House Appropriations Hearing on the Treasury ‘s 2015 Budget
AT THE APRIL 29TH HOUSE APPROPRIATIONS FINANCIAL SERVICES SUBCOMMITTEE HEARING, lawmakers heard from Jacob Lew, Secretary of the Department of Treasury, regarding the Fiscal Year 2015 Budget.
Opening Remarks
In his opening remarks, Chairman Ander Crenshaw (R-Fla.) noted that the administration’s budget did not include entitlement reforms to prevent a mandatory spending increase from $2.5 trillion in 2014 to $3.6 trillion by 2019. He also questioned the Treasury’s request to designate additional funds to the Internal Revenue Service (IRS) and expressed concern over the Foreign Account Tax Compliance Act’s (FATCA) implementation date of July 1st, noting that this gives companies only five months to comply.
Ranking Member Jose Serrano (D-N.Y.) stressed that the increases in the budget for the IRS are “much needed” due to decreased service and an increased tax gap and said past budget cuts have promoted non-compliance and prevented people from getting their questions answered when filing taxes. His concerns lie, he said, with the proposal to decrease the Community Development Institutions Fund (CDIF) and a separate proposal to eliminate the Bank Enterprise Award (BEA) program within the CDIF.
Rep. Nita Lowey (D-N.Y.) stated that taxpayers need clarity in the tax code and responsiveness from the IRS, which an increased budget would address. She also supported the budget’s extension of the Terrorism Risk Insurance Program along with the IMF reforms that will help struggling economies that have struggled due the foreign financial crises.
Witness Testimony
Lew opened his testimony by stating that the Treasury continues to strive to provide the “quality service that American taxpayers deserve.” Lew noted that the Treasury Department’s budget increases would help it to improve the financial sector’s resilience to cyber security attacks as well as increase funding for the IRS so that it can provide better service to American taxpayers.
After acknowledging that it has been five and a half years since Fannie Mae and Freddie Mac went into conservatorship with the government, he stated that a piece of “unfinished business” for the Treasury Department is housing reform that would provide liquidity during economic stress. Lew also expressed that the U.S. and international community will stand with Ukraine during this time, while continuing in the effort to impose costs on Russia through additional sanctions imposed on Monday. He concluded his testimony by stating that the Treasury will continue to enforce the Iran sanction regime, which sanctions both individuals and entities for supporting Iran.
Question & Answer
Crenshaw asked for a follow-up on the 501(c)(4) regulation draft and if the estimate of its finalization was still “sometime before November.” He also asked and if there would be any further hearings on the topic.
Lew responded that this estimate was still correct, and said he expected there to be additional opportunities for the public to comment on the written material issued, as well as the potential for additional hearings.
Crenshaw then asked why the IRS included premiums without cash value, such as property and casualty insurance, in FATCA, saying that companies will have to spend “a lot of money” to demonstrate there is no money in this area.
Lew explained that he was not familiar with the insurance premiums, but that FATCA needs to be a global standard, and said Treasury extended the period in order to make sure there was enough time to enter into agreements with companies. He added that an economic analysis should be completed in order to see if the non-cash value accounts need to be included.
Rep. Steve Womack (R-Ark.) stated that some Treasury officials insist the FATCA July 1st deadline should remain in place, and asked Lew to explain what the regulatory requirement risks are to U.S. financial institutions and the economy if a large number of banks are required to withhold a 30 percent tax on cross-border transactions.
Lew said that FATCA requires new reporting procedures, as well as cooperation with overseas banks and government, and that at whatever point FATCA goes into effect, there will be new sets of requirements. He added that Treasury tried to “keep it simple” and be as “most un-burdensome” as possible.
Serrano (D-N.Y.) asked Lew why the Bank Enterprise Award (BEA) Program was taken out of this year’s budget, to which Lew explained Treasury “had to make tough choices.” Serrano continued that the biggest complaint in his district is that there are not enough banks and that many local banks now run the risk of “falling apart.” He asked Lew what process Treasury has going forward pertaining to this issue.
Lew explained that there was support for activities, other than the BEA, that the Community Development Financial Institution (CDFI) funds, but that a trade-off had to be made.
Rep. Harold Rogers (R-Ky.) asked if it was wise for the Treasury to give banks the “green light” to conduct illegal business with marijuana shops and offer regulatory guidance from the federal government on illegal activity.
Lew explained that the marijuana business is a “complicated area,” and that Treasury thought it was important to provide clarity between the prosecution’s guidelines and banking guidelines. He added that Treasury is concerned with the risk of cash transactions and that, without guidance, cash-only businesses would make it “impossible” for Treasury to see any violations of federal and state law. The guidance Treasury put out, Lew said, was to facilitate transparency and prevent a cash economy.
Rep. Mario Diaz-Balart (R-Fla.) asked Lew if Treasury will have a clear statement in their guidance that marijuana is illegal under federal law.
Lew explained that the guidelines will not change federal law, but that he will “have to look at the language.”
Rep. Mike Quigley (D-Ill.) asked what kind of additional Iranian sanctions could be in place, and what sanctions were working.
