[House Hearing, 118 Congress]
[From the U.S. Government Publishing Office]


                      HEARING ON PRESIDENT BIDEN'S
                    FISCAL YEAR 2024 BUDGET REQUEST
                     WITH TREASURY SECRETARY YELLEN

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

                                HEARING

                               BEFORE THE

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

                    ONE HUNDRED EIGHTEENTH CONGRESS

                             FIRST SESSION
                               __________

                             MARCH 10, 2023
                               __________

                            Serial No. 118-4
                               __________

         Printed for the use of the Committee on Ways and Means
         
         
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                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
53-239                    WASHINGTON : 2024   


                      COMMITTEE ON WAYS AND MEANS

                    JASON SMITH, Missouri, Chairman
VERN BUCHANAN, Florida               RICHARD E. NEAL, Massachusetts
ADRIAN SMITH, Nebraska               LLOYD DOGGETT, Texas
MIKE KELLY, Pennsylvania             MIKE THOMPSON, California
DAVID SCHWEIKERT, Arizona            JOHN B. LARSON, Connecticut
DARIN LaHOOD, Illinois               EARL BLUMENAUER, Oregon
BRAD WENSTRUP, Ohio                  BILL PASCRELL, Jr., New Jersey
JODEY ARRINGTON, Texas               DANNY DAVIS, Illinois
DREW FERGUSON, Georgia               LINDA SANCHEZ, California
RON ESTES, Kansas                    BRIAN HIGGINS, New York
LLOYD SMUCKER, Pennsylvania          TERRI SEWELL, Alabama
KEVIN HERN, Oklahoma                 SUZAN DelBENE, Washington
CAROL MILLER, West Virginia          JUDY CHU, California
GREG MURPHY, North Carolina          GWEN MOORE, Wisconsin
DAVID KUSTOFF, Tennessee             DAN KILDEE, Michigan
BRIAN FITZPATRICK, Pennsylvania      DON BEYER, Virginia
GREG STEUBE, Florida                 DWIGHT EVANS, Pennsylvania
CLAUDIA TENNEY, New York             BRAD SCHNEIDER, Illinois
MICHELLE FISCHBACH, Minnesota        JIMMY PANETTA, California
BLAKE MOORE, Utah
MICHELLE STEEL, California
BETH VAN DUYNE, Texas
RANDY FEENSTRA, Iowa
NICOLE MALLIOTAKIS, New York
MIKE CAREY, Ohio
                       Mark Roman, Staff Director
                 Brandon Casey, Minority Chief Counsel
                                 ------                                

                            C O N T E N T S

                              ----------                              

                           OPENING STATEMENTS

                                                                   Page
Hon. Jason Smith, Missouri, Chairman.............................     1
Hon. Richard Neal, Massachusetts, Ranking Member.................     2
Advisory of March 10, 2023 announcing the hearing................     V

                                WITNESS

Janet Yellen, Secretary, United States Department of the Treasury     4

                    MEMBER QUESTIONS FOR THE RECORD

Member Questions for the Record and Responses from Janet Yellen, 
  Secretary, United States Department of the Treasury............   121

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                   PRESIDENT BIDEN'S FISCAL YEAR 2024
                      BUDGET REQUEST WITH TREASURY
                            SECRETARY YELLEN

                              ----------                              


                         FRIDAY, MARCH 10, 2023

                          House of Representatives,
                               Committee on Ways and Means,
                                                    Washington, DC.
    The committee met, pursuant to call, at 9:03 a.m., in Room 
1100, Longworth House Office Building, Hon. Jason T. Smith 
[chairman of the committee] presiding.
    Chairman SMITH. The committee will come to order.
    Thank you, Madam Secretary, for appearing before the Ways 
and Means Committee today. I will note that last year we waited 
71 days between the release of the President's budget and your 
testimony before the committee. And so I want to commend you 
for promptly being here the day after the President's budget. I 
think you are the first cabinet secretary that is testifying on 
behalf of the President's budget, and I want to thank you for 
that.
    After two years of economic failures, the American people 
desperately want results. The budget before us today calls for 
$4.7 trillion in new taxes, and $6.9 trillion in new spending 
during a staggering debt crisis. The American people are 
struggling. We know, because they told us in Yukon, Oklahoma 
and in Petersburg, West Virginia, during hearings with this 
committee.
    Whether it is Kelly Payne, a fifth generation rancher from 
Oklahoma, or Ashley Bachman, a mother of three and small 
business owner in West Virginia, the President's inflation 
crisis is threatening their livelihoods.
    The President's budget means more pain, with $1.8 trillion 
in new taxes on Main Street businesses, many of which still 
have ``Help Wanted'' signs hanging in their windows because of 
the Democrat-fueled worker shortage.
    The $650 billion small business surtax will hit mom-and-pop 
small businesses, violating President Biden's pledge not to 
increase taxes on small businesses.
    The $77 billion increase in the death tax will force family 
farms and ranches to sell their assets or risk closing their 
doors.
    The $37 billion in new taxes on American-made energy will 
kill jobs, raise prices, and make us more dependent on foreign 
countries for our energy needs. And President Biden's global 
tax surrender to foreign governments will make it better to be 
a foreign worker or business than an American one. It is a tax 
deal only China would love.
    Working Americans are scratching their heads over how you 
will enforce these taxes, too. But I think your budget answers 
that question, too. Democrats handed the IRS an $80 billion 
raise last year. Taxpayers are now asked in this budget to hand 
the IRS another $43.2 billion. I have to ask, is that a joke?
    After a two-year inflation crisis that has cost American 
workers more than two months of pay, families need every penny 
they can get. But they can't even get their own refunds back 
because of the historic backlog at the IRS. And they can't get 
through to a human at the agency because of the terrible 
customer service.
    The IRS needs to address its trust gap. When ProPublica 
announced it had obtained a vast trove of confidential and 
private taxpayer information, the American people was rightly 
worried. What was stolen is their--what was stolen? Is their 
information safe? To this day, Treasury has provided no public 
answers.
    What they do have is Treasury's commitment to inject woke, 
racial, and climate politics in our monetary policy and our tax 
code. The Treasury Department is woefully falling short in 
fulfilling its core mission. I hope that our discussion today 
covers these topics and more in a productive way, then we are 
finally able to get answers to the questions the American 
people have been demanding.
    Chairman SMITH. I am pleased to recognize the ranking 
member from Massachusetts, Mr. Neal, for his opening statement.
    Mr. NEAL. Thank you, Mr. Chairman. We want to welcome the 
Secretary this morning to the Ways and Means Committee. As is 
always the case, it is an honor to have the Treasury Secretary 
here.
    You should know that when Secretary Mnuchin took my phone 
calls, he promptly appeared before the Ways and Means 
Committee, as well. And I met with him regularly to discuss 
policy. There is much that can be accomplished when the cameras 
are not turned on.
    Secretary Yellen is one of the brightest, most accomplished 
policymakers I have known during all my years in government. 
She is the first person in American history to have led the 
White House Council of Economic Advisors, the Federal Reserve, 
and the Treasury Department. I have sought her advice many 
times, and her leadership has contributed to the historic round 
of law-making and the rebound of the American economy. She is a 
mainstream economic thinker.
    And I also would point something out. The debacle of 2008, 
with de-regulation of markets, what happened; again, what 
happened with the pandemic, she was the one that we sought for 
counsel on how to step forward. But we didn't do it with just 
Secretary Yellen. Hank Paulson was on the call with us, as 
well. We sought a bipartisan response. And based upon the 
evidence of recovery, it worked.
    President Biden's economic plan is working, and the economy 
is growing at a solid clip. Nearly 13 million new jobs, 
including a half million in January, and 311,000 this morning. 
And the labor force participation rate ticked up.
    Labor force participation declined--it has been stubborn--
largely because of the pandemic and the retirement of the Baby 
Boomers. That has been transformational in our economy. But 
rebuilding the economy from the bottom up and the middle out 
has been the President's push, and we agree with him on this 
side.
    The budget that he released yesterday was important, and 
now we have a blueprint, and we look forward to hearing what 
the other side has to say when, at some point, they might lay 
out their budget plan.
    Many have heard us say before that a strong recovery was 
never guaranteed. But never bet against the American worker or 
under-estimate the dignity and security of a paycheck.
    And how did we get here? We invested directly in people and 
their families. We expanded the child credit, we cut the child 
poverty rate in half, and no policy has done more to reduce 
childhood poverty than the child tax credit.
    We also take credit--I want to thank the members of the 
committee here. After a long, three-and-a-half days of markup, 
yesterday the President's budget took the Ways and Means tax 
package almost to the item.
    We sustained millions of low and middle-income families 
with the Earned Income Tax Credit and the Child and Dependent 
Care Credit, which was essential. The American Rescue Plan 
permanently increased the Federal child care investment and 
enabled workers to re-enter the workforce, and it helped to 
give parents peace of mind.
    Our work to encourage clean energy is also spurring growth 
for small businesses and for workers and their families across 
the country. And I want to say that publicly and privately, in 
Oklahoma, that position that we adopted with the Inflation 
Reduction Act and conversations I had there was pretty well 
received.
    When coupled with the Bipartisan Infrastructure Law and the 
tax credits championed by Ways and Means Democrats in the IRA, 
the clean energy economy is accelerating, and millions of green 
jobs are now on the horizon.
    I look forward to working with the Administration to 
implement the IRA as Congress intended. This was a monumental 
achievement. While free trade agreements are a purview of 
Congress, I stand ready to partner with durable and enforceable 
policies that fulfill the objectives of the IRA.
    Our multi-year investment in the Internal Revenue Service 
is making great headway already in ushering in new service for 
American taxpayers. The IRS was severely under-funded. And now, 
with the infusion of Democratic support, 99.7 percent of the 
returns are being processed, and more Americans are getting 
their service that they deserve. We are pleased that 
Commissioner Werfel is in place.
    Contrast that between our achievements and extremism, it is 
clear. Yesterday we marked up legislation signaling the intent 
of our government to default. You know better than anyone 
prioritizing debt is not an option.
    We are here today, Madam Secretary, to welcome you and 
thank you for your great gift to America: your sheer 
competence.
    Chairman SMITH. Today's sole witness is United States 
Treasury Secretary Janet Yellen.
    The committee has received your written statement, and it 
will be made part of the formal hearing record. You have five 
minutes to deliver your oral remarks. Secretary Yellen, you may 
begin when you are ready.

 STATEMENT OF JANET L. YELLEN, UNITED STATES SECRETARY OF THE 
                            TREASURY

    Secretary YELLEN. Chairman Smith, Ranking Member Neal, and 
members of the committee, thank you for inviting me to discuss 
the Administration's fiscal year 2024 budget.
    The President's proposals prioritize growth-enhancing 
investments that will build on the economic progress we have 
made, along with significant tax reforms that will 
substantially reduce the deficit, improve our long-run fiscal 
outlook, and reduce fiscal risks.
    Over the past two years, the United States has experienced 
an historic economic recovery. In January 2021, our country was 
in the middle of an economic calamity triggered by the 
coronavirus pandemic. But Congress and the President took 
decisive action through the American Rescue Plan and our 
vaccination campaign.
    This January, two years after the President took office, we 
reached the lowest unemployment rate in over 50 years. We have 
seen the strongest two years of business creation in history, 
and real U.S. GDP per capita is at an all-time high.
    Now our task is to navigate our economy's transition from 
rapid recovery to sustainable growth. Our Administration's top 
economic priority remains bringing down inflation. We have seen 
some moderation in headline inflation, but more work needs to 
be done. Our Administration will continue to build on the 
actions we have taken to expand supply and provide cost relief 
in areas like energy and health care. These actions have made a 
meaningful difference for American families.
    With your partnership, we have also laid a foundation for 
long-term economic growth through an approach that I call 
modern supply-side economics. This approach seeks to boost the 
economy's productive capacity by expanding the workforce and 
increasing productivity. In just the past two years alone, 
Congress passed three transformational laws: a generational 
investment in infrastructure; an historic expansion of American 
semiconductor manufacturing; and the largest investment in 
clean energy in our nation's history.
    A strategic priority for our Administration this year is to 
work with you to effectively implement these laws, and we are 
seeing the early results. In just seven months, we have seen a 
wave of tens of billions of dollars of investment in clean 
energy manufacturing across the country. And our new investment 
in the IRS is already paying off. Taxpayers are getting 
drastically improved customer service this year. For example, 
we have answered hundreds of thousands more phone calls during 
this filing season than at this time last year.
    Our proposed budget builds on our economic progress by 
making smart, fiscally-responsible investments, and these 
investments would be more than fully paid for by requiring 
corporations and the wealthiest to pay their fair share.
    Fiscal discipline remains a central priority in our budget. 
We have proposed a minimum income tax of 25 percent on 
taxpayers with wealth in excess of $100 million. We have also 
proposed an increase in the corporate tax rate to 28 percent 
from the current 21 percent. And it will come as no surprise 
that I hope Congress will implement the United States' part of 
the global minimum tax deal. This new regime will end a race to 
the bottom in corporate taxation, and raise crucial revenue for 
essential investments like those proposed in the President's 
budget.
    On the spending side we suggest additional investments to 
boost our long-term growth potential. This includes improving 
the availability of high-quality child care, providing free and 
universal pre-school, and boosting the supply of affordable 
housing.
    We also propose restoring the Child Tax Credit and Earned 
Income Tax Credit expansions that were enacted in 2021, but 
have since expired. Importantly, with the proposed tax reforms, 
we estimate that this budget will deliver deficit reduction of 
nearly $3 trillion over the next 10 years.
    I have spoken about the promise of the President's budget, 
but I would be remiss if I did not mention a wholly separate 
issue that could threaten the economic progress that we have 
made.
    As you know, I have asked Congress to raise or suspend the 
debt limit. Since 1789, the United States has always paid its 
bills on time, and it must continue to do so. In my assessment 
and those of economists across the board, a default on our debt 
would trigger an economic and financial catastrophe. I urge all 
Members of Congress to come together to address the debt limit 
without conditions and without waiting until the last minute.
    Thank you, and I look forward to taking your questions.
    [The statement of Secretary Yellen follows:]

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    Chairman SMITH. Without--thank you, Madam Secretary, for 
your testimony.
    Without objection, each member will be recognized for 
three-and-a-half minutes to accommodate the Treasury 
Secretary's time. As always, we have to ensure that all members 
have an opportunity to ask questions of the Secretary.
    We will now proceed to questions-and-answer session, and I 
will begin with it first.
    Yesterday, Secretary, I sent you a letter asking that you 
provide this committee with legislative language that would 
accomplish the $4.7 trillion in tax increases contained in your 
budget proposal within 30 days. The American people, they 
deserve to know exactly how the Biden Administration plans to 
raise their taxes, and the impacts those policies will have on 
them.
    So without objection, the letter is entered into the record 
that I sent you yesterday.
    [The information follows:]

