Fiscal 2018 budget resolution today. It will be used to push through 1. 5 trillion in tax cuts. David gora joins us now with a very special guest. I am joined by former treasury secretary jack lew. Let me start with the tax proposal. From congress and the administration signaling the importance of this moment. We have a framework. What is your reaction to what you have seen so far . You. It is good to be with it is just a framework. One has to be cautious because there are not a lot of details. Thereom what i have seen, are several dangerous ideas out there. The fantasy that you can do 6 trillion in tax cuts and have is just for themselves that, a fantasy. Fantasy may be good for fiction, but it is not good for fiscal policy. We have tried this before. It didnt work, and the deficit loaded each time. Years,is last couple of it was tried in kansas, and a republican state repealed this tax cut because it wasnt working. If the Congress Puts hope and fantasy over experience, it is going to unleash some very dangerous forces and a deficit that spirals out of control the a threat to everything from people on Social Security to our national defense. First and foremost, this has to be done with honest numbers. It has to be done in a realistic way. We cannot turn around and find out that we have destroyed our fiscal conditions. A provision in the framework that says there measures. Eventative enforced back . Rs jack i think the proposal is a very dangerous one. That you can police it is something i dont think anyone knows how the idea that you can police it is something i dont think anyone knows how to deliver on. Or entity can take advantage of the passthrough rules. Passthrough is 25 and the rate for an individual is 35 , i guarantee you that anyone who can will reorganize. Experimentid this coach of a University Football team reorganized as a passthrough. Hard to believe. Its the kind of loophole that years from now people say, how did we ever create that . And it will contribute to in equity and unfairness because it will just deliver a tax break to the most fortunate. Reaction tois your the attempt to get so much done through reconciliation . What are the problems associated with that as you see them . Jack reconciliation is a mechanism that permits congress to do by majority vote what would otherwise take a super majority. Toyou are building consensus do policy, that can be an important and useful tool. What we have seen in recent weeks on the Health Care Bill usean attempt to reconciliation to have policies that nobody understood that had an in normas impact on the wellbeing of the American People enormous impact on the wellbeing of the american anple come through on express train. The good news is that on the health care debate, facts mattered. When it turned out that under the hood you were cutting taxes for people with Capital Gains and Cutting Health benefits for people who were Getting Health Care through the Affordable Care act or medicaid, they could not get the votes, even a simple majority. A simple majority makes it easier and faster. But whether you are doing it by 51 votes or 60 votes, you have to make policy based in facts. You have to understand the consequences of what you are doing. Care, dont in health happily, so far, it hasnt has taken some fancy footwork to make sure the facts got out there before the vote. David you were holding your fist to the heavens and saying something needs to change when it comes to the debt ceiling. We had a three month extension a couple of months back a couple of weeks back. Is this fixable . Why is it so difficult to convey the importance of raising the debt ceiling . Jack i have made the case many times that congress has no choice but to pass the debt limit. All of the decisions to spend money have been made. By the time the debt limit comes up, all you are deciding is whether to pay the bills. That doesnt mean it isnt a moment where you can gain leverage, and it has been used for many years as a deadline to force discussions of difficult topics. Something changed in the last few years. When we were seeing congressmen and senators calling for default if they didnt get their way and actually thinking default might be better than working out fromrences, a kind of went being an unpleasant form of leverage to a form of extortion that has to be stopped. Thats why in 2013, we said we are not going to negotiate. We just have to raise the debt limit. A good thing that government funding was handled in a bipartisan way, but lets not get overexcited about the content of that bipartisan agreement. All it did was kick the can down the road. And depending on which estimates , i dont see any process that makes me confident there is a bipartisan spirit for when he states come around. Was an apparent disconnect between the treasury secretary in the white house in the days and hours leading up to this deal. Were talking about going for an 18 month deal and then you got a threemonth deal. Jack i thought it was important for the treasury secretary to speak with authority on the debt limit. To the extent that there is any , it makesbout that managing an anxious time very difficult. I certainly hope they have their tax in a row so that if we approach and another deadline that ifcks in a row so we approach and another deadline, there is an ability to speak with authority and calm to what could otherwise be a nervous market. We have seen all the approaching deadlines. Rates start to reflect anxiety. Liquidity starts to reflect anxiety. You have to start managing the whatical instruments