Consider the nomination of mr. David cotter to serve as assistant secretary of treasury for tax policy. Mr. Cotter, welcome to the finance committee. We appreciate your willingness to appear before us today. We also appreciate your willingness to serve in this capacity. And im sure that the significance of this position at this crucial time is not lost on you. Its not lost on any member of this committee. Tax reform has been a major focus of our committee for some time now and we are grateful to have you here to discuss your thoughts on these matters. On a number of occasions, i stated my view that president ial leadership will be a key component to any successful tax reform effort. Just the last week i quoted president obama in a speech on the senate familiar back in 2012. He said things like, quote, our current Corporate Tax system is outdated, unfair and inefficient, unquote. The problem was that president obama never really got around to truly leading out on tax reform. I expect more from President Trump on tax reform. That expectation comes in large part because of knowing him and knowing knowing the way he approaches things. The i have to say also because he and secretary mnuchin have been talking about it so much, but more than that theyve engaged with congress and the public on these issues and mr. Kautter i believe that your nomination is another way this president has furthered demonstrated his commitment on our job killing tax code. Your experience as a practitioner, tax expert will be a crucial part of this endeavor. Now before i finish up with my remarks, i also want to address another important issue, one that i want to stress with all nominees that come before the committee. Whether were talking about tax reform or the administration of existing tax policy, it is critically important that we keep open lines of communication between both parties in congress and the executive branch. My hope today is that youll commit to providing timely and responsive answers to inquiries committed by members especially if they sit on this committee. That is the expectation and quite frankly anything short of that is unacceptable. With that i want to thank you once again for able to being here today and ill turn to senator for remarks. Thank you very much mr. Chairman and colleagues since this is a tax policy doubleheader for the finance committee and were only at the half way mark im going to be brief this morning. Mr. Kautter has been nominated to serve as the assistant treasury secretary for tax policy. It is a very tough job and it is especially challenging when the congress is gearing up to work on major tax legislation where i very much share senator mccaskills view on the importance of it being bipartisan. In my view the big challenge at the heart of tax reform is guaranteeing that everybody in america has a chance to get ahead not just the fortunate few. If tax reform becomes a partisan exercise for slashing rates for just the wealthy, the American People will see this as a con job thats because it will leave in place the root causes of the appalling unfairness in the tax code. The fact is, the tax code in America Today is really a tale of two systems. There is one system for cops and nurses, and it is compulsory and its strict and basically their taxes come out of every single paycheck and then theres another system for the lucky few that says, you can pay what you want and when you want to. And it goes without saying that the nominees for top jobs in tax policy need to have the knowledge and experience to fix this root unfairness and its also vital to make sure nominees havent contributed to the problems in the first place. Now i have real concerns mr. Kautter have talked about this about several matters that took place during his time as director of national tax at ernst and young. The firm did a great deal of work setting up tax shelters for wealthy clients. In the process there were employees who were convicted of fraud and obstruction for covering it up. Ernst and young paid more than 100 million in settlements with the justice department, Internal Revenue service over its tax shelter marketing. In the vetting process for the nomination, it became clear that mr. Kautter was regularly informed of decisions that allowed ernst and young to profit off tax gaming. Mr. Kautter has told me he had no direct role in the marketing of those tax shelters or in misrepresenting them to federal auditors, yet i remain troubled that he was at the top of a department that engaged in these practices. This issues going to come up this morning and i look forward to that discussion. Finally, secretary for tax policy is a job that requires close communications with both sides of this committee. Over the last few months the administration has taken a lot of hits from republicans and democrats alike for its stated policy of ignoring questions that come from democrats. Im pleased that chairman hatch has spoken out against this policy as has chairman grassley. I want to be clear that it is completely unacceptable, unacceptable for an administration to just stonewall inquiries from members of congress. Members of congress dont do this for sport. We have an obligation on behalf of the millions of people we represent to ask tough questions, so i expect the commitment today to respond to questions from members of the committee regardless of whether or not they have a d or an r next to their name. Mr. Kautter, thank you for being here. Thank you for visiting with me and i look forward to your testimony. Mr. Kautter, do you have any comments youd care to make. Yes. Thank you mr. Chairman, and