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    Chairman SMITH. So, Secretary Yellen, will you commit to 
providing that legislative text within 30 days to the 
committee?
    Secretary YELLEN. Chairman Smith, yesterday the Treasury 
Department published the so-called Green Book, giving a great 
deal of detail about all of the proposed changes on the revenue 
side in this year's budget. And I believe that provides the 
detail that is necessary to consider these proposals.
    The Treasury Department always stands ready to work with 
this committee and members of Commerce--Members of Congress on 
tax legislation as you consider it.
    Chairman SMITH. So the----
    Secretary YELLEN. And of course, we stand ready to do that.
    Chairman SMITH. Yes, I have looked at the Green Book, and 
we appreciate you all giving it to us yesterday afternoon. It 
does not provide the legislative text of the tax proposals of 
$4.7 trillion that you're your budget calls for. And so what--
we were asking for the legislative text. So you are not going 
to send us the legislative text in 30 days?
    Secretary YELLEN. I don't believe that has ever been done.
    Chairman SMITH. I was just asking. But if----
    Secretary YELLEN. Congress usually----
    Chairman SMITH. Okay.
    Secretary YELLEN. As I say, we stand ready to work with you 
as you consider particular proposals, and we will certainly 
look at legislative language and give you our feedback. But----
    Chairman SMITH. If you will present the legislative text to 
us on your $4.7 trillion in tax proposals, we would be happy to 
look at that. And we hope that, since that is in your budget, 
you will ask that.
    Last year Democrats in Congress rammed through $80 billion 
in mandatory funding for the IRS after your department asked 
for it in conjunction with the President's first budget 
proposal. Your plan called for the IRS to monitor nearly every 
American bank account, to hire 87,000 new employees, and to 
audit over a million more Americans each year, with the 
majority falling on working-class Americans.
    The IRS still hasn't given me the plan for the $80 billion, 
and how that $80 billion will be spent, even though we have 
sent several letters. We have spoken on the phone about that. 
But that can't be right, Secretary Yellen, that you all don't 
have a plan yet.
    Your budget request, that was submitted yesterday, asked 
for $14.1 billion in annual appropriations for fiscal year 
2024. But that is not all, Secretary. Buried on page 209 of 
that Green Book that you just highlighted which explains your 
proposals, Treasury is asking for an additional $29.1 billion 
in mandatory funding to ``continue IRA-funded enforcement and 
compliance initiatives and investments.'' None of that money is 
dedicated to customer service or IT modernization.
    Obviously, you all have a plan. You are already funding 
enforcement and compliance initiatives that have not been 
disclosed to Congress and the American public. You already got 
$80 billion for the IRS. Now you want $43.2 billion more, all 
without explaining what will be done with the first $80 
billion?
    The American people, they deserve to know how their hard-
earned tax dollars are being spent, and the impact that a 
supercharged IRS will have on them. So how many more IRS agents 
will this $43.2 billion get us?
    Secretary YELLEN. So first, let me say that the strategic 
operating plan that we have promised to deliver, we will 
deliver.
    Chairman SMITH. And you will make that public to us.
    Secretary YELLEN. Yes, it will be provided to you----
    Chairman SMITH. Thank you.
    Secretary YELLEN [continuing]. In the coming weeks.
    And already we have taken very important steps to improve 
customer service. The IRS has hired 5,000 additional customer 
service representatives. I promised that the average level of 
service in answering taxpayer inquiries this tax season would 
rise to 85 percent. And while it varies from week to week so 
far, we are certainly in that 80 to 90 percent range. Tax 
assistance centers are up and operating; ones that had been 
closed due to lack of resources are in the process of being 
reopened. And many of these centers are open on Saturdays to 
provide help to consumers. Anyone this tax season, any American 
attempting to get help from the IRS is experiencing a very 
different environment.
    Chairman SMITH. That is good. So Secretary, audits is 
something that people really care about. Will there be 
increased audits on working-class families with these new 
appropriations?
    Secretary YELLEN. No, I have directed already that IRA 
resources will not be used to increase the share of households 
or small businesses earning less than $400,000 or less that are 
audited relative to historic levels. And I promise and will 
ensure that that mandate will be met.
    And let's remember----
    Chairman SMITH. So that is great news. That is great news, 
Secretary. That is one common thing that we will have. But part 
of our oversight duties will be to make sure that there is not 
increased audits for small businesses and working families.
    I do want to go on. We are getting close to two years since 
ProPublica revealed that it had obtained what is called a vast 
trove of IRS data, including extensive information on the tax 
returns of thousands of Americans sufficient to detail their 
income, taxes, investments, and even the results of audits.
    You have been asked several times about this issue in 
public, and always note that you have referred the matter to 
the inspector general and the Department of Justice for review. 
You have also said previously that you have--you take this very 
seriously, but this is not an issue that can be referred 
elsewhere and then completely ignored. The American people, 
they deserve to know that their confidential information is 
safe at the IRS, and they deserve answers about what happened.
    Other than refer the matter elsewhere, what actions have 
you taken in the last 20 months to identify and fix potential 
vulnerabilities in how the IRS maintains confidential taxpayer 
information?
    Secretary YELLEN. Listen, I want to say that I share the 
same frustration that you are expressing. I would really like 
to get to the bottom of this. We care deeply about taxpayer 
privacy, and an unauthorized disclosure of taxpayer information 
is illegal, and something to be taken very seriously.
    I am frustrated because we have taken the actions that are 
appropriate, namely to refer this matter to the appropriate 
independent investigators, and that includes Treasury's Office 
of Inspector General, the Treasury Inspector General for Tax 
Administration, and the Department of Justice. All of these 
agencies conduct their investigations independently and 
according to timelines they determine are necessary and 
appropriate for a complete investigation.
    I am waiting to see, just as you are, what the outcome of 
those investigations are----
    Chairman SMITH. So you have done no internal audits within 
Treasury yourself to see if there might have been any kind of 
leak, or any kind of vulnerabilities in protecting taxpayers' 
confidential information?
    Secretary YELLEN. The agencies that are independent, and 
should be----
    Chairman SMITH. So you are letting them do it.
    Secretary YELLEN. That is what is appropriate in this 
situation----
    Chairman SMITH. Okay. Thank you, Madam Secretary.
    As you know, we have established a portal to allow IRS 
employees to share information with this committee about any 
kind of conduct that is going on at the IRS that they think 
that we should know of, since we are the committee of 
jurisdiction for oversight. I sent a letter to the IRS and 
asked that it be shared with all IRS employees. The agency has 
thus far refused to do so. That is completely unacceptable. IRS 
employees should know the options they have to report 
wrongdoing to Congress that they may witness at work.
    This is a simple issue. It is about basic transparency and 
accountability. Will you commit to sharing information about 
our IRS whistleblower portal with IRS employees?
    Secretary YELLEN. Well, I want to say that we have very 
strong whistleblower----
    Chairman SMITH. No, I--that is what I have heard. But would 
you----
    Secretary YELLEN. And----
    Chairman SMITH. My question is will you share our 
whistleblower with the IRS employees, yes or no?
    Secretary YELLEN. I think what is important is that IRS 
employees know what their full set of----
    Chairman SMITH. Exactly. So----
    Secretary YELLEN [continuing]. Options are, and they 
certainly can report to this committee. They can report to 
other committees----
    Chairman SMITH. But will you share----
    Secretary YELLEN [continuing]. In Congress.
    Chairman SMITH [continuing]. This whistleblower information 
to your IRS employees, yes or no?
    Secretary YELLEN. I will make sure that they have the 
appropriate information, that they know what their obligations 
are, and their full set of obligations and----
    Chairman SMITH. So does that include this whistleblower 
hotline?
    Secretary YELLEN. Possibilities----
    Chairman SMITH. Does that include this whistleblower 
hotline, that that is something you will share with them?
    Secretary YELLEN. I will make sure that they know all of 
the options that they have.
    Chairman SMITH. Does that include this whistleblower 
hotline?
    Secretary YELLEN. It includes this committee, certainly.
    Chairman SMITH. And this whistleblower hotline?
    Secretary YELLEN. We will----
    Chairman SMITH. It is yes or no.
    Secretary YELLEN. We will make sure that they are aware----
    Chairman SMITH. I hope that you do, for the sake of the 
American public and for the sake of your IRS employees.
    On February 16th of this year, President Biden issued an 
executive order on advancing racial equity through the Federal 
Government. That was on February 16th.
    Treasury Department officials have repeatedly said they 
want to design tax compliance around racial equity. These 
statements create the implication that the IRS should take into 
consideration race and gender in how it manages tax compliance 
and decides who to audit. But tax returns do not ask taxpayers 
to identify themselves by race. So the IRS doesn't even have 
the data on race.
    That is where the President's executive order comes in. The 
order instructs the Federal Government to apply an equity focus 
to several areas, including to ``prevent and remedy 
discrimination, including by protecting the public from various 
discrimination.'' It seems clear that this executive order is 
instructing the IRS to change its process to make audit 
decisions based on taxpayers' race.
    Secretary Yellen, do you think there is any circumstance 
where the IRS should consider a person's race or gender when 
deciding whether someone should be audited?
    Secretary YELLEN. The IRS doesn't know an individual's 
race, and we are certainly not proposing that race be reported 
on tax returns. However, the IRS does need to be careful to 
ensure that there is fairness in tax administration. And when 
studies like some that have recently been published suggests 
that algorithms that the IRS may be using are racially biased 
in the sense they are much more likely to audit, for example, 
taxpayers of color, rather than others with exactly similar 
circumstances, it is important for the IRS to become aware of 
that, and to make sure that the procedures that they use are 
fair.
    But that certainly does not mean looking at race and 
deciding to--whom to audit.
    Chairman SMITH. So in regards to audits and fairness, you 
will never use race or gender in deciding audits.
    Secretary YELLEN. Race is not available. And as I said, it 
is important for the IRS to make sure that their tax 
administration----
    Chairman SMITH. So if race----
    Secretary YELLEN [continuing]. Is fair.
    Chairman SMITH. If race isn't available, your statement 
about the algorithmics, that goes after racial preferences.
    Secretary YELLEN. Well, the investigators were able to 
infer that the algorithm had that impact, in spite of the fact 
that they weren't certain what the race was of any particular 
individual. They used methods to infer that.
    And this is a more general matter, that algorithms are 
often used. They are sometimes used by those who provide 
credit. They are not based on race, but it may turn out that 
they are indirectly and unintentionally using race. And it is 
important to understand and correct that when it is occurring.
    Chairman SMITH. Without objection, the President's 
executive order is entered into the record.
    [The information follows:]

