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It includes proposals to confront a number of important issues. I want to work with the president, the secretary and others in Congress to address these and other pressing issues within our committee's jurisdiction. Drug pricing and multi-employer pension crisis are two such issues that must be dealt with. This budget proposal comes at a time when the economy is very strong, especially for working families. A better trade deals, less regulation, lower taxes from tax reform have translated into wage increases, especially for lower wage earners and historically tight labor market.
Over six and seven tenths million jobs have been created since President Trump was elected, with nearly 70 percent of the jobs gained or gains occurring since we passed the Tax Cut and Jobs Act. Unemployment has fallen to a 50 year low. We've had twenty three consecutive months with unemployment rate at or below 4 percent, the longest streak in five decades. Unemployment for Hispanic and for African-American workers have set an all time record lows. American middle class is growing and families are benefiting, with a family of four earning seventy three thousand dollars in their tax bill cut by over two thousand dollars after tax reforms.
Statistics like these show the tax reform as a success. The Treasury Department's work to implement the new tax law has been an important part of that success. We appreciate the diligence and of course, the dedication of Treasury and IRS maintaining over the last 18 months to release extensive guidance necessary for hardworking Americans and the business community to file their tax returns. Despite Treasury's steadfast efforts, however, we have critics and those critics have continued their assault on the department for doing its job.
Criticism that is unfounded. While the Treasury plays an integral role, when any major tax legislation enacted, the heavy lifting occurs when that legislation is being implemented. Treasury is following the same process set out in the Administrative Procedures Act that has occurred after enactment of other tax legislation like, for instance, the Affordable Care Act. Critics continuously use preliminary and incomplete data to distort the efforts of tax reform to support a political narrative. Critics focus on revised CBO projections of corporate tax receipts is just the latest installment.
As I discussed in my statement yesterday to my fellow senators, similar. We all recall the misinformation campaign in last year's filing season when critics tried to persuade the public that tax reform was a failure because early tax refunds were down. Of course, critics conveniently ignored that the size of the tax refund says nothing whatsoever about the tax liability of an individual. In the end, the criticism proved to be flat out wrong. Americans got tax relief and the average size and no refunds ended up being closely in line with previous years.
I'm hopeful that we can avoid similar scare tactics in this year's filing season. Nothing that critics can say will refute the fact that every income group in every state saw tax cuts under tax reform. And this is particularly true for low and middle income families. As we see statistics almost weekly about blue collar workers get a higher percentage of wage increases on average than the management class. Instead, I hope that we can work together on policies that will benefit all Americans, including some of the president's budget proposals.
This committee has a solid foundation of bipartisan accomplishment in recent months, including the Secure Act, the Taxpayers First Act and the USMC, a trade deal. And after extensive negotiations, we came together just before Christmas to extend a number of temporary bipartisan tax provisions. I wish more could have been done to resolve them once and for all, as we did in repealing three onerous Affordable Care Act health. Taxes, but hopefully our effort and efforts in December can lead us to success in future discussions on the expiring provisions that are coming up at the end of this year.
I'm also encouraged by the progress that has been made at the OSCE to reach a multi lateral global tax agreement on digital economy. Senator Widen, and I sense a year ago have remained united and bipartisan in our message that unilateral measures that discriminate against American companies cannot be tolerated. And we continue to support Treasury departments in these negotiations as this year progresses. Now, we should build upon these past successes to make sure that Treasury and our tax laws are working for the American people.
I've seen administration budget proposals from both Republican and Democratic presidents alike. No matter which party controls the White House, members won't support everything that is in that budget. As a matter of fact, one of the former presidents, I guess it was President Bubb Obama's last budget was defeated on a 99 to 0 vote.
As I've said before, in our system, the president proposes and Congress disposes. Even so, today's hearing is part of an important process of looking for things that people on both sides of the aisle can agree on to support the American people in the most fiscally responsible way. I've had my say now, and it's time for Senator Wyden.
Thank you very much, Mr. Chairman. And Mr. Chairman, I appreciate also your scheduling this hearing quickly. The Trump administration's budget is built on policies that pillage working families to pay for new windfalls for multi-national corporations and the wealthy. This hurtful agenda has been on clear display over just the past few weeks in two events. I'm going to touch on. First, it recently came to light that the Trump administration, acting on their own, found a way to milk the 2017 tax law to create more than 100 billion dollars worth of shiny new corporate tax loopholes.
Now, colleagues understand these are not the same huge loopholes that I and others warned about back in twenty seventeen when the bill was written. These are brand new loopholes that are the product of tricky Treasury Department regulatory maneuvering. Something that, in my view, looks like it goes beyond the department's legal authority. The bottom line. It sure looks like corporate special interests are going to make off with brand new loopholes worth a hundred billion dollars in addition to the outlandish share they got from the original two trillion dollar Trump tax law.
Senator Brown and I want to stop this fleecing of the American taxpayer. So today, Senator Brown and I are introducing legislation that will close these new loopholes and fix this new source of tax unfairness when people say the tax code is rigged and the Trump administration has made it worse. Well, I have just described is a textbook case of what they're talking about. Now, one additional point. Not long after the news of these new tax loopholes broke, the president went to Davos during an interview where he was asked whether during a second term he would cut programs like Medicare, Medicaid and Social Security.
The president said, yes, he would. The president called that and I quote here, actually, the easiest of all things. So I've just given you a perfect snapshot of this administration's policies, robbing the working families to pay off special interests and those at the top. The president says shredding the safety net. Is a piece of cake. But let's make sure we know what he's talking about, he's talking about Medicaid, a program that pays for two out of three nursing home beds in America, and that's taken place in a country where growing older is really expensive.
And families, even those who scrimped and saved, they run out of money to pay for long term care. Presidents talking about Medicare, without which millions of seniors would have no hope of getting high quality health care or affordable prescription drugs. President's talking about Social Security, which keeps American workers from retiring into deprivation and desperation. The Trump budget cuts in those programs amount to more than 1.5 trillion dollars. Probably goes over just fine with the ballroom crowd at Mar a Lago.
But I'll tell you, it is a terrifying prospect for the hundreds of millions of Americans who every single month walk an economic tightrope and count on Medicaid and Medicare and Social Security to be there as a lifeline for in tough days ahead. Add it up. Pretty clear picture. The Trump administration will tune out the needs of middle class families, but gives the world to any corporate lobbyist who comes calling at the Treasury Department. You see it in Secretary Manoogian stewardship.
You see it in the budget. And as I've shown, you see it in the president's own words. Thanks, Mr. Chairman. I appreciate your holding this hearing quickly and look forward to hearing from our colleagues before I introduce the secretary. It's my intention we have a 2:00 vote that you and I would trade places to go vote. Secretary Manoogian is a seventy seventh secretary of the US Treasury prior to current position. Secretary Manoogian was finance chairman for the Trump for President.
Organization and served as a senior economic adviser. He has very extensive experience in global financial markets. U.S. government securities. Mortgages. Money markets and municipal bonds. He has held various positions in successful private enterprises and has a longstanding commitment of philanthropy. He was born, raised in New York City, earned a bachelor's degree from Yale University. And I suppose there is a lot of other things I can say about you. But I want you to take the time now to make your statement.
And it's my. We're going to keep those meeting going during the vote.
Thank you very much. Chairman Grassley, Ranking Member Wyden and members of the committee, I'm pleased to be here with you today to discuss the president's budget and the Treasury Department's top priorities. President Trump's economic freedom agenda is working. Tax cuts, regulatory reform and better trade deals are improving the lives of hardworking Americans. Unemployment remains historically low at 3.6 percent and is at or near all time lows for African-Americans and Hispanic Americans and veterans. The unemployment rate for women recently reached its lowest point in 70 years before President Trump came into office.
Experts were predicting that we would grow by fourteen thousand jobs per month. We averaged one hundred and seventy five thousand wages for non-supervisory workers rose by 3.2 percent in 2019, compared to 3 percent for all private sector employees, which means wages rose faster for workers than they did for their bosses. The improved employment environment means that more Americans have returned to the job market, increasing labor participation. Last month's labor participation rate prime age adults reached eighty three point one percent, an eleven year high.
American families are earning more each year thanks to the Tax Cuts and Job Act, paying significantly lower taxes. They also have more career opportunities now than ever before. America's economic strength and competitiveness is a bright spot in the world as other nations experience headwinds in the year to come. We expect even greater economic growth in the United States as we finalize trade deals with some of our most important trading partners. The phase one deal with China result in critical, enforceable protections for businesses and a tremendous boost for our farmers.
The USMC will add to our success by setting some of the highest standards ever and a trade agreement. We are proud to have earned the support of a broad coalition of industries. We are pleased that it was passed by Congress with strong bipartisan support. I particularly want to thank the members of this committee for their work on this important issue. In addition, President Trump's economic policies will result in economic growth or reduce our national debt and deficits over time. Federal government revenue rose by 4 percent from 2018 to 19.
Unfortunately, in order to secure critical funding to rebuild the military. Democrat members of Congress insisted on increasing other government spending, which resulted in overall spending of 8 percent. The administration is committed to working with members from both sides of the aisle to address spending going forward. The president's 20 21 budget for the Treasury Department makes clear that we continue to prioritize economic growth as well as national security of particular for this committee. We're requesting $12 billion for the IRS.
This includes funding to implement the Taxpayer First Act and the third year of integrated business system modernization. We continue to bring the IRS into the 21st century by updating systems, utilizing data analytics and other technology advances to enhance the effectiveness of audit enforcement activities. We are requesting a program integrity cap adjustment to reduce the tax gap with savings of over 64 billion over 10 years. We also remain focused on improving customer service for tax payers by reducing call and wait times and enhancing online service capabilities.
I am pleased to be here with you today. Thank you very much. And I look forward to answering your questions. Q We'll have we do five minutes. Yeah, we'll have five minute rounds. Mr. Secretary, critics of tax reform have suggested that Treasury create loopholes for big companies and regulations as part of a secretive lobbying process. The idea that the regulatory process has occurred in secret is hard to understand, given that the notice and comment period and the Administrative Procedures Act gives people opportunity for input.
And I don't see how you can do your job of implementing new law that is so far reaching without listening to stakeholders. The preamble to each set of regulations make clear that Treasury meticulously analyzed and addressed public comments. Sometimes taxpayers were happy with the outcome. Sometimes they weren't. I even heard some of these people in my state that weren't happy about them. The business community certainly doesn't seem to think that they've received everything for which they've asked. So, Mr.
Secretary, isn't it true that the Treasury's decision about tax reform regulations have been based squarely on technical analysis and legislative intent and not by corporate lobbyists? Yes, Mr. Chairman, that's absolutely correct. Our job is to implement the legislation, not to make the legislation on a regular basis. We meet with lots of people to take an input. We've reached out to the committee and its staff. And again, we go through a notice and comment period with the public.
The second point, I'm pleased to see that the president's budget calls for making the tax cuts and reforms benefiting individuals and small business permanent. This includes a doubling of the child tax credit to $2000, a nearly double standard deduction and lower overall individual taxes. It also includes a 20 percent qualified business income deduction, which greatly benefits small pass through businesses. So, Mr. Secretary, in Treasury's estimation, have these tax measures been important factors in the high levels of consumer confidence and small business optimism reported since the enactment of the tax reform?
And also, would you expect making these tax provisions permanent to have additional positive effects on consumers, small businesses and the economy generally? Yes, we lied, Mr. Chairman. Yesterday, the House Ways and Means Committee argues that CBO owes recent adjustments in the corporate tax receipts is evidence that tax reform costs more than projected. Largely because Treasury has provided an additional windfall to corporate taxpayers. However, as I mentioned in my floor statement yesterday, Joint Tax Committee and CBO have confirmed that one cannot infer from CBO as projections that tax reform regulations are inconsistent with the statute.
