Mnuchin testifies on the 2020 Treasury budget

Channel: Fox Business
Published: 05/15/2019 04:22 PM

Treasury Secretary Steven Mnuchin and IRS Commissioner Charles Rettig testify during the Senate Appropriations Financial Services & General Govt Subcommittee's hearing on to "Review the FY20 Budget Request for the US Dept of Treasury." Mnuchin's recent talks with China and his refusal to releas...

From the department of the treasury will will start paneled one with our esteemed treasury secretary secretary, stephen minuchin, prior to his confirmation in 2017, served his founder and chief executive officer of doon capital management. He he also founded one west bank group. He was chairman of the board and ceo there earlier in his career, the secretary was a partner at goldman sachs served as ...
chief information office secretary minuchin holds a bachelor's degree from yale university. My our fs gg staff wrote me a very eloquent opening statement in the interest of time i'm gon na summarize it. The department of treasury is very, very important and we look forward to hearing the secretary's testimony today with thatmr. secretary. If you would like to begin, i'm gon na leave plenty of time for questions. We'Ve got a lot to talk about. I can see. Senator van hollen is raring to go down there in an effort to follow your lead. I am going to read my first paragraph and then i will put the rest in the record so that we have that, but chairman kennedy ranking member coons and members of the subcommittee, i'm pleased to be here with you today to discuss the president's fiscal year. 2020 budget and our key policy priorities at the treasury department.

President trump's economic programs have tax cuts, regulatory relief and improved trade deals is resulting in more jobs, andhigher wages for hardworking families. In the first quarter of 2019, we saw an annual gdp growth rate of three point: two percent far exceeding expectations, patience that follows 3 % growth from q4 of 2017 to q4 of 2018, the fastest fourth quarter to fourth quarter growth. In 13 years, unemployment remains historically low at 3. 6 percent and earnings year-over-year by 3 point 2 percent as well. I appreciate the opportunity to be here in front of the committee and talk about our budget and other important issues. So thank you very much. Mr. chairman talk about your budget, but i'm going to talk about a couple of issues. First, starting with our trade negotiations, i know you're you're limitedin terms of details that you can share and i'm not gon na. Ask you to violate confidences, but i think we can all agree that we do not want to be enemies with our friends in china. We want to be their friends. Friends can compete.

Competition makes all of us better. We often say to the point of becoming too cliche that we live in a global economy, but cliches become cliches because they're true, we do live in a global economy and for a global economy to work. We have to have rules. China was admitted, our friends in china were admitted to the world trade organization, with the support of the united states of america, which wassignificant support on december 11, 2001 intending no disrespect. China started cheating december 12th and when a country manipulates its currency, when a country relies on subsidized state-owned industries and businesses, when a country steals intellectual property, when a country expects other countries to to adoptive rule, that says china can do business in other countries freely. But to do business in china, you have to follow their rules, which are quite restrictive. Then then, then those positions are not conducive to a global economy. I don't know whether we're in a trade war or not. I think i know you know, and i believe the president knows that the only way to win a trade war is don't fightto. Think. Having said that, this is more than than just trade. This is about.

I don't want to overstate this, but this is about the future of the global economy, and i would encourage you, mr. secretary, for what my opinion is worth is do the right thing? Hang tough. You know with with the end objective being we emerge out of this with friends with china friendly competitors, but with a set of rules and we're all going bye-bye. I, like the thought to the extent you can share them with us about where we are in the negotiations and the potential if we can connect this arrangement to the to the american economy, if we could openup china to american businesses. Well, thank you, mr. chairman, and thank you for your thoughtful comments. I have been involved in these discussions with president trump for for almost the last two years now, from the original meeting at mar-a-lago with president trump and president xi, there was an acknowledgment that we needed to rebalance the trade relationship that it was too far in one Direction our economy was open to them and their economy was not open to us. So under the direction of both presidents, we started working on rebalancing the relationship more recently, i would say, since december of this year i have been where very closely with ambassador light heiser. I think we're in the11th round of discussions. As i said several weeks ago, i thought we were very close to a historic agreement with china. That would be good for us and good for them if we can open up markets and compete fairly. I think this is one of the biggest opportunities for american workers and an american company, so we have been working hard on this.