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    Chairman SMITH. And I recognize the gentleman from 
Massachusetts.
    Mr. NEAL. So, Madam Secretary, I am going to ask you to use 
your time to explain some of these positions. I know you have 
to get out of here, but I want to make sure everybody gets a 
chance to ask a question on both sides this morning. That is 
really important.
    I have questioned Treasury Secretaries back to Nick Brady. 
Never did I ever ask a yes-or-no question, because I know 
events shift and change every single day, and the people that 
have had that job have been entirely competent over these 
years.
    So could you talk a bit about the child credit, and also 
the 311,000 new jobs that were created this morning?
    Secretary YELLEN. Yes, the child credit. So the child 
credit, tax credit was expanded in the American Rescue Plan. 
And that was important because the pandemic especially hit low-
income families very hard. And it had a dramatic effect in 
lowering child poverty, according to many studies. It really 
helped families. Many families were able to use that child 
credit to get back to work to help with child care.
    The majority, the great majority of families that received 
the Child Tax Credit are working families. Others were seniors 
taking care of a grandchild or sometimes children with 
disabilities. And it had a dramatic effect in helping families 
that were impacted by the pandemic that--the President believes 
that this is something that should be in place permanently, and 
his budget recommends reinstating the credit on the terms it 
existed in the ARP.
    You mentioned about this morning's employment report. It 
showed 311,000 jobs this morning. In spite of that, the 
unemployment rate ticked up slightly to 3.6 percent. How to 
reconcile those two disparate facts, I guess I would point out 
that there was an increase--the labor force participation rate 
moved up just a tad, which is always encouraging to see people 
coming back into the labor force at this point.
    The labor force participation rates for both adult men and 
women have exceeded their pre-pandemic highs, and so when more 
people come into the labor force, that loosens conditions ever 
so slightly, takes some of the--helps address some of the 
supply demand imbalance in the labor market while creating lots 
of jobs. So what we are seeing here is a continued very strong 
labor market, putting Americans back to work.
    Mr. NEAL. Thank you, Madam Secretary. And we are always 
delighted to have the Treasury Secretary in front of the Ways 
and Means Committee, understanding that you are a successor to 
Hamilton. Thank you.
    Secretary YELLEN. Thank you. I look at his picture in my 
office every day.
    Chairman SMITH. The gentleman from Florida, Mr. Buchanan, 
is recognized.
    Mr. BUCHANAN. Madam Secretary, thanks for being here today.
    My concern is, when you look back over the last 20 years, 
over $20 trillion in debt. So I want to talk to you a little 
bit about the balance sheet.
    Also, this financial report that gets put out the last 
couple of years. You signed it, and so I would like to get your 
thoughts on exactly is it a clean opinion, what--you said it is 
unsustainable, the financial path that we are on. That is what 
you mentioned in the report. It doesn't seem like it is a very 
clean audit. I think there is, obviously, just in terms of the 
overall debt, $31 trillion, $20 trillion in the last 20 years.
    There is plenty of blame, let's put it that way, to go 
around. But I am very, very concerned about where we are at and 
where we are going. I have got two kids and nine grandkids, and 
a lot of us have children in here. And I am--someone, a top 
economist, said to me, ``At some point this ends badly.''
    You are, the way I look at it, the chief financial officer. 
You know, we get over here, we raise the debt. But looking back 
over the 20 years, I have absolutely no confidence in the way 
we do business up here. So I would like to get your thoughts 
just quickly.
    What did you mean by unsustainable path that we are on 
currently as a result--something that you put in the financial 
report, what does that mean to you?
    Secretary YELLEN. Well, a sustainable path is one that 
keeps the, in my view, the interest expense on the debt that 
Americans have to pay--we take in tax revenue, some of it needs 
to be devoted to paying interest on outstanding debt----
    Mr. BUCHANAN. How do you explain $20 trillion----
    Secretary YELLEN. And it is critical that it be manageable.
    Mr. BUCHANAN. Excuse me. How do you explain $20 trillion in 
20 years? I mean, we just keep piling up the debt--100 basis 
points on $31 trillion is $300 billion a year. I mean, we are 
kidding ourselves. So if you are at five, six percent thinking 
about raising rates, you are talking a billion--a trillion-and-
a-half, just interest alone. So I think it is a concern.
    Secretary YELLEN. Well----
    Mr. BUCHANAN. Let me just jump to the second question 
quickly.
    Is--$1 trillion they are talking about, tax increases on 
small business. That is the proposed budget in terms of pass-
through entities. I am very concerned. That puts the American 
dream clearly at risk. So 39.5, you add up the other things, 
you are probably 46. If you figure in New York, New Jersey--I 
am in Florida. Texas, you look a little differently, or 
California. You are close to 60 percent for pass-through 
entities. These are small businesses for the most part, 50 
employees or less.
    And it is obvious to me, personally, that many of you have 
never been in business, because you would understand that the 
cost of capital, it is not available for a lot of these small 
businesses, especially in the environment we are in today. A 
lot of people are concerned.
    But how do you think about the idea of another trillion 
dollars on our small business, medium-sized businesses?
    Secretary YELLEN. The President pledged not to raise taxes 
on any individual or small business earning under $400,000.
    Mr. BUCHANAN. Well, I am just saying that if someone has 
got a----
    Secretary YELLEN. There is not a single penny----
    Mr. BUCHANAN. Let me just finish on this point. If someone 
has got 100 employees, and they make 600, 700, the business 
does, they take out 100, they pay their taxes and they have a 
few bucks, they can help their balance sheet. And that is the 
reality in the small business world. Just because it is a small 
business and you make 600, doesn't mean you take that home. You 
need that money to grow. That is the fuel to grow your 
business.
    With that, I yield back.
    Chairman SMITH. The gentleman from Texas is recognized.
    Mr. DOGGETT. Madam Secretary, I admire your courage in 
going to Ukraine, and I am glad you are battle-tested for 
coming here to our committee.
    Secretary YELLEN. Thank you.
    Mr. DOGGETT. Let me ask you--I am hopeful that the 
Republicans will get to us their budget plan in 30 days, just 
as they have asked for commitments from you to do things within 
30 days. They seem to think that we can continue to deal with 
our debt problems by removing revenue from our vital public 
services. And I want to touch on two areas that I think the 
President and you have acted most appropriately to sustain our 
needs.
    One of those is for Medicare. They say, belatedly now, that 
they won't cut Medicare, but they seem unwilling to make the 
changes that are necessary to sustain Medicare for our 
grandchildren, as well as for our current seniors. I introduced 
legislation last year concerning the net investment income tax, 
and I have reintroduced it, and I see that is included in the 
President's budget.
    Isn't it correct that the estimates are that about 85 
percent of that increase would be paid by those who earn $1 
million or more a year, and that none of the tax burden would 
be on those below $400,000?
    Secretary YELLEN. That is correct. And the proposal 
wouldn't raise it on anyone making under $400,000. And the 
revenue would be devoted to Medicare to shoring up the hospital 
trust fund.
    Mr. DOGGETT. And the President, I believe, has a plan to 
extend it even beyond 2040. Just closing the loophole and 
correcting the mistake that was made about the net investment 
income would extend Medicare solvency to 2040. So if people 
really believe in Medicare, they would be willing to take the 
steps to ensure it is there.
    And of course, the second one, and it mystifies me at the 
creativity of our Republican colleagues in coming up with 
excuses to defend multinationals for not paying their fair 
share for our national security, though they benefit from it 
perhaps more than any other group in our society.
    So I admire your leadership on the global minimum tax. This 
newest excuse we have heard this morning is that it is going to 
all help China. They helped China yesterday with their China 
bond first program. But tell me about why it is an error to 
claim that China will somehow benefit from stopping the race to 
the bottom.
    Secretary YELLEN. China will not benefit at all from this. 
China will be forced to raise their minimum tax on their 
multinationals up to the level of 15 percent on a country-by-
country basis. And China has signed on to the agreement. But if 
for any reason China failed to enact this tax and put it in 
place, there is an enforcement mechanism built into this 
agreement by which the United States or other countries in 
which Chinese firms do business, where they have subsidiaries 
doing business, we would impose a top-up tax on Chinese 
corporations operating in the United States or in Europe, where 
they have already put the tax into place.
    So if China doesn't tax these firms, these their 
multinationals, we will do it, and we will keep the tax 
revenue. But one way or another, we will level the playing 
field so Chinese firms are on the same footing as our 
multinationals.
    Mr. DOGGETT. Thank you for your leadership.
    Secretary YELLEN. Thank you.
    Mr. DOGGETT. The gentleman from Nebraska is recognized.
    Mr. SMITH of Nebraska. Thank you.
    Thank you, Secretary Yellen. Our time is short here, so I 
will try to be quick in answering some very concise questions.
    We have serious concerns about the impact that the $80 
billion that the IRS is receiving, and its impact on families 
and small businesses. There are concerns about the funding 
stemming from the fact that we are working from disparate 
statements from the Administration. So I am glad you are here 
to help clarify.
    In 2021, Treasury released an analysis right here that 
states $80 billion in additional IRS funding would be used to 
increase the total headcount at IRS compared to 2021 by almost 
87,000 employees over the next decade. Is that accurate? Is 
that correct?
    Secretary YELLEN. The vast majority of those hires are to 
replace attrition, people who would be retiring. So----
    Mr. SMITH of Nebraska. Okay. So the attrition is about 
12,000 personnel over the last----
    Secretary YELLEN. No, it is----
    Mr. SMITH of Nebraska. 10 years.
    Secretary YELLEN. It is over 10 years. It is much larger 
than that.
    Mr. SMITH of Nebraska. Okay. The record reflects that the 
headcount decreased by 12,000 over the last decade, so that 
would leave us at 75,000 new personnel at our--at IRS. So I 
just want the record to reflect that.
    Now, regarding the audits--and the chairman talked a bit 
about this--there has been confusion about the meaning of the 
directive that you cited in the letter last August, and then 
repeated here today. So are you talking about the total number 
of audits, or are you talking about the proportion of audits on 
families and small businesses under $400,000?
    Secretary YELLEN. I am talking about the proportion of 
those small businesses and families.
    Mr. SMITH of Nebraska. Okay. So the proportion--I mean, 
just for the record, the proportion is 90 percent. So 90 
percent of the new audits will be, you know, according to the 
data, that we can expect up to 90 percent of new audits to be 
on those making less than $400,000.
    Secretary YELLEN. The----
    Mr. SMITH of Nebraska. Now----
    Secretary YELLEN. The purpose of this legislation is to 
vastly increase the audit rates----
    Mr. SMITH of Nebraska. Yes, yes, we understand----
    Secretary YELLEN [continuing]. On high-income, high-wealth, 
complex----
    Mr. SMITH of Nebraska. Right. But they are----
    Secretary YELLEN [continuing]. Partnerships----
    Mr. SMITH of Nebraska. But the data reflects that it is 
broader than that, especially given the number of personnel. 
But----
    Secretary YELLEN. To the extent that the number of 
taxpayers----
    Mr. SMITH of Nebraska [continuing]. Shifting gears----
    Secretary YELLEN. I understand, okay.
    Secretary YELLEN [continuing]. Earning less than $400,000 
increases the audit rates----
    Mr. SMITH of Nebraska. But the rates of audit----
    Secretary YELLEN [continuing]. Will not rise.
    Mr. SMITH of Nebraska [continuing]. And the commitments, 
you know, are certainly, I believe, very clear.
    Now, shifting gears, critical mineral requirements in the 
Inflation Reduction Act refer to, and I quote, ``countries with 
which the United States has a free trade agreement, in 
effect.'' As chairman of this panel's trade subcommittee, I 
have been surprised to hear the Biden Administration may take 
the view that the term ``free trade agreement'' is undefined, 
and actually open to various interpretations.
    So this committee has jurisdiction over all U.S. trade 
policies, including the negotiation and enforcement of trade 
agreements. We know exactly what a free trade agreement is, as 
do our partners, our trading partners who have actually raised 
concerns about the Inflation Reduction Act.
    So, Secretary YELLEN, please clarify. Would you define a 
free trade agreement, or at least provide a list of countries 
with whom we have a free trade agreement?
    Secretary YELLEN. Well, we clearly have a number of 
comprehensive free trade agreements that will qualify as free 
trade agreements for the purposes of this statute.
    But in December, Treasury issued a white paper that lays 
out a possible approach to identifying additional agreements 
that could potentially qualify. And we understand that the key 
goal of the IRA is to strengthen supply chains we rely on for 
energy and resources. And in order to effectuate the goals of 
the legislation, it may be appropriate to negotiate 
additional----
    Mr. SMITH of Nebraska. I understand what the IRA is 
intended to do. I fear what the actual impact will be.
    And my time is expired.
    Chairman SMITH. The gentleman from California is 
recognized.
    Mr. THOMPSON. Thank you, Mr. Chairman.
    And Madam Secretary, thank you for being here, and welcome. 
I have a couple of things I want to bring up, but first I want 
to be really clear.
    You were confirmed Secretary in January of 2021. This 
January we hit the lowest unemployment rate in 50 years. We 
went from an unprecedented pandemic to the lowest unemployment 
in decades, and you oversaw all of it. And today, as we heard, 
311,000 new jobs in February. As Mr. Neal highlighted your 
incredible resume and your history, you are truly a pro.
    Over the past couple of years, I have been privileged to 
work directly with you, so as we transition to clean and 
renewable energy, and I want to thank you for your cooperation 
and your help.
    Secretary YELLEN. Thank you.
    Mr. THOMPSON. I have got four items I want to bring up, but 
we have a limited amount of time, so I will ask two and write 
you about the other. I would like to talk to you about my top 
two priorities: disaster relief and mental health. And I will 
start with disaster relief.
    Madam Secretary, many survivors of California's wildfires 
in 2015, 2017, and 2018 are eligible for compensation from 
something called the Fire Victims Trust, which was established 
following the Pacific Gas and Electric bankruptcy. However, in 
many of these cases the survivors are being forced to pay taxes 
on a settlement award they received from the trust, including 
roughly 30 percent of the award that goes to attorneys.
    I have bipartisan, bicameral legislation clarifying that 
disaster relief payments like these from a trust fund are 
straightforwardly non-taxable. And I would like you and your 
people to work with us so we can help these folks, who haven't 
even received enough money to rebuild the homes that they lost.
    And then, second, the biggest issue, or the second biggest 
issue that we face as a people, is mental health. We see 
problems everywhere: schools, homelessness, veterans, amongst 
the elderly. Mental illness is a huge, huge problem that costs 
us trillions of dollars, and we need to figure it out.
    But treating the symptoms as we have done isn't enough, nor 
do we have all the money to do it. We have to get ahead of the 
curve. And Mr. Kelly and I have bipartisan legislation that we 
are getting ready to reintroduce that--and we shared it with 
your staff--that provides tax incentives for neurological 
research.
    Madam Secretary, do you agree that we can and should use 
the tax code to help address our collective mental health 
crisis?
    Secretary YELLEN. Well, these are critically important 
problems and, to me, appropriate priorities. And let me say 
that we will be more than happy to work with you on this 
legislation. So my staff can certainly be in touch.
    Mr. THOMPSON. Thank you. And then I will submit my 
questions about solar cells and taxpayer correspondence to you 
in writing.
    Again, thank you for the incredible job that you have done, 
and your commitment to public service.
    Secretary YELLEN. Thank you for your kind words.
    Mr. THOMPSON. Thank you, I yield back.
    Secretary YELLEN. Much appreciated.
    Chairman SMITH. The gentleman from Pennsylvania is 
recognized.
    Mr. KELLY. Thank you, Mr. Chairman.
    Madam Secretary, thanks for being here. And you do have an 
impressive resume.
    Secretary YELLEN. Thank you.
    Mr. KELLY. And your dedication to the public and trying to 
do everything you can when it comes to the economy is really 
great.
    I got to tell you, I live at a much different level. And 
there is an old saying, ``If you can't convince them, confuse 
them.''
    Now, being in the retail automobile business all my life, I 
am better on blacktop than I am on a laptop. And as we go here 
and we throw these questions out to you, I keep coming back to 
some of the things I have learned in my past life. And, you 
know, one of the things is you read the ``Tale of Two Cities,'' 
and this is what we are talking about, right? It is the best of 
times, it is the worst of times.
    We talk about job creation. It is not job creation. It is 
job recovery. And I heard this not in the Trump Administration, 
but the previous Administration. We used to talk about how many 
jobs we created, and what it really was is we were just getting 
people back to work that were no longer working. And some of 
the decisions we have made it more valuable for people to stay 
at home than go to work. And it wasn't that people were lazy, 
it is just that they weren't stupid.
    You have a tough job. You have a tough job. And I often 
refer to things that just happened in my life in everyday 
things. I can remember a movie called ``A Few Good Men,'' and I 
think one of the things we--that Jack Nicholson said in that 
movie was, ``You can't handle the truth.'' I am not talking 
about you, but I am talking about the American people. Mr. 
Buchanan touched on this, and we worry about this all the time. 
It is the public debt, which is part of your job description. 
And you really answer to the President of the United States as 
a member of the cabinet.
    I am just baffled as to where we go from here, and how we 
can put a smile on our faces. Because the people I talk to 
aren't in this room. When I come out of Mass in the morning, I 
have people that stop me. When I go to Cannella's to have 
breakfast, people stop me. When I go to Cummings to get coffee, 
people stop me. You know what they ask me all the time? ``When 
the hell are you guys going to get this thing straightened out? 
My pension now is losing its value. I am dipping into my 
savings. I can't help my kids and my grandkids anymore, because 
my wife and I don't have the ability to keep up with 
inflation.''
    So I know we have all these wonderful, wonderful programs 
that we talk about, and all these wonderful ideas that we talk 
about, and it just is bizarre to me that I think we need to 
spend more time in the field. We need to go to Petersburg, West 
Virginia. We need to go to Oklahoma, and we need to talk to 
people who really service the debt. And that is our hardworking 
American taxpayers.
    I think all of us, while we have questions of you, I am 
just--I got to tell you, I don't know that I would want your 
job. I don't know that I want to be there and wondering where 
the slap is going to come from next. But you do one heck of a 
job. I would just hope that, as a committee, we don't look at 
how it is that we can make each other look bad, or to figure 
out who struck John, but to understand that it is the American 
people that are suffering right now.
    This idea of not looking into ProPublica--and I understand 
what you said, it is somebody else's thing. And I got to tell 
you, I got 10 grandchildren, so this reminds me of Humpty 
Dumpty. Humpty Dumpty sat on a wall, Humpty Dumpty had a great 
fall. All the king's horses and all the king's men couldn't put 
Humpty Dumpty back together again.
    So you just outlined for us the number of offices, the 
number of people we have to get to a simple answer is who the 
hell put the information out there? How did they get this 
information? And the longer we stay away from an answer, the 
faith, the trust, and the confidence of the American people in 
this institution is withering and dying on the vine.
    I would just suggest to all of us, I don't give a shit if 
you wear a red hat or a blue hat. Wear something that is red, 
white, and blue, and look at who it is that you represent back 
home. Because I love sitting here and listening to all the 
testimony. What I have a hard time is when I go back home and 
say, ``We are working on it, we just don't know who is going to 
answer the question for you.''
    Thank you so much. I appreciate you being here. Your 
patience and your dedication to this country is phenomenal. 
Thank you, ma'am.
    Chairman SMITH. The gentleman from Connecticut is 
recognized.
    Mr. LARSON. Thank you, Mr. Chairman. Thank you, Madam 
Secretary, for being here. And thank you also for being part of 
an administration that actually did leave the country with a 
surplus. Mr. Neal yesterday very eloquently went through that 
process.
    So I think the American people, and even our colleagues 
over here on this side of the aisle, we point with great pride 
your example, your leadership that you have demonstrated, 
including----
    Secretary YELLEN. Thank you.
    Mr. LARSON [continuing]. The 12 million new jobs that have 
been created in just the past 2 years.
    I also wanted to--because there is a lot of talk about 
fairness and debt, et cetera. And I am now the ranking member 
of the Social Security Subcommittee. And Social Security, as 
you know, is the nation's number-one anti-poverty program for 
the elderly. And hopefully we get the Child Tax Credit back.
    But absent that, it is the number-one anti-poverty program 
for children, as well. I commend the President for his budget 
that increases the opportunity, and makes Medicare more 
solvent, and also strengthens Social Security, and it does so, 
actually, by paying for it.
    And the President, in his comments, said--and you pointed 
to this--that there will be no tax increase on anyone over 
$400,000. How many Americans does that represent?
    How many people are in that area of earning over $400,000, 
and is it fair that someone who is making 30 or 50 or $75,000 
pays in the whole time, and someone like Elon Musk stops paying 
after day one for their Social Security?
    Isn't this about fairness?
    Secretary YELLEN. I think it is about fairness. And I think 
hardworking Americans who have counted on Social Security, and 
paid into it their entire lives, and dependent on it as their 
major source of income in retirement, I think we need to make 
sure that it is there for them, and that we look for additional 
revenue to Americans with very high incomes, many of whom, in 
total, pay less taxes than a teacher or a firefighter.
    And throughout the President's budget there are many 
proposals to make sure, for the sake of tax fairness, that 
those individuals pay at least a minimum. A person making 100 
million or more should pay at least 25 percent of their full 
income as taxes.
    But yes, I think it is, for tax fairness----
    Mr. LARSON. Like Mr. Kelly, I go to a lot of places. And 
everywhere I go they ask me when are we going to fix Social 
Security and, ``Why is it that I have to pay in''--and we learn 
from the President and this exchange--``Why do I have to pay in 
constantly out of every paycheck''--it is called FICA, Federal 
Insurance Contribution--``and the wealthy do not?''
    Secretary YELLEN. Agreed.
    Chairman SMITH. The only floor vote of the date has been 
called. As there is only one vote, we will keep the hearing 
going on. So please vote, and then return to the hearing 
immediately.
    The gentleman from Arizona.
    Mr. SCHWEIKERT. Thank you, Mr. Chairman.
    And Madam Secretary, the nature of the chaos of what we all 
do. We only have three-and-a-half minutes, so the tyranny of 
the clock.
    When you have high-profile elected members who will say 
things--because I have an incredible concern of messaging and 
stability in debt markets around the world--when we will say 
things like ``debt doesn't matter,'' ``print a $1 trillion 
coin,'' ``modern monetary policy, we can just keep borrowing,'' 
is that helpful, as we are trying--and particularly when you 
are looking at your subscription rates and your auctions?
    Do you wish on occasion we would just not talk about things 
we don't understand?
    Secretary YELLEN. Well, look, I think it is critical that 
the United States be on a fiscal path that is responsible and 
sustainable.
    Mr. SCHWEIKERT. But--and I know this is more of a message 
from our brothers and sisters here, particularly. I have a long 
list of quotes about debt not mattering from my brothers and 
sisters on the left. And I think that is a really horrible 
messaging to debt markets when, you know, you and I, we are 
trying to convince the world we take this very seriously.
    Secretary YELLEN. I think we should take it seriously, and 
