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briefing. and later epa administrator gina mccarthy testifies on her agency's 2016 budget request. next treasury secretary jack lew and john koskinen testify on the 2016 budget request for the treasury department. they also discuss cybersecurity, tax fraud, taxpayer services, and small businesses. this runs just under two hours. >> the subcommittee on financial services and general government will come to order.

good afternoon. the subcommittee as i said, will come to order. today marks the first hearing of the financial services and general government subcommittee for the 114th congress. this is also my first hearing as subcommittee chairman. and i'm pleased to serve alongside the new ranking member my good friend, senator coons. i would also like to acknowledge senator langford and senator durbin. although our subcommittee is small, the number of agencies we fund is large. and their impact on our economy is significant. i'm confident that our members are up to the task before us. as we begin this important hearing to review the budget requests of the department of treasury and the internal revenue service, we welcome our witnesses. senator jack lew, commissioner john koskinen -- i bet i'm not the first one that struggled with that a little bit --

boozman, bozeman and russell george. thank you for being here. as members of this committee, we have a tremendous responsibility to ensure the hard-earned tax dollars from millions of americans are spent appropriately. unfortunately, the president has put forth a budget that is out of touch with the needs and concerns of hardworking taxpayers in his budget for fiscal year 2016, the president proposes to create $2.1 trillion in new taxes increase spending by 65% and $8.5 trillion to the debt over the next ten years. while hardworking arkansans have been forced to cut spending in the last few years. the president has been unwilling to do the same in washington. our country is in serious need of budgeting. all too often washington loses sight of the fact that every dollar the government spends comes out of the pocket of the taxpayer and is one less dollar that a taxpayer can spend to

provide for their family, grow their businesses, or help their neighbor. as members of this committee, we have a responsibility to ensure that decisions about federal funding are made with those taxpayers in mind. nowhere is the need for oversight more apparent than in the agencies before us today. when the irs takes actions that breach the trust of the american people, it undermines taxpayers' faith and the impartiality of the agency. this self-inflicted damage harms the credibility that is essential for our voluntary compliance system to function. americans have lost faith in the institution, and you have a responsibility to regain their trust. we have all heard too often that investigations into these issues are distracting and that everyone should move on. unfortunately to taxpayers, these responses appear to reflect the continued lack of accountability and a lack of leadership. to repair that damage there has to be fundamental change in the agency's culture and that change must begin with a

complete transparency and acceptance of responsibility. unfortunately, there's continued evidence of the culture that is simply out of touch with taxpayers. for example, hiring employees with past performance or conduct issues undermines the public trust in tax administration. additionally, it weakens the public's confidence in the irs's ability to safeguard taxpayers' rights and privacy. making bonuses a priority does not help the irs regain the trust of taxpayers or raise confidence that the agency will enforce tax laws impartially without regard to an individual's exercise of their constitutional rights. as was the case in the previous fiscal year in 2015, one of the irs's first actions after the enactment of their appropriations bill was to announce they would pay out $67 million in awards to employees. once again, irs management seems to have forgotten that their most important customers aren't their own employees. they are the american people.

it's disappointing to see that the irs budget request is again unrealistic. the president's request for the irs for fiscal year 2016 is almost $12.9 billion, a $2 billion increase. under the budget control act, the discretionary spending caps for fiscal year 2016 limit nondefense spending to $493 billion. this represents an increase of $1.1 billion over the fiscal year 2015 level for nondefense departments and agencies. yet for fiscal year 2016 the irs has increased -- has requested, i'm sorry yet for fiscal year 2016, the irs has requested a base increase that is higher than the total increase available for all nondefense discretionary spending. also a request for an additional $667 million above the limit on spending set by current law. treasury and the irs are fully

aware that such cap adjustments were not included in the budget control act of 2011. no cap adjustment for the irs has been authorized since then. given this fact, submitting an unrealistic request simply sets unreasonable expectations. this is even more troubling when funding for critical work, for example, to protect taxpayers in the future from the trauma of identity theft is left to be funded through a cap adjustment. the american people want a government that works for them, not against them. they want us to curb washington's wasteful spending habits, make the government more efficient, effective and accountable. and pursue policies that create economic opportunities for everyone. these are the priorities of the american people. they will be reflected in the critical oversight we conduct as we consider the fiscal year 2016 budget request for all of the agencies within our jurisdiction. and with that i yield back and turn to senator coons.

