[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]




                   THE PRESIDENT'S FISCAL YEAR BUDGET
                  PROPOSAL WITH U.S. SECRETARY OF THE
                         TREASURY JACOB J. LEW

=======================================================================

                                HEARING

                               before the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             SECOND SESSION
                               __________

                           FEBRUARY 11, 2016
                               __________

                          Serial No. 114-FC10
                               __________

         Printed for the use of the Committee on Ways and Means




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                      COMMITTEE ON WAYS AND MEANS

                      KEVIN BRADY, Texas, Chairman

SAM JOHNSON, Texas                   SANDER M. LEVIN, Michigan
DEVIN NUNES, California              CHARLES B. RANGEL, New York
PATRICK J. TIBERI, Ohio              JIM MCDERMOTT, Washington
DAVID G. REICHERT, Washington        JOHN LEWIS, Georgia
CHARLES W. BOUSTANY, JR., Louisiana  RICHARD E. NEAL, Massachusetts
PETER J. ROSKAM, Illinois            XAVIER BECERRA, California
TOM PRICE, Georgia                   LLOYD DOGGETT, Texas
VERN BUCHANAN, Florida               MIKE THOMPSON, California
ADRIAN SMITH, Nebraska               JOHN B. LARSON, Connecticut
LYNN JENKINS, Kansas                 EARL BLUMENAUER, Oregon
ERIK PAULSEN, Minnesota              RON KIND, Wisconsin
KENNY MARCHANT, Texas                BILL PASCRELL, JR., New Jersey
DIANE BLACK, Tennessee               JOSEPH CROWLEY, New York
TOM REED, New York                   DANNY DAVIS, Illinois
TODD YOUNG, Indiana                  LINDA SANCHEZ, California
MIKE KELLY, Pennsylvania
JIM RENACCI, Ohio
PAT MEEHAN, Pennsylvania
KRISTI NOEM, South Dakota
GEORGE HOLDING, North Carolina
JASON SMITH, Missouri
ROBERT J. DOLD, Illinois
TOM RICE, South Carolina

                     David Stewart, Staff Director

         Janice Mays, Minority Chief Counsel and Staff Director




















                            C O N T E N T S

                               __________
                                                                   Page

Advisory of February 11, 2016 announcing the hearing.............     2

                               WITNESSES

The Honorable Jacob J. Lew, Secretary of the Treasury, U.S. 
  Department of the Treasury.....................................     6

                        QUESTIONS FOR THE RECORD

Chairman Kevin Brady of Texas to Jacob J. Lew....................   100
Charles W. Boustany, Jr. of Louisiana to Jacob J. Lew............   101
Robert J. Dold of Illinois to Jacob J. Lew.......................   108
Mike Kelly of Pennsylvania to Jacob J. Lew.......................   110
Richard E. Neal of Massachusetts to Jacob J. Lew.................   113
Kristi Noem of South Dakota to Jacob J. Lew......................   114
Charles B. Rangel of New York to Jacob J. Lew....................   115
Peter J. Roskam of Illinois to Jacob J. Lew......................   117
Patrick J. Tiberi of Ohio to Jacob J. Lew........................   118

 
                     PRESIDENT'S FISCAL YEAR BUDGET
                  PROPOSAL WITH U.S. SECRETARY OF THE
                         TREASURY JACOB J. LEW

                              ----------                              


                      THURSDAY, FEBRUARY 11, 2016

             U.S. House of Representatives,
                       Committee on Ways and Means,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:05 a.m. in 
Room 1100 Longworth House Office Building, the Honorable Kevin 
Brady [Chairman of the Committee] presiding.
    [The advisory announcing the hearing follows:]
    
    
    
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    Chairman BRADY. The committee will come to order. Thank you 
for joining us today. Secretary Lew, welcome. We appreciate 
your time. Welcome today to today's Ways and Means Committee 
hearing on the President's budget proposal for the Department 
of the Treasury for Fiscal Year 2017.
    But before we begin I would like to take a moment to 
recognize a long-time Ways and Means staffer who will be 
attending her last budget hearing today. Margaret Hostetler is 
retiring in the coming days, after serving on the committee 
staff since 1987. She recently worked on Social Security 
Subcommittee staff, and is the all-time expert on budgets, 
trust funds, debt limits, and more. Her expertise extends back 
even before her time on the committee, to the early 1980s, when 
she--do you really want all these years laid out, Margaret, 
like this?
    [Laughter.]
    Chairman BRADY. Well, when she served on the House Budget 
Committee staff for then-Chairman Bill Roth of Delaware, she 
helped design the Thrift Savings Plan for federal workers, the 
original Gramm-Rudman law in the 1986 tax reform. She is a 
walking encyclopedia of committee and congressional history, 
and we wish her the very best in the next phase of her life.
    Margaret, congratulations on the job well done.
    [Applause.]
    Chairman BRADY. Mr. Secretary, we are not fans of the 
budget the President proposed. I do want to begin by saying 
thank you for the collaborative work and successful work in 
making permanent a number of the temporary tax provisions at 
the end of last year. I think that both creates certainty for 
our economy and our businesses, and I think lays the foundation 
for pro-growth tax reform, going forward. So thank you for that 
work with this Committee.
    We are not fans of this budget, because either President 
Obama didn't take the budget process seriously this year, or he 
is completely out of touch with the American people. It is hard 
to imagine how he could believe people would support a budget 
that contains a $3.4 trillion tax increase and $2.5 trillion in 
new spending.
    For another fiscal year his extremely liberal budget is 
focused on growing Washington, not growing our economy. This 
document appears to exist solely to promote the President's 
liberal legacy. It is a disservice to the American people. And 
while he gets to leave office at the end of the year, Americans 
will still be expected to pay for this irresponsible spending, 
if Congress were to follow this plan. So, instead of solving 
real problems, this budget just makes life more expensive for 
Americans.
    American people want jobs and opportunity, not higher taxes 
or more wasteful Washington spending. And while I believe the 
majority of this budget is completely irresponsible, I would 
like to talk to you today about three of my top concerns.
    First, the President's plan to increase gas prices by $.25 
per gallon is just absurd. Gas prices are low today, but we all 
know that will not always be the case. This new tax would have 
ripple effects across the economy, and constitutes a regressive 
tax on consumer goods and services that would hit Americans 
with fixed income the hardest, especially our senior citizens.
    The good news is the American people do not have to worry 
about this horrible idea. I feel confident that I can speak for 
the 24 Republican Members on our committee when I say this tax 
proposal is dead, and dead on arrival.
    Secondly, I am absolutely opposed to the President's plan 
to impose significant new taxes on small businesses, expanding 
the net investment income tax to all small business income. Mr. 
Secretary, our country is already experiencing economic growth, 
and millions of Americans had really just given up looking for 
a new job.
    So, instead of finding new ways to add additional tax 
burdens on our small businesses, this Administration should do 
everything possible to encourage Americans to start small 
businesses, hire new workers, and build success stories of 
tomorrow. This new tax hike is another proposal that will not 
see the light of day in this Congress.
    And finally, the President's budget doesn't address the 
fundamental problems of our broken Tax Code. Instead, it 
contains tax proposals that will actually make it harder for 
American companies to compete and succeed overseas and hire new 
workers here at home.
    Members of the Ways and Means Committee are working to 
provide the American people with a better alternative. So 
instead of higher taxes and more spending, we are committed to 
a pro-growth agenda that will help create jobs, increase 
paychecks, and expand opportunities for all Americans. So, 
despite my objections to many of the proposals in this budget, 
I do hope that we can reach common ground on some policies and 
build on the momentum from last December's PATH Act, the 
permanency bill.
    Our first effort must be to address our broken 
international tax rules and the growing threat to American 
worldwide companies. The risks are far greater than many 
perceive. These companies provide good-paying jobs across this 
country, and they are key partners to the thousands of local 
businesses in each of our districts that supply goods and 
services throughout the supply chain.
    We simply can't ignore the broad ramifications of our 
outdated international tax rules a minute longer. If we can 
seize the opportunity to move forward in this critical area, I 
am confident we can keep the ball rolling. I am hopeful we can 
count on working with you, Mr. Secretary, to take some 
important steps toward the pro-growth economy every American 
wants and needs.
    And thank you again for joining us today. We appreciate 
very much your time, and look forward to your testimony.
    With that I now yield to the distinguished ranking member 
from Michigan, Mr. Levin, for the purposes of an opening 
statement.
    Mr. LEVIN. Thank you, Mr. Chairman. Well, it is interesting 
to hear you attack the budget and then talk about looking for 
common ground. I don't know how you look for common ground if 
you won't hear testimony from the person who is the director of 
OMB.
    I have been here now 33 years. I don't remember when there 
was a failure to take testimony from OMB directly. I guess this 
is part of a political tactic of the Republican Majority in the 
House and the Senate, but it is beyond explanation. And I think 
it undermines the credibility of all of your attacks.
    The Secretary is here--and, Mr. Secretary, you have 
presented some very comprehensive testimony. I guess you drew 
upon your experiences heading up OMB. And I guess you will have 
to today stand in, in a sense, not only as the Secretary of the 
Treasury, but defending the budget at large. And you do that 
very, very well, and spell out the progress that has been made 
today and the progress that needs to be undertaken in the 
future.
    But I think it is a lame excuse to talk about tax reform as 
a reason not to take any steps to address present tax problems. 
And one of them relates to inversions. And, Mr. Secretary, I am 
going to be asking you about this, and I think others will. 
What has been happening here while the Republican Majority has 
been essentially asleep, in terms of action on tax reform, is 
that more and more companies are moving overseas in name only, 
in order to avoid paying taxation, taxes.
    The most recent example is Johnson Controls. So they are 
now joining Tyco. Tyco, which inverted before, they are now 
Ireland-based, and they moved their headquarters from New 
Jersey in the 1990s. So here you have a company, Johnson 
Controls, that benefitted dramatically from the action that was 
taken to save the auto industry of this country, led by the 
Administration. And they are essentially using a loophole to 
draw down their tax payments.
    We have introduced legislation, the Democrats in this House 
as well as the Senate, to address inversions. This Majority 
refuses to act. The CBO, or the tax committee, has indicated 
that we could save over $40 billion--that is the CBO estimate--
over 10 years, if we would pass that legislation. But you just 
sit on your hands while companies take advantage of loopholes. 
And you say you want tax reform, and you use it as an excuse to 
do nothing.
    So why not act now on this inversion legislation? Why not? 
Some of you have said it is a problem, but you don't act. And 
more and more companies are inverting, losing income, and doing 
something that citizens are not allowed to do. Citizens can't 
simply change their address, maintain their life here, and pay 
lower taxes. But Johnson Controls can do that, Pfizer has done 
that, and numerous other companies.
    So, I hope today, Mr. Chairman and Mr. Secretary, we will 
focus on actions that can be undertaken right now on loopholes, 
and not use the excuse of needed overall tax reform as a reason 
to do nothing.
    Welcome, Mr. Secretary.
    Chairman BRADY. Without objection, other Members' opening 
statements will be made part of the record.
    Our sole witness today is the Honorable Jacob J. Lew, 
Secretary of the U.S. Treasury Department. Secretary Lew was 
confirmed as the 76th Secretary of the Treasury on February 27, 
2013. Prior to that he served as the White House chief of 
staff, as well as director of the Office of Management and 
Budget.
    Welcome, Secretary Lew. The committee has received your 
written statement; it will be made part of the formal hearing 
record. And you have five minutes to deliver your remarks, and 
please begin them when you are ready. Welcome.

  STATEMENT OF JACOB J. LEW, SECRETARY OF THE TREASURY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Secretary LEW. Well, thank you, Mr. Chairman, Ranking 
Member Levin. It is a pleasure to be here for the first time 
with you as chairman, Chairman Brady. And I look forward to 
this testimony.
    As President Obama said in the State of the Union just a 
few weeks ago, this is a time of extraordinary change. And to 
make change work for the American people, we need to foster 
economic opportunities for all to leverage new technologies, to 
solve urgent problems, such as climate change, pursue a smart 
foreign policy that protects our national security, and work 
together to improve our political discourse.
    What we do in each of these areas is crucial to our future, 
as a nation. Today I will discuss the major aspects of the 
President's budget, and how it lays out a vision for what we 
need to do as a country, both now and over the next 5 to 10 
years and beyond, to create growth and to make sure that 
opportunity is broadly shared.
    In the seven years since President Obama took office amidst 
the worst financial crisis since the Great Depression, we have 
seen a sustained economic recovery and an unprecedented decline 
in the federal deficit. Notwithstanding some of the recent 
volatility that we have seen in financial markets, economic 
growth continues at a solid pace.
    Since my testimony a year ago, our economy has continued 
its record-breaking streak of private-sector job creation, 
which has reached nearly 6 consecutive years and more than 14 
million jobs.
    Over the last two years we have experienced the strongest 
job creation since the 1990s. At 4.9 percent, the unemployment 
rate is half of its 2009 peak; real GDP expanded 1.8 percent 
last year, a pace of expansion that substantially exceeded many 
of our major trading partners; and we continue on a sound 
fiscal path. From Fiscal Year 2009 to 2015, the deficit, as a 
share of GDP, fell by almost three-quarters to two-and-a-half 
percent.
    Despite this progress, we have much more to do to fully 
address the challenges associated with our new economy. The 
President's Fiscal Year 2017 budget puts forward the building 
blocks of a social compact for the 21st century, creating the 
conditions for sustained economic growth, while upholding the 
basic American belief that everyone who works hard should get a 
fair shot at success.
    It shows that investments in growth and opportunity are 
consistent with and contribute to putting the nation's finances 
on a strong and sustainable path, and the budget substitutes 
more balanced deficit reduction and ends sequestration, while 
making other critical investments and addressing our fiscal 
challenges over the next 10 years.
    Today I would like to briefly focus on three key areas of 
the President's budget, including our proposals to reform the 
Tax Code, invest in infrastructure, and support working 
families.
    First, fixing America's business tax system is essential to 
promoting long-term growth and broad-based prosperity. The 
budget includes a number of concrete tax reform proposals to 
make our tax system more strong and more fair, including a 
complete reform of our international tax system, and a specific 
proposal to close the inversion loophole.
    While inversions may be legal, it is wrong for companies to 
take advantage of our infrastructure, education, support for 
research, and rule of law, and then avoid paying their fair 
share of U.S. taxes. I look forward to working with this 
Committee and this Congress to close the door to inversions.
    Second, we need to invest more in modern infrastructure 
that will create middle-class jobs in the short term and meet 
the needs of a growing economy in the long term. To accomplish 
this, the Administration has proposed a phased-in, $10-per-
barrel fee on oil production and import that will ensure that 
we better manage the cost associated with fossil fuel use to 
provide a long-term solvency for the highway trust fund, and 
offer new funding for clean energy investments.
    This budget also funds an expanded core infrastructure 
program and takes small steps to level the playing field for 
private investment and public infrastructure through the 
Financing America's Infrastructure Renewal, or FAIR, program.
    Third, we must support working families. This budget seeks 
to respond to the changing relationship between workers and 
their employers. For example, it proposes expanded unemployment 
insurance and introduces a new wage insurance program to help 
families stay on their feet when under-employed as part of a 
job transition.
    This budget also proposes to expand access to workplace 
retirement savings opportunities, complementing our success 
with the new MyRA program launched last year to help those 
without savings or retirement options at work begin to save for 
the future.
    In conclusion, the President's budget will create a 
stronger, more inclusive economy today and in the future, while 
also maintaining fiscal responsibility.
    Of course, we must also work together to respond to more 
immediate events. For example, Puerto Rico, where unemployment 
remains above 12 percent, is experiencing an unsustainable debt 
crisis. The Administration proposed a comprehensive plan to 
address the commonwealth's financial challenges, and I 
encourage Congress to act with the speed this crisis requires. 
This must begin with legislation to permit a financial 
restructuring, along with new oversight, neither of which cost 
any taxpayer dollars.
    This budget does not address every challenge we face. As 
the President said in the State of the Union, ``Progress is not 
inevitable. But rather, it is the product of choices that we 
make together, as a nation.'' We face a number of big choices 
in the coming years. For example, we still need to take action 
to strengthen Social Security to keep true to our commitments 
to previous and future generations of workers.
    The decade of fiscal responsibility laid out by this budget 
gives us the time we need to address these long-term 
challenges. In the recent agreement on the debt limit and the 
budget not only demonstrates that we have the capacity to find 
common ground on difficult issues, but it lays a foundation to 
address the immediate challenges we face.
    I look forward to working with this Committee to make more 
progress over the coming year. Thank you very much, and I look 
forward to answering your questions.
    [The prepared statement of Mr. Lew follows:]
    
    
    