distinguished members of the Senate Finance committee. Its an honor to appear before you today. I feel both privileged and humbled to have been recommended by treasury secretary Steven Mnuchin and nominated by President Trump to serve as the assistant secretary to the treasury for tax policy. As a former tax staffer for a member of this committee, i have deep respect both for this committee and the institution of the senate. I look forward to the opportunity if confirmed to serve this country again. Id like to take a moment to thank my family who have been a constant support of inspiration and support for me. My wife cathy and two children. Id also like to express my thanks to those members and staff that ive been able to visit with if confirmed i look forward to working with you in a bipartisan collaborative and collegial manner. I grew up in a small town in the name of plymouth in northeastern pennsylvania. My father worked as an accountant and my father was a high school teacher. I spent the majority of my career as a tax practitioner and leading Accounting Firm tax departments. Im currently the partner in charge of the Accounting Firm rsms Washington National tax office. I ran the University Tax center. Prior to that i spent over 30 years with ernst and young. Finally im proud to say that i was senator dan forths tax counsel for over three years. I will always be grateful to senator dan forth for the lessons i learned and the values he instilled in all of us on his staff. He set a standard for excellence and service that has been a source of inspiration for my entire career. Through these Career Opportunities ive worked on many aspects of the tax code. At American University i focused on Small Business and middle income individuals. My current firm rsm is focused on middle Market Companies. At ernst and young and witness first hand the challenge of keeping American CompaniesCompetitive Internationally. Comprehensive tax reform is the challenge before us. The current code is unnecessarily complex, anticompetitive and picks winners and losers. Americans need a simpler system when filing their taxes and the middle class needs a tax cut. U. S. Businesses need a tax code that allows them to prosper domestically and in international marketplace. Youve made great progress in identifying the policies that will achieve these goals. The magnitude of congresss tax reform work in terms of hearings, working groups and legislative proposals is indeed impressive. As a result america is on the verge of its First Comprehensive tax code overhaul in a generation. Treasury has an Outstanding Team of many of the most talented Tax Professionals in the world. Working together with you and your staffs, i believe we can get tax reform over the finish line. If confirmed it would be an honor to strive to do so. Thank you. Thank you, sir. Were grateful youre willing to sir. I have obligatory questions. First is there anything youre aware of that might conflict to the duty you have been nominated . There is not. Do you know of any reason personal or otherwise that would in any way prevent you from fully and honorably discharging the position of the offices to which you have been nominated. No, sir. Do you agree without reservation to respond to any reasonable summons to appear and testify before any duly constituted committee of the congress if you are confirmed . Yes, sir. Finally, do you commit to provide a prompt response in writing to any questions addressed to you by any senator of this committee . Yes, mr. Chairman. Thank you, sir. Youve been in the tax business for many years from tax policy to Tax Consulting and compliance. Youve worked with congress in administrations, tax practitioners, academics and other taxpayers. What is it that you would like to achieve as head of the tax policy that the Treasury Department and how have your years of experience and interaction with all facets of the Tax Committee prepared you to do so . Mr. Chairman, one of the things ive learned over the years is that taxes do impact decision making, both by businesses and individuals. And i think having an Internal Revenue code that is fair and simple should be a high priority and having a globally competitive tax system is critically important for american businesses. So if confirmed, id focus on increasing Economic Growth through the tax code, creating good paying jobs, a middle income tax cut and simplicity. I just have to say that, what are some of the important Things Congress can do to help americans save their hard earned time and of course their hardearned money as well complying with this overly complex tax code . Senator, i think an Internal Revenue code that has a broad base with low rates which means eliminating certain Tax Deductions and preference that exist today would be very helpful. The Taxpayer Advocate is estimated that the Internal Revenue laws exceed 4 million words. No one can comprehend that and so i think eliminating a lot of what weve got today in terms of preference, broadening the base, lowering the rate is essential for americans to feel good about the Internal Revenue code. I think none of us tend to trust things we dont understand and most americans have no understanding whatsoever of the tax laws and how they work, when 90 of the population either hires a tax return preparer or purchases software to prepare the returns. Weve got a problem. And so i think we need to dramatically simplify the tax law as part of tax reform. Okay. The trade facilitation and trade enforcement act of 2015 requires u. S. Customs and border protections, cpb to promulgate regulations that the Treasury Department is