As i've said, this is a very detailed agreement. It has seven chapters dealing with lots of different issues. We'Ve had the interagency from all the departments involved in this. I think, as you know, ambassador lloyd, hauser, and i gave a press conference a few weeks ago two weeks ago, now that things hadgone in a different direction. I think we had a constructive meeting with the vice premier and that he came here. We'Re continuing discussions there's still a lot of work to do, but i can assure you that president trump is determined that we have free and fair trade and wants to have a fair relationship with rules that we can compete fairly. As i've said, my expectation is, we will most likely go to beijing at some point in the near future to continue those discussions, and i think it's president trump's expectation to meet with president xi at the g20 at the end of june. So the president has put in place tariffs to use that in away to create a fair and and and a fair agreement, i'm going. Thank you, mr. secretary out i'll save my other questions. Until until my colleagues have a chance to weigh in senator coons, would you like to make an opening statement and start your question, sir, and then we'll go to senator van hollen? If that's okay, thank you, chairman kennedy. Thank you for your graciousness and understanding.

I was at a police week event and mr. secretary apologized for being late to the opening of the hearing. I just appreciate the opportunity for us to continue to work on this subcommittee. Mr. chairman, on the wide range of things that we have a forest, the apartment, thetreasury the irs and particularly takes up the lion's share of the subcommittee's budget and responsibilities. So i'm grateful for your time, mr. secretary and for the irs commissioner, who will be before minister. I'M pleased that you request an increase in funding for the office of terrorism, financial intelligence, which has the critical responsibility of enforcing sanctions. I just led a delegation to east asia and had a chance to discuss the challenge we face from north korea, with our allies in japan and south korea. Sanctions are a critical security diplomatic tool, but they only work if they're enforced. I'M also glad you requested additional resources for our ir s enforcement activities, but i'm concerned that that requestis predicated on an adjustment to our allocation and want to talk with you about how we work through that. I also think you obviously face a significant challenge in terms of badly outdated it systems.

If i understand correctly, some of your core systems are written in cobol, something that is as old as i am, and these systems are both expensive and difficult to maintain. So i have a few questions on that. I am of course, disappointed your budget proposes to eliminate grants to community development, finance institutions which support development and create jobs in underserved neighborhoods, and i will question you about that. I also frankly, am concerned about the overall adequacy of the budget. Forthe irs we'll take that up with the commissioner, but you are still a billion dollars below the budget for 2012, 2010 and i'm concerned about responsiveness and service levels. All of us have constituents who spend long periods of time trying to get someone on the phone or trying to get responsiveness. That is no disrespect to the professionalism of the folks at treasury or irs. In particular. It'S just that. I think we have under staffed and under resourced the irs. So i very much look forward to hearing your testimony and appreciate. Mr.

chairman, your welcoming my opening statement, let me ask just two questions: if i could mr. secretary force first, as you know, charitable givingis, something that's been a concern of mine, senator lankford and i have tried to address what may well be a significant drop in charitable, Giving 37 million taxpayers had access to itemized charitable deduction, giving a prior to the enactment of the tax cuts and jobs act today, only 16 million will likely itemize their deductions and get a financial incentive to contribute to charity. I'M concerned we may see a significant drop in giving to houses of worship to other ngos and community charities. We talked about this at last year's hearing and i've written to you now. The first years tax filings are coming in or complete. Are you doing an analysis of the impact of thetcga on charitable, giving and what data will you be giving this committee or the public about the impact on charitable give? So mr. senator, thank you very much and first of all i would just come and i appreciate your comments on the irs. I shortened my opening statement, but i would like to just highlight the irs modernization and technology is our single biggest priority for too long we've under invested in this technology. I think this is critical to everything we do customer service. Our last year we had a technology problem on tax day, so this is an investment, that's very important for taxpayers. In regards to your question on charitable contributions: first, let me justsay, i and the administration very much believes in charitable, giving this is an important part of our community and and our society, given the old technology that we have, i tried to get information in advance of Today, to try to be responsive to you on this, it's too early for us to tell what the impact was. I am obviously hopeful that charitable giving did not go down, and you know i would hope within the next few months, as we have in all the data and we crunch it, we can be responsive to you and publicly talk about this again.

This is one of these things if we have modernized technology, we'd, be able tocue the system and get this real-time. I think this is something about which i've heard very broadly from community organizations, houses of worship in delaware, and i hope we can stay in regular touch about it. I think it is a likely unintended consequence of the tax cut and jobs act, but it could be a really significant one. You february you notified congress, you intended to transfer up to 600 million of the treasury forfeiture fund to homeland security for border wall construction. Historically, you've used accumulated surpluses and that fund to augment resources for federal law enforcement partners, supporting cyber security or cyber crime operations at the irs or elsewhere, where coast guard equipment for searching drugson ships at sea. These are two recent examples. What law enforcement activities might have gone funded? Had you not diverted the 600 million to wall construction? So thank you for that question. First, let me just say: as you've outlined, the forager fund has been used in the past regularly for enforcement purposes. We did have a request from dhs to transfer money to them for enforcement purposes. Dhs made the decision to allocate that money to the wall and we send money over as they have specific things. I think, as you're aware of there's always lots of good requests for this money and i'm not aware of specifically what the other uses would have been but iacknowledge. There are always good uses for funds and that this was the priority of dhs.