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    Chairman BRADY. Great, thank you, Mr. Secretary, for your 
testimony. We will now proceed to the question and answer 
sessions.
    Before we talk tax reform, let me talk tax hikes. The 
President has proposed a major new tax hike on working 
families, a very divisive $10-per-barrel oil tax, which really 
is a hidden gas tax that would relate to about $.25 a gallon. 
The time, frankly, paychecks have been stagnant for seven or 
eight years, if not longer, families are really struggling--
businesses to make ends meet--this is a huge, divisive 
regressive fuel tax increase that really falls on middle-class 
families.
    And so, the question is, how did the President think this 
new gas tax would help grow the economy?
    Secretary LEW. Well, Mr. Chairman, to begin with, you know, 
the oil fee is a way to help manage resources to reflect the 
cost that consuming oil imposes on our citizens and on our 
environment.
    At the same time, we have tremendous transportation and 
infrastructure needs that we need to address. And the oil fee 
provides a basis for both funding the highway trust fund and 
funding new investments in infrastructure and in new technology 
that will help America and American workers today and in the 
future.
    There is a not exact correlation between an oil fee and 
what gets passed through, so I am not going to comment on the 
amount that would be passed through, but I would point out that 
it is a $10-a-barrel fee that is implemented over 5 years. And 
if you just do that simple division, you know, $2 a barrel, 
right now we are seeing oil prices move on an hourly and daily 
basis in amounts that make $2 a barrel seem like small, not 
large, movements.
    So I think this is the perfect time to have a conversation 
about a policy like this, and we look forward to engaging. And 
we have proposed a mechanism to make sure that low-income 
families that have fixed consumption needs and can't bear any 
burden have a way to get extra help out of it.
    So we would look forward to working to make this something 
that could be implemented in a way that is fair to all 
Americans.
    Chairman BRADY. Thank you, Mr. Secretary. One, I appreciate 
your explanation of it. My only advice is don't spend too much 
time on it. It is going nowhere fast.
    I appreciate--while I didn't see a lot of new proposals on 
the tax reform area within the budget, I know that you have a 
deep interest in simplifying this code, making it more 
competitive, sort of going beyond the Band-Aids of what we hear 
about inversions, actually going to the real problem. And I 
feel like we have got some bipartisan momentum because of the 
permanency bill that we passed.
    Can you give me your thoughts on where we may have common 
ground?
    Secretary LEW. I would be happy to, Mr. Chairman. And I--we 
have talked about this on quite a number of occasions. I think 
this is an area where we ought to be able to find bipartisan 
ground.
    You look at the consequences of delay on business tax 
reform, and they are enormous. We are seeing it in the 
inversions that have already been referred to. We need to stop 
the inversions, and the best way to stop the inversions is to 
reform our business Tax Code.
    We are also seeing very troubling trends. Just today I 
wrote to the President of the European Commission, objecting to 
action that is being taken in Europe in the name of state aid 
subsidy actions that essentially takes a--makes an attempt to 
undermine our Tax Code by having a tax imposed overseas on what 
should be income in the United States. We need to fix the 
business Tax Code to get that money back.
    If we can do that, if we can close loopholes that are 
inefficient, if we can lower the business tax rates and require 
that overseas income be brought home, we also have the 
resources to make a significant investment in our 
infrastructure needs, going forward. I think those are 
ingredients that we ought to be able to make progress on.
    What I would say is if we can't make broad progress on 
inversions--on business tax reform, we can't ignore inversions 
this year. Congress needs to act. We can't look back a year 
from now and say we should have stopped that. We need--Congress 
needs to act.
    Chairman BRADY. You know, I agree, and especially in the 
sense that there is an urgency. My worry is that we are 
becoming more and more isolated, more and more companies feel 
their only option--and shareholders--is to invert or face a 
hostile takeover from a foreign country. And shame on us----
    Secretary LEW. Correct.
    Chairman BRADY [continuing]. If we don't act to stop this 
from going forward.
    So, my sense is you are committed to working with us, 
trying to find that common ground to act this year, if 
possible, in this area.
    Secretary LEW. I consider this a year of work. We have a 
lot to do this year, and I look forward to getting this done.
    I realize there is not a lot of people who are optimistic 
about it, but we need to put the effort in to create the 
possibility.
    Chairman BRADY. Yes, I agree. Final point--the IRS is still 
a scandal-ridden agency that just doesn't have credibility any 
more. You know, nearly three years ago, Treasury Inspector 
General, the watchdog for the tax administration, issued a 
report confirming the IRS did use inappropriate criteria to 
identify applications for tax-exempt status for extra scrutiny. 
The targeting of American citizens based on their political 
beliefs highlights the potential avenues for abuse within the 
agency, and the many ways in which the discretion afforded 
within the Tax Code can be manipulated and exploited.
    My view is the IRS's actions have completely demoralized 
the IRS from within, caused American people to lose confidence 
in it. To date, to my view, Treasury and IRS have taken no 
concrete steps to restore that credibility and ensure this 
abuse of power doesn't happen again. Just the opposite: IRS 
proposed a new rule that would make it easier for them to 
target Americans.
    Furthermore, this Committee asked GAO to review the whole 
IRS selection process, and the GAO concluded it is still 
possible for American citizens to be targeted for audits based 
on the political, education, or religious beliefs, which is 
why, in the permanent PATH Act, we have for the first time a 
ban on the IRS targeting Americans for their political beliefs 
or using personal emails for business.
    So, my question is, I know you too want an IRS that is 
credible again, that is neither seen Republican or Democrat, 
but actually is following the law in how they audit and how 
they handle these tax applications. What is Treasury doing to 
restore the credibility of the IRS?
    Secretary LEW. Mr. Chairman, I think you and I agree 
completely the actions that gave rise to your concerns were 
unacceptable. And action was taken immediately to replace all 
of the senior people involved, and to make sure that it could 
never happen again. We brought in a new IRS commissioner, who I 
think has done a tremendous job under very difficult 
circumstances at a time when the funding for the IRS budget 
being cut was causing huge morale problems at the IRS, not the 
issue that you are describing. It was the fact that they didn't 
have enough people to answer the phones.
    Last year we made some progress. We actually saw, for the 
first time in several years, an increase in the IRS budget to 
fund answering the phones, to help us deal with cyber security 
threats, to help us fix our computer system. I think the IRS is 
doing a tremendous job. The 90,000 people at the IRS who did 
nothing wrong have been criticized for what a few people that 
we all criticized for their actions did.
    We need to support the people at the IRS so that they can 
run a tax system that is worthy of our country. We can't not 
have people to answer the phone or enforce the Tax Code.
    Chairman BRADY. My belief is this IRS commissioner is less 
credible than the one before, who was less credible than the 
one before that. And the line of work has to be done--you will 
hear from Members today about the abysmal service at the IRS, 
and the real problems still there.
    So, look, we are going to disagree in a big way, and this 
Committee is going to pursue this until we are sure Americans 
can't be targeted, and they are getting the service they need.
    Secretary LEW. You have 100 percent agreement from us that 
Americans should not be targeted for their political beliefs. 
That is unacceptable. Whoever does it is wrong, if they do it. 
And that is the view of the Administration, it is the view of 
the IRS commissioner, and I look forward to working together to 
make sure we can build confidence in that, because that is very 
important.
    Chairman BRADY. Thank you, Secretary.
    As I turn to Mr. Levin I would like to note that, while he 
lamented OMB not being invited for this fiscal year budget, as 
though that happens every year, the truth is last time OMB has 
testified on the President's budget at Ways and Means was in 
2011 on that 2012 budget, and the OMB director at the time, I 
am pretty sure it was you, Secretary Lew----
    Secretary LEW. I seem to be invited to testify wherever I 
am sitting.
    [Laughter.]
    Chairman BRADY. That doesn't seem to be a problem.
    Mr. Levin, you are recognized.
    Mr. LEVIN. Oh, but look, the budget director isn't being 
asked to testify before the budget committee.
    Chairman BRADY. We are the Ways and Means Committee.
    [Laughter.]
    Mr. LEVIN. I know, but there is another committee called 
the Budget Committee. Defend why the Budget Committee is not 
asking the director of OMB to testify.
    Chairman BRADY. Well, I will tell you what. I will give you 
Mr. Price's phone number, and you can visit with him shortly 
about it.
    [Laughter.]
    Mr. LEVIN. No, my suggestion is you have his phone number, 
call him up and ask why.
    Chairman BRADY. I think we will get a chance to explore 
that in a moment.
    Mr. LEVIN. Mr. Price? Where is----
    Mr. PRICE. Will the gentleman yield?
    Mr. LEVIN. I will yield.
    Mr. PRICE. Well, I appreciate that. We are on a short 
timeline this year in order to get the budget done, and so 
the----
    Mr. LEVIN. All right.
    Mr. PRICE. And as a matter of fact----
    Mr. LEVIN. I will take back my time
    Mr. PRICE [continuing]. When the President's budget came to 
the floor, only two Democrats voted for it out of the entire 
Congress in----
    Mr. LEVIN. Okay. But look, that is not, Mr. Price, a reason 
not to hear from him. That is worse than a lame excuse.
    Let me just say you said shame on us, Mr. Chairman. When it 
comes to these loopholes, really, it is shame on you. So I want 
to ask the Secretary, because we favor corporate tax reform, 
looking at it. This has been going on for years. Is there good 
reason not to act on the inversion issue because we have failed 
to act on corporate tax reform, Mr. Secretary?
    Secretary LEW. Congressman Levin, I would have to say that 
the right thing to do is to reform our Tax Code, because the 
problem in our Tax Code is we have these huge inefficiencies, 
loopholes, deductions, and rates that are statutory rates that 
are too high.
    But we have to deal with inversions. If we can't deal with 
the whole Tax Code, I don't think that we can justify--I can't; 
I hope this Committee can't justify--doing nothing while 
another year of inversions goes on.
    We are doing everything we can, administratively, to stop 
inversions. We have put out two pieces of guidance that have 
had some effect. We are working on another one. But we have 
made clear from the very start the only way to stop inversions 
is through legislation.
    So, if you gave me a choice, I would choose business tax 
reform that fixes the problem properly. But if that can't 
happen, I strongly urge that you look at doing something on 
inversions, because I don't think anyone a year from now is 
going to look back and say they didn't do anything, while more 
companies moved overseas.
    Mr. LEVIN. All right. Let me ask you. Related to that is 
the issue of earning stripping. And there has been recent 
discussion about how, when companies invert, they then utilize 
earning strippings to make it worse. And we are gong to be 
introducing legislation once again relating to this.
    Just tell us what you think about this, and the limits on 
your authority, and why it is necessary for Congress to act.
    Secretary LEW. Congressman, I think if you look at the----
    Mr. LEVIN. Describe it so everybody understands what 
happens.
    Secretary LEW. So, you know, earning stripping is when a 
company moves overseas and it assigns the earnings to the lower 
tax jurisdiction to avoid taxes. And, you know, there are ways 
of addressing that on a freestanding basis.
    We have provisions which would stop inversions and stop 
earning stripping. You could pull that out of our business tax 
reform proposal. I haven't seen the proposal that you have 
described whether it is the same or not, but it certainly is 
possible to do that.
    Now, I do not want to be unclear. I think it is far 
superior to do it in the context of real business tax reform. 
But you could pull those provisions out and, if you can't do 
full business tax reform, we should. Because what we can do 
administratively--we are looking at what we can do on earning 
stripping, but we don't have a very sharp scalpel, in terms of 
the options that we have, administratively. We are very 
careful, using our administrative authority within the 
boundaries that we have. You have the ability to write a law 
that would make it much more precise.
    Mr. LEVIN. Thank you. I yield back.
    Chairman BRADY. Thank you. Mr. Johnson, you are recognized.
    Mr. JOHNSON. Thank you, Mr. Chairman.
    Mr. Secretary, welcome back. As the Secretary of the 
Treasury, you also serve as managing trustee for Social 
Security.
    Mr. JOHNSON. And on the screen you will see the size of the 
Social Security shortfall each year since 2009.
    I know we talked about this last year, but it seems to me 
the news just keeps getting worse for Social Security.
    My question is, just for the record, do you agree that 
Social Security finances have gotten worse since Obama took 
office in 2009----
    Secretary LEW. Well----
    Mr. JOHNSON [continuing]. Yes or no?
    Secretary LEW. No. Look, I think that looking at the 
chart--which I am having a little trouble reading, but I think 
I can see--the--you know, we knew for decades that the Baby 
Boomer retirement was going to start increasing the amount of 
draw on the trust fund. That is why we built up reserves in the 
trust fund, so that it could be drawn down when the Baby Boom 
retired.
    I think, if you look at the life span of the Social 
Security trust fund, we have seen it actually improve from year 
to year--not every year, but--so I don't think just looking at 
what the draw in the trust fund is. The question is, do we 
stand behind the trust fund? I think we should stand behind the 
trust fund. American workers pay into the Social Security trust 
fund----
    Mr. JOHNSON. I hear you.
    Secretary LEW [continuing]. So it can be there when they 
retire.
    Mr. JOHNSON. My question was do you think that finances 
have gotten worse since you all took office?
    Secretary LEW. I think that the Baby Boomers started 
retiring since we took office. I have certainly gotten seven 
years older. So I know it in a very personal way.
    I don't think we can pretend that the Baby Boom won't 
continue to retire each year, which is why we knew that we were 
going to have a period where benefits were going to grow, and 
we needed to have reserves to draw down.
    I think what is not on the chart that you are showing me is 
the actions taken in the period from, like, 2000 to 2009 that 
affected our overall fiscal posture. In the unified budget 
terms, the question is are we able to do it. We need to make 
sure we can pay Social Security, and it is our obligation, as 
we deal with the rest of the budget, not to make Social 
Security the victim because we have other budget challenges we 
have to----
    Mr. JOHNSON. Well, let me show you what the President said 
about Social Security in his first budget submission in 2009. 
It is on the screen.
    [Slide]
    Mr. JOHNSON. For the next six budgets, the President 
basically repeated the same message. But this year what has he 
had to say? Nothing. Not a single sentence about fixing Social 
Security.
    I would like to ask unanimous consent to insert into the 
record these quotes from previous budgets on Social Security.
    [No response.]
    Chairman BRADY. Without objection.
    [The information follows:]
    