it does matter.
    Mr. SCHWEIKERT. Any--in your banking reg side of Treasury, 
any concerns over some of the stresses right now in bond 
markets, particularly, you know, your Basel Holdings--Silicon 
Valley Bank, when--you know, mark to market? Are you picking up 
any data that we should be at least cognizant of?
    Secretary YELLEN. Well, I will just say--you mentioned 
Silicon Valley Bank. There are recent developments that concern 
a few banks that I am monitoring very carefully. And when banks 
experience financial losses, it is and should be a matter of 
concern.
    Mr. SCHWEIKERT. It is--and to explain, it is the nature of 
moving interest rates all of a sudden. If you have to sell the 
bonds, you are taking quite a loss.
    In the budget, Madam Secretary, you have a little bit less 
than $5 trillion of new taxes over the 10 years. Do you have 
the wherewithal to model that to say, okay, here is our tax 
regime, and here is its economic effect on GDP growth? Were you 
able to do modeling documents?
    Secretary YELLEN. Well, we don't have a gigantic model that 
shows what the total impact----
    Mr. SCHWEIKERT. Okay.
    Secretary YELLEN [continuing]. Would be on the economy, but 
we have certainly considered the economic impact in the case of 
all of the policies that I have proposed----
    Mr. SCHWEIKERT. All right, I just--look, I spent part of my 
evening--that is why I am glassy-eyed--trying to read through. 
I was looking for--saying, okay, we are going to raise this 
much taxes, and we believe it has this much impairment on GDP 
growth over the 10. If one of your staffers ever could send 
me----
    Secretary YELLEN. There are----
    Mr. SCHWEIKERT [continuing]. Document, I would love to look 
at your math.
    Secretary YELLEN. I mean, there are----
    Mr. SCHWEIKERT. And the very----
    Secretary YELLEN. There are studies, and it is something 
that we have tried to evaluate in putting forward proposals.
    Mr. SCHWEIKERT. Yes. And the last thing, your capital gains 
tax would go up to what for very high earners?
    Secretary YELLEN. It would go up to the same rate as the 
tax on regular income.
    Mr. SCHWEIKERT. Okay. So it would match regular income, 
though----
    Secretary YELLEN. For high-income individuals.
    Mr. SCHWEIKERT. In the--Madam Secretary, but in the current 
environment capital gains are substantially affected by 
inflation. So we would be taxing non-actual gains, we would be 
taxing inflated gains--inflation gains, not actual 
appreciation.
    Should we actually do an adjustment for inflation on those 
capital gains taxes?
    Secretary YELLEN. It is something certainly to consider. I 
mean, our tax code is, in general, not inflation neutral.
    Mr. SCHWEIKERT. Inflation-adjusted, all right.
    Secretary YELLEN. And, you know, this is an area that maybe 
requires some thought.
    Mr. SCHWEIKERT. Thank you, Madam Secretary.
    And thank you for your patience, Mr. Chairman.
    Chairman SMITH. Thank you, Representative.
    The gentleman from Oregon.
    Mr. BLUMENAUER. Thank you, Mr. Chairman.
    And thank you, Madam Secretary, for being here. When I 
consider the tone with which you were greeted, I am amazed that 
you are willing to come back, and your patience. It is not just 
your resume, it is your performance.
    Secretary YELLEN. Thank you.
    Mr. BLUMENAUER. You have one of the most difficult jobs in 
America, and every American has a stake in your success.
    Secretary YELLEN. Thank you.
    Mr. BLUMENAUER. Yesterday's action by this committee, 
coming up with this fantasy that somehow the IRS can prioritize 
1.28 million--excuse me, billion--payments a year, to try and 
sidestep our responsibility to raise the debt, I apologize for 
that. It continues a trend that my Republican friends have had 
for years in terms of making the IRS job more difficult, fewer 
people, and more complex returns. I am hopeful that we can get 
past that, and that we are able to engage with you in a 
constructive way to avoid economic catastrophe.
    I do have one modest area of disagreement, and I must agree 
with my dear friend, Chairman Smith, about some of the 
suggestions that we can sidestep working with Congress and 
redefine agreements as FTAs. None of us think that satisfies 
the condition. I have worked with five presidents on trade 
issues. And when we do not have a good, constructive working 
relationship and Congress playing its role, it doesn't end 
well. And I would just refer to the trade promotion, the TPP, 
as an example where it was harder, and we are still bearing the 
circumstances.
    Secretary YELLEN. I apologize for any suggestion that I may 
have made that Congress doesn't have an appropriate role.
    Mr. BLUMENAUER. Well, no.
    Secretary YELLEN. And----
    Mr. BLUMENAUER. But in terms of redefining what the terms 
are going to be, it is, in effect, sidestepping us.
    I hope that you will----
    Secretary YELLEN. I think we have been in close touch with 
this committee.
    Mr. BLUMENAUER. Yes, I understand that.
    Secretary YELLEN. My staff have been.
    Mr. BLUMENAUER. But it is different than treating our 
statutory and constitutional responsibilities.
    I would just hope that you would commit to work with me and 
Chairman Smith as we move forward in a way that is fully 
consistent with the true definition of a free trade agreement 
and the spirit of cooperation in terms of trying to get us on 
the same wavelength.
    I think your objectives are ones that I probably agree 
with, but process matters. And in terms of being able to make 
sure that the various stakeholders, some of whom don't have the 
confidence in terms of the path that you are taking, I think 
working together we can raise that confidence, we can work 
together to get the desired objectives. And I hope that you 
would commit to working with us in not just the spirit, but the 
letter of what free trade agreements are.
    Secretary YELLEN. I will make that commitment. And I agree 
with you that that collaboration and consultation is critically 
important. We are committed to it.
    Mr. BLUMENAUER. Thank you. I look forward to working with 
you and your team, who are doing a great job in trying to 
figure out how to implement the things that Chairman Thompson 
and I embedded in the tax code that has a challenge for you. 
But----
    Secretary YELLEN. Thank you.
    Mr. BLUMENAUER [continuing]. We appreciate the work.
    Secretary YELLEN. We are working very hard to implement the 
green credits in IRA, and all of the IRA provisions.
    Mr. BLUMENAUER. It is much appreciated.
    Secretary YELLEN. Thank you.
    Mr. BLUMENAUER. Thank you.
    Chairman SMITH. The gentleman from Illinois is recognized.
    Mr. LaHOOD. Thank you, Mr. Chairman.
    Welcome, Secretary Yellen. Thank you for your service to 
the country. We hope to see more of you here before our 
committee.
    I have a question for you. But before I do that, I do want 
to express to you how extremely disappointed I am in the 
Administration's budget proposal released yesterday. As I think 
about the 750,000 constituents that I represent in central 
Illinois and northwest Illinois, I can tell you that their 
priorities are vastly different than what is reflected in the 
Administration's budget proposal.
    Just to highlight a few things, eliminating the stepped up 
basis would really crush family farms in my district, and 
family-owned businesses. Quadrupling the recently-created stock 
buyback tax, which will hurt Americans with 401(k) plans and 
pensions is in there. And expanding the net investment income 
tax on small businesses that are still struggling with high 
inflation and workforce shortages again is disappointing when I 
look at the budget. It is clear that many of the real 
challenges that Americans are facing are not being heard by 
this Administration and in this budget.
    To my question, I do want to just--it was referenced 
earlier. I do want to talk about the OECD process and the 
current global tax negotiations, and specifically Pillar One, 
Madam Secretary. We understand that negotiations around Pillar 
One have stalled, and I believe we have significant risk that 
digital service taxes, which disproportionately harm U.S. 
businesses, will spread across the world. We have already seen 
that.
    Republicans have repeatedly requested from the 
Administration and from you to consult with us before making 
decisions about your negotiations with our European 
counterparts. You have not done so in terms of communicating 
with us, and it has been a source of frustration. You have not 
provided any analysis that would allow members of this 
committee to evaluate the effects of Pillar One.
    So, Madam Secretary, as you sit here today, I think you 
would agree that it is not financially responsible to purchase 
a product without knowing its price. And that is the real core 
here. So when can Congress expect to see this analysis, so that 
we know what we are actually being sold here?
    Secretary YELLEN. So let me say that we have consulted, and 
with this committee and with staff on a regular basis about 
these global negotiations. So we are keeping staff of this 
committee--our staff is keeping committee staff well informed.
    Mr. LaHOOD. Well, reclaiming my time on----
    Secretary YELLEN. That----
    Mr. LaHOOD [continuing]. Just on that point, Madam 
Secretary. I mean, so we are looking for an analysis. I would 
love to have, if you have an analysis here today you can supply 
us----
    Secretary YELLEN. Okay, let me respond on that point. What 
we have said is that we stand to gain substantially in Pillar 
One, because we are a very large market jurisdiction, and that 
means that we will get increased taxing power.
    However, there are also provisions on which we will lose, 
and it is a very fine balance. It--zero is certainly a 
possibility with respect to revenue, and there remain 
significant disagreements in the Pillar One negotiations. Until 
those are resolved, we can't do the analysis that you want.
    But what we have said is that the likely impact on U.S. 
revenues, while it could be slightly positive or slightly 
negative depending on the details, it is not likely to be 
large.
    Mr. LaHOOD. Well, I would just say your--the premise of 
what you just said there, and the justification for that, 
sounds great. But an analysis on there that we can digest and 
look at and work with your team is what we need. Thank you.
    Mr. HERN [presiding]. I thank the gentleman. The gentleman 
from New Jersey, Mr. Pascrell.
    Mr. PASCRELL. Thank you, Mr. Chairman.
    Madam Secretary, a Stanford University report found that 
Black taxpayers are disproportionately audited by the IRS. I am 
sure you have read that report. Now, this was true for Earned 
Income Tax Credit recipients, and this group is long over-
represented in getting audited. The numbers show that.
    I am thrilled that we have a new IRS commissioner to 
effectively implement the Inflation Reduction Act to close the 
tax gap and rebuild a fair tax enforcement.
    Yesterday, our oversight subcommittee called on Mr. Werfel 
to prioritize fixing our biased and broken two-tiered tax 
system. Madam Secretary, will you commit to addressing racial 
disparities in audit selection?
    Secretary YELLEN. Yes, absolutely, we will. We need a tax 
system that operates fairly. And as you noted, our new IRS 
commissioner has promised to report back to Congress on this 
matter very promptly.
    Mr. PASCRELL. Yes. Will you ensure the IRS uses Inflation 
Reduction Act funds to stop disproportionately auditing EITC 
recipients, and focus on auditing other folks in the system, as 
well?
    Secretary YELLEN. The focus of the funds in the IRA is 
intended to be high-income, high-wealth, complex partnerships, 
corporations where audit rates have fallen to extremely low 
levels, and where most of the revenue that constitutes the tax 
gap--we know that is where it lies. That is the focus on 
enforcement.
    But on the EITC, there are high rates of improper 
payments----
    Mr. PASCRELL. Right.
    Secretary YELLEN [continuing]. Partly because firms--there 
are firms that improperly file for EITC for low-income 
individuals, and we do need to attend to that. So, it is not 
the fault of individuals, but there is an issue there that we 
need to continue to focus on, maybe through education and 
outreach.
    Mr. PASCRELL. You have provided tremendous service to our 
country.
    Secretary YELLEN. Thank you.
    Mr. PASCRELL. Mr. Chairman, I want to bring to your 
attention the fact that there is a member of the cabinet 
sitting before us who admits mistakes once in a while. I have 
never met a cabinet member that made a mistake. I say that with 
due respect.
    Secretary YELLEN. Thank you. I make mistakes.
    Mr. PASCRELL. And I think that is refreshing. And I think 
that helps bring us together more than anything else, anything 
else. I am serious.
    Secretary YELLEN. Thank you.
    Mr. PASCRELL. And I am happy to do work with you, and you 
have done a great job.
    Secretary YELLEN. Thank you, so much. I--much appreciated.
    Mr. HERN. I would like to thank the gentleman from New 
Jersey. I now recognize the gentleman from Ohio, Mr. Wenstrup.
    Mr. WENSTRUP. Thank you.
    Mr. Pascrell, I would like to agree that honesty really 
does help, no matter what we are dealing with.
    Anyway, thank you, Madam Secretary, for being here. The Tax 
Cuts and Jobs Act verifiably led to more American jobs, 
historically low unemployment, stable revenues, higher wages. 
Then COVID hit. And one of the things that COVID revealed to us 
was the vulnerability of our supply chain, and how it is a 
national security risk, it is a national health risk. Just look 
at who--where we get our pharmaceuticals from. It is China. We 
can't do it ourselves. We are trying to come back from that.
    So my question is, how does raising corporate tax rate to a 
higher level than our--than the Republic of--People's Republic 
of China--for that matter, almost any other country in the 
world, how can that make America more competitive, and solve 
our supply chain problem?
    Secretary YELLEN. Well, I believe it really is important 
that we invest in America so we can be a competitive economy. 
And you mentioned the importance of tax rules to private 
investments in equipment and software.
    But I guess I would point out--and this is what I mean when 
I use the term ``modern supply side economics''--there are 
quite a few other kinds of investments that are relevant to our 
productivity and competitiveness, and we also need to focus on 
those. So infrastructure is an example; education is another 
example----
    Mr. WENSTRUP. No, I agree with that. You have got to have 
all those things in place. And you can call them investments, 
or whatever, but also I think that making the business feasible 
here compared to somewhere else makes a big difference. And 
that is what we have to consider, as well. We have had no 
inversions since the Tax Cuts and Jobs Act, and I don't want to 
see that go away.
    But also, we talk about lowest unemployment now, and it is 
so low. But the NFIB says half of their small businesses have 
help wanted signs. Virtually every business I go to now, small 
employer, large employer, I have said, ``What is your biggest 
problem?'' It is getting workers.
    Secretary YELLEN. Agreed.
    Mr. WENSTRUP. Okay. So we have--could you explain, not only 
for me, because I think I have a good idea, but explain to the 
American people and explain to these businesses why, with such 
low unemployment, they don't have employees.
    Secretary YELLEN. Well, I mean, that is partly what the 
problem is, is that the demand for workers in this economy----
    Mr. WENSTRUP. Where did they go? They had the workers 
before COVID.
    Secretary YELLEN. Well, the COVID pandemic accelerated 
retirements. We have seen labor force participation for both 
adult men and women----
    Mr. WENSTRUP. Thank you.
    Secretary YELLEN [continuing]. Rise above previous levels.
    And the President's budget focuses on providing households 
the child care and other support they need to work. And I think 
it is really important to boost labor supply, and the 
President's budget is focused on that.
    Mr. WENSTRUP. So my point is, it is just--it is not 
completely honest if we just say, hey, unemployment is low. 
Well, yes, but it is still a problem to get employees, so we 
can't pretend----
    Secretary YELLEN. It is.
    Mr. WENSTRUP [continuing]. There is a rosy picture. We have 
got to address all these other issues.
    Secretary YELLEN. It is a problem that many businesses, 
most businesses, face and are trying to deal with.
    Mr. WENSTRUP. Thank you. I yield back. I appreciate it.
    Chairman SMITH [presiding]. The gentleman from Illinois is 
recognized.
    Mr. DAVIS. Thank you, Mr. Chairman.
    Thank you, Madam Secretary, and I thank President Biden for 
prioritizing policies that would provide meaningful relief to 
Americans, both young and old.
    I deeply appreciate the recognition that making the 
adoption tax credit refundable is essential to removing income 
as a barrier to adoption.
    I thank the President for advancing an even greater Child 
Tax Credit to lift even more children out of poverty. The CTC 
was a lifeline in my communities, and its absence makes 
children more vulnerable.
    I also want to thank you for prioritizing the improvements 
to the Earned Income Tax Credit that I have long championed in 
my responsible fatherhood legislation, and for preserving the 
protections for foster youth and youth experiencing 
homelessness.
    I thank you for permanently ending the taxation of forgiven 
student debt, and for all the other policies that would make 
our country stronger.
    I hope that you will consider the importance of direct tax 
credits for child care and rent as supplements to the strong 
budget you proposed. As we saw with the modernized child 
dependent tax credit in 2021, direct tax credits serve as an 
essential tool for helping every eligible working parent or 
cost--given the limited availability of other assistance, such 
as vouchers or low-income housing.
    And finally, like other systems in our country, the 
seemingly race-neutral tax policies and audit practices have a 
substantial, disproportionate impact on taxpayers of color. So 
I hope to work with you to identify legislation that would 
collect key demographic information about tax payers to better 
understand racial and gender equity.
    And I thank you very much.
    Secretary YELLEN. Thank you very much.
    [Pause.]
    Chairman SMITH. Do you yield?
    Mr. DAVIS. No, I will yield, of course, for the Secretary.
    Secretary YELLEN. Oh. Well, certainly, the President 
supports the Child Tax Credit and Earned Income Tax Credit, and 
would work with you to consider the Child and Dependent Care 
Credit, which was passed earlier by Congress, but--by the 
House, but isn't in the Green Book proposals, but I would 
certainly look to work with you on that.
    Mr. DAVIS. Well, thank you for all of your accomplishments. 
It is certainly a strong budget, and we look----
    Secretary YELLEN. Thank you.
    Mr. DAVIS [continuing]. Forward to continuing to work to 
make it even stronger. Thank you very much----
    Secretary YELLEN. Thank you.
    Mr. DAVIS [continuing]. And I yield back.
    Chairman SMITH. The gentleman from Texas is recognized.
    Mr. ARRINGTON. Thank you, Mr. Chairman.
    Thank you, Madam Secretary. I am the budget chairman, and 
we will have a budget. My Democrat colleagues the last four 
years did not have a budget. So it is rich when I hear them 
talk about us presenting a budget.
    The second thing I would want the American people to know 
is you all sent your budget late. And so the process is 
delayed. And we are going to take our time--and I hope you 
appreciate this--to unpack what is in this massive budget 
proposal. We are going to analyze it, and we are going to lay 
it out for the American people.
    So that will be the process. We will have a budget, and we 
will be able to compare not just the numbers, but the 
priorities, the policies, the values, and the vision that we 
differ on for the future of this country.
    A quick question, if you could, just a yes or no on this: 
Does the amount of government spending that we have been 
pushing out over the last couple of years, about $10 trillion, 
6 of that will be--is borrowed money that is adding to the debt 
about $6 trillion--does that--has that contributed to this 15 
consecutive months of record inflation?
    And as you, I am sure, are aware, inflation that is cutting 
the budgets of our working families, really devastating poor 
people and seniors on a fixed income, but is spending 
contributing to that, Federal Government spending contributing 
to that? Yes or no.
    Secretary YELLEN. Well, I believe that that was critically 
important support to make sure we didn't end up with a scarred 
labor force at a time when the risk was, we could see, a 
serious----
    Mr. ARRINGTON. So is that a yes, that spending--has 
spending contributed to inflation? Just yes or no. Forget your 
reasons why. You make that case to the American people. I will 
say that the American Rescue Plan that was Democrat-supported, 
no Republicans, jammed through, was more about bailing out 
union pensions and paying teachers unions for schools that 
never opened to our children. We can debate that point.
    Secretary YELLEN. Well, I think that----
    Mr. ARRINGTON. Did spending contribute to inflation?
    Secretary YELLEN. I believe that most of the inflation we 
have experienced represents--reflects disruptions from the 
pandemic----
    Mr. ARRINGTON. Okay, Madam Speaker----
    Secretary YELLEN [continuing]. The supply side----
    Mr. ARRINGTON. I mean, listen, Madam Secretary----
    Secretary YELLEN [continuing]. Of the economy, and----
    Mr. ARRINGTON. Madam Secretary, please, and with all due 
respect, I asked for a simple answer.
    The American people know that the spending that has flooded 
the marketplace has created this gap in supply and demand, and 
it is punishing, punishing as the worst of regressive taxes on 
all Americans.
    And here is the insulting thing. And again, with all due 
respect, this is insulting that your budget, the President's 
budget, increases spending. It is--these are--the budget has 
the highest sustained levels of spending, taxes, and deficits 
in the history of the United States of America.
    Now, I want to finish on this. You have requested $100 
billion more in just discretionary spending. If you do the 
average amount of spending that you all have requested in the 
last three years, the actual and the requested, we would be $3 
trillion over the $20 trillion that CBO is projecting. It is 
bankrupting the country, and it is insulting that your budget 
comes--you know, your proposal is more of the same.
    Secretary YELLEN. I am sorry, there is $3 trillion of 
deficit reduction over the next----
    Mr. ARRINGTON. Nobody believes that.
    Secretary YELLEN [continuing]. 10 years in this budget.
    Mr. ARRINGTON. I appreciate that on paper----
    Secretary YELLEN. And there are ways--it is one thing to 
spend when you don't pay for it, and it is another thing to 
spend when you do. And there are revenue raisers in this budget 
that more than finance the additional spending that----
    Mr. ARRINGTON. You all have added $6 trillion to the debt.
    Secretary YELLEN [continuing]. Is proposed.
    Mr. ARRINGTON. And even if I believe what you put on paper, 
you are taking off half of that--only half of the $6 trillion 
you have added, as if it is--as if you are trying to give a 
gift back to the--``Here is half of your money back. We are 
going to help save the country by giving half the money that we 
borrowed on the backs of our children.''
    I just don't believe it, and I look forward to more 
conversations, and I appreciate your service.
    Chairman SMITH. I recognize the gentlelady from California.
    Ms. SANCHEZ. Thank you.
    Secretary Yellen, thank you so much for joining us here 
this morning. You have a long and distinguished resume and 
career, and you are doing a terrific job. We applaud you. I am 
sure that, as a woman working in a traditionally dominated male 
field, you are probably no stranger to breaking firsts and 
paving the way for other women, which is why, during Women's 
History Month, it is disappointing to see some of my colleagues 
talk down to you, use profanity, and not allow you to finish 
your answers here at this hearing. And I think it is important 
to call out that kind of behavior.
    I want to refute a point that several of my colleagues have 
made with respect to the lack of workers that somehow my 
Republican colleagues want to blame the Democrats for. I want 
to remind my colleagues of a few salient points about the 
worker shortage.
    Number one is that, prior to the pandemic, we had worker 
shortages. When I used to meet regularly with my small business 
owners, they identified that as the number-one problem that 
they were experiencing.
    And then, during COVID, many Baby Boomers retired during 
the pandemic, and many are now too old to return back to the 
workforce. So that is a contributing factor.
    Additionally, the birth rate in the United States has been 
falling for years, and it is not at replacement right now. So 
we don't have the workers coming up because we simply have a 
lower birth rate.
    And then I would remind my colleagues on the other side of 
the aisle that lack of movement on immigration reform that 
creates legal pathways for immigrants to come to this country 
also exacerbates the worker shortage.
    So let's just be real clear about what some of these 
contributing factors are. Instead of just blanket-blaming 
Democrats for the lack of workers, it is some of the actual 
things that are outside of our control, which is demographics, 
but also things that are within our control, like immigration 
reform.
    Secretary Yellen, I wanted to ask you about the Inflation 
Reduction Act, because Treasury has embarked on some critical 
mineral agreements with Japan and the European Union, and I 
understand that the intent is to address their concerns on EV 
tax credits, but that is not exactly happening in a vacuum. Our 
allies have said that they will build on their existing climate 
subsidies in response to the IRA. I think that all of us who 
helped write this law agree that we need to work with our 
allies on shared climate goals.
    But I also want to stress that the unprecedented way these 
agreements were written--with this exercise, we continue to 
upend the separation of power on trade authorities. These 
agreements have been written in a manner that gives the 
