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AT THIS HOUR WITH BERMAN AND MICHAELA

Live Coverage of Senate Hearing for Treasury Secretary. Aired 11-11:30a ET

Aired January 19, 2017 - 11:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


STEVE MNUCHIN, NOMINATED TO BE SECRETARY OF THE TREASURY: Senator, I acknowledge that it's a very important part of the job and there is many parts of this job that I consider myself an expert on and understand and there's certain parts of this job that if confirmed I will work diligently with this committee and others.

[11:00:00] And there is obviously a significant staff. This is a very important issue and as I've said I'm committed to be very responsible in my position there and make sure that I properly provide the support from the Treasury Department and I would take my responsibility very seriously.

SEN. RON WYDEN (D), OREGON: I will just tell you that without any specifics, on a matter that is so important that you would have direct responsibility over, I find it troubling that you won't discuss Medicare.

So let's go to terrorism financing, country's finance fighting ISIS and other terrorists groups. The Treasury Department plays a key role in fighting this battle. What would be your ideas on additional actions for strengthening how the department fights terror?

MNUCHIN: Well, let me first say, I strongly believe and understand that there are very, very important tools within the Treasury Department that can combat terrorism. And that many of these tools, such as sanctions, are extremely effective and keep our armed services out of harm.

So I am fully committed to the maximum amount of law to both enforce the existing sanctions in a very strict way. And I will work with the president-elect, as he sees fit, on additional sanctions and there are also other programs within Treasury that I believe are very, very effective in fighting terrorism.

It's a very important part of the treasury and I know that has been done very effectively under previous secretaries.

WYDEN: We all agree it's important, what we're trying to do is assess your qualifications and you haven't been willing to talk about Medicare, haven't been willing to talk specifics on terror.

Let me take one more crack on qualifications at the Committee on Foreign Investment, because this is something else as Treasury secretary you'd have responsibilities on to protect our country when a foreign investor makes an investment in the United States in a way that has national security implications.

If a foreign investor with ties to a foreign government invests in President Trump's business, should the Committee on Foreign Investment automatically and with close scrutiny examine this transaction?

MNUCHIN: Senator, first let me say, yes I think that would be appropriate. But let me go back to your other question because I apologize if I didn't answer the specifics on your terrorism and sanctions.

WYDEN: I was searching for any specifics in order to be able to assess your qualifications.

MNUCHIN: Well, Senator, again I believe there are some very important sanctions as it relates to the sanctions against Iran and other countries. I would absolutely enforce those and I would encourage the president to use additional sanctions when appropriate.

And I also understand that there are certain classified programs that I will be part of as the NSA and will also use that and work with the National Security Group to the maximum amount is available by law.

WYDEN: So, we didn't hear what you'd do to fight ISIS, we didn't get any specifics on Medicare. So now let's hear about this most current question with respect to the Committee on Foreign Investment. What would you do if you were dealing with President Trump's business?

MNUCHIN: I would deal with President Trump's business no different than I would deal with any business that comes before the committee and I would take my role as chair of that committee very, very significantly. I think it's a very important issues and I think perhaps previous secretaries have not enforced some of these things, necessarily as much as perhaps they should have in protecting the American workers and the American people and American technology.

I think this is one of the most important jobs that I would have as secretary of the Treasury.

WYDEN: Mr. Mnuchin, the president is not like everybody else. He's the commander in chief, any foreign government involvement in his business could compromise national security. So I'm going to reflect on that answer as well. Can I pursue one other additional question, Mr. Chairman?

SEN. ORRIN HATCH (R), UTAH: Yes, go ahead (inaudible)

WYDEN: Mr. Mnuchin you ran a hedge fund for a few years starting in 2004 and I've been trying to get my arms around the Mnuchin web of bank accounts and shell companies. They were in the Cayman Islands, in Anguilla. How many employees did you have in Anguilla?

MNUCHIN: We didn't have any employees in Anguilla.

WYDEN: How many customers did you have there?

MNUCHIN: We didn't have any customers that resided in Anguilla. WYDEN: Did you have an office there?

MNUCHIN: We did not have an office ourselves there.

WYDEN: So you just had a post office box?

MNUCHIN: Senator, let me explain to you...

WYDEN: It's just a yes or no answer, I'm already over my time. Yes or no, did you just have a post office box?

MNUCHIN: Well, hopefully the other senators will defer some time so I can answer this for you because I think it's an important issue. But...

