2021.
______
Questions Submitted by Hon. Todd Young
sippra implementation
Question. Almost exactly 2 years ago, President Trump signed the
bipartisan Social Impact Partnerships to Pay for Results Act, also
known as ``SIPPRA,'' into law--a law which I and Senator Bennet
championed for years. The bill created the first Federal outcomes fund,
and tasked the Department of Treasury with its administration.
I want to commend you for your work and that of your staff in
standing up this new program and preparing to issue the first grants. I
know it's been difficult, but that's because you and your team have
been trailblazers--creating an entirely new way for government to fund
programs that deliver results, one that I hope we can build on going
forward. Your department ran a rigorous and thorough competition, and a
bipartisan commission unanimously recommended eight finalists receive
contracts where they will be paid if they deliver results. One of those
finalists, I'm proud to say, hails from Indiana.
I want to convey the importance of moving forward with this first
round of awards. I know it's been a complicated process, but making
these initial awards is critical so that we can continue building
momentum for this innovative approach that our legislation sought to
catalyze.
If your department or other Federal departments have further
clarifying questions for these finalists before awards can be made, I
encourage you and your team to continue to work with finalists to
answer those questions.
Can you please speak to what, if any, obstacles your department
faces as it finalizes this process?
Will you please provide me and my staff with an updated timeline
for the SIPPRA award process at your earliest convenience, and
additional information on the SIPPRA Interagency Council's current
selection process?
Answer. The primary challenge that the SIPPRA program faces is the
availability of staff from Treasury, partner agencies, and applicants
to move toward final SIPPRA awards. The novel COVID-19 public health
emergency has impacted the SIPPRA program in the following ways:
The Treasury SIPPRA team has focused on implementing certain
Coronavirus Aid, Relief, and Economic Security (CARES) Act programs
since April 2020. During the first half of 2020, this did not
significantly slow SIPPRA program progress since the critical path
activity since fall 2019 was the Federal Interagency Council on Social
Impact Partnership (Council) certification process. As the critical
path has pivoted to post-certification award determination activities,
the Treasury SIPPRA team's involvement with CARES Act initiatives
continues to impact the timing of making SIPPRA awards.
SIPPRA permits Treasury to transfer authority to different
Federal agencies to administer SIPPRA awards after Treasury makes the
final award determination. As such, Treasury has been working with the
relevant agencies to transfer award administration and finalize the
project and the independent evaluation grant agreements, but this
process has slowed significantly because many of the agencies have been
and continue to be focused on implementation of their respective CARES
Act programs or other COVID-19 related relief projects.
We will be happy to provide to you and your staff an updated
timeline for the SIPPRA award process.
slot jackpot reporting threshold
Question. In 2018, Congress enacted the Tax Cuts and Jobs Act to
simplify and modernize our outdated tax code. While I applaud the work
of the administration to implement TCJA, I also believe much can and
should be done by Treasury to review existing and outdated regulations
to ensure they do not place undue compliance burdens on individuals and
businesses. One unduly burdensome regulation that still needlessly
harms my constituents and businesses in Indiana is the current $1,200
slot jackpot reporting threshold, which has been in place for
approximately 40 years. Accounting for inflation, that number should be
more than four times higher today--roughly $5,000. Unfortunately,
however, the threshold amount has remained static and, as a result,
continues to impact many more of my constituents than was originally
intended. Furthermore, this information reporting requirement often
does not result in a filing obligation for the taxpayer. The result is
additional compliance obligations for businesses and superfluous
filings submitted to the IRS.
Are you willing to consider updating the current slot jackpot
reporting threshold to reflect 4 decades of inflation? Additionally,
will Treasury add updating the information return regulations to the
priority guidance plan?
Answer. The Treasury Department and IRS appreciate this feedback
about the reporting threshold, and we are sensitive to any concerns
about requirements that are viewed as imposing unnecessary compliance
burdens on taxpayers. In evaluating the reasonableness of any reporting
rule of this kind, the Treasury Department and the IRS must weigh the
burdens against the compliance benefits provided through third-party
reporting. With that in mind, we are open to hearing more from the
gaming industry about the burdens imposed by the current reporting
thresholds. Additional information will further inform how to evaluate
and prioritize this matter going forward.
u.s.-uk trade agreement
Question. Thank you for your efforts in responding to digital
service taxes (DSTs) in France and other countries.
As we've seen, an increasing number of our trading partners are
penalizing U.S. exporters by implementing discriminatory revenue taxes
on digital services provided by U.S. firms. These DSTs are narrow in
scope and are specifically designed to target U.S. digital companies
and the U.S. tax base. The taxes range in size from 2 percent to 7
percent, and some could go as high as 15 percent. These taxes apply to
revenue, not to income, and they are bringing in a larger range of
American content companies, tech companies, travel firms, telecom
firms, and others.
France's discriminatory DST has a $500-million annual price tag for
U.S. companies--tax revenue that is properly allocable to the U.S. The
response from Treasury and USTR has been very helpful. But in the
meantime, other countries like Austria, Czech Republic, Italy, Spain,
Turkey, and the UK are moving forward with their own digital taxes.
Expected DST collections from these taxes would be over $3 billion
annually. And the new European Commission President has threatened to
reintroduce an EU-wide digital tax at the end of this year.
What more can the U.S. Government do to counter these
discriminatory taxes? In particular, given progress towards a U.S.-UK
trade agreement, how can the U.S. Government hold the UK accountable
regarding their consideration of a DST? I also would encourage
continued close coordination between Treasury and USTR on this
important issue.
Answer. In July 2019, the Office of the United States Trade
Representative (USTR) began an investigation under section 301 of the
Trade Act of 1974 (section 301) to determine whether the French DST is
unreasonable or discriminatory and burdens U.S. commerce. In December
2019, USTR announced its determination that the French (DST) is
unreasonable or discriminatory and burdens or restricts U.S. commerce
and therefore is actionable under sections 301(b) and 304(a) of the
Trade Act. Pursuant to that determination in July 2020, USTR announced
that the imposition of 25-percent duties on certain products from
France including handbags and cosmetics. However, in recognition of the
ongoing bilateral and multilateral discussions between France and the
United States to reach a satisfactory resolution to this matter, USTR,
pursuant to section 305(a) of the Trade Act, suspended the additional
duties for up to 180 days to allow additional time for those
discussions to continue.
On June 2, 2020, the USTR announced the initiation of further
section 301 investigations of DSTs that have been adopted or are being
considered by a number of U.S. trading partners, including Austria,
Brazil, the Czech Republic, the European Union, India, Indonesia,
Italy, Spain, Turkey, and the United Kingdom. The Treasury Department
is coordinating closely with the USTR on these matters and is actively
involved the UK-U.S. trade agreement negotiations.