Well i'll tell you the law enforcement leaders. I just heard from have a lot of pressing communications and security needs. I think, would perhaps have been better served there. Let me last ask you about the community development financial institutions funder cdfi. Your budget proposes a cut of 236 million from last year's enacted level and says in justification. The cdfi industry has matured in these institutions should have access to private capital needed to build capacity, extend credit, provide financial services to the communities they serve. My understanding from a number of cdfis and there's five that operate in delaware is thattheir ability to raise private sector. Investment is greatly enhanced by funding of the cdfi financial assistance fund and their awards, and the availability of those awards have made it possible for cdfis to finance projects and businesses in some of the most rural or most under-resourced communities in america. Has the department reached out to the organizations and institutions whose capital is leveraged by cdf eyes, with financial assistance awards to gauge their willingness to actually continue working with cdf eyes? In the absence of this federal funding, this would almost completely shut them down in terms of their federal support, and i frankly have difficulty with the credibility of the justification that they do not need federal supportgiven, what i've heard from the cdfi community. Well, let me just comment that we had to make difficult decisions within a large budget where we were trying to be constrained on overall spending so that this was a relative decision of different priorities. Let me acknowledge that we do think that the industry is mature, but on the other hand, if the committee supports this program and thinks that there should be additional money to be funded to it, we would acknowledge that it does serve valid purposes in many communities and We would continue to. We would continue to move forward with these funds, so this was a relative decision where there are lots of important priorities, withinthe department.

I appreciate that answer i'll. Just say that this strikes me as a community there's a long record of leveraging significant multiples and they most directly benefit the least wealthy or resourced communities in america, and given some of the choices made in the tax bill, this struck me as a as a particularly Hard choice to accept that's part of our role in oversight. I appreciate your answer and the opportunity to work together. Mr. chairman, i hope we will restore funding for the community development financial institutions. Thank you. Thank you. Senator senator van hollen's. Thank you. Mr. chairman welcome. Mr.

secretary and i share senator coons his concerns about the proposed elimination of cdfi ialso want to thank you and your team at the secretary of in the department of treasury for working to enforce the north korea sanctions. As you know, senator toomey, and i think we should go farther - we've proposed the brink act again for secondary sanctions and look forward to that conversation with you secretary. I have some questions about taxpayer accountability. We have a president who's bragged about not paying taxes when he ran for president. He said quote that makes me smart unquote. Just a week ago, the president tweeted that some of the write-offs he claims were quote a tax shelter. That'S his words. He said quote. It was sport, so mr. secretary, wouldn't you agree, thatcongress has an interest in verifying that the irs is fairly enforcing the law and making sure that the president, who is in charge of the executive branch, making sure that the president is paying the taxes he owes. We have communicated that if congress wants to sit down with us or representatives specifically of ways and means, we've we've said that, to the extent that congress wants to understand how the president is audited, where the vice president has audited, there are policies and procedures. Mr.

secretary, with all respect that that wasn't my question, my question that i misinterpreted, i didn't okay. My question relates to whether or not you agree that congress has a legitimate interestin itself, verifying that the president has paid the taxes due and owing again. What i would say and where i was going to go on this, is that i think congress has a legitimate interest to make sure that the irs is performing the function properly as it relates to any taxpayer. If you're, referring to the specific request of the president's returns, i think, as you know, i've said before. I think this is a very important issue that has a precedent way beyond any one. President in congress affects the weaponization of the irs and could be used against anyone, and we on this request. We have carefully reviewed this with the department of justice and we'llbe responding. Mr. secretary, you, you haven't answered my question as to whether or not congress has a legitimate interest in verifying whether the irs is properly enforcing tax law. With respect to the president, are you aware that section 66 1:03 of the irs was first enacted because of congressional concern that a senior member of a former president's administration member of president harding's administration was being given special treatment by what was then called the bureau of Internal revenue are you aware of that fact? I am okay, so congress clearly was not convinced that the bureau of internal revenue was providing them full information about tax payments due and owing by a senior member of the hardingadministration, and that's why they passed the law. To begin with, so that they could independently verify that, isn't that the case, i'm not sure, if that's the case who are not well, let me give you some additional history. There were allegations that president nixon had not paid the taxes he owed and in 1973 president nixon famously said quote: people have got to know whether or not their president is a crook nixon said that he had paid all the taxes he owed.