(CROSSTALK)

[11:05:05]

WYDEN: I think you should go ahead and answer it right now. It's a legitimate question, you go ahead and answer it.

MNUCHIN: OK.

I, like all other hedge funds and many, many private equity funds, set up offshore entities that are primarily intended to accommodate non- profits and pensions that want to invest through these offshore entities. As it relates to my own tax situation, these entities were either taxed as U.S. corporations or U.S. partnerships.

And in no way did I use them, whatsoever, to avoid any U.S. taxes. They were merely as an accommodation to pension funds and non- profit institutions and a small number of foreign investors. And as Treasury Secretary, if I'm confirmed, I would look at these rules and make sure.

I think that you did a good job in stopping one of the abuses of offshore deferred fees, but I would diligently look at these things and I can assure you I paid all my taxes as was required.

WYDEN: We'll -- we'll come back to this question of offshore deals, they're (ph) commonly called blockers. Again, I'm very troubled about this question of how you're going to un-rig the system if you've got a record of taking advantage of tax shelters, that in effect have a zero percent tax rate. Thank you, Mr. Chairman.

HATCH: As you can see here, you're going to get questions like this. And -- and what was legal at the time is still being criticized. But I'm sure that you have heard of allegations that you profited from predatory -- quote predatory lending on quote during the housing crisis.

An investor group that you had informed by -- reformed IndyMac, a failed institution responsible for many low and no doc mortgage loans into a viable institution called OneWest, which you've described here, which offered loan modifications often above and beyond what other institutions to more than 100,000 borrowers.

At least, that's the way it looks to me. Now, meanwhile, during all the foreclosure turmoil, Obama administration officials set up a national loan modification program called HAMP. According to the SIGTARP, many members of Congress, from both sides of the aisle, and others have repeatedly fallen far short of its goals and had significant design flaws.

And testimony before Congress in 2011, then SIGTARP, Special Inspector General Neil Barofsky identified the (ph) "there have been countless published reports of HAMP participants who end up worse off for having engaged in a futile effort to obtain a sustainable relief that the program promised.

Failed -- excuse me -- failed trial (ph) modifications often leave borrowers with more principal outstanding on their loans less some equity, depleted savings and worse credit scores." Using provocative language that we have heard supporting your actions in the foreclosure crisis I guess you could say that then secretary -- Treasury Secretary Geithner was a "predatory loan modifier."

Using that type of logic. Now, Mr. Mnuchin, did One West have any interplay with the Obama administration's HAMP program? And was that program always successful in preventing foreclosures on struggling American homeowners or could more have been done by the administration?

MNUCHIN: Senator, thank you very much for that question. And that is a very important issue. When we did the IndyMac deal with the FDIC, we committed to the FDIC that we would continue the FDIC loan modification program. It was after that that the Obama administration came up with HAMP.

And we had no obligation to do HAMP. We could have continued to do FDIC loan modifications, but we felt it was the appropriate thing to voluntarily go into the U.S. Treasury HAMP program as were other major banks. So, we voluntarily went into that program.

The HAMP loan modification program was a very prescriptive program, including us having to follow net present value calculations that were determined by the treasury models to see which was better, either foreclosing on a home or providing a loan modification.

And to the extent that the net present value was higher on foreclosing, we unfortunately had to follow the HAMP rules or we would have been severely penalized if we had not proceeded with foreclosures.

[11:10:03]

HATCH: Now, these were not your -- your rules?

MNUCHIN: No, they were not our rules, Senator. These were rules that were driven by the administration under HAMP.

HATCH: Which administration? MNUCHIN: The Obama administration.

HATCH: I see, OK.

Well, let me ask one more question. There's a wide agreement that the tax laws become much too complicated. When stories of people getting their tax liability incorrectly calculated or common place, thus producing cynicism about the tax laws, and thus creating an ever greater tax gap, or difference between what is owed versus what is actually paid. It is clear that there is a major problem and something needs to be done to address the problem.

Now, to your credit Mr. Mnuchin, you have talked about your desire to simplify the tax code. Thank you. I'm glad you are talking about that because I very much agree with you.

So my question to you, Mr. Mnuchin, is, how to address this problem? Do you have any suggestions for how to make the internal revenue code less complex, or at least keep it from getting more complicated? And would you recommend a moratorium on either tax legislation or tax regulation? And should the tax laws simply try to raise revenue for the government and stop trying to achieve so many other social goals, or societal goals?

