Mnuchin: Dodd-Frank Reform “Number One Priority”
It was announced Wednesday that President-elect Donald Trump has tapped Steven Mnunchin, formally with Goldman Sachs, to the lead the Treasury. Following the announcement, Mnuchin wasted no time laying out his general priorities for financial services reforms in 2017, which included reforming the Dodd-Frank Act and the Volcker Rule in particular, easing the burden on regional banks, and potentially returning Fannie Mae and Freddie Mac to private control.
Appearing on CNBC’s “Squawk Box” Wednesday, Mnunchin expressed intentions to target the costly and burdensome Dodd-Frank Act, stating:
“The number one problem with Dodd-Frank is it’s way to complicated and it cuts back lending, so we want to strip back parts of Dodd-Frank that prevent banks from lending and that will be the number one priority on the regulatory side.”
Since enactment over six years ago, the Dodd-Frank Act has unleashed a slew of costly and burdensome regulations that have forced many community banks out of the market, chilled small business lending, and general reduced American financial competitiveness, among other problems.
Mnuchin will be in good company for prioritizing Dodd-Frank reform next year, as President-elect Trump has already vowed to “dismantle Dodd-Frank” and freeze or scrap other financial regulations such as the Department of Labor’s Fiduciary Rule.
President Trump and Mnuchin will have their work cut out for them somewhat, as House Financial Services Committee Chairman Jeb Hensarling has laid out a financial reform blueprint with the Financial CHOICE Act he introduced this year.
Hernsarling’s CHOICE Act looks to repeal burdensome regulations such as the Volcker Rule and Durbin Amendment, and rein in out of control regulators such as the Consumer Financial Protection Bureau and Financial Stability Oversight Council, in addition to a number of other reforms.
Photo credit: Woodley Wonder Works
CFPB Should Stop Work on Costly Arbitration Rule
Earlier this year the Consumer Financial Protection Bureau (CFPB) proposed a new rule that would harm both consumers and businesses. This rule would ban the commonly used arbitration clauses in consumer finance contracts.
A report published by the Competitive Enterprise Institute (CEI) examined the rule and how by banning these clauses the CFPB is effectively forcing consumers to forgo the quick and relatively cheap option of arbitration and instead pursue the long and more cumbersome process of filing class action lawsuits. Such lawsuits only benefit high-priced lawyers at the expense of both consumers and businesses.
CFPB Director Richard Corday describes arbitration clauses as “contract gotcha that effectively denies groups of consumers the right to seek justice”. However, this statement could not be further from the truth.
According to the CFPB’s own study, arbitration often results in better outcomes for consumers. Class action lawsuits on the other hand are only approved by the courts 20 percent of the time. Those lucky enough to be part of the 20 percent of approved cases must wait an average of 3 years in order to see any kind of settlement while those involved in arbitration wait an average of 6.9 months.
That CFPB’s study also found based on a survey of over the 400 class actions against financial firms, the average payout to class members was less than $2.00 a person, much lower than typical payouts under the arbitration process.
The arbitration rule is currently slated to be finished in 2017, but lawmakers are concerned the CFPB could look to push through the rule this year to circumvent President Trump blocking finalization. Such a “midnight regulation” from the CFPB would be ill advised and the Bureau should instead freeze its rulemaking on this issue and others until the new administration takes office.
Simply put, the arbitration rule is another example of the agency’s attempt to overregulate the financial services industry at the expense of consumers and businesses. In the 6 years that the agency has existed it has issued nearly 50 rules that have cost Americans and businesses billions of dollars in additional costs. Fortunately, next year consumers will have both a Congress and executive branch dedicated to protecting their interests and enforcing oversight of the CFPB.
Photo Credit: Brian Turner
Pro-Growth Reform Should Rollback or Remove Distortive Excise Taxes
A major goal of tax reform is eliminating or minimizing the extent to which the code picks winners and losers, with the end goal of a code that treats all economic decisions neutrally. This means removing any distortions in the tax code so that capital can form in the most productive way possible, resulting in more jobs, increased wages, and higher growth than may otherwise occur.
