20 January 2017 Senate Finance holds hearing on Treasury Secretary nominee Mnuchin During a Senate Finance Committee hearing on January 19, 2017, on his nomination to become Treasury Secretary, banker and financier Steven Mnuchin said he will take the lead in the new Administration on tax reform that provides a middle-income tax cut, simplification, lower corporate taxes, and also encourages US companies to bring foreign earnings back to the United States. Mnuchin also expressed interest in narrowing the tax gap, increasing IRS staffing, and improving agency technology. In an opening statement, Ranking Member Ron Wyden (D-OR) said President-elect Trump's tax proposals would disproportionately benefit higher-income Americans, and that Affordable Care Act (ACA) repeal being pursued by Republicans is a "Trojan horse" for tax cuts for the wealthy. Wyden later said he is concerned that the new Administration does not want bipartisan tax reform or to end the system under which there is "one set of rules for the cops and the nurses and another set of rules for the people who are well-connected who can pretty much pay what they want when they want to, maybe nothing at all." Senator Wyden also questioned the propriety of foreclosure activity of OneWest under the direction of Mnuchin. Mnuchin sought to clarify this activity in his testimony, including the focus on loan modification, and Chairman Orrin Hatch (R-UT) highlighted perceived failures in the Obama administration's loan modification program. Mnuchin also shared his experiences on the Trump campaign and in meetings with Senators that could inform the development of tax policy. "On my travels with the President-elect, we heard the pained and heartbreaking stories of many Americans who had lost their jobs to workers in foreign countries. We heard the concerns of people and small businesses burdened by high taxes — these were people who were just trying to make ends meet," Mnuchin said. "In my meetings with you over the last month you shared with me the concerns of your constituents, like farmers who worry about the death tax wiping out family farms, or workers who are nervous about whether their retirement accounts will be safe." Under questioning by Senator Tim Scott (R-SC), Mnuchin said reform of the tax code should: be focused on both the personal and business side; simplify personal taxes; deliver a middle-income tax cut; and make business taxes competitive with the rest of the world. He said lowering the corporate tax rate would have a "huge impact on stopping inversions" by removing the incentive to seek lower taxes elsewhere, but acknowledged that there are other things that may be done. Responding to Senator Bill Cassidy (R-LA), Mnuchin said we currently have a business tax system that encourages US companies to keep money abroad, and that he wants to incentivize bringing money back to the United States, both now and going forward, and to stop things like inversions by making it sensible for US companies to do business here. Responding to Senator John Thune (R-SD), Mnuchin said the most important issue and top priority of the new Administration will be economic growth, and, "I believe that tax reform will be our first and most important part of that." Asked by Thune about treating pass-through entities fairly in the process, Mnuchin said it is important to make sure there is a business tax — not just corporate tax — and to ensure large pass-through entities keep money in the company and do not use the entity to avoid paying higher personal income taxes. Senator Mike Enzi (R-WY) asked whether Mnuchin agreed that the current international tax system is outdated. "Couldn't agree with you more," Mnuchin replied, adding that companies have billions offshore and are penalized for bringing money back to the United States. President-elect Trump believes we can bring trillions of dollars back and looks forward to working with Congress on bringing rates down for businesses big and small, and ensuring we are not shipping jobs overseas, he said. Asked about the tax gap (i.e., the difference between taxes owed and paid), Mnuchin said he is concerned about the staffing of the IRS and outdated technology. Senator Ben Cardin (D-MD) questioned how increased staffing of the IRS would coincide with Trump's call for a federal hiring freeze. "I can assure you that the President-elect understands the concept of where we add people and we make money," Mnuchin said. "He'll get that completely. That's a very quick conversation with Donald Trump." Several Democratic senators raised concerns regarding the threat that workers who had been promised pensions through multiemployer plans would lose their benefits without government action. Mnuchin told Senator Bill Nelson (D-FL) that workers deserved the pensions they had earned, but cautioned against "a bailout of the entire pension industry." Mnuchin agreed to a request from Senator Claire McCaskill (D-MO) to meet with truck drivers from her state whose pensions are threatened by the plans' lack of funding. Sen. Joe Manchin (D-WV) introduced bipartisan legislation this week to provide new funding to the multiemployer plans. Senate Majority Leader Mitch McConnell (R-KY) introduced similar legislation. Mnuchin told Senator Mike Crapo (R-ID) that he supported the Volcker rule — which prohibits banks from engaging in proprietary trading for their own accounts, or owning hedge funds or private equity funds — but cautioned that the rule's effects on market liquidity needs to be examined. He said, "We need to be able to explain to banks what's proprietary trading and what's not proprietary trading." He told Senator Maria Cantwell (D-WA) that an updated version of the Glass-Steagall Act is "something that we will be looking at" — he does not support Glass-Steagall as it is, but is open perhaps to a 21st Century version. Under questioning from Senator Pat Toomey (R-PA), Mnuchin said he would "look at the bankruptcy code and see what we can do as an alternative" to Title II of Dodd-Frank, which established a process for resolving large, failing banks called "orderly liquidation authority" that is unpopular with many Republicans. "I 100% agree with you that we should not be in the business of bailing out big banks. I think if we have proper regulation, a lot of the need for Title II also goes away," Mnuchin said. But he said his main concern with Dodd-Frank was its effect on smaller and medium-sized banks. Mnuchin also said he supports keeping the Consumer Financial Protection Bureau (CFOB), but wants to fund the new agency through appropriations, as opposed to the current situation in which the Bureau is funded through a portion of the Federal Reserve's budget. In questions from Mark Warner (D-VA), Mnuchin said he would seek a bipartisan agreement on the thorny issue of housing finance reform. Fannie Mae and Freddie Mac, the government-sponsored housing enterprises (GSEs), have been in federal conservatorship since 2008, with all of their profits sent directly to the Treasury and little or no capital cushion. "It is my objective to find a bipartisan solution. These are very important entities to provide the necessary liquidity for housing finance," he said. "For very long periods of time I think Fannie Mae and Freddie Mac have been well run without creating risk to the government," Mnuchin said. "We need housing reform." Mnuchin appeared to backpedal from comments he made in November that Treasury could unilaterally act to recapitalize the GSEs short of a more comprehensive reform plan. "My comments were never that there should be recap and release," he said. "We shouldn't just leave Fannie and Freddie as is for the next four or eight years." Referring to his Cayman Islands holdings, Senator Debbie Stabenow (D-MI) asked Mnuchin whether he would support "closing loopholes that allow wealthy individuals to avoid paying taxes." Senator Nelson asked if he would support closing "offshore tax avoidance" provisions. Senator Robert Menendez (D-NJ) asserted that, "One does not go and create offshore entities at the end of the day, other than to avoid, in some form or fashion, the tax laws of the United States." Mnuchin said it is typical for hedge funds and private equity funds to set up offshore entities that are primarily intended to accommodate non-profits and pensions that want to invest through the entities, not to avoid US taxes. Still, he said he would work with members on tax simplification and preventing tax avoidance. Senator Wyden said he is troubled over the question of how someone that he said has a record of taking advantage of tax shelters can turn the tax system around. Chairman Hatch said it is ironic and hypocritical that Democrats have found religion on offshore account holdings, given similar involvement by some of President Obama's nominees. Under questioning from Democratic senators, Mnuchin said "there are some very important sanctions as it relates to the sanctions against Iran and other countries" and that he "would absolutely enforce those and I would encourage the president to use additional sanctions when appropriate." He said he supports current sanctions against Russia, but said he would want access to and an understanding of classified information before offering an opinion on whether there should be additional sanctions. Document ID: 2017-0140 |
