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TAXPAYER RIGHTS AND PRIVACY

Legal protections for taxpayer rights and privacy have improved during the past three decades, but they remain inadequate.42 Congress should do more. For exam- ple, interest on overpayments should be the same as interest on underpayments rather than the government receiving a higher rate, the time limit for taxpayers to sue for damages for improper collection actions should be extended, the juris- diction of the Tax Court should be expanded, and the tax penalty system should be reformed by rationalizing the penalty structure and reducing some of the most punitive penalties.43

The Office of the Taxpayer Advocate was created by Congress to assist taxpay- ers when the IRS bureaucracy is unresponsive or negligent. About 1.7 percent of the IRS budget goes to this function.44 Each year, the Office handles more than 250,000 cases, helping taxpayers to deal with the IRS. Each year, it issues nearly 2000 taxpayer assistance orders, a form of administrative injunction, forcing the rest of the IRS to stop taking unwarranted actions.45 Congress should provide the Office of the Taxpayer Advocate with greater resources so that it may better assist taxpayers suffering from wrongful IRS actions. The office should also be strengthened by, among other things:

Ensuring that the National Taxpayer Advocate can make his or her own personnel decisions to protect its independence; Ensuring NTA access to files, meetings, and other information needed to assist taxpayers or investigate IRS administrative practices; Requiring the IRS to address the NTA’s comments in final rules and including the NTA in deliberations prior to the release of a proposed rule; and Authorizing the NTA to file amicus briefs independently. Administrative Burden. In 2021, Americans filed 261 million tax returns and an astounding 4.7 billion information returns (such as Form W-2s, Form 1098s and Form 1099s).46 Complying with tax law costs Americans more than $400 bil- lion annually, or about 2 percent of gross domestic product.47 Although the IRS administers these reporting programs, most of this expense is mandated by Congress, not the IRS.

One of the primary reasons that Congress mandates ever-increasing infor- mation reporting is that the Treasury Department and the Joint Committee on Taxation staff almost always overestimate how much revenue will be gained from still more burdensome information reporting, and they do not estimate or report private compliance costs. Congress and the Treasury Department must undertake a serious review of the information reporting regime and reduce the burden on the public—especially small businesses. Small businesses suffer disproportionately from complexity and administrative burdens. Costs do not increase linearly with size, so elevated administrative costs have an adverse effect on the competitiveness of small firms.

Budget. The operating budget of the IRS should be held constant in real terms. The resources allocated to the Office of the Taxpayer Advocate should be increased by at least 20 percent (about $44 million). The Office of Equity, Diversity, and Inclusion should be closed. Provided that IT management is changed; an effective, well-considered implementation plan is adopted; and serious oversight is put in place, additional resources dedicated solely to IT modernization may be warranted.

INTERNATIONAL AFFAIRS

The Treasury Department should withdraw from Senate consideration the Protocol Amending the Convention on Mutual Administrative Assistance in Tax Matters.48 The protocol will lead to substantially more transnational identity theft, crime, industrial espionage, financial fraud, and suppression of political oppo- nents and religious or ethnic minorities by authoritarian and corrupt governments, including China, Colombia, Nigeria, and Russia. Unlike the original multilateral convention, the amended convention is open to all governments—including many that are either hostile to the United States, have serious corruption problems, or have inadequate privacy protections. The new Administration should also oppose the multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information.49

International organizations such as the OECD, the World Bank, and the Inter- national Monetary Fund espouse economic theories and policies that are inimical to American free market and limited government principles. The global elites who operate the IMF regularly advance higher taxes and big centralized government. The IMF has intervened in American policy debates—and has even recommended that the U.S. raise taxes. The IMF’s record of advancing global financial stability has been mixed at best. Its development assistance and lending programs in third- world countries have more often than not retarded growth rather than advancing it. The Treasury Department plays an important role in these international institutions and should force reforms and new policies. The U.S., however, should withdraw from both the World Bank and the IMF and terminate its financial con- tribution to both institutions.

If the U.S. is to provide economic assistance or humanitarian aid to other nations, it should do so unilaterally—not through the pass-throughs of international aid orga- nizations, non-governmental organizations, or other nations. These organizations and countries simply create expensive middle-men, while U.S. funds are intercepted before being distributed to those in need. Also, these foreign entities have interests that do not coincide with American national security and economic interests.

FISCAL RESPONSIBILITY

Treasury should make balancing the federal budget a mission-critical objective. The federal budget absorbs enormous resources from the economy, both in money taken from taxpayers and in money borrowed. The budget should be balanced by driving down federal spending while maintaining a strong national defense and not raising taxes.

To reduce interest payments on the debt, Treasury should lock in current rel- atively low interest rates by issuing longer duration bonds, and even consider creating a 50-year treasury bill. Most of the federal debt rolls over on average about every three to four years. But interest rates, even with the latest Federal Reserve rate increases, are still below the 5 percent historical average. Treasury would thus save taxpayers money during the next several decades by issuing fewer short-term notes that will probably have to be rolled over at higher rates in the future. To promote transparency of finances, each year Americans should receive a financial statement of the U.S. government alerting citizens of the revenues, expen- ditures, deficit, and debt for the preceding fiscal year. The statement should also include this individual family’s pro-rata share of the debt based on family size.

INTERNATIONAL COMPETITIVENESS

The Treasury must act more assertively in international financial institutions to protect and advance U.S. national interests—and oppose those that do not. It should employ a carrot-and-stick approach by increasing its activity and commitment to those financial institutions that are willing and able to adjust to this new approach and by zeroing out or potentially exiting those institutions that rely on U.S. capital while advancing agendas that run counter to U.S. interests.