    
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    Mr. JOHNSON. Question two, as managing trustee of Social 
Security's trust funds, don't you believe we need to act now to 
fix Social Security?
    Secretary LEW. Congressman, I have worked on Social 
Security for almost 40 years.
    Mr. JOHNSON. I know you have.
    Secretary LEW. I had a significant hand in the 1983 
reforms, which I--are one of the things I am very proud of in 
my career. I have always thought that the sooner we could have 
a bipartisan conversation on dealing with Social Security, the 
better. But, you know, that is going to require a willingness 
on both sides to talk about things, you know, which involve 
taxes as much as benefits.
    We haven't been in an environment like that. In 1983 it 
worked. I hope we get to that point in a political debate, 
conversation, where we can have that conversation again.
    Mr. JOHNSON. Well, I----
    Secretary LEW. I don't think there is an urgent crisis. I 
don't think Americans should worry that their Social Security 
won't be there.
    Mr. JOHNSON. Well, I think----
    Secretary LEW. The reality is----
    Mr. JOHNSON [continuing]. Some of them do. And you know, we 
needs to get to work today, and I think you agree.
    You know, Americans who depend on Social Security, and 
those who are working today and paying thousands of dollars a 
year into Social Security, they want, need, and deserve better.
    Secretary LEW. Yes, I agree. I think Americans deserve to 
count on their Social Security. And the thing that we just have 
to tell Americans is that the shortfall that we look at over 
the next 75 years, even at its worst, leaves their Social 
Security 75 percent funded. We have a gap, we have time to deal 
with it. It has to be dealt with on a balanced, even-handed 
basis.
    I have always thought that the sooner, the better. This has 
not been a five or seven-year period when we have had the 
conditions for that kind of conversation.
    Mr. JOHNSON. I agree with you, but the President didn't say 
one word about it. Thank you very much, yield back.
    Chairman BRADY. Thank you. Mr. Rangel, you are recognized.
    Mr. RANGEL. Thank you, Mr. Chairman. Well, it didn't 
surprise me, Mr. Chairman, that you would say that the 
Administration proposal is dead on arrival, because I think 
that was determined some seven years ago, that anything coming 
out of the Administration would be considered dead on arrival. 
But this is the end, and I am so--it is so painful that we 
can't find some common ground as we end the Obama 
Administration and our country finds itself in a position that 
we are asking foreign governments to be kind to us as relates 
to how they tax the corporations that have left the United 
States.
    Are you saying, Mr. Secretary, that you have written a 
letter to the European Union, asking them not to take advantage 
of our tax system by taxing U.S. corporations that have left 
our country and settled abroad? Are you asking----
    Secretary LEW. No, that--what I have written to them----
    Mr. RANGEL. What are you asking?
    Secretary LEW. Yes. What I have written to them is that 
U.S. corporations that keep their income overseas, they are 
still subject to U.S. taxes. I, in the letter, say that we need 
to enact business tax reform and bring that money home.
    Mr. RANGEL. We have to----
    Secretary LEW. We have to do that.
    Mr. RANGEL. What are you asking----
    Secretary LEW. Well, what they shouldn't be doing is they 
shouldn't be leveeing taxes on the income that should be taxed 
here.
    Mr. RANGEL. Why? Under what theory of international law are 
you asking foreign countries not to tax income that we feel 
belong to us but we----
    Secretary LEW. Well----
    Mr. RANGEL [continuing]. Refuse to reform our Tax Code to 
get the income?
    Secretary LEW. The fact that Congress has not yet enacted 
tax reform doesn't change the basic principles of what is 
subject to tax in the United States. If the intellectual 
content and the innovation is in the United States, there is a 
substantial tax due in the United States when that money comes 
home.
    Because the money hasn't been repatriated, it is sitting, 
for the moment, not taxed. We have said that money should come 
home. In our tax reform proposal, it would all come home and be 
taxed at 19 percent----
    Mr. RANGEL. If the foreign countries tell you, like the 
Republicans are telling you, that your request is dead on 
arrival, and we don't reform our tax system, what is the next 
step that you take?
    Secretary LEW. Well, look. I don't--I understand that they 
are skeptical about the capacity to enact tax reform, and I 
think showing that we are making progress and we can get it 
done----
    Mr. RANGEL. What progress----
    Secretary LEW [continuing]. Would actually help a lot.
    Mr. RANGEL [continuing]. Are we making?
    Secretary LEW. Well, the progress has been relatively small 
to date. I think that, you know, there are overlaps of issues 
where I think Members on both sides of the aisle and we could 
agree, but we haven't really made significant progress. We 
haven't moved a bill forward. That is not a basis, I think, for 
reaching in and asserting tax authority over U.S. income. That 
is something----
    Mr. RANGEL. Well, it is not a basis for the Republicans 
saying that any proposal is dead on arrival, either.
    Secretary LEW. I agree with that. I mean, I----
    Mr. RANGEL. Okay. Well, listen. I--the search now has to be 
for common ground. I don't think any Republican believes that 
General Electric, who in 2013 paid 4 percent taxes, last year 
10 percent taxes, they have $36 billion overseas, that we 
should not have that money. These corporations that are going 
overseas take advantage of our research, our infrastructure, 
our--everything, and they go overseas.
    I don't see a partisan issue here. So what--forgetting 
public meetings, because this is for the public, it is a 
presidential year. But behind the scenes, where Americans get 
together, Republicans and Democrats, do you have any hope at 
all that there is something done that would be good for 
Americans and the tax system, where we can have reform, lower 
the corporate rate, improve our education, our infrastructure, 
and have a fair, competitive position, internationally? Is 
there any hope at all, notwithstanding the chairman saying that 
your public proposal is dead on arrival?
    Secretary LEW. I think that the responsibility that 
everyone in this room has to stop inversions and to make sure 
that the kinds of things we are talking about in terms of the 
erosion of the U.S. tax base gets stopped should give all of us 
reasons to be more hopeful.
    I am probably more hopeful always than most, because I 
think if we give up we make sure nothing happens. We have got 
to be hopeful. We have got to put the effort in to make it 
real----
    Mr. RANGEL. Is there any one person on the Republican side 
that gives you any basis for that hope?
    Secretary LEW. Well, I appreciated the chairman's opening 
comments, where he expressed the desire to continue working 
together. I am prepared to do----
    Mr. RANGEL. I would like to take down his words----
    Secretary LEW. I am prepared to do that. We have known, you 
know, that conversations over business tax reform are an uphill 
battle, because people always say it is too hard to do. It 
can't be too hard to do. We have to make it something we can 
get done. If it can't happen this year, it is going to have to 
happen some time soon. But what we can't do is push off this 
issue on inversions indefinitely, because we are just going to 
see more and more American companies going overseas.
    Mr. RANGEL. Thank you.
    Chairman BRADY. Thank you, Mr. Chairman. As I yield to Mr. 
Tiberi let me be clear: tax increases in this budget proposal 
are dead. Discussions on tax reform, especially in the 
international tax area, are very much alive.
    I appreciate the letter that you sent, because what the EU 
is doing--now there is going beyond simply addressing income 
shifting. It is a money grab targeted on U.S. companies in a 
variety of ways, not just to generate revenue, but to make it 
more uncompetitive for U.S. companies to compete around the 
world. That is why we need not just treat the symptoms of what 
we are seeing, but the real problems around it. And that is the 
Tax Code. In that area we share, I think, common ground, Mr. 
Secretary.
    Mr. Tiberi.
    Mr. TIBERI. Thank you.
    Mr. Lew, your written testimony claims that ``In the seven 
years since President Obama took office, we have seen a 
sustained economic recovery,'' and that economic growth 
continues at a solid pace.
    Additionally, the latest budget touts the success of 
administration policies past, present, and proposed. I would 
like to address the Administration's economic and fiscal 
policies relative to reality, a reality which indeed is 
reflected in OMB's growth forecast underlying this proposed 
budget.
    I would also note that this reality recognized in the 
budget does not seem to be recognized either in your comments 
today, quite frankly, about economic growth continuing at a 
solid pace, or the President's recent rhetoric.
    [Chart]
    Mr. TIBERI. So I have a chart that was released today by 
the Joint Economic Committee that you will see in front of you, 
and it has past Obama budgets from this Administration, and 
they have repeatedly projected a surge--in the red--of economic 
growth that, quite frankly, never happened.
    So the Fiscal Year 2017 budget seems to finally accept the 
reality of the inability of the Administration's policy to 
generate the surge that each of the past budgets have said 
would happen that didn't happen. Worse, even, are OMB's 
projections of annual growth rates for the long term at 2.3 
percent lower than earlier budgets, but much lower than--as you 
know--the average growth rate of 3.2 percent it calculates 
through the post-war period--post-war period.
    I might add that CBO, the Federal Reserve, and the blue 
chip indicators all project even lower long-term growth than 
the OMB. And then we wonder why, in the Democrat and Republican 
primaries, voters are angry. They are full of anxiety that this 
new normal of 2.3 percent, which is significant in terms of 
wage growth and what people are feeling, is happening out 
there.
    So, the chart displayed vividly captures how the 
Administration's own expectations have not come true. They have 
been deflated. These aren't my numbers. The black is the actual 
number. As you can see, it doesn't look like it is solid or 
sustained, the black number, which is actual numbers, versus 
the red, which is OMB's projections.
    So, how could the Administration continue to cling to the 
same basic economic policy, Mr. Lew, of more taxes, more debt, 
bigger government, more spending, more regulation? Isn't it 
time to reconsider a new way forward?
    Secretary LEW. Congressman, this chart starts in 2010, 2 
years after the deepest recession since the Great Recession 
[sic]. If it went back a couple of years earlier, you would see 
the biggest hole we have had since the Great Depression, which 
we dug out of, and we have created 14 million jobs doing it.
    You go around the world, the world is looking at the United 
States as a beacon of hope. I am not arguing that we don't want 
more growth. I want every tenth of a percent we can get on GDP. 
But----
    Mr. TIBERI. Mr. Lew, those are your projections, not mine. 
The red is your projection.
    Secretary LEW. So----
    Mr. TIBERI. In fact, you were director at one point.
    Secretary LEW. But, Congressman, I am talking about the 
experience that we have had. Economic projections? We have been 
close to, you know, other forecasts as we have gone through. 
Forecast error can be in either direction. Obviously, you 
always would like to over-perform. But when you look at the 
headwinds we have had globally, we have continued to grow at a 
sustained rate notwithstanding substantial international 
headwinds, because the core strength of the U.S. economy, the 
U.S. consumer, has been strong. That is reflected in the jobs 
numbers.
    Mr. TIBERI. But the actual number is not sustained. I don't 
want to quibble with you, but I think anybody, any economics 
teacher, would say that black number is not sustained growth. 
In 2.3 percent versus what has happened--versus the World War 
II growth, including every other economic recovery, has not 
been even near what every other economic recovery has--even 
your--again, even your own projections.
    Secretary LEW. The performance of the U.S. economy has had 
to create economic growth and jobs to make up for the deepest, 
deepest hole we have had in 70 years, in terms of our economy. 
We have done that. We have performed in a way that--you know, I 
have been to international meetings where, three years ago, 
people looked at us and said, ``How could you cause a financial 
crisis?'' They now look at us and say, ``How do you have this 
economy that bounces back, where the American people bounce 
back?''
    That doesn't mean we have done all the work. We have a lot 
of proposals. If we could work together on things like 
infrastructure, you would see some more progress. If we could 
work together on education and training, you would see more 
progress. We have jobs in this country that aren't being filled 
because we don't have people with the skills for the jobs.
    Mr. TIBERI. Well, I would argue----
    Secretary LEW. So there is a lot of work we could do to 
make more progress, but I think if you look at where the 
country was seven years ago, and where it is now, we have made 
a lot of progress.
    Mr. TIBERI. Thank you.
    Chairman BRADY. Thank you. Dr. McDermott, you are 
recognized.
    Mr. MCDERMOTT. Thank you, Mr. Chairman. Secretary Lew, I 
want you to remember you are talking to the American people, as 
well as to this Committee. So I want you to be very clear and 
simple in how you explain things.
    I have been listening for as long as I have been in 
Congress about the fact that debt was going to bury America, 
and that was going to be the end of us. Can you tell us what 
the President has done with the question of debt during his 
eight years in office?
    Secretary LEW. Well, when we took office, the projections 
were the debt was going to grow to over 100 percent of GDP. We 
were seeing deficits, annual deficits of 10 percent of GDP. The 
annual deficit is down to 2.5 percent of GDP. We have 
stabilized the debt at around 75 percent, which is high by 
historical standards, but it is because we were coming out of 
the deepest recession since the Great Depression, so that it is 
for a reason that it got as high as it did.
    We are also in a period of very low interest rates. So it 
has made it more manageable to handle the debt that we have.
    I think that we have made a huge amount of progress. That 
is not to say that over the long term we shouldn't be working 
towards reducing it. I am not going to argue that, if we could 
work together on the kinds of tax policies and the kinds of 
deficit reduction that would make sense in the long term, we 
could make more progress.
    But what we can't do is we can't just cut the things that 
we need to grow in order to reduce the deficit more in the 
short run.
    Mr. MCDERMOTT. Well, that is what I wanted----
    Secretary LEW. You were seeing that for a few years. When 
sequestration was allowed to take effect, it was cutting at the 
bone of this country. It was hurting our economy on a year-to-
year basis. The actions taken to restore discretionary 
spending, the annual appropriations, and to replace cuts in 
annual appropriations with longer-term, more balanced fiscal 
policies, has actually help boost the American economy by 
several tenths of a percentage point. So we have a control to 
even do better.
    Mr. MCDERMOTT. Do you think a country can grow without 
spending and going into debt? Can you put money into the 
national institutions of health, or--how do you get the 
national institutes of health to work----
    Secretary LEW. I think right now, when you look at what our 
debt is, our deficit, annual deficit, is essentially interest 
on the debt. Economists call that primary balance. You know, so 
we are, on a current basis, paying for what we spend, but we do 
have the debt that we have to service. That is why it is, 
relatively speaking, stable.
    That is not to say that we should have no concerns over the 
next 20, 30, 50 years. But right now, if the trade-off between 
investing in infrastructure, investing in research and 
development, and an incremental additional bit of deficit 
reduction, I think would be economically a mistake.
    Mr. MCDERMOTT. Does the budget reflect that?
    Secretary LEW. Yes, the budget reflects that. I mean it 
maintains stability in this 10-year window. It--we will leave 
office with a manageable situation. We inherited what was an 
economy and a budget that was in complete meltdown, so I think 
we have made huge progress over the last seven years.
    We still have more work to do on many, many fronts. So I am 
not saying----
    Mr. MCDERMOTT. Let me bring you to the point of that other 
work to do. Have you seen the Republican proposal for tax 
reform? Have they come up to the White House and said, ``This 
is what we would like to pass, Mr. President, what do you think 
about it''?
    Secretary LEW. The only formal proposal that I have seen is 
the one that the former chairman of this Committee, Dave Camp, 
put out.
    Mr. MCDERMOTT. What happened to it?
    Secretary LEW. Well, it didn't get--I think I was more 
friendly to it than many people in Congress were. I think there 
were a lot of things in that plan that we could reach 
bipartisan agreement on. Not the whole thing.
    But if you look at what we are saying, and you look at what 
is in that plan, and you overlap them, the overlap would tell 
any reasonable person there could be agreement here. Obviously, 
you got to engage and work it through.
    Mr. MCDERMOTT. Last night we were at the Library of 
Congress, we heard about Reagan. It took Reagan 6 years, from 
1980 to 1986, to get tax reform through. That was at a time 
when Reagan talked to Tip O'Neill, and when you had Members in 
the Senate on both sides working together, Packwood and Bradley 
and all the rest, and Rostenkowski and all of the people--are 
the elements there today for us to do that?
    Secretary LEW. Look, I think that, you know, it is more 
challenging today than it was in 1986 because in 1986, you 
know, there was no need to pay for the rate reductions. And, 
you know, we have proposed business tax reform that pays for 
itself. And our budget this year repeats that it should pay for 
itself, looking at last year's expiring provisions and--as a 
whole.
    Chairman BRADY. Thank you, Mr. Secretary. All time has 
expired.
    Mr. Reichert.
    Mr. REICHERT. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. I want to touch briefly on an issue 
that you commented on yesterday with the Senate related to TPP 
forced data localization. And I want to read your quote. ``One 
of the issues here is the requirements of our regulators in 
terms of what they need to have their prudential reviews of 
financial institution.'' And you added, ``So, as we are in the 
international space, we can't give away something for our 
financial regulators that they would need here, in the United 
States. But we are working with the industry and the 
regulators, as we go through this.''
    So, what--Mr. Secretary, I am not convinced that our 
financial regulators have made the case that they--that having 
such a provision adversely affects their prudential review. I 
just want your commitment that you will work with us in trying 
to resolve this issue.
    Secretary LEW. Congressman, I will work on it. This is a 
complicated issue. There is a lot of memories of what happened 
in the financial crisis when there was a problem getting access 
to information overseas, and it contributed to the inability of 
some of our regulators to respond, because they couldn't see 
what was going on.
    So I think there are legitimate concerns. We are having a 
conversation to see--with the--with industry, with the 
regulators. What can we do, going forward?
    And as I also said yesterday, in general our view on data 
localization is we ought not to tolerate barriers being created 
that require that information technology be on-shored in each 
of the countries where you are doing business. And we have 
pushed hard in many areas against localization. This is a more 
complicated area because of the prudential regulatory concerns, 
and we have made the commitment that trade agreements won't 
overrule any of the prudential regulatory matters.
    Mr. REICHERT. So I will take that as a yes, that you are--
--
    Secretary LEW. Yes, I----
    Mr. REICHERT [continuing]. Working----
    Secretary LEW. We are working hard to try to come to a 
place where people----
    Mr. REICHERT. Okay.
    Secretary LEW [continuing]. Can be more comfortable.
    Mr. REICHERT. I look forward to working. I want to switch 
real quick to something that you and I talked about last year, 
and that is taxes on small businesses. And I am really 
frustrated by the President's budget in this regard.
    At least we have some agreement, though, on the earned 
income tax credit. So I am happy to see that, and some efforts 
on waste, fraud, and abuse, and in other areas of the proposal.
    But let me just go through what I personally think tax 
reform should look like. And I don't see it in the President's 
budget. In fact, I think it is really offensive to small 
businesses. Tax reform should stimulate growth and efficiency 
by reforming America's current complicated and burdensome 
system into a simpler, fairer, Tax Code, flatter Tax Code. Tax 
reform should promote U.S. jobs and higher wages through a more 
competitive international tax system. Tax reform should ensure 
that small businesses have a fair and competitive tax system, 
including the tax rate.
    As a result of the President's budget, the top rate for 
small businesses will be 43.4 percent. They don't get it. And I 
don't get it, either, Mr. Secretary. Tax reform should 
aggressively lower rates and simplify the code. Even after 
enacting substantial increases in capital gains taxes in 2010 
and again in 2013, President Obama continues to propose raising 
taxes on the investment American workers need to become more 
productive and earn higher wages.
    In 2009 the top rate on capital gains was 15 percent. With 
the enactment of the 3.8 percent tax on investment income to 
fund Obamacare, it was raised to 18.8 percent in 2010. In 2013 
it went to 23.8 percent. And with the proposal today, another 
4.2 percent has been added, and effectively it will be 29.2 
percent.
    Mr. Secretary, I and the small businesses in this country 
would like your commitment to work with us on--and I would like 
you to explain to me how raising taxes on small businesses 
helps the American economy grow, helps small businesses grow, 
helps create jobs. I don't understand how you can raise taxes 
and create a growing economy and create jobs. Can you tell me 
how that helps?
    Secretary LEW. Well, Congressman, the President's tax 
reform proposal would be a tax benefit for 95 percent of small 
businesses. So we totally agree that we ought to be helping----
    Mr. REICHERT. We went through this last year----
    Secretary LEW [continuing]. Small business.
    Mr. REICHERT [continuing]. And your numbers don't add up.
    Secretary LEW. Well, I am happy to go through it with you 
more than I can do in----
    Mr. REICHERT. What I just read to you are tax increases on 
small businesses.
    Secretary LEW. Yes. You know, I just would point out that 
the choice to organize as a pass-through or as a corporation is 
a decision businesses make, and----
    Mr. REICHERT. These are family-owned businesses that you 
are taxing, Mr. Secretary.
    Secretary LEW [continuing]. And we----
    Chairman BRADY. The time has expired.
    Mr. REICHERT. I yield back.
    Secretary LEW. I look forward to--I really haven't had a 
chance to respond, but I would love to have a more complete 
conversation, because this is an important issue. We are very 
much advocates for small business.
    Chairman BRADY. Thank you.
    Mr. Neal, you are recognized.
    Mr. NEAL. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary. And I want to congratulate you 
for what I think has been a stellar career. And I assume this 
is your last budget presentation to the Congress. Always well 
recommended, and an individual who is very easy to have a 
conversation with. And I think you have really done a terrific 
job as Secretary of the Treasury--not to miss the point that 
one of the great ironies of my time in Congress is that the 
budget decisions that were made well before Barack Obama was 
President made by our friends on the other side, who really set 
the fire upon Barack Obama's inauguration, and they get to call 
the fire department. I mean there is a certain irony to that 
period of time.
    But let me speak specifically to an issue that is important 
to those of us in western Massachusetts, and that is the 
ongoing debt crisis in Puerto Rico. And I--again, pleased with 
the leadership that you have demonstrated on it. I think there 