Nixon also said the irs had signed off on his returns, and it was true that the irs had signed off on president nixon's returns, but it turned out that nixon was not paid thetaxes due and owing, and we only learned about that when the congressional joint committee On taxation, not the irs determined that nixon owed over $ 400,000 in taxes so secretary, i asked you again given that history doesn't congress as a separate branch of government have an interest, a legitimate interest in determining whether or not the irs is enforcing a tax laws. With respect to a president of the united states, mr. senator, i want to be respectful and answering this and i'm not trying to avoid your question. But the answer is that there is a difference in interpretation between congress and us and the department of justice around this law, that not only in this president inthis congress, but has a very big impact on every single taxpayer and weaponizing the irs. And this is why there are three branches of government, so if there is a difference of opinion, this will go to the third of branch of government to be resistant. To finish up, if i could. Mr. chairman, mr. secretary, i read the letter that you sent the long letter and memo of first your letter of may 6 and then april 23rd and in there you do not appear to challenge the fact that congress would have it a legitimate interest in determining whether Or not, the irs had properly enforced the law, and that is the issue. The tax law beforeus right now. Thank you, mr. chairman, thank you senator, but before i call him senator dane's, i want to exercise my prerogative to ask for ruff.

Ask one question: i followed christmas line of questioning very carefully as usually as usual, he has very incisive questions but legitimate interest. Do you think we should have a precedent to put this in real world terms and i'll put it in personal terms. Let'S say i'm interested in the irs and i'm interested in what kind of job it's doing. So i think i'd like to see as a united states senator some tax returns. Let me think how about you send me all the tax returns from every candidate, amongmy, democratic friends running for president of the united states. Now i'm not interested in it for political reasons. I just want to study the irs and i think i'll start with these returns. How much confidence do you think the american people will have in the internal revenue service and the privacy concerns if we start doing that in this country? Well, mr. chairman, i i think it would be very dangerous to provide you with those returns. I think it would also be very dangerous to provide you with returns of large democrats or republicans who make political gifts or leaders of industry or leaders of labor unions. Again, our concern is, and the nixon administration did tryto weaponize the irs. So, as i've said, this is a unprecedented issue.

It'S a very complicated issue. I take very seriously my obligation to follow the law, and that is why i consulted with the department of justice and we will proceed on what is a very important issue to the american taxpayers, senator james. Mr. chairman, i don't not now, but i hope, given that exchange i'll have an opportunity to have a follow-up, absolutely senator senator names. Thank you, chairman kennedy, ranking member coons. Thank you, sir community, for being here today. I sincerely applaud your efforts and thank you for holding a china. Countable said the only thing worse than doing, something is doing nothing. Andhaving spent five and a half years on the ground working there in guangzhou years ago, as an expat for procter & gamble, having managed the asia-pacific region for five years for a cloud computing company. I have a lot of experience of what it's like to do. Business on the ground there in that part of the world, but i will tell you we need results. I think we need them soon, as i travel around the state of montana.

I continue here the concerns from our farmers and ranchers for perspective. Our number one economic driver in montana is agriculture, we're very dependent on exports. In fact, seventy to eighty percent of our wheat crop goes to asiai'm, also hearing concerns from folks being impacted by tariffs and uncertainty outside of montana ag, including businesses that make up montana's outdoor industry, which is about a seven billion dollar outdoor economy. In fact, one of those sims in fact they're right there, my hometown of bozeman, to maximize the effectiveness of the administration's efforts and to reach a resolution to this dispute as quickly as possible. I do believe it's critical that we work with our allies in a multilateral fashion to confront their trade abuses talking about china's trade abuses and increase pressure on china. I think we need to take and make whatever structural reforms are necessary to level this playing field for montana farmers, formontana ranchers, for the outdoor industry and for other businesses. The question mr. secretary is: how are you coordinating with our allies in the region and around the world says that we have a united in strategic approach to countering the abuses that china continues to make. It relates to force technology transfer, intellectual property theft, open violations of wto. Well. Mr. senator first let me say i really do appreciate.

I'Ve had the opportunity to talk to you about this many times, and i think your firsthand experience having been there and understanding p & g has been very helpful for me as we look at this and and as i said earlier, if we can get the proper Deal whichwould be a good deal for the united states. It would be a big opportunity for the p and g's of the world and our american workers and american companies to open up their market on a fair and level playing field. Although we are conducting these discussions on a bilateral basis, i can assure you i am in constant touch with the finance ministers of the g7 in keeping them up to date. I will be traveling to the g20 finance ministers in june and will be having a separate meeting with the g7 and i will update them on the process there. So, although this is something that we are in bilateral discussions, i can assure you wewere working with our allies, and let me just comment. I like bozeman a lot. It'S a lovely place. I'Ve enjoyed the opportunity to visit and if you fly fish you want to make sure you have a paris, waiters, they're, the only waiters left that are made in america. Arrests are all made overseas or made in america. I can assure i'm not very good at fly-fishing, but i do enjoy it and thank you and by the way, mr. chairman, they're actually made in bozeman montana as well. That'S right right! There, no they're great waivers the problem they have.