Secretary the power to guarantee specific tax cuts, with USTR 
signing off on your behalf. So I want to focus on those 
agreements and how they will affect the domestic union supply 
chains that we are trying to foster as our partners try to 
expand their investments.
    Madam Secretary, California is home to one of the largest 
untapped lithium reserves in the world, which is close to the 
Salton Sea. And so how may this select buyers club have the 
potential to undermine investments back home?
    Secretary YELLEN. Well, the Inflation Reduction Act creates 
very strong incentives to produce, develop minerals for 
batteries in the United States, and to develop their capacity 
to process those minerals.
    However, the global demand for these minerals in the years 
to come will be enormous, and we are highly dependent on China. 
And so we have seen, as one of the goals of the IRA, to broadly 
strengthen supply chains for these critical minerals and their 
processing. And so the agreements that we are discussing with 
Japan and with Europe would potentially, if it is possible to 
form such agreements, permit our close allies to also 
contribute minerals and their processing that would be eligible 
for use in electric vehicles that are assembled in North 
America.
    But this is going to be a vast and growing market, and 
there are huge incentives for development of minerals in the 
United States.
    Ms. SANCHEZ. I thank you for your answer, and I yield back.
    Chairman SMITH. The gentleman from Georgia is recognized.
    Mr. FERGUSON. Thank you, Mr. Chairman, and thank you, Madam 
Secretary, for being here today.
    You know, early on in your remarks you threw out a term I 
had not heard called modern supply side economics. I did a 
little quick research on that. I believe you are calling a duck 
a squirrel. That is nothing more than modern monetary theory. 
And I would suggest that the American people don't go for that.
    But anyway, that is not really what I wanted to get to. You 
know, you have got $80 billion for 87,000 new IRS employees. 
You are asking for another $43 billion. And, you know, we--I 
just--number one, I don't see where those--you know, where the 
plan for the previous employees are. Number two, how do we know 
that these employees won't be looking into the bank accounts of 
our fellow Americans?
    Our friends on the other side of the aisle tried to get an 
IRS surveillance program into the banking system in the last 
Congress, and we successfully blocked it. But we have had to go 
so far as to introduce a bill, H.R. 1010, Prohibiting IRS 
Financial Surveillance Act. Can we have your assurances that 
none of the money that has been appropriated to the IRS will be 
used to implement a financial surveillance system with the 
banking system snooping into the bank accounts of our fellow 
Americans, unless it is directed by Congress? Yes or no, do we 
have your commitment that you won't go around the back of 
Congress and implement that program?
    Secretary YELLEN. Of course not. We require legislation----
    Mr. FERGUSON. Good. Thank you, thank you. I appreciate 
that, Madam Secretary, and I appreciate the directness of the 
answer.
    Second thing, you know, we--I still don't get the fact that 
under the Constitution the power of taxation lies with 
Congress, and yet you are negotiating U.S. tax policy, and you 
are ceding U.S. tax policy and revenue to countries around the 
world with the OECD. I will tell you, I have said this, and I 
think I said this the last time you were here. We are about 
making America the most competitive place in the world to do 
business, and we should be winning both on the manufacturing 
side and the export side. We should be importing treasure from 
around the world to the United States of America. And I don't 
think that we should give up one dime of our U.S. revenue to 
foreign countries with this.
    When we have a debt crisis that is looming, okay, real 
quickly, can you explain--can you tell me, will the GILTI 
revenues, if your Pillar Two is implemented, will those 
revenues go down here in the U.S.?
    Secretary YELLEN. Well, if the United States implements the 
GILTI tax, which would involve----
    Mr. FERGUSON. As a function of Pillar Two----
    Secretary YELLEN. In Pillar Two----
    Mr. FERGUSON [continuing]. Would you see a decrease in tax 
revenue coming into the U.S. from that.
    Secretary YELLEN. It would be a huge increase in tax 
revenue----
    Mr. FERGUSON. Ah, okay.
    Secretary YELLEN [continuing]. If we implement the GILTI 
tax.
    Mr. FERGUSON. Okay.
    Secretary YELLEN. Our tax revenue would----
    Mr. FERGUSON. I think that has yet to be determined. Now--
--
    Secretary YELLEN [continuing]. Would clearly rise.
    Mr. FERGUSON [continuing]. One final thing, Madam 
Secretary. You know, Americans, really--over the years, of all 
of the alphabet agencies up here, they tend to fear the letters 
I-R-S more than most. And one of the things that we find 
disturbing is that the IRS has been buying up a tremendous 
amount of ammunition and firearms over the years. Two things.
    Number one, can you provide a report to this body that will 
explain why the IRS has purchased so much nine millimeter 
ammunition?
    And will you commit to not buying a single bullet or a 
single gun in that agency until you get your customer service 
right?
    Secretary YELLEN. Look, there----
    Mr. FERGUSON. Yes or no, will you look into that?
    Secretary YELLEN. No, I won't, because----
    Mr. FERGUSON. Okay. Thank you. Madam, my time has expired.
    Mr. Chairman, I yield back.
    Chairman SMITH. Thank you. The gentleman from Kansas is 
recognized.
    Mr. ESTES. Thank you, Mr. Chairman, and thank you, Madam 
Secretary. Over here, we are doing two for--I am sorry. Thank 
you, Madam Secretary, for joining us today.
    You know, as we were meeting today, you know, we just got 
the Administration's budget yesterday, and tried to dig through 
the numbers and get an understanding. But, you know, just from 
top line over the next 10 years, we are spending $8.2 trillion 
in spending; we are raising in revenue, or bringing in in 
revenue, $65 trillion, which equates to a corresponding deficit 
of $17 trillion. Now, I know you have said that we are having a 
$3 trillion cut in the deficit, but just because we are not 
making a $20 trillion deficit, it is still a $17 trillion 
increase over the 10-year period.
    And we talked earlier a little bit about the 15 percent 
increase in the department after already getting the $80 
billion last year, and with us being in debt and--actually, 
next year, over $1 out of $4 that is being spent in the 2024 
suggested budget is borrowed. It is almost $1 out of $3 is 
borrowed, 30 percent of the spending next year.
    So today I want to focus a little bit and follow up a 
little bit on my colleague from Georgia, who talked about the 
OECD, and particularly talked a little bit about the OECD 
Pillar Two and the impact on the U.S. competitiveness in the 
world. And what is being negotiated is some radical changes in 
the international tax system, and we have sent a letter to my--
or there was a letter that you sent back to my office 
indicating you look forward to working with us to implement 
this.
    I can tell you that Congress isn't in favor of this. As 
several of us have mentioned, we have very main concerns, and 
Congress doesn't want to implement something that will make 
America weaker and less competitive.
    So, you know, last year, the Democrat majority in Congress 
wouldn't even pass the Pillar One--or the Pillar Two, an OECD 
provision. So have you informed the other countries that we are 
negotiating with that, you know, you--it wouldn't pass last 
year, and it is probably not going to pass under a Republican 
Congress this year?
    Secretary YELLEN. Well, my understanding is that there were 
Members of Congress that did not want the United States to go 
first in implementing a 15 percent minimum tax country by 
country. We already have a 10.5 percent GILTI or minimum tax on 
earnings of American multinationals abroad. And now the 
European Union has adopted it, and other countries are moving 
forward. Japan, the United Kingdom, Singapore, many countries 
are going forward with this. So the issue of our going first 
and will others follow no longer exists.
    Mr. ESTES. Well, it----
    Secretary YELLEN. And it is critically important for us 
to----
    Mr. ESTES. It does change, though, if we----
    Secretary YELLEN [continuing]. To put this in----
    Mr. ESTES. Before I run out of time, if the proposal is to 
raise our GILTI to 21 percent, when everybody else is doing 15 
percent is all that they have to do, I mean, that is going to 
make American businesses less competitive.
    Secretary YELLEN. Well, no, it is not----
    Mr. ESTES. And in the meantime, with the--under tax 
provisions, it is going to actually allow other countries to 
still race to the bottom through this process.
    Secretary YELLEN. That isn't right, because right now we 
have a 15 percent tax and no other country has any tax 
whatsoever. So there is a 15 percent gap. Now they are all 
going to have a 15 percent gap, and we are proposing that we go 
to 21, which is a much smaller gap of 6 percent.
    We are a competitive, attractive place to do business, and 
having a lower tax rate on the earnings of American companies 
abroad than they would pay at home is an incentive to shift 
jobs out of the United States abroad. And we are more 
competitive, and we are narrowing that gap, which makes it more 
attractive to invest in the United States.
    Mr. ESTES. It really is.
    Chairman SMITH. All right.
    Secretary YELLEN. And a disadvantage----
    Mr. ESTES. We would agree on that, that U.S. 
competitiveness is hurt, and that is what was addressed.
    And I have run out of time, but I will yield back, Mr. 
Chairman.
    Chairman SMITH. The gentleman from New York.
    Mr. HIGGINS. Thank you, Mr. Chairman.
    Madam Secretary, yesterday this committee held a hearing on 
the technicality of a proposal where there was a lot of talk 
about debt, deficit, and priorities. At the same time, the 
President released a $6.9 trillion budget plan, a 182-page 
document, that aims to cut the deficit by $3 trillion over the 
next decade.
    Bloomberg Economics put out a comprehensive report last 
month saying that President Biden was on track to becoming the 
greatest jobs-producing President in U.S. history, nearly 13 
million jobs in the past 26 months, including 504,000 in 
January, and 311,000 that was announced this morning for the 
month of February. They forecast that, while inflation was at 
9.1 percent in June of last year, the forecast for this time 
next year is 2.25 percent. Ninety-two percent of Americans now 
have access to affordable health care. And we are beginning, 
through the Inflation Reduction Act, to compete, in a real 
sense, with China.
    You know, the Stone Age didn't end because we ran out of 
stones. And the oil age won't end because we run out of oil. 
The oil age will end when we find a way to do it that is 
cleaner, quicker, and more competitive.
    The Inflation Reduction Act includes two major pieces. One 
is a $7,500 tax credit for Americans to purchase electric 
vehicles, and also a tax credit for American manufacturers of 
batteries that is estimated to reduce the cost of an electric 
car by an additional $9,000. It seems as though, you know, we 
finally got the message that we need to be tough about China, 
but we need to be tougher on ourselves about China, as well. 
And these initiatives in the Inflation Reduction Act and in 
this budget, I think, go a long way to doing that.
    You are the 78th Secretary of the Treasury. You were 
appointed in January of 2021. And just your thoughts about 
these and other efforts that are in the budget toward the goal 
of increasing American competitiveness accruing to the 
advantage of the American people and the American consumer.
    Secretary YELLEN. Well, thank you for your comments. I 
strongly agree with your assessment of the Inflation Reduction 
Act. It is already having a dramatic effect on investment in 
the United States and job creation, and will make us more 
energy secure and more competitive, and deal with the really 
national security threat that reflects our over-dependence on 
China for the provision of many--both battery components and 
electric batteries, solar panels, wind turbines, what we need 
to feel--be energy secure, to promote clean energy.
    So this is a huge step. The Semiconductor and CHIPS Act 
addresses our dependence in China and reduction in 
competitiveness in manufacturing semiconductors in the United 
States. And that is having a huge effect already in job 
creation. And the Infrastructure Act is really shoring up our 
competitiveness by finally repairing roads and bridges that are 
decaying in the United States and really need to be upgraded, 
and also what is necessary for a modern economy to have digital 
access all over the country.
    And these bills are shoring up our competitiveness, and the 
budget will add to the provision of funding for R&D innovation 
in the United States and other things.
    Mr. HIGGINS. Thank you. I yield back.
    Chairman SMITH. The gentleman from Pennsylvania is 
recognized.
    Mr. SMUCKER. Thank you, Mr. Chairman.
    Madam Secretary, thank you for your service to our country. 
I was pleased to hear, in response to one of my colleague's 
questions earlier just a little while ago, you said that the 
debt, these matters--and I quote--``should be should be taken 
seriously.''
    When you and I talked last year during this hearing, you 
said--and again, I quote--``it is desirable to reduce 
deficits.'' Do you still feel that way, Madam Secretary?
    Secretary YELLEN. Yes, I do.
    [Chart]
    Mr. SMUCKER. The chart I have here--and I don't know if you 
can see it; hopefully can catch it. But this is the next 10 
years, and compares the 2023 proposal by the President, budget 
proposal, and 2024. I have directly from the budget these 
sheets. And what it shows is that this proposal--2024, compared 
to 2023--increases deficits further, year over year. And the 
orange on here is your new proposal compared to what you were 
proposing last year. You see some significant difference in the 
early years, but it never is reduced over the proposals from 
last year.
    And on your totals on this sheet, you are proposing over 
the next 10 years today $17 trillion in additional deficits and 
debt, as opposed to 12 months ago you were proposing $14 
trillion total in deficits and debt.
    So my question is today, why are you proposing three 
trillion higher deficits than you proposed last year?
    Secretary YELLEN. Well, the budget contains a table, table 
S2, that shows the effect of the budget proposals on projected 
deficits. And that illustrates quite clearly----
    Mr. SMUCKER. Do you disagree with my----
    Secretary YELLEN. I do.
    Mr. SMUCKER [continuing]. My characterization?
    Secretary YELLEN. I do disagree, because what this table 
shows is that the President's proposals result in additional 
deficit reduction relative to the 2023 baseline of close to $3 
trillion. And----
    Mr. SMUCKER. Could you point out which year there are----
    Secretary YELLEN. I am sorry, I can barely see your chart, 
but I can----
    Mr. SMUCKER. Well, could you----
    Secretary YELLEN. I can tell you----
    Mr. SMUCKER. Could you look at your sheet and tell me which 
year there are----
    Secretary YELLEN. I can tell you----
    Mr. SMUCKER [continuing]. Lower deficits than what you had 
proposed last year?
    Secretary YELLEN. Well, for example, starting in 2025, the 
projected deficits in the baseline were 6.7 percent. And in the 
President's proposal----
    Mr. SMUCKER. That was not your baseline last year. That is 
CBO's baseline, which is far higher than what you were 
projecting last year.
    So essentially, you are saying our policies created higher 
deficits than you had projected last year, and now we are going 
to take credit for reducing those higher deficits by $3 
million. Am I right on that? Or $3 trillion.
    Secretary YELLEN. Relative to where we were before this 
budget was issued, and the deficits that we would have seen, 
this budget projects----
    Mr. SMUCKER. Nobody under----
    Secretary YELLEN [continuing]. Three trillion less.
    Mr. SMUCKER. Nobody outside of the Beltway will look at 
your proposal compared to the proposals last year, will look at 
your proposal compared to what has actually happened, will look 
at a chart like this, which is taken directly from your 
numbers, and say that we are reducing the deficit.
    And it is a shame, because we both agree that, long term, 
we are on a wrong fiscal trajectory, we must do something about 
it. And this budget does nothing. In fact, it adds to the 
deficits and debts that we have been experiencing.
    So, again, no one else would believe that we are reducing 
the deficits with your budget. Thank you.
    Chairman SMITH. I recognize the gentlelady from West 
Virginia.
    Mrs. MILLER. Thank you, Chairman Smith and Ranking member 
Neal.
    And thank you, Secretary Yellen. I hope you take that cough 
drop. It is from me.
    Secretary YELLEN. Thank you, thank you very much.
    Mrs. MILLER. In your fiscal year 2022 revenue proposals, 
you recommended that Congress lower the 1099-K threshold from 
the time-tested standard of $20,000 to just $600 with no 
transaction minimum in order to, and I quote, ``close the tax 
gap.'' Congressional Democrats heeded your request, and 
included the provision without any debate or consideration. 
President Biden signed it into law, and he touts the 
accomplishments of that bill to this day.
    In December of last year, your IRS delayed the 
implementation of the provision that you recommended for a full 
year. The IRS cited the difficulty in administering the program 
as just one reason for this delay. Your IRS had a full year to 
prepare and to send taxpayers a bill that they likely didn't 
owe, and you could not handle the burden. If this policy was 
too difficult for the IRS to get right after a year of work 
with your 87,000 new agents, not all of which are even back in 
the office yet, how do you expect an individual--say he is 
selling his couch, or drum set, or old furniture--to handle the 
cost and the compliance burden?
    Secretary YELLEN. Well, this was enacted into law in the 
American Rescue Plan, as you pointed out, and the IRS began to 
implement it as required, and heard a number of concerns by 
individuals and organizations that this was confusing.
    Mrs. MILLER. Oh, absolutely. I hate to interrupt you, but 
it is a nightmare for people that pass money back and forth. 
You know, one pays the rent, one does such and such, and they 
Venmo back and forth.
    I have spent the better part of two years trying to fix the 
mess that the Democrats created with this provision. And I want 
to thank every one of my Republican colleagues for cosponsoring 
my bill, H.R. 190, and I certainly hope that my Democrat 
colleagues will do the same thing to protect all of our 
constituents from an undue burden on--just a bad policy.
    Secretary Yellen, in May of 2021, just after the Biden 
Administration pushed through the $1.9 trillion spending bill 
on a partisan vote, you claimed that five percent inflation at 
the time would be transitory, meaning temporary and brief. And 
I am sure that the Biden Administration based decisions on your 
analysis.
    But a year later, in June 2022, inflation then hit a 40-
year high of 9.1 percent. A few weeks ago this committee held 
its first hearing in my home state, and all of our witnesses 
said that their number-one hardship is--dealing now in 2023--is 
still inflation, the direct result of the failed economic 
policies of the Biden Administration.
    Obviously, inflation is not transitory. You were wrong, and 
the people that are suffering as a result would really like to 
know if you might apologize for saying that, and being wrong, 
and misleading them.
    Secretary YELLEN. Well, inflation is the President's top 
priority to bring it down. And it is certainly too high. It has 
come down off its highs a year ago. Over the last year we have 
made progress, and in part that reflects--what I meant at the 
time was there were disturbances from the pandemic on supply 
chains that would eventually resolve. And due to the 
President's efforts and the passage of time, those supply chain 
disturbances have largely resolved.
    Mrs. MILLER. Please.
    Secretary YELLEN. Shipping costs have come down----
    Mrs. MILLER. They haven't, they have not.
    Secretary YELLEN [continuing]. Substantially, inventories 
that had been depleted have largely been rebuilt.
    Mrs. MILLER. I really think that the words that----
    Secretary YELLEN. But there remain inflationary pressures--
--
    Mrs. MILLER [continuing]. We really should hear is that I 
am sorry.
    Secretary YELLEN [continuing]. That need to be dealt with. 
And Russia's war on Ukraine has also exacerbated inflation----
    Mrs. MILLER. I yield back.
    Secretary YELLEN [continuing]. All over the world.
    Chairman SMITH. The gentlelady from Washington is 
recognized.
    Ms. DelBENE. Thank you, Mr. Chairman.
    And thank you, Madam Secretary. I am all the way on the 
other side here. Thank you for your time today, and for just 
all of your attention to the needs of working families and 
struggling Americans. And, in particular, I want to thank you 
for recognizing the importance of affordable housing by 
introducing in the budget an increase in the Low-Income Housing 
Tax Credit, or the housing credit, and a reduction in bond 
financing necessary to trigger more housing credit equity.
    These core proposals are for legislation that I have 
introduced, the Affordable Housing Credit Improvement Act, 
which we will be reintroducing again this year with 
Representatives LaHood, Beyer, and Wenstrup, so a very strong 
bipartisan proposal. These provisions would finance the 
production and preservation of over two million additional 
affordable homes, and support three million jobs over the next 
decade.
    I wondered if you could speak to how increasing the supply 
of affordable housing will increase our economy's long-term 
growth potential?
    Secretary YELLEN. Well, I think we really have a serious 
shortage of affordable housing, and it really makes it very 
difficult to hire workers to be able to support business 
expansion when lower-income workers are unable to even afford 
to be able to live anywhere near where they work. And I think 
that has been a failing of our housing policy that we believe 
should be corrected.
    Ms. DelBENE. Well, thank you so much for including that.
    I wanted to switch gears a little bit. Last year this 
committee held a hearing to discuss ways to strengthen economic 
relations with Taiwan. One way to do so would be by negotiating 
an income tax agreement, which would boost investment and 
create jobs by reducing double taxation on U.S. and Taiwanese 
businesses. I wondered if you could update the committee on how 
Treasury is evaluating Taiwan's requests for an income tax 
agreement with the United States.
    Secretary YELLEN. We are looking--we recognize that there 
is a problem there, and are looking at potential ways to 
address it. But I don't have anything specific to offer in 
terms of a way forward.
    Ms. DelBENE. Well, we look forward to and hope you will 
continue to consult with Congress on that----
    Secretary YELLEN. Certainly.
    Ms. DelBENE [continuing]. Since that is clearly a very 
important issue.
    And then lastly, during yesterday's markup of the 
Republicans' debt prioritization bill, I asked the majority 
staff a technical question that they couldn't answer regarding 
the logistical possibility of debt prioritization. And so I 
just wanted to ask you, Madam Secretary. Is it feasible for 
Treasury's payment systems to prioritize payments to bond 
holders over debt?
    Secretary YELLEN. I think that we should not think that 
prioritization is a solution to the debt ceiling issue. 
Prioritization is simply not paying all of the government's 
bills when they come due. That is something we have never done 
since 1789, and that really is just default by another name.
    So what is critical is that we maintain our commitment to 
pay the government's bills, all the government's bills, when 
they come due. And if we don't do that and think that there is 
some shortcut around it that will avoid economic chaos, we are 
kidding ourselves because not paying the government's bills 
will produce economic and financial collapse. And I would say 
that Fitch has already made clear in comments that they issued 
that a failure to pay all of the government bills would 
potentially prompt a downgrade of our debt.
    Ms. DelBENE. Thank you, Madam Secretary. I appreciate that.
    I yield back, Mr. Chairman.
    Chairman SMITH. The gentleman from Oklahoma is recognized.
    Mr. HERN. Madam Secretary, over here. Madam Secretary, I 
really appreciate you being here today.
    Madam Secretary, with all due respect--and we have talked 
about this both times you have been here--your going along OECD 
negotiations have been a failure. Your Democrat-majority House, 
Senate, President did not adopt these rules last year. Here we 
are, and there is no way in the world that Republicans are 
going to adopt this. I don't know how you think that 
circumventing Congress would be a way to do this.
    I think you would acknowledge that both of our jobs is to 
protect the U.S. worker, the U.S. taxpayer, and the U.S. fisc, 
but you are making it much harder by not allowing us to be a 
part of this process, as we are supposed to do here on Ways and 
Means.
    And there is no reason that we should expect that China is 
going to play nicely with these rules. I mean, they are kicking 
out Western auditors right now, and we are just thinking that 
we are going to know exactly what--their state-owned, state-
regulated enterprises are going to participate and be 
transparent? I mean, trust me, we would like to know their 
transparency, but we simply do not.
    How does this ability to--we are--this is a rhetorical 
question, but I guess we are trying to figure out because we 
don't know how, in your OECD negotiations, you plan on holding 
them accountable.
    You know, Madam Secretary, the American people need to know 
this. I mean, we are transferring and redoing our entire 
international tax system--your words, not mine--to stop the 
race to the bottom. And we have asked repeatedly--myself, Kevin 
Brady, others--I would like to once again submit another letter 
for the record requesting information.
    Chairman SMITH. Without objection.
    [The information follows:]