of you are offered around the deadline constraints. And distortsoney the market. If you could speak with and calm things down, it would be better. Is k lets going on now what going on now is youre seeing Global Economic conditions change. Wasng the years when i asked about the strong dollar, the United States was performing, relatively speaking, much better than europe and, relatively speaking, much better than japan. You now see growth rates of 2 hear talkaces and you today that Rate Movement may be sooner not later in the u. K. , europe is probably a little behind. Rates as the growth rates in different grow, you are going to see rates adjust. The uncertainty about policy in the United States has some impact. At the beginning of the year, there were unrealistic hopes about a combination of tax cuts and massiveucture, deregulation. I dont know where those hopes are now. I dont see a lot of movements in january. Put on then a plan table. We have also seen a lot of yellow lights. The plan may not have a smooth path. The concerns i have raised i think are going to be discussed more and more as we see more details of the plan. I have not heard talk of infrastructure in a very long time. A lot of that talk would suggest more was suggesting more activity in the economy, and you saw strengthening of the dollar. I am not going to comment on the policies of the administration because i think the Dollar Movement reflects these conditions. Lets talk about cryptocurrencies and bitcoin. Do you sympathize with what jamie dimon is saying . Are you worried about the integrity of it as a mechanism . i have spent times spent time thinking about these Virtual Currencies and trying to keep my mind open to innovation and change. About innovation in the Financial Sector, it comes through things that happen in a disruptive way. Thats how you get checking how you get credit cards. Im reluctant to say new things are bad. I have special concerns about virtual currency, partially because of the secrecy factor. Worry about large cash transactions because large cash transactions can be used for bad purchases. If you create something that makes it easy to do that, it has those same characteristics. Its hard to keep track of them. Worry about it being used as a means of storing value. Mind as treasury secretary to say that at the time. I would not store my savings and something that unpredictable. Dont know how many unsophisticated investors are doing that. One of the things you have seen with these currencies because of their anonymity and ease of movement is that in countries like china, where people want to get their money out of the country, it has become an easy mechanism to do so. I think thats why you are seeing china clamp down a little bit on things like bitcoin. I will and where i started. The Technology Behind bitcoin, is now being appropriated by the mainstream Financial Sector to cause the kind of improvements in processing and safety that are going to be good. Thats not the same as should you store your wealth in bitcoin. I think you have to separate the Technology Question from the application. Parlor game is underway. You have commented on this before. Do you know mr. Borscht . I know the officials responsible for financial regulation. I did not deal with him closely. David i bring it up because the treasury secretary was at the meeting. Jack i was there when janet yellen was appointed. I met with all the candidates before they met with the president. I was about to be treasury secretary. Conversation, tim geithner. Its a pretty small circle. Treasury secretary, chief of staff, thats kind of the circle my experience that talks to the president about that kind of appointment. Its a unique appointment. Arguably, the chairman of the is on the list of most important economic positions in the world. From my experience, we have had extraordinary individuals chair the fed who have done so with integrity and intellect. Them,t always agree with but i have never had concerns about their capacity, dedication, and integrity. Youd does it matter if have someone from the academic or Business World . The have you ever been in fed building . Its kind of like a University Without students. You could hear a pin drop in the hallways. I have talked to students who wonder if it is an environment they would enjoy spending their time in. People talk about technical things all the time and you are not involved in day to day transactional business on many days. Have meetings, international meetings, and then you retreat into this, appropriately,. Cademic environment when i hear about individuals from the Business World, i have always suggested you have to make sure its a place you want to go work. David you and i have traveled on a government plane to beijing and mexico city. Help me understand why a cabinet secretary would need to rely on private 80 ancient or chartered Aviation Private aviation or chartered aviation. I dont have any experience of chartered aviation for government individuals. Are providedanes when required. I have used them for international and domestic travel. But i never used military aircraft for domestic travel. To provide of it is security and communications, and to bring a fairly substantial team in a costeffective way. If you had to put everyone on a its not veryne, easy. I have had no experience of the use of private charters its noy easy. I have had no experience. It was new to me when i read about it this week. Avid let me ask you about piece that was reported by the wall street journal. It came to a conclusion