>> thank you, mr. chairman. thank you for bringing us together today. and i look forward to working with you and i hope that with new blood, new energy and a new approach, we might build a strong partnership on this subcommittee. i'd like to welcome our witnesses, secretary lew, commissioner koskinen and inspector general george. i look forward to your testimony. you have important and difficult jobs under challenging scenarios, and i just want to thank you for your service at the outset. a responsible stewardship of taxpayers' hard-earned money is one of the most important obligations we have. as members of the appropriations committee, it's important we work diligently and together to uphold the trust our constituents put in us. i recognize there will be areas where we disagree, but it is my sincere hope we can approach our work with the seriousness it deserves. today we consider the budget for the treasury department and agency central to our government's stability and our nation's fiscal health. i welcome the chance to examine treasury's budget request and have what i hope will be a frank discussion about what is required to fulfill your responsibilities. i'm eager to learn how treasury has adapted to budget

constraints and how you will deal with resource competition and competing demands. much of treasury's budget goes to the irs, but there are a number of important bureaus and functions i look forward to hearing about. three in particular, i'm pleased the president requested strengthening the community development financial institutions fund the bond guarantee program, and the state small business credit initiative. i believe programs like these can provide access to capital for small businesses around the country and help them to grow jobs and to support affordable housing in developed communities. i look forward to talking pore about those. i do have concerns about the department's proposal to cut funding for the office of terrorism and financial intelligence given pressing issues in the sanctions enforcement against iran and russia. i look forward to hearing your thoughts on that topic. no government agency is more visible to the american people than the internal revenue service, collects the revenues that fund 95% of our federal government. and each year more than 80,000 public servants at the irs make hundreds of millions of contacts

with taxpayers as the face of government to more americans than any other agency, it is my hope as the national taxpayer advocate has suggested that the irs could be best described as the accounts receivable department of our government and not by less positive monikers. for fiscal 2016, the president's budget requests an 18% funding increase for the irs. on this point i think it's valuable that we reflect on the fact that while there is, i think, a broad bipartisan dislike of paying taxes, we shouldn't cut off our nose to spite our face. the more we cut irs funding, the harder it becomes for the agency to respond to the needs of taxpayers to investigate tax, fraud or abuse. i hear from delawareans who are frustrated when their calls go unanswered or it takes a long time to connect and get responsible answers to questions. i'm sure many other senate offices have the same experience. every dollar cut from the irs budget resulted in seven fewer dollars revenue collected by one

estimation by former irs commissioner douglas. that was a 2011 estimate. so we have a lot to discuss today. ways that we can improve the functioning and operation of the irs, its responsiveness and engagement, ways that we can prove the functioning of the treasury department. the fiscal 2016 forecast is not encouraging as budgetary restraints remain in place. and i look forward to hearing secretary lew and commissioner koskinen's perspectives on delivering top-notch service to taxpayers. i look forward to working with you chairman boseman and having an open exchange as our hearings progress. thank you. >> thank you, senator coons. now we look forward to secretary lew's commission. >> thank you. it's a pleasure to be here to discuss the treasury's budget. as we meet here today our economy and our country have made considerable progress that we can all take pride in.

by almost every metric from job creation, economic growth and deficit reduction to manufacturing, exports and energy independence, america has come a long way. the fact is in 2014, we saw the best year of job growth since the 1990s. and over the past five years, america's businesses have created nearly 12 million new jobs. the longest stretch of sustained private sector job growth in our nation's history. our economy continues to expand with healthy growth in 2014. and forecasts projecting above-trend growth for this year. we continue to outperform our trading partners, many of which are still struggling to recover from the global economic crisis. american exports set another record last year for goods and services sold overseas. and this record was largely driven by small businesses. our deficit, which has fallen by almost three-quarters, is forecast to decline even further in the next fiscal year. these achievements underscore america's enduring economic strength, and we can keep this progress going with the right policies and with bipartisan cooperation.

the president's budget is a blueprint for washington to work together. and it not only lays out a path to find common ground, it puts forward sensible solutions to make sure every american who works hard has a chance to get ahead. this budget knocks down barriers for working families. so things like child care, mortgage payments and college education are more affordable. it modernizes our job training system, fuels research and development and repairs our roads, bridges and ports so more companies will invest, locate and hire in the united states. and it reforms our tax system so we can eliminate special interest loopholes, strengthsen the middle class and laying the play level the playing field. it allowed for higher investments in 2014 and 2015. but it did nothing to alleviate sequestration in 2016. sequestration imposed arbitrary spending cuts that are bad for our economy and for our security. these across-the-board cuts were never intended to go into effect. rather they were purposely

unpalatable to create pressure to pass balanced responsible deficit reduction. congress should act to provide acceptable funding to meet our domestic and national security requirements. as part of the president's approach treasury's budget will allow the department to carry out its vast responsibilities efficiently and effectively. treasury is instrumental in helping shape and implement the president's economic policies, and today's requests will allow the department to promote economic prosperity fiscal responsibility and resilient financial system even as it addresses our national security objectives and bolsters stability at home and abroad. the treasury department touches the lives of virtually every american through our work to responsibly manage the government's finances streamline and reform the tax system, fuel lending to small businesses, spur economic development in struggling communities, advance our strategic interests, make social security payments and produce our nation's currency. since president obama took office, the treasury department has had to marshal its resources