is an acceptance that there are going to have to be structural 
changes, the worker participation rate in the island of Puerto 
Rico I think we all acknowledge is problematic. And not to miss 
the point that in restructuring they are going to need some 
debt relief, as well. And I know that there is an acceptance 
that there is going to have to be, perhaps, a--if I might use 
the example of a control board put in place.
    But the island needs more than structural changes. And it 
certainly needs more expansive economic opportunity and growth. 
And most of us who have constituents and constituencies that 
involve tourism, we know that they are much subject to the 
vagaries of economies.
    So could you talk a little bit about what your ideas are to 
fix the Puerto Rican economy, Mr. Secretary, and----
    Secretary LEW. I am happy to. Thank you for the kind 
personal words. As you know, I started out working for House 
Speaker O'Neill. And much of what I have learned I owe to the 
time I spent with him. And I think of that every time I am in 
this room.
    Mr. NEAL. Thank you, Mr. Secretary.
    Secretary LEW. I think if you look at Puerto Rico, it is a 
classic case of insolvency. They have $72 billion of debt in a 
very complicated structure that they can't pay. They don't--it 
is a third of their budget, they don't have the capacity. So 
there has to be a restructuring of their debt, in order for 
them to have an economic future that can get back into any kind 
of a healthy place.
    The immediate need is for Congress to pass legislation that 
will permit them to restructure their debt. They don't have 
that ability on their own. I agree with you there is going to 
need to be some kind of oversight that is respectful of Puerto 
Rico, but is serious, accompanying that.
    We have been working on both sides of the Congress, House 
and Senate, on both sides of the aisle. I have talked to dozens 
and dozens of Members of the House and Senate. I think there is 
a broad understanding that this is something that will 
determine whether three-and-a-half million Americans are 
plunged into chaos.
    And I think there should be no misunderstanding of the 
immediacy. They are already, for all practical purposes, in 
default. They are not able to pay some of their bonds on a 
current basis. To pay the other bonds they are doing things 
that would be unthinkable in any governmental organization that 
was not insolvent. They are taking money out of pension funds 
to pay bond holders. They are taking money that is dedicated to 
one group of creditors and moving it to pay another. These are 
classic kinds of things you do when you are insolvent.
    Now, there is a solution. They can work through a 
restructuring. That restructuring can be respectful of the fact 
that there are different categories of creditors. It doesn't 
have to be one size fits all. But it requires Congress taking 
action, because I don't believe that a voluntary restructuring 
process will be successful.
    Let me just kind of say what happens if they don't 
restructure. If they don't restructure, there is going to be a 
cascading series of defaults that will lead to prolonged 
litigation, probably 5, 10 years of litigation. It will tie the 
island in knots, and it will take an economy that is already 
suffering, with 3,000 people a month leaving the island, and 
just make it so that it may never be able to bounce back.
    So this is quite urgent, it is something that I think we 
have to all remember, that three-and-a-half million Americans, 
including veterans, deserve our immediate attention.
    Chairman BRADY. Thank you. Dr. Boustany, you are 
recognized.
    Mr. BOUSTANY. Thank you, Mr. Chairman. Welcome, Secretary 
Lew.
    I--let me just start by saying I condemn this crude oil tax 
in the harshest terms. I think it is the wrong diagnosis and 
the wrong prescription. Now I can tell you, as a--before I came 
here, as a cardiovascular surgeon I had to deal with a lot of 
complex problems. You got to get the diagnosis right, and you 
got to act with urgency to fix the problem.
    This industry, American energy production, took us out of 
recession. It was one of the major factors that took us out. It 
was American innovation that has restructured the entire energy 
markets now superimposed on slack demand because of low growth, 
globally. We need the right approach to this. And putting this 
tax on oil is going to hit the producers, it will hit the 
refiners, it will make us less competitive. And the consumer in 
America will pay the price at the end of the day. We deserve 
better than that. We need a real 21st century energy strategy 
that is part of our broader economic strategy. But I wanted to 
at least get that on the record.
    But now I want to focus on international tax for a moment. 
This is something I have been working on. I am chairing the Tax 
Policy Subcommittee with the recent changes we have had. We are 
committed to doing this, and doing it with urgency. I don't 
have to tell you about the problems out there with the OECD 
BEPS issue, state aid, a hostile tax environment, adverse 
mergers and acquisitions and inversions. All of this, we all 
know about it, we have talked about it ad nauseam. It is time 
for action, and we need a commitment from you to work with us 
on this Committee to do this.
    Now, I have put forward a bill. And I appreciate your 
letter to the president of the EU commission. It is important 
that you step up on the economic diplomacy side to promote our 
American companies in an unfair environment right now. I put 
forward some legislation dealing with BEPS and Action 13 
because some of our--our companies feel like they are going to 
be treated unfairly with regard to this master file issue.
    The legislation gives you, as Secretary of Treasury, more 
tools to deal with this by potentially withholding country by 
country reports when necessary, and using that as leverage. 
Would you support that effort?
    Secretary LEW. Congressman, we will look at all the tools 
that we have at our disposal. They sometimes don't work as well 
when you look closely. But I am not familiar with that 
particular matter, but I am happy to take a look at----
    Mr. BOUSTANY. I would ask that you do that. Secondly, I 
don't think we should be taking the approach of punitive 
measures going after our American business that is trying to 
help grow this economy, the tip of the spear of American soft 
power, globally. What we need is we really need international 
tax policy that is going to promote economic growth, 
competitiveness, and innovation, that frees up capital, brings 
it back.
    And that is what we are going to be working on, from 
lowering the corporate tax rate to something that is really 
competitive, moving to a dividend exemption system, trying to 
deal with base erosion in a very fair way, and looking at other 
types of innovations like an IP box, are you committed to 
working with us on these issues?
    Secretary LEW. Congressman, I am committed to working 
together to get business tax reform done that works. I have 
made clear we think that that should encompass lowering the 
statutory rate, closing the loopholes, providing--using the 
one-time revenue to pay for infrastructure, and closing down 
the inversions.
    I am open to suggestions. There are some things that we 
have some problems with, as you know, and we--I am not going to 
pretend that we love the patent box idea. That is something we 
think is--has some problems. But I am open to working on this.
    And you mentioned base erosion. It is important to remember 
that we have made more progress in the last two years on the 
international discussion of base erosion than in the prior 20 
years. When the G20 adopted base erosion principles, that was a 
big step forward. One of the concerns I raised in my letter----
    Mr. BOUSTANY. We have to make sure that these things are 
applied fairly, and----
    Secretary LEW. That is exactly where I was going.
    Mr. BOUSTANY. Right.
    Secretary LEW. One of the points I made in the letter I 
wrote to the president of the European Commission is it risks 
undermining the progress we have made if there are unfair 
actions being taken that target----
    Mr. BOUSTANY. They are going beyond Action 13 now, with----
    Secretary LEW. Yes.
    Mr. BOUSTANY [continuing]. These country-by-country 
reports. So I am glad you are doing this. But I want to give 
you more----
    Secretary LEW. Well, we have to act, because we can't 
pretend that our companies are not parking money to prevent 
paying--avoid paying taxes on it. That is wrong, also, and we 
need to bring that money home.
    Mr. BOUSTANY. That is why we need tax reform----
    Secretary LEW. Right.
    Mr. BOUSTANY [continuing]. And not punitive measures 
directed at American business. We need positive measures, going 
forward.
    And I want to give you the tools, and your successor the 
tools as Treasury Secretary, to have the leverage to deal in 
this very difficult environment. So I hope you will work with 
me----
    Secretary LEW. I look forward to working with you----
    Mr. BOUSTANY [continuing]. And our committee on this. Thank 
you, I yield back.
    Chairman BRADY. Thank you. Mr. Becerra, you are recognized.
    Mr. BECERRA. Thank you, Mr. Chairman.
    Mr. Secretary, great to have you with us. Thank you for 
your testimony. And, by the way, I hope you go at warp speed at 
what you are doing in trying to go after those tax cheats, 
those tax evaders, those companies that depend on American 
military power, American foreign and diplomatic efforts, that 
depend on the American public to make them as good as they are, 
that depend on American consumers to be profitable.
    I hope you go out there and do everything you can to show 
those American companies that if they want to continue to be 
American companies they should pay their fair share of American 
taxes, because no American who gets paid on a weekly or monthly 
basis with a paycheck, and has his or her taxes deducted at the 
same time he gets--he or she gets a check should be--should 
find that a company can avoid paying those taxes because they 
don't have the same kind of monthly deductions to help keep our 
government, we the people, our government, functioning to 
protect our American families and those American companies.
    So you go to it, and do not be intimidated by anyone who is 
trying to protect companies that are not paying their fair 
share of American taxes.
    I wanted to ask you about Puerto Rico--and I know you have 
been asked a little bit about it already. Do you see any light 
at the end of the tunnel here? Because the people in Puerto 
Rico, those U.S. citizens in Puerto Rico, are trying to figure 
out will we finally see action taken so that they can get their 
house, fiscal house, back in order?
    Secretary LEW. Look, I do see some light in the tunnel. I 
think it is very important that Speaker Ryan directed the House 
committees to take action by the end of March. It reflects the 
urgency of the need to act now. There are May, June, and July 
bond payments due. You need to act in time for Puerto Rico to 
have space to be able to manage that.
    I think there is differences of views as to how to do this. 
Those differences can be bridged. The one thing that I just 
have to say on a slightly more pessimistic note is this is not 
a case where just doing something solves the problem. It has to 
be something that works. It has to cover enough of the debt 
that they can actually restructure and have a way forward. And 
I have heard some proposals that would limit it to such a small 
portion of Puerto Rico's debt that it doesn't solve the 
problem.
    So, there is various ways to do it. There is ways to be--to 
not have it create precedence for states. There is ways to do 
it without amending the bankruptcy code. Because of the 
territorial status, you could do it through territorial 
legislation. We are open to a conversation on a bipartisan/
bicameral basis, but it has to happen fast. If action isn't 
taken in the March/April time frame, we are going to find 
ourselves looking at May, June, and July before we blink.
    Mr. BECERRA. Well, thank you for that. And I hope that 
Congress will step to the plate and do its part because, quite 
honestly, it has to be Congress who has to make it possible. 
And we are talking about doing something that helps the people 
in Puerto Rico without costing American taxpayers a single 
penny. And I think it is outrageous that U.S. citizens in 
Puerto Rico have to wait until Congress will act to be able to 
get their fiscal house in order. They are just simply asking 
for the same opportunities that states have, that cities have, 
to make sure that they get their fiscal house in order. And it 
is distressing. And so I urge you to continue your efforts 
there.
    Can I--I am going to veer for a second. Can you send a 
message to Commissioner Koskinen for me? Could you please tell 
him to do not--don't be intimidated by some of the words that 
he may be hearing coming out of this Congress, telling him not 
to do his job. I think it is outrageous that today we have in 
the law a provision in the law that allows certain entities to 
create a corporation and call it non-profit, which is supposed 
to be there for the exclusive purpose of providing social 
welfare services, and that provision in the tax law is being 
used by entities to game the system and play politics.
    More money is being spent by these so-called not-for-profit 
entities than the political parties combined. And that this 
Congress would put a provision into law that prevents the 
commissioner of IRS from investigating those entities that are 
gaming the system is outrageous, and I hope that the 
commissioner will not be intimidated, and will pursue the 
proper investigation of this to make sure that American 
taxpayers' money is not misspent.
    Chairman BRADY. Thank you. All time is expired.
    Mr. BECERRA. Yield back my time.
    Chairman BRADY. Mr. Roskam, you are recognized.
    Mr. ROSKAM. I think there is unanimity on the committee 
that we want the IRS to follow the law as the law is written. 
But let me bring your attention to something else, Mr. 
Secretary.
    In 2008 to 2012, ClearStream, which is a Luxembourg 
financial service provider, essentially accumulated and was 
involved in the transfer of payments, and shielded the Iranian 
Government, took in $1.67 billion in payments. There was 
federal litigation that was brought by the victims of terror 
through the Marine bombing in Beirut, and they were unable to 
attach that money. A federal judge invited the Treasury 
Department, the Office of Foreign Asset Control, to weigh in on 
the question. OFAC did not weigh in on the question, and the 
judge ruled against the victims of terror.
    So, think about it. You have got this foreign entity that 
is this Luxembourg operation that is involved in, essentially, 
a financial hustle and a manipulation, arguing that these 
assets are outside and cannot be attached by a U.S. 
jurisdiction. And notwithstanding the good work of OFAC in the 
past, they were silent. They were absent, and they didn't weigh 
in on this.
    So, if we are deferring then on this--essentially, a sharia 
sort of financial arrangement, how is it that we can, number 
one, bring justice to these victims and, number two, isn't that 
a dangerous precedent? And can you--I mean--and these are in 
violation, Mr. Secretary, of executive orders. I mean this is 
pretty clear stuff. Can you give us a sense of where this is 
going, and how these victims get their justice?
    Secretary LEW. Congressman, I don't comment on specific 
matters that are pending either at OFAC or in other bodies like 
that. But let me just talk, if I could, a little bit about both 
the victims and about our approach on sanctions.
    We, obviously, have a great deal of empathy for the 
victims, and have on many occasions, you know, worked to make 
sure that, to the extent that we can be helpful, that we are 
helpful.
    The--our approach on sanctions has, I think, been very 
tough. We have worked, you know, without any reservation to go 
against Iranian assets and put them in a place where we lock 
them up. And I think that is one of the reasons that we saw 
Iran come to the negotiating table over its nuclear weapons, 
because it worked----
    Mr. ROSKAM. Listen, I will stipulate that is why they came 
to the negotiating table.
    Secretary LEW. Yes.
    Mr. ROSKAM. Time is short, so let me urge you to reconsider 
this OFAC question, because I think it is a problem. It is a 
problem vis-a-vis the Iranians, it is going to be a problem 
vis-a-vis any other bad actor who basically says, ``Hey, we are 
able to take this money and by doing bookkeeping manipulations, 
we are able to keep this outside of the jurisdiction.'' That is 
a problem.
    Let me ask you a question as it relates to tax treatment. 
Then-Chairman Ryan wrote to the President last fall, asking 
about the 901(j) provisions. These are tax provisions. This is 
authority that the President has to waive certain favorable tax 
treatment, possibly, to the Iranians. Based on what you were 
just saying about the Administration's attitude on sanctions, 
do we have your assurance that the Administration is not going 
to waive any provisions under 901, under Section 901, so long 
as the Iranians are complicit with terror?
    Secretary LEW. So I am going to have to get back to you on 
901. I----
    Mr. ROSKAM. It is the foreign tax treatment for the 
Iranians.
    Secretary LEW. So what we have made clear is that we are 
going to hold Iran accountable for its behavior.
    Mr. ROSKAM. And does the accountability mean they don't get 
any--they don't get waiver----
    Secretary LEW. Well----
    Mr. ROSKAM [continuing]. So long as they are continuing to 
finance Hezbollah, Hamas, and these other terror organizations, 
which----
    Secretary LEW. Well----
    Mr. ROSKAM [continuing]. The Administration admits they are 
doing?
    Secretary LEW. So having agreed on the nuclear issues, we 
have lifted the nuclear sanctions, but we have in place the--
sanctions on terrorism, sanctions on missile development, 
sanctions on regional destabilization. In the last weeks we 
have put in place additional designations on missile 
designations. I have been clear that all of those efforts will 
continue underway.
    I am not familiar with the 901(j) issue, so I don't want to 
address it specifically. But our view on our--on the non-
nuclear sanctions is that they stay in place, and that Iran has 
to change its behavior in those areas.
    At the same time, we have lifted the nuclear sanctions 
because they complied with the nuclear agreement, and that is a 
good thing, because that slows down and takes them off the path 
they were on to----
    Mr. ROSKAM. Silence is assent. And the unwillingness to 
answer Chairman Ryan's question I think is troubling.
    Chairman BRADY. Thank you.
    Mr. Doggett, you are recognized.
    Mr. DOGGETT. Thank you, Mr. Chairman. And thank you, Mr. 
Secretary.
    I think eyes glaze over for anyone who is watching our 
discussion of earnings stripping and inversions, unless they 
are a tax lawyer or perhaps a lobbyist for one of these tax-
dodging corporations.
    Earnings stripping, in simple form, is two corporations 
next door to each other competing for the same American 
customers, and one of them comes up with the bright idea with 
their accountants and tax lawyers that they will shift some of 
their profits and not be taxed like their competitor to some 
sham offshore operation. And they do that, and we have 
permitted them to do that, and they gained a competitive 
advantage over an American company that is here, doing its fair 
share.
    Same thing is true of inversions, where a corporation 
basically renounces its charter, its American citizenship, and 
declares that it is a foreign corporation, even though it keeps 
all of its operations here. This is not a new problem.
    Treasury did the study almost a decade ago about how 
earnings stripping and inversions come together and predominate 
within the inversion category. I think it is outrageous that 
this giant rip-off of the American people continues to occur, 
that our Republican colleagues obstruct legislation that has 
been pending here for years. You come up with the same 
proposals year after year.
    It would seem to me that the inversion problem is so severe 
that we would be better off, in addition to what you propose, 
doing what Secretary Clinton has proposed, and which--a matter 
in which I offered legislation last year and will re-introduce, 
and that is to have an exit tax.
    The Supreme Court thinks these corporations are people, and 
they ought to be treated like wealthy people who renounce their 
citizenship, who don't love America enough to pay any taxes 
here, and who go off and get a passport from some Caribbean 
island.
    I think a legislative approach to deal with a Tyco that 
goes to Bermuda, goes to Ireland, but really stays in New 
Jersey--that is Johnson Controls will join them. A Pfizer that 
won't charge Americans Irish pharmaceutical prices, but want to 
pay Irish taxes is a really serious problem this Congress does, 
as you suggest, need to urgently address with legislation.
    But I think also, Mr. Secretary, this is where we have some 
disagreement. Because of the failure of this Congress to act, 
and the fact that it is very improbable that it will act, you 
need to be more completely using existing administrative 
authority. The actions that you have taken to try to discourage 
inversions haven't worked very well. The inversions have 
continued. In fact, in size they may well have increased.
    I believe that as you look at codifying or reducing to 
formal regulations what you have already done, that you have 
authority through Section 385 to limit earnings stripping, that 
you have authority under Section 385 to draw a distinction 
between debt for multinationals and debt on the domestic scene, 
and that you ought to use that authority because you can see 
this Congress will not act.
    Similarly, under Section 956, as has been urged by 
Professor Avayona, who has testified here on a number of 
occasions, you have the ability to deal with the hopscotch 
transactions that are going on, where companies like Pfizer are 
dodging their responsibilities to pay their fair share, as Mr. 
Becerra said, of our national security. You have other 
authority under Section 956.
    And I would just urge you to recognize this is a hemorrhage 
that is going on. It is a hemorrhage that has been going on for 
some time. This Congress won't act. And it really begins to 
appear to anyone who is cynical about it that you would rather 
use these inversions as an excuse for broader tax reform than 
to prevent them from happening.
    I am all for broader tax reform. I think our rates should 
come down. But I don't think tax reform should be used as an 
excuse to just let multinationals pay even less than they are 
now. We get some sense of how big that gap is from the proposal 
that you have advanced for tax reform where you have increased 
by 70 percent to $350 billion the amount that you believe would 
be obtained with your 19 percent rate being applied.
    That is a huge amount. It has grown substantially since 
last year. It will continue to grow. Please use your authority 
to stop some of this now, even though we know the ultimate 
solution is a Congress that cares about protecting the American 
people and seeing that our businesses are dealt with on a 
level, competitive playing field. I yield back.
    Chairman BRADY. Thank you.
    Dr. Price, you are recognized.
    Mr. PRICE. Thank you, Mr. Chairman and welcome, Mr. 
Secretary. I want to start with a compliment on the President's 
budget. I noted that there are cuts and consolidations on the 
discretionary side that are identified of nearly $30 billion in 
Fiscal Year 2017. And so I want to thank you for that positive 
move. I hope we can get together and work on that.
    I want to, however, talk initially about kind of the big 
picture. And we have talked about a lot of specifics on this 
budget. But the fact of the matter is that the President's 
budget, the budget that you all are presenting, is--
incorporates $4.1 trillion in spending in the next fiscal year, 
the first budget by a president over $4 trillion.
    It proposes $3.4 trillion in new taxes, new taxes on the 
American people, including that $10-a-barrel tax on oil which 
is paid by the American people. That is not paid by those 
companies, it is paid by the American people, one of the most 
regressive taxes that this Administration has proposed.
    Adds 9--your budget adds $9.3 trillion--trillion dollars--
to the national debt over a 10-year period of time, and it 
never, ever, ever balances. The budget never balances. That 
increase in debt means that we pay more interest on that debt. 
In fact, in 2022 the interest on the debt in your budget, the 
President's budget, will exceed the amount that we are spending 
to protect the American people, the amount that we are spending 
on defense. And the interest rate in 2026 will be over $900 
billion a year, certainly not a sustainable path, I don't 
believe.
    You were--you said earlier that, ``Progress is not 
inevitable, it is the result of choices.'' And so, I want to 
share with you a slide here, and revisit an issue that has been 