A major emphasis of effecting this change must be the addition of a large new cadre of U.S. professionals and contractors at these international financial institutions.

The U.S. must insist on the hiring and support of this human capital as a condition to future funding.

The U.S. should also examine increasing or decreasing its ownership levels in these institutions in order to achieve maximum leverage.

CHINA AND OTHER GEOPOLITICAL THREATS

Committee on Foreign Investment in the United States. The interagency Committee on Foreign Investment in the United States should realign its priorities to meet the United States’ current foreign policy threats, especially from China. On October 20, 2022, the Treasury Department, which chairs CFIUS, adopted the first-ever CFIUS Enforcement and Penalty Guidelines50 on the committee’s national security risk mitigation requirements. However, there are no clear rules that guide CFIUS on mitigation monitoring, nor is there a published penalty sched- ule to standardize accountability when CFIUS pursues a civil money penalty for violators. In addition, Treasury—as chair of the committee—runs an opaque pro- cess that biases committee procedure toward corporate interests and away from national security interests. Finally, the committee’s jurisdiction does not extend over greenfield investments that Chinese state-owned enterprises have historically pursued in the United States, which leaves America vulnerable to an instrument of Chinese economic statecraft.

Given these issues, the next steps for CFIUS should be to develop a more coherent—and transparent—mitigation monitoring program to complement the enforcement guidelines, give CFIUS agencies in charge of national security con- cerns an equal voice at the table, and petition Congress to amend the law to cover Chinese greenfield investments.

CFIUS should publish a penalty schedule for violations of CFIUS reporting and mitigation requirements. Publishing a penalty schedule for CFIUS violations will reduce the discretion of the committee to waive penalties or impose mere “wrist slap” costs on violators of the law. Additionally, a standardized penalty schedule would likely increase the deterrence of CFIUS enforcement by reducing the per- ception among parties to covered transactions that they can avoid enforcement by the committee or secure special exceptions based on appeals to the commit- tee’s discretion.

As a legal matter—and in application by CFIUS—mitigation monitoring has developed as the Wild West. There are no clear rules that guide the entire com- mittee on mitigation monitoring, nor is there the same level of oversight or accountability within and among the agencies as applies when CFIUS reviews a transaction or when it pursues a civil money penalty. Indeed, it is a credit to transaction parties and the professionalism of the governmental officials and con- tractors who conduct mitigation monitoring on behalf of the government that, by and large, mitigation monitoring has worked adequately during the last several decades. But dependency on the personality and capabilities of individuals creates unnecessary risk both for CFIUS and for transaction parties.

Congress should make the Department of Defense (DOD) a CFIUS co-chair with the Department of Treasury. Making DOD an official CFIUS co-chair along with Treasury will establish a balanced committee process by elevating national security interests to an equal stature. The committee is currently imbalanced toward the interests of corporate America because Treasury is the sole chair of CFIUS and, in practice, runs a process that is not fully transparent and which biases it from the national security interests represented by DOD and the Intelligence Community (IC).

For example, Treasury representatives will consult with the Commerce Depart- ment and the United States Trade Representative—which tend to favor permitting covered transactions to occur with little to no mitigation requirements—and these representatives will then obscure the results and purposes of such sidebar meet- ings from DOD and IC representatives. This hampers DOD, IC, and sometimes even State Department representatives from full participation in the process or from advocating national security interests as well as they should. Greenfield Investments. Congress should close the loophole on greenfield investments and require CFIUS review of investments in U.S.-based greenfield assets by Chinese-controlled entities to assess any potential harm to U.S. national and economic security. In the 2018 Foreign Risk and Review Modernization Act (FIRRMA),51 one important category of foreign transactions left out of the bill was greenfield investments, particularly by Chinese state-owned enterprises (SOEs). Greenfield investments by Chinese SOEs pose a unique threat, and they should be met with the highest scrutiny by all levels of government.

Greenfield investments result in the control of newly built facilities in the U.S., and they were not addressed in FIRRMA primarily because governors and state governments embrace them. That is understandable; they typically bring the promise of creating American jobs. However, the goal of such Chinese SOEs is to siphon assets, technological innovation, and influence away from U.S. businesses in order to expand the global presence of the Chinese Communist Party. While the Chinese government keeps its domestic markets largely insulated from foreign influence, it regularly invests in the U.S. and other countries under the “green- field” model. Firms fully owned by China’s Communist regime are increasingly buying land, building factories, and taking advantage of state and local tax breaks on American soil.

Treasury should examine creating a school of financial warfare jointly with DOD. If the U.S. is to rely on financial weapons, tools, and strategies to prosecute international defensive and offensive objectives, it must create a specially trained group of experts dedicated to the study, training, testing, and preparedness of these deterrents. Recent experience has demonstrated that the U.S. cannot depend on the rapid development and deployment of untested, academically developed finan- cial actions, stratagems, and weapons on an ad hoc basis.

Treasury must also seriously evaluate U.S. foreign direct investment in China. Particular focus should be paid to investments in CCP or other state-owned enter- prises, investments that result in technology transfers from the U.S. to China, investments that enhance China’s military capacity, and investments that pose risks to critical U.S. supply chains by sourcing critical components or feedstocks in China. An enhanced reporting system is warranted, and greater legal authority and restrictions are appropriate.