We are also working diligently on the Organisation for Economic Co-
operation and Development-G20 effort to preserve and renew an
international consensus on the taxation of multinational enterprises in
a rapidly changing global economy. While this process is important for
the United States, the United States has consistently objected to the
adoption of measures that focus solely on digital businesses, whether
DSTs or proposals for a new international consensus that taxes more
heavily only a limited group of predominately U.S.-based companies. We
hope that an agreement can be reached. Meanwhile, the United States
remains opposed to DSTs and similar unilateral measures.
______
Question Submitted by Hon. Ben Sasse
Question. It is my understanding that the Office of Tax Policy and
its counterparts at the IRS have for some time been working on guidance
addressing ``private use'' rules applicable to public power entities--
like those in my State--that make use of tax-exempt bonds. I appreciate
the diligence that Treasury personnel have brought to bear on this
issue but recognize also that filers must work under requirements
imposed by Federal tax law that are not always clear. Could you please
provide an update on Treasury's work in this area?
Answer. The ``private use'' rules in the Internal Revenue Code
related to tax-
exempt bonds are complex. While addressing these rules is an important
guidance project, significant Office of Tax Policy and IRS resources
have been devoted to quickly implementing guidance that addresses
issues related to COVID-19, including the CARES Act. The Office of Tax
Policy and its counterparts at the IRS continue to study the ``private
use'' rules as well as those applicable to public power entities and
plan to focus on these rules going forward.
______
Questions Submitted by Hon. Robert Menendez
firpta notice 2007-55
Question. In December 2019, I and 10 other bipartisan members of
the Senate wrote you a letter urging the Treasury Department to
withdraw section 2 of IRS Notice 2007-55. This notice has hurt foreign
direct investment in commercial real estate, transportation assets,
housing stock, and other essential infrastructure and the time for its
repeal has long come.
Please provide an update on Treasury's response to the Senate's
most recent letter and the agency's consideration of withdrawing
section 2 of IRS Notice 2007-55.
Answer. The Foreign Investment in Real Property Tax Act (FIRPTA)
reflects an important tax policy principle--namely, that foreign
investors should not be taxed in a more favorable manner on U.S. real
estate investments than U.S. investors. It is consistent with the
accepted international norm for countries to impose tax on the gains of
foreign investors from real property located within their borders, and
that right to tax is preserved in most income tax treaties.
Encouraging foreign investment in the United States, including in
commercial real estate and infrastructure, is an important priority.
One example concerns the exemption for qualified foreign pension
funds from FIRPTA as a result of the enactment in 2015 of the
Protecting Americans from Tax Hikes Act. In response to comments
regarding ambiguities in the statute, the Treasury Department has
worked with the House on technical corrections to the statutory
language. Furthermore, Treasury and the IRS recently issued proposed
regulations to address certain ambiguities in the legislation that will
further encourage investment in the United States by foreign pension
funds.
Implementation of the TCJA and responding to the pandemic have been
top priorities for Treasury, but once TCJA implementation and the
pandemic response are further along, Treasury will consider Notice
2007-55, taking into account the new international tax rules.
We look forward to working with Congress to explore ways in which
we can achieve our shared goal of encouraging foreign investment in
U.S. infrastructure while protecting the U.S. tax base.
cdfi bond guarantee program (bgp)
Question. The administration's budget proposal signals an intention
to tighten the BGP's collateral and cash requirements and add new risk
mitigation strategies. The BGP has operated for years, as intended,
with no loss to taxpayers. Safeguards already in place are more than
adequate, and indeed, probably overly constrictive on CDFI
participants.
How will the proposed changes increase economic and community
development in low-wealth markets as the BGP is designed to do?
Answer. The FY 2020 Notice of Guarantee Availability for the BGP
includes new overcollateralization requirements as outlined in the FY
2021 budget submission, as well as the enhanced use of other
preliminary recommendations to mitigate risk. It is unknown at this
time whether the new collateralization requirements will increase the
availability of BGP financing in low-wealth communities. Applications
for the FY 2020 round were reviewed over the summer and a $100 million
guarantee approval was publicly announced on September 30, 2020.
Treasury will consider whether implementation of the remaining
preliminary recommendations are necessary, feasible, and will produce
the desired policy results, after considering the results of the FY
2020 funding round and the effect of the implementation of the risk
mitigation strategies.
Question. What is the Treasury Department doing to increase access
and utilization of the BGP?
Answer. With respect to the two proposed changes implemented in FY
2020, the Community Development Financial Institutions (CDFI) Fund has
hosted a series of webinars and conference calls to answer questions
and help ensure that potential Qualified Issuer and Guarantee
applicants have the information they need to consider whether to apply.
Treasury will also consider how other potential changes to the BGP,
such as streamlining escrow agent and custodian structure and creating
a designated bonding authority, could produce the desired policy
results of allowing more credit-worthy CDFIs to utilize the BGP to
offer long-term, low-cost financing to low-wealth communities.
sanction enforcement
Question. Mr. Secretary, you have appeared before this committee
since the passage of CAATSA in 2017 and committed to implementing the
law. A law, which mostly includes mandatory, not discretionary
sanctions. I have been disappointed by the lack of attention to this
sanctions regime despite broad bipartisan support for the law. The
administration has yet to impose required sanctions on Turkey for its
purchase of the S400 air defense system from Russia. I know that
responsibility for that section of the law rests with the State
Department, but it speaks to an overall clear lack of political will on
the part of the administration to impose sanctions on the Kremlin.
With the 2020 election fast approaching, there are legislative
efforts here in the Senate including the Defending American Security
from Kremlin Aggression Act, which would impose crushing sanctions on
Russia if it interferes again. This bill passed with a strong
bipartisan vote out of the Foreign Relations Committee and should be
enacted into law if we are serious about protecting our election. Few
in the Senate believe that any political will exists in the
administration to take a tough line with Russia. So here is your chance
to clearly tell us.
With less than 9 months to go before election day, what specific
steps will your department take to deter Russian interference in our
election?
What specifically will you do between right now and election day to
protect our democracy?
Answer. As we have demonstrated, Treasury will aggressively utilize
the full range of its authorities against those who attempt to
interfere in our elections. Executive Order (E.O.) 13848, which the
President issued on September 12, 2018, authorizes Treasury to
designate foreign persons, including those in Russia, determined to
have interfered in a U.S. election. This E.O. adds to the broad range
of authorities under which Treasury may take action against malign
actors, whether based in Russia or elsewhere, who attempt to interfere
in our elections.
Additionally, Treasury will continue to use authorities provided by
Countering America's Adversaries Through Sanctions Act (CAATSA) and
E.O. 13694, as amended, to impose sanctions on malicious cyber-enabled
actors, including those determined to have interfered with or
undermined election processes or institutions.
While we cannot preview any future sanctions actions that we will
take, rest assured that Treasury continues to use its authorities to
apply pressure and hold Russia accountable for its actions. For
instance, in September 2019, Treasury imposed sanctions under E.O.
