Hearing to Consider the Anticipated Nomination of Steven Terner Mnuchin to be Secretary of the Treasury
Thursday, January 19, 2017
Key Topics & Takeaways
- Tax Reform: Sen. Bill Cassidy (R-La.) noted that with tax reform, the creation of capital is not a top priority as much as aligning incentives. Mnuchin agreed, adding that the U.S. business tax system incentivizes companies to keep capital abroad, but that it needs to be reversed, and that inversions need to be stopped.
- Dodd-Frank Title II: Sen. Pat Toomey (R-Pa.) stated that one of the “many” failures of the Dodd-Frank Act is Title II, and asked if it is more “desirable” to amend the Bankruptcy Code to handle the resolution of a large financial institution. Mnuchin stated that he shares certain concerns on Title II, and that the Bankruptcy Code needs to be looked at to see what can be done as an alternative. He added that if there is proper regulation, much of the need for Title II “goes away.”
- GSE Reform: Mnuchin said that the status quo of conservatorship is “not acceptable” and said that reforms to the housing market are important, though he insisted that the government a) not put taxpayers risk and b) not limit the amount of capital available to the middle-income housing market.
In his opening statement, Chairman Orrin Hatch (R-Utah) stated that it is “essential” for the Treasury Secretary to be a cooperative partner with Congress, as the current Secretary has been “increasingly opaque and nonresponsive.” He explained that the advancement of pro-growth trade policies is a personal top priority, and that the Treasury plays an important role in that area. Hatch stressed the importance that trade policies “do no harm,” and that import tariffs are carefully evaluated to ensure they do not hurt the U.S.
In his opening statement, Ranking Member Ron Wyden (D-Ore.) explained that the current tax code has two systems, one for wage earners where the rules are “firm and involuntary,” and one for the “powerful and well-connected” who decide how much tax to pay and when to pay it. He continued that President-elect Donald Trump’s tax reform agenda would worsen the unfairness in the tax code, stating that Trump campaign promises to fix the tax system were a “head fake.”
House Majority Leader Kevin McCarthy (R-Calif.) stated his support for the nominee, calling Steven Mnuchin an “extremely capable” investor, banker, and financier, and that he possesses the technical skills needed to be Treasury Secretary.
House Financial Services Committee Chairman Jeb Hensarling (R-Texas) also stated his support for the nominee, explaining that Mnuchin’s finance background will be “vital” to the new administration and Congress, and urged the Committee to confirm Mnuchin without delay.
Steven Terner Mnuchin, to be Secretary of the Treasury
In his testimony, Mnuchin explained that he learned the importance of liquidity and capital to businesses and consumers through his work in the financial services industry. He explained his history with OneWest and IndyMac, stating that he had to “clean up the mess others made,” and spoke about the loan modification program he was involved with. Mnuchin noted his support for careful oversight of the financial system that prioritizes the needs of Americans over the federal government or financial institutions, and vowed to work for the American people so there is not a repeat of the 2008 financial crisis.
Mnuchin described some of the stories he heard on President-elect Donald Trump’s campaign trail of Americans who lost their jobs to overseas companies, as well as people who have been burdened by high taxes, noting that he was attracted to the Trump campaign due to his dedication to stimulate prosperity for all Americans. Mnuchin stated his interest in reviving trade policies to keep the U.S. dollar strong and create and protect American jobs, and said he will work to limit regulations and lower taxes for Americans and small businesses. Regarding cybersecurity, he explained that he will use the Treasury’s technology expertise to keep the financial “architecture” safe from malicious attacks, as well as partner with other government agencies to keep the financial markets protected from threats.
Question & Answer
Wyden asked about terrorism financing and additional ways Mnuchin would have the Treasury fight terror. Mnuchin noted the “very important” tools the Treasury uses to combat terrorism, stressing that sanctions are “extremely effective.” He stated he is fully committed to enforcing existing sanctions and will work with Trump on additional sanctions, as well as the classified programs he will be a part of with the National Security Agency.
Sens. Ben Cardin (D-Md.) and Claire McCaskill (D-Mo.) asked if Mnuchin is committed to enforcing sanctions against Russia, to which he replied “100 percent.” He continued that sanctions are not a partisan issue and will be used to the maximum extent allowed by the law.
Hatch noted his pleasure that Mnuchin plans to simplify the tax code, and asked how he plans on preventing it from becoming more complicated. Mnuchin explained that creating economic growth is a critical issue, and that passing tax reform is a major component of that. Mnuchin repeatedly stressed in the hearing that the goals of tax reform are to simplify the tax code and provide an “absolute” middle class tax cut.
Sen. John Thune (R-S.D.) asked how Mnuchin would treat pass-through businesses. Mnuchin explained that he has worked with a trade group that works with small businesses and that they have supported Trump’s economic plan. He continued that he wants to ensure money remains in companies and that pass-through entities are not used to get lower taxes.
Sen. Mike Crapo (R-Idaho) noted the issue of businesses paying tax through the individual income part of the tax code rather than corporate. Mnuchin stated he will work with Congress to ensure such loopholes are closed.
Sen. Michael Bennet (D-Colo.) stated that Trump’s tax plan will raise the country’s debt over the next 10 years, and asked Mnuchin for his thoughts. Mnuchin noted his concern in the country’s debt and explained a way to reduce the debt is by economic growth, and to pursue Trump’s pro-growth tax plan.