One broad way of achieving this is ensuring that businesses are taxed as equitably as possible by eliminating business credits in exchange for lowering rates within an across the board tax cut.
A different, more targeted way to achieve this goal is through the repeal of certain taxes, such as excise taxes. When it comes to alcohol excise taxes, this problem is especially noteworthy as the code currently taxes beer, wine, and spirits at different, arbitrary rates:
- Beer is subject to an $18 excise tax per barrel, with a reduced rate for the first 60,000 barrels produced by smaller brewers.
- Wine is subject to excise taxes between $1.07 and $3.40 per gallon, with a phased out credit for small wineries.
- Spirits are taxed at $13.50 per proof gallon, but with no reduced rate for smaller distillers.
This makes no sense, and is exactly the type of distortion that tax reform should aim to fix.
One possible path forward to undoing this inconsistent taxation is by passing the Craft Beverage Modernization and Tax Reform Act (S. 1562/H.R 2903), legislation sponsored by Senator Ron Wyden (D-Ore.) and Senator Roy Blunt (R-MO), and Congressman Erik Paulsen (R-MN) and Congressman Ron Kind (D-Wis.). The legislation is supported by a majority of both chambers -- 287 Congressmen and 52 Senators from both parties -- so there is clear consensus on the ideal path forward.
This legislation moves closer toward the goal of tax equity by ensuring the code treats beer, wine, and spirits in similar ways. In addition, it also equalizes the tax treatment of producers large and small.
By lowering rates, the Craft Beverage Modernization and Tax Reform Act achieves another key goal of tax reform – encouraging growth, jobs, and higher wages, through a more efficient system. It’s a basic principle that if you want more of something, you tax it less. Less income being diverted to federal and state governments means more resources left that can be invested by businesses in economically productive activity.
Excise taxes by their nature are counterproductive, because they have two competing goals. Lawmakers often justify these taxes as a way to clamp down on negative behavior, but the more successful they are at this goal, the less revenue they produce. In addition, they pick winners and losers by taxing a selective, narrow base, which distorts production and economic choices.
Tax reform that lowers rates and removes distortions is decades overdue. Removing credits, deductions, and discriminatory taxes – like alcohol excise taxes – must be a key component of pro-growth reform that increases wages, creates more jobs, and boosts economic growth.
The proposed bill would reduce the excise tax on domestic spirits producers by 80% for the first 100,000 proof gallons/year. The US and EU complained to the WTO about Colombia’s tax rates on booze. In defending against the complaint, Columbia could at least say that the different tax rates are based on the alcohol content, and not on national origin. The US does not even have that argument to justify the uneven playing field of taxing imports at five times the rate of domestic spirits producers.
ATR Statement on EPA’s Newly Released Fuel Economy Standards
Washington – ATR President Grover Norquist issued the following statement this week in response to the EPA’s unprecedented push to finalize strict new fuel-economy standards for 2022-2025:
“The EPA’s push this week to finalize burdensome and costly new fuel-economy standards is clearly an affront to the incoming Trump administration. The EPA’s actions disregard the appropriate and in-depth analysis needed to ensure that the new standards take into account fuel efficiency, affordability, and the impact on the economy.
“The overly strict standards proposed by the EPA will only make cars and trucks increasingly more expensive and unaffordable for American consumers. As a result, American families and workers will be forced to look to less efficient and less safe used cars and trucks.
“Such stringent and premature standards are unrealistic, and effectively put the government in between consumer choice and American mobility.”
Trump has his team looking at those regulations which are unduly oppressive and will be immediately withdrawn.
This one will probably be among the first to go.
ATR Statement on H.R. 34, the 21st Century Cures/Mental Health Reform Package
Congress will this week consider H.R. 34, “the 21st Century Cures Act.” This fiscally responsible legislation promotes medical innovation by streamlining the discovery, development, and delivery of medicines. It also reforms the nation’s failing mental health system to ensure millions of Americans receive the care they need. Members of Congress should have no hesitation supporting and voting “Yes” on this important legislation.