13848 against 16 Russian entities and individuals, including affiliates
of the Russian Internet Research Agency and its Kremlin-linked
financier Yevgeniy Prigozhin, in response to attempts to influence our
2018 midterm elections.
A whole-of-government approach is necessary to counter any foreign
intervention in our election process, and we have worked in close
coordination with other agencies to implement that approach.
halkbank and sanctions
Question. Based on reports, when President Erdogan raised concerns
last year to President Trump about Halkbank, a Turkish bank accused of
the largest Iran sanctions violations in U.S. history, he responded
that Treasury, along with Justice, would handle it. Indeed, you seemed
to confirm those reports in a letter to Senator Wyden.
Did the President ask you to take any action, or refrain from
taking any action, regarding Halkank? Did he suggest in any way that
you ``go easy'' on the bank, or do a favor for President Erdogan?
Has the President directed you or the Department to intervene in
any other matters regarding sanctions?
Rudy Giuliani has represented Reza Zarrab, an international gold
trader who, according to DOJ prosecutors was at the ``heart of [a]
massive and brazen scheme'' to help Halkbank evade U.S. sanctions. Has
Rudy Giuliani met or contacted you to discuss Reza Zarrab, Halkbank, or
anything related to Iran sanctions?
According to calendars released through FOIA, you met with Rudy
Giuliani in July 2017. What, specifically, was that meeting regarding?
That was a few months after Zarrab reportedly hired Giuliani. Did he
raise Zarrab at that meeting?
Have you or the Treasury Department taken any action based on a
request or inquiry by Rudy Giuliani?
Answer. Senator Wyden entered a copy of the referenced November 20,
2019 letter from the Department of the Treasury to Senator Wyden in the
hearing record on February 12, 2020. As that letter and Secretary
Mnuchin's February 12 testimony make clear, the Department of the
Treasury and the Department of Justice (DOJ) are the executive branch
departments responsible by law for the investigation and enforcement of
economic sanctions. Accordingly, any referral to Treasury and the DOJ
regarding a potential sanctions violation is appropriate. DOJ has
exclusive authority over criminal prosecutions of alleged schemes to
evade U.S. sanctions, though Treasury routinely consults with DOJ on
such matters. On October 15, 2019, DOJ charged Halkbank with a multi-
year scheme to violate and evade U.S. national security controls
against the Government of Iran. The U.S. government treats pending
criminal matters with the utmost sensitivity, and Treasury is unable to
comment on any ongoing prosecution of potential sanctions violations or
potential investigations thereof. The Secretary's consistent position
is that the United States expects full compliance with all applicable
sanctions programs.
ofac
Question. I continue to be concerned that the Trump administration
does not take Russia sanctions seriously. As you know, OFAC is a
demand-driven organization, and they clearly are not getting signals
from the White House that Russian is national security threat that
needs to be addressed with priority and urgency. Because of this lack
of demand, OFAC has not dedicated adequate resources towards developing
targets with respect to the Russia sanctions regime. I understand that
only a small percentage of OFAC targetters are dedicated to Russia
sanctions. This flies in the face of the will of the Senate which voted
98-2 in 2017 for the CAATSA bill.
Do you agree with an overwhelming majority of the Senate that
sanctioning Russia targets should be a priority?
Will you work with the White House to increase the demand for new
Russia sanctions?
Will you commit to increase the amount of OFAC targetters dedicated
to Russia sanctions?
Answer. Treasury continues to prioritize the use of its authorities
to apply pressure and hold Russia accountable for its actions. In fact,
this administration has sanctioned approximately 330 Russia-related
entities and individuals.
Our sanctions are intended to impose costs on those supporting the
Kremlin's malign activities, and ultimately shape Russia's behavior. It
is important to do this in a way that minimizes unintended and negative
spillover to the United States, our European allies, and the global
economy. We have targeted a broad range of malign activities in which
Russia has engaged, including Russian interference in democratic
elections, its purported occupation of Crimea, aggression in eastern
Ukraine, support for the Assad regime in Syria and the illegitimate
Maduro regime in Venezuela, and malicious cyberattacks, among other
activities. Additionally, we are constantly investigating new targets
to counter, disrupt, or deter unacceptable Russian behavior.
While our current authorities allow us to target illicit actors
supporting all of these malign activities, we welcome the opportunity
to consult on any proposed legislation to develop new authorities to
further increase pressure on Russia. We remain mindful of Russia's
interlinkages with the global economy, and we encourage a strategic
approach to ensure that the cost of sanctions is borne by the Russian
economy, minimizing negative spillover impact.
Regarding resourcing, we remain grateful to Congress for continued
support through the increase of funds in recent years. To carry out its
mission, each year, the Office of Foreign Assets Control (OFAC)
receives a portion of the Terrorism and Financial Intelligence
appropriation. All funding is utilized to support sanctions programs
that the U.S. Department of the Treasury administers. Over the past few
years, OFAC has received increases in its annual funding to hire
additional employees for all areas of the sanctions cycle. For
instance, funding increases were directly utilized to increase staffing
of OFAC sanctions investigators for various sanctions programs,
including Russia sanctions. These investigators build evidentiary
packages regarding potential sanctions targets, which is the vital
first step of the sanctions process. OFAC has also increased its staff
in its Licensing, Regulatory Affairs, Enforcement, and Compliance
areas, all of which assist the general public and the financial sector
on adhering to sanctions regulations, including those related to
Russia. Drawing on OFAC's recent submission to Congress under the
National Emergencies Act, the overall resources to support the Ukraine/
Russia-related sanctions program accounts for nine percent of OFAC's
workforce. In addition, OFAC is able to shift employees among sanctions
programs, to surge support as the need arises.
turkey
Question. The President has previously admitted that he has a
``little conflict of interest'' when it comes to Turkey, because of
Trump Towers Istanbul, from which he continues to benefit. Has the
president ever raised Trump Towers Istanbul with you? If so, in what
context?
Has the President ever raised any personal or financial interest he
has in Turkey? If so, in what context?
In any of your meetings with President Erdogan or Turkish
officials, have you, or has anyone from the Department, raised Trump
Towers Istanbul? If so, what was discussed regarding Trump Towers
Istanbul?
Do you think it would be appropriate, or inappropriate for you or a
Turkish official to raise Trump Towers Istanbul in an official meeting?
Do I have your commitment that the President's ongoing financial
interests in Turkey will play no role in U.S. policy towards Turkey,
including on sanctions, investigations, or otherwise?
Answer. The Treasury Department develops policy based on the best
interests of the United States, and executes its duties in accordance
with the law. The Department abides by all applicable ethics laws and
regulations. As stated above, the Secretary's consistent position is
that the United States expects full compliance with all applicable
sanctions programs.
information requests for children of presidential candidates
Question. Mr. Secretary, the President's budget proposes to
transfer the Secret Service back to the Treasury Department, and I take
it that you support that proposal. Correct?