MNUCHIN: Yes, senator, I agree with you completely. And one of the things, it's been great honor to travel with the president-elect, and I've been chief architects of his economic plans.

And we believe the most critical issue is creating economic growth, and passing tax reform is a major component of that.

In our tax reform plan, we believe the tax simplification and fewer deductions are absolutely critical. Now you mentioned about the tax gap, and that's something I've been reading about and studying, and something that I am actually quite interested in. I was particularly surprised that at looking at the IRS numbers, that the IRS headcount has gone down quite dramatically, almost 30 percent over the last number of years.

I don't think there's any other government agency that has gone down 30 percent, and especially for an agency that collects revenues, this is that something that I'm concerned about.

Now, perhaps the IRS just started with way too many people, but I am concerned about the staffing of the IRS. That is an important part of fixing the tax gap, and I'm also very concerned about the lack of first-rate technology at the IRS, the issue of making sure that we protect the American public's privacy when they give information to the IRS, the cybersecurity around that, and also customer service for the many hard-working Americans that are paying taxes.

HATCH: Senator Grassley, you are next.

SEN. CHUCK GRASSLEY (R), IOWA: Like I told you when we met in our office, I don't have any "gotcha" questions, or I would let you know. So let me go along the line of the first statement I want to make. I don't expect you to answer unless you -- I have some misunderstanding of our position discussed in my office.

Pro-growth tax reform will be a top priority for you. I agree and look forward to working with you and President-elect Trump on that point. As part of any tax reform proposal, it will be important that adequate transition rules are included to provide a smooth transition for businesses that may be unpredictably negatively impacted.

As we discussed in our meeting, Congress has already effectively put in place transition rules for some alternative energy, including wind. The production tax credit is currently scheduled to phase out over the next few years, ending in 2020. Based upon our conversation, I believe that we are in agreement that you would support the current phase out as part of any tax reform proposal.

Question two -- I have been a strong proponent of the IRS private debt collection program, as has Senator Schumer. In 2015, Congress updated and made it mandatory the IRS private debt collection program. This program is designed to chip away at the tax gap by requiring the IRS to contract with private debt collectors to collect inactive tax debt owed. These are the tax debts not being worked by the IRS, and absent this program would likely never be collected, adding up to $187 million in 2017.

GRASSLEY: The -- out of that $187 million, the Treasury Department has provided debt collectors to collect a net of $8 million.

[11:15:11]

This certainly is not due to the lack of inactive tax debt available for the IRS to assume -- assign.

According to the Government Accountability Office Report, the IRS has over $130 billion of outstanding debt on its books. So hamstringing this program by refusing to release inactive debt for the program, oughtta be considered unacceptable by anybody.

So can you give me assurances that the Department Treasury, under your leadership, will work to implement the program to the full extent of authorized law and bring in this tax money that's not being collected?

MNUCHIN: Yes, Senator. And first of all, thank you for having spent time with me, I appreciate the opportunity to speak to you about a lot of important issues. And on these issues, I absolutely agree with you, that we do need to have phase out rules when we change things. And I support the phase out of that as you suggested.

And then, on the IRS, I think that most aspects of taxes should be handled by the IRS. But as -- as you've described, to the extent we have $100 plus billion of receivables that are just sitting there and that we can collect tens of millions or hundreds of millions of dollars for the American public, particularly in an environment where we're looking for money for so many programs, this to me, I agree with you seems like a very obvious thing to do.

GRASSLEY: Yeah. This will have to be my last question. In 2006, I was successful in enacting legislation to enhance the IRS Whistleblower Program. The program has been one of the most effective programs in addressing tax evasion, leading to the recovery of more than three and four-tenths billion dollars in taxes that would've otherwise, been lost to fraud.

However, there has been resistance within the IRS to the IRS Whistleblower Program. An ongoing concern has been poor communication with whistleblowers, who will often wait in the dark years with no feedback from the bureaucracy.

Another concern is that the IRS has chosen to interpret the whistleblower law narrowly, to the detriment of whistleblowers in and several instances. For example, the IRS has interpreted the terms collected proceeds, which is the base for determining the amount of -- of an award to exclude criminal penalties and certain other proceeds, such as penalties assessed for undisclosed foreign bank accounts.

Two questions and I'll state them both. Should you be confirmed, can I count on you to be supportive of the Whistleblower Program and work to ensure its success? And additionally, would you be willing to review the IRS'S administration program, including it's very narrow interpretation of the words collected proceeds?

