President-Elect Joe Biden’s choice to name Janet Yellen as his Treasury Secretary represents a tremendous opportunity to take executive action on the issues most pressing to all Americans. Here are just some meaningful actions the next Treasury Secretary could take without having to go through Congress.
NOTE: This post was published in conjunction with Demand Progress. It is a living document and shall be updated over time.
Fire Trump-era tax appointees. IRS Commissioner Charles Rettig can and should be fired on day one for his wilful disregard of Congressional oversight requests for Trump’s tax returns, reported chicanery regarding Trump’s IRS audit, and more. As the Revolving Door Project previously identified, Rettig is one of several Trump appointees who will not vacate their offices on January 20th, but from whom Biden and his Treasury Secretary can and should request resignations.
Reorient auditing resources to focus on billionaires and corporate tax-dodging, rather than the poor and middle-class. About one in seven dollars owed to the federal government, or $380 billion of revenue, goes uncollected each year. Half of that, or $190 billion, comes from corporate America underreporting its income. That’s only possible because IRS auditing budgets have been decimated, and what auditory resources remain have been dedicated to targeting small-ball tax fraud or errors committed by working- and middle-class Americans, rather than the wealthy tax evaders and corporate creative accountants actually responsible for meaningful tax revenue shortfalls. The goal of an effective IRS should not be to get any cases on the board for cases’ own sakes, and thus to maintain the illusion of effective white-collar crime enforcement. Rather, the IRS should seek out and prosecute complex tax evaders committing large-scale fraud, and thus both recouping meaningful sums for the national treasury and demonstrating to average Americans that their government is not out to get them — it’s out to get those who commit major crimes, no matter their personal influence or connections.
Limit the frequency of benefits of corporate tax-dodging via international “inversions.” One of the most common tax-dodging moves in corporate America’s playbook is to buy a competitor or open a subsidiary based in a low-tax foreign nation, then suddenly declare the acquired competitor or subsidiary to be the new corporate headquarters. Thus, the corporation only has to pay tax at the foreign nation’s rates. This is called an “inversion,” and the Obama administration issued plentiful regulations to minimize both their frequency and benefits, finally cracking down hard enough in its second term. The Biden administration should re-implement these rules immediately, and go further by finally fully enacting the “earnings stripping” rule. This would prevent global corporations from having their American divisions aggressively lend money to foreign divisions, thus creating the appearance on paper that the American division is incurring losses and should not be taxed.
Minimize the harm of the 2017 Tax Cuts and Jobs Act, while capitalizing on some of its benefits. In the absence of Congressional action to undo the Trump administration’s signature tax bill, Biden’s IRS can issue new regulations and enforcement regimes to enforce it in the least regressive way possible. This would include rewriting “opportunity zone” regulations to restrict access to the tax cut for investors who don’t actually provide opportunities in poor neighborhoods; undoing a guidance which effectively shields public-private partnerships from seeing the cost of debt rise (thus incentivizing private-equity exploitation); and ensuring international tax collection systems actually gather taxes from foreign firms operating in the U.S. and American firms operating abroad.
Close loopholes that allow tax-dodging based on property law. Wealthy individuals often grossly undervalue their property to squeeze it into tax-favored retirement accounts, or abuse conservation laws to take massive tax deductions. These and other methods of gaming the tax system can be undone with a few new regulations and enforcement mandates.
Draw up the design for the next round of fiscal stimulus. Trump Treasury Secretary Steven Mnuchin emerged from the CARES Act as one of the most powerful men in Washington, having designed it with leaders of both parties and being tasked with implementing most of its provisions. In 2008, Bush Treasury Secretary Hank Paulson played a similar central role in the response to the financial crash and subsequent stimulus. As Congress debates another round of stimulus and Biden prepares to inherit an economy in a Great Depression-level economic downturn, his Treasury Secretary will inevitably play a key role in designing both the policies in bills his administration demands from Congress, and the political tactics and strategy through which they will seek to see those policies passed.
Yellen, perhaps America’s leading expert on the economics of unemployment, including its costs, would be expected to play a leading and constructive role.
Coordinate more closely with the Federal Reserve than any other executive-branch official. While the nation’s central bank enjoys cherished independence, the Treasury Secretary typically works closely with the Federal Reserve chair during a crisis like the COVID-19 recession — Paulson, Geithner, and then-Federal Reserve Chairman Ben Bernanke worked so closely that they released a book about their shared experiences in 2008-2010 last year. Certainly Mnuchin in recent weeks has alienated the Fed, and much of the rest of the world, by forcing the central bank to return unspent CARES Act funds necessary to keeping the American economy afloat. Future stimulus and economic relief will require closer, more genial coordination between monetary and fiscal policy officials, particularly given the probability of Republican obstruction to a Democratic president’s efforts to aid the economy. This may include vastly expanded lending to cash-strapped cities and states on highly favorable terms.