to confront deep domestic and global challenges. and we've consistently met our obligations efficiently and at the lowest cost to taxpayers. this budget request continues to achieve savings and fund vital programs alongside strategies that will make the department more effective. the primary area where we're requesting additional resources is in the internal revenue service. funding for the irs has been cut dramatically over the past five years. these cuts amount to a total of $1.2 billion, or 10% of the agency's budget. as a result, taxpayers now face longer and unacceptable wait times on the phone, and it takes the irs longer to respond to taxpayer correspondence. a sustained deterioration in taxpayer service combined with reduced enforcement activity presents serious long-term risk for the u.s. tax system which is based on voluntary compliance. the treasury budget request restores funding to the irs so it can provide an acceptable level of customer service that the american taxpayers deserve

as well as continued modernization to meet legislative mandates set by congress. these funds will help the irs to update antiquated computer systems and protect taxpayer information. in addition, we're seeking an adjustment of the program integrity cap to allow the irs to invest in enforcement initiatives, investments that will generate a sizeable return. to be specific, it will yield $60 billion in additional revenue at a cost of $19 billion. meaning it will reduce the deficit by $41 billion over the next ten years. this budget also includes additional funding so treasury can meet its obligations under the digital accountability and transparency act and provide americans with the most accurate information about government spending. on top of that, we're requesting a reauthorization of programs that have proven results. for instance, the budget proposes an extension of the community development financial institution fund's bond guarantee program which unlocks long-term financing for financial institutions in underserved communities. and it proposes a new investment

in the state small business credit initiative which leverages private lending to strengthen small businesses nationwide. in closing, i want to thank the talented team of public servants at the treasury department. they're dedicated to the work of the department and committed to the american people. i'm proud to represent them here today. and on behalf of these hardworking men and women i want to say how much we appreciate the support of this committee. thank you and i look forward to answering any questions that you have. >> thank you very much, mr. secretary. at this time we will proceed to our question where each senator will have seven minutes per round, if there's sufficient interest for additional rounds of questioning, we will try to accommodate. i read your testimony and appreciate it. in there you mention the need for finding common ground. and i think you mentioned infrastructure, things like that, which again, i would agree on totally and very much support

infrastructure. now, we have different viewpoints as to how you get the dollars to get that done, and that's a sticking point. but the other thing is -- and let me do this in the form of a question. it concerns our community bankers. i feel like the backbone of america is small business, but the backbone of small business is community banks. and a number of community bankers and credit unions have expressed concerns about the cost of complying with what they feel like are onerous regulatory burdens. community banks are the backbone of small business, as i said. and again, the backbone of our community -- which are also the backbone of our communities. harvard university researchers released a report in february about the plight of community banks in the united states and how poor regulatory coordination and inappropriate designed regulations are stifling community banks. this is particularly a concern to states like arkansas where there are 96 towns with only one physical banking location.

and two-thirds of these communities have less than 1,000 residents. what do you propose -- what is the administration doing to ease the burdens and compliance cost facing community banks? >> mr. chairman we very much share with you the view that community banks play an important part in our communities but in the fabric of our national economy. you know, i think if you look at the design of many of the laws and the rules, you'll see that there are standards that reflect the differences between smaller and larger financial institutions. there are exemptions in many cases for smaller institutions. and there are bars that are easier to clear for smaller institutions that don't present the same level of financial risk. i know the regulators, as they look at the discretion that they have, are always looking for whether there is flexibility and whether or not there's a risk

that they need to be concerned about. and they've consistently made judgments to have the burden on smaller financial institutions reflect the, in general lower level of risk. but i do think we have to be careful to remember the purposes of financial reform. the purpose of financial reform was to make sure we never again face the kind of economic crisis that we had in 2008. and i think that the standards that we use have to be mindful of the fact that the architecture that was put in place was designed to prevent the taking of risks that could add up to a risk to the country. you know the relatively easier standards for smaller institutions i think is appropriate, but i do think the oversight that we have now is more appropriate than where we were in 2008 when, frankly we had a lapse in our ability to see risks developing and to respond in a way to protect the

u.s. economy. so i think financial reform both the legislation and the rules, have been quite effective at making our financial system safer and sounder. and we've tried to do it in a way that's mindful of the burdens on smaller banks and smaller communities. >> i guess my concern is is that when you get out and you visit and you go to various institutions like this, if you go to these 96 towns, you know small towns with one bank and then other towns with a few banks, again, it's universal. you know they feel like that things have changed dramatically. and i would argue that these types of community banks just didn't have anything at all to do with the meltdown that we experienced, you know, several years ago. so i really wish that you would look at that. it's something that we're looking at. we're having kind of a one size fits all. and again i think the idea, like i said, that these banks

are somehow responsible for that, i simply don't agree with. recent cybersecurity reports revealed that a cyber criminal ring from russia china ukraine and other parts of europe has stolen $1 billion from up to 100 banks. an e-payment systems in our countries around the world including the united states since 2013. so cybersecurity is a huge thing that we're very, very concerned about. in your opinion, is america's personal and financial information of banks safe from cyber attacks? >> senator, i think cybersecurity is an enormously important and difficult issue and it's one that i know i worry about every day. and when i talk to ceos of financial institutions, retail businesses, they worry about every day. i think that we are doing an awful lot that is the right kind of defense against cyber attack. but the cyber criminals are always honing their attacks.