As I understand it, during negotiations with Congress over the
transfer issue, you have agreed to a provision that would make
available, to the public, the cost of Secret Security protection for
the President, the Vice President, and their families. However, you
have insisted that the information not be made public until after the
2020 election.
In a recent letter, Chairman Grassley and Chairman Johnson asked
the Secret Service to provide information about any Secret Service
protection provided to Hunter Biden.
If the Secret Service is transferred back to Treasury, would you
approve such a request?
Would you provide the Finance Committee with information regarding
Secret Service protection for Vice President Biden's son?
If so, do you think it is fair to provide the public with
information about Secret Service protection provided to Vice President
Biden's son, but not about President Trump and his children?
The Treasury Department is reportedly complying with a document
request from Senate Republicans referencing the children of a
Democratic presidential candidate.
If Treasury received a document request referencing the children of
a Republican presidential candidate, would the Department comply with
that as well?
According to public reporting, in draft legislation that would move
the Secret Service from DHS back to Treasury--a move which you
support--the administration objected to a reporting requirement to
disclose the costs of presidential travel before November, because it
might negatively affect the Republican presidential candidate.
Why don't you have similar trepidation about releasing the
information that Senate Republicans have requested, which are related
to a Democratic presidential candidate?
Answer. It would be inappropriate to comment on a congressional
request sent to another agency or to speculate on a request that has
not been received by Treasury. Treasury responds to congressional
requests for information from members on both sides of the aisle and
does not respond to any request on a partisan basis. Indeed, over the
past 3\1/2\ years, the vast majority of information Treasury has
provided to Congress to accommodate its legislative oversight function
has been in response to requests made or joined by Democratic members
of Congress. The Department does not generally comment on specific
congressional requests out of deference to requesters, but for further
information, I respectfully refer you to the February 11th letter that
Treasury sent to Senator Wyden and was entered into the February 12th
hearing record.
______
Question Submitted by Hon. Sherrod Brown
Question. Last month, President Trump signed what he is calling
Phase One of a trade agreement with China. The agreement included
commitments that the Chinese government will purchase U.S. products,
protect intellectual property and stop forced technology transfers.
China has made commitments on intellectual property and tech transfers
going back 20 years and hasn't lived up to them.
What specific commitments on intellectual property and tech
transfers in the agreement with China have never been negotiated by any
previous administrations or previously agreed to by China?
Answer. China made promises on forced technology transfer in
previous bilateral dialogues, but China's obligations under the
Technology Transfer chapter of the Phase One agreement cover a broader
scope and with greater detail. The Intellectual Property chapter
contains numerous commitments that China did not make in previous
bilateral dialogues, including commitments related to trade secret
misappropriation, unauthorized disclosures of trade secrets and
confidential business information by government authorities, and early
resolution of pharmaceutical patent disputes, among others. In
addition, China's obligations under the Technology Transfer and
Intellectual Property chapters also are subject to Phase One agreement
enforcement provisions.
Questions Submitted by Hon. Catherine Cortez Masto
estimate on growth and cost of the tax cuts and jobs act
Question. Given that CBO and the Federal Reserve estimate lower GDP
growth over the next 10 years than does Treasury, how much over time
does the tax bill cost and when, specifically, will it pay for itself
under the aforementioned rates?
Answer. Following full implementation of TCJA, both real wage rates
and GDP growth rates were significantly higher than what was realized
during the previous 8 years. Our resulting revenue estimates prior to
the onset of COVID-19 continued to fully cover the static revenue
impacts of tax reform. Such revenue estimates are not made using
others' economic growth forecasts.
wage growth
Question. What is the effect of the Tax Cuts and Jobs Act on ``real
wage growth''?
While economists have seen some growth in wages at the bottom of
the distribution (i.e., lowest wage workers), does it hold true that
most of that has been driven by State and local minimum wage increases?
Answer. After the passage of the TCJA, real wages \2\ grew by 1.5
percent per year, compared to the average from 2009 through 2016 of 0.6
percent. If we restrict our focus to wages for production and
nonsupervisory workers--reflective of the middle and working class--the
numbers are 1.7 percent for the post-TCJA period, and 0.6 percent for
the previous administration. These numbers reflect wage growth that is
over two and a half times as strong after the passage of TCJA. This
wage growth wasn't mandated in the TCJA, which unlike minimum wage laws
didn't attempt to legislate wages; instead it was a result of powerful
growth incentives in the TCJA causing a labor market as strong as any
seen since the 1960s, as measured by the unemployment rate.
---------------------------------------------------------------------------
\2\ Average hourly earnings deflated by personal consumption
expenditure prices.
Moreover, the TCJA's strong supply side incentives are designed to
encourage investment and thereby boost wages far into the future.
Beyond reductions in the statutory rate for large corporations, changes
include providing owners of smaller, unincorporated businesses with a
20-percent tax deduction, scheduled to expire in 2026, to help them
compete with large corporations. Further, the 2017 Act provided full
expensing for equipment investment through 2022. By encouraging capital
deepening, all these measures will improve labor productivity, and thus
---------------------------------------------------------------------------
increase wages, for years to come.
With respect to minimum wages, these cannot be responsible for very
much of the observed wage growth we have seen simply because they
haven't affected that many workers. Although some minimum wage hikes
have been large (for instance, a 20-percent hike this year in New
Mexico), the population-weighted national average increase in combined
State and Federal minimum wage in recent years has been closer to 4
percent. From 2017 through 2019, average wage growth for the economy
overall was about 3 percent, which compares favorably with the period
from 2007 through 2010, when overall wage growth was 2.6 percent but
population-weighted national average minimum wages were rising by about
6 percent. In both cases, overall labor market conditions, influenced
by administration policies, were more important in determining wage
growth than were changes in statutory minimum wages.
A study \3\ by the CEA found that only 1.4 percent of all workers
were affected by minimum wage hikes in 2018 and 2019, because the vast
majority of Americans earn more than minimum wage. As a result of so
few workers being directly affected, CEA finds that minimum wages
contributed only 0.2 percent of the wage growth observed among the
bottom third of the income distribution in that time period.
---------------------------------------------------------------------------
\3\ ``Minimum wage increases do not explain low-wage workers'
earnings gains.'' CEA Economic Issue Briefs, February 25, 2020.
Minimum wage increases, if anything, incentivize firms to hire
fewer workers and use more labor-replacing technology, worsening
inequality and the labor market outlook for lower-income Americans.
renewable energy tax incentives
Question. The FY 2021 budget cuts energy-related tax incentives,
but the solar industry analysis shows a 10-year Investment Tax Credit
extension drives $87 billion in investment and over 113,000 jobs.
What is the justification to cut incentives that create more than
twice the benefit for the economy as they cost?
Is it the administration's position that tax incentives for oil and
gas extraction are better for the economy and environment than tax
incentives for clean energy resources? Please provide a justification.