Fiscally Responsible: The 21st Century Cures package contains no tax increases, and all new spending is fully offset over the ten year window with corresponding spending cuts, as noted in an analysis by the Congressional Budget Office.
In all, H.R. 34 provides $6.3 billion in funding over the next ten years, including $4.8 billion to the NIH, $1 billion to combat opioid abuse, and $500 million to the FDA. Unlike the version of Cures passed last year, spending in the updated version is not mandatory, so Congress will retain necessary oversight over all spending.
More than half of the legislation’s spending is offset by rescinding funds from Obamacare’s unaccountable Prevention and Public Health Slush fund, a fund that has been used to push the Obama administration’s partisan agenda with non-existent congressional oversight. Other offsets include several changes to Medicare and Medicaid that will help promote the sustainability of these programs in the decades to come.
Promotes Medical Innovation: H.R. 34 devotes significant resources to streamlining the long process of medical innovation by reforming the discovery, development, and delivery of medicines and treatments.
Reforms include reducing regulatory red tape, breaking down barriers that restrict data sharing, speeding up clinical trials while increasing patient input, promoting new technologies, and expediting the review of potentially breakthrough devices.
While the resources needed to develop new cures are costly and time consuming, the potential savings to the broader healthcare system are significant. Updating the regulatory system governing the development of new medicines and treatments will ensure the U.S. remains a world leader in treatment, that the lives of millions will improve, and that costs will be minimized.
Reforms Failing Mental Health System: All too often, the U.S. mental health system fails to provide proper treatment to the millions that need it. The federal government spends roughly $130 billion on mental health each year, often with underwhelming and ineffective results. While there are 112 federal programs dedicated to addressing mental health, there is little, if any coordination. The Substance Abuse and Mental Health Services Administration (SAMSHA) has even been dubbed the “worse government agency”.
While there is need for change, the solution cannot be spending billions in a system is plagued by inefficiency and waste. Instead, H.R. 34 contains many important reforms that update the mental health system without spending any new money.
Specifically, the legislation reforms SAMSHA, creates more oversight and connectivity over the many programs and agencies involved in mental health and priorities evidence-based care that empowers caregivers, supports innovation, and advances early prevention programs.
In addition, the legislation creates more support for the mental health workforce, for on-campus mental health education, and for addressing substance use.
There is clear support for reforming our mental health system in this direction. Similar legislation, “the Helping Families in Mental Health Crisis Act” (H.R. 2646), sponsored by Congressman Tim Murphy (R-Pa.) passed the House of Representatives by an overwhelming vote of 422-2 earlier this year. Lawmakers should have no hesitation again supporting these important reforms.
Top 5 Financial Regulations Trump Should Repeal
Throughout his campaign Donald Trump pledged to repeal and “dismantle” burdensome financial regulations such as the Department of Labor’s (DOL) “fiduciary rule” and regulations enacted under the Dodd-Frank Act. Now that President-elect Trump has clinched the Whitehouse and has the backing of a Republican House and Senate, he now has the ability to act on his campaign pledge.
Looking ahead to 2017, there are five financial reforms that Trump can undertake to relieve the burdensome and costly regulatory impact left over from the Obama administration.
- Repeal the DOL’s Fiduciary Rule. Trump should look to repeal the DOL’s costly fiduciary rule before it takes effect April 2017. The massive rule spans over 1000 pages and reduces the ability of financial advisors to give advice to IRA and 401(k) holders. Estimates show the fiduciary rule could disqualify up to 7 million IRA holders from investment advice, and reduce the number of IRAs opened annually by up to 400,000.
- Repeal the Durbin Amendment. The Durbin Amendment, passed as part of the Dodd-Frank Act, requires the Federal Reserve to fix the price of fees charged to retailers for debit card processing. Prior to Dodd-Frank, issuers of debit cards received a fee from the merchant to offset the cost of running the debit card system. This has increased the cost of accepting debit cards for many small businesses, which in turn pass those costs onto consumers.