and we can't think that we can get ahead of them. our challenge is going to be to keep up with them, to make sure that we have good practices in place to detect attacks so that we have the ability to respond when there are attacks, and to share information so that best practices can be available throughout the system. we have legislation pending that the president has proposed which we think would go a long way towards providing the ability to share information which we think would make the system safer. i think the financial sector is probably in a better position now than other sectors are. but i don't think anyone can sit back and rest comfortably. mr. chairman, i can't help but notice that the ranking member of the committee came in while i've been responding to your question. i hope i can take just a moment to welcome her and thank her for her service and wish her well. >> i'll have more to say in a minute. i'm here for two years jack, so

we're going over these line items. i look forward to working with you, and even particularly with all of the issues. so we'll talk. >> thank you. very quickly and very shortly i'm running over my time, but i'm encouraged by recent steps to reform the u.s./cuban relationship boosting our commercial ties would have significant benefits for both of our economies. my home state of arkansas exported nearly $34 million in goods to cuba in 2004 before payment restrictions were tightened in 2005. earlier this year, researchers at the university of arkansas estimate expanded trade and travel to cuba would bring an additional $50 million in economic gains to arkansas. what's being done to ease payment restrictions, and how will this impact u.s. agriculture exports to cuba? >> mr. chairman, the actions that the president announced

just a few months ago regarding easing of some of our sanctions against cuba we think will help u.s. businesses. but mostly we think it will help advance the kind of positive change in cuba which could be positive in terms of making a difference where the old policies were not. you know we have tried to make it easier for the kinds of transactions that have been frustrating for american agriculture to go forward consistent with the legal restrictions that remain in place. i think that there are opportunities for americans in agriculture and other sectors to do business in cuba, but i think the bigger story in terms of u.s./cuba relations is it's a chance for cuba to be more exposed to u.s. values and u.s. ways of doing business and u.s. freedoms in a way that will be more effective at pushing back on the practices of cuba that still need to change than the

old policies which were both not productive in terms of changing cuba and hurting u.s. interests. >> senator coons? >> thank you. thank you, chairman bozeman. thank you secretary lew, for your testimony. on the theme that chairman bozeman started with about access to capital in small towns and how community banks can make a significant difference, just describe briefly, if you would how the community development financial institutions fund is used to help rebuild distressed neighborhoods and support small businesses and what the cdfi bond guarantee program if it were to ramp up to a billion might be able to do and how they might play a constructive role in providing access to capital in small communities, first. second senator bozeman asked about the burden the regulatory burden, on smaller banks. i've heard from a number of folks in the financial community who believe that once banks obtain more than $50 billion in assets, they suddenly become subject to all the regulatory

oversight of the mega banks. and while i'm a strong supporter of the steps taken in dodd/frank to prevent future crises, i wonder if that's accurate or there's a series where you steadily ratchet up regulations in accordance with growing size. we would welcome your insights into that point as well. >> thank you, senator. cdfi i think has been an enormously effective program both because of what it does directly and because of the institution-building role that it plays in the communities that it serves. in just looking at the raw numbers, in 2014 we made $146 million in awards. and it produced 50,000 new jobs, almost 10,000 businesses financed. and in the communities where they're present, there is a financial institution that local businesses can go to. so in places where community banks weren't able to have a

foothold, it's created access to the benefits of what community banks offer. the cdfi bond guarantee program you know addresses one of the fundamental challenges in revitalizing communities. in many low and underserved -- low-income and underserved communities, access to long-term fixed-rate financing is just hard to find or impossible to find. and the guarantee program to date has guaranteed $525 billion in bonds through the program to help cdfi's provide financing needs for the community. so i think it is a very well leveraged and successful program which is why we've proposed the reauthorization again. and senator, with regard to the threshold question that you asked about i think you're totally correct. it's not a hard line where you know, everything happens to an institution if they pass the $50 billion threshold.

