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House Appropriations Subcommittee Hearing with Treasury Secretary Steven Mnuchin

House Appropriations Subcommittee on Financial Services and General Government

“The Department of the Treasury Budget Request for FY2021”

Wednesday, March 4, 2020

Key Topics & Takeaways

  • Sanctions and Cybersecurity: Asked about cybersecurity and the effectiveness of sanctions, Mnuchin said the risk must be constantly monitored and cybersecurity must be constantly invested in. Mnuchin commented that sanctions are one of many tools to combat bad actors around the world. He noted that the IRS budget request includes funds for modernization of its cybersecurity. Mnuchin commented that the financial industry is “way ahead of everybody else” in terms of cybersecurity, partially because the industry has been subject to a disproportionate number of cyber-attacks and thus has invested early in countering them.
  • Cannabis Banking: Asked about cannabis banking issues, specifically the conflict between federal and state laws that the SAFE Banking Act attempts to address, Mnuchin said the conflict between state and federal law creates problems for the IRS, citing the need to create “cash rooms” to collect taxes in cash from cannabis businesses, saying this creates risks for both IRS employees and the community at large. He noted that although FinCEN has issued certain guidance on this issue, without legislation there are limitations on what Treasury and other banking regulators can do to address it.
  • Tax Cuts and Jobs Act: Asked whether the Tax Cuts and Jobs Act will pay for itself in the next ten years, Mnuchin responded that “this is just math” based on estimates of future growth rates, adding that for the first two years the internal projections have been met and each additional year will increase certainty.

Witness

Opening Statements

Chairman Mike Quigley (D-Ill.)

In his opening statement, Quigley noted the vital role the Treasury Department plays in both the domestic and global economy, including collecting tax revenue and investigating and protecting against illicit activities. Quigley highlighted that Treasury’s fiscal year 2021 (FY21) request is $2.6 billion above the allocated amount in fiscal year 2020 (FY20). He continued that the budget proposal includes a $400 million discretionary cap adjustment for the Internal Revenue Service (IRS) program integrity activities. Quigley said the budget requests a “dramatic” increase in funding, nearly $2.4 billion of which can be attributed to the proposed transfer of the U.S. Secret Service from the Department of Homeland Security to the Treasury. Quigley expressed his support for Treasury’s continued efforts to maintain robust funding for the Office of Terrorism and Financial Intelligence (TFI), and the Financial Crimes Enforcement Network (FinCEN), as well as increases for staff for the Committee on Foreign Investment in the United States (CFIUS). However, Quigley added his disappointment that the proposal requests funds outside of the discretionary budget caps and includes funding cuts for the Special Inspector General for the Troubled Asset Relief Program (SIGTARP).

Ranking Member Tom Graves (R-Ga.)

In his opening statement, Graves expressed gratitude for Mnuchin’s efforts in last year’s appropriations negotiations and to implement the Tax Cuts and Jobs Act. He highlighted that the economy has benefited from lower regulatory and compliance costs, as evidenced by an unemployment rate at a 50-year low and more than six million new jobs. Graves expressed his support for the Treasury Department’s efforts to enhance sanctions enforcement, national security and foreign investment reviews, cybersecurity, and IRS information technology (IT) infrastructure. He applauded the efforts of the Vice President and the Coronavirus Task Force and expressed his desire to hear about potential economic impacts the virus may cause.

Testimony

The Honorable Steven Mnuchin, Secretary, Department of the Treasury

In his testimony, Mnuchin emphasized that the Treasury Department remains committed to prioritizing economic growth and its role in national security matters. He briefly highlighted that the Trump administration is closely monitoring the effects of the coronavirus on public health, supply chains, and the broader economy and that the Treasury Department will work with Congress on the emergency funding package. Mnuchin pivoted back to the budget proposal, stating that the Treasury is requesting $12 billion to enhance and modernize the IRS. Specifically, he referenced implementation of the Taxpayers First Act and continuing the integrated business systems modernization. Mnuchin noted that the proposal requests an IRS program integrity cap adjustment to reduce the tax gap, with estimated net savings of $64 billion over ten years. Mnuchin added that the budget requests funding for TFI and FinCEN, as well as for the Treasury to improve cybersecurity risk identification and mitigation. He concluded that the request proposes legislation to return the Secret Service to their “original home” at Treasury.

Question & Answer

Sanctions and Cybersecurity

Graves asked about the effectiveness of sanctions, particularly those against individuals in North Korea related to data breaches. Mnuchin said he spends a significant amount of time focusing on cybersecurity issues because the U.S. financial infrastructure is essential to the economy. He said he supports public-private cooperation in addressing cybersecurity issues and added his full support for moving the Secret Service back under the jurisdiction of the Treasury Department to ensure better coordination in addressing cybercrimes. He said the risk must be constantly monitored and cybersecurity must be constantly invested in. Mnuchin commented that sanctions are one of many tools to combat bad actors around the world. He noted that the IRS budget request includes funds for modernization of its cybersecurity.

Graves further inquired about the cybersecurity standards required of third-party contractors working with government entities of the financial sector. Mnuchin commented that the financial industry is “way ahead of everybody else” in terms of cybersecurity, partially because the industry has been subject to a disproportionate number of cyber-attacks and thus has invested early in countering them.

Quigley asked about sanctions related to Russian interference in U.S. elections. Mnuchin said he believes that Treasury is fully staffed and resourced to be able to enforce these sanctions. He continued that he believes the U.S. is sanctioning the right people and that the sanctions program works.

Cannabis Banking

Reps. Charlie Crist (D-Fla.) and David Joyce (R-Ohio) asked about cannabis banking issues, specifically the conflict between federal and state laws that the SAFE Banking Act attempts to address. Mnuchin said the conflict between state and federal law creates problems for the IRS, citing the need to create “cash rooms” to collect taxes in cash from cannabis businesses. He continued that this creates risks for both IRS employees and the community at large. Mnuchin noted that although FinCEN has put forth certain guidance on this issue, without legislation there are limitations on what Treasury and other banking regulators can do to address it.

Tax Cuts and Jobs Act

Quigley asked if Mnuchin still believes that the Tax Cuts and Jobs Act will pay for itself in the next ten years, citing multiple studies that project the law will add as much as $1.9 trillion to the debt. Mnuchin responded that “this is just math” based on estimates of future growth rates, adding that for the first two years the internal projections have been met and each additional year will increase certainty.

Coronavirus

Rep. Sanford Bishop Jr. (D-Ga.) asked about the potential economic effects of the coronavirus, the necessity of monetary or fiscal stimulus, and whether U.S. firms are prepared to cope with disruptions to global supply chains. Mnuchin said it is too early to predict the exact economic impact on the global and U.S. economies, but noted that unlike the financial crisis, the coronavirus is not likely to have a long-term impact. Mnuchin expressed his support for the Federal Reserve’s action to cut rates, saying providing this stimulus is consistent with its dual mandate. Mnuchin added that he does not yet see problems with global supply chains but is monitoring the situation closely.

CDFIs

Reps. Ann Kirkpatrick (D-Ariz.), Bishop and Crist asked about proposed cuts to the Community Development Financial Institution Fund (CDFI Fund). Mnuchin acknowledged that the CDFI Fund provides significant benefits to many communities and said that if Congress allocates funds to support it, Treasury will continue to appropriately administer it.

Tax Scams

Rep. Matt Cartwright (D-Pa.) asked about tax scams, particularly those targeted at seniors. Mnuchin said he is always concerned about fraud and scams and he is working with the IRS Commissioner to address this issue.

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