talked about.
    Mr. PRICE. And folks are passing this out. This is the 
growth projections from Congressional Budget Office, average 
growth over a 10-year period of time, over the last 4 years. In 
January of 2012, in 2012, the projection was it would be 3 
percent a year. Then 2.9 percent a year. And then 2.5 percent a 
year. And then 2.3 percent a year. And then--and this projected 
from CBO--2.1 percent a year.
    Mr. Secretary, that doesn't appear to be a movement in the 
right direction, and it appears to be the result of some 
choices that the Federal Government is making. So I would ask 
you why do you believe the projections are--have dropped over 
30 percent, 30 percent in the past 4 years?
    Secretary LEW. Well, Congressman, as I was indicating 
before, if you look at all of the economic indicators, 
obviously, the creation of 14 million new jobs and the 
reduction----
    Mr. PRICE. That is not the question.
    Secretary LEW. So----
    Mr. PRICE. Why has the projection for growth gone down 30 
percent?
    Secretary LEW. You know, there is no question right now 
that there are international headwinds that are slowing U.S. 
growth. We are doing well in an environment, a global 
environment, that is very challenging.
    Mr. PRICE. Let me ask you----
    Secretary LEW. And I think that that has to be taken into 
account.
    Mr. PRICE. You are absolutely right. Shouldn't also the 
taxes that we apply to businesses and individuals be taken into 
account, and the regulatory oppression that we have?
    What is our corporate tax rate right now?
    Secretary LEW. Our statutory rate is 39.5 percent.
    Mr. PRICE. Thirty-nine-and-a-half percent. And you are 
familiar with the OECD, the industrial----
    Secretary LEW. Look, there is no doubt our----
    Mr. PRICE. The list of industrialized countries--you are 
familiar with the industrialized countries?
    Secretary LEW. That is why we are all so much saying that 
we support business tax reform. Our statutory tax rate and our 
average tax rate have nothing to do with each other.
    Mr. PRICE. And you proposed to take the corporate tax rate 
to what?
    Secretary LEW. We have proposed taking it to 28 percent.
    Mr. PRICE. And Canada's rate is?
    Secretary LEW. I would have to look----
    Mr. PRICE. Fifteen.
    Secretary LEW [continuing]. To get the exact----
    Mr. PRICE. And Germany's rate is 15. And Ireland's rate is 
12.5. And Switzerland's rate is 8.5.
    Secretary LEW. Yes.
    Mr. PRICE. And the United Kingdom's rate is----
    Secretary LEW. I think if the United States' statutory tax 
rate was 28 percent, it would be enormously competitive in 
the----
    Mr. PRICE. Let me talk about inversions, because we have 
heard them called tax cheats. Are these companies cheating? Are 
they cheating the tax----
    Secretary LEW. Look, I have said it is wrong, and we have 
to change the law.
    Mr. PRICE. Is it illegal?
    Secretary LEW. No, we have to change the law. Congress has 
to change the law----
    Mr. PRICE. Okay. It is important that people appreciate it 
is not illegal.
    Secretary LEW. That doesn't make it right.
    Mr. PRICE. And you are right. And when you have got so many 
companies doing this, at some point we have got to look in the 
mirror, as a country.
    Secretary LEW. Yes, look at----
    Mr. PRICE. What are we doing that is incentivizing them to 
move? Because they didn't move 20 years ago. They didn't move 
40 years ago. In fact, they wanted to start their businesses in 
the United States, because they knew this was the place of 
opportunity, and the place where things could thrive and grow. 
And something has happened now for these companies to say to 
themselves when they sit in the room and try to figure out just 
how to make a go of it, how to create jobs and grow businesses, 
something has happened for them to say, ``We think it is better 
for us to be at those lower tax rates.''
    Secretary LEW. Our Tax Code is broken. And Congress has to 
fix it. That is why I have, for three years, come before this 
Committee saying let's work together to fix it.
    Mr. PRICE. And let me--and we thank you for that. But 
nothing has been done. And I want to associate myself with the 
remarks earlier that mentioned the pass-through entities, the 
small businesses have a tax rate above 40 percent. So we, as a 
government, are punishing job creators and the American people.
    Secretary LEW. Well, if you are interested in working on 
fixing business tax----
    Mr. PRICE. Look forward to it.
    Secretary LEW [continuing]. The business Tax Code so we can 
lower the statutory rate and be competitive in the world, that 
is what we are advocating, so----
    Chairman BRADY. Time has expired. Thank you.
    Mr. Thompson, you are recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    Mr. Secretary, thank you very much for being here. I want 
to commend the President's budget in regard to the new market 
tax credits. I think that is extremely important. And I want to 
commend you and your team for working with my office on 
improving that program. We came to you with an issue regarding 
closed military bases, and tried to put a BRAC component.
    I had legislation in the House to do that, bipartisan with 
a former Member of--Ralph Hall from Texas. And in this 
Congress, sadly, it went nowhere. But with your commitment and 
your determination, we were able to work around that, and 
figured out a way to allow closed military bases to take 
advantage of these tax credits. And that is going to be 
extremely important, and will be job growth-inducing and 
environmentally important, as well as these bases start to----
    Secretary LEW. I appreciate your interest in the new market 
tax credit and your advocacy for it. I am pretty attached to 
it. It is one of the last things we did at the end of the 
Clinton Administration on a bipartisan basis with the Congress, 
and I think it has done an enormous amount of good, which is 
why we are--we are supportive of it because it works.
    Mr. THOMPSON. Well, I appreciate it very, very much. And 
the one issue I do have concern with--and I think you know my 
position on this well, and that is the repeal of LIFO.
    My concern, as you know, is the retroactive aspect of it, 
and I think that--if that were to happen, it was going to be 
very damaging to a lot of businesses who have been playing by 
the rules, abiding by the law, and working right here in this 
country, not one of these--not these companies that try and 
manipulate the Tax Code so they don't have to pay taxes or move 
overseas so they can avoid taxes. But just good business 
people, good businesses right here at home, trying to make a 
living and trying to employ people. And if this retroactive 
component is to take effect, it would be very damaging to these 
folks.
    And I know you passed out the letter that you had sent to 
the European commission, and in it you reference to the DG for 
competition that you--one of your first concerns is that they 
are changing procedures and imposed penalties retroactively. 
And I just wanted you to know that those of us who represent 
districts that have LIFO companies, LIFO industries, we feel 
the same heartburn when you talk about retroactively collecting 
revenues and changing the Tax Code.
    So I would really like to work with you to see if we can't 
figure this out, and just wonder if you have considered the 
impact of this proposal on small businesses and their 
employers, and if you--and have you considered that it could be 
less disruptive or less burdensome on businesses--ways that it 
would be less burdensome on businesses if they used the LIFO in 
its existing condition?
    Secretary LEW. Congressman, I understand this is an issue 
of deep concern to businesses in your district, and it is, in 
common with other loopholes that we close in the Tax Code, 
something that does impose a burden on those who have 
benefitted from what we believe is something that needs to be 
fixed in the Tax Code.
    The nature of this provision is it will be implemented over 
time that firms will have an ability to do some averaging, so 
it doesn't hit all at once. And we don't view it as 
retroactive, because it just is a question of the timing, not 
the incidence of the tax burden. So, we would look forward to 
working with you on this.
    I think that one of the reasons tax reform is so hard to do 
is that it does impose burdens to close loopholes. But we can't 
lower the statutory rate if we don't close the loopholes that 
make the average rate now----
    Mr. THOMPSON. I don't disagree----
    Secretary LEW [continuing]. Lower than the statutory----
    Mr. THOMPSON. I don't disagree with you on that front. 
However, when you close a loophole but reach back and try and 
collect those revenues that were the revenues from tax law as 
it used to be before change, I think that is where the rub 
comes.
    It would be the same if, you know, we changed the tax 
bracket at which you are taxed, and went back 5 years or 10 
years and had you make that up. It just seems inherently 
unfair, and it would have a very negative impact on businesses. 
And not just in my district. There is a number of people on 
this dais and throughout the Congress who have LIFO companies, 
and it would harm them and their communities. So thank you.
    Secretary LEW. I appreciate the concern.
    Chairman BRADY. Thank you. For the Members' information, 
let me ruin Mr. Larson's day by noting we will be going two-to-
one questioning at this point to ensure all of our Members get 
a chance to question the Secretary.
    So, Mr. Smith, you are recognized.
    Mr. SMITH OF NEBRASKA. Thank you, Mr. Chairman and thank 
you, Mr. Secretary, for your presence here today.
    I just want to clarify some things here. Now, when you said 
business tax reform, that is equating to corporate tax reform, 
correct?
    Secretary LEW. Well, I mean, the reason we call it business 
tax reform is we also have done things to change the way that 
all businesses can handle their accounting and their choice of 
how they present themselves, what form they organize under. So 
there are benefits that go to particularly small businesses 
under the proposals that we have.
    Our changes to the rate structure are on the corporate 
side.
    Mr. SMITH OF NEBRASKA. So you are saying that a small 
business that might pay under the individual tax rate or pass-
through is inclusive of this in this term?
    Secretary LEW. Well, for example, we propose increasing the 
Section 179 deduction. That will be a benefit to small 
businesses, however they are organized. So there are benefits 
in here that are going to accrue to small businesses. Our 
calculation is----
    Mr. SMITH OF NEBRASKA. But no rate reform for----
    Secretary LEW. That is what I said. The loophole closers 
and the rate changes are on the corporate side.
    Mr. SMITH OF NEBRASKA. Okay, but I--I appreciate that 
clarity, because, let's face it, roughly half of all private-
sector employment in the United States exists in these pass-
through entities that pay tax under the individual rate 
structure. Isn't that accurate?
    Secretary LEW. Yes. I mean we have to also be clear that 
the pass-throughs are a very different--they are very different 
kinds of businesses that are pass-throughs. Most small 
businesses are going to get a benefit from our business tax 
reform proposal. The ones that are going to tend not to are not 
what people usually think of as pass-throughs. It is large 
firms, like oil pipeline, gas pipeline companies, hedge funds 
that have organized as pass-throughs to take advantage of a 
more attractive structure in the Tax Code. So we have to be 
clear who we are talking about.
    Mr. SMITH OF NEBRASKA. But in the same vein, I mean, 
corporate tax reform would include General Electric. Wouldn't 
that be accurate?
    Secretary LEW. Correct.
    Mr. SMITH OF NEBRASKA. And----
    Secretary LEW. Anyone organized on the corporate side.
    Mr. SMITH OF NEBRASKA. Right, right. So I would hope that 
realizing that the current state of our Tax Code is begging for 
reform--and not just the corporate side, or not just perhaps 
adding some layers of complexity on the individual side that we 
would say is a tax relief, but, you know, simplifying our Tax 
Code must happen.
    And, you know, I--there is a lot of debate now about, you 
know, small, large businesses, domestic, international. And so 
we know that U.S. businesses have generated business overseas. 
And I see that as a good sign. Would you agree with that?
    Secretary LEW. I think generating business at home and 
overseas are both good signs.
    Mr. SMITH OF NEBRASKA. Right. And I am glad we can agree on 
that.
    Now, you had mentioned earlier about wanting to require 
businesses to return their profits to the U.S., require U.S. 
businesses to return their profits----
    Secretary LEW. Yes. Right now you have a lot of businesses 
that are holding their earnings overseas before they bring them 
home. They are not investing them overseas, they are not 
investing them here, they are just deferring bringing them 
home.
    We would--as we go through the process of rewriting the 
business Tax Code, we would say that all that income that is 
parked overseas comes home. And then we propose a tax rate of 
19 percent. I believe the----
    Mr. SMITH OF NEBRASKA. What would be the mechanism that 
would require them to bring that back?
    Secretary LEW. It would be a requirement in the--that, 
actually--my tax counsel is correctly pointing out they 
wouldn't have to bring it home, they would have to pay taxes on 
it. You couldn't defer the tax on it. They could leave it 
sitting where it is, but they couldn't defer the taxes any 
longer.
    Mr. SMITH OF NEBRASKA. Okay. So I do hear you saying that 
our international tax policy needs to be reformed, and we can 
help businesses, U.S. businesses, grow as a result, and help 
our economy as well. Is that accurate?
    Secretary LEW. Yes. And, you know, Congressman, I will say 
I have said to some of the U.S. businesses that are affected by 
the actions we have talked about in the European Union that 
they ought to, before having the kind of minimum tax proposal 
that we have, to bring that money home and clarify this issue 
so they are not being attacked overseas.
    I actually think it would be better for everyone if we did 
it. You know, you could negotiate what the rate is. You know, 
if I recall correctly, Chairman Camp proposed 12 percent, I 
think a 12 percent rate. We proposed 19.
    You know, the point is it shouldn't be sitting tax free. 
The reason we are seeing the kind of outrage around the world 
is the money is just sitting there. That is not an excuse for 
saying that it is not U.S. income to be taxed in the United 
States. But only Congress can do something that will address 
that.
    Mr. SMITH OF NEBRASKA. Thank you.
    Chairman BRADY. Thank you.
    Ms. Jenkins, you are recognized.
    Ms. JENKINS. Thank you, Mr. Chairman.
    Thank you, Secretary Lew, for being with us today. Over the 
past five years in the House there have only been two votes in 
support of the President's budget. There is 435 of us, 2 votes 
for the President's budget the last 5 years. All of us are 
elected to represent the American people. And I am just really 
puzzled, when you are rejected that soundly by the folks here 
in the people's house, why you wouldn't be willing to work with 
us on changing--I think you called this budget your vision for 
America--one that might more accurately reflect the priorities 
of the American people.
    You know, this Committee has discussed on numerous 
occasions that the American people are being hurt by this 
President's failed economic policies, and statistics that we 
just saw show that growth is being stuck at two percent, 
nationally. That really does not do justice to the hard-working 
American people who are suffering right now.
    In this budget for Fiscal Year 2017 our budget chairman has 
already noted you will increase annual spending by $2.5 
trillion over the next 10 years. It includes 3.4 trillion in 
new taxes. Annual collections will increase by over 2 trillion 
in 10 years. The debt, federal debt held by the public, will 
increase well over 7 trillion in the next 10 years. That is a 
51 percent growth in debt in just 10 years.
    The President's plan more than triples interest costs, 
which remains the fastest growing item in the budget. The 
President's estimates indicate the net interest outlays will 
grow 228 percent over the 10-year budget window. Under this 
President's plan, interest costs are going to be larger than 
the appropriations for the Defense Department for 2022.
    This budget is putting us on a path where we are just 
borrowing to continue to pay for more borrowing. Can you tell 
us and the folks that we represent how can you be comfortable 
with this budget, when we are borrowing nearly twice as much 
money as we are currently borrowing, just money to pay more 
money?
    Secretary LEW. Congresswoman, you know, if you look where 
we started in 2009, and where we are now, we have stabilized 
the situation that was out of control. I know what it means to 
balance a budget; I was OMB director for three years----
    Ms. JENKINS. Well then, why don't you budget----
    Secretary LEW [continuing]. The only three years we had a 
balanced budget.
    Ms. JENKINS. Why don't you balance the budget?
    Secretary LEW. But when we came into office, the economy 
had shrunk by way more than two percent. It was like eight or 
nine percent the year before.
    Ms. JENKINS. You are talking about----
    Secretary LEW. We had the deepest----
    Ms. JENKINS [continuing]. About 2022.
    Secretary LEW. Yes, so----
    Ms. JENKINS. You can't ever, ever get to balance--in 
perpetuity, when we take these figures, and you project it out 
in perpetuity, you can't ever point to a time where you will 
stop spending more of my constituents' money than you take in. 
And I get tired of hearing this primary balance. The folks at 
home know what balance means. It means you don't spend more 
money than you take in. And I don't see how we can look our 
kids in the eye and explain to them why we can't pay for the 
things that we are enjoying today, we are just going to send 
them the bill.
    Secretary LEW. So, look. I think that we have to look at 
the drivers of some of the spending and ask: Do we want to 
pretend it is not happening? Demographic changes have meant 
that more people will be on Social Security and Medicare in 
these coming decades----
    Ms. JENKINS. So you are just not being honest with people--
--
    Secretary LEW. No----
    Ms. JENKINS [continuing]. You really intend to raise 
taxes----
    Secretary LEW. No----
    Ms. JENKINS [continuing]. A whole lot more than the budget 
reflects, you just don't want to tell them that.
    Secretary LEW. No, I am being completely honest. I am 
saying that, you know--go back a few years. When I was OMB 
director and we had a surplus, we were building up, over the 10 
years when I left, $5.5 trillion of surplus.
    Ms. JENKINS. Why can't you do that again?
    Secretary LEW. That money wasn't there when we came back 
in. We were seeing deficits that were enormous. And we have 
stabilized it. I don't think Social Security and Medicare 
should be cut, you know, to take away from people what they 
need and what they have been promised.
    Ms. JENKINS. And we will agree on that----
    Secretary LEW. And we have proposed a balanced approach----
    Ms. JENKINS. So what year does your----
    Secretary LEW [continuing]. To get to a stable budget.
    Ms. JENKINS [continuing]. Your budget balance?
    Secretary LEW. I am not going to say that it presents a 
year of balance.
    Ms. JENKINS. That is because it never does.
    Secretary LEW. I said it is a stable, sustainable path, and 
we have a long period when we can deal with some of these long-
term issues.
    I think I would ask the question to you: How would you 
balance the budget? What would you cut?
    Ms. JENKINS. Our budgets the last few years, and the budget 
that the budget chairman will present, they always get to 
balance, and puts us on a path to totally eliminate the debt.
    See, the problem here is----
    Secretary LEW. And I suspect there will be policy there----
    Ms. JENKINS. Excuse me. The problem here is----
    Secretary LEW [continuing]. That we have real disagreements 
over.
    Ms. JENKINS [continuing]. That people in Kansas are sitting 
there, running their businesses and their personal finance, and 
they have to balance their budget. And they can't, for the life 
of them, figure out why we can't do the same here in 
Washington.
    Chairman BRADY. Thank you. Mr. Larson, you are recognized.
    Mr. LARSON. Thank you, Chairman Brady. And thank you for 
holding this hearing. I would just say that--and Secretary Lew, 
thank you so much for your service to the country in two 
administrations. And thank you for leaving us with a surplus, 
and having balanced the budget, and left us in a position that 
we could have built on, where we would have alleviated all of 
our national debt by 2009.
    There was another administration that happened in between 
and, yes, there were also wars that have taken place. But 
clearly, this Administration has done an outstanding job in 
digging us out of the ditch that we were presented--as you 
pointed out, the worst since the Great Depression.
    I want to thank the chairman, as well, for his comments 
about the kind of cooperation that we saw at the end of the 
session. I think we ought to build on that, as a committee. You 
know, above the chamber it was Webster who famously said, ``Let 
us develop our resources of our land, call forth its powers, 
build up its institutions, promote all of its great interests, 
and see whether we also, in our day, in generation, may not 
perform something worthy to be remembered.'' I think that is 
what the American people want. They are tired of this back-and-
forth. You see that, we see it on both sides with respect to 
our presidential races.
    And look who--look where the public is. And as many are 
calling this an outsider revolution, I am heartened to see that 
Donald Trump, for example, is supporting--the Republican 
frontrunner is supporting increases in Social Security, is 
advocating directly negotiating with pharmaceutical companies 
so that we can actually lower the cost. We are heartened by 
this.
    We are heartened, clearly and always, by the standard-
bearer of our party, Hillary Clinton, standing up for expanding 
Social Security, and Bernie Sanders, as well. This is a great 
opportunity.
    I would like to submit for the record also--and I have the 
greatest respect for my colleague from Texas, I am glad that he 
brought up those--the situation that exists with Social 
Security. But I would add just a couple of things, Mr. Lew, by 
way of question.
    Social Security often times gets called an entitlement. I 
believe this is called the Federal Insurance Contribution Act. 
Is it not, in fact, a premium payment that individuals make 
into the Treasury?
    Secretary LEW. Well, it is funded by employer and employee 
contributions.
    Mr. LARSON. Yes. And I would like to submit for the record 
this actuarial report from a Social Security chief actuary, a 
plan that we have introduced on this side. And I hope--and I 
say this with all due respect--that we are able to get a 
hearing on this, because it is the vitality of ideas. And with 
both sides of the aisle talking about this in a presidential 
race, I think we should be talking about it here in this 
Committee as well, because this should be something that this 
Committee that has--can be remembered by.
    And I think it is long overdue that we come to an 
understanding. Mr. Neal pointed out the other day in another 
hearing that we had--and I thank you for that, Mr. Chairman--
that we have become totally reliant. Employers are moving to 
401(k)s as the only means in which members are going to be able 
to put money aside. If not for Social Security, what do we 
have?
    And for Republicans now finally--and I commend Mr. Trump 
for saying, ``Look, we cannot be talking about cutting benefits 
from people who the only thing that they may have to retire on 
is their Social Security, including most women.'' I know that 
the gentleman from Texas understands this from the people that 
he has represented all of his life. And I think, at its core, 
all of us want to make sure that we are preserving Social 
Security so that it works for the people.
    We have an opportunity to do this. We have a proposal that 
will do this that will not increase the national debt but, in 
fact, will provide an opportunity that will not only expand 
benefits, but--how about this, and I hope my colleagues will 
join me with this--provide a tax cut for working seniors, 
because we have never adjusted since 1983, when Mr. Lew and 
others did the work on this Committee to make sure we put 
there--we placed there, and did not make the change for our 
working seniors to have a tax break.
    So let us join together on this, solve the problem for the 
next 75 years, not 40, not 30, but do it in a way that we both 
offer extra and expanded security and tax cuts. Clearly, we can 
both agree on that.
    Chairman BRADY. Thank you. Without objection, the documents 
will be entered into the record.
    [The information follows:]