MNUCHIN: Absolutely, Senator, you have my assurance. And lemme further go on to say, that the majority of Americans voluntarily file their tax returns honestly. But we are all aware that there -- there is tax fraud. And there is tax evasion, as you said and we need to be diligent.

And I believe that the Whistleblower laws are a very important part of that. So I -- I will work very hard with you on that, thank you, Senator.

GRASSLEY: Thank you very much.

Thank you, Mr. Chairman.

HATCH: Thank you.

Senator Stabenow?

SEN. DEBBIE STABENOW (D), MICHIGAN: Thank you very much, Mr. Chairman.

And welcome and...

(CROSSTALK)

STABENOW: ... congratulations on your nomination and welcome to your beautiful family, as well. I do wanna follow-up on information that we just received last night that were additions to your recent financial disclosures.

I haven't had a lot of time to look at that, we just received it last night. But you failed to include your position as a director of the Cayman Islands Corporation, as well as manager, chairman or director of seven additional Shell Corporations and holding companies, nearly $100 million in real estate. As well as a number of other things, including $906,000, $556,000 worth of artwork held by your children, so a number of things.

As Treasury secretary and as we go into tax reform, would you support closing tax loopholes in the U.S. tax code, that extremely wealthy people -- you, such as yourself, to abuse to avoid paying taxes?

We've heard about the Cayman Islands for years and the -- the buildings that have -- that have had thousands of companies that have used that as addresses?

[11:20:03]

And would you be willing to close those loopholes?

MNUCHIN: Well, first of all let me just comment, I very much appreciated the opportunity to meet with you and I traveled to your state many times and have great admiration for your state.

The president-elect had a very significant economic speech in Detroit and we've been very focused on time in your state so I appreciate everything that you've done there.

Let me just comment on -- I realize last night you did get a memo on some changes to my Senate questionnaire so thank you for giving me the opportunity to comment on that.

I think as you all can appreciate, filling out these government forms is quite complicated. There were many things I expected in this job, including having to sell everything, but the amount of paperwork in filling out the forms, even for me having experience in business, was quite a job.

In an effort to get the committee information early, we submitted a preliminary questionnaire prior to us having the 278 form finished and prior to signing the agreement with the ethics office.

So let me first say, any oversight was unintentional. You did mention that there was $100 million dollars of real estate. I was advised by my lawyer that we didn't need to disclose that on the questionnaire because it didn't need to disclosed on the 278. There was some confusion about the complexity.

We worked tireless with the committee staff and I want to thank all the staff, I know they worked very, very long hours. As I said, they were extremely thorough, I appreciate their work. We delivered over 5,000 pages and I can assure you they actually read all those 5,000 pages because when I had the opportunity to meet with the staff, with my lawyers and accounts we answered some very specific -- some very specific questions and...

STABENOW: Excuse me -- Mr. Mnuchin I don't want to interrupt, but I have very limited time actually and I appreciate the additional information and the clarification and all that.

MNUCHIN: Yes.

STABENOW: But my question goes to what you were actually disclosing and particularly the Cayman Islands. I mean did you use the Cayman Island Corporation to avoid paying taxes? Would you support closing tax loop holes that very wealthy people have consistently used in the Cayman Islands to avoid paying taxes?

That really is my question.

MNUCHIN: Well, let me just be clear, again, I did not use a Cayman Island entity, in any way, to avoid taxes for myself. I paid U.S. taxes on all that income, OK? So there was no benefit to me from the Cayman entity.

As I said, the Cayman entity was set up to accommodate non-profit and pension funds that want to invest through offshore and a certain number of offshore...

STABENOW: So you helped others avoid paying...

(CROSSTALK)

MNUCHIN: I -- I -- I -- again I'm not going to make a comment -- again they didn't avoid, they followed the law. Because I have experience as a hedge fund manager I am committed to tax simplification.

I think it makes no sense that we would encourage hedge fund managers to set up entities in the Cayman Islands or Anguilla or anywhere else where, as you pointed out, I didn't have any physical people.

This is not like a -- there are people who set up offshore businesses and put all their people offshore and you've heard of inversions and those types of things, you know, are perfectly legal and hurt the American workers.

In the hedge fund world these are all just set up to make the accountants rich and I would look to work with the IRS to close these -- these tax issues that make no sense and make sure that we're collecting the proper amount of taxes.

STABENOW: So you would support closing those loopholes?

MNUCHIN: I would support changing the tax laws to make sure that they're simpler and more effective yes.