In fact, CBO clarified that other factors drove the change in projections, namely the economy abroad, trade developments and the reduction in the Bureau of Economics analysis of corporate tax revenue estimates between. Twenty sixteen, twenty, eighteen were ten, of course, in turn informs CBO is baseline is simply strange credibility to blame tax reform for a change in the baseline from years before tax reform was even enacted. So, Mr. Secretary, is it your understanding that CBO owes a downward adjustment is a result of a number of factors, and that it is in fact too early to determine the precise impact of tax reform?
Tax receipts and also does the administration's budget, like CBO, projecting steady increase in corporate receipts throughout the current budget window?
Mr. Chairman, let me say that our our analysis has always been higher than CBO. As I've said previously, we believe that the tax cuts will pay for themselves over a 10 year period of time is how we score them were two years in. We've updated our projections for the next eight years, and we believe that again. Let me just comment that spending is increasing as well. But the trillion and a half dollars of tax cuts we believe will pay for themselves.
Senator Wyden, thank you very much.
Mr. Chairman, I want to start with what I think is a clear double standard with respect to responding to requests on congressional oversight. I look at the record and it seems that Democratic requests get shoved to the back of a filing cabinet or somehow Republican requests get the red carpet treatment. So I want to give you a specific example and give you a chance to respond. Treasury gets two requests from congressional committee chairs. One request is backed up by clear statutory language in tax code section 60 1 0 3, requiring the Treasury Secretary shall provide tax documents to the committee.
The other requests doesn't have the same legal basis and certainly to me it looks political. The request from the Democratic chair with a firm legal basis was met with nothing but legal foot-dragging. The requests that came from the Republican chair's got VIP treatment. They got no response out the door in a flash. So it looks to me like there's a double standard here that you all are tipping the scales of congressional oversight. What am I missing, Mr. Secretary?
Well, thank you for letting me to respond to that. Two committee chairs and differential treatment.
Again, I think we've responded to you multiple times in this. The most recent letter was on February 11th. And as I explained, the House disclosure of tax returns is subject to protections of 26 U.S.C. 61 0 3, which on the advice of counsel, as we've documented, we had significant concerns. That's very different than, I believe, what you're referring to as Shah's requests, which on a bipartisan basis we have responded to thousands of Serzh requests to the committees from both Republicans and Democrats on an equal basis.
So as we said, the Treasury does not process congratulatory.
You are stonewalling a party about stonewalling.
And there that's really not at all who comes by double standard Cantlay to committee chairs. One gets no response with legal authority. That's the Democrat. The Republican gets a quick response. Again, that's just not fair. I miss my wife and we've responded to that committee, to your requests and others of thousands of stars. As I've said, we are following the law of 60 1 0 3. And again, we on the advice of counsel, we have not responded to that.
I gave you a specific example involving the tax returns that shows the double standard.
We have an adult at Gitari had already admitted, well, one has to do as SaaS. That's under a different section, which we've responded to your requests and the Democrats requests on this committee equally with the Republicans. Let's talk about something else where once again, it sure looks like there are sweetheart arrangements that don't meet the test of the public interest. And I'm talking about the deal. Turkey's state owned bank, Halk Bank, which has been accused of a billion dollar scheme to help Iran evade our sanctions.
And it sure looks like Erdogan and his son in law have been personally implicated in it. And since taking office, you've had seven meetings, seven with senior Turkish officials. Two of them were meetings in the Oval Office with Erdogan and one with his son in law. They were directly implicated in the sanction scheme. You met with them.
Doesn't this send a horrible picture to pose in the Oval Office with sanctions violators? I mean, is it just open season for sanctions violators in your Treasury Department? Mr. Right now, I've literally met with hundreds of world leaders and finance chairs. So seven meetings is is nothing that rare.
What were the meetings about on the secretary? What were the meetings about? I was just about to finish what those meetings were about. Many important strategic issues as it relates to hold back. I can't comment on the specifics because that is subject to inquiry both on the Department of FAC as well as the Department of Justice. Finally, let me be clear on these new loopholes that were created. You've made it out like in some way. The minority was involved in this.
Our input was never sought in connection with this whole array of new polls. I know because I would have been fighting them every step of the way. Thank you, Mr. Chairman. Since you brought up the first issue with him, I'd like to give my view of that.
Not to defend the secretary, but just to state where I'm coming from because I'm the instigator of some of these requests. Whether it's a minority generally or whether it's Senator Widen right now, you've publicly expressed their frustration that Treasury has responded to the committee and produce requested documents, but they allege that Treasury has not done the same for the minority. I think that that's wrong. And I've done a lot of oversight work with Senator Widen. And and we work together on most of this stuff.
And we're even working together on this particular issue. As the department itself wrote in a letter yesterday. And I'll put this record her this letter and record without objection to Senator Widen. The categories and types of documents that I have sought from Treasury have also been made available to Senator Biden and his side of the aisle. My investigation with Senator Johnson has nothing to do with sixty one, all three. We're proceeding methodically with the oversight instead of running fast, skipping steps and failing to litigate privilege claims.
And at this point, privilege claims don't even apply to our request. So are you asking for a rebuttal to what I just said?
Yeah. I'll be very brief, Mr. Chairman, because I'm asking a question of the Treasury Department. What we're talking about were two instances where Treasury documents were requested by committee chairs. In one instance, the secretary has stonewalled the response. In the other, he fast tracked the request. That's what looks like a double standard to me. Period. Full stop. OK.
Senator Lankford. And then after resented language, Debbie Stabenow. Secretary, thanks for being here. Thanks for the insight you bring to this. Obviously, we'll go through the president's budget proposal as every president's budget proposal comes to Capitol Hill. It gets reviewed and then gets set aside. It's a set of ideas and we'll go through it. But there are a lot of good ideas in this as well. I appreciate the hard work that goes into it. I will be interested to see how history looks at this economy 25, 30, 50 years from now.
We look back at the Reagan economy and the Clinton economy and to see the growth that's happening. I'm watching some pretty remarkable growth happen in this economy since the Tax Cut and Jobs Act and in what you have overseen from the Treasury right now. If I'm looking at this correctly, during the previous administration, there were thirty six hundred manufacturing job losses during this admitted administration. We're gaining twelve thousand three hundred gains in manufacturing alone during that time period. It's a pretty dramatic turnaround.
Beginning in March of 2018, 21 consecutive months, that there are more job openings in America than there are people looking for jobs in America. That's pretty remarkable. And for the last 16 consecutive months, we've had hourly earnings for folks that receive hourly pay at 3 percent or higher every single month. That's a pretty remarkable economy that's happening right now. And so thanks for all your work because you put a lot of work into this to be able to go through the process.
When asked about whole process things in this, I've done a lot of work, as many members of this committee have on on ending government shutdowns, on trying to get away from long term cigars and to try to get a solution on the debt ceiling. Those are three things that hang out there. So while we're talking about budget issues, that always tends to be a part of the conversation on there. Can you put a an estimate on the costs, financial costs, on government shutdowns, on the costs, a lot for long term cigars.
And if there are alternate solutions for dealing with debt ceilings. Well, I don't have the specific costs of those, but I will tell you they are quite costly, particularly to see ours have a very significant cost on the Department of Defense. And their long term planning. There's no question that's a significant issue there. I would also just comment I do share your concerns about the debt ceiling. I think that we've done 80 of those in the last 50 or so.
I think that everybody would agree we cannot ever get to a point where we would default on the U.S. government debt. And I would encourage Congress to think about a process that when we approve spending, we simultaneously approve the necessary.
When you when you interact with your peers around the world on how they handle debt ceiling, what is their conversation with you about debt ceiling and how their government handles it?
Most people do not have debt ceilings the way we do.
Right. And so this is a national anomaly for us. It was designed to be somebody help control spending. But we've had 80 of them over the last 50 or 60 years. As far as a debt ceiling increases, they're clearly not managing our spending. They've become, as Senator Whitehouse said, so well, the bear trap in the bedroom that really there's no good result of having a bear trap in the bedroom. That's the old time. So it is an issue we do have to resolve inside that you may have on that from Treasury.
Be helpful to us as well.
Well, again, I would just say I would appreciate this is a bipartisan issue. Obviously, spending is approved on a bipartisan basis and it is important that we get to a process where we increase the debt ceiling.
At the same time, may I ask two quick questions on this opportunity zones. You have three tranches of regulations that have come out on opportunity zones. Thank you for that. We have many folks that are implementing those things. There was a bit of an unknown at one point that I've asked you about before. A business cannot have more than 5 percent of their income on things like alcohol sales and other things that are listed in the code. Particularly, they can add up to 5 percent of their income and still be a recipient on the opportunity zones.
There there's not a definition dealing with businesses that are cannabis businesses. Are they within that five percent amount or are they not at all, because there's a federal prohibition on cannabis sales. And I have to get back to you on the specifics. They'd be helpful to get clarity because there are there are cannabis businesses across the country that have fallen opportunity zones. They'll need clarification on that one. You and I have spoken about before, it's difficult to get a federal tax benefit to something that is against federal law, but that's not clearly defined in the last traunch the regulations.
The other one is there's a request in this budget to be able to transition Secret Service from DHS back over to Treasury where it used to be before. Can you give us some definition on that? Thank you.
I appreciate the opportunity to comment on that. Let me just first say this has support on a bipartisan basis from the current president and the last several presidents. I think, you know, the Secret Service has a long history was started at the Treasury Department to counter counterfeiting. We think that there is tremendous integration moving it back in, working with all of our terrorist financing activities and working on our cyber issues. And again, this is something that has tremendous support within the Secret Service.
We look forward and more details in that. STABENOW Thank you, Mr. Chairman, and welcome, Mr. Secretary. I do want to start off by just talking about the view from Michigan, because certainly the numbers you're talking about are not what we see. And just for clarity, under the previous administration, we added about 88000 manufacturing jobs up until the last day cause we added about 12000 under the current administration. But for the last three quarters, we've seen two quarters where we actually have lost manufacturing jobs in the last quarter was flat.
So the view from the ground is different than than what you're seeing. And certainly in Michigan and in the Midwest, we have not seen wages rising like you're talking about. We got a lot of folks working one job to job, three jobs. Wait, you're saying three or four jobs, trying to hold things together, but that's not the same as having one good paying job where you can actually take care of your family, which is what I would hope would be all of our goals.
So we do have you know, when we talk about the tax code as well, meeting with building construction trades this week, they're not very happy about the fact that the tax bill doesn't allow them to write off the costs of buying new tools now which are necessary for their job. And yet big corporations can write off what they need. They're not very happy about the fact that they when they can't write off mileage anymore, when they move one job to another, or if they move from California to Michigan to get a job that's no longer something that they can take themselves right off in yet.
When I tried to close loopholes that allowed corporations to take jobs overseas, we couldn't get that in this tax package. So my view is a little bit different. But I want to I want to focus on something where people did get hit and have not yet recovered in the economy. And that's our pensions, folks that have worked hard their whole life and actually trusted everybody, corporations, government system that said that. Maybe I'll take a little bit less in wages, put money in a pension plan so I have it when I can retire with my family.