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                                 

    Chairman BRADY. Mr. Paulsen, you are recognized.
    Mr. PAULSEN. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here. I am going to start my first 
question on trade, actually.
    Like my colleagues, I am very concerned about the exclusion 
of financial services-related data from the TPP's data flows 
obligations. And, as you negotiate now with TTIP, right, with 
our European allies, I would really urge you don't make the 
same mistake.
    In addition, I would urge you not to exclude financial 
services from the regulatory cooperation provisions. And I know 
that the Administration disagrees with some of us about the 
interplay between financial services regulatory issues and 
TTIP. However, a specific exclusion will actually do nothing 
more than diminish the outcome in a very all-important 
financial services market access outcome.
    So, I would just really strongly urge and encourage you to 
reconsider if you want our support. And can you commit to 
working with us a little bit on this language? This has been a 
tension point, I know.
    Secretary LEW. Yes, I--on the data localization, I would 
very much be open to working together. We are working with all 
the parties.
    On the question of TTIP, let's separate the question of 
data localization from whether financial regulation should be 
included. Hopefully, we can get to a place where, going 
forward, we figure out how to manage the data localization 
issue so that we are in a place that there is broader comfort 
with, going forward.
    On the inclusion of the financial regulatory issues, we may 
just have a disagreement. I have been very clear with my 
European counterparts that we do not believe that regulatory 
issues should be governed by a trade agreement in the area of 
financial regulation. We have many mechanisms to coordinate, 
which I think are working effectively. Just yesterday we saw in 
the commodities trading area an important agreement reached, 
many years in development.
    So I think we need to use the channels that exist, but I 
would not put them into a trade agreement.
    Mr. PAULSEN. Well again, and you have met with some of our 
European colleagues, actually just yesterday. And if we want to 
have a good outcome in the market access area, I think we have 
got to make sure we are having ongoing conversations in this 
regulatory framework topic, as well.
    Let me get on to one other question before I run out of 
time. The highway bill that we just passed this last fall, the 
FAST Act, there was a provision that would facilitate the 
collection of taxes that are already owed to the government but 
are not being actively pursued by the IRS, while also pursuing 
and protecting taxpayer rights and privacy.
    So now, pursuant to the new law, how is Treasury going to 
comply with congressional intent? What efforts are underway now 
to ensure that Treasury has the appropriate resources in the 
way of collection contractors and debt collection centers to 
actually carry out the goals of this expeditious tax collection 
and protecting taxpayer rights? Because this was a paid-for, 
used-for in the highway bill that just passed.
    Secretary LEW. Congressman, the IRS is now working on 
implementing that provision of the highway bill. And as they go 
forward, they are going to be making sure that, while they 
implement the provision, they also protect the taxpayer rights 
and the privacy of taxpayers as a high priority. Turns out to 
be more complicated in the implementation than in the 
conception. And I would look forward to following up with you 
on that.
    Mr. PAULSEN. Okay, that would be great. I mean is it a 
separate--are we expanding the number of collection--qualified 
collection agencies, then, or are we using the existing list 
that is on the table? Because there is an approved list right 
now that can be used. Or are we using more RFPs in searching 
out more collection agencies? Or what is the delay, I guess, 
because----
    Secretary LEW. Yes, I think the challenge is how do we do 
it in a way that we make sure we protect taxpayers, 
particularly their privacy rights. And I would have to get back 
to you on which contracts are being used.
    Mr. PAULSEN. Thank you, Mr. Chairman. I yield back.
    Chairman BRADY. Thank you. Mr. Marchant, you are 
recognized.
    Mr. MARCHANT. Thank you, Mr. Chairman.
    Thank you, Secretary Lew. One of the Treasury's important 
roles is to help administer and oversee the Committee on 
Foreign Investment in the United States, particularly 
determining the effect of these foreign transactions on our 
national security.
    Last year global cross-border mergers and acquisitions 
reached a six-year high, with Chinese firms investing 15.7 
billion in the United States, a new record. And already this 
year it looks like there will be the same kind of activity. 
Already we have seen several deals announced this year, early 
this year, the China--including Zoomlion's $3.3 billion 
acquisition of Connecticut-based Terex; Chinese conglomerate 
Dalian Wanda's group of Hollywood legendary entertainment; and 
then the proposed sale of the Chicago stock exchange to an 
investor group led by China's Kaisen Enterprise. And lastly, 
Chem China has proposed a $43 billion takeover of Switzerland's 
Syngenta, which has a major, major presence in the United 
States.
    Secretary, can you talk to us about what activity you are 
engaged in in ensuring that these mergers and acquisitions are 
not going to affect our national security?
    Secretary LEW. Congressman, we take our responsibilities as 
the chair of CFIUS very seriously. And we have a process where 
the national security agencies do an assessment and offer their 
views as to whether or not there are national security issues. 
If there are national security issues, there is an effort made 
to look at is there a path to mitigation that would be 
appropriate. And I could tell you these are not easy decisions.
    In general, we believe in--you know, that legitimate 
transactions shouldn't be blocked; only things that are really 
covered by the statute that present a national security risk 
should be. It is a very challenging area, because of highly 
confidential review. We have information provided to us by the 
firms that are proprietary information. Even the fact of some 
of the things is something we can't talk publicly about.
    So, it is one of the more difficult areas where it is kind 
of--looks--it is very difficult to explain, since I can't talk 
transaction by transaction. What I can tell you is that, you 
know, we are criticized by some overseas for using a standard 
that they think is too tough, that we are not focusing on 
national security issues. What I tell them is the same as what 
I will tell you, that this is truly a national security 
process.
    If they are not national security issues--we don't stop a 
transaction because we don't like it or for any other reason. 
So there has never been a case that I am aware of where there 
has been any issue, other than a national security issue, nor 
am I aware of any national security issue that hasn't been 
addressed, either in a satisfactory way to permit a transaction 
to go forward or, if not, for the message to be sent that it 
wouldn't be. And in most cases the applications are withdrawn, 
if they are not going to be approved.
    So, it is a challenging area, but we take it very 
seriously. And it is one that I think we have to be very fair 
about, because we don't want to see barriers raised to U.S. 
companies in the name of national security when it is not. We 
have been very critical of other countries when they say we are 
not--you know, ``We are going to put standards in place that 
are national security standards,'' when they are really just 
trade barriers or barriers to acquisition.
    So, I am very comfortable with the way we approach it. A 
lot of deference is paid to the security agencies in the 
process. And it takes up a lot of people's time to go through 
these reviews. There have been more of them recently, just 
because there are more transactions.
    Mr. MARCHANT. Thank you, yield back.
    Chairman BRADY. Thank you. Mr. Lewis, you are recognized.
    Mr. LEWIS. Thank you very much, Mr. Chairman, and thank you 
for your courtesy.
    Thank you, Mr. Secretary, for being here. Thank you for 
your years of service, for your leadership. You are so calm and 
so cool. I don't know whether you take it from the President, 
or he takes it from you. But thank you.
    Last year, Mr. Secretary, the taxpayer advocate noted that 
the 2015 filing season was like a Tale of Two Cities. For those 
who did not need IRS assistance, there was very few problems. 
But for those who did need help, it was, ``by far, the worst in 
memory.'' I am quoting the advocate, it is not my quote.
    As the ranking member of the Oversight Subcommittee, I have 
fought long and hard for the IRS to have the resources and 
support it needs to serve American taxpayers. I believe the 
Administration shares these goals.
    Mr. Secretary, will you--how will the President's budget 
move the IRS toward being able to provide the direct, personal, 
and timely assistance that American taxpayers deserve and 
expect? Now, other side for years--I have been around for a 
while--had tried to cut--in essence, destroy the IRS. Tell me. 
How would the President's budget support and strengthen?
    Secretary LEW. Well, Congressman, I couldn't agree with you 
more. The American people deserve to have an IRS with the 
resources so that, when you pick up the phone and call the IRS, 
there is a person at the other end to answer it. Last year the 
answer rates were in the thirties, like 37 percent, something 
like that. Outrageous.
    You know, I am outraged when I can't get my phone calls 
answered if I call a business or a government agency. Americans 
have the right to have their phone calls answered. It is not 
magic, it takes people answering the phones. We didn't have the 
appropriation to hire the people to answer the phones, so the 
phones couldn't be answered.
    At the end of the year, there was a slight increase in the 
IRS budget for three purposes, one of which was to staff the 
hiring of people for tax season. Now, that was passed in 
December, and tax season began in January. We have hired a lot 
of people, but they have to be trained. We are hoping to get 
close to 70 percent, in terms of the answer rate, but we didn't 
get full funding, even with the increase last year.
    So there is no mystery to service; service is people. I 
give a lot of credit to the IRS team for working really well to 
make the online services very accessible. And a lot of the 
calls are falling off, because people are doing things online 
with the IRS, like they do with other agencies and other 
businesses. But that doesn't eliminate the need for people to 
actually ask questions in difficult cases. And when they call, 
they should get an answer.
    So the simple answer is we have requested more money for 
people to answer the phone. You know, it is much broader than 
just customer service. In order for us to enforce the Tax Code 
effectively, we need more people in the enforcement operations, 
and we are losing money, leaving money on the table if we don't 
have enforcers to go and say, ``We have audited you, you owe 
more taxes.''
    Apart from losing money, I don't think people like it if 
they think that other people get away with cheating. One of the 
ways a voluntary tax system works is you have confidence that 
everyone is treated the same way, and if you follow the rules 
it is fine, if you don't you get caught. We shouldn't let 
people who cheat get off the hook, because that undermines 
confidence in the tax system.
    So it just boils down to money. Obviously, we have got to 
do the work well, and we look forward to continuing to work 
with this Committee and others in Congress to make sure that we 
put the money to good use. But there is just a need for more 
funding.
    Mr. LEWIS. Mr. Secretary, when the government was closed 
down for a little while----
    Secretary LEW. Yes.
    Mr. LEWIS [continuing]. I went back to Atlanta and visited 
a federal building. And many of the federal employees, 
including IRS employees, heard that I was coming. And they met 
me, thanking me for coming by. And some was very glad and 
pleased to be able to go back to work. What effect do you think 
closing down the government have on federal employees?
    Secretary LEW. Well, Mr. Lewis, first, I visited the 
Atlanta field office just a few weeks ago, and it was a 
dedicated group of people who care deeply about their country, 
and who care deeply about doing their job, as well. The only 
concerns I heard them raise were, ``How can we do better 
protecting people's identity? How can we do better at providing 
better service?'' And they said, ``Will you get us the 
resources to do it, so that we can get this job done well?''
    I think, if you look at the impact of the government 
closure and where the furloughs were deepest, the IRS got one 
of the worst burdens in government, because it is all people. 
And I think it was terribly demoralizing to people. I give a 
lot of credit to the people of the IRS, that they pick 
themselves up and they come back determined to do a good job.
    They have also been through a difficult period where a few 
people behaved badly, and we have all agreed that they needed 
to be held accountable. But the vast majority of people didn't 
deserve the criticism that they got, because they----
    Chairman BRADY. Thank you, Mr.----
    Secretary LEW [continuing]. Didn't do anything wrong.
    Chairman BRADY. Thank you, Mr. Secretary.
    Mr. LEWIS. Thank you, Mr. Secretary.
    Chairman BRADY. Mrs. Black, you are recognized.
    Mrs. BLACK. Thank you, Mr. Chairman and Secretary Lew. It 
is always good to have you here with us. I really am not sure--
there is so much to say, I am not sure where to start. But let 
me start by saying that I would love for us to work on 
simplifying the code, because I really do believe that that 
would help some economic growth.
    I would say that that economic growth would hopefully be 
better than what we have continued to see. And this chart has 
already been shown about the economic growth that has occurred, 
and the GDP growth in the years that the President has been in 
office. And I even had to draw in here over at the end another 
column, because the projected growth for this upcoming year is 
1.8 percent. And I want to note in your remarks you said 
economic growth continues on a solid path. I don't consider 
this a solid path.
    And then, in the proposal by the President we see an 
increase in taxes on oil, taxes on savings and investment. None 
of that really helps economic growth.
    But I want to go in another direction, because we can talk 
about adding more money to the treasury, but where I am 
concerned about is the money that perhaps is being wasted and 
not being used, and using hardworking taxpayer dollars. And I 
want to pull up a report when Secretary Burwell was here 
yesterday. This is a report that came out of the Senate. And 
this report--``Illegal Immigrants Benefitted by up to $750 
million in Obamacare Subsidies.''
    Now, we can't talk about raising taxes until we get our 
office straight, our house straight, on what we are doing. We 
have to protect our taxpayer dollars. Hardworking taxpayer 
dollars don't like to read this kind of thing in the mail, or 
on their iPads.
    This is a failure. This is a failure of being sure that you 
verify before someone gets these tax credits and these 
subsidies. And we see that as not happening. We have known for 
several years in the Affordable Care Act that is not happening.
    Now, I know it is law that if they cannot verify their 
legal status, that for 90 days they are going to receive the 
subsidies. I happen to believe you shouldn't even give it out 
for 90 days, because now there is a pay-and-chase. And we have 
seen this in other programs, like the EITC. We are also seeing 
this in the education tax credits. We don't even really know 
how many dollars--this is one situation, but we really don't 
even know how many dollars we are trying to chase that were 
given out on self-attestation, where there wasn't verification 
of income in those other programs like auto-renewal, where we 
didn't even say, ``Has there been a change in your income.''
    So, there are dollars going out the door that we are not 
sure that they are really going properly out the door. And then 
chasing them is a real problem. So there is a disconnect 
between HHS and the IRS in giving out these tax credits. And 
what I want to hear from you, as the treasurer who is in charge 
of all the dollars in this country, is that there is going to 
be something done about making sure that these dollars don't go 
out the door without there being verification.
    As a matter of fact, I have a bill, and have had it for a 
number of years now. I would like all my colleagues to sign on 
to this bill with me. It is called ``No Subsidies Without 
Verification,'' because if I apply for something in the private 
industry, and I don't have all of the paperwork to show that I 
qualify for whatever it is that I am applying for, I don't get 
whatever it is that I would like to have, just because I say 
that, ``Well, I don't have to prove it,'' or, ``There is 90 
days that can go by. By the way, give me that money bank, but I 
haven't given you all of my qualifications.''
    Can I get some assurances from you that this is something 
that is going to be taken care of, and we won't continue to see 
this happening?
    Secretary LEW. Congresswoman, first, let me acknowledge 
that we are committed to protecting taxpayer dollars and 
implementing the Affordable Care Act and the Tax Code, 
generally. So, in principle, you are not going to get any 
disagreement on that.
    In the Affordable Care Act, you know, our implementing 
guidance is clear that the premium tax credit is not allowed 
for individuals who are not lawfully present in the United 
States, and that such individuals who receive the advance 
premium tax credit must repay it when they file their tax 
return.
    Mrs. BLACK. So can you tell me, Mr. Lew, how much money is 
coming back? Of this----
    Secretary LEW. I would have to get back to you, yes.
    Mrs. BLACK. Could you get back to me on that?
    Secretary LEW. I----
    Mrs. BLACK. Can you get back and tell me, in the previous 
years of the money that has gone out the door, how much money 
has come back? Because we have had testimony from the OIG here 
in this Committee about all of these other programs, where the 
money goes out the door, about how much money that they are 
able to get back. And that number is----
    Secretary LEW. I will get----
    Mrs. BLACK [continuing]. Minuscule, compared to what goes 
out the door.
    Secretary LEW. I will get back to you, but I just want to 
assure you the IRS is using all of its standard enforcement 
tools, including----
    Mrs. BLACK. Well, it is not working.
    Secretary LEW [continuing]. Offsetting future refunds when 
it comes to----
    Mrs. BLACK. It is not working.
    Secretary LEW [continuing]. Anyone who fails to reconcile.
    Mrs. BLACK. We need to change policy, because it is not 
working.
    Chairman BRADY. Thank you. Mr. Young, you are recognized.
    Mr. YOUNG. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here before the 
committee. I wanted to speak to you about the President's 
corporate tax reform proposal, specifically its impact on many 
of our multinational corporations, like those in my home state 
of Indiana, the impact it could have on their liquidity.
    You will recall under the former Chairman Camp's draft 
reform proposal that he had sort of a two-tiered structure for 
dealing with overseas earnings, for the subsidiaries of 
multinational corporations. He applied one rate, 8.75 percent, 
to cash earnings and a second rate, 3.5 percent, on non-cash 
earnings. This was done purposely, to recognize there is a 
difference between what these earnings are spent on, what they 
are invested in, where they are left. We don't have $2 
trillion--I know you understand--that is sitting in some back 
account overseas. Much of that is invested or reinvested in 
equipment, infrastructure, and other things.
    And so, I have concerns that applying a single rate will 
require businesses in some instances to borrow in order to pay 
this tax that has been proposed. It will certainly lower 
domestic investment, reinvestment here in the United States, 
and investment in these businesses that are important to all 
Americans.
    So my question is why does the President take this single-
tier approach, in terms of taxing these overseas earnings? So 
we will just start with that.
    Secretary LEW. So, in principle, we--I think we might even 
agree that there is not a difference between a dollar earned 
and invested and a dollar earned and put in a bank account.
    Mr. YOUNG. Right.
    Secretary LEW. It is subject to taxation. So the basic 
principle is, you know, that all corporate earnings should be 
taxed on a comparable basis.
    I understand the question you are asking, and the 
liquidity--the cashflow issues. It is not a liquidity issue if 
firms have a capital structure where they are able to finance 
it or to manage it. It is only a liquidity issue if they can't. 
If there are real liquidity issues----
    Mr. YOUNG. Have you prepared for that contingency within 
the President's proposal----
    Secretary LEW. Well, look, I mean, to tell you the truth, 
we have not gotten into a level of detail on working through 
the differences between our proposal and proposals from the 
Hill.
    Mr. YOUNG. I am asking about your proposal, not the 
contrast.
    Secretary LEW. I think we provide some time for----
    Mr. YOUNG. Time to adjust?
    Secretary LEW. It is a five-year period to pay the taxes 
that are due. So that is an attempt to make it not become kind 
of a sudden burden that would stress a firm's cashflow. If that 
is not sufficient, we are obviously open to a discussion about 
how to deal with it.
    I don't think the two-tier rate is really fair, in terms of 
treating one dollar earned a different way than another. But it 
is not the goal to create tax bills that can't be paid. I 
actually think in most cases it wouldn't present that kind of a 
problem. But, you know, if we can get into that level of 
detail, we would have made a lot of progress. So I would look 
forward to, you know, kind of working that through.
    Mr. YOUNG. Well, I look forward to working it through, as 
well. And I would like to play a constructive role in that 
conversation. My thought is I know you have an incredible 
amount of internal expertise over there at Treasury. We, in 
contrast, were able to come up with a reform proposal with Ways 
and Means Committee staff and Member input, which, my 
understanding, is very different than the----
    Secretary LEW. Yes.
    Mr. YOUNG [continuing]. Way in the 1980s the tax reform 
proposal was done. So I am surprised you haven't been able----
    Secretary LEW. Well, no, we have----
    Mr. YOUNG [continuing]. To get down to that level of 
detail, candidly.
    Secretary LEW. We provided technical support to Chairman 
Camp at the time.
    Mr. YOUNG. And we were grateful for that.
    Secretary LEW. Yes. So it is not that we are unfamiliar 
with it.
    Mr. YOUNG. Right.
    Secretary LEW. We have one approach, you have another 
approach. The reason we haven't gotten to that level of detail 
is we haven't had a real negotiation over what would the middle 
grounds look like. I would welcome being in that kind of 
conversation.
    Mr. YOUNG. Right, and just so, you know, some of my 
constituents who may be watching, or others who might be 
watching, I mean, what we are talking about here is, you know, 
there may be some company that has, you know, invested in a 
bunch of buildings, brick and mortar, and we are actually 
talking about taxing the monies that were used to invest in 
that brick and mortar, which, you know, seems a bit off.
    But again, you have conceded--if that term strikes you as 
loaded, I will allow you to recharacterize it--but you 
certainly indicated that there--this perhaps is not optimal, 
and we can improve upon it.
    Secretary LEW. Yes, and I do think that we have to keep our 
eye focused on what I think we all agree on, which is that----
    Mr. YOUNG. Right.
    Secretary LEW [continuing]. There are companies sitting on 
huge amounts of cash overseas, some of them borrowing against 
them to be able to bring money home because of low interest 
rates, and never paying taxes until that money is actually, you 
know, physically moved. And that is wrong. I mean the system 
has to be fixed.
    Mr. YOUNG. Thank you.
    Chairman BRADY. Thank you. Mr. Blumenauer, you are 
recognized.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    Mr. Secretary, thank you again for visiting with us. I 
appreciate the President staking out a bolder vision, in terms 
of what we should be looking at in a year, when lots of people 
are talking about what the future is. And there is lots of 
continued debate about what we have done. And I think the 
record that is set forth that you have been involved with is a 
very strong one, in terms of a very impressive recovery, 
compared to what the President inherited, very strong growth, 
which happened in terms of health care.
    The catastrophe that was suggested actually hasn't 
happened. And when I talk to people in the health care industry 
in my community, whether they are doctors, hospitals, insurance 
people, it has been a rather remarkable five years dealing with 
something, despite the fact that Congress wasn't willing to 
fine-tune it, they were just sort of chipping away at it.
    So, I appreciate a bold statement. I appreciate laying out 
a vision for the future. I appreciate being able to engage with 
what we have done and what we can do, going forward.
    I noted with interest the President included in his 
proposal a $10.25 fee on--per barrel of oil to be invested in 
infrastructure, especially green infrastructure. And, as you 
and I know, we have had a number of conversations, how much I 
support the President's commitment to infrastructure, although 
we have had some modest disagreement about how to go forward.
    I hearken back to your days with Tip O'Neill, when Speaker 
O'Neill and President Reagan were able to raise the gas tax on 
a bipartisan basis----
    Secretary LEW. I remember it----
    Mr. BLUMENAUER [continuing]. A nickel a gallon, back when 
that was real money, and had tremendous impact on our country.
    I noted--I am pleased that the President appears to have 
changed his position about whether--about having people who 
make under $250,000 a year paying more to be able to support 
infrastructure. I commend that. The estimates I have seen is 
that a $10.25-per-barrel charge would translate maybe $.20, 
$.25 a gallon at the pump. It also has other impacts that I am 
not certain have been fully vetted with the President's 
proposal, things like school buses and home heating oil. But I 
am assuming people will work to deal with making sure that it--
if it were enacted, that it would work in a smooth and 
equitable fashion.
    But my question to you, Mr. Secretary, is why should we go 
through the machinations of the barrel charge that gets the 
petroleum industry moving from neutral to opposed? I didn't see 
vast numbers of people lining up supporting it, like they did 
with our gas tax increase. Why don't we just--is there 
opportunity for us to work with the Administration to just do 
it directly now, and raise the gas tax to meet these objectives 
