House Ways and Means Hearing with Lew on the FY 2017 Budget
House Ways and Means Committee
“Hearing on the President’s Fiscal Year 2017 Budget Proposal”
Thursday, February 11, 2016
Key Topics & Takeaways
- Tax Reform: Rep. Charles Rangel (D-N.Y.) referred to Brady’s comment that the tax proposal is “dead on arrival” and asked if Lew had any hope of finding common ground. Lew replied that he appreciated Brady’s comment about working together and that while tax reform is an “uphill battle…we need to get it done.”
- Data Localization: Rep. Dave Reichert (R-Wash.) commented that he is “not convinced” financial regulators have made the case that having inversions impacts their prudential review, and asked Lew to work with Congress to fix the issue. Lew noted that it is a “complicated issue” but that he is working with the financial services industry and regulators to see what Treasury can do going forward. He explained that regarding data localization, barriers that require information technology to be on-shored where the business is going on should not be tolerated.
- Puerto Rico: Rep. Xavier Becerra (D-Calif.) asked if Lew could “see any light at the end of the tunnel” for Puerto Rico. Lew explained that there is urgency for Congress to act now and that he is open to bipartisan conversations, adding that he does “see a light.”
Witnesses
- Jacob Lew, Secretary, Department of the Treasury
Opening Statements
In his opening statement, Chairman Kevin Brady (R-Texas) expressed his opposition to the budget, claiming that President Obama “didn’t take it seriously.” He discussed his top three concerns with the budget: 1) increasing gas prices through a tax, which he said would be “dead on arrival, will have “ripple effects” across the economy,; 2) new taxes on small businesses, which he said “will not see the light of day”; and 3) tax proposals that will make it more difficult for American companies to compete overseas. Brady commented that he hopes Congress and the Treasury can reach common ground on some of the policies and that the first priority should be to address “broken” international tax rules.
In his opening statement, Ranking Member Sandy Levin (D-Mich.) questioned how Brady plans to reach common ground “based on the chairman’s opening statement” and asked why the committee did not accept testimony on the budget from the director of the Office of Management and Budget (OMB). He expressed his belief that Republicans have “been asleep” rather than reforming the tax system and that companies have since moved overseas to avoid paying U.S. taxes. Levin added that “we need to act now,” as companies are taking advantage of tax loopholes.
Testimony
The Honorable Jacob Lew, Secretary, United States Department of the Treasury
In his testimony, Secretary Lew focused on three areas: 1) reforming the tax code; 2) building a 21st century infrastructure; and 3) supporting working families. He stated that the tax system is “essential” for long-term growth and prosperity, but that companies are increasingly using inversions to avoid paying U.S. taxes, adding that the budget calls for “fiscally responsible business tax reform.” Lew then explained how more needs to be invested into modern infrastructure to create jobs and meet the needs of the growing economy. He added that to fund such tasks, a barrel fee on oil production and imports has been proposed, in addition to the Financing America’s Infrastructure Renewal (FAIR) Program that provides loans to infrastructure projects. Lastly, Lew stressed the importance of supporting working families, to include expanding unemployment insurance and access to workplace retirement saving opportunities that would complement the my retirement account (myRA).
Question and Answer
Tax on Oil
Brady asked how the president thought a tax on oil would help grow the economy. Lew explained that the oil tax is a way to manage oil consumption, and that the tax will help pay for transportation and infrastructure needs. He continued that low income families with fixed consumption needs will not be burdened by the tax. Brady commented that the proposal is “going nowhere fast.”
Rep. Earl Blumenauer (D-Ore.) questioned the fee on oil barrels to fund infrastructure, to which Lew replied that he is open to working on “anything we can get a majority for” to work on highways.
Tax Reform
Brady asked Lew if there is any common ground in simplifying the tax code. Lew explained how there will be “enormous” consequences if business tax reform is delayed, and that “Congress needs to act.”
Rep. Charles Rangel (D-N.Y.) referred to Brady’s comment that the tax proposal is “dead on arrival” and asked if Lew had any hope of finding common ground. Lew replied that he appreciated Brady’s comment about working together and that while tax reform is an “uphill battle…we need to get it done.”