And when we saw what happened in the stock market, present talks all the time. Stock market is soaring. That's how he measures things. So that's true. Top 10 percent wealthiest folks doing very, very, very well. But one of the ways that working people aren't is what has been lost in the stock market and others with the crash as it results results in pensions and reductions. So as a result of the financial crash, we know there was over 1.2 trillion dollars, just an I.R.A.
and for a 1 K loss, not counting the pension system. And so my question relates to what are you guys gonna do? What do you support in terms of what needs to be done for the Pension Benefit Guaranty Corporation? We know that we have a million and a half Americans that are going to lose the plans that they've paid into their whole life. They're totally at risk in the next 20 years. And all we need is one big failure like central states, and we will see the federal backstop go insolvent.
And so this is a very, very big issue. And we we have a proposal put forward passed by the U.S. House of Representatives called the Bush Lewis Act that would give them time to recover. I mean, we certainly were willing to weigh in. Our our government to give huge loans to Wall Street. But yet the folks who lost their pensions are very afraid and are still waiting for somebody to recognize what they lost. And so what? What are your ideas?
What are you planning to do to protect people's pensions? Well, thank you for your comments, and I do agree with you. The pension issue is a serious issue. I serve on the PGC. So I am well aware of of the issues there as well as I think, you know, we administer certain functions associated with the multi employers. And I acknowledge there are some significance issues. So I look forward to working with this committee on a bipartisan basis to consider legislation to address these issues.
And we stand ready to provide technical assistance on a bipartisan basis to analyze things for you. I guess my question would be, does the president support the books Lewis Act that came over from the House of Representatives that's now before the Senate.
I can't comment on that specifically. What I would say is the president is interested in looking at on a bipartisan basis. These these pension issues that interests him almost at with I personally have met with some of the people from these pensions at various members of the committee.
So I just want you to delegate his while while you while we're all basically and not acting at this point other than we were able to come together on minors, which I thought was very, very positive. But the reality is I have folks in Michigan who now have gotten a 70 percent cut, 70 percent cut in their pension. Now, you know what? That's it. That's pretty, pretty significant. Pretty terrifying for people. So we need action.
We need action. We know what it is. We know what needs to happen. We know the numbers. We just need to act. And people are counting on us to do that. So I'm anxious to hear what the president will do. Sir, act. Thank you. Senator Carper.
Welcome. Mr. Secretary, I want to start off by by you talk a little bit about climate change and energy policy, tax policies that might help us create some jobs and actually address climate change in an appropriate way by a more. I've just got back from a trip with some of our friends to Antarctica last month, and she said it's pretty warm. Are you surprised? And we're really surprised over the past weekend when the temperature there had 65 degrees. It is outpoll in Antarctica, 65 degrees, people say was at a record.
It sure was. And be to record was said just a couple of years earlier. Northern California, you will remember learning California had wildfires as big as my state, a place called Paradise, which went up in smoke. Australia had wildfires last month the size of West Virginia. I was born in Midwest. Huge floods, hard to get to plants, crops and crops into the into the ground, seeds into the ground. Last five years, the hottest five years on record.
This past mother. January, hottest, January on record. Great song. It starts with the lyric. Something's happening here. Just what is it exactly? Clear. I think something is happening here and I think it's pretty clear what's what's going on is way too much carbon in the atmosphere and there's ways that we can address that. One of those ways is with through our tax policy and the year the administration has proposes. She may know to eliminate some clean energy tax incentives and undermine goals that the president said over and over again that he wants to achieve.
But the president's budget proposal to prove, I think, prematurely eliminate important clean energy tax incentives would do exactly the opposite. I mentioned a couple of those tax incentives to people encourage people buy electric vehicles, tax incentives to encourage people buy vehicles fueled by hydrogen, which creates the waste product. CO2 creates was a waste product H0 to tax policy that instead centralizes people buy vehicles powered by natural gas. The reason why those are important is because the greatest source of carbon emissions on our planet come from our mobile sources.
Number two is our power plants. Number three is our buildings. But we have some. And so instead of proposing tax policies that actually lead to reducing carbon and our planet with respect to mobile sources believes is over, we're getting just the opposite. Why is that? Well, let me just comment, because you've addressed a lot of different issues. Again, let me just say the president very much supports clean air and clean water and having a clean he's reduce the administration, Idecided administration proposed reduce EPA funding by I think almost a third, almost a third.
But go ahead.
Again, as it relates to I think you've addressed a whole bunch of different credits, including electric car credits and others. Again, I'd be happy to come and talk to you about the different policies. I don't know what you want me to comment on specifically on this. OK. I'll just be rector's. I can be. Greatest source of emissions on our planet is our mobile sources, our cars, trucks and vans. There are ways to use tax policy to encourage people to drive vehicles, including trucks, get a lot more energy efficient.
And instead of supporting tax policies that will do that, we get just the opposite. The other thing I'd say would be really helpful. But the administration said is talking about transportation infrastructure to actually say, when I was governor, we'd I I would propose as governor for eight years we had tax cuts, seven out of eight years, balanced the budget every year. We didn't. I proposed transportation infrastructure improvements in my little state. But I have proposed ways to pay for it.
And we really need to support the administration as we go through this year, figuring out what to do in transportation, roads, highways, bridges, surface transportation, not just to say, oh, this would be great, wouldn't because this is how we pay for how we pay for. And that's a conversation we can have. Maybe when we get together.
I appreciate that the president is very much interested in infrastructure, particularly roads, highways, rail and others. I've had several meetings with Richie Neal to see if we can find certain ways to hold together on a bike.
You mentioned the president actually mentioned the Barosso bill, which my staff and I helped to write during his State of the Union address. I actually held up when he talked about the need for transportation infrastructure. I actually held up my wallet. He didn't see it, but that was years away. If he had it was a reminder that it's not just enough to pay to say we can do stuff. We actually have to figure out how to pay for that.
So I agreed and I was encouraged. I believe it was passed 24 to 0 or something. That was fast. One last thing I want to do, ask tax package tax policies that pay for themselves when we adopted the tax package about a year ago. We two years ago, we said it was going to pay for itself. I think whether it as the CBO, any number of entities have said, it doesn't really pay for itself, that one hasn't paid resolve and it's not going to pay for itself.
Would you? You have a rebuttal for that? The numbers are rather staggering. I think CBO said it estimated that those so-called tax cuts add an additional two hundred twenty eight billion dollars to the deficits for 2019. How do you respond to that?
Sure. Well, let me just comment and I've said this again, I stand by our comments that the tax cuts will pay for themselves. This will be simple math. So we measure this over 10 years. We got eight years left. I look forward to writing a committee letter in eight years, going through all the exact numbers, the first two years. Our numbers are right. Our our projections as part of the budget process we go through estimating the next eight years.
Again, based upon our estimates of growth and various different issues, we do believe they'll pay for themselves. That's different than the deficit because we have increased government spending and we can't pay for it twice.
Thank you, Senator Menendez.
Thank you, Mr. Chairman. Secretary, we're facing a precarious moment in our republic where truth is under assault. Bipartisan peddlers of alternative facts who seek to OP's obfuscate the truth, attack those who dare to stand up and speak it and gas like the public, all in the name of politics. We're blind. Allegiance to a single person is valued over fidelity to the Constitution. So I'd like to go over a few points today and correct the record. So the American people have the truth before them.
Now, President Trump claims to have inherited a, quote, disaster of an economy from President Obama, and he takes credit for what he calls and I quote, an economic turnaround of historic proportions. Mr. Secretary, how long has the U.S. economy been posting positive GDP growth? It's the longest running economic scenario we've been in. Absolutely true. GDP was positive for the past 10 years, growing for the final seven years of President Obama's presidency.
So it's been growing for the last 10 years, including the final seven years of the Obama presidency. And we can both agree that President Trump has been in office for about three years. Is that correct? That we can definitely agree on. OK. So the economy was already growing for seven years before President Trump took office. Let's talk about jobs. President Trump claimed he will be, quote, the greatest jobs president that God ever created.
Close quotes and has repeatedly criticized President Obama's jobs record. Let's compare the last three years of the Obama presidency to the first three years of the Trump presidency. Can you guess who created more jobs? I don't have the numbers in front of us, but we have created substantially more jobs than the Obama administration projected at the beginning of this administration by a multiple of three.
Well, let's talk about what actually happened. The economy gained 1.5 million more jobs during the final three years of President Obama's presidency than the first three years of Trump's presidency. So. President Obama added 8.1 million jobs during his final three years in office.
That is more than the amount of jobs added during the first three years of the Trump presidency, which is roughly about 6.6 million. So the fact of the matter is, is that what we had is a growing economy. GDP was growing strengthen dramatically over the last several years before this administration took over. More jobs were created in the final three years of the previous administration than when this administration took over. And then let's talk about what it really means to families during the last two years of the Obama administration.
Median household income increased by forty eight hundred dollars during the first two years of the Trump administration. Household income increased by less than a third of that. In fact, median household income only increased a mere five hundred and fifty dollars in twenty eighteen. Far short of the four to nine thousand dollar gains promised by this administration. So let me recap. Let's get to the truth. The Trump economy created less jobs and delivered under a third of the earnings to families than the final years of the Obama presidency.
All the while, nearly doubling the deficit to a trillion dollars. So I think there's a truth there. Truth is a real disconnect between what the administration is saying and how people are living. Bedrock middle class goals of owning a home, sending your kid to college, saving enough for retirement are distant realities. Under this administration's economy. So I think that's important to set the record straight.
And then finally, let me ask you. Does the department commit to that its actions, policies and investigations, including sanctions, will remain free from political pressure by the president? Because I look at the recent nominee, Miss Lew, who is supposed to be before the Banking Committee while I also serve and her nomination has been pulled. I look at issues on the question of how we're enforcing sanctions, many of which I helped write. Can you tell this committee that the department will conduct its actions, policy and investigations, including sanctions free from political pressure by the president?
Well, are happy to answer that, but let me just get to it and be happy to send you having a lot and you answered my question for that question first.
I just want to say I have the numbers on disposable income are forty four hundred and fifty two dollars from December 17 to 19. In regards to your question. I will specifically say no. OK. That I oversee the sanctions. Department sanctions are driven by foreign policy. Foreign policy is directed by the president. So no, specifically I would I would say that sanctions as our other foreign policy are by direction by the president and executed through no political considerations will take place.
I'm not talking about policy considerations, taking the political considerations that take place in your enforcement.
I think you are differentiating political from policy.
Well, I think that a big difference. Thank you, Mr. Chairman. Secretary Mission welcomes. Nice to have you here. I want to follow up on one point of my colleagues have been talking about, because we have the actual growth numbers for F Y 19.
And you say that the tax twenty seventeen tax bill pays for itself based upon one issues, that economic growth, which we all recognize. You had projected OMB 3.2 percent growth in F Y 19. The Congressional Budget Office said 2.4. Quite a difference. Well we now have the actual 2.3. Very close to OMB.
Now, we don't have the actuals for any of the other years, but the differences between CBO and OMB is pretty dramatic.
On the economic numbers. So what does CBO know that you don't know? And why were they able to project the growth for the first year? We have twenty nineteen when you are projecting over 3 percent throughout this time. Well, there were a significant number of things that impacted the growth this year. One was the global slowdown. Two was the GM strike. Three was Boeing. So there were there were a significant number of issues that dragged down GDP in the range of the 50 to 70 basis points at the end of the day.
The projections are dependent upon GDP and economic numbers going forward. And a big difference between the CBO projections and ours are economic growth projections going forward.
And you can understand how we are concerned that about the tax bill adding greatly to the deficit because the Congressional Budget Office has been much more accurate than OMB. I just point that out and that's why we are concerned by these, we think, unrealistic growth numbers. And as you said, you'll be able to come back and show us. We don't know for how many more years we should be able to come back and show us and we'll see whether, in fact, that holds true.