there are many requirements from which institutions remain exempt. there are other cases in which there are standards that are modified to reflect the lower level of risk. and i think with that said, and as i said to the chairman we remain very much focused on what can we do to make that burden even less without creating risks to the kind of general architecture of financial security. it's an area that i know all the regulators are focused on and we are focused on at treasury. >> good, because i share that concern, that we find ways to provide better access to capital, more lending at the community banking level without increasing risks to the financial system as a whole and without making basic changes to what i think are important safety and soundness protections. let me just briefly ask you about sanctions. i made reference in my opening statement. in a hearing in the last congress senator mcikulski was

advocateing for a significant increase to make sure that we've got the resources in the office of intelligence. i was struck given the ongoing issues with russia and ukraine and syria and in particular with iran that the budget proposes a reduction. why does it propose to cut funds for this office, knowing there are these significant threats? do you believe it's overresourced? and given the real potential that we may return to enforcing sanctions against iran do we have the resources that this office needs? >> senator i think the work that our office of terrorism and financing does is enormously important. and the sanctions programs that we administer have added to this president and all future presidents arsenal of tools that are extraordinarily effective and powerful. and i must say that when i think of how much time i spend working in this area, it is a bit of a surprise to me how much of my time goes into this because of

the world we live in today. as far as resources go we requested the resource level as a floor, not as a ceiling and we proposed putting it in the departmental offices so that we would have a little bit more flexibility. there were some one-time expenditures last year that may or may not recur. as far as the iran sanctions go we have not lessened our level of activity on iran sanctions. so we're fully funded on iran sanctions. and the russia sanctions were a new start this year. i don't think we missed a beat in terms of any of the other sanction programs we administer, and we came up to speed very quickly when there was a need for russia's sanctions and i'm very proud of our team for having mastered the intricacies of both russia's financial institutions, its interconnection to the global financial system and how we could use targeted and really surgical sanctions to put the maximum pressure on the targets of the sanctions with the minimal spillover to europe and

the rest of the world. so i think we have -- we have funded it at the right level but it's a floor, not a ceiling. and, you know, we appreciate the support that this committee has given for this very important function. >> i think just speaking for myself, this is an area i intend to follow closely, and i want to be continually reassured you have more than adequate resources for the fight. two quick questions, in closing, if i might. your i.t. investments which are significant relative to the total increase requested and data act implementation, i share the chairman's concerns about cybersecurity, these two strike mes aways you can strengthen your i.t. systems and the transparency of your budget. and then last i have a question about mlp. so if you would briefly about your i.t. >> i agree. i think the investment in the data act is extremely important. we worked with congress on the development of that legislation. we're eager to implement it well. i don't think we can implement it without resources.

we can't implement it as well as we should without the resources to do it properly. i do think it helps to safeguard our systems to invest in cybersecurity by having better systems to begin with. and as you know, many of our systems are quite old. >> i was struck that the budget proposes eliminated master limited partnerships as a structure. as you know, i've long been an advocate on a bipartisan basis for instead opening them to renewable energy. i think it is a technology-neutral politically feasible way to provide long-term financing support for renewable energy. i wondered if you had a comment. >> senator it's an area that i'd be happy to follow up with you on. you know our proposal -- obviously we have many proposals to promote renewable energy both in terms of financing and research and development. with regard to master limited partnerships, we've had concerns over the years, and i would look forward to discussing it with you. >> thank you, mr. chairman. >> the senator from kansas is recognized. >> mr. chairman, thank you very

much. mr. secretary, welcome. before asking any questions since i last saw the senator from maryland she's announced her intentions not to seek re-election. and i just wanted to use this as an opportunity to thank her for her service. i've enjoyed your tenure as chairman of the appropriations committee. and i appreciate the tenacity with which you have tackled our spending. and the continual attempt to get us in the appropriations process back to regular order. so thank you very much. i appreciate the way you've treated me for the last several years. mr. secretary i think three relatively quick questions. as i was walking in i was told that the chairman was questioning you about community banking regulations. i would add my voice to that issue. my understanding is that your response was something along the lines that community banks are better regulated today than they previously were. i would indicate that i don't think that's the case. i think community banks have been caught up in a broader

regulatory scheme than they deserve to be in. the consequences are significant to the economy. in a state like mine in which community banks provide necessary capital to a growing business, to a start-up, the relationship banking is very important. and the example that i use that has become so annoying to me and so devastating is that many of my community banks have made the decision no longer to make home loans -- home mortgage loans to individuals who want to buy a home in their hometown or the bank is located because of the significant regulatory environment in which they now operate in. i doubt that dodd/frank intended consequence was to reduce the availability of mortgage credit in a town of several thousand people, but that's been the end result. it's not only the regulatory environment but also the consequences that there's a failure by the bank to cross every "t" and dot every "i." and the reason that it's necessary for me to bring this kind of issue to you is that so many of the regulators are not

subject to appropriations. therefore, in this setting, you're our one opportunity to express concern about things that are happening certainly within the treasury department but broader in the bank regulatory environment that those banks face. >> senator, i understand the concern about community banks and share the concerns. i agroo heee with all of you that have expressed the view that community banks are an enormously important to the fabric of our economic system and our communities. i do think as we were discussing a moment ago, what happens at the cutoff points is not quite as dramatic as sometimes it's described because there are different rules for smaller institutions. with specific regard to the housing issue mentioned, i know that some of the regulators are reviewing some of the rules that have been of concern to community banks. i don't think the intention was to stop the lending that you described. it was intended to put burdens on lenders to know their clients