Has the administration considered how repealing the tax incentives
will impact the quarter million Americans working in installation,
manufacturing, engineering and other jobs supported by clean energy tax
policies? Please provide a justification.
Answer. The administration is supportive of all American energy
sources and applauds the job creation and retention across the sector.
With respect to the energy-related tax incentives proposed to be cut in
the FY 2021 budget, the administration believes that the industries
supported by those tax incentivizes have shown great success and
resilience and are no longer in a position where government assistance
is needed.
tax avoidance
Question. What are the proactive and public-facing policies this
administration can commit to in order to stem tax avoidance,
specifically for new ``pass-through businesses''?
Answer. The administration is committed to stemming tax avoidance
through the efforts of the Treasury Department and the IRS. In order to
improve taxpayer compliance and address tax avoidance, the IRS
continues to focus its resources on
service-wide strategies to combat abusive transactions, as well as to
uncover the use of various methods to conceal transactions or assets
offshore, address the tax effects arising from the evolving digital
world economy, and in high-dollar, multi-year employment tax cases.
Specifically, the IRS is initiating an effort to increase audits of
high-income individuals and related passthrough entities (e.g.,
partnerships, trusts, and S corporations) and will begin examinations
of taxpayers within this category this summer. This is in addition to
ongoing activity of the Global High Wealth work underway for several
years that looks to the network of closely held businesses, including
passthrough entities, employed to operate a wide range of activities
and that may also be used to mask activities that improperly reduce
Federal Income Tax liabilities. These audits require specialized skill
and are more complex when offshore entities are introduced into the
network of closely held businesses.
A Partnership Research Study to measure strategic level reporting
compliance is currently underway. Audit results will be used to better
understand the nature and extent of partnership misreporting and
improve the ability to detect and reduce noncompliance, develop and
improve workload selection methods, and guide resource allocations.
The IRS also has several issue-specific campaigns focused upon
passthrough business activities and has initiated a broad Tax Cuts and
Jobs Act Campaign, which will evaluate structures and transactions
implemented to take advantage of specific provisions of the
legislation. The IRS is also focused on deterring potential tax
avoidance through micro-captive insurance transactions, where the
insured business is frequently a pass-through entity, and syndicated
conservation easements, which use a partnership structure that may
consist of several tiers of investors, to achieve an improperly
inflated charitable contribution deduction by individual investors.
Finally, the IRS continues to update its systems and utilize data
analytics and other technological advancements to enhance the
effectiveness of audit enforcement activities to reduce the tax gap. An
important advancement in this work is the creation of an agency-wide
board to share methods and approaches to identifying available data
sources and exploiting the data using a variety of tools to identify
instances of suspected or known non-compliance.
Question. How can the IRS can reduce tax evasion? What audit
procedures, collections, and criminal tax prosecutions can the Treasury
Department expand?
Answer. In order to support the agency's efforts to detect and
deter fraud while strengthening the National Fraud Program, the IRS
recently formed the Office of Fraud Enforcement (OFE). The OFE will
work to strengthen the internal compliance relationships in the IRS
between criminal investigation agents and civil-side revenue agents and
revenue officers and work with external partners. In addition, the IRS
recently designated a position to coordinate ongoing investigations and
develop new approaches to identify promoters of aggressive tax
arrangements.
The IRS continues to utilize civil and criminal penalties as well
as parallel investigations to deter and/or stop tax evasion. Parallel
investigations occur when both IRS's Criminal Investigation (CI)
division and a civil enforcement division investigate the same
individual or entity at the same time. The goal of a parallel
investigation is to ensure the IRS effectively balances civil and
criminal actions to achieve maximum compliance. Simultaneous, but
separate, parallel criminal and civil actions, including promoter
investigations, play a key role in the IRS's efforts to stop the
proliferation of abusive transaction schemes.
To reduce tax evasion in the collection arena, the IRS focuses its
resources on addressing egregious employment tax violators by taking
appropriate actions including asserting the Trust Fund Recovery
Penalty, referring cases for criminal fraud, and partnering with the
Department of Justice on suits for injunctive relief. Additionally,
investigations of successor and fabricated entities and bankruptcy
fraud are investigated by IRS Collection.
In efforts to identify scams, the IRS is carefully reviewing every
Form 7200, Advance Payment of Employer Credits Due to COVID-19, to
prevent fraud that includes what appears to be a new business trying to
claim the credit. Suspicion of fraud results in the OFE conducting
further research and coordinating with CI.
On the criminal side, the IRS continues to use data analytics to
identify large areas of non-compliance. CI added a new Applied
Analytics section and hired data scientists to take advantage of tools
like Palantir and to better collaborate with other IRS Business
Operating Divisions, law enforcement agencies, and academia. The
Nationally Coordinated Investigations Unit (NCIU) is a data-driven
section within CI that focuses on case-development of national issues
including international tax enforcement and employment tax. The NCIU
proactively addresses key non-compliance issues and emerging threats
using cutting edge techniques to better manage and leverage all
available data to better select criminal cases to ensure nationwide
coverage of all program areas.
financial services for cannabis
Question. If Congress opens the door to cannabis banking through
legislative action, does the Department commit to facilitating the
deployment of financial services for cannabis and cannabis-affiliated
businesses?
Answer. The Department of the Treasury will implement any
legislation passed by Congress and signed into law by the President.
community development financial institutions (cdfi)
Question. Has the administration conducted public research on the
Community Development Financial Institution (CDFI) program's impact?
The only justification in the budget for eliminating the CDFI
program is ``over-reliance.'' How did the administration come to this
conclusion? What research is this based on? Please provide an evidence-
based justification.
Answer. The administration is committed to promoting growth and
jobs in low-wealth communities. Since its creation in 1994, the CDFI
Fund has awarded nearly $3.6 billion to CDFIs, community development
organizations, and financial institutions through programs including
the Bank Enterprise Award Program, the Capital Magnet Fund, the CDFI
Program, the Healthy Food Financing Initiative, and the Native American
CDFI Assistance Program. In addition, the CDFI Fund has allocated $61
billion in tax credit allocation authority to Community Development
Entities through the New Markets Tax Credit (NMTC) Program, and
guaranteed bonds in the amount of over $1.6 billion through the CDFI
Bond Guarantee Program (BGP).
Difficult decisions have to be made in allocating money between
different priorities, and the FY 2021 budget will allow the CDFI fund
to administer ongoing program functions including the NMTC and zero
subsidy BGP. In addition, under the FY 2021 budget the CDFI fund will
continue to conduct ongoing program compliance reviews of prior-year
award recipients for all programs. The budget request is also intended
to cover the cost to administer certification of CDFIs, as required by
the Riegle Community Development and Regulatory Improvement Act of
1994, as well as Community Development Entities, as required by the
NMTC Program.
slot tax threshold
Question. The current IRS reporting minimum threshold for reporting
slot machine winnings is $1,200 for a single machine payout and has not
been adjusted for inflation or changed since the requirement was
implemented in 1977. Adjusted for inflation, the threshold would be
around $5,000.