I want to say something positive about your department, particularly Office of Tax Policy. One of our hearing's eyes sent a question. It was answered on Section 179 D, the energy efficient commercial building deduction. For years, I've heard from particularly small business owners that they were required to make payments to state and local governments in order to receive an allocation letter to claim their deduction that goes against the intent of our law.
And the letter that was sent back by Treasury acknowledges that it that is, quote, inconsistent with the policy goals of Section 179 for the owner of a public building to seek, accept or solicit any payment from a business that's quid pro quo for providing the written allocations, end quote. So I want to thank you, because I think this letter will go a long way to hope to provide the clarity we need if it does not. I'll be back in touch with you to make sure that the law, in fact, is carried out.
I also want to acknowledge that your budget does include funds for Taxpayers First Act. We're pleased to see that that's a bipartisan effort in this committee to get that done. But you still haven't appointed a national taxpayer advocate. And I say that because the acting advocate Roberts has said that it's critical that a permanent national taxpayer advocate be appointed as quickly as possible to help ensure the IRS protects taxpayer rights and meets his obligations to taxpayers. That's solely in your hands. The appointment of the taxpayer advocate.
Can you give us any indication when we might expect that appointment again?
And let me first say I'm glad we were able to clear up that other issue and let's stay in touch. The taxpayer advocate is a very important position. We've interviewed some very, very qualified people.
We've made a final decision at the recommendation of the commissioner. And I expect we'll be announcing that in the next few weeks. Oh, good. I'm glad to hear that. The last thing I'll bring up is the please the budget has the modernization of IRS, the technology. I think that's important. I worry about the personnel numbers. We've seen a dramatic reduction the last decade, about 20 percent reduction in the workforce, whereas you've had a significant increase in the number at tax returns.
This budget again cuts the full time equivalence at IRS. And I worry that you don't have the workforce you need and be able to retain the experience workers at IRS and professionals in order to carry out that responsibility saw. I hope we can work together. Congress has been, I think, a little more generous in this area. So I hope we can work together. This committee has a responsibility to make sure the tax code is is is carried out effectively.
We have the audit staff we need, et cetera. So I hope we can work because I think you may have you need more help.
We appreciate that. Thank you, Senator. Senator. Well, thank you, Mr. Chair.
And I want to thank you and Ranking Member Widen for holding this important hearing today. And thank you, Secretary Manoogian, for testifying today about the Treasury Department's budget proposal.
Mr. Secretary, when you testified to this committee last year about the Treasury's budget, I spoke about the importance of robustly funding Treasury Department programs that combat terrorist funding streams and other forms of illicit financing. I am pleased to see that the 2021 Treasury budget proposes increased funding for the Office of Terrorism and Financial Intelligence and for the Financial Crimes Enforcement Network. These offices play a vital role in combating emerging national security threats.
For example, terrorists and other transnational criminal organizations are increasingly using cryptocurrencies to finance their activities due in no small part to the difficulty inherent in. Tracing these transactions and tying funds to specific actors. Mr. Secretary, how will the Treasury's proposed budget increases assist the department in monitoring suspicious cryptocurrency transactions and prosecuting terrorists and other criminal organizations financing illicit activities with cryptocurrency? Well, first of all, thank you and thank the committee for the generous support on US funding increases in these areas over the last several years, we've really built up a very dedicated career staff and specifically on cryptocurrencies.
We are spending a lot of time on this on both an interagency basis and what the regulators were about to roll out some significant new requirements at FinCEN. We want to make sure that technology moves forward. But on the other hand, we want to make sure that cryptocurrencies aren't used for the equivalent of old Swiss secret no bank account. So we share your concerns and you'll be seeing a lot of work coming out very quickly.
Well, thank you. And I would look forward to continuing to work with you about that. Another question. Under the previous administration, Treasury Department budgets contained proposals to improve the research and development tax credit for new and small businesses. As you know, the R&D tax credit supports the efforts of startups to invest in the development of new innovative products that lead to job creation and economic growth.
That's why I've introduced bipartisan legislation, along with Senator Tillis, that would modernize and expand the R&D tax credit for startups.
Mr. Secretary, for this year's budget, did the Treasury consider, including any proposals to improve the R&D tax credit for small businesses? And would the Treasury be willing to look at our bipartisan proposal to see how we can work together to support entrepreneurs?
We would very much look forward to working with you on that. And I'll have my office follow up to make sure we're on top of that.
That would be great. What we're really focused on is those companies that don't have a tax liability yet that are making these critical investments.
And so last question.
I'm a strong supporter of bipartisan legislation championed by Ranking Member Widen that would permanently extend tax cuts and cut red tape for small craft brewers in New Hampshire and across the country last year, along with Senators Roberts, Menendez and Daines. I was on a task force that recommended on a bipartisan basis passing permanent relief for craft brewers as part of this effort. It is vital that the Bureau of Alcohol and Tobacco Tax and Trade, which is, as you know, within the Treasury, receive increased funding to clear the backlog of approval requests for new beverage formula and formulas and labels.
I continue to hear from New Hampshire brewers that delays in approvals are slowing their business growth despite the additional funds that Congress has provided and years of work to cut down on the backlog. Mr. Secretary, can you explain to the committee what resources the treasurer's budget would provide to the bureau to address this backlog? And will you commit to continuing to work with Congress on this issue?
Yes, yes and yes. And let me just say, if Congress wants to do anything to simplify the label approvals, I would look forward to working with you on that as well. And I know there's tremendous bipartisan support for the craft brewers.
And as I understand it, the budget proposes five million dollars in funds to accelerate the processing of formula and label applications. So it seems that it's there's recognition of the issue in your budget proposal. And I just would.
I think what I've heard is a commitment to working with us.
I unfortunately looked at this label issue and we're trying to figure out how to streamline it. OK.
Let's keep working on that together. Thank you very much. And thank you, Mr. Chair.
Senator Cortez Masto. I'm passing over Portman Dombey. So they come back. It'll be a they'll be ahead of some other people that are here.
Thank you, Mr. Chairman. Mr. Secretary, in your comments that you provided today, you state that federal government revenue increased by 4 percent from fiscal year 2018 in fiscal year 2019. Unfortunately, in order to secure critical funding to rebuild the military, the Democratic members of Congress insisted on increasing other government spending, which resulted in spending growth of 8 percent from fiscal year 2013 to 2019.
So I guess my question to you is in order to address the Democratic members of Congress, increasing government spending that you cite too, is that the reason why in the current budget this administration seeks to cut 200 billion from SNAP and Tanith for women and children, cut $170 billion from student loans, cut $90 billion from seniors on Social Security, cut 76 billion dollars from persons with disability and cut 59 billion from farmers. Is that what this administration thinks is the way to balance this budget on the backs of individuals because they don't necessarily work for the military?
Is that what it is? That how I read this?
DODD I don't think that the way you read it, the point that I was trying to make is that government spending increased faster than we would have. Left to our own, I was integrally involved in the bipartisan agreement to get that done. And as it relates to Social Security, the president's been clear doesn't want to cut Social Security, that on Social Security. There's just some savings in the increase of growth for fraud and other issues.
But you do not disagree. This budget actually requests a cut of 90 billion for seniors on Social Security. Correct? I believe it's not a cut. It's a reduction in the rate of increase and it's not the benefits of people on Social Security.
So I show a cut for student loans of security versus with disability for farmers and for women and children who seek assistance through SNAP and Tanith. If that is not a cut, then I would love to talk to you about what it is this administration values and what they see, how these groups and important individuals in our communities are being affected. Love to talk to you about that. But I disagree. And that's my concern, is this administration says one thing, but their actions are just the opposite.
And I think it is important for us to really talk the true facts and not what you come here and read and your statements about what the administration claims that they are doing to the benefit of our communities. Because I can tell you, when I go home to Nevada, there are still people struggling. And and I do want to talk to you about when you plan and you put together this tax bill that you've talked about and the economic growth, particularly when it comes to the budget.
I keep hearing you saying that you're talking about the budget that shows gross domestic product growth will climb to 3.1 percent. And that's your basis, is that correct, that you're basing it on for the next eight years, a 3 percent or 3.1 percent growth?
It ranges between 2.8 and 3.1. But let me just comment on Social Security. I'm looking at the mandatory programs as Social Security starting at 1 0 3 8. And it goes up every single year through 2030 to 1 9 0 6. So I don't see any cuts. Social Security mandatory programs are going up consistently in our budget every single year. Good.
So what I hear from you today is there's going to be absolutely there's no request in your current budget to cut anything having to do with Social Security.
Again, the absolute mandatory programs of Social Security. Well, don't read it to me. Just talk to me.
Tell me what there's no cuts to Social Security is what I believe. There's a cut in the rate of increase, not an absolute cut. But again, I'd be happy to follow up and go through this.
Let's talk about it, because if you're cutting Social Security and the resources in the individuals and the time for the people who work in Social Security to help people in need, then you're impacting the people of need. So let's talk about that. And I'm running out of time. But let let me ask you this. If you're if you're projecting a 3.1 percent or 2.8 percent growth for the next eight years and you have independent forecasters saying it's only going gonna be 2 percent or 2.2 percent, and you yourself have said you have concerns that growth might be impacted by the coronavirus, that 3 percent growth.
Then why aren't you adjusting it downward? I guess is my question to ensure that we come in eight years and the tax bill has been paid for, how do we pay for that?
Well, the the Corona and the Boeing is just a one time when we did the projections, they were bad. Does that mean one time it's just a one. It'll just impact two thousand and twenty. So the Corona virus isn't going to impact growth over the next 10 years, nor is the Boeing issue going to impact. It may have an impact on one year, which again, we just haven't updated the models because the whole budget process started at the end of last year.
So we hope the coronavirus doesn't have an impact beyond this year, is that what you're saying? I don't expect that the Corona virus will have an impact beyond this year. OK.
Thank you. Thank you, Mr. Secretary. Thank you for being here today. I'm now sitting in the chair as I care. I see that. You know, Senator Grassley, as you look good in that chair. So if you do get used to that, it's a Luhya seat, actually. Great testimony today. You pointed out the tax reform is working and it certainly is. So is regulatory relief. I think in some better trade agreements and that combination is improving the lives of the people we represent.
And it's good to see when we started off in this effort. President Trump in the Congress said, OK, we're going to focus on tax reform because we believe that will result in more jobs, better wages and leveling the playing field for U.S. companies that are trying to compete in the global economy. And all that's happened and don't take my word for it. Here's the Congressional Budget Office in April 2018, the nonpartisan CBO says in their analysis of the effects of tax reform.
These changes are expected to encourage savings, investment and work. CBO also estimated the bill would reduce the incentives for companies to invest overseas by $65 billion per year. So, in other words, encouraging investment, right, in the states that we represent. Together, these positive impacts on the economy, they said, would result in an average GDP increase by about 0.7 percent. And these CBO projections have held steady. In fact, just last week, last week, CBO said again in a new blog post the tax bill's effects on the economy have appeared consistent.
With our initial assessment. So that's CBO. But the numbers are clear. They're out there. Prior to tax reform, CBO said the economy would trade an average of 170000 jobs per month. And in 2018, we actually got an average of one hundred and ninety three thousand jobs. They also said that in 2019, it would be 27000 jobs per month. So far, we are six times ahead of that average at hundred seventy five thousand jobs. So, you know, that's that's great thing that I like best is the wage growth we've now seen for 18 straight months, wage growth of over 3 percent.