STABENOW: Thank you.

HATCH: Senator Crapo.

SEN. MIKE CRAPO (R), IDAHO: Thank you very much Senator Hatch and Mr. Mnuchin I appreciate your being here, your willingness to go through this and to serve the American people.

We truly need the kind of vision that President Trump has enunciated for the country and that you've committed to help work with him to achieve for the country.

As a part of that, one of the things that you've already mentioned today is that -- and I'm paraphrasing you here, but I believe you said, in essence, that we have a regulatory excess in the United States in many circumstances that can -- and is -- inhibiting lending and inhibiting capital formation. Two very important things that I think are critical to a pro-growth economy.

Could you elaborate on that?

MNUCHIN: Sure.

Well, let me first say that I absolutely believe in proper regulation.

[11:25:00]

And before I had an opportunity to put in a bid for IndyMac Bank, I had to be issued a charter and I worked very closely with what was the OTS at the time -- and by the way, I was a big fan of you merging the OTS with the OCC and getting rid of another regulatory agency.

But at the time, I worked with the OTS and the fed and the regulators explained to me at the time, and I told them that I understood the responsibility of being given a banking charter. I took that very, very seriously. I must say, that I enjoyed working with very, very smart regulators and I have tremendous respect for them.

Matter of fact, in one of the few things that The Wall Street Journal actually wrote nice about me, they made a comment that I told everybody we had to treat the regulators like our best client, which I believe. The regulators and the relationships with them and following the regulations -- nothing was more important given the trust they had put in us.

Having said that, I witnessed first hand, multiple regulators -- the OCC, the FDIC, the Consumer Protection Bureau, the Federal Reserve -- in certain cases there was overlapping regulation. My biggest concern and I fully support regulation for banks with FDIC insurance, but my biggest concern is that this regulation is killing community banks. We're losing the community banking business. We're losing the ability for small and medium-sized banks to make good loans to small and medium-sized businesses in the community where they understand those credit risks better than anybody else.

And I think that we all appreciate the engine of growth is with small and medium-sized businesses. And in my role at FSOC and in working with the different regulators -- regulators excuse me -- I would make sure that we did what we could to have proper regulation, but eliminate overlap, as well as make sure that the banks are lending to small and medium-sized businesses, and we don't end up with a world where we only have four big banks in this country.

CRAPO: Well, thank you, and you actually led right into my next question, because in a very closely related matter, as you know, as the secretary of Treasury, you'll have a very important role as the chairperson of FSOC. And, in my view, FSOC has focused on, very heavily focusing on statutory mandates -- some statutory mandates while ignoring others. One of the statutory mandates that the Dodd- Frank Act requires FSOC to do is to -- and this is the statutory language -- advise Congress and make recommendation in such areas that will enhance the integrity, efficiency, competitiveness and stability of U.S. financial markets.

Today, frankly, I'm not aware of FSOC fulfilling that role. We don't get a lot of advice from FSOC. We get a lot of directive in the country. Will you pledge, as the chairperson of FSOC, that you will ensure that the council considers way to make the U.S. financial markets more efficient, and then advise and work with Congress to achieve those outcomes?

MNUCHIN: I absolutely will Senator. And let me just comment on, for instance, the Volcker Rule, as an example. And I do support the Volcker Rule. I think the concept of proprietary trading does not belong in banks with FDIC insurance.

But the federal reserve just put out it's own report that the Volcker Rule has completely limited liquidity in -- in many markets. And, the federal reserve is concerned that the interpretation of the Volcker Rule doesn't allow banks to create enough liquidity for customers. So, that's something I would absolutely wanna look at.

And Senator Wyden, by the way, I wanted to thank you for a now and great esteem of having the Mnuchin Rule with both the Buffet Rule and the Volcker Rule. I take that as a great compliment. So, thank you for putting me in -- in with these other great people.

WYDEN: Thank you.

HATCH: Senator Nelson.

SEN. BILL NELSON (D), FLORIDA: Good morning.

I enjoyed our visit yesterday. Were you a director of Dune Capital International Limited, a Cayman Islands corporation?

MNUCHIN: I was, that is correct.

NELSON: Did you move a hedge fund -- Dune Capital Partners, LLC to Anguilla?

MNUCHIN: So, Senator, first let me just comment.

[11:30:00]

When we, when we talk about moving, OK, you know, it's -- it's -- it's not as if I had 50 people sitting as offices we've talked about and moving it.