There'S such high quality will need one pair for your life, so you never have to replace themthey're wonderful anyway. Thank you. I want to shift gears here and talk about poly silicon. I raised this important issue with you in a separate hearing in march. As you know, of us, polysilicon has long been targeted by retaliatory tariffs by china. In part, dude was made in 2025 agenda and these tariffs are threatening hundreds of high wage manufacturing jobs that already see silicon in butte montana. It'S critical that already silicon one of the largest employers in the area, good jobs and these other polysilicon many facts are able to compete truly on a level playing field. Secretary minuchin is removing these tariffs on us, poly silicon, a priority for you and we work to ensurethey stay on the agenda. As negotiations with china continue. Yes, i can assure you they are, and i appreciate i've received your letter and i've worked with ambassador light heiser, and we will continue to make this a priority. Lastly, as you know, china's rapidly developing its own innovative ecosystem. In fact, senator kennedy has been over there with me touring china, it's competing or even leading in critical technologists as a quantum computing.

Your 5g. I think we need a multi-pronged approach that we can run faster. We need to go more quickly here: innovation and innovate, but the fight and the outright theft of american ip enforced technology transfers policy. The china's influence certainly compromised that outcomein response to recent reports of china reneging on his commitments. What are your current priorities to include in any agreement to create an effective deterrent to the multitude of ipu abuses with china? Well, the issues around intellectual property force, technology transfer and and other issues are some of the most important issues that ambassador light hyzer and i been dealing with. We made a lot of progress on those issues in a potential agreement. I think, as you know, we're trying to continue to move forward on on that basis, and i agree with you: american technology is important. We appreciate congress's work on firma and us being able to protect it, and you know: iii have greatconfidence and the us and european consortiums on 5g and their leadership in the world. Thank you for secretary secretary. I have a couple more questions and i'm only plenty of time here for everybody. First before i forget, i sit on the banking committee and i've had the pleasure of hearing chairman powell testifying number of times, and i know you recommended him for service and at this level, and i wanted to thank you for that. I just think he's he's very level-headed, very objectives and, and i've really learned a lot from listening to him, let me shift gears.

You mentioned the it modernization plan and i know that we're gon na ask the commissioner about this butobviously. This is within your purview and you have a deep background in it which i appreciate, but the rs has a deep background too, but its background is checkered in terms of modernizing its computer system, we've thrown a lot of money down a rat hole. Now i understand the irs wants to embark on on a yet another venture. I understand they've got an outside group, mackenzie, pretty good group that says they're on the right track. I also understand that out this history of problems with with computer modernization and technology, technological modernization and irs predates you. So you didn't father of this child, but you got to raise it and i want to hear your thoughtswhy should we believe that it's going to work time when it hasn't worked ever in the past after spending hundreds of millions of dollars? Well, i'm not an expert, and i can't really comment why it hasn't worked on the past. I can comment on what our plan is here and i personally have had a lot of experience in the technology sector. I was the chief information officer of goldman sachs, so i understand these areas and i've dedicated a significant amount of time over the last year to work with the irs on this. What i can assure you is and that there is no question. The irs has very old technology and does not provide taxpayers with the service that they should expect in this day and age, whether it's being able to access information real time on the internet, whether it's customer service, whether it's being able to schedule callbacks whether it's being Able to do chats online taxpayers deserve to be able to communicate effectively with the irs and in all means. I will also tell you that the irs faces a challenge that many big companies have with legacy technology and that it's it's hard to keep running and change. At the same time, if when you build things from scratch and you're a new business, it's easy to start them.

But when you are managing one of the largest it operationsin the world, it is hard to balance the priorities of maintaining the system and investing in the future. I would leave this committee with. If there's anything we could hopefully agree on on a bipartisan basis, is there is a need to invest in the technology. There is a need to make a long-term commitment. We can't build it modernization. If we don't know there is long term money. This is not something. That'S going to be built in any one or two years, you're sold on this effort. I am sold on this effort and this is at least a six year effort. The reason why we have a six year plan and not a five. Your planmost people have five-year plans. We couldn't deliver mackenzie, you want to stay within the rules.