And as we know from the Bureau of Labor Statistics information, this is primarily helping folks who are nonsupervisory, which means blue collar workers, mid income, low income workers. And that's just awesome news. It's the longest Pruit we've been able to see the kind of wage growth since before the Great Recession. So it's it's working. One thing that you will talk about a lot I know today is the international side. Heard you talk about it. Some people are bringing money home.
The old tax system. Encourage those companies, as you know, to leave their income overseas, not to bring it back and pay our taxes. And the international provisions were designed to end that lockout. And that's exactly what's happened between January 2018 and September 2019. Less data, which we have companies brought back over 1 trillion dollars in overseas earnings more than the previous six years combined. So those who say had made any difference. Look at the number, which is why, by the way, on a bipartisan basis, we all agreed we had to do this change of lowering the rate and going to a territorial system.
It's actually working and tax revenues are up, not down, which is another thing that you've talked about a lot. I think you have done a very good job of trying to implement what was a complicated tax bill. Let's face it, took on the international side. And I want to commend you for that. It's a difficult job, a whole new international tax system, again, one that was very bipartisan and it's in its creation, although at the end of the day, we didn't get a bipartisan vote, that part of the legislation was always something that we believed was a good idea on both sides it down tax.
Senator Schumer and I, co-chair of the task force that came up with an international plan that was very much along the lines what we ended up with. I think you've been unfairly criticized by some who have said by making the implementation changes that you are somehow not in keeping with the tax bill. I think it's just the opposite. And I must say that today I heard people pointing to the CBO baseline as an s as a reason to say that evidence of that.
And I just say that's not how the regulatory budget process works. Treasury does not score tax regulations the same way it doesn't make a law. We make the laws and the Joint Committee on Taxation scores tax legislation. And so your job is to implement the law in accordance with congressional intent. And I think you've done your best to do that. Second, the Joint Committee on Taxation is the one that again provides this, not the CBO. CBO may take into account some of the same assumptions made by joint tax, but they also incorporate hundreds, if not thousands of other data points.
So it's also important to note that CBO made both upward and downward revisions in terms of the overall forecast. And the critics only tell you about the downward revisions, which I think is interesting. So my sense is that the CBO downward revisions also come in large part because companies are actually paying more in section nine sixty five taxes as the repatriation taxes in the first couple years than they expected. And as a result, we gave companies eight years to pay it.
Companies paid more quickly than that. So that's not a tax cut. Those are taxes already paid on the on the guilty, which was meant to be a guardrail in this new territorial system. I know that you have again, come under some criticism on the way you have handled that. This is exactly what we intended, which was that we would have the ability to bring profits home, create that incentive and trillions of come back as we talked about.
But at the same time, under guilty, those companies who wanted to shift to low tax jurisdictions would be penalized. And that's that's what you've done. The number we used for the minimum tax, in effect was thirteen point one to five percent. And the intent of the conference board was very, very clear on that. So critics continue to argue that your efforts simply meant that intent provided new tax cuts. I would say not at all. Specifically, they're saying that your new proposed rule clarifies the connection between guilty and the existing some part of rules providing an exception for companies with foreign tax rates above eighteen point nine percent as a brand branded tax break.
That's ridiculous compared to our intent to exempt companies anywhere above thirteen point one to five percent. I would say if anything, your approach has been cautious, very conservative. So I wonder if you would give us your view on that. Do you believe you've taken a cautious and conservative approach to this in terms of the gilt implementation based on the congressional intent that taxpayer comments and Treasury's regulatory authority? Our job has been to implement that part of the tax code consistent with the intent and as prescribed by the law, and that's what we've done so well.
Again, I commend you for that. I'm going to come back for a second round in a minute. Give me more chance to talk about that and about what you've done to faithfully implement the tax legislation. Senator Warner.
Thank you, Mr. Chairman. Great job on opening statement.
Mr. Mr. Secretary, it's great to see you. I want to ask you a couple of questions about, I think, some very good work the department's been doing around beneficial ownership and anti-money laundering. Last week, your department published that 20/20 National Strategy for Combating Terrorist and Other Illicit Financing. And I want to know, you've gotten a lot of criticism on this side of the aisle, but on this, I want to commend you for putting out this strategy.
I think it represents a critical undertaking, dark, articulate how little the U.S. government really knows about illicit financial risks and what we some of the tools and some of the aspects we need to do move forward. One of the key vulnerabilities identified in the report is the lack of a legally binding requirement to collect beneficial ownership at the time of company formation, a time that would, we think would provide the least burdensome approach. This failure to have this. Basic beneficial ownership information hinders law enforcement's ability to swiftly investigate criminal actors.
As the report points out. But it also drives up significantly the cost of law enforcement and cost on both the public and private side. So first question is, Mr. Secretary, do you agree that one of our most urgent national security and regulatory problems is that the U.S. government still has no idea who really controls shell companies? In many cases, being used to move billions of dollars across our economy?
Well, thank you, Senator Warner. I think this is a critical issue. And I also want to thank you, because I know you spent a lot of time with our department on this. And I would encourage the committee on a bipartisan basis to work on legislation. I think this is critical. It's critical not only here, but as we push forward FATF and other policies around the world. This is a glaring hole in our own system.
Well, one of the things I'd also like you to come in on. I see some of the risk from my role sitting on the Intelligence Committee when we see regimes like China, Iran, North Korea that frankly use U.S. shell companies to hide some of their risk, their activities. I think we've seen it a lot in terms of activities, room, fentanyl production. We've seen it used. And so our legislation is got great support from the communities who are trying to oppose sex trafficking.
Can you speak a little bit about the national security implications and also some of the risk that this lack of having this information poses to our local community there?
As you point out, there's very significant risks.
And the problem is that when someone opens up a bank account, the beneficial ownership is kept by the banks, but that information is not put into a centralized database. So if we're looking at a specific entity and we want to see who the beneficial owners are, we have no way of getting that information other than first tracking a bank account and then potentially pinging thousands and thousands of banks for that. So it's it's a very inefficient program and it allows the bad guys to hide their identities.
Well, as you indicated, and I'd like to point out that both Chairman Grassley and ranking member went widen have supported efforts to crack down on an anonymous shell companies. And you were kind enough to indicate you think we ought to be taking this up. You may be aware that on the banking committee, we have a broad bipartisan coalition for Democrats, for Republicans named at the Illicit Cash Act, which would dramatically update our AML regime and deals with this question around beneficial ownership.
We think in a way that doesn't put undue burdens on on businesses. In fact, one of things that to other members of this Finance Committee who are the ranking and chairman of the Banking Committee, both creepo and Brown are both members of this committee, and we are hoping they'll move it towards a markup. I should be smart enough to take your earlier statement that you support this effort. But if you'd like to make any final comments on this notion of moving this legislation to the Banking Committee, and we have worked closely with the administration on that.
I'd love to hear. Let me clarify. I very much support your efforts on that. I will take that. Mr. Chairman, is that time to yield back my 28 seconds that you might want to ask a question on? Thank you, Mr.. Thank you, Senator Warner, for your responsible approach. Senator Casey. Mr. Chairman, thanks very much, Mr. Secretary. Good to be with you. I wanted to focus on one topic, the middle class and take you back to a meeting that you were present at.
But I'm sure you may not remember because you've had a lot of these. We we had a meeting in October of 17. It was members of the Finance Committee, both parties, not everyone, but most of the committee. The president was there. You were there. Administration officials there talked about the tax bill. At that time. The tax bill had not passed. It was in the drafting stages. I raised the question with the president about the the focus of the tax bill and with regard to the middle class.
And he expressed a very positive aspiration to have the tax bill be a benefit to the middle class. In fact, I remember him turning to you, referring to you, I think, by your first name instead of secretary of the Treasury. But he said we've got to make sure we focus on the middle class. We know what happened after that. The bill passed. And we're told is just two two examples of part of the middle class. We're told by the Joint Committee on Taxation that if you look at the twenty seventeen tax bill and take one segment of the middle class, which in this case is 50 million households making under one hundred thousand bucks.
So that's the category of people that that those 50 million households all making under $100000 a year would see a tax increase or decrease one way or the other of less than nine bucks a month and twenty nineteen. And that's some drink. million taxation document in 10, 19. So very little change up or down nine bucks a month. Here's another way of looking at a segment of the middle class. This is kind of the middle of the middle is the Tax Policy Center formula or goes through the Quintiles Tax Policy Center that indicated that households earning between forty eight and eighty six.
That's a pretty good share of the middle class. Millions of taxpayers got an average tax cut of about 800 bucks. The top got a lot more. And obviously not just in the dollars where the top got a lot more, top 1 percent got a lot more in percentage. I don't think many people dispute that. The question I have is when you track what the president and your team or the entire administration was saying before the bill, after the bill about what the impact of the tax bill was on the middle class, and then then subsequently Larry Kudlow was quoted on November 1st of twenty nineteen is talking about a quote, tax cuts 2.0 on CNBC saying, you know, indicating that they're the the least intention I guess was to provide another another tax cut.
Can you tell me where things whereas that. Is there going to be it. Is there going to be a tax cut. That's that's real substantial. I hope even transformative for the middle class. Are we still going to see a tax bill that's very limited to eight hundred dollars or whatever, whatever number? A lot of the middle class got. Well, I'm happy to follow up and go through all the numbers with you, but on my numbers, the typical family earning $75000 saw their their taxes reduced by more than $2000 or what was typically by more than half.
So I don't agree with your numbers that the tax cuts were not significant for the middle class. Well, I'm just saying that just in me. Interrupt for one second. I think you're you're disagreeing with is not me, but the Tax Policy Center. So that's fine. Well, I'm looking at the Tax Cuts and Jobs Act distribution chart. And again, I'd be happy to follow up with you and go through the specific numbers. I'm looking at tax policy center numbers.
We could look at other numbers. So I don't know which ones you're specifically looking at.
Well, I would hope that's not your final answer. I would hope that the administration would be focused on giving a tax cut, which really improves people's lives, not either the $9 one way or the other per month for 50 million people under one hundred thousand bucks. So that's one. And then let me just finish with one reference to Senator Menendez was talking about jobs by way of comparison to administrations. I think the data shows that if you look at the first 36 months under President Trump, basically February 17 through January of this year to about one hundred and eighty two thousand jobs per month.
The last 36 months. So the same time period last thirty six months of President Obama's administration. That number is two hundred twenty four thousand jobs per month in those 36 months. So 42000 more jobs under Obama adding up to about more than a million and a half more jobs. So I don't think anything wrong with the president trying to commend the work of his administration about job growth. But I think we ought to be clear that if he's going to constantly compare himself to President Obama, he ought to at least acknowledge that the last 36 months under President Obama was stronger than his first first 36 months, maybe month number 37 and up will be better.
But I think that that's what the records actually mean. The economy was not stronger. The economy is slower for large to jobs. When you start with a higher unemployment rate, it's easier to create absolute more jobs.
You guys didn't walk into an unemployment rate of 10 percent either, which President Obama.
I'm just saying. I mean, again, I'm looking at a four and a half versus a three and a half. Obviously, if you get down to a low unemployment rate, it's harder and harder to create jobs without increased participation.
Senator Grassley, thank you for being here. Forty five Q S is a program I'm interested in to incentivize carbon capture sequestration. Louisiana's geology is well suited for this. And then we have lots of industry that would therefore benefit. In so doing, decrease global greenhouse gas emissions.
The we keep hearing that the guidance will be expected within weeks, but like weeks never know, weeks pass sort of thing. What does the current timetable of releasing this guidance and given the short timeframe? That remains to capture the credit. Can we be sure it will be released soon?