counter to what i suppose this treasury secretary believes when it comes policy. I dont know the facts behind it and i dont want to cast a judgment on something i am not familiar with. I thought one of the real strengths of the Treasury Department was that we have career staff respected around the world for their expertise and independence. Anyone who has tried to tell the office of tax policy what to think has been frustrated. They are professionals who only is analytically defensible in my experience. When i was outside of treasury and other agencies, omb director or white house chief of staff, i would sometimes find it it was kindbecause of like arguing with the congressional budget office. When you are at treasury, you realize it is the coin of the currency, the intellectual strength of the department. Theof the things about Treasury Department is you spend a lot of time doing things that are not in your formal charter. Treasury is seen appropriately as a place of expertise and intellectual rigor and honesty. It is hard to earn a reputation like that, and its easy to lose it. Former treasury secretary jack lew is here with me in new york. When we come back, we are going to talk about china sanctions. This is bloomberg. Shery this is Bloomberg Markets balance of power. I am shery ahn. David i am david gura. Lew,e back with secretary former treasury of the secretary. You did so much with sanctions as a tool when you were in office. Is there more the administration can do toward north korea . , dprksrst thing development of a Nuclear Weapon and Intercontinental Ballistic Missile system is an enormous threat to the United States and the whole world. If sanctions are going to be effective to change their behavior, it is going to have to really cut down the regimes access to resources to pay their and the immediate, sustaining center of his regime. That means you have to shut it down completely. The avenue to do that has to go through china. North koreas only financial connection to the world, the supply lines that get them the the food they and need comes through china. We have worked with china for years. It was important last year negotiations to work with china and the u. N. I think its important that they were able to get tougher a sanctions again. As you ratchet up sanctions, and i think they should, you have to do it in a careful way. Did it with russia in a careful way. We did not want to cause a recession in europe or a global recession. We did want to put pressure on putin and his immediate circle. Bethe end, we need china to cooperating with us, and we dont want to turn a north korea problem into a u. S. China problem. Ensure thedo you efficacy of sanctions when the black market is such a big chunk of that economy . I think the reality is that without fuel, even a black market economy would have more problems. Access to International Transactions north korea is not a country that produces very much. It has to have some external connection. The need for a diplomatic approach here with china is very important. Will be on the agenda when secretary tillerson goes to china. You have to be firm with china. ,ou also have to be clear understandable, and share what your thoughts are about what youre going to do, and not have it break so that there are random things happening so that they dont know what to expect or how to make decisions. I think this has been a confusing time. I would caution against using excessive language you cannot deliver on, because on the other that makes it hard to know how to respond. One other thing. I dont think its helpful that in the background there is this discussion about the iran sanctions. In the iran sanctions, we had a iraniation that led to pulling back from their Nuclear Program and getting sanctions released. Themgreement did not pull back from a lot of other bad behavior. But if the sanctions are reimposed while they are pulled their Nuclear Program program, it will shake the confidence that the u. S. Keeps its word. David very quickly, i want to ask you about puerto rico. You traveled there when you are secretary and were concerned about the fiscal situation. I can only imagine the hurricane compounds that even more. How worried are you about that part of the u. S. . Women, anden, children of puerto rico are u. S. Citizens and our hearts go out to them. They need power on in their hospitals. They need food and water. Underneath that is a financial problem. We had a bipartisan agreement last year that showed that you could actually do things together on puerto rico. People should stand behind that and try to do more. David thank you very much. Its good to see you again. Jack lew, former treasury secretary. Shery coming up, the s p 500 is hitting record highs again. Will a bull market may corporate make Corporate Tax breaks a tough sell on capitol hill . This is bloomberg. What did we do before phones . They save us from getting lost, getting hungry, and getting tired of places like this. Phones changed everything shouldnt the way pay for them change too . Introducing xfinity mobile. Where you can pay for data by the gig, and share it across all of your lines. No one else lets you do that. See how much you can save when you pay by the gig. Xfinity mobile. Its a new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Shery welcome back. David lets get a check of the bloomberg first word news with mark crumpton. Mark the deadline is fast approaching for young immigrants who want to renew their paperwork under an Obama Era Program that shields them from deportation. President trump is phasing out the deferred action for Childhood Arrivals Program and asking congress to come up with a replacement. People in the program whose permits expire between now and march have until thursday to get renewals. The European Commission president says they u. K. Has no chance of moving brexit talks on to future trade relations next month unless miracles happen. They u. K. Had hoped that the summit would lead to new discussions about the trade future. The death toll from the mexican earthquake is 345. Finished clearing away most of the rubble from buildings that collapsed in the magnitude 7. 