Mr. chair, mr. secretary, let me shift gears right, quick, i'm not trying to trick you. Do you know what a deemed export license? Is i'm not an expert on it, but i have some familiarity with well. It'S basically a license to share technology with somebody. We welcome students from all over the world all over the world to come to our universities. We'Ve got the greatest universities in the history of the world, i'm not saying there aren't good universities in other countries, but the higher education system in america is the best in the world. Sometimes we have problems with fundingbut the quality you can't argue with and and a lot of foreign students want to come here and some of them have access to our technology and some of them take it back to their countries and sometimes that hurts america and sometimes That hurts american security. I'Ve got a bill. S 937 called protecting american technology act. It will require the department of commerce to require a deemed export license to be in place before foreign nationals can conduct scientific research and have access to some of this technology. I think we can do a better job.

I'M not gon na ask you to to support it here because i know i'm catching you're buying, but i wish you'dtake a look at it. I want foreign students to come to america. I wanted to be our friends, but i don't want to tempt anybody to steal our technology and i think we can do a better job. Senator crunch. Thank you, chairman kennedy. Mr. secretary, a bipartisan group of senators worked a couple of years ago to extend a critical tax credit for emerging clean energy technologies. This includes carbon capture and sequestration, i'm talking about 45 q and there's companies and investors waiting for guidance from your department, so they can rely on the credit and deployed new technologies. Some interim guidance would be helpful to have any timeline for when there will be guidance available, forthis critical tax it. Yes, i can tell you that is a priority of ours. We are working on it as we speak, so i would hope that we have interim guidance out shortly and i have personally been on calls recently within the last few weeks and no preparation for this. Specifically on this, with some of the large ceos and very detailed things, so i we're taking advice.

We'Ll then put it out we'll take comments, but i share your view. This is very important and we are taking it very seriously and i hope that we get it out soon. I think we have promising technologies in a number of areas that we ought to be racingto deploy. I recently led a delegation to east asia went to japan, south korea, china, taiwan met with the foreign ministers. Excuse me the finance minister, as well as the foreign minister of japan. I want to follow up on senator danes question to you about what we're doing to coordinate with our allies. I agree with the objective of challenging china's innovation mercantilism, i'm concerned about the impact on our bilateral relations and our ability to mobilize our allies of having section 232 justified tariffs in place against vital and close allies like canada or south korea, where i think it is Hard to explain how they are a national security threat and both privately and publicly thestrong impression. I'Ve gotten is that it is, or it is straining our relations, not just trade, but security. Is there a timeline for relieving the steel and aluminum tariffs on canada or south korea, given that by all measures we've achieved, they've worked with us on the administration's identified trade objectives? I can assure you that canada and mexico are the priority ambassador light. Heiser is in active discussions. The president has instructed us to try to figure out a solution, and this is a very important part of passing us mca, which is a very important economic agreement for two of our largest trading partners. So i think we are close to an understanding with mexico and canadai've spoken to the finance stirrers ambassador, lloyd, hauser is leading the effort on this, but i can assure you it is.

It is a priority of ours, south korea. I think i have not heard that south korea is as big of an issue, but again i can assure you we are working very closely with south korea and japan on the north. Korea sanctioned issues, and that is our priority with them. We recently read that the department of justice took possession of a north korean ship used to illegally export coal from north korea to china and russia. On the issue of enforcing the sanctions against the dprk, can you discuss whether china and russia are actuallyabiding by the un and our secondary sanctions against north korea? Are they part of the problem? Where are we in terms of getting them to actually be good partners and enforcing sanctions on north korea? I think they are broadly being helpful in enforcing sanctions, that's not to say that there aren't specific circumstances and where there are specific circumstances, we're having conversations with both of them and to the extent they don't enforce it. We will put sanctions on specific companies, but i mean i can tell you. I was personally involved in the discussions with the chinese to get them to move forward with us on the un sanctions which have been critical, and i can tellyou as recently as my last trip to beijing in conversations with the vice premier and others. North korea was high on the list and just again on the steel sanctions. I'Ve heard from national leaders from sweden to south africa of countries that are our allies and partners in other ways, but where there's no demonstration that they are a country of transshipment of chinese steel and and they felt, i think, understandably grieved by the imposition of sanctions That had an impact on their economies but was not clearly part of a coordinated effort targeted on the chinese. I agree with the effort to go after chinese innovation. Mercantilism, i'm just gravely concerned about its impact on someof our countries that we enjoy positive and long term relations with. I understand that, in the case of canada and mexico, the mca is the printable critical focus, but now, over more than a year, i hear the same.