So let me just comment. And you know, I know there's been delays on this. I'm not giving excuses. It's been coordinated with two other departments, the Department of Energy and EPA. I did review this as recently as yesterday. There will be guidance that's coming out in the next few weeks. My team has committed to that. And then there are other regulations that were supposed to come out in April that I told them they need to have come out in March.
So we are very focused on this. It's and it's an important issue. Sounds great. Thank you.
Electric vehicles. I'm sure you're familiar with. The Treasury's inspector general released an audit report in September finding one tax. Taxpayers improperly claimed 72 million in Eeva tax credits and to the IRS does not have an effective process to identify and prevent these erroneous claims. And these have doubled in size in eight years since first reported.
You know, I always figured that electric vehicle tax cuts are are tax cuts for millionaires and billionaires. Right. Is the top 1 percent who are buying all the electric vehicles. And the guy driving the 1974 Ford pickup truck is the one paying the tax credit.
So what has the will? What does the IRS, the Treasury, done to in terms of program integrity to be able to identify or to eliminate this problem? Well, I agree with you on the first part, particularly people who are buying expensive Teslas. And I was one of those people don't need the tax credits. I think also we have an unfair situation right now where certain U.S. companies still have tax credits and others don't. But we are working with the IRS on the audit issue and what we do to fix that.
Would it be helpful when you need any authority from Congress?
And number two, it seems that VIN numbers would be I'm I'm assuming there's a database of VIN number somewhere out there. It seemed like a simple solution would be some sort of call across relationship.
But again, do you need any sort of authority from Congress to do any of this?
I'll always take a little bit more money from Congress to fix these things, to collect taxes. But now we don't need any authority. But it is unfortunately a complicated audit situation.
I'm also interested in the rise of e-commerce and with the counterfeit goods that are being sold on Amazon and other platforms that are a risk to both health and safety.
Now, related to that, these counterfeit sellers, sellers are counterfeit goods are less likely to pay taxes that they are supposed to pay. Now, we're approaching this in a variety of ways. But could you tell me about any efforts Treasury is making, perhaps in tandem with Department of Justice to address the tax gap that counterfeits create? Well, I mean, come in two things. The counterfeit issue is an issue that the White House is focused on. That's not really directly a Treasury issue.
But we do share the concerns of counterfeit goods. I think one of the questions that needs to be considered is the people who are selling these counterfeit goods on marketplaces. Should. Should the E commerce companies bear certain responsibility for better monitoring on this? Because this is a real problem for consumers and ultimately as relates to the tax gap. This is one component of the tax cap, but we are very focused on what we can do on the tax cap overall.
And then can you just comment specifically on the impact that counterfeit goods have on the U.S. economy?
It has a very big economic impact. It's lost revenues. It's hurting companies and small businesses that sell legitimate items. It's ripping off consumers who think they're they're buying something that they're not getting.
I appreciate your answers and I yield back. Thank, Mr. Chairman, welcome, Mr. Secretary.
I want to spend a few moment and talk about the historically strong state of our economy. Watching what's happened under President Trump with Republican leadership's commitment to tax reform, cutting burdensome regulations. This economy is booming and it's benefiting Montanans while benefiting the American people. I'm struck by the job creation number, Mr. Secretary. Over 6.7 million jobs have been created since President Trump was elected. Interestingly, about 70 percent of those jobs, 4.6 million of the 6.7 million jobs have been created since we passed tax reform, a national unemployment rate of 3.6 percent near a 50 year low.
There's a reason I left the private sector to come into public service was to see outcomes, see results, results like this. Wages are growing for workers across the board, but importantly, we're seeing this blue collar boom. Low income Americans are experiencing the largest wage gains and average wage growth for workers now outpaces the wage growth for managers.
Americans are getting back to work. This is good for Montana. It's good for a country. Mr. Secretary, my question for you is, as you look at the tax policies that we move forward with is we've seen now an outcome that was predictable. We saw this when President Kennedy threw his leadership, cut taxes. We saw it under President Reagan through his leadership, cutting taxes and growing the economy and seeing wage growth and more jobs created. Which tax policy do you see as being some of the most important in keeping our economy growing?
I think there's no question the change on the corporate side from a to a territorial system and encouraging companies to bring their cash back here and build jobs here has been very important. I think there's no question the pass through deduction for small businesses has been critical. And I think there's no question the the tax cuts for the middle class have put a lot of money back in people's pocket that they can save or spend.
So he brought up the the the pass through issue. I'd like to talk a bit about that, that we call that Main Street tax relief as we were having the discussions back before we passed the bill between the C side and the pass through side. I called the mainstream business aside in Montana, 90 percent of our businesses are actually small businesses would be on the pass through side. In fact, according to a recent square. Gallup survey just last month, 69 percent of small business owners say their business benefited from the 2017 tax law.
Sixty nine percent more than seven in 10 say they reinvested over one quarter of the savings that resulted from the tax law back into their businesses. And I can tell you, that's why I myself won with Senator Roberts, Senator Thune. Senator Blackburn introduced the Main Street Tax Certainty Act, which would make that 20 percent deduction with the Tax Cuts and Jobs Act permanent. I think it's critical we work towards this on behalf of our small businesses. Question for you, Mr.
Secretary, is how does making this 20 percent deduction permanent as the president's budget proposes help to increase business certainty and provide confidence for job creators to invest and grow their businesses? Well, as you've come into those small businesses are the backbone of a large part of the economy, not just in your state but in other states. And providing that tax relief gives those businesses more money to put back into their businesses, to hire additional people and go out and make capital investments.
I want to shift gears for a moment, and I agree with your shift moments, shift gears from one talk about the trade situation. I've just been struck by the success you all see in the last hundred twenty days. Remarkable. I was there in the White House with the president when he signed that historic Japan deal in October. In fact, I had a Montana cowboy hat in the room with me. When am I a cow calf? Producers Fred Wacker from Mile City was there.
Follow up then by the phase one China deal, followed then by the Canada and the Mexico trade agreements, the trade with these four countries over to two trillion dollars. As you know, we stack rank the top four trading partners, United States, you hit them all one, two, three and four. I applaud the focus. We've made great progress on trade. I want to congratulate you and the team. To that end, I look forward to continued work with you and this administration to hold China accountable now for these existing commitments had been made.
And we get these Phase 2 negotiations completed as well as what you're doing here now with the U.K., with the E.U., India and the critical markets. Let's see them anymore and get done here before the end there. Thanks for Secretary Senator Brown.
Thank you, Mr. Chairman. Welcome. Senator, I want to but I got word last night that Jessie Lou, who is we were hopeful for whom with whom we're going to do a hearing in banking for her nomination.
She was inexplicably and suddenly withdrawn by her nomination by the president last night. When did you learn the president was withdrawing the undersecretary of your department? I believe it was two days ago. Two days ago. Can you tell me why her nomination was withdrawn? I think, you know, nominations are at the president's direction and we don't comment when nominations. As a matter of policy, when combinations are withdrawn, which happen for a variety of different reasons at different times why that's done.
So you don't have any knowledge, any opinion or knowledge of why she was withdrawn? Again, what I've said is, as a matter of policy, that is not going to give you a second chance. Secretary, prior to position, you may know this, maybe you don't. I don't know. Was the U.S. a sure. She was U.S. attorney for the District of Columbia. She was involved in the cases of three of Mr. Trump's convicted political operatives.
Mr. Gates, Mr. Stone, Mr. Flynn. Absent any plausible explanation for his withdrawal, this nomination, even though you claim I hope you know, you're more or less under oath, the you you claim to have known it for two days. It appears this is another stop on the president's personal retribution tour, an attempt to ensure that she did not come before the Banking Committee tomorrow to ensure to to answer under oath questions about those prosecutor prosecutorial decisions. When prosecutors scaling back sentencing recommendations on Mr.
Flynn, with senior DOJ officials suddenly intervening yesterday to reverse and make more lenient, the sentencing recommendation of career prosecutors for them withdrew. One of them actually resigned.
It tells us a lot of meanness. Personal retribution is PR tour for the White House's personal repped retribution tour. The president's engaged and started with with the prayer breakfast of all places, and then then the East ROOM and then his attacks on Colonel Veneman mocking his accent. Senator Portman, I work a lot with the Ukrainian community, and I'm proud that so many Ukrainians have called America home, leaving the Soviet regime. And he was serving his country. The president mocks him.
It's that the the unannounced, the surprise, unexplained, unexplained withdrawal of Jesse Lu. And I I would hope you would give an explanation. That's that's the one that not that the counter to the one that everyone assumes. And that is that the president is she's part of the president's personal retribution tour. So I'm hopeful that it even though this hearing or later you will help us and tell us the real reason. Mr. Chairman, I wanted to shift to another question.
Senator Wyden, who's been a leader on. I appreciate your response. The letter I sent you last month about the international tax regulation since I wrote you the nonpartisan CBO, revised its corporate revenue projections that over the next 10 years they're projecting 110 billion dollars less in revenue than previously thought. The report says CBO reduced its projection of the amount of income subject tax under certain provisions and national business activities. These changes, which lowered corporate receipts, reflect the implementation of the law.
They've gone on. I'm most interested in the regulations affecting U.S. tax obligations of multinational corporations when their foreign income before Treasury issued these regulations. Did Treasury do any analysis of how much revenue would be lost? Treasury doesn't do analysis as part of the regulations, but what Treasury does do is when we update the budget and there are specific regulations or technical changes, we do take that into account.
So did you estimate how much did you have any estimate about how much red revenue would be lost by those regulations?
Again, what I would I would say is now having re-analyze those relative to the overall receipts, we don't think there are significant material change.
Well, 110 billion is pretty significant. And when you look at where they are, I don't think there are hundreds of billions, just to be clear and say hundreds of I said one hundred.
And I don't think they're on well. Well, the president you do know this. When the president put out his budget Monday after your tax cuts about which you brag and always forget to mention. This should never happen during periods of economic growth when the budget deficit explodes the way it does something that you don't, your administration doesn't seem to care about you. Then the president goes to Davos, announces it, takes it back, then goes and is budget in and makes huge cuts in Medicare, Social Security, Medicaid and all kinds of things that matter to working class families while the rich in this country get richer.
And that seems to be the way this administration seems to want to go.
Thank you, Senator Cantwell. Mr. Treasury Secretary, without a chance before to talk about the problem that we have in the United States, America, with the lack of affordable housing and particular, I want to ask you about the low income housing tax credit. The tax credit has two different credits, 9 percent, which is mainly used for new construction of affordable housing and 4 percent, which is used for new construction, mostly workforce and rural housing rehabilitation of existing affordable housing.
The 4 percent accounts for about 53 percent of all the affordable housing built in the United States. The tax credit writ large, like 90 percent of the affordable housing that is built, is built with a tax credit, which means if we don't expand the capacity for the credit, we're not going to get more supply and we certainly have a supply problem. So right now, the 4 percent credit is challenged because it's not really 4 percent because it's a variable rate.
Right now, it's trading at 3.2 percent. So one of the things that my colleague, Senator Young and I have been working on is making that 4 percent a the floor, if you will, on the tax credit, a fixed rate. This would help us immediately provide more affordable housing in the marketplace by just the value of that credit being more determinant to those making these investments and getting the tax credit.
So could you give me some feedback on that as the Treasury looks at this issue and whether you would support the 4 percent fix? I would definitely be happy to work with you on that. And unfortunately, Senator Brown just left, but I was going to make the comment. We do care about affordable housing. And I'm hoping it's a different committee. But we can work on housing finance reform because affordable housing is a big component of that. But we would definitely be willing to work with you on the issue you just brought up on the 4 percent.