1 quake. Residents of san juan, puerto longhave begun waiting in lines with the hopes of getting some cash from their banks. Atms are unusable and monetary transactions are all having to be done with cash. All Bank Transactions are being done by hand, which makes the process of withdrawing money a lengthy one. Hurricane maria devastated the u. S. Territory last week, destroying homes and businesses. It is blamed for at least 16 deaths. A departure from u. S. Policy, david freeman, ambassador to israel, has described settlements as a part of israel. He has also claimed that only 2 of the west bank is is occupied. The state department has issued a disclaimer saying that david freemans statements do not represent a shift. Global news 24 hours a day 2700by over 120 journalists and analysts in over 120 countries. This is bloomberg. Our plan at this point does not allow for deductions of state and local taxes. We are willing to work with tax writers on other dials in the system. You . That a redline for it is not a redline. Shery is the republican framework more of an opening offer . Wonder, if the state and local tax detections are up for up for negotiation, what isnt . There were three things gary cohn described as nonnegotiable, tax cuts for corporations, tax cuts for nonpass through and tax cuts for middle class americans. The fact that the state and local tax reduction is negotiable is significant. This is probably the biggest pile and tax cuts for middle class americans. Of money, revenue raiser, in the framework. 5. 2 trillionbout to the deficit. The fact that the white house considers that negotiable means that the deficit increase could be even larger than expected and they would have another hole to fill. Are you watching as all of this unfolds . You have members of the administration stumping for the framework. In terms of process, what are the things you are keeping an eye on . The key thing is to remember that tax bills emanate from the house. Paul ryan is speaker of the house and taxes are his thing. He is an unabridged expert on fiscal matters and what he decides is in the bill is what you are going to watch for. From whatdifferent has been proposed by the white house. Shery today, we saw the Senate Budget proposal. No great detail on spending cuts. Where are they going to get the money from . Thats obviously an open question. Is significant is they are accommodating tax cuts and there is no link to Obamacare Repeal and replace, which will help get that through. Obviously, those questions remain to be answered. You look at the principles here, six senators in particular and why they are so pivotal, who should we be paying attention to as this goes forward . Legs it comes down to creating a definite it comes down to creating a deficit republicans can live with. They can use various scoring methods to achieve a deficit hike that is not more than 1. 5 dollars trillion. The real battle is shaping up to 1. 5 trillion. The real battle is shaping up to be between bob corker and pat them pat toomey. That is shaping up to be the biggest battle. What are the revenue raisers . It will all come down to how big of a deficit increase republicans can live with. Rules, ther Senate Budget process cannot be used to increase longterm deficit. Does that mean these cuts will be temporary but 10 years later, nobody will want to raise taxes . Its a typical congressional maneuver, kick the can down the road. This is how we govern these days. They get some sort of bipartisan agreement, which is unlikely, they are not going to be permanent, and they are less effective. Companies make decisions based on permanency. Would does that mean we not get the economic boost everyone is talking about . Well, bloomberg and others have written stories about how this may be a shortterm sugar term, it wontr have that big of an impact as it would if it were permanent. David Mick Mulvaney the director of Office Management and budget term, it wont criticalis a step to provide tax relief for , i urge thelass senate to pass this resolution. I emphasize i urge because i want to know how much influence this white house has over the congress right now. How confident are members of the administration that they can wield influence over capitol hill . We have seen the administrations influence over lawmakers eliminated in the health care debate. In president went all out the senate on multiple occasions to get this done and it failed. Some senators dont respond to political pressure from President Trump and his constituents. Thats number one. As far as the budget resolution goes, it looks Like Congress is on track to get that done. The main impediment has been the freedom caucus, which has demanded to see details before green lighting to the house. They have the votes to block it. They endorse this framework and say based on the budget resolution it should move forward. The last bit of negotiating the needs to be done is the house has to decide if they can live with 1. 