on a sustainable basis, going forward, rather than a proposal 
that actually would cost more, and has more negative 
consequences?
    Secretary LEW. Well, Congressman, I appreciate the kind 
words for our policy, but I just want to be clear. We have 
imposed no direct tax on consumers. I understand that there are 
different analyses of what the pass-through rate would be, but 
I don't think----
    Mr. BLUMENAUER. You don't think that a $10-a-barrel 
increase----
    Secretary LEW. I don't think----
    Mr. BLUMENAUER [continuing]. Is going to be reflected in 
higher gasoline----
    Secretary LEW. I don't think----
    Mr. BLUMENAUER [continuing]. Prices at the pump?
    Secretary LEW [continuing]. You can just divide it by the 
42 gallons in a barrel.
    Mr. BLUMENAUER. No, I am not suggesting, but----
    Secretary LEW. So the--there is a range of possible amounts 
that will be passed through. But there is--no, this is not a 
direct tax on consumers, this is a tax on oil industry.
    [Laughter.]
    Secretary LEW. As I have said to you in many conversations 
in the past, we remain open to working with you and others in 
Congress on anything we can get a majority for to----
    Mr. BLUMENAUER. Okay.
    Secretary LEW [continuing]. Increase funding for highways.
    Mr. BLUMENAUER. Great. Well, reclaiming 20 seconds, I think 
there may be some debate whether it is $.15, $.20, $.25, or 
$.30. You and I will agree that it is going to be a significant 
increase at the pump, and probably less than the gas tax I 
proposed.
    I would hope--and I appreciate your offer to do something 
that is bipartisan--I hope that we can use this as an opening. 
I have got some colleagues on the committee that are interested 
in a long-term solution. And I would hope at some point we 
could have that conversation before the year is out.
    Thank you. Thank you very much for your courtesy.
    Chairman BRADY. Thank you. Mr. Kelly, you are recognized.
    Mr. KELLY. Thank you, Chairman.
    Mr. Lew, good to see you again. I am fascinated because you 
come here every year, and it must be very difficult, from your 
background. And I look at what the mission statement is for 
Treasury. If we just put that up for a minute.
    [Slide]
    Mr. KELLY. And I think sometimes we become confused as to 
who it is we work for. I don't really view you as working for 
the Administration, I view you as working for the American 
people.
    Secretary LEW. That is exactly how I view myself.
    Mr. KELLY. Yes, and I think we are the same way.
    Secretary LEW. Yes.
    Mr. KELLY. But sometimes the conversation drifts----
    Secretary LEW. He works for the American people, too.
    Mr. KELLY. Yes, yes. And it drifts into something else.
    But I just wanted to read this, so--because I know people 
at home, where I am coming from, if they were watching this, 
they would have fallen into this coma because of the 
Washingtonese, where nobody understands what is actually being 
said, so they just kind of nod and then they walk off and do 
something else.
    But the mission statement for the Treasury is to maintain a 
strong economy and create economic and job opportunities by 
promoting the conditions that enable economic growth and 
stability at home and abroad, strengthen national security by 
combating threats and protecting the integrity of the financial 
system, and manage the U.S. Government's finances and resources 
effectively.
    Now, I have looked at your background, it is very 
impressive. A lot of it has been spent in the public sector, 
not the private sector. And I think that is where the 
disconnect--for somebody who has been in the private sector all 
his life, and has understood that a budget is something that is 
kind of--not kind of, but exactly where you are going, it is a 
road map. And we may call it visionary, where we would like 
things to go. But where I am from, in western Pennsylvania, it 
is more kitchen table economics, where a husband and a wife sit 
down to figure out what do they have to work with, revenue-
wise, and that dictates what they can spend.
    In Washington, we dictate what we are going to spend, and 
then we don't come anywhere close to being able to pay for 
that. Now we are going to have to do something else, and the 
something else is usually borrowing. And we continue year after 
year after year with deficit spending. And we are really proud 
right now that we have actually reduced deficit spending. We 
are actually below a half-a-trillion dollars a year. We are 
feeling pretty good about it.
    And I keep thinking about this, a husband and a wife 
sitting down. And the wife says, ``You know, honey, this is the 
best year--since we have gotten married. You brought home 
$32,500 last year.'' And he goes, ``Yes, I know. I had a lot of 
overtime, and I was able to work a little bit harder.''
    And she says, ``That is great. It is okay if I go out and 
spend $37,000 or $38,000, then, right?''
    And he is, ``No, no, let's get together on this, because 
the math just doesn't work, going forward.''
    Now, I look at these things, and I start to wonder, myself. 
If people at home can get it, and we tell them to tighten their 
belt, and we tell them they are going to have to do more with 
less--and a lot of it falls down to a broken Tax Code, and the 
reason we need a bigger IRS is because the code is too big, and 
the people call in because they don't understand it and, more 
importantly, they are scared to death of the penalties for not 
abiding by it.
    Where you are, and where you have been--and you advise the 
President on this--has there ever been a serious conversation--
and I mean this sincerely, and this is Republicans and 
Democrats--has there ever been a serious conversation about 
where is it that we are going with this? Do we really look at 
this and say, ``This is sustainable''?
    And then the other--the conversation on inversions, I mean, 
honestly, we need to put that poster up as the beatings will 
continue until moral improves. We keep accusing these people--
tax cheats? These people are horrible?
    I pay wage taxes, by the way. Anybody that looks at the Tax 
Code understands that, when it comes to Social Security, yes, 
the person, the associate, puts the money in. So does the 
employer. It is a matching fund. When we talk about these 
people going overseas, they don't go overseas because they hate 
America. They go overseas because we are making it impossible 
for them to be profitable here. By the way, everybody that 
works for them is paying wage taxes, and they are matching it 
to a great degree, and they are paying a lot of other taxes.
    My question to you, as you start the end of a career, where 
is it that you see this going? Because I don't see it. At 19 
trillion in the red and climbing, and this President's budget 
takes it way over the cliff, could you possibly be able to sit 
down and say, ``You know, what, Mr. President? Looks good to 
me.'' I mean it doesn't. This is a very bleak future. But we 
have assets, we could turn this around with a proper Tax Code, 
regulation reform, and really make it easier for people in 
America to be successful. They pay a high portion of whatever 
it is they make in taxes.
    So just--you only have a couple seconds left, and you only 
have a couple months left, too, but what would you do 
differently? Because I just don't see it changing.
    Secretary LEW. Well, I will do the best I can in 30 
seconds.
    Mr. KELLY. Yes, I know, and this could take three or four 
hours for us talk, but----
    Secretary LEW. Look, the truth is it is hard to compare a 
kitchen table and a federal budget. There is a fundamental 
difference between a government, a sovereign that goes on 
forever, and a household that has, you know, the years that it 
manages. So there are big differences between the two.
    But even at the household kitchen table, I mean, how many 
of us have sat down with our spouse and said, ``Can we afford 
this house, can we borrow X amount and have the next 30 years 
to pay it back,'' and reach the decision that you could? Now, 
I----
    Mr. KELLY. Just to interrupt you, please, listen, you can't 
borrow your way out of debt. And we are continuing to build 
this debt that is going to--it is going to capsize this entire 
country. There is no difference between kitchen table and what 
we are talking about. The only difference is here you don't--we 
can raise taxes so we can print our own money. You can't do 
that at home.
    Secretary LEW. Right, that----
    Mr. KELLY. And that is where the big separation is. I must 
tell you the American people have lost confidence in the way we 
run this company.
    Chairman BRADY. Thank you. All time is expired.
    Mr. Renacci, you are recognized.
    Mr. RENACCI. Thank you, Mr. Chairman, and thank you, 
Secretary Lew, for being here.
    I, like Mr. Kelly, came from the private sector. So it is 
interesting as I listened here. You know, we talk about Social 
Security, it is okay. We talk about inversions, yes, we have to 
fix it. We talked about debt, you said it is stable, you will 
leave office with a manageable situation. We talk about 
economic growth is reasonable. The problem is we have no sense 
of urgency. That is the real problem.
    So, last week I was at a high school. I talked to juniors 
and seniors. I had them put up red cards or green cards. One of 
the questions I asked them, ``Is our country going in the right 
direction?'' It was a sea of red, 95 percent no, it is not 
going in the right direction. These are the people who have to 
deal with this debt.
    I asked them if our debt is too high. A sea of green. Yes, 
our debt is too high. I asked them if our government is working 
together to solve problems. It was a sea of red, absolutely no, 
we are just not. Now, these are kids 19, 20, 21, 22. These are 
voters, these are people who are going to have to live with 
what we are saying is okay, manageable. This isn't manageable. 
This debt, if it continues, it grows, is not manageable.
    And it is not that hard to compare. The real difference is 
when a husband and wife realize that they can't pay their bills 
they have a sense of urgency. When the Federal Government 
realizes that its debt is growing, you know what they say? ``It 
is manageable.'' That is a problem. That is a real problem. And 
that is the issue that I think we have to get past.
    And it is amazing. You know, my colleague, Mr. Larson, 
spoke about working together. We have to work together. You 
have an opportunity last eight, nine months of your career. I 
will guarantee you, if you were talking to Tip O'Neill today, 
he would not say $19 trillion is a good number. I am sure he 
wouldn't. You may say different, but I will bet you if you and 
I were sitting at a bar, having a drink, you probably would say 
a little different if there was just two of us.
    Secretary LEW. I don't think any of us would have imagined 
the size of the economy or anything else, so the numbers 
reflect economic growth. But he believed in the role of 
government and the need for us to have a willingness to finance 
things that were critical.
    Mr. RENACCI. But I will bet you he would have been shocked 
at 19 trillion. We will leave it at that.
    But--so we have to be able to figure out a way to work 
together, and that has got to be the issue. And hopefully, that 
can be--something can be done. It would be great if the 
President would say, ``I want to work with Republicans to try 
and get this done. This debt is growing too much.'' And I think 
that is what is frustrating for me. I have been here five 
years, and I just keep hearing the same thing.
    And Mr. Kelly talked about Washingtonese. The people back 
home, they are saying, ``I don't understand what they are 
talking about. I know one thing, the debt is growing too 
high.''
    But let's just talk about some specifics. I did want to get 
into some details on the budget. You know, I constantly hear 
from my constituents how the Federal Government needs to cut 
down fraud, waste, and abuse. And you know, unfortunately, the 
Administration budget did expand refundable tax credit programs 
without proposing any meaningful safeguards.
    I agree, the EITC has a laudable policy goal of encouraging 
rewarding work by low-income Americans to increase labor 
workforce participation. However, this program, in its current 
form, is rife with fraud and improper payments. I understand 
that the EITC program has the highest improper payment rate of 
any Federal Government program: over 27 percent in Fiscal Year 
2014. Over the last 10 years, the--issued an estimated 134 
billion in improper payments.
    One of the issues that--again, I am a CPA, a business guy. 
One of the primary causes of the high improper payment rate is 
the EITC program relies more directly on self-reported income 
of individuals, without regarding any verification. This stands 
in contrast to the means-tested cash welfare programs that 
require income verification. In other words, individuals flat 
out invent fictitious incomes to maximize their EITC cash 
bonus.
    Mr. Lew, do you believe--I am going to give you three 
questions--that the fraud and improper payment rate of over 25 
percent is acceptable? That is question one.
    Do you believe that the budget that has any proposal would 
make a serious effort to combat this?
    And lastly, do you agree this is a serious problem?
    Secretary LEW. Look, I would begin where I hope we agree, 
that the earned income tax credit is one of the most effective 
programs we have had, both to reduce poverty and to get 
people----
    Mr. RENACCI. I agree with that.
    Secretary LEW. That is why it has had bipartisan support.
    Each year the IRS recovers or prevents about $2 billion in 
improper EITC claims.
    Mr. RENACCI. But is an improper payment rate of 25 percent 
acceptable?
    Secretary LEW. And--no, we have been working hard to bring 
it down. One of the things we have put in this year's budget is 
proposals that would simplify the EITC and improve compliance. 
One of the--I mean I am not sure I agree with you on 
attributing where most of the errors occur. Some of it is just 
because it is complicated, and we have to simplify it so people 
could comply.
    Mr. RENACCI. And I know we are running out of time, but 
wouldn't verification of income be the simplest way of----
    Secretary LEW. Well, that--our tax system is one where you 
file, and then we look at it afterwards. I think it would be a 
pretty dramatic change, and one that, if you did it on a broad 
basis, would make our tax system even more cumbersome. But we 
can have further discussions----
    Chairman BRADY. Thank you. All right, Mr. Pascrell, you are 
recognized.
    Mr. PASCRELL. Thank you. Thank you, Secretary Lew. We have 
never really explained what was the real effect of the tax cuts 
of 2001 and 2003 on budget and debt, coupled with the plan for 
prescription drugs, and then not paying for two wars. When you 
look at the charts about what affects the debt and what affects 
the deficit, these are major, major areas. But let's--that is 
yesterday's chapter.
    I am pleased to see that the budget includes over 600 
million in allotments to extend the earned income tax credit--
we were just talking about that--for Puerto Rico. The EITC is 
already available to Americans living in the 50 states and the 
District of Columbia. Introducing the EITC in Puerto Rico would 
encourage work and encourage workers to come out of the shadows 
into the formal economy.
    We have introduced legislation, H.R. 4213, Tax Equity and 
Prosperity for Puerto Rican Families Act, along with Mr. 
Pierluisi of Puerto Rico, to extent this important income and 
work support to the residents of Puerto Rico.
    Secretary Lew, we have heard a lot about the need for 
Puerto Rico to have a mechanism to restructure its debt. In 
fact, that is all we have been occupied with. But should we 
also be considering economic development? Very briefly, give us 
your take on that.
    Secretary LEW. Absolutely. I think that the immediate and 
urgent is the ability for them to restructure their debt and to 
get the kind of oversight that would give everyone comfort.
    But the real goal is not to restructure the debt. The real 
goal is to get back to economic growth. And one of the things 
that the EITC proposal does is it helps to get them back to 
economic growth by making it easier to bring people back into 
the workforce. And I think it would be very important, if we 
could do it.
    I have, you know, reluctantly said on a number of occasions 
that if we can't do everything, we have to at least do 
restructuring and oversight right away, because we just don't 
have time to put that off. But that doesn't at all diminish the 
importance of dealing with both the question of getting the 
economy back, which the EITC is part of, and the real 
unfairness that their reimbursement for Medicaid is so much 
lower than other jurisdictions get.
    Mr. PASCRELL. Yes, we have a couple quick questions. How 
would the EITC in Puerto Rico impact economic development? And 
why, in your opinion, is it so important to include these 
citizens in this refundable credit? And I will--and----
    Secretary LEW. Well, Puerto Rico is no different than any 
other part of our economy. If--the rationale for the EITC is to 
make work pay, so people will come back to work and be 
productive. If you go to work and have the EITC to make it so 
that you don't get excessively taxed because of going back to 
work, because of loss of benefits and other things, you get the 
EITC instead, that will be good for the economy. It will create 
more productive labor and it will reduce reliance on benefit 
programs.
    Mr. PASCRELL. The budget does not----
    Secretary LEW. Which is the same as the rationale around--
for the EITC nationally. It is not different in Puerto Rico.
    Mr. PASCRELL. I would hope not.
    Secretary LEW. Yes. It is part of the United States, and 
there are 3.5 million American citizens.
    Mr. PASCRELL. What the budget does not address is expanding 
the child tax credit in Puerto Rico. Why are their children 
treated any different than the children on the mainland? Even 
though it has previously endorsed the idea--if you remember in 
the 2011 task force report, it was endorsed and nothing ever 
happened after that. Could you explain why this was left out of 
the budget----
    Secretary LEW. Well, we obviously looked at what could we 
do that would make the most dramatic difference in Puerto Rico. 
We put our plan together. In general, in our budget we put a 
lot of emphasis on the EITC. That is why we have the childless 
worker provisions in our budget.
    You know, we are also supportive of the child credit, and I 
am happy to discuss issues related to that, you know, 
nationally, or with regard to Puerto Rico.
    Mr. PASCRELL. And something we have been struggling with, 
Mr. Secretary, about our underground infrastructure, in terms 
of pure water, and we know that--the challenges. And, 
unfortunately, we got to be hit with--on the side of the head 
with a two-by-four to understand what the heck is going on. It 
is not a sexy subject to talk about when it is underground, but 
it is there.
    I really advocate and continue to advocate--and this is a 
bipartisan thing--private activity bonds in the water 
infrastructure. We should be emphasizing this. We need $500 
billion to replace and upgrade our water supply. We are not 
doing anything, really, about this, just as we neglected our 
roads. You have seen the picture of the encased pipe that is 
corroded. It could be applied to any agency in the government, 
when we neglect things and think they are going to heal 
themselves.
    Secretary LEW. We do have the state revolving fund, where 
we do try and support----
    Mr. PASCRELL. I want that cap to be raised, so that a lot 
of other people----
    Chairman BRADY. Thank you----
    Mr. PASCRELL [continuing]. A lot of municipalities--thank 
you, Mr. Chairman.
    Chairman BRADY. You bet. Mr. Meehan, you are recognized.
    Mr. MEEHAN. I want to thank you, Mr. Chairman.
    And, Mr. Secretary, thanks again for being with us. The 
issue of Iran sanctions was raised earlier. About a decade ago, 
the previous administration engaged the Libyan Government and 
Mr. Gaddafi in sanctions relief and, as a condition of that 
sanctions relief, required the Libyan Government to make whole 
certain victims of terrorism, including those who were victims 
of the Lockerbie bombing.
    Recently, this Administration has made a decision to--send 
$100 billion to Iran. As a former prosecutor, I looked at the 
question of those who had been victims of Iranian terror, and 
appreciated that the United States itself actually encouraged 
those victims to seek compensation for those damages in 
American courts. I also discovered that there are some $43.5 
billion which has been awarded by United States courts against 
Iran to those victims of terror.
    These are Marines at barracks that have been blown up. 
These are American citizens sitting in a cafe in Tel Aviv. Why 
did the Administration allow $100 billion to flow to Iran, in 
light of this precedent, before requiring that they pay the 
obligations that they owe to the victims of Iranian terror?
    Secretary LEW. Congressman, obviously, the--it--concerns 
that you have about the victims of terror are concerns that we 
share. And I will defer to my colleagues in the Justice 
Department, some of the details----
    Mr. MEEHAN. Well, these weren't decisions made by the 
Justice Department.
    Secretary LEW [continuing]. Of addressing the--those----
    Mr. MEEHAN. This was a determination made by the President 
that was----
    Secretary LEW. Let--to respond in terms of the policy 
behind the nuclear agreement, as we had extensive debate over 
the summer, it is critically important for the peace of the 
world and the United States that Iran not get nuclear weapons. 
We negotiated with Iran to successfully get them to back away 
from all of their pathways to a nuclear weapon. And in exchange 
for that, provided relief from sanctions after the performed on 
those commitments. They performed on those commitments, and the 
sanctions on nuclear issues are lifted. We have not lifted 
sanctions on----
    Mr. MEEHAN. You lifted, but----
    Secretary LEW. But we have not lifted sanctions on other 
issues. We continue to have sanctions----
    Mr. MEEHAN. Mr. Secretary, excuse me, though. But what it 
has done is Iran, with new resources, turned around and 
purchased military equipment from countries like Russia, 
military equipment which is very likely going to find its way 
into utilization against others in the Middle East, fomenting 
further acts of terror.
    I go back to ask that question again. If they had the 
millions and millions of dollars to buy military equipment, why 
couldn't we have required--this has nothing to do with nuclear. 
This is pay your bill before we give you one penny of relief.
    Secretary LEW. So, Congressman, the number you used, the 
100 billion, we do not believe $100 billion will be available 
to Iran under----
    Mr. MEEHAN. Well, 43.5 billion is the sum----
    Secretary LEW. Yes.
    Mr. MEEHAN. I mean let's say--are they going to get 43.5 
billion, or----
    Secretary LEW. There is--there will be some amount. There 
have been different estimates, even from within Iran, that are 
even smaller than that. It is substantially less. We can walk 
it down to no more than 50 to 60, and I think it will be less 
than that, because there are real issues that encumber that 
money.
    I think that the agreement is one where what Iran did in 
keeping its part of the bargain on dismantling the reactor at--
--
    Mr. MEEHAN. Well, whether they have----
    Secretary LEW [continuing]. Heavy water reactor, and 
putting the centrifuges either into storage or destroying them, 
shipping out the uranium, and subjecting themselves to 
oversight and inspection----
    Mr. MEEHAN. Mr. Secretary, my time is running out----
    Secretary LEW [continuing]. That is something that is of 
real value----
    Mr. MEEHAN. Whether they have actually fulfilled the 
requirements is an open-ended question.
    Let me just ask one other question, if I may. I have 
refinery workers in my district.
    Secretary LEW. I couldn't hear, I am sorry.
    Mr. MEEHAN. I have 3,000 refinery workers in my district. 
And they have already been disadvantaged by the determination 
to allow foreign refineries to ship oil now, refined oil, into 
the United States, about a $3-a-barrel differential. Can you 
explain to me--can you tell those workers that a $.25-a-gallon 
increase on oil tax will not affect their jobs?
    Secretary LEW. Congressman, what I can tell you is over the 
last year we have seen a barrel of oil come down so much more 
in value than the amount of the fee we are talking about, which 
is $10 phased in over 5 years, that--there is a lot of 
disruption in the oil sector, but this is small in comparison 
to what they have experienced.
    Mr. MEEHAN. Thank you, Mr. Secretary.
    Chairman BRADY. Thank you. Mr. Rice, you are recognized. If 
I may, Mr. Rice, we have a bill on the floor that we have to 
manage. Please excuse me while I go over to do that. Mr. 
Holding will run the rest of the hearing.
    But thank you again for being here today.
    Secretary LEW. Thank you.
    Chairman BRADY. Mr. Rice.
    Mr. RICE. Secretary Lew, thank you for being here today. 
You know, I have heard you mention and--first time I heard it 
was the State of the Union, the President lamenting the bitter 
state of political discourse, and how--he admitted----
    Secretary LEW. I am sorry, I am having trouble hearing you.
    Mr. RICE. And how it got worse during his term. And I think 
that is an awful shame. It think it is really curious, because 
I think the President is a very bright man, and he is certainly 
very charismatic. But I have seen, throughout my limited term 
here of three years, that the President spends a tremendous 
amount of time on the bully pulpit, throwing stones and working 
around and even subverting Congress.
    And you see Administration officials coming in here and 
lying and not responding to subpoenas and delaying and 
obfuscating and talking about how transparent the 
Administration is. I think it is a terrible, terrible shame. 
And we sit here, he has got 11 months left in his term, and now 
he is lamenting this discourse.
    I would love the opportunity to work with the 
Administration to solve some of the problems, these terrible 
problems that face our country that we all talk about. 
Republicans and Democrats, we all go home and talk about the 
fact that Medicare and Medicaid--excuse me, Medicare and Social 
Security are crippled, and they are heading toward insolvency. 
We all talk about the sad state of our Tax Code, and how it is 
not competitive in the world. And what I would like to see is 
serious talks about how to solve some of these problems.
    What specific proposals--I am not going to say it is all 
the Administration's fault, I think it is Congress's fault, 
too. But what specific proposals has the Administration made to 
fix Social Security? We all know it is a problem, we all know 
it is going to be insolvent in 15 years or so. I know of one, 
and that was CPI that was in the budget, what, two years ago. 
Is it in the budget this year?
    Secretary LEW. No. But, Congressman, I would say that if 
you are concerned about Medicare, and you look at the results 
of the Affordable Care Act, we have, for the first time in a 
generation, turned the cost curve around, reduced the rate of 
growth----
    Mr. RICE. So----
    Secretary LEW [continuing]. Done more to help the----
    Mr. RICE. So it will last three more years, right?
    Secretary LEW. I can't hear you.
    Mr. RICE. It will last three more years, right? Great. How 