It's the easiest thing to do right now. We'd certainly appreciate the Treasury looking at a larger investment beyond just fixing the 4 percent. We think that the supply side of the equation clearly shows that we're not getting the job done across America for lots of different reasons, lots of Gisburne changes in demographics. And I think the thing that's clear is that the population who doesn't have affordable housing is costing us a lot of money to provide 25 percent more to deal with the same population in emergency situations, hospitals, shelters, you know, incarcerate.
So getting this solution would be a big boost, too. And I mean, economies across the United States, because the rural communities are facing just as much of a challenge as the urban centers. So I would like if you could give us feedback on that as well. I think I'm on a stop right there. Thank you, Mr. Chairman. I'm sure it's unusual for today. But yes, I am. You see, Senator Toomey came back, so I'm going back up to the top of the list.
Drew me. Go ahead.
Thank you very much, Mr. Chairman. Mr. Secretary, welcome and thank you. Let me just say off the top, I want to say I really appreciate the way you have consistently engaged in a dialogue with senators to, I guess, inform judge the judgment of the folks at Treasury in the implementation of our tax reform. I appreciate that ongoing dialogue. I think it's very constructive related to that point. You know, one of the things that I always thought was most constructive and pro-growth about our tax reform was moving to enabling business to fully expense capital expenditures in the year in which it occurs, rather than having these various depreciation schedules, depending on the type of the asset, as you understand very well, for peculiar reasons, we have these expensing provisions phased out over time in the next several years.
I've introduced I shall be introducing tomorrow, Bill, that will make those expensing provisions permanent and provide business with the assurance that they will be able to fully expense the capital investment that they make. My view is that that enhances effectively lower the after tax cost of capital doing that means more gets invested. That means workers are more productive and end up getting higher wages. So just quickly. All right. I think I know the answer, but are you concerned generally of the view that encouraging that full expensing is good for the economy?
Yes, I agree. OK. And that's related to that is the issue which we know around here by the acronym of quip, which stands for the qualified improvement provision. So this alludes to the technical error in the drafting of the tax reform by which improvements to leasehold improvements for business instead of being able to fully expense them when they occur because of the drafting error. They have to be depreciated over a very, very long periods of time. And that raises the cost.
For anybody making leasehold improvements and as you know very well, retailers, especially restaurant tours to a very large degree have regular needs to make substantial leasehold improvements. And that category of investment has really unsurprisingly actually had a negative impact while the rest of cap has grown. So I know you've been supportive of this and I just want to ask you to continue to work with us to get this technical fix into the tax code as soon as we can. Please comment on that.
I mean, I think both Democrats and Republicans acknowledge that that was a drafting mistake, that it wasn't intended to be a policy change. We unfortunately cannot fix that through our regulations. And I have constantly brought this up with members on both sides of the aisle. This should not be a Democrat or Republican issue. There is a segment of the economy that was unfairly hurt by this mistake. And this is our number one request to get a congressional fix for.
I completely agree and I appreciate your support on this. And then finally, I wonder if you could just and I apologize if you've already covered this, but if you haven't, I'd love to get an update on where we are with the OCD in the talks about tax policy. And specifically, I'm very concerned about the digital services tax that some European countries are attempting to impose as a practical matter on American companies. I want to commend you for your work in helping to reach what looks to me like kind of a truce.
For now, the French have agreed not to impose these taxes on us. We have agreed not to impose tariffs on their products. I'm hoping that that gives us a moment to negotiate an agreement. But I also think it's best if it's done with respect to the entire O.C.D. rather than on a strictly bilateral basis. Anything you can share with us on the status of those discussions.
So I think, as you know, these international tax issues are probably the most complex issues there are. But the president has been very clear that we think that the digital service tax is a unfair attack on U.S. companies and discriminates. And he's been personally involved in this with discussions with President McCraw and others as a result of his involvement. We have reached what I call a truce with France, where there will not be collecting this this year while we continue at the O.C.D.
. The good news is that the U.K. also will not be collecting it this year. And I think all these countries have agreed if we have an OCD solution, they will replace the DST with the OED solutions. So we are actively working on that and that is a priority for us for the balance of this year.
Thank you very much. Thank you, Senator Whitehouse. Thank you, Mr. Rich.
Let me add to the bipartisan chorus of urging you to get forty five q- done. It has taken two years, which I think is inexcusable. Somebody has done a rather poor job of quarterbacking that within your organization. But I'm glad you say it will be done in a few weeks. Please. Did you hear us? It will. I assure you. And there's no excuse for why it's taken as long as it has. Saying. I assure you it will be done.
So on another issue where we agree is incorporation, transparency in the problem of the shell corporations that bedevil so many American interests at the moment. We probably have two Republican votes for the judiciary version of the incorporation transparency bill, and I don't know that we have any on the Banking Committee. So your people in your administration. Needs to make a bigger effort politically to emphasize the national security and economic security prerogatives behind your support of the incorporation transparency legislation, because at the moment it is jammed up.
I think it is jammed up because there are a lot of slippery interests that make a lot of money off of this rather creepy Shell Corporation international crookedness kleptocracy economy. And they are working through lobby groups to try to jam this up. I hope you agree with me that they ought not to succeed, but I want you to know that they are going to succeed unless this administration makes it quite clear that this is a bill that the president really wants to pass.
That this is important to our national and financial security. So I offer you that heads up and I hope you act on it. I have been in contact with the Banking Committee about a set of economic warnings that are out there. And I'll give you a copy of the letter that I wrote to Chairman Crapo and Ranking Member Brown. But I want to take a minute and read you some parts of it. It was prefigured by a December letter that I wrote based off the warnings about a coastal property values crash that have come from a number of sources, but in particular, Freddie Mac, two fairly credible source for a warning like that and of a carbon asset bubble crash led primarily by the Bank of England.
As you know, they've been at this for quite some time. They're now over 30. Sovereign and central banks. Echoing those warnings. So between December 2nd, when I sent the first letter in February 6th, when I sent this one, the Bank for International Settlements came out with a very significant warning that these physical and transition rat risks associated with climate change would affect the stability of the financial sector. That they could be irremediable by ordinary methods. Say the impacts could be so great as to here's their language, make quantifying financial damages impossible.
That the effects would be, I quote them again, catastrophic and irreversible, that these climate related risks will remain largely unhedged BBL. As long as system system wide action is not undertaken and it emphasizes that this is a systemic financial risk. The terms systemic financial risk mean something fairly significant. Do they not? They do. And it's a severe warning, is it not? The warning of systemic financial risk. Is it or is it not a severe financial warning that systemic of a systemic financial risk?
I'm not following what the question is, so I understand. Obviously it's systemic risk. Is it serious? Systemic risk by definition is serious.
Thank you. That's all I needed to hear. Then we went on in that same time period to the BlackRock letter in which CEO Sheri Fink wrote. Climate change has become a defining factor in company's long term prospects that we're on the edge of a fundamental reshaping of finance. Compelling investors to reassess core assumptions. And that in the near future and sooner than most anticipate, there will be a significant reallocation of capital. That's another pretty ominous phrase, is it not?
That's his opinion. I don't take it as an ominous phrase. But yes, the interesting thing to say is that while it goes on, Mackenzie recently warned that climate change could make long-duration borrowing unavailable. Impact insurance cost and availability, reduce terminal values and trigger capital reallocation and asset repricing. The World Economic Forum put out if global risks report in the same month, listing the top five most likely risks facing the world over the next 10 years at all.
Five were climate related risks at last. Sorry, Mr. Chairman, last. The Stanford Graduate School of Business Report of January noted again that the financial risks from climate change are systemic, singular in nature, and the global economic losses from climate change could reach 23 trillion dollars three or four times the scale of the 2008 financial crisis. My question to you is, if you ever heard so many in such severe warnings from so many and such respected sources about a looming risk of economic crash ever.
Well, let me just say, every time everybody agrees on financial risks, sometimes they turn out not to be the case. And when people don't see them, it's the worst you can expect. There was a lot of discussion on this issue when I was at Davos. I will say it's something that both at an international basis and at the F SOC we continue to talk about and monitor. I think one of the big questions is how does technology change over the next 20 years and what is the cost of of carbon reCAPTCHA?
There is a lot of very, extremely interesting potential technologies that will reduce the cost of carbon reCAPTCHA quite dramatically. Before I call, I've gotten ready five before I go on Sanders. And so I want to say, since I'm a partner with Senator Whitehouse on beneficial ownership, I want to thank you for your support and I hope you'll talk loudly about it because we have to overcome a lot of special interests to get that thing passed. Senator, thanks.
Chairman, thank you, Senator, for being here. Let's talk about China a little bit. We had Chairman Powell at the Banking Committee this morning. And when he was asked a series of questions about the Corona virus, he said that it was not quoting here, but paraphrasing that it was too early to tell if the public health event would materially change China's economic relationship with the rest of the world. So I have two questions about that for you. The first is, do you agree that it's too early to tell what the impacts of coronavirus are going to be?
But more significantly, what kind of data would the Treasury Department be looking for to see the earliest signs of whether or not China may be undergoing some sort of changed relationship with the rest of the world? Obviously, it's going to overlap with a bunch of trade questions we should explore.
Well, let me just say, Chair Powell and I have spoken about this recently, and I think we both share similar views. So anytime you're modeling something like this, you have to start with what the impact is of the virus in the way it's spreading. I think on the one hand, there are certain aspects of it that are much more concerning than SaaS. On the other hand, I think China started dealing with this much earlier. So I think that the scientific data well, we have another two to four weeks worth of data, we'll have a much better ability to extrapolate this.
There's no question that it's having a significant impact in China. To what extent the virus spreads, the rate it spreads is something we're obviously monitoring very carefully and to have economic impacts of this. I think we need another three to four weeks of data to be able to extrapolate in a more specific way.
And I appreciate your point that they have tackled this earlier than SaaS, but we should just have a shared understanding in this room and in the broader USG context that this disease, nine ish weeks old, got no attention for over five weeks from the Chinese Communist Party because they have this myth that Chairman Xi can preside over China. I think their language at their most recent party conference was from east to west, from north to south, across all sectors of the economy.
He is functionally all knowing, well, if you believe that kind of B.S., then obviously you would need to hide the emergence of a global pandemic because 1.4 billion Chinese what, 90 million members of the Communist Party. And as he consolidates more and more power at the top. This myth that he's able to centrally plan everything that happens in their civilization means if you have something horrible, a natural disaster like a disease, the Communist Party essentially becomes a great incubator to spread that disease by lying to your people about the competence of the leadership.
So they may have addressed it faster than stock stars. They still addressed it way too late. And there are people, both in China and beyond, dying because of the malfeasance and maladministration of the Communist Party. Could you distill. A little bit between what you see as the victories of phase one on the China deal that are real and what you hope could be the most front end realizable goals in the Phase 2 agreement and how you see that timeline in place?
Well, I think the Phase 1 agreement is is quite significant. It's the first time that there's been serious commitments. It's everything from force technology issue, patent protection, agricultural structural issues, financial services issues, currency provisions and a real, real enforcement provision. So I think they're quite significant. Obviously, our biggest focus is implementing phase one that to a certain extent has slowed down given the the the virus as as expected. And I think phase two, the good news is Ambassador Light Heizer and I have the entire phase two chapters dealt with and we've said we may roll them out as phase two A, B, C, D.
It doesn't necessarily have to be a big bang, but we know what we want to get in phase two.
If when you say you have those chapters dealt with, if you looked at phase two way or whatever the piece, it's the earliest batch. What's that? What's the earliest and the worst case scenario timeline you envision?
