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CNBC Exclusive: CNBC's Steve Liesman Speaks with Treasury Secretary Jacob Lew for an Interview Airing on CNBC's "Squawk Box" Today



Following is the unofficial transcript of a CNBC EXCLUSIVE with Treasury Secretary Jacob airing today, Monday, February 9th. Excerpts of the interview will air throughout CNBC's Business Day programming. Following is a link to the video on

All references must be sourced to CNBC.

STEVE LIESMAN: Secretary Lew, thank you for joining us.

JACK LEW: Thanks Steve for having me.

STEVE LIESMAN: We just got an outstanding jobs report, a million jobs created in the past three months. Is it time to say that finally the financial crisis is over?

JACK LEW: Well, I think that it is time to say that we've really turned the corner and we're now in an economy that's growing. It's had sustainable growth. And it's growth that's showing up in not just businesses but in jobs and we are now seeing wages go up a bit. I think that this is a trend that needs to continue. We need to make sure that we do what we can to continue the growth. And I think that we will get some benefit now from lower oil prices in terms of the economy getting a bit of a boost on top of that. So I'm feeling pretty confident that we're looking at a good period ahead.

STEVE LIESMAN: What do you say to the critics who said the administration was really had a series of job killing policies? How do you respond those critics over the years?

JACK LEW: Well, I think that the facts have proven them wrong. You know, I mean, if we have an economy where we're growing jobs at a record rate. We're seeing strong growth, we're seeing a comeback in manufacturing, now we're seeing housing and construction come back. And we've seen a deficit go way down, all at a time when we have ten million people who are now finding the security of having health care coverage that they didn't have before. I think that the critics who said all these things, we're going to hurt the economy, have been proven wrong.

STEVE LIESMAN: What do say to average Americans, many of whom still have not felt the impact of better GDP growth through their paychecks and in other ways?

JACK LEW: Steve, I think that's been a very big issue. If you look over the last few months the fact – really over the last year we've seen average wages going up. A little over 2% last year. We need more wage growth than that for people to really feel it. But it's starting to be something that's a trend in the right direction. And I think that we've got to do everything we can to help drive that trend forward. That's one of the reasons that the President's working so hard to make sure we get infrastructure investment moving in this country, that we get education and training programs where they need to be. To make sure that people have the skills they need to have a chance in this economy. So I think we've got a great platform with a growing economy. We need to take the step forward and do the things that we can to make sure that people have that opportunity. And part of that is business tax reform to make sure that our businesses are continuing to invest and grow and create jobs in the United States.

STEVE LIESMAN: The President's talked about this concept middle-class economics. And I think one of the things CNBC viewers wonder is there any limit to the middle-class economics, the taking of wealth from wealthy people and then giving it to the middle class people in terms of the taxation rate. Is there a cap to it? Is there – can you go too far?

JACK LEW: Well, I think middle-class economics to us is about making sure that everybody has a chance. It's to make sure that if you're willing to work hard and go to school you can get the training you need. That's why we're saying if you're willing to do the work should get two years of community college education for free. It's that if you are going to go back to work and you're the second-earner in a family, you get a bit of a tax break so you don't pay the higher marginal rates. So you get a bit of a tax break so you don't have to bear the full burden of childcare costs. These are things that middle class families actually need to get ahead. Obviously we have to pay for the things we do. We have reduced our deficit dramatically and we need to stay on a fiscally sustainable course. I think if you look at the things that we've proposed they really just reflect fundamental fairness. You know, and as I think, very much the case that if we could make the investments that we're talking about, our economy would grow more. And that would be good for everybody.

STEVE LIESMAN: But a 28% capital gains tax rate after increasing the top tier individual rate. It seems like there's this creep going on back towards levels that the country decided were too high.

JACK LEW: Well I'll just remind you that the 28% capital gains rate was the rate that was in effect when President Reagan was in office and the economy did just fine at that time with that rate. You know, our top rate for individuals is where it was when President Clinton was in office and we had the longest period of uninterrupted growth in American history. So I think that we're not doing things that we haven't tested. We've had an experiment in this country, we had big tax cuts for the very wealthy people and the economy did not do very well afterwards. So we're going back to policies that were in place when the economy was actually doing quite well. I think if you look at the, you know, kind of a case in point take some of that stepped up basis, one of the things we put in our budget proposal, if you or I have a savings account or a 401K or IRA, we're going to take the money out and pay income taxes on that when we retire. If you have enough in your investment accounts that you never need to take the gains, you get to pass that along to another generation and it steps up the basis and there's no tax paid on it. That's not right. We ought to treat things the same way.