Rep. Jim McDermott (D-Wash.) asked if the Treasury Department has seen a Republican tax reform proposal, to which Lew replied that he has only seen former Chairman David Camp’s proposal from two years ago.
Rep. Adrian Smith (R-Neb.) asked if small businesses will benefit from the Treasury’s proposal, to which Lew replied that “most of them” will.
Smith commented that U.S. businesses should be required to return profits to the U.S. Lew agreed that U.S. businesses overseas “can’t defer taxes any longer.”
Rep. Todd Young (R-Ind.) asked why the president took a single-tier approach regarding the overseas earnings tax while Camp’s draft had a two-tier structure, adding that the single rate will require businesses to borrow to pay proposed taxes. Lew explained that it will only be a liquidity issue if businesses cannot manage their capital structures.
Rep. Tom Rice (R-S.C.) asked Lew to explain how to get to “real” tax reform. Lew explained that there are areas of overlap between the Administration’s proposal and Congress’ and that there needs to be a “bridge” between the two.
Inversions
Levin asked if Congress should act on inversions since “we’ve failed” on corporate tax reform. Lew explained that while the “right thing to do” is to reform the tax code, if the system cannot be reformed as a whole, “you need to at least fix inversions.”
Rep. Tom Price (R-Pa.) asked if it is illegal for companies to use inversions, to which Lew explained it is not, but that “it doesn’t make it right.”
Global Tax Issues
Rangel asked about the letter Lew sent to the European Union (EU) today on the tax treatment of U.S. firms in Europe. Lew stated the EU should not be levying taxes on income that should be taxed in the U.S.
Brady added that he appreciates the letter Lew sent, and that “what the EU is doing…is a money grab targeted on U.S. companies in a variety of ways, not just to generate revenue but to make it more uncompetitive for U.S. companies” in the global market.
Rep. Charles Boustany (R-La.) expressed his commitment to addressing international tax issues and asked Lew for his commitment to work with Congress. Lew commented that what the EU is doing “risks undermining the progress America has made” and that he is committed to closing the loopholes.
DataLocalization
Rep. Dave Reichert (R-Wash.) commented that he is “not convinced” financial regulators have made the case that having inversions impacts their prudential review, and asked Lew to work with Congress to fix the issue. Lew noted that it is a “complicated issue” but that he is working with the financial services industry and regulators to see what Treasury can do going forward. He explained that regarding data localization, barriers that require information technology to be on-shored where the business is going on should not be tolerated.
Rep. Erik Paulsen (R-Minn.) argued that financial services should not be excluded from regulatory issues and asked Lew to work with Congress on language to address the issue. Lew commented that he is open to working with Congress on data localization, adding that regulatory issues should not be governed by a trade agreement within the area of financial regulation.
Puerto Rico
Rep. Richard Neal (D-Mass.) asked Lew to discuss Treasury’s plans for fixing Puerto Rico’s economy. Lew explained that the territory is a “classic case of insolvency,” as it is are unable to repay its debt. He urged Congress to permit Puerto Rico to restructure its debt, as the territory “can’t do it on its own.”
Rep. Xavier Becerra (D-Calif.) asked if Lew could “see any light at the end of the tunnel” for Puerto Rico. Lew explained that there is urgency for Congress to act now and that he is open to bipartisan conversations, adding that he does “see a light.”
Rep. Bill Pascrell (D-N.J.) commended Lew on introducing the Earned Income Tax Credit (EITC) to Puerto Rico. Lew replied that the EITC will help the territory’s economy grow and help people re-enter the workforce.
Terrorism Financing
Rep. Peter Roskam (R-Ill.) asked how justice can be brought to victims of terrorism financing. Lew replied that Treasury has had a “very tough” approach to sanctions and that countries like Iran are held accountable for their behavior. He continued that while sanctions may have been lifted on Iran’s nuclear sanctions, additional sanctions for areas such as terror remain intact.
Rep. Pat Meehan (R-Pa.) questioned Iran’s sanctions relief, to which Lew explained that the country performed its commitments regarding nuclear weapons so those nuclear-related sanctions were lifted, but that other sanctions were not.
