Update 178: This Week in Senate Banking Mnuchin Rule & DFA Regs Debated
The ongoing if not metastasizing Russian cluster continues to draw the oxygen out of Washington, leaving little room for the forgotten economy. But despite mounting signs the Trump economic policy agenda may be legislatively stillborn, especially on the big-ticket economic items, there was activity in Congress this week just below the radar.
Here, we take a look at Senate Banking’s hearing yesterday with Treasury Secretary Mnunchin. He answered and raised elemental policy issues ranging from the future of Dodd-Frank to tax reform and fiscal policy, negotiating policy with members in the process.
Sorry for a late transmission to many of you. Good weekends all…
Senate Banking Hears Secy. Mnuchin
Yesterday’s Senate Banking Committee hearing with Treasury Secretary Mnuchin exhibited a coordinated effort among the Democrats on the panel to press the administration on all the priority issues for the minority. One by one, Democratic members challenged Sec. Mnuchin about promises made by the Trump administration for supporting the middle class. Their overall point was that the CHOICE Act and Mnuchin’s stance in general seem to renege on these promises and actually sacrifice the middle class for tax cuts.
The “Mnuchin Rule” — then Secretary-Designate Mnuchin told reporters immediately after his nomination that the Trump tax plan would not net the wealthy a tax cut — did come up and Mnuchin continues to stand by it.
Other critical policy points:
- Passthroughs — Sen. Warren appears to have exacted a promise from Sec. Mnuchin that the S-corps passthrough will only be available to small and medium-sized business owners
- Foreclosures and the King — Sen. Cortez Masto grilling Sec. Mnuchin about why his leadership team has no one advocating for borrowers or homeowners
- Export-Import Bank — the Secretary heard appeals for full Bank reauthorization both sides of the aisle
- Orderly Liquidation Authority — Sen. Warner advocated preserving the authority extended to the FDIC to resolve non-banks
News was made:
• Warren’s Passthrough Reform Bid
Sen. Shelby called on Sec. Mnuchin on the S-corp pass-throughs and how Mnuchin had promised to not give a tax cut to the wealthy. Mnuchin responded that “we are committed to make sure that rich people do not use pass-throughs as a loophole to pay lower rates. … So we do want small and medium sized businesses to have the benefit of lower taxes.”
How about big law, for example? Mnuchin: “… we will make sure that not every single accountant, lawyer, and doctor who should be paying higher personal rates sets up an LLC or a pass-through to get around the system.”
This point was brought up again later by Sen. Warren, in the most productive exchange in the hearing. Mnuchin enumerated the key elements of the administration’s new passthrough policy : “specifically, people who are making lots of money will not be able to use pass throughs. There will be criteria as to whether you’re eligible for the business tax if you’re pass through. It will not be available to everyone.”
• OLA: Backstop against Bailouts
Sen. Reed said giving up the OLA would deprive the system of its main defense against bailouts and sought assurance that taxpayers wouldn’t bear losses under OLA.
In a critical exchange, Sen. Warner asked Sec. Mnuchin,
“If we have a large, trillion dollar plus SIFI institution headquartered in the United States and operating across the world with multiple subsidiaries, if it runs into a credit crunch and the rest of the financial industry stops doing business with this SIFI and it therefore fails, in order to have an orderly failure and wind in Congress this week-down, would you agree that shareholders need to be wiped out in that SIFI institution?”
Mnuchin concurred that something drastic would be necessary in such a situation. Sen Warner reiterated that the OLA is necessary as a backstop for this sort of systemic risk, and Mnuchin demurred again.
• EXIM Bank: Two Takes
EXIM came up several times, with Sen. Heitkamp arguing for protection of it and Senator Shelby supportive but asking for reform. Mnuchin made no promises, but it does seem to be understood that the Bank is not on the chopping block anymore — now that the president knows it “makes us a lot of money.”
Looking Forward: Key Events Next Week
Keep an eye out for developments on these issues next week as well as the following events:
- House Ways and Means Committee: Hearing entitled, “Increasing U.S Competitiveness and Preventing American Jobs from Moving Overseas,” focused on the border-adjustment tax, 10 a.m.
- The American Enterprise Institute event on the CHOICE Act with House Financial Services Committee Chairman Jeb Hensarling), 11 a.m. The bill is Hensarling’s overhaul of Dodd-Frank.
- House Budget Committee: Hearing on the White House fiscal 2018 budget with OMB Director Mick Mulvaney, 9:45a.m. Yes
- House Ways and Means Committee: Hearing on the White House fiscal 2018 budget, with Treasury Secretary Steven Mnuchin, 10 a.m.