Late Tuesday, Sen. Rand Paul (R-Ky.) introduced a bill that would repeal part of a law aimed at fighting offshore tax evasion.
The law, called the Foreign Account Tax Compliance Act, was passed in 2010 and is supposed to go into effect on January 1, 2014. It requires foreign financial institutions to report information about Americans with accounts worth more than $50,000 to the IRS. Firms that don't comply will be fined.
Tax policy watch dogs say the FATCA is essential to rooting out tax cheats. "The increased bilateral exchange of taxpayer information that...[is] crucial to cleaning up the worldwide shadow financial system," Heather Lowe, director of government affairs for the advocacy organization Global Financial Integrity told Accounting Today earlier this month. "[F]oreign financial institutions should not harbor the illicit assets of U.S. tax evaders."
But Paul's bill to weaken the law was immediately hailed as "heroic" by the biggest independent financial advisory firm in the world. In an email press release from the deVere group, chief executive Nigel Green said, "Senator Paul’s heroic stance against this toxic, economy-damaging tax act is a landmark moment in the mission to have it repealed. He has taken a courageous stand against FATCA, [a law that] will impose unnecessary costs and burdens on foreign financial institutions."
Paul, generally a die-hard anti-taxer, says the intent of his bill "is not to disrupt legitimate tax enforcement." Instead, he says he objects to FATCA because it "violates important privacy protections," by giving foreign governments too much access to US citizens' tax information. Paul says he is only in favor of repealing those provisions.
But Paul has a long history of fighting the offshore-tax evasion law. Since FATCA was signed, the Treasury Department has been negotiating and signing treaties with over 50 countries to implement the law's provisions. Paul has put a hold on Senate approval of all tax treaties since he was elected in 2010, and as such has been blamed for trying to block FATCA.
A companion version of Paul’s bill is expected to be introduced in the House soon.
The three bills passed over serious objections from the Obama administration. On Monday, Treasury Secretary Jack Lew wrote a letter to Rep. Jeb Hensarling (R-Texas), the chairman of the committee, urging "members to oppose these bills and others like [them] that would weaken the important regulatory changes that Wall Street Reform has made to the derivatives market." A year ago, former Treasury Secretary Timothy Geithner made a similar statement against a slate of nearly identical bills.
Financial reform advocates say that the three bills would do serious damage to parts of Dodd-Frank that deal with derivatives, which are financial products with values based on underlying numbers, like crop prices or interest rates.
Only six of the 28 Democrats on the committee voted against all three of the bills—Reps. Maxine Waters (D-Calif.), the senior Democratic member of the committee; Nydia Velázquez (D-N.Y.); Mike Capuano (D-Mass.); Stephen Lynch (D-Mass.); Al Green (D-Tex.); and Keith Ellison (D-Minn.). Another six Democrats voted against some of the bills. Sixteen Dems voted in favor of all three bills. Thirty-one of the 33 Republicans on the committee voted for all the bills; Reps. Steve Pearce (R-N.M.) and Lynn Westmoreland (R-Ga.) abstained on two of the bills.
House Financial Services Committee members received some $14.8 million in contributions from the financial services and banking sectors during the last election cycle.
One of the offending bills would allow certain derivatives that are traded within a corporation to be exempt from almost all new Dodd-Frank regulations. The second would expand the types of trading risks that banks can take on. The third would allow big US-based multinational banks to escape US regulations by operating through international subsidiaries. Financial reform advocates say it is way too early to start messing with Wall Street reform, especially since key parts of Dodd-Frank have yet to go into effect.
In an opening statement before the vote, Waters listed a series of financial scandals in the wake of the 2007 crisis that she argues make strong financial regulations imperative. "These scandals include, but aren’t limited to, money laundering to drug cartels, Libor [interest rate] manipulation, and the case of the 'London Whale,'" the nick-name for JPMorgan's massive trading loss last year, she said.
The bills will now head to the House floor for consideration, and have a good chance of being taken up in the Senate.
The House Financial Services Committee (HFSC) plans to vote on nine separate bills this week that have been presented as technical fixes to the sweeping 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. But these measures have the potential to dramatically weaken the legislation, which was designed to prevent another financial crisis a la 2007. Now Treasury Secretary Jack Lew has weighed in, condemning the measures in a letter to HFSC chair Rep. Jeb Hensarling (R-Texas).
"The derivatives provisions in the Wall Street Reform Act constitute an important part of the reforms being put into place to strengthen our financial system by improving transparency and reducing risk for market participants," Lew wrote in the letter. (Derivatives are financial products that have values based on underlying numbers, like crop prices or interest rates; some economists believe these products helped cause the 2007 financial collapse.) "These reforms should not be weekend or repealed."
Lew had, up until now, been silent on this set of bills. As I reported last month, former Treasury Secretary Tim Geithner slammed a series of nearly identical bills last year, but Lew had so far declined to address the latest proposed changes. After our story ran, a Treasury spokeswoman reached out to clarify that, "Of course the Treasury secretary would oppose any effort to weaken Wall Street reform," and pointed to Lew's previouspublic statements opposing efforts to undermine Dodd-Frank or delay its implementation.
Monday's letter put that promise into action. "I urge Members to oppose these bills and others like it that would weaken the important regulatory changes that Wall Street Reform has made to the derivatives market," he wrote. He added thatonly some of the rules governing the derivatives market have been finalized, so these bills are "premature":
Regulators are already addressing many of the issues presented in these bills through their rule makings. In many instances, legislation is premature and aspects would be disruptive and harmful to the implementation of key reforms. We should allow the regulators to complete their ongoing rule makings, and then determine what changes, if any, might be necessary in certain areas to improve the effectiveness of these reforms.