STEVE LIESMAN: Let me switch gears, Mr. Secretary, and talk about something that's been a major factor in markets recently which is the strong dollar. Douglas Oberhelman from Caterpillar recently said on our air, "anybody producing in Japan, the U.K. and Europe is going to have an advantage over their American competitor and I would expect it to have a negative impact on the United States." Are you concerned the dollar is in a place right now where it's beginning to hurt U.S. jobs?

JACK LEW: Steve, I think that if you look at our economy right now it is quite strong. And in a relative basis it's stronger than a lot of the economies that we compete with. I think the real challenge is getting other economies to get back in the growth pattern where they're doing better. And some of that would then equalize. I mean, right now what we're seeing is the function of the U.S. having a very strong economy which I think is a good thing, not a bad thing. Obviously we would like to see more growth in Europe, we would like to see more growth in other parts of the world. I mean, it's one of the things that we'll be talking about when we're at these G20 meetings.

STEVE LIESMAN: But what do you say to these American job creators, P&G, Apple, all of these have complained about the negative effects of a strong dollar?

JACK LEW: Look, I think that if you look at the last few months we've seen that there have been different factors driving the economy. We've seen lower energy prices. We've seen higher employment. So net, I think what is happening to our economy is making it still a very strong economy. I do think that the global economy has weak spots in it. And it is important for those weak spots to be strengthened. What I do think we have learned from our experience is that if you use all the policy levers that you have you actually can change the course of your economy. If you use monetary policy, if you use fiscal policy to create demand where you need it and if you do the kinds of reforms that give you a strong economy – we have had to do some big financial reforms. Other countries need to do reforms in other areas. If you use all three levers you can actually change the course of your economy. I think we're seeing in a lot of parts of the world that they've had more challenge using all the levers.

STEVE LIESMAN: Speaking of reforms, a new Greek government is now sort of bristling at the idea of continuing with austerity. What's – how much concern do you have about the potential that Greece could leave the Eurozone?

JACK LEW: Look, I think what has to happen right now is that everybody's got to tamp down the rhetoric a little bit and there needs to be a conversation where Greece and all of the parties that it's engaged with, look for a practical, pragmatic path forward-which I think is in everybody's best interest. I certainly hope that happens quickly. I think that, you know, Greece has made a lot of sacrifices and changes in its own economy over these last few years. There's a stronger foundation than there was. And they need to build on that strong foundation to come up with mutually agreeable terms going forward.

STEVE LIESMAN: Do you have some sympathy for the new government's call to ease the austerity rules?

JACK LEW: I think that you know, Greece is going to need to work through – with its partners in Europe and with others that it has deep financial relations with – terms that are acceptable to everybody. I think that's possible. I think that the heat has to come down a little bit in the conversation. And I think that the sooner that happens, the better.

STEVE LIESMAN: Violence seems to be escalating in Ukraine. Why is this not a sign that sanctions are not working and the humanitarian crisis escalating right now?

JACK LEW: Look, Steve, the situation in Eastern Ukraine is not good. And obviously the diplomatic discussions that have been taking place over the last few days are aimed at trying to return to something along the lines of the Minsk accords which would be our goal. That would give everyone the ability to move sanctions down instead of up and to get Ukraine back to normal. Russia's going to have to fundamentally change its course and live by the Minsk accords in order to do that. One thing I can tell you is that we have seen remarkable unity with our European partners, both in terms of providing economic support to Ukraine and maintaining economic pressure on Russia. I've had many conversations with my European counterparts. I'm going to have more of those conversations as I meet with them in the coming days. I hope that these diplomatic conversations provide the breakthrough that's needed. But as the President's made clear we're going to need to keep the pressure on to make sure that, you know, there's a price for Russia's actions if they don't live by their agreements.

STEVE LIESMAN: But Mr. Secretary, given the escalation, is there a sense right now that the current level of sanctions is not sufficient?