For more information on this hearing, please click here.
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House Ways and Means Committee
“Hearing on the President’s Fiscal Year 2017 Budget Proposal”
Thursday, February 11, 2016
Key Topics & Takeaways
- Tax Reform: Rep. Charles Rangel (D-N.Y.) referred to Brady’s comment that the tax proposal is “dead on arrival” and asked if Lew had any hope of finding common ground. Lew replied that he appreciated Brady’s comment about working together and that while tax reform is an “uphill battle…we need to get it done.”
- Data Localization: Rep. Dave Reichert (R-Wash.) commented that he is “not convinced” financial regulators have made the case that having inversions impacts their prudential review, and asked Lew to work with Congress to fix the issue. Lew noted that it is a “complicated issue” but that he is working with the financial services industry and regulators to see what Treasury can do going forward. He explained that regarding data localization, barriers that require information technology to be on-shored where the business is going on should not be tolerated.
- Puerto Rico: Rep. Xavier Becerra (D-Calif.) asked if Lew could “see any light at the end of the tunnel” for Puerto Rico. Lew explained that there is urgency for Congress to act now and that he is open to bipartisan conversations, adding that he does “see a light.”
Witnesses
- Jacob Lew, Secretary, Department of the Treasury
Opening Statements
In his opening statement, Chairman Kevin Brady (R-Texas) expressed his opposition to the budget, claiming that President Obama “didn’t take it seriously.” He discussed his top three concerns with the budget: 1) increasing gas prices through a tax, which he said would be “dead on arrival, will have “ripple effects” across the economy,; 2) new taxes on small businesses, which he said “will not see the light of day”; and 3) tax proposals that will make it more difficult for American companies to compete overseas. Brady commented that he hopes Congress and the Treasury can reach common ground on some of the policies and that the first priority should be to address “broken” international tax rules.
In his opening statement, Ranking Member Sandy Levin (D-Mich.) questioned how Brady plans to reach common ground “based on the chairman’s opening statement” and asked why the committee did not accept testimony on the budget from the director of the Office of Management and Budget (OMB). He expressed his belief that Republicans have “been asleep” rather than reforming the tax system and that companies have since moved overseas to avoid paying U.S. taxes. Levin added that “we need to act now,” as companies are taking advantage of tax loopholes.
Testimony
The Honorable Jacob Lew, Secretary, United States Department of the Treasury
In his testimony, Secretary Lew focused on three areas: 1) reforming the tax code; 2) building a 21st century infrastructure; and 3) supporting working families. He stated that the tax system is “essential” for long-term growth and prosperity, but that companies are increasingly using inversions to avoid paying U.S. taxes, adding that the budget calls for “fiscally responsible business tax reform.” Lew then explained how more needs to be invested into modern infrastructure to create jobs and meet the needs of the growing economy. He added that to fund such tasks, a barrel fee on oil production and imports has been proposed, in addition to the Financing America’s Infrastructure Renewal (FAIR) Program that provides loans to infrastructure projects. Lastly, Lew stressed the importance of supporting working families, to include expanding unemployment insurance and access to workplace retirement saving opportunities that would complement the my retirement account (myRA).
Question and Answer
Tax on Oil
Brady asked how the president thought a tax on oil would help grow the economy. Lew explained that the oil tax is a way to manage oil consumption, and that the tax will help pay for transportation and infrastructure needs. He continued that low income families with fixed consumption needs will not be burdened by the tax. Brady commented that the proposal is “going nowhere fast.”
Rep. Earl Blumenauer (D-Ore.) questioned the fee on oil barrels to fund infrastructure, to which Lew replied that he is open to working on “anything we can get a majority for” to work on highways.
Tax Reform
Brady asked Lew if there is any common ground in simplifying the tax code. Lew explained how there will be “enormous” consequences if business tax reform is delayed, and that “Congress needs to act.”
Rep. Charles Rangel (D-N.Y.) referred to Brady’s comment that the tax proposal is “dead on arrival” and asked if Lew had any hope of finding common ground. Lew replied that he appreciated Brady’s comment about working together and that while tax reform is an “uphill battle…we need to get it done.”