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    Mr. HERN. Thank you.
    Madam Secretary, what are you doing to prevent China from 
cheating?
    Madam Secretary, when are you going to release the analysis 
of the impact of Pillar One and Pillar Two tax frameworks on 
the U.S. fisc?
    And do you have the revenue modeling data, or are you just 
not sharing it, or do you not have the data at all?
    And I will give you the remaining 1 minute and 34 seconds 
to respond to all of those questions.
    Secretary YELLEN. We have presented in the budget estimates 
of the impact of Pillar Two, which we urge adoption of by 
Congress. Other countries are adopting Pillar Two. The European 
Union has already adopted it and put it into effect, and this 
is a huge positive for the United States.
    Of course, it is up to Congress to decide if we should come 
into compliance with Pillar Two or not, but we are the only 
country in the world that imposes any tax at all on the foreign 
earnings of domestic corporations. No other country does that. 
And what the OECD agreement does is 137 countries agreed that 
they will start to do what we already do, and they have agreed 
to impose a higher tax rate than we currently----
    Mr. HERN. So, Madam Secretary----
    Secretary Yellen [continuing]. Than we currently put in 
place.
    Mr. HERN. Madam--with all due respect, Madam----
    Secretary YELLEN. How is that bad for the competitiveness--
--
    Mr. HERN. Madam Secretary, I agree. You know, that sounds 
all great. But if you--we have asked time and time again for 
you to give us this information for the last two years, when we 
were not even in the majority.
    Secretary YELLEN. But we have consulted regularly with this 
committee.
    Mr. HERN. Excuse me?
    Secretary YELLEN. We have consulted regularly with this 
committee.
    Mr. HERN. You have not responded with the information we 
have requested.
    Madam Secretary, in the remaining seven seconds answer the 
question how we are going to hold China accountable. We can't 
even keep balloons from flying across the United States. How 
are we going to hold them accountable to the OECD framework?
    Secretary YELLEN. If China is not accountable, we will tax 
the income of Chinese companies operating in the United States, 
and the same is true for all other countries that adopt Pillar 
Two and its associated under tax payments rule. That is the 
strong enforcement mechanism that is built into this agreement, 
that a country that is non-compliant and decides they wish to 
be a tax haven, that other countries have the ability to punish 
that by taxing those firms themselves.
    Mr. HERN. You are assuming a fair playing field.
    Chairman SMITH. The----
    Mr. HERN. I yield back.
    Chairman SMITH. Thank you. The gentleman from North 
Carolina is recognized.
    Mr. MURPHY. Thank you, Mr. Chairman.
    Thank you, Madam Secretary, for coming. Is the workforce 
participation rate a different statistic than the unemployment 
rate?
    Secretary YELLEN. Of course.
    Mr. MURPHY. Yes. So our unemployment rate may be the same 
as it was pre-pandemic, but our workforce participation rate is 
a full percentage lower, which means 2\1/2\--more than 2\1/2\ 
million workers are not in the workforce. You have said you 
think a great number are retirees.
    I would submit that is not the case. We right now--because 
Biden's continuation of the public health emergency continues 
with 18 million people on Medicaid who do not qualify for 
benefits and, therefore, are not going into the workforce.
    Second is that retirees that left, our stock market has 
crashed, inflation has gone through the roof. So I don't see 
those people staying at home. So it is disingenuous to say that 
we are in the same situation as we were pre-pandemic. We have 
been paying people and enticing them not to come back to work.
    Second point, the Inflation Reduction Act passed without a 
single Republican vote. It was done behind doors, a very 
partisan piece of legislation. Fortunately, Senators Thune and 
Sinema dropped an amendment which passed 57-43. The Thune 
amendment fixed a provision that said that small and medium-
sized businesses, which are in my district, could be subject to 
the book's--fix this--if not, they would have been subject to 
the book's minimum tax administrative and financial burdens.
    I think that the congressional intent was very clear. I 
think this Administration has done everything it can to run 
around congressional intent. I ask unanimous consent to insert 
into the text the amendment debate and the final vote tally for 
the record, Mr. Chairman.
    Chairman SMITH. Without objection, so ordered.
    [The information follows:]