Lew answered that the current sanctions on Iran’s oil sector and financial sector “have been effective,” and have caused consistent degradation to Iran’s economy. He added that while sanctions cannot force an outcome, leaders feel pressure from their constituents and that in order for Russia to improve their conditions, policy changes must be made. Lew continued that Treasury was working with “most of the rest of the world, with little leakage,” when it comes to sanctions.
Lew further explained that Russia was “downgraded to one notch above junk” with the sanctions, and President Putin has acknowledged the pressure that these sanctions are putting on their economy. He added that Treasury is prepared to take additional action if Russia’s policy does not change, and that working with U.S. allies is the most effective way to take these actions.
Rep. Steve Womack (R-Ark.) asked Lew if he agreed that the U.S. debt under the current interest rate structure is a major concern.
Lew answered that Treasury has made more progress reducing the deficit, and that the U.S. is in a “much better place” with the deficit than they were several years ago.
Rep. Tom Graves (R-Ga.) asked Lew about a proposal that would require all companies to obtain a federal tax identification number and allow law enforcement to access this information.
Lew stated that Treasury’s obligation is to maintain trust, but that it is complicated because of the huge demand to see more transparency. He added that Treasury needs to act in a way consistent with Internal Revenue Code 26 U.S.C. 6103, which requires reasonable cause, by not making beneficial ownership broadly public.
Rep. Kevin Yoder (R-Kan.) mentioned the systemically important financial institution (SIFI) designation process that the Financial Stability Oversight Council (FSOC) is going through with regard to asset managers. He expressed concern that FSOC is not taking a thorough approach to reviewing the asset management industry, and asked why FSOC is advancing with this process.
Lew said that ensuring proper decisions are made is one of many issues FSOC is looking at, and that no one on FSOC knows the outcome of the process. He added that this area warrants attention, and that it is “premature” for anyone to speculate what the outcome will be.
Rep. Jaime Herrera Beutler (R-Wash.) stated that the Farm Bill in 2008 set up the authority for Treasury to take back-taxes from taxpayers. She then asked where Treasury was given the authority to make taxpayers pay the social security debts of family members, as federal and state tax refunds are currently being seized.
Lew agreed that the Farm Bill did give this right, but that the Social Security Administration said they would be changing their policy, and that the seizing of refunds would not happen going forward.
Beutler then asked if the money seized would be returned to taxpayers, and how Treasury will be moving forward with this issue.
Lew answered that he did not know if the money would be returned, adding that specific collection items are not something that Treasury exercises judgment over.
For more information on this hearing and to view a webcast, please click here.
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AT THE APRIL 29TH HOUSE APPROPRIATIONS FINANCIAL SERVICES SUBCOMMITTEE HEARING, lawmakers heard from Jacob Lew, Secretary of the Department of Treasury, regarding the Fiscal Year 2015 Budget.
Opening Remarks
In his opening remarks, Chairman Ander Crenshaw (R-Fla.) noted that the administration’s budget did not include entitlement reforms to prevent a mandatory spending increase from $2.5 trillion in 2014 to $3.6 trillion by 2019. He also questioned the Treasury’s request to designate additional funds to the Internal Revenue Service (IRS) and expressed concern over the Foreign Account Tax Compliance Act’s (FATCA) implementation date of July 1st, noting that this gives companies only five months to comply.
Ranking Member Jose Serrano (D-N.Y.) stressed that the increases in the budget for the IRS are “much needed” due to decreased service and an increased tax gap and said past budget cuts have promoted non-compliance and prevented people from getting their questions answered when filing taxes. His concerns lie, he said, with the proposal to decrease the Community Development Institutions Fund (CDIF) and a separate proposal to eliminate the Bank Enterprise Award (BEA) program within the CDIF.
Rep. Nita Lowey (D-N.Y.) stated that taxpayers need clarity in the tax code and responsiveness from the IRS, which an increased budget would address. She also supported the budget’s extension of the Terrorism Risk Insurance Program along with the IMF reforms that will help struggling economies that have struggled due the foreign financial crises.
Witness Testimony
Lew opened his testimony by stating that the Treasury continues to strive to provide the “quality service that American taxpayers deserve.” Lew noted that the Treasury Department’s budget increases would help it to improve the financial sector’s resilience to cyber security attacks as well as increase funding for the IRS so that it can provide better service to American taxpayers.
After acknowledging that it has been five and a half years since Fannie Mae and Freddie Mac went into conservatorship with the government, he stated that a piece of “unfinished business” for the Treasury Department is housing reform that would provide liquidity during economic stress. Lew also expressed that the U.S. and international community will stand with Ukraine during this time, while continuing in the effort to impose costs on Russia through additional sanctions imposed on Monday. He concluded his testimony by stating that the Treasury will continue to enforce the Iran sanction regime, which sanctions both individuals and entities for supporting Iran.
Question & Answer
Crenshaw asked for a follow-up on the 501(c)(4) regulation draft and if the estimate of its finalization was still “sometime before November.” He also asked and if there would be any further hearings on the topic.