Well, we're we really haven't determined that. I mean, the president has been very clear. He wants us to execute on phase one. He wants us to make sure as we move to phase two, we get what we need to get and doesn't want to set arbitrary timelines. So I think he's you know, the president kept significant tariffs on to create an incentive for them to do phase two. And those won't be reduced until we do that.
Thanks. You mentioned that there have been real commitments about IP theft and forced technology transfer and phase one. I want to start by saying I've got a lot of skepticism of whether or not the Chinese will keep the Chinese government will keep their commitments. But I applaud the president for having been one of the first people to push on the fact that China's been a bad actor and that we needed to shine a brighter spotlight on them. So I applaud the president for having done that.
But it's also the case that they've made pledges many, many times in the past about IP and technology that they haven't kept their word on. Have you seen personally any evidence of things like Chinese ownership for past wrongdoing? So the Equifax indictments that were announced by the Department of Justice and the attorney general this week, really great stuff that more than one third of America, great news that they had been that they're being indicted. The event is itself horrific, but the twenty seventeen hack of Equifax that led to the personally identifiable financial information of more than a third of Americans being stolen.
Great that the attorney general in the Justice Department are focused on that. But in any of your dealings with them, as you have these conversations about getting honest and getting real about IP and intellectual property more broadly in the future, do they ever own any of their past wrongdoing? Well, let me just comment. Obviously, the Equifax thing, which is obviously quite concerning, and that's a law enforcement issue. So we have not had specific discussions with them around Equifax.
I will say that as it relates to specific technology things, I think there is a there is a legitimate interest internally in China by a large group of of of their area that they want to put these protections in place because they realize their economy can't move forward without them. Now, as you said, there's been commitments they've made in the past that they haven't honored. The difference here is this. This agreement has real enforcement provisions built into it.
I met the kids table and I recognize you see me as the most junior member basically behind your shoulder here. I don't want to upset you. But when you have all you aren't so junior, you get the environment as everyone else gets. That's a good way of pointing out to me that the clock is ticking. Six and a half minutes. I'll follow up with you separately about some other IP issues.
Thank you, Chairman. Thank you, Mr. Secretary, for your service for being here today as well. Since tax reform, our economy has and is absolutely been roaring. It's really been encouraging.
We've been able to sustain along with regulatory reform and implementation of USMC, a forthcoming the longest period of economic expansion in American history. And I know folks back home in my state are really enjoying the fruits of our prosperity since tax reform, real disposable personal income per average household state of Indiana has risen around six thousand dollars. Moreover, ever. Average hourly earnings have grown at a rate of 3 percent or higher for 16 consecutive months, with the largest wage gains concentrated in the bottom quarter of the wage scale.
So that's something I'll continue to tout and I commend you in your department for your hard work to help effect this change.
As you know, Mr. Secor. There are skeptics still, despite these hard numbers of the tax cuts and Jobs Act who are trying to draw attention away from our outstanding economic results and push concerns of stagnant wages. And I just want to give you an opportunity to sort of respond to this narrative we hear out there and elaborate on how changes in investment behavior matter for ordinary Americans like those I just described.
Well, thank you. I think there's no question we think that the tax cuts are having a real impact on the economy and a real impact on wages, as you you've pointed out, and that the average American is seeing real economic gains.
About says it. Well, thank you. And as you continue to implement the Tax Cuts and Jobs Act, I stand ready. This committee stands ready to help you and also to help our tax payers navigate the new changes, make sure that businesses and individuals alike have the necessary guidance.
So I'd like to turn to a distinct topic, but a really important one. It's the emergence of cryptocurrency and the challenges that creates for the United States government and in various ways. So these technological advancements in the increasing interconnectedness of our our world financial institutions is addressed in the president's budget. In fact, he proposes to move the Secret Service back to Treasury to create new efficiencies. And recently, the IRS has increased enforcement and released additional guidance related to crypto.
Proponents of crypto believe it can benefit the everyday, everyday consumer by lowering transaction costs for online purchases and increasing protection from identity theft and breaking down various financial barriers. How does your department, Mr. Secretary, plan to respond to this rapidly evolving technology of cryptocurrency and other digital assets? Well, thank you and as you've commented, were were very supportive of breaking the Secret Service back home to the Treasury where it started and the efficiencies of having it together, we're spending a lot of time on the issue of cryptocurrencies and digital payment systems.
It's a crucial area and there's a lot of different things that get grouped together into this one area. So let me just be brief, but on pure cryptocurrencies like Bitcoin and there are others, we want to make sure that these are not used as the equivalent of secret bank accounts. So we are working with FinCEN and we will be rolling out new regulations to be very clear on greater transparency so that law enforcement can see where the money is going and that this isn't used for money laundering.
There is another component of the market which people referred to as stable coins, where we do think technology can be used to reduce payment processing quite considerably, particularly for small dollar payments cross-border. And then there's a third component that people are looking at, which is central bank digital issued currency. That is something that Chair Powell and I do not think the U.S. needs to consider now, but could consider again down the road.
You preempted my my follow up question. There is a relates to central bankers. There's a concern that they could use these virtual currencies to operate outside of the current international financial system. Right. OK.
Well, as far as the department stands, ready to begin working on that. I look forward to engaging with you on on that issue. So thank you so much. I yield back my five seconds.
All right. The secretary here's where we are. The chairman had to be out of the room for a couple of minutes. So Senator Thune is going to ask his questions. I have one additional area I want to explore with you. It should be quickly. Appreciate your patience. And we'll recognize Senator Thune. And I think the chairman will be back. Thank you, Mr. Chairman. And thank you, Secretary. Mention for for being here today, as has already been pointed out, the in the two years since tax reform has passed.
We've seen and continue to see the benefits of that. And last week's jobs number was great. Another two hundred twenty five thousand jobs created.
And probably most importantly of all is just the annual hourly wage growth that we've seen has been north of 3 percent again and for 18 months now in a row and unemployment to 4 percent or under for twenty three months in a row. So these aren't blips on the radar. These are they march sustain progress in a fundamental shift in the trajectory of the economy. And in an era where lackluster growth is no longer the new normal. And so we we believe the policies that are working want to continue to make life better for American workers.
And I hope that our friends across the aisle will put partisanship aside and join us in creating even more opportunities for American workers. And one way to start, of course, would be to do very thoughtfully engage on some of the proposals that you have put before us today. And before I get to my question, I want to mention two things to thank you for your efforts to thread the needle on the one ninety nine a regulations and ensure that the green glitch deal that we struck with stakeholders is clearly reflected in those regulations.
So thank you for your attention to that. The presence fiscal 20 21 budget once again seeks to improve clarity and worker classification, an issue particularly importance in today's gig economy. And as you know, I've introduced legislation that would help develop clarity surrounding the tax treatment of this new generation of workers. And the administration's proposal includes many elements of this legislation. The bill, the new economy works to guarantee independence and growth of the New Gig Act addresses the classification of workers, independent contractors versus employees and creates a worker safe harbour based on a set of objective tests.
The New Gig Act also modernizes information reporting requirements and provides for voluntary withholding by independent contractors. THE SECRETARY Do you agree that one way we can address the tax gap is by updating our tax reporting laws to ensure that the IRS has the information needs to enforce our tax laws while also respecting the traditional distinction between employees and independent contractors? So this is a follow up to that. How important is it in your mind that Congress modernize the tax code to respond to the changing nature of our economy and the evolving nature of how goods and services are increasingly divided?
Well, we look forward to working with you. We think it's a significant issue.
Good. OK. We we hope so. And we would like to see this this change get made and get enacted in the post Wayfair world.
There remains a potential for discriminatory and. Taxes on digital goods and services such as an online downloads of music and cloud computing services. And while my home state of South Dakota was careful in the way it crafted its sales tax law, the potential for multiple and discriminatory taxes levied on these types of goods and services could threaten the growth and innovation of this important sector of the economy, something that I have worked with. The ranking member Wyden Non in the past and we've introduced the Digital Goods and Services Tax Fairness Act, a bill which would provide some rules of the road, if you will, for taxing digital goods and services, and it establishes a framework across multiple tax jurisdictions.
The Secretary Do you agree that more certainty on these and other interstate commerce issues is needed after the Wayfair decision? We look forward to working with you on that as well.
Well, we're gonna give you that opportunity. We're going to have a hearing on that real soon. And the Commerce Committee. Last thing I'll say is the you know, we appreciate the work that you did last year to implement changes to Treasury guidance for high deductible plans used for with HSA is the inclusion of chronic disease management. As preventive care is an important step in helping patients with conditions like diabetes or asthma better manage their health. And I look forward to continue to work with you on that.
And we have one other issue that is related to that. I have a bill called the Fit Act and it will allow HSA dollars to be used toward expenses related to physical activity. And I think that's something that's on the preventive side that we can do that would really help in the the curve when it comes to reducing health care costs. And I would just simply ask you in response, would you commit to working with me and my staff on ways that we can address that issue through legislation or through further administrative fixes?
Well, thank you. Great.
That was easy. Got all my questions answered. Mr. Chairman, I yield back. Thank you, Senator Thune. One additional area secretary. Senator Menendez and I both asked you about whether the Treasury Department was being tough enough on sanctions violators. And Senator Menendez asked if sanctions decisions would be free from political considerations. And you simply said no. Now, President Trump has one of his Trump towers in Istanbul and senior Hall Bank officials have offices there. In a letter that your office sent to me in November and I'm going to put that into the record.
Now, you said that when President Erdoğan one asked Trump to go easy on Turkey, President Trump referred Erdogan's request to you. So my question to you is, did President Trump ask you to intervene and assist with Turkey's sanctions violations? So I want to just clarify one thing on on the first part, when when the question was asked about political, I was using the word political and policy interchangeable. So I just I just want to be clear in my response, I was not differentiating and perhaps policy was the right response and not political as it relates to.
And again, I want to be careful about what how I respond this, because this is subject to ongoing law enforcement with both AFAC and with the Department of Justice. The reason why the president referred Hult Bank to me and to DOJ was because there were ongoing. There was ongoing issues. And the the portion of the offact fell under my responsibility. That was the reason why it was referred to me.
So my question is, did President Trump ask you to intervene and assist Turkey with their sanctions violations?
He didn't ask me to intervene. What he asked me to to do was to again, he knew that I was responsible for the overseeing the Şafak provision of it. OK.
And again, I can't go into the specifics of of of the the investigation. Again, this was a violations sanctioned violation, as you're aware of, as it relates to hold bank. And it would not be irregular for us to talk to government officials specifically where there are areas under my responsibility.
You told me that there were seven meetings. Now I know enough. Having served on the committee, the treasury secretary is pretty busy, fella. Seven meetings. What happened at these meetings?
Well, I just want to say, I buy my calendar public. So there's no surprise. I I I assume the seven number is correct. But again, you call me. But again, I meet with finance ministers. I meet with world leaders, with the president on a constant basis. So many of these discussions had nothing to do with sanctions issues or a halt bank issues whatsoever. They had to do with both financial issues. We were having trade discussions with Turkey.
We were having discussions around foreign policy issues. We were also having other foreign policy discussions. So, again, these were not I don't want any way imply that these were all halk bank discussions whatsoever. Almost at every G-20 we've been at, we've met with Turkey on a regular basis on a bilateral basis.
OK, we'll we'll leave it at that for now. Some meetings were about Halk Bank and somewhere about other matters. Based on your last answer. Thank you, Mr. Secretary, for your testimony today on the president's fiscal year 2021 budget. We're going to ask members on both sides of the aisle. I think the staff knows to submit any written questions for the record by close of business on Wednesday, February twenty six. And with that, the hearing with the jury.
Thank you very much.