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    Mr. MURPHY. Secretary Yellen, as you remember, there was a 
bipartisan amendment to clarify this in small business. Do you 
agree it was the intent of Congress and the Thune amendment was 
to maintain the current law aggregation rules, yes or no?
    Secretary YELLEN. I want to make sure I understand what--
you are talking about the corporate alternative minimum tax?
    Mr. MURPHY. Would stay in its current state.
    Secretary YELLEN. So it only applies to corporations with 
financial statement or book income in excess of $1 billion.
    Mr. MURPHY. All right, thank you. On another topic I have 
heard from many small businesses in my district, I have a very 
research-and-development-strong district and state in North 
Carolina. I am very concerned about the lapsed R&D expensing 
loss. This is a major problem for new startups when they are 
trying to develop new cures and new drugs.
    This is supported in the House and the Senate by Democrats 
and Republicans. But as far as I can tell, the R&D expensing 
was omitted from the budget. Will you commit to helping us get 
section 174, the R&D expensing, across the finish line so that 
these companies will not be hurt?
    Secretary YELLEN. Well, we are in favor of support of R&D. 
Currently, the FDII, which is part of the taxation system for 
firms with derived intangible----
    Mr. MURPHY. So it has really hurt our young businesses that 
are trying to start out----
    Secretary YELLEN. We suggest repealing that, and working 
with Congress to put something more effective----
    Mr. MURPHY. I appreciate that, because it hurts small 
businesses that are trying to put new molecules, new cures when 
they have no income coming in.
    Secretary YELLEN. Well, we are----
    Mr. MURPHY. Lastly, can you explain to me what the 
rationale is of taxing unrealized gains? We are taxing 
something that someone has not even realized yet, what--in the 
future that number could actually be a loss. And so we are 
going to go after them for a potential--it is like putting 
somebody in jail for a potential murder that they might do. So 
what is the rationale?
    Secretary YELLEN. We have a situation where hardworking 
teachers and firefighters are paying a higher share of their 
income in taxation than billionaires who derive most of their 
income from unrealized capital gains.
    Mr. MURPHY. Well, they have to realize them to gain income.
    Secretary YELLEN. Well, we are suggesting a tax on 
individuals earning more than $100 million that would 
essentially be a pre-payment of taxes that are due upon death.
    Mr. MURPHY. So we want to get the money in now, so we can 
spend it now, so there will be even further deficit in the 
future.
    Secretary YELLEN. Well, I--it is--I think it is entirely 
fair that extremely wealthy people should----
    Mr. MURPHY. Well, I am not--thank you. I have used up my 
time, but it is--I am not talking about the wealth of the 
person, I am talking about the actual theory of attacking 
somebody before they have actually gained their money. And 
again, it is like putting somebody in prison before they have 
done the murder.
    Chairman SMITH. We want to thank the gentleman.
    Mr. MURPHY. So thank you. With that, Mr. Chairman, I will 
yield back.
    Chairman SMITH. Yes, the lady from--the gentlelady from 
California is recognized.
    Ms. CHU. Secretary Yellen, I thank you for being here. Last 
year, during our fiscal year 2023 hearing, I asked you what 
Treasury was doing to address the unacceptable fact that low-
income EITC filers were getting audited 4.5 times more 
frequently than all other taxpayers earning under $500,000. You 
answered this. You said the resources available to the IRS have 
been simply gutted, and it does not have the capacity to 
enforce our tax laws as they apply to high-end evaders. It also 
meant that taxpayer experience was unacceptably poor, with long 
wait times for calls and a backlog of unprocessed returns.
    Well, we heard you. And thanks to the Inflation Reduction 
Act, we put in $80 billion to the IRS to improve these 
functions, and we can already see the positive effect. Contrary 
to the massive misinformation by those on the other side of the 
aisle, there has been a sea change. And in fact, The Washington 
Post just did an article earlier this week saying the IRS 
braces for the unthinkable, a normal tax season. And in fact, 
it said the IRS's massive funding boost has begun to reach the 
front lines of the tax season. It has vaulted the agency from 
more than a decade of disarray to a once unimaginable position: 
a functioning tax service.
    The IRS is answering 90 percent of its phone calls, has 
squashed its backlog of overdue returns, introduced new online 
taxpayer tools to keep pace with private software companies, 
and processed 99.7 percent of returns filed this tax season. 
And not only that, but tax professionals are also saying that 
now the agency will be able to keep up with phone calls and 
written correspondence and, most importantly, disburse refunds 
in a timely manner.
    So I just have to say phone calls are getting answered with 
an average wait time of seven minutes only. And also, of the 
$850 million spent by the IRS, more than half of the funds have 
gone directly to taxpayer services.
    Secretary YELLEN. Yes.
    Ms. CHU. I also want to address an issue from earlier, 
which is the IRS does have a law enforcement team that they use 
for extremely serious cases on non-compliance.
    Earlier the gentleman from Georgia demanded there be no 
additional ammunition purchases. But actually, these law 
enforcement officials need ammunition to even qualify for their 
job. This demand from the gentleman from Georgia would actually 
put law enforcement officials in harm's way, and is actually 
anti-police.
    So can you address both issues about the increased 
functioning of the IRS and this law enforcement issue?
    Secretary YELLEN. Well, I agree with what you said on both 
scores, and I appreciate the description you gave of all of the 
ways in which taxpayers' service has improved since the IRA 
provided this funding. It is a high priority, and there will be 
more to come.
    And we--there will also be a focus on hiring skilled tax 
attorneys and accountants who will be able to audit the returns 
of high-income and wealthy taxpayers, complex partnerships, 
corporations where we know there is very substantial under-
reporting of income, and there will be an increased payoff to 
that over time, and that will be another important focus that 
you will see play out in terms of a reduction in the tax gap 
over time.
    With respect to the officers and the bullets, it is true 
there is a small cadre of--essentially, they are trained as law 
enforcement officers, individuals who do carry weapons to deal 
with very----
    Chairman SMITH. The gentlelady's time has expired.
    Ms. CHU. Thank you.
    Chairman SMITH. The gentleman from Texas--Tennessee is 
recognized.
    Mr. KUSTOFF. Thank you, Mr. Chairman.
    Thank you, Madam Secretary, for appearing today. I want to 
go back and talk about the Inflation Reduction Act, and follow 
up on Congressman Adrian Smith's questions, and maybe 
Congressman Drew Ferguson.
    When we have been asked--asked you about the number of 
audits specifically of those taxpayers making less than 
$400,000, your reply has been something to the effect that it 
won't increase compared to historical levels. My question to 
you is, isn't it right that the actual number of taxpayers 
making more--or less than $400,000, those audits will increase? 
Isn't that right?
    Secretary YELLEN. Well, I don't----
    Mr. KUSTOFF. The actual number?
    Secretary YELLEN. I don't have that information. But if the 
size of that population goes up and you maintain a constant 
audit rate, the number would probably rise.
    Mr. KUSTOFF. Fair enough. And that is as a result of the 
passage of the Inflation Reduction Act, correct?
    Secretary YELLEN. Well, I am not sure what you mean by 
that. I mean----
    Mr. KUSTOFF. Well, I mean, we just--we voted--I voted 
against--the creation of the Inflation Reduction Act, which 
increases the number of audits. We have established more than 
400--those taxpayers more than $400,000. I asked you about the 
number--not at historical levels, the actual number--of 
taxpayers making less than $400,000. You gave me your answer, 
and I am asking you isn't that----
    Secretary YELLEN. But, you know----
    Mr. KUSTOFF. Ma'am, I am asking you, isn't that a direct 
result of the passage of the Inflation Reduction Act?
    Secretary YELLEN. It depends on what the policy is. I have 
directed the IRS not to raise audit rates on individuals or 
small businesses earning under $400,000.
    And what has happened is the IRS has been starved for 
resources. It has----
    Mr. KUSTOFF. Let me ask you this.
    Secretary YELLEN [continuing]. Cut dramatically----
    Mr. KUSTOFF. This is in relation to the letter that was 
sent by the Congressional Budget Office to then Ranking Member 
Kevin Brady, and then ranking member of the Budget Committee, 
Jason Smith, dated August 25th, 2022. ``How will taxpayers with 
incomes less than $400,000 be affected by the act?''
    And I realize you don't have the letter in front of you. 
``The act will affect taxpayers with incomes less than $400,000 
in several ways. Activities other than audits such as 
collections and automated screening and document matching are 
not constrained by the Secretary's directive. And under the 
2022 Reconciliation Act, the amounts they generate will be 
greater for taxpayers with all amounts of income,'' CBO 
projects.
    My question to you is you don't have any reason to doubt 
what CBO cites in this letter, do you?
    Secretary YELLEN. Look, we want taxpayers to be able to 
pay, and to pay the amounts that are due. And presumably, 
improvements in technology may raise compliance in ways that 
are not directly related to the fraction of individuals that 
are audited.
    And, you know, the failure of----
    Mr. KUSTOFF. Automatic screening and document matching for 
those taxpayers----
    Secretary YELLEN [continuing]. An agency----
    Mr. KUSTOFF [continuing]. Under $400,000 will be increased. 
You don't disagree with the CBO report, do you?
    Secretary YELLEN. I haven't read it in detail, but----
    Mr. KUSTOFF. Fair enough.
    Secretary YELLEN. I--you know, we have----
    Mr. KUSTOFF. I will submit this for the record. My time 
has----
    Chairman SMITH. Without objection.
    [The information follows:]

