Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every
Speaker 1: day we bring you insight and analysis into the most
Speaker 1: important legal news of the day. You can find more
Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud,
Speaker 1: and on Bloomberg dot com slash podcasts. Today, Kathy Cranninger,
Speaker 1: President Trump's pick to replace Mick Mulvaney at the head
Speaker 1: of the CFPB, faced a Senate Banking Committee to defend
Speaker 1: her qualifications to run a controversial agency that many Republicans
Speaker 1: think should not exist. This is her confirmation hearing, and
Speaker 1: at it, Kranninger discussed her commitment to keep in the
Speaker 1: CFPB true to its mandate. For more on this story,
Speaker 1: we're joined now by Evan Weinberger. He's a reporter for
Speaker 1: Bloomberg Law. He's in our Bloomberg eleven three, our studios
Speaker 1: in New York and having a lot of people have
Speaker 1: been scratching their heads about this one. What is up
Speaker 1: with this nomination? Well, what is up is that at
Speaker 1: this point looks like she has the votes to at
Speaker 1: least make it out of committee, and if Mitch McConnell
Speaker 1: wants to bring it before the Centaploor get her confirmed
Speaker 1: to be the next director of the Consumer Financial Protection
Speaker 1: Bureau UM after that. The real motivation here was at
Speaker 1: the end of June there was a deadline to nominate somebody.
Speaker 1: Otherwise mc mulvaney, who's currently the acting director, would have
Speaker 1: had to leave his post at the CFPB. So they
Speaker 1: put in Kathy Cranniger, who was kind of an unknown quantity.
Speaker 1: She works at the Office Management and Budget, where mcmilvany
Speaker 1: also works UM, and nobody really knew anything about her.
Speaker 1: She didn't have any experience of financial policy or in
Speaker 1: consumer finance or anything relevant to the CFPB, mostly in
Speaker 1: budget work and Department of Homemound Security and security issues,
Speaker 1: things like that. That's a kind of a shell nomination,
Speaker 1: or I wouldn't say shell necessarily, although it's it's clear
Speaker 1: that if she is confirmed, she's most likely going to
Speaker 1: follow along with what mcilvaney has been doing at the CFPB. UM.
Speaker 1: She's a budget person. The Trump administration proposed cutting the
Speaker 1: cfpp's budget by in fiscal but because it's an independent agency,
Speaker 1: they don't actually have any control. The fear and Senator
Speaker 1: Elizabeth Warren, who was kind of the brainchild of the
Speaker 1: cfpb the intellectual architect of the cfpb. UH. She expressed
Speaker 1: some concerns that Cranninger is going to go in there
Speaker 1: and find ways to cut that budget, whether it's firing
Speaker 1: civil servants or cutting examination budgets and things of that nature.
Speaker 1: Had did Crowdinger in the nomination? Since she has no
Speaker 1: experience in banking or financial services? What did she say
Speaker 1: her qualifications are for running this consumer watchdog, the biggest
Speaker 1: consumer watchdog agency we have primarily budget issues. I mean,
Speaker 1: she she by all accounts, is a talented manager. She's
Speaker 1: a talented budget person. She knows that. She's a twenty
Speaker 1: year veteran of government, both on Senate and House committees
Speaker 1: and at the Department Homeland Security and the Office of
Speaker 1: Management and Budget. So she comes in there qualified for
Speaker 1: a range of jobs. It's just not necessarily we are too,
Speaker 1: at least Democrats on the committee where those skills come
Speaker 1: into play when it comes to running a consumer regulator. Yeah.