do we solve the problem? We are not--we haven't solved the 
problem. We need to make real solutions to solve the problem. 
How do we get to this next step of tax reform?
    You know, Dave Camp put out a detailed tax reform proposal. 
I haven't seen one from the President. I hear you say, ``Well, 
there are some things in there we liked.''
    Secretary LEW. Well----
    Mr. RICE. I mean have we sat down and tried to work through 
that, and tried to get to a real tax reform proposal, other 
than just, you know spitting at each other?
    Secretary LEW. Congressman, I think in the conversations I 
have had with the three chairmen of this Committee that I have 
worked with, they all understand what the Administration's tax 
proposal is. We have had good conversations about where the 
areas of overlap are. It is not that we don't have a plan, we 
have a plan. We put out a white paper----
    Mr. RICE. What----
    Secretary LEW. We haven't had the political space to reach 
a consensus.
    Mr. RICE. Well, doesn't the Administration--that is what 
confuses me. You know, the President is the leader of the 
country, right? Doesn't he have a role in creating that 
political space?
    Secretary LEW. Absolutely. He has tried.
    Mr. RICE. You said a little while ago, ``I am willing to 
work with anything we can get a majority on.'' Well, doesn't he 
have a role in building that majority?
    Secretary LEW. Yes, and----
    Mr. RICE. I have been in Congress for three years. I have 
seen him engage with Congress twice. Once is when he said Assad 
crossed the red line in Syria, and the second is on TPA. He has 
been not present here at all, in my view.
    Secretary LEW. Well, Congressman, if you look in the area 
of tax reform and--in business tax reform, we put forward a 
proposal over three years ago which many on our side of the 
aisle didn't immediately embrace. We said, ``Let's reduce the 
statutory rate, let's cut corporate taxes, let's use closing 
loopholes to pay for it.''
    Mr. RICE. Yes.
    Secretary LEW. And we proposed something to be a bridge 
between the parties, use the on-time revenue for 
infrastructure----
    Mr. RICE. That is right, and Dave Camp put out----
    Secretary LEW. For two years, that----
    Mr. RICE. Dave Camp put out a very specific proposal that 
talked about very specific--you call them loopholes, I call 
them deductions and credits--that would meet that. And it went 
nowhere.
    Secretary LEW. And I have had----
    Mr. RICE. It is not just the fault of Congress, it is also 
the fault of the Administration. The Administration has a role 
in building that majority.
    I want to ask you about one thing in particular. Under 
Obamacare--you know, I don't even know what the law is today, 
because the President--his whim changes the law. But under the 
premium tax credit and the cost sharing reduction provisions 
that--Congress appropriated money for one and not the other, 
and the Administration has blended the two and used the money 
illegally--moved money from appropriated--what was appropriated 
to what was not appropriated.
    And this Committee has actually written letters And 
subpoenaed repeatedly information about this, and not one 
document has been provided. It has been going on for over a 
year. Can you tell me how we can get this resolved? Let's see 
this cooperation from the Administration.
    Secretary LEW. Well, Congressman, we have, obviously, said 
what we think the law is. The House has brought a lawsuit, so 
that will be resolved by the courts, and we will continue to 
consult----
    Mr. RICE. No response to the subpoenas from----
    Mr. HOLDING [presiding.] Time has expired.
    Secretary LEW. Our staffs have been talking.
    Mr. HOLDING. Mr. Davis from Illinois is recognized for five 
minutes.
    Mr. DAVIS. Thank you very much, Mr. Chairman, and thank 
you, Mr. Secretary. And I want to compliment you on your long 
and distinguished career in government service.
    I do believe that we have made some serious progress since 
passage of the Recovery Act. And I also believe that this 
budget would significantly continue that progress. Let me ask 
you. How much have we reduced the deficit since 2010?
    Secretary LEW. Well, the annual deficit has gone down 75 
percent, from roughly 10 percent to roughly 2.5 percent.
    Mr. DAVIS. How is our current economic growth affecting the 
deficit?
    Secretary LEW. Economic growth is good for the budget. It 
grows the base of income and revenues go up and automatic 
stabilizing spending goes down. So recovery has been good for 
the budget. It obviously was a very deep hole we were in, so it 
doesn't completely erase the deficits.
    Mr. DAVIS. You know, I have heard the aspersions relative 
to the proposed budget. And if we were to adopt the President's 
budget, when would we begin to see some shrinkage in our debt?
    Secretary LEW. Well, we--you know, we can see the deficit 
remain in the 2.5 to 3 percent range. We will see the debt 
stabilize at roughly 75 percent of GDP. And, you know, it will 
be ongoing issue that we have to work through, what the 20, 30, 
40-year timeframe looks like for turning the debt around.
    Mr. DAVIS. So certain kinds of investments would actually 
have a positive impact on the debt? Is that----
    Secretary LEW. Well, I think growing the economy--if we 
were to do the things I think we know we need to do on 
infrastructure and education, and help to--on immigration 
reform, grow the economy through the things that we know will 
help, that actually helps the budget because it grows income. 
And therefore, revenue comes in on a natural basis.
    We have done a lot to cause an economic recovery, and to 
encourage an economic recovery, but there is more we can do, 
and the budget continues to contain ideas and programs to do 
that.
    Mr. DAVIS. Although our economy is indeed improving--and I 
don't think there can be any denial of that--there are still 
groups in America----
    Secretary LEW. Absolutely.
    Mr. DAVIS [continuing]. Who are not taking advantage. For 
example, I cite a recent study that the University of Illinois 
did at Chicago which showed that almost half of the African 
American males in the City of Chicago ages 20 to 24 are neither 
in school, don't have a job. Given the need to strengthen the 
well-being of these individuals and others, I am delighted to 
know that we are advocating for expanding the earned income tax 
credit to help single parents.
    In addition, given that Chicago is one of the largest 
beneficiaries of the new market tax credits, I am delighted 
that we are talking about making it permanent.
    And I am really concerned about the President's proposal to 
provide tax credits for community colleges to try and connect, 
hopefully, with this group that I just mentioned. Could you 
expand a bit----
    Secretary LEW. Yes.
    Mr. DAVIS [continuing]. On what the Administration is 
thinking about with that?
    Secretary LEW. Congressman, I couldn't agree more that we 
have to make sure that the benefits of economic growth offer 
opportunity more broadly, and are shared by all parts of our 
community.
    You take one thing you mentioned, the childless EITC, 
childless earned income tax credit. It is the only part of our 
Tax Code, the only group in our country, that is taxed into 
poverty, childless people who would be eligible for the EITC. 
And that is just wrong. We should not have a tax that makes you 
go from working and staying barely above poverty to going below 
poverty. And I think that is why there is actually some 
bipartisan agreement on the childless EITC as a concept.
    I hope we can work on that this year. We don't--none of us 
should feel like we get to take this year off. We have a year 
to get more things done, And that is what this budget was put 
out there to try and encourage.
    Mr. DAVIS. Thank you very much. And I yield back, Mr. 
Chairman.
    Mr. HOLDING. Ms. Noem, five minutes.
    Mrs. NOEM. Secretary Lew, talking about poverty, I wanted 
to address something that is going on with my Native American 
tribes in South Dakota. And, as you know, the Federal 
Government has a trust responsibility to provide health care 
for Native Americans in the United States and Alaska Natives. 
And, because of this responsibility, they were exempted from 
the individual mandate of the Affordable Care Act. But tribal 
employers and tribal businesses were not exempted from the 
employer mandate that was also included in that law.
    You know, tribal governments in South Dakota employ several 
hundred employees. They fear they could be on the hook for 
millions of dollars of penalties. In fact, they are often very 
isolated. It is difficult to have economic development in these 
regions. They struggle to keep people in positions, in jobs, 
taking care of their families. And having that kind of penalty 
impacting them would greatly undermine health care, education, 
opportunities in the future.
    You know, it is some of the most impoverished counties in 
the country. And so, clearly, this was not the intent of the 
law, to jeopardize them and their opportunities to provide for 
their families by making them subject to the employer mandate. 
So I would like to know what the Department of Treasury is 
doing to clarify the law and finding a solution to exempt 
Native Americans and Alaska Natives from the Affordable Care 
Act, and the employer mandate that is included within it.
    Secretary LEW. Congresswoman, let me just begin by saying 
that Treasury--I personally value the government-to-government 
relationship between tribal governments and the Federal 
Government. And over the last number of months Treasury has 
received quite a few letters from Indian tribes, tribal 
leaders, and tribal organizations, raising the concerns that 
you are describing.
    Treasury has met with tribal leaders and tribal 
organizations to discuss these issues, and--including during 
the tribal consultation call that Treasury recently held with 
over 200 representatives of tribes and tribal organizations. We 
are reviewing the issue carefully, taking into consideration 
the feedback that we have received. And, as you know, the 
statute has no exception for Indian tribal government 
employees. But we are committed to considering the concerns 
that are being raised by tribal stakeholders, and I would be 
happy to follow up with you.
    Mrs. NOEM. Is the intention of the Administration or the 
Treasury Department to exempt them from the employer mandate, 
then, and to find a way----
    Secretary LEW. Well, the statute doesn't give us the 
authority to exempt. So we are looking at the comments and the 
concerns, and looking to see what, if any, action can be taken. 
We can't create an exemption that doesn't----
    Mrs. NOEM. Well, I have legislation that would do so. I 
would appreciate your support with it, as well, if we need to 
clarify the statute.
    But clearly, because they were exempted from the individual 
mandate, the intent of the law is clear that Native Americans 
should not face this kind of penalty, especially in areas like 
I have, in South Dakota, where they are impoverished already, 
and have a difficult time with economic development. It would 
be a hardship that would jeopardize the little prosperity and 
way of life that they have today, which is little to none.
    Secretary LEW. Well, I have a lot of empathy for the people 
in Indian Country, but--and understand the poverty there, so--
--
    Mrs. NOEM. Well, and specifically in South Dakota even, it 
is worse. Out of the top 11 poorest counties in the nation, I 
have 5 of them in South Dakota, and they are all my Native 
American reservations. So this is something that is there, is 
constantly on their mind, it is constantly on my mind, and we 
need resolution, too.
    So I know that you are indicating that you will work with 
me, but we need to find a solution, too. So let's----
    Secretary LEW. Yes. Sitting here, I don't know what the 
solution is, but we are happy to follow up.
    Mrs. NOEM. Okay, thank you. I yield back.
    Secretary LEW. Thank you.
    Mr. HOLDING. I recognize myself for five minutes. Secretary 
Lew, the Department of the Treasury and the IRS take seriously 
the taxpayers' obligation to preserve records, documents [sic]. 
Indeed, as you know, individual corporate filers who lose 
records, documents, face significant penalties.
    The Federal Records Act that heads--that the heads of 
agencies quote--and I will quote this--``Make and preserve 
adequate and proper documentation designated to furnish the 
information necessary to protect the legal and financial rights 
of persons directly affected by the agency's activities.'' So, 
just like taxpayers under audit, then, Treasury and the IRS are 
required to preserve important documents. We can agree on that.
    And when the Treasury and the IRS are being investigated, 
or engaged in litigation with private parties, they are 
supposed to maintain records that may be relevant to those 
proceedings.
    In June of 2014 the IRS announced that it had lost Lois 
Lerner's emails, and destroyed back-up tapes in the face of 
multiple subpoenas--the internal hold notices and document 
preservation notices from the IRS, TIGTA, and DOJ. The IRS 
testified before this Committee that the Lerner document 
destruction was just a fluke, And that the IRS would improve 
its systems.
    But it is deja vu all over again. In the middle of an audit 
of a large corporation, the IRS marked documents for deletion 
and destroyed records that were under a litigation hold. When 
questioned, again, the answer is that it is not as bad as it 
looks. And while the IRS attempted to destroy the documents, by 
sheer luck not all of the records had indeed been destroyed.
    So my question, Mr. Secretary. What is the Treasury's 
policy about employees who destroy documents that are part of a 
litigation or investigation?
    Secretary LEW. Well, Congressman, whenever--first, we 
comply with the federal record retention policies, And that is 
the policy, and continues to be. When there is any kind of an 
investigation, parties are notified about retention 
requirements that are particular to cases with investigations.
    I think that, you know, obviously, there has been a lot of 
discussion about the facts that are at issue. I don't think 
your characterization of them is one that we would agree with, 
in terms of whether things were destroyed or whether, because 
of the standard practices, there was a writing over of--on a 
routine basis, of storage materials.
    I am happy to get back to you with more details. But it is 
certainly my policy that we all need to comply with the 
requirement.
    Mr. HOLDING. So are you taking steps that would ensure that 
the IRS stops destroying records integral to any investigation?
    Secretary LEW. I----
    Mr. HOLDING. I mean can you point to any concrete steps 
that you are taking in light of----
    Secretary LEW. I am not conceding that there was 
destruction. You know, there--you know, the practices of using 
storage materials and writing over them was driven more by 
budget concerns than anything else. But I do know that they are 
doing a lot more, and it is costing them a lot more money to 
not do that kind of writing over in the future, in part to 
respond to the inadvertent----
    Mr. HOLDING. Would you agree that it undermines the 
confidence that the American----
    Secretary LEW. Yes.
    Mr. HOLDING [continuing]. People would have in the IRS, 
when they seem to be held to a different standard regarding the 
retention of documents than individual taxpayers are?
    Secretary LEW. They are held to the same standard----
    Mr. HOLDING. Do you think the individual taxpayer would 
receive a very warm welcome from the IRS if they just said, 
``Well, in the common practice of my business I seem to be 
overwriting these relevant documents on a regular basis that 
you would like to have for this audit''?
    Secretary LEW. Look, I think the overwriting, as a general 
practice--this has nothing to do with a records retention 
issue. It was a matter of cost and efficiency----
    Mr. HOLDING. So does cost and efficiency trump the record 
retention----
    Secretary LEW. No, I am not--we are happy to get back to 
you, but my understanding is that they are not doing the 
overwriting anymore, and it is much more costly because of 
that. There is more storage and more devices.
    Mr. HOLDING. Are they sufficiently complying with the 
record retention policies?
    Secretary LEW. It is certainly the policy to comply. You 
know, I have to defer to those who oversee, you know, on a 
daily basis, whether there----
    Mr. HOLDING. Well, Mr. Secretary, I don't think you would 
accept from a taxpayer the excuse that, ``For efficiency and 
cost savings, I destroyed my relevant records that you would 
like for this audit.''
    My time has expired. I recognize Ms. Sanchez for five 
minutes.
    Ms. SANCHEZ. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for hanging with, to the bitter end, the last few 
Members that are here to ask questions.
    I am interested in discussing some aspects of the 
Administration's 2017 budget, because I think--and it has been 
said many times on this Committee--that budgets are a very 
clear reflection of what priorities we value. And our 
priorities, I think, should be very clear, in terms of what we 
need to do for the American public.
    We need to create an environment for good-paying jobs that 
allow workers to support a family. We should offer our children 
an opportunity to get an education and to be able to develop 
their talents without the threat of crushing debt from going to 
pursue a higher education. We should be fostering innovative 
businesses and creating a business environment that allows our 
domestic industries to thrive.
    And I am happy to see, quite frankly, that the President's 
budget reflects all of those priorities. I think it is a 
healthy road map, and a--quite a good statement about what his 
priorities are.
    One of the issues that I would really like to drill down on 
in the President's--is the President's child care tax incentive 
proposal. As a mom who has faced the struggle to find 
affordable and quality health care, I know of many couples 
that, even though they find out they are expecting, and it 
should be a time of great happiness and joy, they also begin to 
fret. That is the moment they begin to fret and think about 
just exactly how are they going to be able to swing working and 
quality child care.
    Too often, families don't find options that help them. And 
there are a number of examples in certain states where parents 
are actually paying more to send an infant to day care than 
they are to send children to college. And you know, that is 
just alarming to me. Too many families are forced to make 
economic choices for their families, rather than the choices 
that are best for their families, and we have to stop that 
madness.
    So I am interested in hearing a little more detail from you 
about the President's proposed changes to the child care tax 
credit, and how that provision specifically could benefit 
working families in this country.
    Secretary LEW. Well, Congresswoman, I couldn't agree more 
that the issues of child care are fundamentally important to 
working families. And it is indeed a real challenge for many 
families to make ends meet. And you can't go to work if you 
can't get the child care. So it is an economic issue, as well 
as a personal family issue.
    And the President's budget contains a number of policy 
initiatives to try and ease the burden on working families. It 
would provide a new simple tax credit to two-earner families. 
It would be a second earner credit of up to $500 per year. We 
would reform the child care tax incentives, raising the 
threshold, which begins to phase down now at 15,000, to 
120,000, so that the rate reaches 20 percent of income above 
$148,000.
    We would simplify and better target education tax benefits 
to improve college affordability. Child care is the first set 
of bills, but, you know, college bills are on the horizon. 
And----
    Ms. SANCHEZ. As somebody who experiences both of those 
things, I definitely feel the pain.
    Secretary LEW. I have been through many years of both. And 
finally, we would expand the earned income tax credit for 
workers without qualifying children, which is a different issue 
than you raised, but it is critically important, in terms of 
providing working families the ability to stay in and--get into 
and stay in the workforce.
    Ms. SANCHEZ. I appreciate your response, and I am just 
going to add one comment onto the end of this, since I have got 
about 60 seconds left.
    I actually was discussing the issue of trying to find 
affordable child care with another colleague. And a third 
colleague sort of overheard, somebody a little bit older than I 
am, and his contribution to the conversation was, ``Well, can't 
the grandparents just watch the children?'' And I wanted to--I 
bit my tongue, but what I wanted to say is----
    Secretary LEW. The grandparents are working, also.
    Ms. SANCHEZ. Well, no. I have a father with Alzheimer's, 
who is in full-time nursing care, and a mother who is retired, 
who can't run after a young child, due to health problems. So I 
think there is a lack of understanding and----
    Secretary LEW. Right.
    Ms. SANCHEZ [continuing]. Awareness of just how difficult 
it is for families to get that kind of support that they need.
    Secretary LEW. As a proud and doting grandfather, I relish 
every minute I get to spend with my grandchildren. But, you 
know, it is just not practical to expect grandparents to leave 
the workforce early, in many cases. And, as you say, the 
responsibility for two generations creates a real sandwich 
generation.
    Ms. SANCHEZ. Yes. Thank you so much for your time.
    Mr. HOLDING. Mr. Crowley is recognized for five minutes.
    Mr. CROWLEY. Thank you, Mr. Holding. It is appropriate, two 
guys from Queens.
    Secretary LEW. Bringing it home.
    Mr. CROWLEY. Mr. Secretary, welcome once again. Today on 
the House floor is a bill to compel the Administration to come 
to Congress and discuss the budget and the deficit. Pretty 
interesting, is it?
    Secretary LEW. It is a little ironic.
    Mr. CROWLEY. So I find it odd, like you, I think, that this 
week the Republicans are refusing to have the guy who writes 
the budget for the White House--they haven't asked him to 
testify. In fact, they are not inviting him to testify before 
Congress to discuss the budget and the deficit. And we both 
find that ironic.
    But since he is not going to be invited to come before the 
Hill, maybe you could channel your best Shaun Donovan for us 
here and answer a few questions about the budget and the 
deficit, as you have been doing throughout this morning and 
this afternoon.
    Earlier this week the President issued his budget for the 
year, and it outlined ways to cut $2.9 trillion from the debt. 
Is that correct?
    Secretary LEW. Correct.
    Mr. CROWLEY. Now, this is on top of about $4 trillion in 
previously enacted deficit reduction by the President, mostly 
in spending cuts, though some in closing tax loopholes and 
increasing the taxes paid by millionaires, as well as the 
economic policies put in place by this Administration, and 
carried out by Democrats also helped to improve the economy. Is 
that not correct?
    Secretary LEW. Correct.
    Mr. CROWLEY. Would saving the auto industry, which 
Republicans bragged they wanted to let go bankrupt, or 
investing in clean, renewable energy manufacturing, which is 
revitalizing our nation--including in places like Buffalo, New 
York, for instance--be some of the economic policies put in 
place by this Administration and carried out by Democrats also, 
has it helped to improve the economy? And maybe you can add a 
few others, if you can think of them.
    Secretary LEW. Look, I think, if you look at the auto 
industry, saving the--we have had months--several months of 
record, historic record auto sales by the U.S. auto industry 
that could have easily been out of business----
    Mr. CROWLEY. In fact----
    Secretary LEW [continuing]. If not for the actions we 
took----
    Mr. CROWLEY. In fact, Mr. Secretary, under the--President 
Obama, the U.S. auto industry has created 645,000 American 
jobs.
    Secretary LEW. Right.
    Mr. CROWLEY. When, again, my Republican colleagues wanted 
to let Detroit go bankrupt. Is that not correct?
    Secretary LEW. Yes. I mean I think that it is an enormous 
recovery, rebound for the auto industry. And it very much 
proves the wisdom of not losing that critical industry.
    Mr. CROWLEY. One of those pesky tax loopholes we closed 
without Republican support was to prohibit Americans from 
hiding their money offshore in foreign bank accounts. Is that 
not correct?
    Secretary LEW. Mm-hmm.
    Mr. CROWLEY. It is odd the Republicans opposed that common-
sense action, but maybe they represent a lot of folks with 
Swiss bank accounts. No one that I know in Queens fits that 
bill, nor did anyone complain about the closing of that giant 
loophole, that giant billion-dollar loophole.
    A simple fact is that the first trillion-dollar annual 
deficit was created when President Bush was president, in the 
final year of his presidency. Have those trillion-dollar 
deficits been stopped by this Administration?
    Secretary LEW. We have been reducing the deficit by a 
faster rate than any time since the end of World War II. There 
is still a deficit, because we started in such a deep recession 
and such a----
    Mr. CROWLEY. They are no longer a trillion----
    Secretary LEW. No, it has been dramatically reduced.
    Mr. CROWLEY. Mr. Secretary, the Affordable Care Act, or 
Obamacare, was slated to save taxpayers $100 billion in the 
first 10 years. How much has it saved to date, being only in 
its first five years of law?
    Secretary LEW. I should have--if I were the budget 
director, I would have those numbers at my disposal, but I will 
have to go back and a----
    Mr. CROWLEY. Well, I am told that, by the numbers we have 
from OMB, compared with the 2011 mid-session review, projected 
federal health care spending for 2020 will have decreased by 
$185 billion, not $100 billion, based on current budget 
estimates, saving above and beyond--way above and beyond--the 
deficit reduction directly attributed to the Affordable Care 
Act. So we can put that in your quiver.
    And the private sector has created new jobs in every month 
since the Affordable Care Act, that dreaded job killer, was 
enacted into law. Is that not correct?
    Secretary LEW. Not only have we created more jobs, but we 
have seen jobs created at a pretty rapid rate in the small 
business part of the economy, which was where a lot of the 
biggest concerns were raised.
    Mr. CROWLEY. So the only thing sent to the so-called death 
panels were the Republican lies about the health care law, and 
how it would hurt our economy.
    So let me close by saying that I do not think we need to 
make America great again, as we already are the greatest nation 
on earth. And I pity those that need to spin untruths and lies 
to tear down the greatest nation on this planet. Thank you, Mr. 
Secretary, for being here today.
    Secretary LEW. Thank you.
    Mr. HOLDING. I would like to thank the Secretary for 
appearing before us today.
    Please be advised that Members may submit written questions 
to be answered later in writing. Those questions and your 
answers will be made part of the formal hearing record.
    And, with that, the committee stands adjourned.
    [Whereupon, at 1:14 p.m., the committee was adjourned.]

                        Questions for the Record



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