5 trillion in additional deficit. Shery one question from our terminal user asking about the childcare tax credit or deduction. Where do we stand there . Could that be on the chopping block as well . The framework calls for extending the child tax credit. Increase is unspecified. We dont know how much it would benefit people. The theory is to offset some of the hits that would come to the middle class families as a result of eliminating personal exemptions, including exemptions for dependents. Would hit high tax states eliminating state and local deductions. There are a lot of blanks to fill in. Its going to be determined in part by how much they think some middleclass people will lose out. David a pivot to russias involvement in the u. S. Election. , lot of focus on social media facebook and twitter. The Ranking Member of the Senate IntelligenceCommittee Said he was not satisfied with what he heard. I dont think there is any doubt you will see more of them and you will see them in open testimony. Always been an uneasy relationship between tech and government. The conventional wisdom in d. C. Is that tech doesnt really understand how washington works and vice versa. I think, frankly, the twitter representatives were not properly prepared for what a were expected to provide the committee and close session. In closed session. You were very kind in your characterization of mark warners response. He was pretty angry. You will see them again and they will be better prepared next time. Shery thank you both. , how congressup can make tax reform a legislative reality. We are going to speak to neil bradley next. This is bloomberg. David welcome back to Bloomberg Markets balance of power. Stock ofme now for the the hour. All eyes are on the white house as President Trump and his taxomic team unveil their plan, but the president s decision of who may run the Federal Reserve is behind todays decision. Oliver renick is joining us to discuss this. Like the market like the kevin wards news or rumors. I think what might be overlooked is the possibility of a change at the Federal Reserve. It seems like trump has backed. Way from the gary cohn rumors this is a meeting he had with x. Ed governor kevin worsh they basically said he is the for possible candidate Financial Companies because ecs eye to eye with trump on loosening regulations because he sees eye to eye with trump on loosening regulations. You look at the chart, and its pretty solid leap for banks. A little bit of company news on the analyst side, too. Specificallys it about this company that is of particular interest . Oliver this is a company that was spun off from rbs. It is establishing its own situation. The big question is whether they will get the return on equity that they want from the bank. At the red 8 on the terminal, that shows you that the 12 month r. O. E. Is indeed in the bottom. Im going to click through this and we are going to chart this looking at sales. Here is the thing. If you look at the blue dot, they are pretty good on the sales side. They have good revenue. The revenue has been driving forward and upward, and that is going to come out to the bottom line of what investors are looking for. David congress is promising trump will have a tax bill to sign before the end of the year, not everyone is so sure. By neiloined now bradley, chief policy officer at the chamber of commerce. No secret the u. S. Chamber has been pushing for tax reform for some time. You have an opening now. What are you going to be focusing on when it comes to lobbying efforts . Our main focus is to keep the momentum going. We had a good week this week. The framework released by the administration, house, and senate was broadly embraced by republicans on capitol hill, broadly embraced by the business community. Thathas created momentum we have not had over the last several months. Our goal was to extend that momentum into budget negotiations and markups. Shery and your support for some of these politicians is crucial when it comes to elections next year. Could your support be based on where some people stand on tax reform . Absolutely, no question. Our ceo sent a letter to every member of Congress Earlier this year. He said two things. With respect to tax reform, failure is not an option. And when we get to elections next year, we are going to be looking at candidates and saying you help that tax reform help get tax reform to the finish line or did you stand in the way . David how confident are you in the timetable the white house has been talking about in getting something out of the house by october, moving it to the senate by november . Do you think thats likely . Its an ambitious timeline, no question. The important thing is that we. Re close to getting it done is it slips into the First Quarter of 2018, thats fine by us. We appreciate the ambitious timetable. The economy needs to get this done, and we all need to have a sense of urgency about this. Shery it seems like republicans have embraced of the framework as an initial proposal they can bargain their way through in the process. What would you need to see this framework go through by the end of the year and what could you give up on . Wexler listen, its no secret that the missing pieces out of the framework this week were the base broadening measures we all expect to see as a way of offsetting revenue loss. Going to bring out concern from different quarters us folks evaluate that. Thats probably the hardest piece to work through. That people understand thats coming. They are going to have to willing