Sen. Bill Cassidy (R-La.) noted that with tax reform, the creation of capital is not a top priority as much as aligning incentives. Mnuchin agreed, adding that the U.S. business tax system incentivizes companies to keep capital abroad, but that it needs to be reversed, and that inversions need to be stopped.
Cardin stated that the U.S. should be competitive globally, and that it is difficult to see how that can get done by using income tax revenues. Mnuchin replied that the U.S. does not have a Value Added Tax (VAT), while other countries do.
Sen. Rob Portman (R-Ohio) asked Mnuchin about his views on tax repatriation. Mnuchin said he believed a tax repatriation holiday would be a useful tool for returning potentially trillions in overseas cash to the U.S.
Sen. Tim Scott (R-S.C.) asked Mnuchin if lowering corporate tax rates would prevent inversions. Mnuchin said that lowering the corporate tax rate would have a major impact on the rate of inversions, though other factors should be taken into account. Scott called on the incoming administration to preserve the mortgage interest deduction and the charitable deduction.
Crapo asked Mnuchin to elaborate on the idea that regulatory excess is inhibiting lending and capital formation. Mnuchin explained that while he believes in regulation, he has witnessed firsthand overlapping regulation, and that he will work with the different regulators to ensure there is proper regulation.
Crapo asked if Mnuchin will ensure the Financial Stability Oversight Council (FSOC) considers ways to make the U.S. financial markets more efficient and stable. Mnuchin said yes, stressing his qualified support for the Volcker Rule.
Thune asked what a reasonable economic growth rate is, and to what degree regulations inhibit such growth. Mnuchin explained that the U.S. should be able to get to 3 to 4 percent sustained gross domestic product (GDP) growth, and that excessive regulations are inhibiting job and economic growth.
Sen. Pat Toomey (R-Pa.) asked if it is a mistake to evaluate whether a trade agreement “is a good one” by evaluating if there is a trade deficit with the country in question, to which Mnuchin said yes.
Sen. Tom Carper (D-Dela.) asked about the duty Trump has referenced for items imported from China, Mexico, and other countries. Mnuchin stated that he is working with all trade parties on a unified trade position, and that current trade agreements, such as the North American Free Trade Agreement (NAFTA) should be reopened and looked at so that deals are a “win-win” for both countries in such deals.
Wyden also asked Mnuchin about Trump’s plan to impose a border tax on imports to the U.S., and asked which sectors of the economy would be affected by the tax. Mnuchin said he believed that any punitive border tax would be linked to job offshoring and would not be a general tax on imports.
Sen. Bob Casey (D-Pa.) asked if currency manipulation is a violation of trade laws and if a country that commits such a violation should be held accountable, to which Mnuchin replied yes.
Casey then asked if Mnuchin will recommend to Trump to formally name China a currency manipulator if they manipulate their currency again, to which Mnuchin replied yes.
Toomey stated that one of the “many” failures of the Dodd-Frank Act is Title II, and asked if it is more “desirable” to amend the Bankruptcy Code to handle the resolution of a large financial institution. Mnuchin stated that he shares certain concerns on Title II, and that the Bankruptcy Code needs to be looked at to see what can be done as an alternative. He added that if there is proper regulation, much of the need for Title II “goes away.”
Sen. Mark Warner (D-Va.) questioned Mnuchin’s comment about repealing Title II of Dodd-Frank, to which Mnuchin replied that it is a “complicated issue,” and that he is “not saying to repeal tomorrow.”
Cassidy noted that since Dodd-Frank passed, the number of community banks has “plummeted” and asked how to revive them. Mnuchin noted his concern about putting small, regional, and community banks out of business, stressing their importance in local communities and as a source of financing for small and mid-sized enterprises.
Bennet questioned comments by Trump that he could renegotiate the existing U.S. debt while on the campaign trail, and asked for Mnuchin’s thoughts. Mnuchin stated that the U.S. has an obligation to honor its debt and that Trump agrees. He then committed to work with Congress to pass a clean debt ceiling sooner rather than later.
Warner echoed Bennet’s concern over the U.S. not paying its debt, to which Mnuchin repeated that the U.S. will fulfil its debt obligations.
GSE Housing Reform
Crapo asked Mnuchin about Fannie Mae and Freddy Mac. Crapo noted the two entities are currently in a conservatorship, and asked Mnuchin if the two should be kept in that status, or released from government control. Mnuchin said that the status quo of conservatorship is “not acceptable.” Mnuchin also said that reforms to the housing market generally are important, though he insisted that the government not put taxpayers risk and not limit the amount of capital available to the middle-income housing market.
Sen. Bill Nelson (D-Fla.) stated that Puerto Rico has been treated in an unequal way when it comes to bankruptcy and other laws. Mnuchin explained that he has met with Treasury Secretary Jack Lew regarding Puerto Rico, and that a bipartisan solution is needed.
Sen. Maria Cantwell (D-Wa.) pressed Mnuchin on Glass-Steagall, noting that the Republican party platform of 2016 called for re-enacting that statute. Mnuchin said that the administration supports passing a “21st century Glass-Steagall” but not simply re-passing the old law. Cantwell also asked Mnuchin about his stance on the Volcker Rule, and Mnuchin said that he supports the rule, but argues that unclear definitions have hurt liquidity in the financial sector.
For more information on this hearing, please click here.
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