better and to offer different kinds of products. but it was not to shut down the lending. i know that things like looking at putback risk regulators have been trying to take some of that unknown out of the system by being clear, what would and wouldn't be considered an actionable kind of error. so i think the regulators are attuned to it. obviously, mostly this is not directly in the jurisdiction of treasury, but i've very much concerned both as a chair of fsoc but also as someone who cares deeply about the health of our banking and financial system and will look forward to working with you. but i do think we have to be careful not to undo the architecture that has made our system so much safer than it was in 2008. >> is there anyone that answers to you at the treasury department that would be a good person for us to talk to about? >> yeah we have an office of domestic finance and we have people who work on these banking issues, and i'm happy to have them be in contact with your

staff. >> i appreciate that thank you. and part of the review that's under way is a gripra in which banking regulations are now being considered on a periodic review. and i would welcome a report back as to how that process is going and whether we're headed in a direction that would eliminate or modify existing rules and regulations as they affect people. >> senator i am very much focussed on that. when i was omb director, we did a lookback of rules across the federal government. and we didn't have the ability to reach into the independent regulatory agencies. so i'm now pleased to see this process under way. where independent regulatory agencies are doing the same thing. and i know from the conversations i've had that the heads of these agencies are very focused on it. they're participating in regional hearings. and i think it will be very interesting to see what they come back with. >> i'm pleased by your smile of the question, and i'm pleased by your interest in this topic and the omb, i wasn't sure that you'd know about this process

but i guess you would know that hopefully as treasury secretary but also certainly as director of omb. let me ask a question -- this congress passed last year, last session, the tribal general welfare exclusion act. what was going on was irs activity on native american lands involving their activities that legislation requires that a tribal advisory committee be established to advise you on matters related to taxation of indians and establishing a training and educational system for the irs field agents. it seems to me that the treasury department is going out of its way to not have native americans on the advisory committee. would you dispel me of that belief? >> well, i'm not sure where that notion comes from. we filed the charter for the

treasury, tribal advisory committee, and we've issued a call for nominations for the three members to be appointed by the treasury secretary. we've expressly contacted tribal leaders for their nominations, and the deadline for the applications is april 28th. so we're still very much in the process of reviewing candidates. >> do you have any belief that tribal leaders should or should not be involved as members of that advisory committee? >> you know i -- i don't start out with a preconceived notion. i think we should review the applicants that come in and look for the most qualified and strongest candidates. >> that's a good answer and i would suggest that tribal leaders at least in part of that makeup of that advisory committee, tribal leaders would be a significant and important component in providing you and the treasury department and the irs advice. >> i must say i did have a meeting with tribal leaders several months ago, and it was a good exchange. the feedback i got was that they

welcome the interaction with the treasury department, and we will continue to stay very much working with them. >> thank you. do you want me to stay on time? okay. >> the senator from maryland. >> thank you mr. chairman. and my colleagues for your kind words. and secretary lew, i could thank you for your service. we've been together a really long, long time. >> a long time. >> yes. back when we were discussing earmarks in the old v.a. hud bill. so, again, thank you for your words and also for your own service. i want to reiterate some questions about community banks that i see as a common theme here among all of our colleagues on both sides of the aisle. and perhaps mr. chairman it's going to maybe a meeting with this domestic finance, maybe not a hearing, but a conversation. so let me get to my questions. i'm concerned that when the

shrinking number of community banks, and number two i'm also concerned about the shrinking number of minority-owned community banks that have demonstrated solvency and stability. but i know since even the last year, we've gone from 47 to the number in their 20s. so i think these are issues we need to really be looking at. we could talk about the merits of a community bank as compared to being you know a regional or a franchise banking in our community. well, let me get you to my question. one of which is where the very rules of government are interfering with banks being able to get back on their feet. a specific question that i have is that there's a community bank in maryland that needs the approval from the federal reserve bank of richmond in order to buy back what they had

gotten in the t.a.r.p. program. they're told that they can't buy it back, but it could make a fun -- make it ripe for a hedge fund to come along and buy the bank. well, they've got the money to buy it back. they've been prudent, and i don't want to get into individual cases, but it's where the very rules of government seem to be either tarpooning or derailing community banks to move out of the recession. and yet their own solvency which we were absolutely committed to and so on. do you have any thoughts about what treasury is telling people about buying back preferred stock and the regulators? kind of my view on actions on this? >> senator from a treasury perspective, we obviously have been working our way through the t.a.r.p. assets, trying to

resolve them so that we can recover taxpayer investments fully, wherever possible. and we've worked with community institutions and have no objection when community institutions are able to do that. i'm not sure what the regulatory issue is that you're describing. but i'd be happy to look into it. we obviously don't have any authority over the fed decisions. >> no but one of the things is how the fed roy does have to coordinate with treasury. i'd like to get you a formal letter on this -- >> sure, i'd be happy to look into it. >> -- and be aware of it. two other points that are very specific to the maryland/d.c. area, just to bring to your attention and ask you to look into them and then i have a pretty big question. one of which is the retired d.c. firefighters have called my office along with eleanor holmes norton that there is an accounting -- an old accounting