Speaker 1: One of our stories on the terminal calls her an
Speaker 1: enigma kind of she most definitely mastered the skill of
Speaker 1: using a lot of words to stay a very little
Speaker 1: amount in the questions from senators. But we know what
Speaker 1: the President thinks of the Consumer Financial Protection Bureau. He
Speaker 1: doesn't like it, he wants to roll it back, cut
Speaker 1: it and all that. She's just she's going to follow
Speaker 1: the marching orders. Um that is the best guess that
Speaker 1: anyone has a source of mind. Uh emailed me during
Speaker 1: the hearing. I actually know less about Kathy Crottinger now
Speaker 1: than I did before the hearing started. So we mentioned,
Speaker 1: you mentioned Elizabeth Warren, and this the CFPP is her baby,
Speaker 1: so to speak, and we've seen her in these hearings
Speaker 1: get very you know, sarcastic, sharp, whatever you want to
Speaker 1: call it. Did she take that attitude with Kranneinger. She
Speaker 1: was outraged at Kranneger, but not because of CFPB issues,
Speaker 1: at least at the start. Her first round of questioning
Speaker 1: focused on Kranneger's potential role in the Trump administration zero
Speaker 1: tolerant immigration policies and the child separation policies at the border,
Speaker 1: because her role at o m B is to oversee
Speaker 1: the Homeland Security Department and Justice Department's budgets. So Democrats
Speaker 1: had asked for the hearing to be postponed to get
Speaker 1: more information about what she did in helping to craft
Speaker 1: the policy and the documents, right, I mean, at one point,
Speaker 1: uh Warren said that the child separation policies will be
Speaker 1: a moral stain on Kranneger, and any senators who vote
Speaker 1: to confirm her will have will carry that moral stain
Speaker 1: because as they gave her a big promotion in the
Speaker 1: wake of it. Can we clarify to just for the record,
Speaker 1: what mc mulvaney has actually done at the CFP b
Speaker 1: B while he's there. I know that he has rolled
Speaker 1: back some proposed regulations and some consumer protections, but the
Speaker 1: CFPB still has a basic mission that it must fulfill,
Speaker 1: right well, what one of mc mulvaney's first actions was
Speaker 1: to say that a controversial payday lending rule that the
Speaker 1: CFB finalized right before his predecessor, Richard Coudray left the bureau,
Speaker 1: uh it was scheduled to take effect. Mulveney said that
Speaker 1: they're going to reconsider it, and many advocates for the
Speaker 1: rules think that that's just a prelude to eliminating the
Speaker 1: rule altogether. There also, he took the cf AB's Office
Speaker 1: of Fair Lending, which was its main anti discrimination unit,
Speaker 1: and it had been a fairly independent office within the
Speaker 1: CFPB UH, Mulveney took that and for that into another unit,
Speaker 1: took away its independent enforcement authority UH, and there he
Speaker 1: has slowed down the pace of enforcement actions. And even
Speaker 1: with the enforcement actions that he's taken outside of the
Speaker 1: Walls Fargo UH enforcement action from earlier in the summer,
Speaker 1: he's taken a much lighter touch on enforcement actions than
Speaker 1: his predecessor did. And when she was asked by Shared
Speaker 1: Brown to name something specific that she approved of that
Speaker 1: Mulvaaney has done, it was or that the CFPB has done.
Speaker 1: She mentioned Wells Fargo and Equifax, right, not the two
Speaker 1: biggest things that they've they've well Wells Fargo technically was
Speaker 1: the biggest enforcement penalty that that the CFB had ever applied,
Speaker 1: but one it did it in conjunction with the Office
Speaker 1: of the Controller of the Currency, which is another bank regulator.
Speaker 1: And they also did it after the President tweeted that
Speaker 1: there would be big penalties for Wells Fargo. Evan Weinberger,
Speaker 1: reporter for Bloomberg Law, Thanks for your reporting. The Republicans
Speaker 1: sweeping federal tax law put a new ten thousand dollar
Speaker 1: cap on the federal tax deduction for state in local taxes,
Speaker 1: which will hit Northeastern states like New York hard. Here's
Speaker 1: New York's Governor Andrew Cuomo on the tax plan in
Speaker 1: late they call it a tax cart plan. In New York,
Speaker 1: it is a tax increase plan. So now New York
Speaker 1: is joining with New Jersey, Connecticut, and Maryland and suing
Speaker 1: the Trump administration to invalidate the cap. Joining me is
Speaker 1: Laurence Zelenak, a tax professor at Duke Law School. So
Speaker 1: let's start with the basics. How much will this cap
Speaker 1: on the so called salt deduction actually affect taxpayers in
Speaker 1: these Northeastern states. Well, it affects you if you pay
Speaker 1: more than ten thousand dollars in state and local taxes,
Speaker 1: and that would be the sum of your property taxes
Speaker 1: and your state income tax. Uh, it will be Uh.
Speaker 1: I can't give you specific data on those states, but
Speaker 1: but it's it's clearly significant. I. UM, there will be
Speaker 1: some people who would have had a tax cut from
Speaker 1: the rate reductions if it weren't for the salt limit,
Speaker 1: where with the salt limit there end up gonna they're
Speaker 1: gonna end up having no tax cut or even a
Speaker 1: tax increase. So on what legal basis are the states
Speaker 1: bringing the lawsuit. Well there, their argument, which I think
Speaker 1: is extremely weak, is that a state and local tax
Speaker 1: deduction is constitutionally required. It's so it's based on the
Speaker 1: on the tenth Amendment, which says basically that power is
Speaker 1: not specifically convert conferred on on the federal government by
Speaker 1: the Constitution, are reserved to the state and by general
Speaker 1: principles and on general principles of federalism or states rights.
Speaker 1: But I think it's a very much a long shot.
Speaker 1: Why why a long shot? Well, a couple of reasons.
