June 13, 2017

Senate Budget Committee: Hearing on President’s FY 18 Budget and Revenue Proposals

 

 

Key Topics & Takeaways

  • Tax Reform Plan: Sen. Sheldon Whitehouse (D-R.I.) questioned the administration’s tax plan and how economic growth and base broadening alone would pay for it. Mnuchin replied that the administration released a short overview of the plan, but that the “devil is in the details.” He continued that the budget will be updated with the new projections once the full tax plan is released, and that they have no intent of double counting.
  • 21st Century Glass-Steagall: Sen. Bernie Sanders (I-Vt.) noted that President Trump campaigned on bringing down Wall Street and supported a “21st century Glass-Steagall”, and asked why nothing has been done on either promise. Mnuchin explained that the 21st century Glass-Steagall that Trump campaigned about and the Republican platform were different, adding that the President does not support breaking up the banks.
  • Debt Ceiling: Sen. Enzi (R-Wyo.) asked for Mnuchin’s thoughts on raising the debt ceiling prior to August, to which Mnuchin stated that Congress should address it “as soon as possible,” preferably before the August recess.
  • Treasury Report: Sen. Crapo (R-Idaho) noted the Treasury report relating to Executive Order 13772 that was released on June 12, adding that it is an “important step” in evaluating regulations and had “helpful recommendations.” He then asked Mnuchin to provide examples of where regulations can be tailored to reduce compliance burdens. Mnuchin replied that the focus of the report is around ensuring regional banks, commercial banks, and the credit unions are not burdened by regulations, as they do not put the broader economy at risk. He added that it is “critical” that the large banks do not entirely fund the U.S. economy, as this would put taxpayers at risk.
  • Volcker Rule: Crapo asked how the Volcker Rule can be simplified per the Treasury report’s recommendation. Mnuchin explained that he has been working with members of the Financial Stability Oversight Council (FSOC) on the Volcker Rule, and that their biggest concern is ensuring market makers are able to provide liquidity through trading. He added that the Financial CHOICE Act would repeal the Volcker Rule and that he is looking forward to working with the Senate on this topic.

 

Witness

  • The Honorable Steven Mnuchin, Secretary, Department of the Treasury

 

Opening Statements

In his opening statement, Chairman Mike Enzi (R-Wyo.) highlighted key economic issues, including the national debt and its growth projections, as well as the lack of gross domestic product (GDP) growth. He explained the trajectory of overspending and his belief that Congress must implement the necessary reforms proposed by Treasury Secretary Steven Mnuchin. Enzi then noted the need for tax reform and explained that by broadening the base and lowering the rate, investments and job growth will increase. He expressed the need for: 1) regulatory relief in response to the Dodd-Frank Act; 2) fair international trade; and 3) incentivizing private investment of infrastructure. Finally, Enzi explained that Secretary Mnuchin’s proposed plan will bring the U.S. GDP back to an annual three percent growth.

 

Ranking Member Bernie Sanders (I-Vt.) began his statement by focusing on President Trump’s campaign promises and argued that these promises were never intended to be fulfilled. Sanders highlighted the 2008 bailout on Wall Street and stated that Trump is creating grounds to improve the chances of a second bailout. He went on to say that the budget proposal would harm lower- and middle-class Americans, and would provide $3 trillion in tax breaks to the top one percent of Americans over 10 years

 

Testimony

The Honorable Steven Mnuchin, Secretary, Department of the Treasury

Mnuchin opened his testimony by stating that his number one priority is to create sustainable economic growth, and explained that tax reform and regulatory relief are the key components to achieving this. He expressed his confidence that he can bring the U.S. GDP back to an annual three percent growth, which would grow the economy by trillions of dollars. Next, Mnuchin stressed the current need for tax reform, stating that it would bring relief to lower- and middle-class Americans, while also making American businesses more competitive. He emphasized the importance of simplifying the tax code to make it easier for Americans to file returns. Mnuchin then highlighted a major component of his proposed plan – free and fair international trade – arguing that it is “crucial” to economic growth. He discussed working closely with the finance ministers of the G7, as well as the International Monetary Fund (IMF) and World Bank to achieve this. Lastly, Mnuchin explained that by removing imprudent regulation and uncompetitive taxes, American citizens would be able to pursue their economic goals.

 

Question & Answer

Debt Ceiling
Enzi asked for Mnuchin’s thoughts on raising the debt ceiling prior to August, to which Mnuchin stated that Congress should address it “as soon as possible,” preferably before the August recess.

 

Sen. Tim Kaine (D-Va.) questioned the President’s previous comments about a “good” government shutdown, which Mnuchin argued is not his primary objective. He continued that the primary objective is to raise the debt limit and that the administration would “never shut down critical functions of the government.”