error was discovered and several retirees are getting notifications that their benefits might be reduced. these are the pensions that you're responsible for. so i'd like to get you a letter on that and a letter from eleanor holmes norton. you know that's the last that they need. i'm not asking for a response there. the other is the treasury, i know is merging financial management service with the bureau of public debt. the financial management services in hyattsville. i was able to negotiate a five-year delay with treasury in terms of this move, but we hear that there are employees at treasury so grouchy about what i did to protect those people so that we could sort this out that they're being demoted, intimidated and pushed out. could you take a look at that? >> i will take a look at it. it obviously would be

unacceptable if that were true. i think the merger has been effective, but there should be no -- no kind of treatment like you've described. >> well, you know they were looking for $8 an hour accountants in west virginia. i don't think any accountant is $8 an hour. but i'm not going to get into the legacies of bob bird. i can assure you i'm going to have as many legacies of barbara mikulski as i can. the other is a larger question for my colleagues. you and i have lived through two appropriations together when i was the chair, now the vice chair. could you tell me the impact of crisis-driven appropriations. with last-minute agreements through an omnibus, very well organized. i have nothing but excellent words to say about my colleagues and, of course congressman hal rogers. but it was a hell of a time, and i wonder, as you as the secretary of treasury our domestic economy and our global

economy, what is the impact of crisis-driven appropriations? just what i'd like to raise and just as colleague moran has raised about getting back to regular order? >> well senator i think that's an extraordinarily important question. and i commend you for the work you did last year to put together an omnibus appropriation bill with funding levels that were designed to meet current needs which is so important in terms of having our system maintain its responsiveness and its agility. continuing resolutions don't have that ability. i think when you look at the deadline-driven, crisis-driven, funding decisions that have been made over the last number of years, it's caused substantial anxiety. not just in the united states but around the world. i think that when one looks at the business investment environment, it is psychology. psychology is about confidence.

the sense of government is behaving in the way that a reasonable set of institutions should behave adds confidence. the sense that we're hurtling off a cliff destroys that sense of confidence. i detected considerable improvement in both the united states and internationally, and confidence in the u.s. as a system and its economy since we've seen a return to something that approaches regular order. i think maintaining regular order is extraordinarily important to keeping the recovery we have going and having the investment decisions that depend on people thinking will things be going in the right direction in a year, two years, three years? not just in a week, a month or maybe for part of this year. and i applaud the efforts that you went through to put an omnibus together and to -- if congress can meet the requirements to fund the government to make sure that our debt doesn't become an issue of

anxiety again, that would be very important. >> mr. chairman i know my time's up, but i've got more late-breaking news. this is good news. the senate version of the homeland security bill cleared the house. 257-167. it's on its way to the president. so that means that we on the appropriations committee, we now have passed 12 bills and we've completed now today our fiscal '15 work. >> congratulations. >> thank you, mr. secretary, for being here. we appreciate you coming and testifying. and i think that we got some really valuable information. we will follow up with additional questions for the record. that our members may have in the future. we would appreciate your time and responses as always. in order to move through the

witnesses -- >> thank you, mr. chairman. >> thank you again for being here. commissioner, i now invite you to present your testimony on behalf of the internal revenue service. >> chairman, ranking member and members of the subcommittee, thank you for the opportunity to discuss the irs budget and

current operations. i remain deeply concerned that the significant reductions are undermining the agency's ability to continually deliver on its mission, both this funding season and in the future. the irs has been reduced $1.2 billion dropping to $10.9 billion for fiscal year '15. the irs has been given significant additional responsibleties, including itch leaptation of the foreign account tax compliance act and the affordable care act. the disconnect between our funding levels and our responsibleties is illustrated in some way that by the fact after just three days of cutting our budget, congress passed legislation requiring the irs to design and implement two new programs by july 1st. implementation of the aval act and the certification

requirement for professional employees is in the middle of our most complicated filing season in years. i understand we have an obligation to be careful fulful fulful stewards. the irs has made significant efforts to find sufficient season representatives. through printings and mailings, we're receiving over $200 million a year. we've also made significant progress over the past few years in moving millions of taxpayer inquiries from our call centers and walk-in sites to our significantly improve edd web site.

we've had over 125 million hits on our where's our my refund site and more than 11 million copies of previously filed tax information have been paying online with our get transcript inspection. i would also em fa siz that we have taken activities in the past by making necessary changes and improvements in our policies and procedures to ensure that these situations do not recur. we have cut conference spending by 80%. we have established review boards for training expenses. we have insured that those who willfully failed to meet their tax obligations are not eligible for performance rewards. we are reviewing our hiring process that former employees with serious prior conduct issues are not rehired.