Financial Regulatory Policy
Coordinate with all financial regulators to crack down on shadow banks. The Treasury Secretary chairs FSOC, or the Financial Stability Oversight Council, a committee of top Wall Street beat cops from across the federal government (SEC, CFTC, CFPB, etc.) FSOC is in charge of coordinating the regulatory regime for “systemically important financial institutions,” better known as the “Too Big To Fail” banks and lenders. So powerful is this body and designation that the world’s largest asset manager, BlackRock, carried out an unprecedented shadow lobbying campaign across regulators large and small just to avoid FSOC’s oversight. As the leader of FSOC, the next Treasury Secretary can both coordinate its activities to crack down on existing bad actors, and broaden the laughably narrow terms under which a firm might officially be considered “Too Big To Fail.”
Addressing income inequality. Under Treasury’s leadership, the FSOC could make income inequality a central focus of its analysis of systemic risks to the financial system.
Fire Trump’s Comptroller of the Currency. Trump comptroller of the currency Brian Brooks has demonstrated a pattern of corrupt behavior meritorious of firing, as the Revolving Door Project previously outlined. Biden should demand his resignation on day one, and replace him with a new Comptroller committed to reinstating and going further than the Obama administration’s regulations on money laundering, community reinvestment, and more. The Office of the Comptroller of the Currency is a division of the Treasury Department, meaning that the Treasury Secretary’s consent to and personal relationship with the next Comptroller will matter a great deal on financial regulatory matters.
Restrict the types of activities banks can engage in. What makes a business a “bank”? If it operates across state lines, the answer is that it holds a charter from the OCC. How, then, does the OCC decide on what makes a bank? Its powers to do so are actually quite broad under the National Bank Act: across decades, the OCC simply used letters and orders to gradually broaden and broaden its definition of a bank into the hyper-complex financial supermarkets we know today. Likewise, a committed Comptroller could hem these definitions back in, restoring simplicity and decentralization to our financial system.
Grant states more power to protect consumers. State attorneys general regularly find themselves overridden by captured federal agencies when it comes to prosecuting big banks. This need not be the case: the next Comptroller of the Currency could reinterpret the National Bank Act to grant states far more leeway to enforce bank laws, which could significantly empower states with consumer interest rate caps (i.e. anti-payday loan laws) overnight. Diffusing bank enforcement procedure would not only create 50 more powerful watchdogs with one act, it would make it significantly harder for powerful financial interests to capture and corrupt all of the agencies with the power to hold them accountable for law-breaking.
Use FSOC to regulate fossil fuel investments of financial companies. The Dodd-Frank Act gave Treasury new capacities to regulate the financial industry in order to prevent future crises like 2008. The legislation created the Financial Stability Oversight Council (FSOC), which is tasked with researching and identifying systemic risks to our financial security, and can study the economic effects of both physical and financial damage caused by climate change. Financial regulators can then use FSOC’s analysis to implement regulations forcing financial companies to integrate climate risk analysis in their investment and lending portfolios. FSOC can even give the Fed approval to require financial institutions to divest completely from fossil fuel assets.
Take a strong stance against fossil fuel investment on the international stage. As the leading shareholder of the World Bank and a leader in other global financial institutions, Biden’s Treasury Department should take a clear stance against fossil fuel investment on the international stage. This should include taking strong positions on emissions standards and spearheading efforts to invest in green energy development.
Re-establish the Treasury’s Office of Environment and Energy. On day one, Biden’s Treasury Secretary can re-establish the Office of Environment and Energy, which the Trump Administration disbanded. The Office, created under the Obama Administration, worked to coordinate and execute Treasury’s role in the domestic and international environment and energy agenda.
Aggressively prosecute foreign financial crimes. In September, Buzzfeed News and the International Consortium of Investigative Journalists began publishing stories from a trove of “suspicious activity reports” (SARs) leaked from FinCEN, the Treasury’s financial crime enforcement division charged with preventing money laundering, terrorist financing, and more. As the reports show, banks frequently treat SARs as a get-out-of-jail-free card, filing reports on a wide range of activities without meaningfully changing the practices causing these suspicious activities, such as dropping shifty clients. In coordination with the Biden Justice Department, the next Treasury Secretary could overhaul this practice by simply issuing fewer “deferred prosecution agreements” and actively using SAR evidence to bring cases against bank officials with a demonstrated history of negligence.
Global stimulus through Special drawing rights. The International Monetary Fund can issue a quasi-currency it controls, known as special drawing rights, to stimulate the global economy during economic downturns – as it did during the 2008-2009 financial crisis. In order to do so, there must be a supermajority vote within the IMF. The Treasury Secretary controls the United States’s votes; the U.S. alone has enough weight to block the issuance of SDRs – and Secretary Mnuchin is doing so. A new Treasury Secretary could, on Day One, approve the release of hundreds of billions of SDRs, saving untold lives and improving untold livelihoods across the globe. While this would disproportionately assist the neediest communities in the Global South, efforts to improve the global economy will generally redound to the benefit of Americans as well. Moreover, it is anticipated that funds would in substantial part be used to buy medical supplies and otherwise mitigate the spread of the global pandemic, which would also be of benefit to Americans.