Key Topics & Takeaways
- During the hearing, Members of Congress focused on: (1) tax reform and funding the IRS, (2) regulatory reform legislation, and (3) cybersecurity for the financial system.
- Most members expressed their continued support for the tax bill, and Secretary Mnuchin discussed the economic benefits the administration believes will result from the bill.
- Mnuchin stated that regulatory reform is the next step to help meet his goal of 3% economic growth and he fully supports coordination to pass the Financial CHOICE Act and the Economic Growth, Regulatory Relief, and Consumer Protection Act before the House and Senate.
- Mnuchin stated that he expects to continue asking for increases in funding to address cyber security as threats continue to increase and that Treasury has an obligation to protect the financial system.
- Members of Congress discussed the Treasury’s use of funds to combat terrorism and aid Puerto Rico. Some members of congress oppose Mnuchin’s budget, which stops funding the Community Development Financial Institution (“CFDI”) fund, but Secretary Mnuchin stated he would provide funding if Congress passed a bill directing him fund the CFDI.
- There was also substantial discussion at the hearing on the recently proposed tariffs on aluminum and steel. Mnuchin generally addressed some concerns but did not go into much detail as the President will release the details of his plan later this week.
- The Honorable Steve Mnuchin, Secretary, Department of Treasury
Subcommittee Chairman Tom Graves (R-GA.)
In his opening statement, Graves began by thanking the Secretary for his work and praised the Administration’s economic policies. Graves attributed the recent economic growth to tax reform. Graves stated that Mnuchin requested $11.8 billion for the IRS, which includes $397 million to implement the Tax Cuts and Jobs Act over the next two fiscal years. Mnuchin also requested $159 million for terrorism and financial intelligence and $25 million to invest in cybersecurity. Graves also thanked Senator Crapo and the Senate Banking Committee for their work on the Economic Growth, Regulatory Relief, and Consumer Protection Act.
Ranking Member Mike Quigley (D-IL)
In his opening statement, Quigley stated that Secretary Mnuchin’s budget request will slash programs that will make the US more vulnerable. Quigley said the IRS would see a $100 million reduction in funding under the budget request, which reduces IRS staffing by another 6,000 from tax payer services and enforcement. Quigley expressed his concerns with reducing the IRS staff after passing the recent tax bill and opposed the slashing of the CFDI fund. Under Mnuchin’s request for funding to address financial terrorism, Quigley expressed his fears of limited resources appropriated to address the Russia sanctions in response to Russia’s interference in the election.
House Appropriations Committee Chair Rodney Frelinghuysen (R-NJ)
In his opening statement, Frelinghuysen expressed his support for Secretary Mnuchin’s budget request. Frelinghuysen discussed the appropriations bill that passed last fall and his intent to move that bill forward. Frelinghuysen shared his eagerness to read Mnuchin’s proposed increase in funding to address threats from North Korea, Russia, and Iran.
House Appropriations Committee Ranking Member Nita Lowey (D-NY)
In her opening statement, Lowey frequently referred to the recent tax bill as a “scam” and stated that Mnuchin’s budget request will harm tax payers by slashing IRS funding by $100 million. Lowey opposed the budget request for also slashing all discretionary CDFI grants. Lowey stated that the IRS will not have enough money to catch bad actors under the budget request, as the request cuts IRS funding during a period of changing tax laws. Lowey also shared her displeasure with the tax bill for directly harming her constituents by capping the state and local tax (SALT) deduction at $10,000.
Steve Mnuchin, Secretary, Department of Treasury
In his testimony, Secretary Mnuchin highlighted his priorities, and the corresponding budget requests, to protect the financial system. The FY19 budget request includes an increase in resources for anti-terrorism measures to address North Korean, Iran and Russia, and counter illicit financial networks. This request includes an additional $25 million to fund the terrorist financing targeting center in Saudi Arabia and immediately counter North Korean threats. The request provides for cybersecurity protections, which he argued are critical for financial stability. Mnuchin said cybersecurity funds will be used to protect financial markets, and fund the Cybersecurity Enhancement Account, which promotes better preparation to defend against cyber-attacks. Mnuchin additionally requested $397 million for tax reform implementation.
Questions and Answer
Subcommittee Chairman Graves asked Secretary Mnuchin to explain the positive impacts of the tax bill. Despite being in the early stages of implementation, Mnuchin said he has seen positive impacts to the middle class and the economy. Mnuchin stated that their first step in implementing the tax bill was to update the withholding tables so that families see the impact in their pay checks. Over time, he expects wages to increase $4,000, and the average family should receive additional few thousand dollars this year alone. Mnuchin also stated that the tax bill helped small businesses by reducing capital expenses and creating the lowest tax rate since the 1930s.
Congressman Yoder (R-Kan.) discussed the benefits of the tax bill and asked Mnuchin if the US economy will hit the goal of 3% economic growth. Congressman Yoder also asked if there is anything else Congress can do to help reach this goal. Mnuchin stated that through tax reform, regulatory relief, and trade negotiations, the US will meet this long-term goal.
Congressman Cartwright (D-Pa.) stated that only a small percentage of the tax windfall goes to the middle class with the majority “benefiting the rich” through corporate dividends. Cartwright cites JUST Capital’s research that says only 6% of the tax windfall ends up in the pockets of employees while 60% will end up in shareholder dividends. Cartwright asked Mnuchin his plans to ensure the middle-class benefits from tax reform and whether he has any concerns with the addition of $1.5 trillion to the debt deficit and its impact on the growth rate. Secretary Mnuchin stated that he respects others research but does not agree with the numbers cited. Mnuchin argued that most of the tax benefits will go, directly and indirectly, to the middle class by making US businesses competitive and bring offshore capital back to the US with the competitive tax rate. Mnuchin shared Cartwright’s concerns with the debt deficit but argued that the tax cuts will pay for themselves.
Congressmen Stewart (R-Utah) and Moolenaar (R-Mich.) expressed concerns with the IRS budget request. Secretary Mnuchin stated that the budget request provides sufficient money to allow the IRS to enforce the law and implement the tax plan. Mnuchin also defended the request for $397 million to help implement the new tax law, improve IRS services, and modernize IRS technology.
Regulatory Reform Bills
Congressman Amodei (R-Nev.) asked Mnuchin what he thinks should be done with the Consumer Financial Protection Bureau (CFPB). Secretary Mnuchin stated that the CFPB should be subject to appropriations and should not be run “off balance sheet”. Mnuchin supported having a board oversee the CFPB.
Graves highlighted the similarities between the Senate’s bipartisan regulatory reform bill, S.2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act, with the House-passed H.R. 10, the Financial CHOICE Act, and asked Secretary Mnuchin’s opinion on how to move the bills through both houses. Mnuchin stated that he has meet with Congressman Hensarling (R-Texas) and Senator Crapo (R-Idaho) and is pleased Congress is considering financial regulatory reform legislation. Mnuchin expressed his support for these bills, as they will allow regional and community banks to grow.
Moolenaar asked about the costs associated with Mnuchin’s request to increase funding to implement sanctions to address cyber threats to the financial system. Mnuchin stated that the Treasury is taking in lots of information and monitoring illicit activity to prevent cyber-attacks. Mnuchin said he expected to continue to ask for increased funding because cyber attacks will be more common in the future.
Graves asked about the Treasury’s efforts to maintain cyber-security standards across the industry. Secretary Mnuchin stated that he spends a lot of time on cyber-security and its importance will increase over time. Arguing cybersecurity will require public and private sector involvement, he said the Treasury would work closely with market participants and their regulators to ensure a coordinated approach to protect against cyber threats.
For more information on this hearing, please click here.