responsible for approving. Some of these have missed their statutory deadline. Do i have your commitment to ensure that cbps regulation would adhere to statutory deadlines Going Forward including the promulgation of the regulations necessary for simplified drawback procedure . Thats not an issue im familiar with but my personal belief is the responsibility of the exclusive branch is to execute fully and faithfully the laws that are passed by congress and signed into law by the president and if confirmed i do everything within my power to make sure treasury meets its required deadlines. You have interacted with and advise ed small and large businesses. What are these businesses telling you is most important to them as part of tax reform . Let me ask a little bit more, too. What are the major themes youre hearing from large and Small Businesses alike as well . Larger businesses tend to be more globally active and so the focus tends to be more on a Global Competitive tax system including how foreign earnings are taxed. Small businesses are less concerned as a general matter with the Global Competitiveness of the u. S. System. Theyre more concerned with simplicity. One of the things that surprised me most when i moved to my current firm which is focused on middle Market Companies is how few businesses in the middle market have a tax professional. Businesses with revenue of 50, 60, 70 million have no one on their staff who focuses on the tax consequences of different decisions they make. And so i think having a simple straightforward Internal Revenue code for business that allows businesses to make decisions that make sense to them without being unduly influenced by the tax law would be a very good place to be. So different concerns at different ends of the spectrum. Thank you. And Profit Shifting or project that the organization for Economic Cooperation and development or oecd was intended to address concerns associated with perceived erosion of countrys tax basis and Profit Shifting. It was intended that countries who signed on to the final reports and moved Forward Together on these fronts. However, not long after the reports were finalized certain countries decided to go their own way and enact measures that went further than those measures described in the reports. For example, one of the reports dealt with tax documentation that would be prepared on a country by country basis and privately shared with certain other governments. However, there is a Strong Movement currently in some jurisdictions to make that information public. If countries collective agreed to do one thing but then go off and do another, what do you see is the benefit to the United States of participating in these tax discussions at oecd besides of course attempting to achieve particular consensus outcomes if you think the United States should maintain a presence in these tax discussions, what thoughts do you have on actions that could be taken to encourage jurisdictions and not take actions that are contradictory too or go further then agreed upon frameworks . Senator, i think its important for the United States to have a seat at the table in these discussions and i also think that it is important for the United States to make sure that those agreements we enter in to are complied with and so how we would deal with each individual situation i think would vary, but i dont know how we can have a globally Competitive International environment with a level Playing Field when different players play by different rules. Thank you, mr. Chairman. Thank you mr. Kautter and thank you for meeting with me. When you were director of national tax with ernst and young you were responsible for tracking the amount of money employees in your department made for selling tax shelters that cost taxpayers billions of dollars. It was your job to count the money and as a partner of ernst and young you benefited financially as the money just in effect poured in. You also had a hand in designing the process of reviewing tax opinions that allowed this. It was a process that led to people going to jail and a 123 million fine. Yet, up till now, you have taken no responsibility for a very dark chapter at this firm. And in effect youve said, we heard you out yesterday, it wasnt my job to complain, not my job to blow the whistle. Now, it takes real courage to stand up when people around you are breaking the law. So the question i want to ask you is, in hind sight, at the least do you wish you had handled this matter differently . Well, senator, i was not involved in the decision to get involved in tax shelters and ive never designed or drafted one myself. Every time i think about ernst and youngs activity in the tax shelter area, i wish i done things differently. I tried what would you have done differently . You were the head of the department. This is a key question for me because this was a big ripoff and id like to know what you would have done differently. At the time the firm agreed to get involved in the tax shelter business i was not the director of national tax. The firm set up a separate reporting structure with respect to tax shelters which did not involve the director of national tax and when i took over that was the system that was in place and continued until the tax Shelter Group was dissolved. It was not until later when i was designated as the primary point of contact for the firm with the permanent subcommittee on investigations but i had a chance to really review in detail the email of that group. What i saw greatly disappointed me and i felt members of the group had abused the level of trust that the firm had placed on