Under current regulations, when a player hits a winning jackpot
worth $1,200 or more, the operator is required to pull the slot machine
offline until all necessary paperwork is filled out by the winning
player and casino operator. This can oftentimes take up to an hour for
before the player returns to the casino floor and the machine is
reactivated, which seems overly burdensome and disruptive for both
parties. While I believe it is important to ensure that the appropriate
taxes are collected on gambling winnings, I also think it is imperative
that this is accomplished in an efficient and effective manner.
I am an original cosponsor of the Improving Laundering Laws and
Increasing Comprehensive Information Tracking of Criminal Activity in
Shell Holdings Act or the ILLICIT CASH Act. Section 204 of that bill
requires the Treasury Secretary review thresholds for currency
transaction reports and for suspicious activity reports.
Has the Treasury Department considered changing the slot machine
winnings threshold? If yes, what changes has it considered?
Will you commit to review the current slot tax threshold
regulations and take appropriate action to modernize them?
Answer. The Treasury Department and IRS appreciate this feedback
about the reporting threshold, and we are sensitive to any concerns
about requirements that are viewed as imposing unnecessary compliance
burdens on taxpayers. In evaluating the reasonableness of any reporting
rule of this kind, the Treasury Department and the IRS must weigh the
burdens against the compliance benefits provided through third party
reporting. With that in mind, we are open to hearing more from the
gaming industry about the burdens imposed by the current reporting
thresholds. Additional information will further inform how to evaluate
and prioritize this matter going forward.
______
Prepared Statement of Hon. Ron Wyden,
a U.S. Senator From Oregon
This administration's budget is built on policies that pillage
working families to pay for brand-new windfalls for corporations and
the wealthy. That harmful agenda has been on clear display over the
last few weeks in two events I want to address.
First, it recently came to light that the Trump administration--
acting on their own--found a way to milk the 2017 tax law to create
more than $100 billion in shiny new corporate tax loopholes. Understand
that these are not the same huge loopholes I and others warned about
back in 2017 when the bill was written. These are the product of tricky
regulatory maneuvering--some of which looks to me like it goes beyond
the Treasury's legal authority. The bottom line, it sure looks like
corporate special interests are going to make off with new loopholes
worth $100 billion in addition to their outlandish share of the
original $2-trillion Trump tax law.
Senator Brown and I want to stop this fleecing of American
taxpayers. Today we're introducing legislation that will start closing
these loopholes and fixing this new source of unfairness. When people
say the tax code is rigged and the Trump administration has made it
worse, what I've described is a textbook case of what they're talking
about.
Not long after the news of these new tax loopholes broke, the
President went to Davos. During an interview he was asked whether
during a second term he would cut programs like Medicare, Medicaid, and
Social Security. He said, yes, he would. He called it ``actually the
easiest of all things.''
So here you've got a perfect snapshot of this administration's
policies robbing working families to pay off special interests and
those at the top. The President says that shredding the safety net is a
piece of cake.
He's talking about Medicaid, a program that pays for two out of
three nursing home beds in America, a country where growing old is
expensive and families run out of money to pay for long-term care. He's
talking about Medicare, without which millions of seniors would have no
hope of getting high-quality health care or affordable prescription
drugs. He's talking about Social Security, which keeps American workers
from retiring into deprivation and desperation.
The Trump budget cuts those programs by more than $1.5 trillion
combined. That might sit just fine with the ballroom crowd at Mar-a-
Lago, but it's a terrifying prospect for the hundreds of millions of
Americans who every month are walking an economic tightrope, are
counting on Medicare, Medicaid, and Social Security to be around today
and in the future.
Add it up, and the picture is clear: the Trump administration will
tune out the needs of middle-class families but gives the world to any
corporate lobbyist who comes calling at the Treasury Department. You
see it in Secretary Mnuchin's stewardship. You see it in the budget.
You see it in the President's own words.
______
DEPARTMENT OF THE TREASURY
Washington, DC 20220
November 20, 2019
The Honorable Ron Wyden
Ranking Member
Committee on Finance
United States Senate
Washington, DC 20510
Dear Senator Wyden:
I write in response to your October 24, 2019 letter regarding Turkiye
Halk Bankasi A.S., a/k/a Halkbank.
As your letter notes, on October 15, 2019, the Department of Justice
(DOJ) charged Halkbank with a multi-year scheme to violate and evade
U.S. national security controls against the Government of Iran.\1\ The
U.S. Government treats any matter under criminal indictment by DOJ with
utmost sensitivity, and the Department of the Treasury is unable to
comment on this or any other ongoing prosecution of potential sanctions
violations or potential investigations thereof.
---------------------------------------------------------------------------
\1\ See Department of Justice press release, ``Turkish Bank Charged
in Manhattan Federal Court for its Participation in a Multibillion-
Dollar Iranian Sanctions Evasion Scheme'' (October 15, 2019), available
at: https://www.justice.gov/usao-sdny/pr/turkish-bank-charged-
manhattan-federal-court-its-participation-multibillion-dollar.
Treasury and this Administration take potential sanctions violations
very seriously. For example, in 2017, Treasury officials provided
extensive information to DOJ concerning the investigation into Mehmet
Hakan Atilla, former Deputy General Manager of International Banking at
Halkbank, referenced in your letter. In January 2018, in the U.S.
District Court for the Southern District of New York, Atilla was found
guilty of conspiring with others, including Reza Zarrab, an Iranian-
Turkish gold trader, to use the U.S. financial system to conduct
transactions on behalf of the Government of Iran and other Iranian
entities and defraud U.S. financial institutions by concealing the true
nature of the transactions. Specifically, Atilla was convicted of
conspiracies to defraud the U.S., to violate the International
Emergency Economic Powers Act (IEEPA), to commit bank fraud, and to
---------------------------------------------------------------------------
commit money laundering, as well as a substantive count of bank fraud.
Treasury is proud of its role as an integral part of the
Administration's maximum pressure campaign against the Iranian regime
and administers a robust sanctions program against the Government of
Iran and those who act on its behalf. On this and other fronts, federal
law entrusts Treasury and DOJ with authority over enforcement of U.S.
sanctions. DOJ has exclusive authority over criminal prosecutions of
alleged schemes to evade U.S. sanctions, though Treasury routinely
consults with DOJ on such matters.
Treasury will not hesitate to target prohibited or sanctionable conduct
involving Iran wherever it occurs. While the Department does not
comment on its investigations of potential violations of sanctions
prohibitions or possible sanctions actions against specific targets, as
a general matter, we have aggressively used our authorities to pursue
enforcement actions against those who violate our sanctions
prohibitions within U.S. jurisdiction, as well as to impose
designations and other sanctions against those who support the Iranian
regime's malign activity or engage in other sanctionable conduct,
including conduct that is wholly outside of the United States.