- Repeal the Volcker Rule. Passed as part of the Dodd-Frank Act, the Volcker Rule, named for former Federal Reserve Chairman Paul Volcker, limits the type of trading activities that banks can engage in, specifically proprietary trading (trading for ones own accounts). Volcker has since acknowledged however proprietary trading did not lead to the financial crisis, calling the justification behind the rule into question. As a result, U.S. financial institutions have become less competitive globally, the cost of raising capital for small businesses has increased, and market liquidity has been reduced.
- Stop or repeal the Arbitration Rule. The CFPB is currently racing to finalize the proposed Arbitration Rule before President Trump takes office in January. The proposed rule would ban arbitration clauses in consumer finance contracts such as those used by lenders and credit card companies. The rule would be a boon for trial attorneys and a burden for consumers. The CFPB’s own study found arbitration clauses result in better outcomes for consumers, with awards being given in a matter of months, while class-action awards take years and have average payouts of less than $2 per person.
- Reform the CFPB. The Consumer Financial Protection Bureau (CFPB) is the fastest rulemaking body in the federal government. Of the nearly 50 rules the CFPB has imposed, 26 of them have directly resulted in $2.8 billion in costs and 16.9 million hours of increased paperwork. Two primary CFPB reforms Trump can focus on are subjecting the bureau to Congressional oversight and shifting CFPB leadership from one unaccountable bureaucrat to a 5-member board.
Photo Credit: Gage Skidmore
IRS Employees Putting Taxpayer Info At Risk with Un-encrypted Emails
IRS employees sent numerous emails with unencrypted taxpayer data, in violation of the agencies email policies, according to a report by the Treasury Inspector General for Tax Administration (TIGTA). As the report notes, almost half of IRS employees sampled failed to abide by the agency’s email policies. Based on these findings TIGTA estimates that the information of more than 28 million taxpayers could be vulnerable.
Under IRs procedure, employees can only send emails containing taxpayer data if it is properly encrypted. As the report notes:
“IRS employees should never include taxpayer PII/tax return information in electronic mail (e-mail) messages or attachments unless an IRS-approved encryption technology is used.”
However, this was not the case. In a random sample of 80 employees, TIGTA found that 49 percent of employees, failed to follow IRS guidelines. As the report notes:
“39 (49 percent) employees sent a total of 326 unencrypted e-mails containing 8,031 different taxpayers’ PII/tax return information internally to other IRS employees or externally to non-IRS e-mail accounts.”
As the report notes, this poses a serious risk that taxpayer information will be improperly disclosed. The information sent in these emails included personally identifiable information and tax return information. Of most concern, TIGTA identified 51 emails that were sent to non-IRS e-mail accounts and an additional 20 that were sent to personal e-mail accounts.
TIGTA determined that this issue could affect more than 28 millions of taxpayers. According to the report:
“Based on our sample results, we estimate that 11, 416 SB/SE Division employees sent 95,396 unencrypted e-mails with taxpayer PII/tax return information for 2.4 million taxpayers during the four-week period of our sample. If this four-week period is typical, we estimate that more than 1.1 million unencrypted e-mails with taxpayer PII/tax return information of 28.2 million taxpayers could be sent annually.”
This is not the first time the IRS has left taxpayers in danger. In September, TIGTA released a report on the failure of the IRS to ensure the proper return of laptops that contained sensitive taxpayer information by contractors. TIGTA estimated that the IRS had failed to properly document the return of 84.2 percent, or more than 1,000 computers due to be returned by contract employees.
Additionally, last year there was a data breach that left hundreds of thousands of taxpayers’ information exposed after being warned by watchdog groups. Following the hack, TIGTA revealed that the IRS failed to implement 44 recommendations that would improve the IRS’s ability to protect taxpayer information from hackers. Of these 44, ten recommendations were over three years old.
Show Notes: Taxpayers Win Big on Election Day
With the Election Day behind us, Americans have a lot to look forward to. In episode 67 of The Grover Norquist Show, Grover reminds us that the voters:
- Rejected Hillary Clinton’s $1 trillion in tax hikes,
- Elected a Congress and President that will repeal Obamacare’s $1 trillion in taxes and failed policy
- Will get comprehensive, pro-growth tax reform that spurs innovation and makes the US competitive internationally
Tune in and learn more about what may be in store for the next four years.