Rep. Jim McDermott (D-Wash.) asked if the Treasury Department has seen a Republican tax reform proposal, to which Lew replied that he has only seen former Chairman David Camp’s proposal from two years ago.
Rep. Adrian Smith (R-Neb.) asked if small businesses will benefit from the Treasury’s proposal, to which Lew replied that “most of them” will.
Smith commented that U.S. businesses should be required to return profits to the U.S. Lew agreed that U.S. businesses overseas “can’t defer taxes any longer.”
Rep. Todd Young (R-Ind.) asked why the president took a single-tier approach regarding the overseas earnings tax while Camp’s draft had a two-tier structure, adding that the single rate will require businesses to borrow to pay proposed taxes. Lew explained that it will only be a liquidity issue if businesses cannot manage their capital structures.
Rep. Tom Rice (R-S.C.) asked Lew to explain how to get to “real” tax reform. Lew explained that there are areas of overlap between the Administration’s proposal and Congress’ and that there needs to be a “bridge” between the two.
Inversions
Levin asked if Congress should act on inversions since “we’ve failed” on corporate tax reform. Lew explained that while the “right thing to do” is to reform the tax code, if the system cannot be reformed as a whole, “you need to at least fix inversions.”
Rep. Tom Price (R-Pa.) asked if it is illegal for companies to use inversions, to which Lew explained it is not, but that “it doesn’t make it right.”
Global Tax Issues
Rangel asked about the letter Lew sent to the European Union (EU) today on the tax treatment of U.S. firms in Europe. Lew stated the EU should not be levying taxes on income that should be taxed in the U.S.
Brady added that he appreciates the letter Lew sent, and that “what the EU is doing…is a money grab targeted on U.S. companies in a variety of ways, not just to generate revenue but to make it more uncompetitive for U.S. companies” in the global market.
Rep. Charles Boustany (R-La.) expressed his commitment to addressing international tax issues and asked Lew for his commitment to work with Congress. Lew commented that what the EU is doing “risks undermining the progress America has made” and that he is committed to closing the loopholes.
DataLocalization
Rep. Dave Reichert (R-Wash.) commented that he is “not convinced” financial regulators have made the case that having inversions impacts their prudential review, and asked Lew to work with Congress to fix the issue. Lew noted that it is a “complicated issue” but that he is working with the financial services industry and regulators to see what Treasury can do going forward. He explained that regarding data localization, barriers that require information technology to be on-shored where the business is going on should not be tolerated.
Rep. Erik Paulsen (R-Minn.) argued that financial services should not be excluded from regulatory issues and asked Lew to work with Congress on language to address the issue. Lew commented that he is open to working with Congress on data localization, adding that regulatory issues should not be governed by a trade agreement within the area of financial regulation.
Puerto Rico
Rep. Richard Neal (D-Mass.) asked Lew to discuss Treasury’s plans for fixing Puerto Rico’s economy. Lew explained that the territory is a “classic case of insolvency,” as it is are unable to repay its debt. He urged Congress to permit Puerto Rico to restructure its debt, as the territory “can’t do it on its own.”
Rep. Xavier Becerra (D-Calif.) asked if Lew could “see any light at the end of the tunnel” for Puerto Rico. Lew explained that there is urgency for Congress to act now and that he is open to bipartisan conversations, adding that he does “see a light.”
Rep. Bill Pascrell (D-N.J.) commended Lew on introducing the Earned Income Tax Credit (EITC) to Puerto Rico. Lew replied that the EITC will help the territory’s economy grow and help people re-enter the workforce.
Terrorism Financing
Rep. Peter Roskam (R-Ill.) asked how justice can be brought to victims of terrorism financing. Lew replied that Treasury has had a “very tough” approach to sanctions and that countries like Iran are held accountable for their behavior. He continued that while sanctions may have been lifted on Iran’s nuclear sanctions, additional sanctions for areas such as terror remain intact.
Rep. Pat Meehan (R-Pa.) questioned Iran’s sanctions relief, to which Lew explained that the country performed its commitments regarding nuclear weapons so those nuclear-related sanctions were lifted, but that other sanctions were not.
For more information on this hearing, please click here.