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    
    Secretary YELLEN [continuing]. A $7 trillion tax gap. And 
the IRS really needs to close that, because it undermines the 
fairness and effectiveness of our tax system not to have a 
system that collects taxes that are owed and due.
    Chairman SMITH. The gentleman from Pennsylvania is 
recognized.
    Mr. FITZPATRICK. Thank you, Madam Secretary, for being 
here, and for your time today. We appreciate it. I want to 
address a separation of powers issue and concerns with the IRA.
    The IRA's free trade agreement requirement, specifically 
for critical mineral inputs on batteries, was clear. And 
congressional intent upon the passage of the IRA with respect 
to that was clear. And yet the Administration is now seeking to 
redefine free trade agreements--which everyone knows to do that 
would require approval by the members of this body--now 
referring to it as a ``free trade area'' in order to extend the 
law's benefits to Japan and the European Union, with which the 
United States does not have a congressionally-approved free 
trade agreement.
    Madam Secretary, are you aware that during the pandemic 
semiconductor chip shortage, Japan and Germany withheld 
semiconductor chips from U.S. automakers here in our country in 
favor of their own automakers?
    Secretary YELLEN. I wasn't aware of that, but I----
    [Pause.]
    Mr. FITZPATRICK. Are you aware, also aware that the United 
States accepts Japanese vehicle certification on imports from 
Japanese autos into our country, however, Japan does not 
reciprocate?
    Secretary YELLEN. I am not aware. I am not aware of all of 
those----
    Mr. FITZPATRICK. Japan--in fact, Madam Secretary, Japan's 
rules intentionally do not conform to U.S. car regulations. 
U.S. car manufacturers must navigate a very complex environment 
when exporting to Japan. These are non-tariff barriers that 
disadvantage autos made here in the United States.
    The next question: Are you aware that just this week the 
U.S. ambassador to the World Trade Organization stated that 
Japan must take bold steps to lower trade barriers regulated--I 
am sorry, related--to autos and agricultural products?
    Secretary YELLEN. So, look, with respect to the IRA and 
Japan, Japan does process and extract critical minerals that 
are used by American car makers. And the thought is that, in 
order to improve the security of our supply chains, the United 
States might negotiate agreements pertaining to critical 
minerals--not to say that the conditions are there now, but 
that there would be negotiations of agreements with countries 
like Japan or with European countries. There would have to be 
requirements. They wouldn't--presumably a requirement is that 
you couldn't put export controls in place that----
    Mr. FITZPATRICK. I understand that. But with----
    Secretary YELLEN [continuing]. In a crunch would prevent--
enable a country to----
    Mr. FITZPATRICK. Understood.
    Secretary YELLEN [continuing]. Withhold exports. So this 
would be a matter of arriving at agreements. They might have 
labor or environmental standards----
    Mr. FITZPATRICK. But surely you understand that that 
requires----
    Secretary YELLEN [continuing]. that promote free trade.
    Mr. FITZPATRICK. That requires congressional approval, 
correct?
    Secretary YELLEN. It----
    Mr. FITZPATRICK. This misinterpretation is essentially a 
balance of power--or a separation of power issue.
    Secretary YELLEN. I think we need to be in close 
communication with the committee.
    Mr. FITZPATRICK. Understood.
    Secretary YELLEN. Absolutely.
    Mr. FITZPATRICK. But I just want to point out the 
disparity. Are you aware that U.S. autos exported to the EU 
incur a 10 percent tariff, however the United States only 
imposes a 2.5 percent tariff on European auto imports?
    Secretary YELLEN. This all--may all be true, but what we 
are talking about are critical minerals, and attempting to meet 
the objective of Congress in passing this legislation----
    Mr. FITZPATRICK. My time is about to expire. Last question.
    Secretary YELLEN [continuing]. To improve supply chains.
    Mr. FITZPATRICK. Last question. Are you also aware--this is 
to my point--that China is the biggest supplier of battery 
technology and production to both Japan and EU, the countries I 
am referencing?
    Secretary YELLEN. We are trying to reduce our dependance on 
China with this legislation.
    Mr. FITZPATRICK. My time is expired. I yield back.
    Chairman SMITH. The gentlelady from Wisconsin is 
recognized.
    Ms. MOORE of Wisconsin. Thank you so very, very much, and 
thank you for appearing, Secretary Yellen. I have so enjoyed 
our relationship back from when you were chair of the Fed, and 
really--you are so qualified to appear before this committee 
and answer some of our important questions.
    I have a couple of questions, and if I have repeated things 
that others have already made inquiry about, please forgive me. 
I was called away for other business not more important than 
you, but just other business.
    Recognizing tribal sovereignty, I was really pleased to see 
that the Biden Administration included a recommendation to 
include tax parity for Indian Health Services scholarships. And 
I am working with Mr. Schweikert here on the committee, and Mr. 
Kildee here, and Congressman Kelly, looking forward to going 
forward on tax parity for tribal nations, unconstrained by 
artificial and arbitrary essential government function test, so 
that we can increase the effectiveness of the Low-Income 
Housing Tax Credit and the New Markets Tax Credits on tribal 
communities.
    So I am so happy that you are moving forward with that, and 
how do you think that will inform--will improve our GDP?
    Secretary YELLEN. I think it is an important initiative. 
The Low-Income Housing Tax Credit is critical, and I think 
improving situation with respect to housing and tribal lands 
addresses a critical need.
    Ms. MOORE of Wisconsin. It really does, because the 
infrastructure needs on Indian land are tremendous. And so this 
would create a lot of economic activity.
    I wanted to ask you--and you are Secretary of Treasury now, 
but, again, you are very brilliant and----
    Secretary YELLEN. Thank you.
    Ms. MOORE of Wisconsin [continuing]. You have been chair of 
the Fed.
    You say that the Biden budget will cut the deficit by 
nearly $3 trillion over 10 years, and I am delighted to see 
that you are not proposing doing that with austerity tactics 
like just eliminating--you know, of course, we are getting out 
of the emergency stuff, but the EITC is expanded, the Child Tax 
Credit is here. SNAP you haven't talked about reducing. You 
certainly are protecting the ACA, recommending childcare. And 
yes, you want people to get back to work, but the dignity of 
work doesn't necessarily mean working at $7.25 an hour.
    How are you able to reduce the deficit by three trillion 
without austerity?
    Secretary YELLEN. So the President's focus is on 
hardworking families who are struggling to make ends meet, and 
providing them with the tools they need to make life a little 
bit easier, whether it is improvements in the cost of health 
care, lowering prescription drugs, educating their children by 
adding a year of preschool, a child tax credit, making 
childcare affordable.
    These are ways of giving working families some breathing 
room, and the budget focuses on that, and it doesn't raise 
taxes by a penny on any household or small business earning 
less than $400,000. And it pays for those initiatives by 
remedying what I think is an unfairness about our tax system 
that lets wealthy individuals, very high-income individuals, 
and corporations off with lighter tax loads than a school 
teacher or a firefighter or a policeman have to pay.
    And so it raises additional revenue in a variety of 
different ways by asking those high-income, wealthy 
individuals, and corporations to pay their fair share.
    Ms. MOORE of Wisconsin. Thank you so much, Mr. Chairman, 
and I would yield back.
    Chairman SMITH. I recognize the gentlelady from New York.
    Ms. TENNEY. Thank you, Mr. Chairman. And before I get 
started, I just wanted to say thank you to Ms. Sewell, Mr. 
Davis, and Mr. Kelly, and I look forward to working with you on 
this crucial legislation relating to the new markets tax 
credit, and making it permanent. The credit has delivered for 
districts in my own upstate New York district, and I am 
committed to pushing this priority across the finish line.
    Secretary Yellen, I just want to say thank you for 
appearing here today, and thank you for your service.
    There are so many important topics that we need to be--need 
to be addressed, and Americans are suffering from the biggest 
price increases in over 40 years. Small businesses like mine 
and all of upstate New York are feeling the pain of labor 
shortages and Democratic tax hikes. Taxpayers' personal 
information is being exposed in massive leaks, and your 
Treasury Department is actively working to bypass Congress and 
cede U.S. tax authority to foreign countries.
    U.S. companies and workers need an international tax 
landscape that offers certainty, promotes investment and 
innovation, and incentivizes critical research and development 
here in America. Instead, it seems like Treasury has 
unwittingly bitten off more than it can chew by negotiating a 
deal with the Organization for Economic Cooperation and 
Development, the OECD, that gives away our tax revenues, 
reduces the competitiveness of U.S. companies and workers, and 
erodes overall economic strength. And I know many of my 
colleagues have talked about this. If this deal were finalized, 
it would result in fewer jobs and less prosperity for millions 
of Americans and their families.
    Secretary Yellen, Treasury has the responsibility of 
negotiating at the OECD, but why do you believe that Treasury 
has the authority to do so without proper consultation with 
Congress?
    And I might add you have testified today that you have 
reported to Congress, but you have not consulted or 
collaborated with Congress in a way before cutting these deals 
with Europe. And don't you agree that you are appointed to this 
position, not anointed to this position?
    Secretary YELLEN. I certainly am appointed, not anointed, 
absolutely agree. And we have consulted, and not only informed.
    Ms. TENNEY. Can you explain where you get this----
    Secretary YELLEN. We have had ongoing----
    Ms. TENNEY. Can you explain where the consultation and 
collaboration has been done so in a public forum with both 
sides, where we have seen this----
    Secretary YELLEN. I----
    Ms. TENNEY [continuing]. And that has--I just--we have not 
seen that. We have seen reporting. Reporting is not 
consultation.
    Secretary YELLEN. Our staff have regular briefings with 
staff of this committee. And I have had many conversations with 
the chair and ranking member of this committee on ongoing 
developments whenever there is something new that occurs in the 
negotiations.
     And I don't know if you are talking about Pillar One or 
Pillar Two of the tax agreement. Pillar Two is certainly 
something that cedes no taxing rights, is an international 
agreement by which other countries have----
    Ms. TENNEY. If I may reclaim my time, you have allowed 
other countries to tax our own countries, and not--you stood 
a--again, the United--the GILTI tax, and also the book minimum 
tax, you have--we got these, and then you didn't fight for a 
fair treatment of these and these negotiations. So why didn't 
you protect these taxes, and why are other foreign entities and 
countries in the agreement allowed to now tax our U.S.-based 
countries?
    Secretary YELLEN. Well, look----
    Ms. TENNEY. Companies, excuse me.
    Secretary YELLEN. We have every right to tax our companies 
as we see fit. Congress is not obliged to do anything. But the 
Pillar Two does allow punishment by countries that participate 
in the agreement in the sense of countries that----
    Ms. TENNEY. So wait. You are----
    Secretary YELLEN [continuing]. Decide they wish to be tax 
havens by--they may undertake--and this is one of their taxing 
rights--to impose additional taxes----
    Ms. TENNEY. So let me reclaim my time. You are admitting--
--
    Secretary YELLEN [continuing]. On firms that----
    Chairman SMITH. The gentlelady's time is expired.
    Ms. TENNEY [continuing]. That we have given our priorities 
up to foreign countries.
    Secretary YELLEN. We haven't given any----
    Chairman SMITH. The gentlelady's time is expired.
    Secretary YELLEN. We haven't given anything up.
    Chairman SMITH. The gentlewoman from Minnesota is 
recognized.
    Mrs. FISCHBACH. Thank you very much, Mr. Chair, and thank 
you, Secretary, for being here today, and I just--I want to 
talk a little bit--I know we talk a lot about big things in 
D.C., but we don't always talk about what is happening in real 
America.
    And I--you know, most of the work in my district is done by 
small businesses, family farms, small manufacturers, and they 
and I are very concerned that the taxes in the President's 
budget will hurt them. It will affect them, no matter what we 
say. It is going to affect them. And, you know, they are 
already faced with increased costs: fuel, for farmers input 
costs due to inflation in the economy right now.
    And the President's budget includes more than $300 billion 
in new taxes on non-corporate taxpayers. Secretary, why does 
the President believe that now, as we are just emerging from 
the economic destruction of COVID, we should increase taxes on 
small, family-owned businesses?
    Secretary YELLEN. The President's budget doesn't contain a 
penny of new taxes on any individual earning under $400,000, or 
small business earning under $400,000. So, the taxes that are 
raised are all on high-income, especially very high-income 
individuals, and on corporations that are not small businesses, 
and that benefit from many tax preferences and lower tax rates.
    In some cases, income isn't taxed at all, and it results in 
a situation where many of your constituents who are concerned 
about rising costs, and health care costs, and the cost of 
education, and are burdened by such costs, it results in a 
situation where they are paying higher tax rates, a higher 
fraction of their income than a billionaire who earns most of 
their income----
    Mrs. FISCHBACH. I reclaim my time. And Secretary, with all 
due respect, I mean, we are facing limits. And so I just wanted 
to--because I think we disagree on that. And I think that we 
are reading things differently in understanding what is in the 
proposal. And I think that is why the chair earlier asked for 
the legislative copy, the legislative language of it, because--
and I am reading the Green Book, I am----
    Secretary YELLEN. I am sorry, the Green Book contains as--
--
    Mrs. FISCHBACH. I am looking at it.
    Secretary YELLEN [continuing]. Much description as you 
could----
    Mrs. FISCHBACH. Ma'am, I am looking at it. Secretary, I am 
looking at it right now. But I think that is--so that we are 
looking at the same thing, because we have a much different 
understanding of how the taxes are going to affect those people 
in my district.
    And just, you know--so I will say, with the tax increases 
that are included and the death tax included in the President's 
budgets, you know, I really--I got to wonder, how does the 
President expect family farms to survive with all of the things 
that we are burdening them with? And I have a real concern 
about that.
    And I know that last year we fought very hard regarding the 
stepped-up basis, and I believe it is back in here. Like I 
said, I am continuing to read, because we got the green sheet, 
or whatever you call it, yesterday. So we are continuing to 
read. But I--if we have your assurance that these people are 
not going to pay any more taxes, they are not going to see 
those death taxes--but I have real concerns.
    And with that, I yield back. My time is up.
    Chairman SMITH. The gentlelady from Alabama is recognized.
    Ms. SEWELL. Thank you, Mr. Chairman.
    Madam Secretary, thank you for being here today to provide 
further insight into this Administration's budget request.
    It is my belief that our federal budget must present 
opportunities for all Americans to achieve economic prosperity. 
This is done so with the commitment of significant investments 
in communities, especially those communities that have lived on 
the margins, due to the--due to economic circumstances. I can 
think of no better tool to achieve the kind of leveling the 
playing field in marginalized vulnerable communities than the 
New Market Tax Credit.
    I want to join Representative Tenney in applauding 
President Biden's proposed budget for including a permanent 
extension of New Market Tax Credits. This crucial tax credit 
has been instrumental in promoting economic growth and 
development in under-served communities, creating jobs, 
expanding businesses, and including access to health care, job 
training, child care, and other important social services.
    The New Market Tax Credit is a valuable tool that has 
enabled investors to inject much-needed capital into distressed 
communities. Since its inception, this program has delivered 
over $120 billion--with a B--in total project investments, 
providing a lifeline to businesses and communities that have 
been long overlooked.
    In my hometown of Selma, Alabama, the New Market Tax Credit 
is supporting the expansion of a business called GMI, which 
produces silicone-based alloys and other strategic materials 
which feed our nation's supply chain for semiconductors, solar 
energy products, military energy storage, and the like. The 
expanded facility in my hometown generated 100 skilled jobs. It 
is this level of success that I would like to see replicated in 
districts all around the country.
    I know that this is currently in the proposed budget, but I 
want to assure you that it has bipartisan support. In the 117th 
Congress, I introduced the bipartisan legislation to make the 
New Market Tax Credits permanent, H.R. 1321, and we had 126 
cosponsors. I look forward to working with my colleagues, like 
Congresswoman Tenney, in also reintroducing a similar piece of 
legislation.
    Last Congress I also introduced the Rural Jobs Act with 
Chairman Jason Smith to expand the program and to provide $1 
billion in New Market Tax Credit allocation targeted to 
persistent under-served rural communities.
    My question is, can you elaborate on how this tool can be 
used, why it is so important that we make it permanent, and how 
you see this affecting under-served communities all across this 
country?
    Secretary YELLEN. Well, I agree with you. I think it is a 
very important tool to promote investment in communities that 
have historically been left behind, and can be a real spur to 
economic development. And that is why the budget does propose 
to make it permanent.
    And I would say, more broadly, a priority of the Biden 
Administration has been a focus on place-based policies so that 
communities that historically have suffered--we have had areas 
of the country that have grown very rapidly, seen big----
    Ms. SEWELL. Absolutely.
    Chairman SMITH. Thank you.
    Secretary YELLEN [continuing]. Increases in income, and 
others that have lagged. And many of the acts that have already 
been passed, the IRA, the Infrastructure Act, the 
Semiconductors Act, and the ARP that increased funding of 
community CDFIs----
    Chairman SMITH. To respect the----
    Secretary YELLEN [continuing]. And MDIs----
    Chairman SMITH. The--time expired, Secretary. To respect 
your time and to make sure we get----
    Secretary YELLEN. Yes.
    Chairman SMITH [continuing]. Every one of these, when that 
clock hits----
    Secretary YELLEN. Sorry, apologies.
    Chairman SMITH. Let's just stop talking.
    Secretary YELLEN. Okay.
    Chairman SMITH. The gentleman from Utah is recognized.
    Mr. MOORE of Utah. Secretary Yellen, thank you for being 
here. This is substantive work. It is important for our nation. 
I appreciate you--willing to come so quickly after the budget 
was released, and I hope you have felt that we do respect your 
expertise.
    I am going to talk something--about something very 
personal, something that--I think that this entire committee is 
supportive of, and that is those individuals that are in the 
adoption space, and the adoption tax credit.
    According to a GAO report from 2011 and a taxpayer advocate 
report from 2012, families claiming the Adoption Tax Credit in 
those years faced an audit rate nearing 70 percent, a 69 
percent of audit rate. The national average is 0.8. So, I mean, 
the discrepancy here is enormous, and it is concerning. So, 
this is a specific example of what we want to talk about, 
because a lot gets said here in this--in the concept of audits, 
but these are staggering numbers.
    I haven't been able to find any data more recent than 2012. 
What has been the audit rates for families claiming the 
Adoption Tax Credit over the past five years?
    Secretary YELLEN. So, I don't have that information at my 
fingertips, but I would be glad to get back to you. And I think 
the issue that you are raising is certainly a legitimate one 
that I would try to work with you on and better understand.
    Mr. MOORE of Utah. These are families that are watching----
    Secretary YELLEN. Sure.
    Mr. MOORE of Utah [continuing]. What is going on. They are 
concerned that this is only going to ramp up, as opposed to go 
away.
    Secretary YELLEN. Sure.
    Mr. MOORE of Utah. And that is a staggering issue. Is--the 
fact that you don't have it here is okay--is it something that 
is being collected over the past several years, to your 
knowledge?
    Secretary YELLEN. I honestly--I need to look into that. I 
just am not certain. I assume that that data is available, but 
I----
    Mr. MOORE of Utah. I joined----
    Secretary YELLEN. I need to check into it, and----
    Mr. MOORE of Utah. I joined this committee----
    Secretary YELLEN [continuing]. We will get back to you.
    Mr. MOORE of Utah. Thank you, Secretary. I joined this 
committee with real legislation that should be hugely 
bipartisan to help address this, this and other issues with our 
folks that are out there adopting foster care and--you know, 
from infancy. And I mentioned that this is very important for 
us.
    One piece of your testimony--and I am going to keep to time 
here--one piece of your testimony, it talked about the race to 
the bottom with respect to corporate tax rates. I can give 
specific examples from Procter and Gamble, from Nucor. These 
are rural-based companies in my district. And I have met and 
sat down with each of them. When they talk to me about when 
their taxes become globally competitive--so from the Tax Cut 
and Jobs Act, you know, the things--the two things that they 
highlight the most is, one, their ability to pay middle-class 
and frontline workers more salary. And they have been able--
they have got the data that shows that they raised those wages. 
And the second thing is what they have been able to do to give 
back to their communities: ambulances for Box Elder County, a 
specific example that sticks out to me.
    I am concerned at the communication that just raising--
going ahead and not looking at what actually happened with some 
of these tax rates when we became globally competitive, and 
just going ahead and raising them just to cover more spending 
that we are seeing from the President's budget, what am I to 
tell these companies right now, as there is a potential from 21 
to 28 percent increase, which is enormous, and it will be a 
very impactful increase, what am I to tell these individuals?
    Secretary YELLEN. Well, I think that the tax cut on the 
corporate level that was introduced by the Tax Cut and Jobs 
Act, I think it was appropriate to cut corporate tax rates. It 
wasn't--we had one of the highest rates globally, and it needed 
to come down, and it wasn't very effective in raising corporate 
tax revenue, but it came down too much. And I don't think we 
have seen the economic payoff from that in the form of great 
increases in investment spending.
    Mr. MOORE of Utah. Thank you.
    Secretary YELLEN. And we----
    Mr. MOORE of Utah. I am going to--and thank you so much for 
that.
    Chairman SMITH. The gentlelady from California is 
recognized.
    Mrs. STEEL. Thank you, Chairman Smith, for holding this 
important hearing.
    And thank you for your service, Secretary Yellen.
    Progressive spending has led to record inflation, and now 
this Administration wants to add fuel to the fire. I was 
alarmed yesterday when I discovered that President Biden's 
request includes a 15 percent increase to the IRS annual 
funding. That is a $2.1 billion increase over the enacted 
funding levels for 2023, on the top the extra $80 billion 
progressive gave to the IRS last year. The IRS exists to serve 
Americans, not to make the lives of taxpayers harder.
    It has been reported that millions of tax returns from 
previous years are still not processed. In my district that--we 
have been getting a lot of inquiries about how to get the 
refunds from the IRS. If the IRS owes my constituents money, it 
could take years from them to receive their return.
    Many have expressed concerns about the IRS snooping on 
their private bank records and transactions heightened with 
sensitive personal information being released in years past.
    You claim that you are not going to--going after lower and 
middle-class Americans, yet progressives have been working 
behind the census (sic) lowered the 1099-K threshold. Why 
should every Americans who are dealing with record inflation, 
pay their rent, and repay for their ticket events--event 
tickets now go out of their way to file unneeded, burdensome 
tax forms with lack of proper security?
    And why are you in favor of adding more unnecessary filing 
when the IRS is already dealing with the endless backlogs?
    Secretary YELLEN. Well, the objective of this legislation 
with respect to 1099-Ks was to make sure that Americans have 
the information they need to accurately file their returns and 
pay the taxes that are due because there are Americans who 
receive money from businesses--business that they do--may be 
relatively small--and most Americans receive reports they use 
to file their income taxes on their wages and salaries, their--
--
    Mrs. STEEL. Madam----
    Secretary YELLEN [continuing]. Interest in dividend income, 
and this is----
    Mrs. STEEL. Madam Secretary----
    Secretary YELLEN [continuing]. Other income on which taxes 
are due.
    Mrs. STEEL. I reclaim my time. I totally get that, but we 
already have that in the law right now. That 1099-K, when you 
receive more than $600 transaction, then you have to file it, 
that is adding another burdensome to the taxpayers. That is----
    Secretary YELLEN. It was lowered in the ARP from, I 
believe, $20,000 to $600, because many Americans who earned 
less than $20,000 probably weren't getting that information and 
paying the taxes that were due.
    And it is--you know, this was in the law. The IRS needed to 
implement what is in the law.
    Mrs. STEEL. And my time----
    Secretary YELLEN. And it is up to Congress to decide what 
the right----
    Mrs. STEEL. I yield back. Thank you.
    Chairman SMITH. The gentleman from Michigan is recognized.
    Mr. KILDEE. Thank you, Mr. Chairman.
    And Madam Secretary, thank you. It is good to see you.
    First, let me just comment. I listened to Mr. Fitzpatrick's 
questions and comments regarding trade authority, and I just 
want to state for the record that we don't agree on everything 
across the aisle, but I think there is general concern about 
the direction of trade negotiation, and where that authority 
lies. And I look forward to further conversation with the 
Administration to provide greater clarity, and to protect the 
prerogatives of Congress in that in that respect.
    Secretary YELLEN. That is fair.
    Mr. KILDEE. We learned a lot, Madam Secretary, during the 
pandemic about supply chains, what can go wrong when we rely 
too heavily on other countries, particularly China, for 
example, for critical goods and components that are essential 
to our economy. And I was really proud to work with the 
Administration on the CHIPS and Science Act, the Inflation 
Reduction Act, both of which will support American workers 
bringing manufacturing jobs back to our country.
    In my district, I happen to have a company, Hemlock 
Semiconductor, that makes polysilicon, a base material for both 
semiconductors and for solar panels. Included in the CHIPS and 
Science Act, is a tax credit to onshore production of these 
really important materials. As Treasury drafts its guidance for 
this credit, does Treasury plan to include the entire supply 
chain of semiconductors, including polysilicon?
    Secretary YELLEN. So I don't--I think we are in the process 
of drafting those regulations. I don't have the answer to your 
question, but we would value your input on this, certainly take 
it into account, and get back to you on this matter.
    Mr. KILDEE. I appreciate that. I am certainly not in a 
position, as a single Member of Congress, to express 
congressional intent. But I know, as I was working on this 
legislation, this is certainly the sort of application that we 
had in mind for the credit. And so I would ask you to take a 
very close look at that.
    Secretary YELLEN. Certainly, we will do that.
    Mr. KILDEE. The Inflation Reduction Act also supports 
domestic manufacturing of solar panels----
    Secretary YELLEN. Yes.
    Mr. KILDEE [continuing]. Right here in the U.S., instead of 
relying on those produced in China. I worked on legislation to 
do this because it makes sense for us to trade foreign 
dependence on oil to a foreign dependence on solar panels. We 
don't want to do that.
    Secretary YELLEN. Of course.
    Mr. KILDEE. Our legislation includes a domestic content 
bonus to spur domestic manufacturing, not just domestic jobs 
for installing solar panels. So a strong domestic content 
standard will enable larger investment in U.S. solar 
manufacturing. Does Treasury plan to issue any guidance that 
incentivizes domestic manufacturing for across the solar panel 
value chain? A similar question to my first question.
    Secretary YELLEN. So I believe we are in the process of--we 
have rules that we have to write in connection with claiming 
those credits. And there are an enormous number of rules that 
we need to write. We have prioritized some of the most urgent 
ones, but we will be producing a rule on that.
    Mr. KILDEE. Thank you very much. I appreciate that, and 
thank you for being here.
    I yield back the balance of my time.
    Chairman SMITH. I recognize the lady from Texas, the 
gentlelady from Texas.
    Ms. VAN DUYNE. Thank you very much, Mr. Chairman.
    You know, for a party that can't even define what a woman 
is, I find it rich that some of my Democrat colleagues want to 
highlight International Women's Day and go after--as if we are 
supposed to go soft on the Secretary today. I am going to 
demand that everybody treat us as equals, and don't demean us 
just because we are born with ovaries. I don't care if it is 
International Women's Month.
    It is disturbing that this Administration continues to 
peddle the big lie that people making less than $400,000 are 
not paying more in taxes. You said it yourself this morning 
that people making less than $400,000 won't pay a penny more in 
new taxes, not a penny more. And maybe you need to get out of 
D.C. more, because a lot of us are paying more in new taxes.
    Let's just review a few. Income taxes. Wages have 
artificially increased but, because of inflation, the dollar 
value has actually decreased. So many people that are making 
less than $400,000 that saw wage increases are now paying more 
in income taxes, correct?
    Secretary YELLEN. Well, it is--we don't have perfect----
    Ms. VAN DUYNE. Fuel taxes. Gas prices have increased from a 
national average of $2.35 when Biden took office to now $3.41 a 
gallon this week. So, are people making $400,000 paying more in 
fuel taxes?
    Secretary YELLEN. More in fuel taxes?
    Ms. VAN DUYNE. Correct, yes.
    So sales taxes. Groceries have increased by 12 percent. 
Eggs have increased by nearly 60 percent. Flour is up over 21 
percent. Used cars are up over nine percent. Are people making 
less than $400,000 paying more in sales taxes for simple things 
like food?
    [No response.]
    Ms. VAN DUYNE. Okay. Ad valorem taxes. Housing prices have 
more than doubled in many markets around the country. A lot of 
times that is dependent on how much people are paying in ad 
valorem taxes. So would you agree that people making more than 
$400,000 and own a house are paying more in ad valorem taxes?
    Secretary YELLEN. Well, these are often state or local 
taxes----
    Ms. VAN DUYNE. Oh, sure.
    Secretary YELLEN [continuing]. That you are talking about.
    Ms. VAN DUYNE. But we are talking about taxes. And here is 
the problem. When you are stuck in D.C., we don't see beyond 
D.C. But people are being taxed to death, and are absolutely 
sick of it. And when you said people who make more than 
$400,000 are not being taxed a penny more, I guarantee you they 
would disagree with that.
    Secretary YELLEN. What I said was that the President's 
budget----
    Ms. VAN DUYNE. People are paying more than they have in 
taxes, even if they are making less than $400,000, and it is a 
direct result of policies that have come out of this 
Administration. And it is alarming that you all don't seem to 
understand that over-regulating, over-spending, and increasing 
debt contributes to increased inflation.
    All of us are suffering from increased inflation, 14.4 
percent. And yet, this Administration keeps throwing its hands 
up and saying, ``It is not our fault, we didn't do anything.'' 
You have had party rule for the last two years. Take some 
responsibility.
    Secretary YELLEN. The President has said----
    Ms. VAN DUYNE. Last June, you told this committee that 
spending had come down, and that there was no doubt that 
inflation was too high. And yet, the Inflation Reduction Act 
that you just lauded used budget gimmicks and, in fact, added 
$745 billion in new spending. And now the President has come 
out with a massive budget, $7 trillion almost, of spend, and 
then $4.7 trillion of new tax hikes. That makes--that meets the 
very definition of tax and spend. And is that not a return to 
increase in spending?
    Secretary YELLEN. The President's budget in the----
    Ms. VAN DUYNE. I yield back my time, thank you.
    Secretary YELLEN [continuing]. And the laws that have been 
passed reduce many burdens on American households. It makes 
health care through the ACA far more affordable than it was.
    Ms. VAN DUYNE. I yield back my time. Thank you, Mr. 
Chairman.
    Chairman SMITH. The gentleman from----
    Secretary YELLEN. It prevented an increase in premiums.
    Chairman SMITH. The gentlelady has yielded back her time. 
The gentleman from Iowa is recognized.
    Mr. FEENSTRA. Thank you, Secretary Yellen, for being here 
today. I greatly appreciate it.
    Both Congress and the U.S. companies have been sounding 
alarms about Pillar Two since the model rules were released in 
December of 2021. You know the concerns, obviously, of how it 
was negotiated and also what was exactly agreed to, but I want 
to focus on probably the most common issue that I am hearing 
about from our companies.
    Under the agreement, non-refundable tax credits can bring a 
company's U.S. Pillar Two effective tax rates below a 15 
percent minimum. As you know, our tax laws are full of non-
refundable business tax credits enacted by this committee over 
the decades, most notably the R&D credit. Other countries, like 
the United Kingdom, were able to protect this credit in their 
negotiations, and I am trying to understand why the Treasury 
Department would agree to curb and eliminate this incentive 
created by Congress to encourage investment because we saw it 
beneficial to this economy.
    So the question is this. Secretary Yellen, why did the U.S. 
Treasury not try to negotiate rules that protected the U.S. R&D 
incentives in the same way the UK did, in the same way other 
European countries did, and we lost ours?
    Secretary YELLEN. Well, I think that some of these 
incentives would have been lost under the BEAT, and our 
proposal would repeal the BEAT in favor of the under-taxed 
payments rule consistent with the model agreement, and in that 
sense is more favorable for R&D than what would otherwise have 
been the case.
    Mr. FEENSTRA. So, in all fairness, so you are saying you 
are fine with it, that you are not going to go to bat for this 
R&D tax credit, you are not going to ask other countries to 
accept it?
    Secretary YELLEN. Well, we have said that we would look 
forward to working with Congress on an R&D credit that would be 
effective.
    Mr. FEENSTRA. Yes, but you know and I know that is a 
refundable tax credit. That is never going to happen, because 
that is worth, you know, billions and trillions of dollars. 
That is just not going to happen.
    I mean, this is a big deal. I mean, this is a really big 
deal to every company, when they can't take this R&D credit, 
part of--to lower that 15 percent minimum, and yet the UK did 
and other countries did. I mean, we are at a tremendous 
advantage (sic).
    Now, I hear what you are saying. I hear what you are 
saying, and it is sort of capitulation. But, I mean, do you 
understand what these companies are asking here?
    Secretary YELLEN. Well, most companies are able to make use 
of it because they don't come under these rules.
    Mr. FEENSTRA. That is not the case.
    Mr. Chairman--Secretary Yellen, thank you for those 
comments.
    Mr. Chair, I would like to submit a letter for the record 
stating that R&D is the manufacturing industry's number-one 
priority. And the--this committee has already received that 
letter.
    Thank you, and I yield back.
    Chairman SMITH. Without objection, so ordered.
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    Chairman SMITH. The gentleman from Pennsylvania is 
recognized.
    Mr. EVANS. Thank you, Madam Secretary.
    Chairman SMITH. Would you turn on the mic?
    Mr. EVANS. Thank you, Mr. Chairman.
    Madam Secretary, I would like to agree that the President's 
budget reflects the progress that we have made, and I want to 
make sure that he knows I thank him for his leadership and what 
you are doing. So, I sincerely thank you very much.
    I want to speak about an issue I have spoken to you in the 
past about, an issue that really concerns around school 
buildings and facilities. I want to raise the issue about the 
rehabilitation historical tax credit, and that is the issue I 
have been working on for a long period of time.
    We have two high schools in my congressional district that 
discovered life-threatening asbestos. And basically, what I 
have been attempting to do is to see if we can put together--
the school buildings are at age 70, and I have basically been 
attempting to find ways to deal with school.
    So, what I want to do is get your thoughts on our nation's 
public schools access to historical tax credit, and to use that 
tool is the issue I have consistently been raising. I would 
like to get your thoughts on it.
    Secretary YELLEN. Well, I think you are raising a very 
important issue in terms of dealing with school buildings, and 
it is something the Administration thinks is important, as 
well. And we can discuss what might be appropriate to deal with 
that issue----
    Mr. EVANS. Okay.
    Secretary YELLEN [continuing]. And work with you on that.
    Mr. EVANS. Good. I want to thank you, Madam Secretary, for 
coming before the committee. Thank you for your honestness. 
Thank you, again.
    I yield back, Mr. Chairman.
    Secretary YELLEN. Thank you.
    Chairman SMITH. The gentlelady from New York is recognized.
    Ms. MALLIOTAKIS. Madam Secretary, you know my district very 
well because you were born in Bay Ridge, Brooklyn. Your alma 
mater is Fort Hamilton High School. So you also know that my 
district is one that is home to hardworking Americans who are 
trying to make ends meet during record-high inflation.
    As this Administration continues to recklessly print and 
spend money, it is pushing American people to the limits. This 
Administration is literally giving money with one hand, and 
then they are taking it with the other when people are paying 
higher costs, whether it be the supermarket, the gas pump, the 
utility bills, et cetera.
    Seniors in my district--and you know Bay Ridge is home to 
many seniors--are struggling to stay in their homes, and it is 
nearly impossible for young families to buy their first home. 
And CNBC reports credit card debt is at an all-time high, 
putting households near a breaking point. And all this while 
the Fed continues to raise interest rates, and Democrats 
continue their spending spree.
    The public deserves to know, as do the members of this 
committee, how long you are aware that the massive spending 
packages were pushing us closer to the debt limit, and why you 
stayed silent for so long.
    As you know, on December 23rd, 2022, Congress, under the 
Democrat control, passed $1.7 trillion omnibus spending 
package, which came after 2 years of aggressive, unchecked 
spending and record deficits. However, you waited nearly a 
month, until January 13th, to send a letter to Speaker McCarthy 
in saying that we had reached--we will be reaching the 
statutory limit, and that you would have to take extraordinary 
measures.
    Yes or no, did you warn the President at the time that he 
was jamming through this package that you were going to be 
reaching that limit?
    Secretary YELLEN. Well, look, we have run deficits for most 
of our history, and it is clear that we continually need to 
issue more debt in order to finance them. So----
    Ms. MALLIOTAKIS. But did you warn the President that we----
    Secretary YELLEN [continuing]. When Congress----
    Ms. MALLIOTAKIS [continuing]. Were going to be hitting the 
debt limit, or did you wait? Did you purposely wait, or did you 
tell the President----
    Secretary YELLEN. The President knows very well that we----
    Ms. MALLIOTAKIS. Okay.
    Secretary YELLEN [continuing]. Would reach the debt limit, 
and Members of Congress know that, as well.
    Ms. MALLIOTAKIS. Why did you wait until January 13th to----
    Secretary YELLEN. And we sent you----
    Ms. MALLIOTAKIS [continuing]. Make it public?
    Secretary YELLEN. We sent Congress, as we always do, a 
notification when it became clear that we would reach the debt 
limit, and need to use----
    Ms. MALLIOTAKIS. Were you told by anyone in the White House 
not to say anything during that time of negotiation?
    Secretary YELLEN. Of course not. And it is very clear what 
the outstanding debt is. It is all--it is entirely public 
information.
    Ms. MALLIOTAKIS. Now, it is true, but I find it odd that 
that three-week period between when that package passed--or 
when it was even negotiated, that you didn't say anything as a 
Treasury Secretary to sound the alarm that we were heading down 
this--that we were going to hit the--you were going to have to 
take extraordinary measures. It seems like something that the 
American people would want to know while they were jamming 
through this excessive package.
    But I will move on to say that the Federal Reserve 
continues to raise interest rates to slow the amount of money 
circulating through the economy, to drive down demand for goods 
and services, with the goal of lowering prices and reducing 
inflation. But this, as you know, will not work. It does not 
work when government spending and the printing of new money 
continues at unsustainable levels, reducing the value of the 
dollar.
    Isn't it kind of like trying to pour water on a fire, while 
also pouring gasoline? I mean, you admitted you were wrong when 
you said inflation was transitory. Will you be honest with the 
American people today, and just tell them the truth, that the 
inflation will not reduce--return back to the 1.4 percent of 
2021 as long as government continues to print and spend?
    Secretary YELLEN. No, I certainly wouldn't agree with that. 
And this year the Federal budget has--the deficit has declined 
substantially, and there has been a reduction in fiscal impetus 
toward inflation.
    Ms. MALLIOTAKIS. I understand. We are still at 6.4 percent, 
and we were at 1.4 percent at the beginning of this 
Administration. I believe, as long as we keep printing this 
money, we will never get back down to that inflation. And so, I 
hope you will pass that on to the Administration. Thank you.
    Chairman SMITH. I thank the gentlelady. The gentleman from 
Ohio is recognized.
    Mr. CAREY. Madam Secretary, thank you for being with us 
today, and I appreciate your service to the country.
    Secretary YELLEN. Thank you.
    Mr. CAREY. I am going to go through a statement. I am going 
to try to keep my time brief. I am a firm believer that those 
who don't know history are doomed to repeat it, and so I am 
just going to go back, as we have time, to go through the Green 
Book and, obviously, look at all the--dive into the budget.
    But, on March of 2021 you said there was only a small risk 
that inflation would be a problem. And on May 2nd of 2021 you 
said you don't believe that inflation will be an issue. On May 
27th, you stated that the recent inflation we were seeing at 
the time would be temporary. You also said that you believed 
interest rates would stay low. Then, on October 29th of 2021, 
you said that monthly inflation rates would return to levels 
close to 2 percent towards the second half of the year.
    When referring to the Biden Administration's infrastructure 
spending proposals, you actually said, ``I don't think these 
investments will drive up inflation at all.'' You even went as 
far as to say that these spending packages were actually anti-
inflationary.
    Finally, on June 1st of 2022, you conceded that you were 
wrong about the path that inflation would take and, as we all 
know, we were also wrong regarding your projections of the 
interest rates. And as the Fed right now is signaling that more 
rate hikes will probably happen until inflation gets under 
control, it makes me wonder when we are going to get off the 
spending merry go round.
    But with that, I really would like to focus on just a 
couple of things, because energy is something that is very 
important. But perhaps the biggest failure I have seen in U.S. 
sanctions over the last two years has been the inability to 
stop Iranian oil exports to China. And I appreciate the 
Administration's recent sanctioning of the companies involved 
in the Iranian illicit oil trade, however, I am concerned that 
these efforts are insufficient.
    So a real quick question, and then I am going to yield 
back. Would you agree our sanctions have been ineffective in 
stopping Iranian oil from being exported to China?
    Secretary YELLEN. My sense is that there is--you know, I 
need to look into that more fully. But probably our sanctions 
have not been fully effective. We are constantly looking to 
enforce them better, and to step them up in order to meet this 
objective, so----
    Mr. CAREY. Thank you. Thank you, Madam Secretary. Mr. 
Chairman, I yield back.
    Chairman SMITH. The gentleman from Illinois is recognized.
    Mr. SCHNEIDER. Thank you, Mr. Chairman.
    Madam Secretary, thank you. Thank you for giving us a 
little bit of extra time so we all have a chance to ask a 
question. It is greatly appreciated.
    And I want to commend the Administration's work bringing 
the world together to try to address tax policy. The 
multilateral Pillar One/Pillar Two processes aim to provide 
certainty and predictability for U.S. companies operating 
abroad. That said, I do believe we have to ensure that the U.S. 
remains committed to following through on these efforts, 
working with Congress, and protecting the competitiveness of 
U.S. firms to ensure that we not only are growing American 
companies, but we are starting new companies and inspiring 
other countries to come here. So I thank you on that.
    I want to ask a quick question on the debt ceiling. I will 
go home this weekend, and I will hear from all of my 
constituents what is going to happen, what is going to happen. 
Can you just remind us--I know we have talked about it--what do 
I say to Illinois taxpayers when they ask, ``What is going to 
happen if we don't address the debt ceiling?''
    Secretary YELLEN. I think we are going to be faced with 
economic and financial catastrophe.
    The United States Government has always paid its bills 
since 1789. And not just some bills, but all bills that come 
due. U.S. Treasuries are the safest asset in the entire 
financial system, and the U.S. dollar serves as the reserve 
currency. If there is a thought that Congress would allow the 
United States to default on its payments that it has to make, 
that will call into question the safety of these assets, and 
potentially lead to a financial crisis.
    And if we got to the day when we are not able to make our 
payments, and somehow, we have to no longer make good on our 
obligations to Social Security recipients, and veterans, and 
the military, and to all those providers----
    Mr. SCHNEIDER. And I apologize. With limited time----
    Secretary YELLEN. And interest rates will spike. We saw 
that in 2011.
    Mr. SCHNEIDER. It will be painful.
    Secretary YELLEN. And U.S.----
    Mr. SCHNEIDER. So let me just ask a follow-up question.
    Secretary YELLEN. We were downgraded, and that was a hit to 
the interest rates that all Americans have to pay----
    Mr. SCHNEIDER. Right. As someone once said, if we don't 
learn from history, we are going to repeat it. We saw it in 
2013.
    We talked yesterday. We had a markup on this idea of 
prioritization, paying some of our bills, not all of our bills. 
Does paying some of our bills--is it feasible? And even if it 
was, would that still result in default?
    Secretary YELLEN. It is still a default, because I think 
most Americans would think--and most people in financial 
markets would feel that a country has obligations, and they are 
looking to see if the country meets the obligations it has, not 
some of the obligations, but all of the obligations.
    Mr. SCHNEIDER. Great. And my last comment is thank you. In 
the Inflation Reduction Act my legislation on sustainable 
aviation fuel was a part of what is the greatest investment we 
have ever made in addressing climate change. I look forward to 
working with you and your department, making sure that we get 
that in place so that----
    Secretary YELLEN. Great.
    Mr. SCHNEIDER [continuing]. America can lead the way in 
sustainable aviation fuel.
    Secretary YELLEN. We are working hard on that.
    Mr. SCHNEIDER. I yield back.
    Secretary YELLEN. Thank you.
    Chairman SMITH. The gentleman from California is 
recognized.
    Mr. PANETTA. Thank you, Mr. Chairman.
    Thank you, Madam Secretary. It seems that right now you 
have policymakers trying to bring about a managed slowdown of 
our economy, and you have investors trying to figure out if the 
economy is going to have a hard landing or a soft landing. But 
also, it seems, because the economy is so stubbornly successful 
right now, we are trying to figure out if the economy is going 
to land at all.
    And so that is because the American economy right now is 
strong for a number of factors. And consumers and firms, 
especially in major economies, they are in good financial 
health.
    Secretary YELLEN. Yes.
    Mr. PANETTA. But the acceleration of our economy means that 
the recession may not be imminent is what we are seeing right 
now.
    So, despite some of the complaints that we are hearing, it 
seems that we do still have to figure out a way to slow down 
the economy by bringing down inflation so that we can bring 
down inflation. And we have to figure out, you know, does that 
mean we raise interest rates to get inflation to that two 
percent target?
    Now, as you know, when you talk about rate adjustments and 
when they are made, there are long and variable lags for which 
and how they work. But experts are thinking that the previous 
interest rates that were just made, they might have been 
already played out. So looking forward now, looking forward, 
where do we go?
    Do we accept this continued inflation, or do we have to 
continue to raise interest rates for a second year in a row?
    And if we raise those rates, what is appropriate, Madam 
Secretary?
    Secretary YELLEN. So, you know, this is a matter we leave 
up to the best judgment of the independent Federal Reserve. 
Having worn that hat in a prior life, I know that the kinds of 
judgments you are asking me to make are very difficult ones, 
and require tremendously careful analysis of the economy, what 
is playing out, and how monetary policy operates.
    I know that my colleagues at the Fed are engaged in these 
discussions every day, and want to do the best they can. They 
are clearly committed to bringing inflation back to their two 
percent target.
    Mr. PANETTA. Okay, thank you. Thank you.
    Secretary YELLEN. They also have a commitment to----
    Mr. PANETTA. Thank you. I got a minute left, and it is----
    Secretary YELLEN. The----
    Mr. PANETTA [continuing]. Your last minute, so just--I am 
going to make it real quick. What should our long-term goals 
be, Madam Secretary, when it comes to our debt?
    Secretary YELLEN. That we have a sustainable fiscal 
trajectory. And to me, the single best metric is real net 
interest burden of the debt. And that is something we have 
focused on carefully in this budget. Historically, it is been 
at or a little bit above one percent.
    And if you look at the budget, with the deficit reduction 
it contains, it--we keep the real net interest burden as a 
share of GDP right around one percent. So, to me, that is a 
sustainable budget path, and it is one I use to evaluate fiscal 
sustainability.
    Mr. PANETTA. Thank you, Madam Secretary.
    Mr. Chairman, I yield back. Thank you.
    Chairman SMITH. Thank you.
    Madam Secretary, thank you for your testimony. Sorry we 
went 12 minutes over, but we appreciate that you stayed for all 
of it.
    Please be advised that members have two weeks to submit 
written questions to be answered later in writing. Those 
questions and your answers will be made part of the formal 
hearing record.
    With that, the committee stands adjourned.
    [Whereupon, at 12:12 p.m., the committee was adjourned.]

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