to give up something. I dont want to diminish how difficult its going to be, but its possible. David bob corker has said this is going to make Health Care Look like a simple thing to do. This is an incredibly complex process. What did you learn about how this process might unfold based on how the health care process unfolded . Part of the problem with respect to health care was they started with the assumption that everyone was on the same page when in reality, republicans on the hill, between house, senate, and white house, were not on the same page. It appears to me they have learned from that mistake. One of the things they did to launch the framework this week of everya retreat republican offsite to walk through it. Thats the kind of thing they did not do with health care. Thats the kind of buy and they did not receive. I think they are learning from those mistakes. Republicans were pretty divided on health care. They are much more united on tax reform. David neil bradley is the chief policy offer at the officer at the u. S. Chamber of commerce. Shery coming up, how hhs secretary tom price racked up almost half a Million Dollars in private plane rides in eight months in the trump cabinet. Thats next. This is bloomberg. Shery this is Bloomberg Markets balance of power. In eight months as a member of trumps cabinet, hhs secretary tom price has racked up 26 privately chartered flights totaling more than 400,000 according to an investigation by politico. 51,800,l reimburse leaving the American People to foot the rest of the bill. Joining us is our correspondent at the white house. Hhsre talking about secretary price, but this seems to be an ongoing and broader issue. We first started with mnuchin, and the names keep rolling in. Is this a culture problem . It definitely appears that several members of trumps cabinet have been treating themselves to Luxury Travel either on chartered airplanes or military airplanes, racking up hundreds of thousands of dollars in cost for travel that could much less. We have seen this at epa, treasury, interior. Haveal cabinet members admitted they take private travel even at times where it appears there is commercial travel available. President trump is now instituting an internal review and says there is to be a halt on all private travel while this review is going on. He willy price has said no longer take private travel. President said he is not happy about it. Its clear this is a growing scandal within the Trump Administration. They are trying to get their arms around it, trying to put it gets wider. But now several members of congress have put in requests for information. The Oversight Committee in the house has asked for every private and military flight to be documented and sent to congress. This could be an ongoing scandal that envelops the Trump Administration for weeks to come. It was interesting to talk to former treasury secretary jack lew about what planes he took where. There was a flight with the elaine chao, transportation. Ecretary what are the rules for cabinet secretaries . The rules are somewhat loose, regulationent of the is clear. As an official with the government, you are supposed to ofe the most affordable form travel, specifically commercial travel when it is available. If there are not commercial flights available or other contingencies, including National Security issues, there are exceptions for military travel. Privatehave seen with travel is unique. We have seen secretary price taking private travel almost as a norm whereas previous would be say that incredibly unique. Perhaps you are traveling to alaska and there is no commercial travel, you would take private travel. The regulations have been undermined and the Trump Administration is looking at ways to rain this in a little. Rein this in a little. Shery thank you for joining us from the white house. Sign up for the balance of power newsletter at bloomberg. Com. Get the latest on Bloomberg Politics in your inbox every day. I havent done that yet. I have to do it. David its very easy, i assure you. When we come back, joshua green, the biographer of steve annan, joins us to talk about this weeks issue of newsweek. Steve bannon, joins us to talk about this weeks issue of bloomberg businessweek. Find everything you missed at tv. Thank you very much. This is bloomberg. What did we do before phones . They save us from getting lost, getting hungry, and getting nervous in places like this. Now phones can save us money too. Introducing xfinity mobile. With unlimited data for just 45. Thats the lowest price out there for one line. And you can get the same price on up to five. See how much you can save when you get unlimited on a new kind of network designed to save you money. Call, visit, or go to xfinitymobile. Com. Julia scarlet im scarlet fu. Julie and im julie hyman. Welcome to Bloomberg Markets. Scarlet we are live at bloomberg World Headquarters in new york over the next hour. Here are the top stories we are covering on the bloomberg and around the world. President trump ending the week for another pitch with the gop tax report. They want to cut the corporate way to 20 , and could deliver a 6 billion windfall for biggest u. S. Bands. Banks. And trump could have had another change of heart. President and his treasury secretary met with former governor Kevin Warshaw and more warsh and more candidates for the new fed chair. And south korea banning initial point offerings, making this the second blow to cryptocurrencies this month. U. S. Markets close in two hours time on the final training day of the m