The Department's authorities for pursuing such actions include
Executive Orders 12957 and 12959, as clarified by Executive Order
13059, which prohibit, among other things, the exportation, re-
exportation, sale or supply, directly or indirectly, to Iran of any
goods, technology, or services from the U.S. or by a U.S. person. In
addition, in 2018, the President broadened the scope of the sanctions
that were in effect prior to January 16, 2016 and directed the
reimposition of U.S. sanctions relating to Iran that had been lifted or
waived in connection with the Joint Comprehensive Plan of Action
(JCPOA). These sanctions include all relevant blocking sanctions, menu-
based sanctions, and correspondent account and payable-through account
sanctions, as determined by Treasury or State, consistent with
applicable authorities.
The Secretary of the Treasury generally implements the sanctions
imposed by the Iran program through regulation. Transactions prohibited
by these authorities, including transactions with the purpose of
evading or avoiding sanctions, which are not otherwise licensed by
OFAC, constitute violations of IEEPA or other applicable law. Depending
on the facts and circumstances of a particular matter, an OFAC
investigation may lead to a finding of violation, civil monetary
penalty, or criminal referral.
With respect to your letter's questions, Secretary Mnuchin has met with
senior officials from the Government of Turkey on multiple occasions to
discuss a range of foreign policy and national security issues, and a
list of those meetings, based on the Secretary's official schedule, is
enclosed. At some of those meetings, Turkish government officials
expressed concern about the impact on Halkbank of U.S. economic
sanctions on Iran. As was publicly reported, when Prime Minister
Erdogan raised concerns directly with President Trump in April 2019,
the President referred the issue to the Executive Branch departments
responsible by law for the investigation and enforcement of economic
sanctions-the Treasury and DOJ. As previously noted, the U.S.
Government treats pending criminal matters with utmost sensitivity, and
Treasury is unable to comment on any ongoing prosecution of potential
sanctions violations or potential investigations thereof. The
Secretary's consistent position is that the United States expects full
compliance with all applicable sanctions programs.
If you have further questions, please direct your staff to contact the
Office of Legislative Affairs.
Sincerely,
Frederick W. Vaughan
Deputy Assistant Secretary
Office of Legislative Affairs
cc: The Honorable Charles E. Grassley, Chairman
______
Enclosure
As referenced in the accompanying letter, provided below is a list of
meetings based on Secretary Mnuchin's official schedule involving the
Secretary and senior officials from the Republic of Turkey:
April 22, 2017: Pull Aside at World Bank/IMF Annual Spring
Meetings with Deputy Prime Minister Mehmet Simsek of Turkey.
October 13, 2017: Pull Aside at World Bank/IMF Annual Fall
Meetings with Deputy Prime Minister Mehmet Simsek of Turkey.
July 21, 2018: Bilateral Meeting with Finance Minister Berat
Albayrak of Turkey.
April 12, 2019: Pull Aside at World Bank/IMF Annual Spring
Meetings with Finance Minister Berat Albayrak of Turkey.
April 15, 2019: POTUS Meeting at The White House with Finance
Minister Berat Albayrak of Turkey.
June 29, 2019: POTUS Bilateral Meeting in Osaka, Japan with
President Recep Tayyip Erdogan of Turkey.
November 13, 2019: POTUS Working Lunch at The White House with
President Recep Tayyip Erdogan of Turkey.
______
Communication
----------
Center for Fiscal Equity
14448 Parkvale Road, #6
Rockville, Maryland 20853
[email protected]
Statement of Michael Binder
Chairman Grassley and Ranking Member Wyden, thank you for the
opportunity to participate in the annual budget ritual.
As we all know, the appropriations process for the next fiscal year
takes place within the context of the Bipartisan Budget Act of 2019. In
an election year, staying within the current parameters is the best
course. Early passage makes transition easier for the next
administration and Senate, regardless of electoral outcomes. Even if
the President is reelected, staff turnover is to be expected in the
Department and the Committee. If changes are to be made due to changes
in party, enactment before the election can always be supplemented with
new legislation.
We see three issues of concern for the coming fiscal year. The first is
to provide increased funding for the Office of Tax Policy. Whether tax
cuts or comprehensive reform is on the horizon, having a full partner
in the Department is essential for estimating support and a quick
turnaround from enactment to the issuance of regulator guidance.
The second area of concern is tax administration. While a common
refrain on this to pie is the adequacy of software, this is a canard.
SAS is the current programming language. It is constantly being updated
on the vendor side and training is available, if funded. The problems
are thus training and beta testing, not the age of the software. More
important is the need for stronger audit resources, especially for
complicated high-income and corporate returns. More auditing means more
compliance, even among those who are not audited.
The IRS has lost resources to do this, both through retirement and
underfunding. Using the A-76 process for both programming and auditing
allows for the rehiring of revenue agents and an easier acquisition of
new ones, particularly those with experience in finding loopholes in
the current system. Creating or utilizing more than one firm will keep
labor rates and profits lower. Comprehensive tax reform, which is
discussed next, will also require massive retraining, although the
reforms we propose will shift most such activity to the states. A cadre
of agency and contract experts in more than one firm should be ready to
migrate when this occurs.
Tax reform will reduce complication. Please find our current (and
evolving) proposals for long term reform in Attachment One. While they
are a longer-term prospect than the 2021 appropriation for the
Department, they still fall within the jurisdiction of the Committee.
We do not expect action upon tax reform until the next Congress, but it
is always good to highlight our proposals.
Shifting to a single system for all business taxation, particularly
enacting invoice value-added taxes to collect revenue and employer-
based subtraction value-added taxes to distribute benefits to workers
will end the need for filing for most, if not all, households. Any
remaining high salary surtax would be free of any deductions and
credits and could as easily be collected by enacting higher tiers to a
subtraction VAT. Note that a subtraction VAT collection will closely
duplicate the collection of payroll and income taxes--as well as
employment taxes--but without households having to file an annual
reconciliation except to verify the number of dependents receiving
benefits.
Creation of an Asset VAT to tax capital gains and returns would also
greatly simplify taxation. Recent reforms to corporate, pass-through
and dividend taxation with a consolidated rate of 21% will make
agreement on a final number easier--especially if Affordable Care Act
and Pease taxes are also eliminated. The current tax with these is in
the neighborhood of 23%. It was 25 % in the prior administration. If
both parties agree to end the debate at 24% (or 20% of invoice), K
Street can be converted to high-end condominiums.
There is no reason to fear consumption taxes, as they are implicit in
the current system. These taxes are withheld by employers for the
income and payroll taxes of their labor force. A VAT simply makes these
taxes visible while subtraction value-added taxes make them manageable,
allowing employers to adjust pay more easily for larger families, pay
for health care or insurance and fund public and non-public schools for
dependents and college or technical training for workers, as well as
retirement plans that give employees a stake and a say in the firm and
a more secure retirement.
