Trump Treasury pick diverges from GOP playbook – Politico
Treasury secretary nominee Steven Mnuchin diverged from congressional Republicans Thursday on key policy issues, signaling a willingness to go his own way on bank regulation and tax administration.
In a sometimes contentious hearing before the Senate Finance Committee, Mnuchin backed a ban on banks’ proprietary trading, voiced concern about IRS staffing levels, and even suggested he’d be open to a new version of the Glass-Steagall Act, a Depression-era law that separated commercial and investment banking activity.
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While Republicans on the panel voiced support for President-elect Donald Trump’s nominee, those positions could put Mnuchin at odds with powerful House GOP members if he’s confirmed.
Mnuchin, a Goldman Sachs alumnus, former bank executive and Hollywood financier, outlined his views amid harsh questioning from Democrats about his business background and offshore investments — including a claim that he initially failed to disclose $95 million in real estate holdings.
Early in the hearing, one Republican senator suggested that the committee’s top Democrat needed a Valium.
Mnuchin was unflinching when it came to defending his record.
“It seems to me, in all due respect, you just want to shoot questions at me and not let me explain,” Mnuchin told Sen. Sherrod Brown (D-Ohio) when asked about the foreclosure record of his former bank, OneWest.
Here are highlights from his confirmation hearing:
Volcker rule: While Trump and the House GOP are gearing up to dismantle regulations for Wall Street, Mnuchin said he supported a post-financial crisis rule that restricted banks from making speculative bets.
“The concept of proprietary trading does not belong in banks with FDIC insurance,” Mnuchin said after endorsing the so-called Volcker Rule, named after former Federal Reserve Chairman Paul Volcker. Mnuchin said he would want to look at concerns that the implementation of the Volcker rule was holding back banks from creating enough liquidity for their customers.
His position clashes with that of House Financial Services Chairman Jeb Hensarling, whose wide-ranging plan to deregulate the financial system includes repealing the Volcker rule. Mnuchin also stopped short of endorsing the repeal of a section of Dodd-Frank that allows regulators to wind down failing mega-banks, but he said he had concerns about the provision and that alternatives should be looked at.
IRS funding: Mnuchin also signaled the Trump administration may take a different approach to funding the IRS, which suffered significant budget cuts at the hands of the Republicans over the last six years.
“I am concerned about the staffing of the IRS, that is an important part of fixing the tax gap. And I am also very concerned about the issue of … technology at the IRS,” Mnuchin said.
Congressional Republicans, livid over the agency’s handling of conservative groups’ applications for tax-exempt status, have been loath to give the IRS the funding increases the Obama administration repeatedly requested.
Congress in late 2015 approved a small increase for taxpayer service, but overall funding for the agency has fallen about 17 percent on an inflation-adjusted basis since fiscal year 2010, according to calculations by the left-leaning Center on Budget and Policy Priorities.
Government borrowing: Mnuchin said he would support raising the debt ceiling “sooner rather later” and that he didn’t want to risk default. With the Obama administration, Republicans in Congress used the threat of default as leverage to seek budget cuts.
Glass-Steagall: Mnuchin said Trump’s team is still considering a “21st Century Glass-Steagall” — a proposal that shocked the banking industry when it appeared in the GOP’s policy platform last year.
“Post-convention, this is an issue that he and I have discussed and something that we will be looking at,” Mnuchin said in response to a question from Sen. Maria Cantwell (D-Wash.).
The original version of the Glass-Steagall law imposed restrictions between commercial and investment banking before its repeal during the Clinton administration.
Mnuchin said he did not support going back to the Depression-era law “as-is.”
Sen. Elizabeth Warren has also championed a “21st Century Glass-Steagall.”
CFPB survival: Mnuchin also said the Consumer Financial Protection Bureau, another one of the GOP’s top targets in Washington, was worth keeping but echoed Republican sentiment that it should be funded through congressional appropriations rather than via the Federal Reserve.
Wyden vs. Mnuchin: The top Democrat on the committee, Ron Wyden (D-Ore.), opened the hearing with a scathing critique of “the truly disgusting inequity and abuse of America’s tax laws.”
“There’s no clearer example than Mr. Mnuchin’s hedge fund setting up outposts in Anguilla and the Cayman Islands, an action that can be explained only by the islands’ zero percent tax rate,” Wyden said. “… Millions of dollars in profits from Hollywood exports like the movie ‘Avatar’ were funneled to an offshore web of entities and investors.”
Wyden also lambasted Mnuchin for the use of a “dynasty trust” that would “shield tens of millions of dollars from taxes” and for using a tax-exempt foundation to push for the approval of his bank’s merger. And he criticized the tax deferral that government nominees are allowed when they divest to enter public office.
“That is the very definition of getting to pay what you want, when you want,” Wyden said.
Staff for Finance Committee Democrats circulated a memo that claims Mnuchin failed to initially disclose his offshore business holdings and $95 million in real estate during the vetting process.
Offshore funds: Wyden pressed Mnuchin further on the use of the offshore funds, questioning him about the lack of employees, customers or office space at the island outposts.
“I, like all other hedge funds and many, many private equity funds, set up offshore entities that are primarily intended” to facilitate investments by pension funds and others, Mnuchin responded.
“In no way did I use them whatsoever to avoid any U.S. taxes. They were merely as an accommodation to pension funds and nonprofit institutions and a small number of foreign investors,” he added. “As Treasury secretary … I would look at these rules.”
Sen. Debbie Stabenow (D-Mich.) also grilled Mnuchin on offshore “loopholes.”
“I did not use a Cayman Island entity to avoid paying any taxes for myself,” Mnuchin reiterated.
He pledged to change tax law to make the use of such entities unnecessary. “It makes no sense that we would encourage hedge fund managers to set up entities in the Cayman Islands. … In the hedge fund world these are all just set up to make the accountants rich,” Mnuchin said.
Stabenow asked if Mnuchin would “support closing those loopholes.”
“I would support changing the tax laws to make sure that they’re simpler and more effective, yes,” Mnuchin said.
Drug joke: Before Mnuchin even had a chance to give his opening comments, the hearing spiraled into discord after Pat Roberts (R-Kan.) said he had “a Valium pill” for Wyden. Brown, an Ohio Democrat, said he couldn’t believe he made the comment and that the joke shouldn’t set the tone for the new session of Congress.
The senators started talking over each other and Chairman Orrin Hatch (R-Utah) tried to gavel the hearing to order. “Just a little pin prick of humor might help this committee from time to time,” Roberts said. “I’m sorry if I have incurred your wrath, sir.”
Roberts then tried to ask Mnuchin a question about tax reform when Wyden interrupted and said other senators were waiting for their turn. “Fine Ron, I’m done,” Roberts said.
Hensarling, passed over for Treasury, backs Mnuchin: Hensarling, whose name was also floated as Trump’s potential Treasury secretary, said he had no doubt that Mnuchin was ready and capable to hit the ground running and work with Congress. The Texas Republican praised Mnuchin’s “very successful background in investment banking, retail banking and business.” House Majority Leader Kevin McCarthy also helped introduce Mnuchin. They both live in California.