Lew responded that this estimate was still correct, and said he expected there to be additional opportunities for the public to comment on the written material issued, as well as the potential for additional hearings.
Crenshaw then asked why the IRS included premiums without cash value, such as property and casualty insurance, in FATCA, saying that companies will have to spend “a lot of money” to demonstrate there is no money in this area.
Lew explained that he was not familiar with the insurance premiums, but that FATCA needs to be a global standard, and said Treasury extended the period in order to make sure there was enough time to enter into agreements with companies. He added that an economic analysis should be completed in order to see if the non-cash value accounts need to be included.
Rep. Steve Womack (R-Ark.) stated that some Treasury officials insist the FATCA July 1st deadline should remain in place, and asked Lew to explain what the regulatory requirement risks are to U.S. financial institutions and the economy if a large number of banks are required to withhold a 30 percent tax on cross-border transactions.
Lew said that FATCA requires new reporting procedures, as well as cooperation with overseas banks and government, and that at whatever point FATCA goes into effect, there will be new sets of requirements. He added that Treasury tried to “keep it simple” and be as “most un-burdensome” as possible.
Serrano (D-N.Y.) asked Lew why the Bank Enterprise Award (BEA) Program was taken out of this year’s budget, to which Lew explained Treasury “had to make tough choices.” Serrano continued that the biggest complaint in his district is that there are not enough banks and that many local banks now run the risk of “falling apart.” He asked Lew what process Treasury has going forward pertaining to this issue.
Lew explained that there was support for activities, other than the BEA, that the Community Development Financial Institution (CDFI) funds, but that a trade-off had to be made.
Rep. Harold Rogers (R-Ky.) asked if it was wise for the Treasury to give banks the “green light” to conduct illegal business with marijuana shops and offer regulatory guidance from the federal government on illegal activity.
Lew explained that the marijuana business is a “complicated area,” and that Treasury thought it was important to provide clarity between the prosecution’s guidelines and banking guidelines. He added that Treasury is concerned with the risk of cash transactions and that, without guidance, cash-only businesses would make it “impossible” for Treasury to see any violations of federal and state law. The guidance Treasury put out, Lew said, was to facilitate transparency and prevent a cash economy.
Rep. Mario Diaz-Balart (R-Fla.) asked Lew if Treasury will have a clear statement in their guidance that marijuana is illegal under federal law.
Lew explained that the guidelines will not change federal law, but that he will “have to look at the language.”
Rep. Mike Quigley (D-Ill.) asked what kind of additional Iranian sanctions could be in place, and what sanctions were working.
Lew answered that the current sanctions on Iran’s oil sector and financial sector “have been effective,” and have caused consistent degradation to Iran’s economy. He added that while sanctions cannot force an outcome, leaders feel pressure from their constituents and that in order for Russia to improve their conditions, policy changes must be made. Lew continued that Treasury was working with “most of the rest of the world, with little leakage,” when it comes to sanctions.
Lew further explained that Russia was “downgraded to one notch above junk” with the sanctions, and President Putin has acknowledged the pressure that these sanctions are putting on their economy. He added that Treasury is prepared to take additional action if Russia’s policy does not change, and that working with U.S. allies is the most effective way to take these actions.
Rep. Steve Womack (R-Ark.) asked Lew if he agreed that the U.S. debt under the current interest rate structure is a major concern.
Lew answered that Treasury has made more progress reducing the deficit, and that the U.S. is in a “much better place” with the deficit than they were several years ago.
Rep. Tom Graves (R-Ga.) asked Lew about a proposal that would require all companies to obtain a federal tax identification number and allow law enforcement to access this information.
Lew stated that Treasury’s obligation is to maintain trust, but that it is complicated because of the huge demand to see more transparency. He added that Treasury needs to act in a way consistent with Internal Revenue Code 26 U.S.C. 6103, which requires reasonable cause, by not making beneficial ownership broadly public.
Rep. Kevin Yoder (R-Kan.) mentioned the systemically important financial institution (SIFI) designation process that the Financial Stability Oversight Council (FSOC) is going through with regard to asset managers. He expressed concern that FSOC is not taking a thorough approach to reviewing the asset management industry, and asked why FSOC is advancing with this process.
Lew said that ensuring proper decisions are made is one of many issues FSOC is looking at, and that no one on FSOC knows the outcome of the process. He added that this area warrants attention, and that it is “premature” for anyone to speculate what the outcome will be.
Rep. Jaime Herrera Beutler (R-Wash.) stated that the Farm Bill in 2008 set up the authority for Treasury to take back-taxes from taxpayers. She then asked where Treasury was given the authority to make taxpayers pay the social security debts of family members, as federal and state tax refunds are currently being seized.
Lew agreed that the Farm Bill did give this right, but that the Social Security Administration said they would be changing their policy, and that the seizing of refunds would not happen going forward.
Beutler then asked if the money seized would be returned to taxpayers, and how Treasury will be moving forward with this issue.
Lew answered that he did not know if the money would be returned, adding that specific collection items are not something that Treasury exercises judgment over.
For more information on this hearing and to view a webcast, please click here.