Trump Should Kill DOL Fiduciary Rule
One of President-elect Trump’s goals for 2017 should be to kill the Department of Labor’s (DOL) rule for financial advisors, commonly referred to as the “Fiduciary Rule”. The rule spans over one thousand pages and will reduce the ability of financial advisors to give advice to IRA and 401(k) holders, essentially putting the federal government in between Americans and their retirement savings decisions.
Estimates show the fiduciary rule could disqualify up to 7 million IRA holders from investment advice, and potentially reduce the number of IRAs opened annually by between 300,000 and 400,000.
The Trump administration could kill the rule in one of two ways. First, with a Republican controlled House and Senate, President Trump could look to do so by passing a bill that would effectively overturn the rule.
There has already been wide opposition to the rule expressed in both the House and Senate, with Representatives Phil Roe (R-Tenn.), Charles Boustany (R-La.) and Ann Wagner (R-Mo.) introducing a resolution earlier this year under the Congressional Review Act to block the rule. A similar resolution was introduced in the Senate by Senator Johnny Isakson (R-Ga.).
Alternatively, Trump’s second option and more likely choice would be to roll back the fiduciary rule using a new rule-making process at the Labor Department. With new DOL leadership, the Trump administration could delay the rule indefinitely. This delay would allow DOL officials under Trump to reverse the fiduciary rule altogether.
Whatever path President Trump might decide on, the need to kill the costly and burdensome fiduciary rule is huge. Killing the fiduciary rule before the April 10th 2017 implementation date would protect low-and-middle income families, small businesses, and employees from increased retirement savings costs and reduced access to investment advice.
Photo credit: Gage Skidmore
Trump absolutely needs to kill this rule to keep access to advice for small investors and to give consumers choice in retirement investing.
First, it is not clear what "reverse" the rule would mean - just the definition of "fiduciary" or all of the exemptions that were amended or added? Second, most of the wirehouses have already embraced (most) of the Rule - how are the small brokers going to go back to "normal" when the big boys are spending millions on advertising that only they are giving truly unconflicted advice?
Mercatus Study Shows Harmful Effect of Occupational Licensing
Recently a new study came out from the Mercatus Center at George Mason University, focussing on the effect of occupational licensing on the chiropractic, physical therapist (PT), and physician labor market specifically.
The study, authored by Edward J. Timmons, Jason M. Hockenberry and Christine Piette Durrance, finds that: “Allowing chiropractors and PTs more freedom of practice may result in lower healthcare costs.” And that “Consumer welfare is likely to be improved by having greater access to lower-priced care and more choices for pain treatment.”
This is a recurring theme in markets nowadays with ever-increasing regulations ever Right now there are more than 1,000,000 restrictions in the Code of Federal Regulations (CFR) which has more than 175,000 pages.
The government has a fondness for occupational licensing which can be seen in the numbers. The amount of people working in jobs that require occupational licensing has increased from 4% in 1950 to 29% in 2006. Under the guise of “safety” politicians have created artificial barriers of entry to a multitude of industries. A famous example is the absurdity of the cosmetology license that is required for hair braiding.
In general, occupational licensing increases the barrier to entry in a certain industry and thus artificially increases wages of the licensed workers. In regard to the hair braiders it made a perfectly safe job illegal to perform without very expensive training completely unrelated to the job.
Right now a big reason why people tend to go to the higher cost primary-care physician is due to ‘scope-of-practice laws’. These laws state what a, in this case, chiropractor or PT can and can’t treat. Broadening these scope-of-practice laws for chiropractors and PT’s gives customers lower-cost alternatives for back and neck pain. This could improve the efficiency of the healthcare market and lead to lower spending on Medicaid.
This study confirms, with data, what we already suspected. Occupational licensing, just like overregulation, reduces efficiency in the marketplace, causing higher costs for everyone.