Kids turns from soybean farmers in delaware that senator danes cited from wheat farmers in montana about the urgency of getting this done. I just think we need to engage our allies. Let me ask you last question about your decision not to comply with a request from the chairman of ways and means to provide the president's tax returns. My understanding is that i'm section 60 103 of the tax code says the treasury secretary shall furnish such committeewith. Any return of return information specified in a request, and i just want to know this has historically been a function delegated to the irs. Commissioner, was there a reason you didn't trust the irs commissioner to handle this? Was there a meeting between irs and treasury leaders? I'M directing the irs to stand aside or stand down on this and have you discussed chairman neal's request with the president or anyone in the white house, and did you get any direction on how to handle this matter from the president? So let me start with your last question. First, i have not discussed this with the president or anybody in the white house. Again, i just want toclarify. One of the things i publicly said earlier is with our legal department originally early on in this process. Before we received any requests, okay did have a discussion, but it was not to seek guidance or anything else, and that was way before we received any requests, and that was just in the legal department. I have not had any discussions with the president or taken any direction from him or anybody else in the white house on this issue. Now on the the other issue and again i i appreciate your question, so i'm happy to answer it very clearly, which is again.

I have a responsibility to supervise the irs commissioner and the irs notwithstanding certainfunctions that i have delegated on a day-to-day basis. I have a responsibility and i take that responsibility seriously as it relates to any taxpayer, and i have had many conversations with our legal department and the irs is legal department to make sure that we are interpreting these issues correctly. Now, notwithstanding the delegation and my responsibility to to supervise, i have had multiple conversations with the commissioner and with the our legal department and the legal department at the irs on these issues. The the commissioner and you're happy to ask him, and he can testify on this - has independently concurred with my decisions. So notwithstanding the delegation and notwithstanding the issue of if we didn't agree, hehas specifically sent notices to ways and means concurring with my decision. Thank you. Mr. secretary appreciate your answer, thank you. Mr. secretary thanks for being here, let me talk through some budget issues and some issues that really affect the american people and long-term. Our safety and security as a nation tells me a little bit about the requests that you put in for tariff financing and tracking terror financing and some of the work that has already happened with treasury on trying to identify the financing of both drug cartels that are Moving money, they're moving money and drugs in and out of our country and also tariff financing networks. So let me just comment.

I very muchappreciate the support that we've had from congress to increase funding for our tfi area for every year that i've been here and we've grown it considerably and i think there's never been a time when these tools are as important throughout the world. So, literally, every region we look at the world, we use these tools, we have regular communications, i meet it normally weekly or speak to secretary pompeo weekly. These are important tools to be used for all of our national security and foreign policy. So we have a coordinated effort between the intelligence, community, dod secretary of state and ourselves, and i think specifically in your ear question and drug cartels and others in mexico. Andother countries we've used these tools very successfully. We will continue to use these very successfully and we are determined to make sure that sources of illegal funding for these bad activities are shut off. I would also just comment that we're also looking at these as it relates to cyber currencies or cyber assets. We'Ve recently put out guidelines on this. I'Ve had conversations at the g20 about this. This is not only just monitoring us dollars, but we will very much enforce and carefully make sure that that these crypto assets cannot be used for illicit means as well. Thank you. We would encourage you to stay on that.

That'S one of the areas that, as a committeewe focused in on for several years as you as you mentioned, that we've increased funding. This fsg g committee has been very aggressive to be able to make sure that you had the resources you needed. If you don't have what you need, you need to be able to come back and tell us obviously one of the details of the what and the where on that to be able to know what is needed. But that is a clear area that we need to be able to deal with terrorism and drug movement into our country. Thank you for your support. We appreciate that again. This has been an area of great bipartisan work. Another area that webrought up and came about this committee in some conversation in the past is for the irs and orr and regulatory issues to try to make sure that there are some cooperation between those two treasury and oro has at a memory understanding to be able To go through the regulatory process, my question to you is: that's now been in place for a year. How is it going there been any hiccups in that process between treasury irs and the office of information of regulatory affairs? I'D say: generally, it's going well. I think you know we we reached an agreement with oh ira and we respect. There are certain things that should be reviewed. Obviously, anytime, we changethese procedures.

There are certain things. Obviously we wish would go a little bit faster and we'll continue to work closely with. Oh ira, on this to make sure that it doesn't slow down issues for taxpayers, but it's something we. We have a good working relationship, great you and i have talked before about opportunity zones and the regs that treasury has put out for that. That is exceptionally helpful. Thank you for to be able to get those out. There is still an unanswered question. That'S hanging out there that we've talked about before, and that is if, if an activity is illegal in federal law, can you apply get an opportunity zone credit for that economic activityin? The in a state specifically, this would apply in many states to marijuana businesses. So the question is: if it is, if a marijuana business tries to say they want to get an opportunity zone, tax credit, it's illegal in federal law, but it's maybe legal in a particular state. Has that been clarified yet in federal policy? And my suggestion is what is illegal in the federal government? We should not give a federal tax credit for if you want my personal opinion on that, but i don't think i think this is an error that hasn't been clarified yet by treasury. So i appreciate you bringing that up so first, let me comment. We obviously have aconflict in certain states of notice, more broadly, between federal law and state law, and that creates significant problems for us at treasury, particularly in areas of the irs and other areas where we need to collect taxes.