 

Sen. David Perdue (R-Ga.) noted that the majority of the debt is three years or less, but that other countries such as Britain have moved to 20 years or longer to repay some of their debt, and asked for Mnuchin’s thoughts. Mnuchin replied that he is exploring ultra-long bonds (50 to 100 year bonds) to extend the duration, but that moving to even 30 years would be helpful.

 

Tax Reform
When asked by Enzi to expand on the administration’s view on tax reform and economic growth, Mnuchin explained that it is possible to get back to three percent economic growth, though “not this year or next,” and it would take a combination of tax reform, regulatory relief, and trade. He continued that the fundamental principles of tax reform are to simplify personal taxes, cut down brackets and special interest deductions, and to make it so the majority of Americans are able to fill out their returns on a “large postcard.” Regarding business tax reform, Mnuchin explained that the taxes on U.S. businesses are some of the highest in the world and leads to companies leaving trillions of dollars offshore. He stressed the need to move to a territorial system, adding that it is necessary to bring money back to the U.S. so it can be invested in America and create additional jobs.

 

Enzi then recommended keeping small businesses that are structured as pass-throughs in mind when doing corporate tax reform, which Mnuchin agreed to do.

 

Sen. Ron Wyden (D-Ore.) stated that there is a bipartisan commitment to tax reform, but that Congress will not be able to achieve this if the administration “walks back a pledge for no absolute tax cuts for the wealthy.”

 

Sen. Sheldon Whitehouse (D-R.I.) questioned the administration’s tax plan and how it will be paid for by economic growth and base broadening. Mnuchin replied that the administration released a short overview of the plan, but that the “devil is in the details.” He continued that the budget will be updated with the new projections once the full tax plan is released, and that they have no intent of double counting.

 

Sen. Ron Johnson (R-Wis.) spoke on the benefits of pass-through businesses, to which Mnuchin replied that pass-throughs should have the same benefit of the business tax, and that “it should not just be about lowering corporate taxes.”

 

Sen. John Kennedy (R-La.) asked why a deal has not been made with companies that keep money offshore to bring the money back home to use for infrastructure. Mnuchin explained that a major fix to the tax code would be moving to a territorial system, but that a tax plan that can be passed through Congress must be created first.

 

Dynamic scoring was a frequent question from Members of Congress, and Mnuchin agreed that the budget and tax reform plan should be dynamically scored.

 

Several Members of Congress asked for additional details on the administration’s tax reform plan, which Mnuchin stated he would discuss further when the full plan comes out.
21st Century Glass-Steagall
Sanders noted that Trump campaigned on bringing down Wall Street, as well as supported a 21st century Glass-Steagall, and asked why nothing has been done with either. Mnuchin explained that the 21st century Glass-Steagall that Trump campaigned about and the Republican platform were different, adding that the President does not support breaking up the banks.

 

Treasury Report (Executive Order 13772)
Sen. Mike Crapo (R-Idaho) noted the Treasury report relating to Executive Order 13772 that was released on June 12, adding that it is an “important step” in evaluating regulations and had “helpful recommendations.” He then asked Mnuchin to provide examples of where regulations can be tailored to reduce compliance burdens. Mnuchin replied that the focus of the report is around ensuring regional banks, commercial banks, and credit unions are not burdened by regulations, as they are not putting the economy at risk. He added that it is “critical” that the large banks do not entirely fund the U.S. economy, as that would put taxpayers at risk.

Crapo then turned to the Volcker Rule and asked how it can be simplified per the Treasury report’s recommendation. Mnuchin explained that he has been working with members of the Financial Stability Oversight Council (FSOC) on the Volcker Rule, and that their biggest concern is ensuring market makers are able to provide liquidity through trading. He added that the Financial CHOICE Act calls for a repeal of the Volcker Rule and that he is looking forward to working with the Senate on this topic.

 

Sen. Jeff Merkley (D-Ore.) asked if Mnuchin supports dismantling the Volcker Rule or mortgage rules, to which Mnuchin replied that he is “100 percent committed” to ensuring Americans have access to mortgage capital and are able to pay for their mortgages. He continued that his objective is to “fix” the Volcker Rule, as proprietary trading is not done within the bank, but rather outside the bank with holding companies.

 

Perdue asked Mnuchin if he would repeal the Dodd-Frank Act if he could. Mnuchin replied that he would and then start over, as “most of it is unnecessary.” He continued that 70 to 80 percent of what is critical to fix can be done so through an Executive Order and working with regulators, and that the other will be worked on with Members of Congress. Mnuchin added that he would fix the budget process over repealing Dodd-Frank, as it is “completely broken.”
Infrastructure
Sen. Chris Van Hollen (D-Md.) raised concern that the administration’s budget would cut infrastructure by billions of dollars. Mnuchin replied that Trump is focused on infrastructure, as it is a “big investment we need to make.”

 

For more information on this hearing, please click here.