While some Democrats in the committee share Lew's concerns about the measures, the bills do have bipartisan support. It is unclear whether the bills will pass. House Financial Services Committee members received some $14.8 million in contributions from the financial services and banking sectors during the last election cycle. This week, we will see where members' loyalties lie.
Unemployment hit a four-year low in April, according to new Bureau of Labor Statistics (BLS) numbers out Friday, and numbers for the first two months of the year were revised upward. But the situation is still difficult. Massive budget cuts have only just begun to take effect and could still drag on the recovery.
"While more work remains to be done, today’s employment report provides further evidence that the US economy is continuing to recover from the worst downturn since the Great Depression," Alan Krueger, chairman of the White House Council of Economic Advisers, said in a statement Friday.
In April, American employers added 165,000 jobs, more than forecasters had projected, bumping the unemployment rate down from 7.6 to 7.5 percent. As my colleague Kevin Drum points out, "[A]bout 90,000 of those jobs were needed just to keep up with population growth, so net job growth clocked in at 75,000."
Friday's BLS report also revised up by 114,000 the jobs numbers for the prior two months, bringing average job growth for the last three months to 212,000. The news sent stocks soaring Friday morning.
Economist Dean Baker, cofounder of the left-leaning Center for Economic and Policy Research, cautions against too much enthusiasm. "[T]he growth reported for April was unbalanced with 34,000, more than a fifth of the total, coming from employment services," he wrote in a statement Friday. "There was also a disturbing decline in the length of the average workweek of 0.2 hours…That is equal to the largest drop since the recovery back began in 2009. In short, this report is at best a mixed picture."
Part of that is because of an aging population, CBPP says:
But the decline also reflects to an important extent an ongoing dearth of good job prospects. Some people retire earlier than they otherwise would or go on disability when they might be able, in a stronger job market, to find a job that accommodates their disability. Others become discouraged about their job prospects and stop looking until conditions improve. The unemployment rate doesn't reflect those decisions; to be counted as officially unemployed a person must be actively looking for work. But many of those people would start looking for work again if they thought jobs were available.
Sequestration, the across-the-board budget cuts that went into effect a couple months ago and hit everything from defense to Head Start programs, may also be hampering job growth. The budget cuts helped reduce government employment by 11,000 jobs in April. As the New York Times reports, "Economists have been warning that the economy—and job creation—will slow in the second-quarter, largely as a result of fiscal tightening in Washington…The mandated budget cuts, known as sequestration, officially went into effect in March, and if they continue, layoffs could increase."
Krueger echoed this, and called for Congress to take action to stanch the bleeding. "Now is not the time for Washington to impose self-inflicted wounds on the economy," he said in his statement. "The administration continues to urge Congress to replace the sequester with balanced deficit reduction, while working to put in place measures to create middle-class jobs, such as by rebuilding our roads and bridges and promoting American manufacturing."
Diane Swonk, chief economist for Mesirow Financial in Chicago, told the New York Times, "If the government simply did no harm, we could be at escape velocity."
On Wednesday, President Obama nominated Rep. Mel Watt, a Democrat from North Carolina, to head the Federal Housing Finance Agency (FHFA), the organization that oversees the mortgage financing giants Fannie Mae and Freddie Mac. Advocates for low-income borrowers are psyched.
The National Community Reinvestment Coalition (NCRC), a group that promotes access to affordable housing, says the move means that the agency will finally be freed to assist struggling borrowers. For over a year, the current acting director of the FHFA, Ed DeMarco, has blocked efforts to allow borrowers to reduce their mortgage balances. Prominent economists say principal reduction is the single most important thing the administration could do to revive housing, and even though the Obama administration only recently began to heed this advice, DeMarco wasn't into it. He claimed that reducing Americans' mortgage debts would encourage people to fall behind on their mortgages. And he said a write-down program wasn't worth the cost, even though, according to his own agency, loan balance reduction could help up to half a million borrowers and save taxpayers some $1 billion.
All that would likely change if Watt gets confirmed. The congressman, who sits on the powerful House Financial Services Committee, is known for promoting lending to low-income and minority borrowers. As John Taylor, president and CEO of NCRC, told Mother Jones, "He has a real commitment to ensure that working class people have access to mortgage products... I think he will jump-start that process." Taylor adds that this could in turn give the sluggish housing rebound a bump. "Fannie and Freddie have been in shut-down mode when comes to working-class borrowers... DeMarco ignored the foreclosure crisis and the roll Fannie and Freddie could play in trying to prevent more foreclosures, which is critical to the housing recovery," he says.
Taylor thinks that despite Watt's progressive creds, he has a good chance of being confirmed. "I think he's built up a lot of good will as somebody who has demonstrated the ability to cross the aisle and not personalize disagreements with members of the other party. He has a genuine possibility of going forward." Plus, banks like Watt. Insurers and financial firms are some of his biggest donors.
Still, as Annie Lowrey and Peter Eavis write in the New York Times, "Watt’s nomination will most likely inflame long-running political battles over how much the government should do to make mortgages available and support homeowners." And Taylor cautions, "It may not have to do with him. It may just have to do with Republicans not wanting to support the president in any way." If Watt does fail to win Senate confirmation, the White House has a secret weapon: it could give Watt the job as a temporary recess appointment.