And we have to build cache rooms and everything else, and this has become a cash business. So without me making a policy view on this. I would encourage congress that this is an issue that needs to be addressed because has created issues specifically in regards to your question and we have not yet put out guidance. So i will defer to my team, but my recommendation to them would be that it is not the intent of the opportunity zonesthat. If there is this conflict that has not been cleared, that for now that that we should not have those businesses and the opportunity zones. But i defer to my my group to put out guidance on this, but i again i would just emphasize the broader issue is an issue that impacts us in many ways. That is an issue for congress to look at great sergej. Thank you. Thank you. Senator senator van hopper. Thank you, mr. chairman.

Mr. chairman, just in response to the comments you made, i want to point out and secretary acknowledged this in his response that section six 1:03 of the irs code was originally enacted because of congressional concerns that asenior member of the executive branch was not paying taxes and In that case, it was the secretary of treasury congress was concerned that the secretary of treasury, at the time of oversaw the bureau of internal revenue, was not paying taxes due in owing, and that was the motivation for passing. This law and logic tells you who would apply equally to the boss of the secretary of treasury. So the concern was that the irs within the executive branch may not properly enforce the tax laws of the united states against senior members. The executive branch - and that is the legislative history of this secretary minuchin senator coons, asked you about your your conversations and i think youtestified that you did have conversations with counsel at the irs. Is that right? Yes, but before i just, i just want to clarify one thing on this, so i acknowledged that that's what you said the history of the law was i've also acknowledged that i've read certain things, but i am not an expert at interpreting. What congress's intent was in passing this law originally, so i just wanted to clarify that on that i'll, let the i'll let the record speak for its sake there. Thank you. Yes, i have had conversations with the commissioner and our legal counsel and their legal counsel jointly, as i would expect you think i would know i'm not questioning theconversations. My question is: did the irs chief counsel, michael desmond, agree with the decision to refuse to hand over the president's tax returns in response to chairman neal's request again any comments that we would have with counsel? I don't want to make a comment on what my counsel said, or i speak for their accounts. So but yes, my understanding is, is that is the case and that that the irs commissioner relied upon that advice. As i revised, i relied upon advice from my counsel.

So i believe, that's the case. You have a conversation with the chief chief counsel at the irs. Again, i've had conversations with the four of us on the phone. Yes, andi've never heard anything that the chief counsel thought otherwise all right. Mr. secretary after it was learned that president nixon had not paid the taxes due and owing despite the fact that the irs had reviewed those tax returns, the irs began to require an automatic audit of the tax returns of the president of the united states. My question is this: if a person becomes president while they are being audited for tax returns from earlier years, does the irs automatic presidential audit procedure also include the prior year tax returns as part of that audit? I don't know the answer to that, but i can look into it. I do know that the the the audit requirementsof are the current years, but i'd be happy to look into that issue and get back to you. I think the fact that it's difficult for you to answer that question again underscores the congressional concern about whether or not the tax laws are being fairly applied. Let me ask you this: does the audit does the automatic irs audit include a review of all of a president's underlying business enterprises again, since the president has publicly commented that he was under audit for prior years? That was not an issue that i needed to look into as it relates to the specifics of the audit requirements. Again, i would be happy in a smaller non-public setting to gothrough with the appropriate congressional members what exactly the audit procedures are. I would also just comment on this issue and i know there's a lot of interest in both sides on this issue.

I again, i think it's an important issue that impacts everybody and if this issue goes through the courts, i think it's better, that we have the courts interpretation if there is a difference than establish a precedent that is weaponizing the argument with respect. Mr. secretary, the the automatic audit procedure that was established was established with respect to a president united states. That was the concern that led to that. Isn'T that the case and and the vice president right might okay, fair enoughso that audit procedure wasn't set up for anybody. Any elected official, any citizen it was expressed, concern about the president's, because the president, of course, is in charge of the executive branch which ultimately oversees the irs, and this is part of the manuals. I it's a matter of public interest as to whether or not that special audit procedure includes a review of a president's business enterprises. That seems to me, mr. secretary, something that should be answered in public. I'M not asking about any particular president. This point: i'm i'm asking: what is the process of the irs with respect to the automatic audit of a president? In again, i've reviewed the process of the audit andhow, it works and everything else i'd be more than happy these specific questions, your question, you have a you, have a manual, it's a public manual and i'm asking you because it's not clear in the public manual whether Or not a president's business enterprises are part of that automatic audit. Yes or no and again i've told you that i'm gon na look into that and get back to you.

So you you don't know as of today.

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