Tax reform will simplify tax administration on all levels. Firms will
submit electronic receipts for I-VAT and C-VAT credit, leaving a
compliance trail. S-VAT payments to providers, wages and child credits
to verify that what is paid and what is claimed match and that children
are not double credited from separate employers. A-VAT transactions are
recorded by brokers, employers for option exercise and closing agents
for real property. With ADP, reporting burdens are equal to those in
any VAT system for I-VAT and A-VAT and current payroll and income tax
reporting by employers.
Employees with children will annually verify information provided by
employers and IRS, responding by a postcard if reports do not match,
triggering collection actions. The cliche will thus be made real.
High salary employees who use corporations to reduce salary surtax and
pay I-VAT and S-VAT for personal staff. Distributions from such
corporations to owners are considered salary, not dividends.
Transaction-based A-VAT payments end the complexity and tax avoidance
experienced with income tax collection. Tax units with income under
$75,000 or only one employer need not file high salary surtax returns.
Separate gift and inheritance tax returns will no longer be required.
State governments will collect federal and state I-VAT, C-VAT, S-VAT
payments, audit collection systems, real property A-VAT and conduct
enforcement actions. IRS collects individual payroll and salary surtax
payments, perform electronic data matching and receive payments and ADP
data from state. SEC collects A-VAT receipts.
I-VAT gives all citizens the responsibility to fund government. C-VAT
invoices encourage lower carbon consumption, mass transit, research and
infrastructure development. A-VAT taxation will slow market volatility
and encourage employee ownership, while preserving family businesses
and farms. Very little IRS Administration will be required once reform
is fully implemented. All IRS employees could fit in a bathtub with
room for Grover Norquist.
Thank you again for the opportunity to add our comments to the debate.
Please contact us if we can be of any assistance or contribute direct
testimony.
______
Attachment One--Tax Reform, Center for Fiscal Equity, November 13, 2019
Individual Payroll Taxes. These are optional taxes for Old-Age and
Survivors Insurance after age 60 (or 62). We say optional because the
collection of these taxes occurs if an income sensitive retirement
income is deemed necessary for program acceptance. Higher incomes for
most seniors would result if an employer contribution funded by the
Subtraction VAT described below were credited on an equal dollar basis
to all workers. If retained, the ceiling should be lowered to $75,000
reduce benefits paid to wealthier individuals and a floor should be
established so that Earned Income Tax Credits are no longer needed.
Subsidies for single workers should be abandoned in favor of radically
higher minimum wages.
Income Surtaxes. Individual income taxes on salaries, which exclude
business taxes, above an individual standard deduction of $75,000 per
year, will range from 6% to 36%. This tax will fund net interest on the
debt (which will no longer be rolled over into new borrowing),
redemption of the Social Security Trust Fund, strategic, sea and non-
continental U.S. military deployments, veterans' health benefits as the
result of battlefield injuries, including mental health and addiction
and eventual debt reduction. Transferring OASDI employer funding from
existing payroll taxes would increase the rate but would allow it to
decline over time. So would peace.
Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes,
dividend taxes, and the estate tax. It will apply to asset sales,
dividend distributions, exercised options, rental income, inherited and
gifted assets and the profits from short sales. Tax payments for option
exercises and inherited assets will be reset, with prior tax payments
for that asset eliminated so that the seller gets no benefit from them.
In this perspective, it is the owner's increase in value that is taxed.
As with any sale of liquid or real assets, sales to a qualified broad-
based Employee Stock Ownership Plan will be tax free. These taxes will
fund the same spending items as income or S-VAT surtaxes. This tax will
end Tax Gap issues owed by high-income individuals. A 24% rate is
between the GOP 20% rate and the Democratic 28% rate. It's time to quit
playing football with tax rates to attract side bets.
Subtraction Value-Added Tax (S-VAT). These are employer paid Net
Business Receipts Taxes that allow multiple rates for higher incomes,
rather than collection of income surtaxes. They are also used as a
vehicle for tax expenditures including health care (if a private
coverage option is maintained), veterans' health care for non-
battlefield injuries, educational costs borne by employers in lieu of
taxes as either contributors, for employee children or for workers
(including ESL and remedial skills) and an expanded child tax credit.
The last allows ending state administered subsidy programs and
discourages abortions, and as such enactment must be scored as a must
pass in voting rankings by pro-life organizations (and feminist
organizations as well). An inflation adjustable credit should reflect
the cost of raising a child through the completion of junior college or
technical training. To assure child subsidies are distributed, S-VAT
will not be border adjustable.
The S-VAT is also used for personal accounts in Social Security,
provided that these accounts are insured through an insurance fund for
all such accounts, that accounts go toward employee ownership rather
than for a subsidy for the investment industry. Both employers and
employees must consent to a shift to these accounts, which will occur
if corporate democracy in existing ESOPs is given a thorough test. So
far it has not.
S-VAT funded retirement accounts will be equal dollar credited for
every worker. They also has the advantage of drawing on both payroll
and profit, making it less regressive.
A multi-tier S-VAT could replace income surtaxes in the same range.
Some will use corporations to avoid these taxes, but that corporation
would then pay all invoice and subtraction VAT payments (which would
distribute tax benefits). Distributions from such corporations will be
considered salary, not dividends.
Invoice Value-Added Tax (I-VAT). Border adjustable taxes will appear on
purchase invoices. The rate varies according to what is being financed.
If Medicare for All does not contain offsets for employers who fund
their own medical personnel or for personal retirement accounts, both
of which would otherwise be funded by an S-VAT, then they would be
funded by the I-VAT to take advantage of border adjustability. I-VAT
also forces everyone, from the working poor to the beneficiaries of
inherited wealth, to pay taxes and share in the cost of government.
Enactment of both the A-VAT and I-VAT ends the need for capital gains
and inheritance taxes (apart from any initial payout). This tax would
take care of the low income Tax Gap.
I-VAT will fund domestic discretionary spending, equal dollar employer
OASI contributions, and non-nuclear, non-deployed military spending,
possibly on a regional basis. Regional I-VAT would both require a
constitutional amendment to change the requirement that all excises be
national and to discourage unnecessary spending, especially when
allocated for electoral reasons rather than program needs. The latter
could also be funded by the asset VAT (decreasing the rate by from
19.5% to 13%).
As part of enactment, gross wages will be reduced to take into account
the shift to S-VAT and I-VAT, however net income will be increased by
the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will
replace pass-through and proprietary business and corporate income
taxes.
Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility,
which allows comparison shopping based on carbon content, even if it
means a more expensive item with lower carbon is purchased. C-VAT would
also replace fuel taxes. It will fund transportation costs, including
mass transit, and research into alternative fuels (including fusion).
This tax would not be border adjustable.
[all]