we now require that all contractors maintain the same high standards for tax compliance as our employees. and we've implemented the recommendations of the inspector general with regard to the serious management failures surrounding the review of applications by organizations seeking to achieve social welfare status. but there's only so much we can do with cost effectiveness. this year, we've reached the point of critical performance straight offs. there's no way around the severity of the budget cuts without taking difficult steps which have had negative impacts on service, enforcement and information technology. the funding cuts have also limited our ability to work toward gichving taxpayers a better online experience.

the president's fiscal 2016 budget request would help the agency move ahead. we would be able to bring our phone level of service up from the current 43% to 80 pnt. we would also significantly increase enforcement and collection activities generating over $2 billion in increased revenues every year and take more steps toward building a modern interface between the agency and paxzs. i understand and appreciate the concerns raised over the past few years about activities of the agency. but i took this job 15 months ago because i understand the critical role the irs plays there the taxpayers. i speak for the thou sands of professional experienced and dedicated employees of the agency when i say that we are committed to working with you and the other members of congress to lead the agency

effectively and appropriately into the future. but we need your help and support if we're going to be successful. this concludes my statement and i'd be happy to take your questions. >> thank you again for being here today and i appreciate your testimony. the problem is is lack of confidence. i can go all through these things, but irs tar getting. hiring people that left -- re-hiring people that had left with bad records. some of them actually having marked on their file don't hire tax refunds for prisoners 25% earned income tax credit fraud. the ig no safeguards and not

enough safeguards on sensitive information. one employee taking over a million dollars -- not a million dollars, a million records and the list goes on and on. cyber securities bonuses to people for poor performance records, taking of bank eaccounts from people with little evidence of wrong doing still have tax entities for tax deducting for years and still no execution plan on how to itchmplement the ica, that we've been aware of. so again, the problem is accountableility and getting some confidence back. in your budget request, you're asking for $12.9 billion for the irs.

you're asking for a $1.3 billion increase. for comparison, total non-defense discretionary spending for the entire federal government will increase by only 1.1$1.1 billion. given current budget constraints constraints, it is clear that this request favors hope over reality. are you -- the question is are you developing contingency plans on how to carry out your mission based on a more realistic budget expectation? >> well, first i would note that the difference between the irs and the other agencies is if you give us money, we give you more money back. so in terms of deficit reduction, which is a critical i shall shoe going forward in many ways, it's kind of counter productive that the more they get cut, the greater difficulty we have in collecting revenues. but i do take the point. and we are continuing to assume that one of options going into the future is that we will, in

fact, stay at the flat level. that was our assumption going into 2015 when we ended up with a budget cut of $350 million. we're the only major agency in the government that was not restored to the pre-sequester level. so combined, together we've, in effect, had the impact of two sequesters while everyone else is waiting to see what happens with the next sequester. so as i've said we're two sequesters ahead of everybody else. so, to that extent we've already had to deal with a did i have culldifficult reality, and -- >> very good. thank you. >> so we are prepared. all i can tell you last year when i testified, i said if we did not get the increase in funding request for customer service, the customer service level is going to drop below 50%. and it's done that.

to the extent that we do not get additional revenues for enforcemented, id request tell you that the enforcement levels are going to increase by 6 to 8 times more than the cut in the budget has been. but we are prepared. as i've always said, we'll play the hand you deal, that's dealt to us. whatever decisions you make, we will abide by them. but i will tell you, there are great threats to taxpayer service, tax enforcement and information technology. cyber security is a critical issue for us. we get attacked 145 million times a year. there's no data base that's more attractive than our data base. yet, we are dealing with less and less support for our it system than we think is appropriate. we'll deal with whatever you give us, but i can tell you, we are cigsignificantly underfunded already. >> how much money did you waste in licenseture last year? >> in where?

>> in licenseture? >> in terms of i.t.? >> yes. >> there's an i.t. that we have disagreement with in terms of entire use of licenses for software, as to whether in fact we had lost money by not using them and it was abn issue of how you measured it. we have taken actions to make sure, because i am a big supporter of igs. when they raise an issue like that, we deal with it. >> and we'll visit with the ig about that. during a hearing last month senator grassey asked you about the tax pons and whether it would allow individuals to claim billons of dollars in tax benefits for unaut rised work. your follow up lotter to him last week that individuals may claim up to three years of refunds on income even if they were working off the books or never paid tax social security truly startling. why are you allowing individuals who cheated by not paying any

taxes to now claim a refund that will be financed by hard-working americans who have been paying taxes all along. >> it has to be cleared that you're eligible for the earned income tax credit only if you had earnings. we have 700,000 undocumented imgrants paying taxes every year. anyone who now, under the president's program, is provided a social security number, would be eligible for filing an amended return. but then they have to demonstrate that they had earnings and pay taxes on earnings or at least file a return and only then would they be eligible. and on a sing m employee is eligible to a little less than $600 a year.