Speaker 1: One is um there's a Supreme Court case which from
Speaker 1: called South Carolina v. Baker, which is not directly on point,
Speaker 1: but it's pretty darn close. So since the beginning of
Speaker 1: the federal income tax, interest on municipal bonds or state
Speaker 1: in local bonds had been tax exempt. Then in the
Speaker 1: early nineteen eighties, UM Congress imposed a minor limitation on
Speaker 1: that exemption, which said basically that the exemption no longer
Speaker 1: applied to state and local bonds that were not in
Speaker 1: registered form. So if you could hold the bonds anonymously,
Speaker 1: then the income wasn't tax exempt anymore. And South Carolina,
Speaker 1: a number of other States sued on on the basis
Speaker 1: that they had arguing that they had a constitutional right
Speaker 1: to issue bonds with income tax exempt at the federal
Speaker 1: level UM and that, uh, therefore, the early nineteenies legist
Speaker 1: Lasian violated their constitutional rights. And in in the South
Speaker 1: Carolina by Baker case, the Supreme Court ruled by a
Speaker 1: vote of eight to one. So it wasn't even close
Speaker 1: that there was no constitutional requirement that state and local
Speaker 1: bond interest be tax exempt. Now this is not, obviously
Speaker 1: not exactly the same issue, but on the other hand,
Speaker 1: it's pretty darn close. And uh, it's hard for me
Speaker 1: to see what the argument would be for distinguishing South
Speaker 1: Carolina by Baker so Lawrence. In in the complaints, some
Speaker 1: of the things that the States says. The States say
Speaker 1: is that the federal government went after the states deliberately
Speaker 1: that are democratic. And they they quote conservative economist even Moore,
Speaker 1: who advised Trump on the tax policy, quoting him as saying,
Speaker 1: the salt deduction is death to Democrats. Will that play
Speaker 1: any part in the Court's decision whether this was done
Speaker 1: to hit democratic states? Well, I don't think so. I mean,
Speaker 1: my my, if I remember right in the recent UM
Speaker 1: um Supreme Court ruling on the the the immigration restrictions.
Speaker 1: There was there were quotations not from Stephen Moore, who
Speaker 1: I think kind of doesn't count in a way, and
Speaker 1: he's not he's not in Congress after all, that from
Speaker 1: from the President himself indicating some dubious motivation, and h
Speaker 1: and and and the court said that didn't matter. So
Speaker 1: if if the president's motivation doesn't matter, I hardly think
Speaker 1: that Stephen Moore's motivation is probably going to be that crucial.
Speaker 1: Can I put corn out? One? One other thing, and
Speaker 1: relating to this is um if if if the state
Speaker 1: and local tax deduction is really constitutionally required, then the
Speaker 1: federal income tax has probably been unconstitutional for a long
Speaker 1: time because it's it's always been the case that you
Speaker 1: get to deduct your state and local taxes only if
Speaker 1: you itemize, and traditionally the percentage of taxpayers who itemize
Speaker 1: has only been about one third. So so we've had
Speaker 1: a situation we're all along about two thirds of taxpayers
Speaker 1: have not gotten this deduction, which supposedly is is constitutionally required.
Speaker 1: In addition to anyone who's subject to the alternative minimum
Speaker 1: tax hasn't been allowed the salt deduction for since I
Speaker 1: think nineties six and and for a long period of
Speaker 1: time from until fairly recently. UM, state sales tax wasn't
Speaker 1: deductible under any circumstances. UM. And all of those things,
Speaker 1: by the logic of this new lawsuit, UM, we probably
Speaker 1: were unconstitutional, but of course they weren't unconstitutional. And for
Speaker 1: the same reason they weren't unconstitutionally. I don't expect this
Speaker 1: loss to succeed either. Well, let's let's switch a little bit.
Speaker 1: We have a minute here. Governor Cuomo advanced proposals in
Speaker 1: the state budget this year to help New Yorkers try
Speaker 1: to circumvent the cap on deductions, creation of new charitable
Speaker 1: credits and payroll tax deductions. The i R said in
Speaker 1: May that it would scrutinize that New York tax workaround.
Speaker 1: Has anything happened there? Uh? No, not. Well, I have
Speaker 1: an article on the very topic coming out in tax
Speaker 1: Well tell us, tell us in thirty seconds that the
Speaker 1: basics of your article, Uh, that that I think that
Speaker 1: there's two different kinds of workarounds. UM. One is trying
Speaker 1: to convert charitable or excuse me, trying to convert state
Speaker 1: in local taxes to charitable deductions. That's what the article
Speaker 1: is about, and I conclude that doesn't work. The other
Speaker 1: the other workaround UM is basically trying to convert state
Speaker 1: taxes income taxes on wages into a payroll tax paid
Speaker 1: by the employer rather than by the employee. I think
Speaker 1: that probably could work as far as the federal tax
Speaker 1: result is concern. Okay, we're going to take that good news.
Speaker 1: You'll have to end it there. Thanks so much. That's
Speaker 1: Laurence Zelena, perhaps professor at Duke Law School. Thanks for
Speaker 1: listening to the Bloomberg Law Podcast. You can subscribe and
Speaker 1: listen to the show on Apple Podcasts, Sounds Out, and
Speaker 1: on Bloomberg dot com slash podcast. I'm June Rosso. This
Speaker 1: is Bloomberg m HM.