JACK LEW: You know, Steve, actually I think the sanctions are working in the sense that they've done a – had a tremendous impact on the Russian economy. The Russian economy is not good. Some of it is the oil price coming down. Some of it is the sanctions have really weakened the core of Russia's economy. I think that what we haven't seen is the government of Russia, President Putin, respond in the way that would be the reasonable way to respond which is to work through a diplomatic resolution and see these sanctions rolled back. I hope he chooses to take that course. Obviously the diplomatic course right now is one that's designed to drive in that direction. We're prepared, as I've said many times, if we need to, to take the sanctions and ratchet them either up or down. Our preference would be to ratchet them down because that would be the best thing for the economy in Europe and the best thing for stability. But that would require Russia living by its commitments and pulling back and honoring the sovereignty of Ukraine.

STEVE LIESMAN: I know this is not your portfolio, but how serious is the disagreement between allies when it comes to providing arms to Ukraine?

JACK LEW: Steve, I'll leave the discussions on the diplomatic and the security issues to others. I've been deeply engaged in the economic issues. It is very important that we make sure that Ukraine's economy has the support it needs so that it's able to bounce back. It's very important that we maintain the pressure on Russia through economic sanctions. That's the piece of it that I'm responsible for and making sure we do our very best on.

STEVE LIESMAN: Turning back to domestic issues, you have been uniquely optimistic over your – the course of your tenure in the ability to strike a deal with Congress when it comes to corporate and business tax reform. You just went to the Hill and you had extensive testimony there. What are your impressions after leaving that testimony about the ability to get something done in the next couple years?

JACK LEW: You know, I continue to think that there is a real possibility that we can get something important done on business tax reform. You know, there are only so many times when the stars align where the positions are close enough that there is a conversation that actually looks like it could be productive. And I think that's what we saw even at the hearings I had this week where the core structure of the approach that we've put forward is one that members on the other side said was something you could work with. It's not that we're ready to do exactly what they want to do or they're ready to do exactly what we want to do. But the core approaches have an awful lot in common. It's hard. Tax reform is always hard. The thing you know for sure is that anyone who's losing some tax benefit is pretty likely to make their voice heard loudly. We need to make sure that everyone who's worried about the problems we have with a broken tax system also makes their voices heard. Last year we saw something that we'd never – hadn't seen in a long time. Normal people, not people in board rooms understood that our tax system was broken when they saw inversions happening and scaring them. And they were offended by it. I think that we know that we have to fix our tax code. We need to eliminate a lot of the loopholes and deductions, we need to lower the rate which on paper is the highest statutory rate in the developed world. But in reality companies pay anywhere from 0% to 35% and there's not a particular rhyme or reason as to which category you're in. And we don't have a tax system that is – makes it easy for companies to make decisions that are just based on the economics of how does their business do well. It's about gaming the tax system. We also have the possibility using the one-time savings that come from taxing foreign income that you bring home and using that revenue to pay for infrastructure. I think that's something that is the basis to build more bipartisan support. And I was pleased in my hearings-- that there was a willingness to work on an idea like that.

STEVE LIESMAN: You think the 14% one-time tax and the 19% I guess permanent tax on foreign earnings has a chance to pass?

JACK LEW: Look, I think that if you look at the system we set up it's really a hybrid system. It says that if you're a company that has income overseas you can bring home – the permanent rate would be 19%. You get a credit for 85% of the taxes you've paid overseas. And for most companies that means that, you know, that they'd pay something, you know, much lower than 19% because they're paying taxes of 10%, 12%, 13% overseas. So I think if companies were in the 9%, 10%, 11% net-tax rate they would be pretty happy to bring their money home. The one-time toll charge, the 14%, would apply to money that's built up overseas. And unlike a one-time tax holiday that some people talk about this wouldn't have the kind of bad effects that a one-time tax holiday has had which is everybody waits until the next one-time holiday and builds up mountains of cash overseas.

STEVE LIESMAN: Would you accept the 14% without the 19% or the 19 without the 14 or are they a package in your mind?

JACK LEW: Look, I think that the package we've put forward makes sense. And the package is not just the toll charge and the 19%, the minimum tax. It's also eliminating the loopholes, broadening the base and lowering the top rate to 28% across the board with a 25% rate from manufacturing. That's what we think the right approach is. So I'm not opening the door to breaking it up into pieces just yet.

STEVE LIESMAN: Mr. Secretary, ports on the West Coast, specifically in the Los Angeles area, are grinding to a standstill. How much of a danger is that to the U.S. economy? And is there now – are we now near some need for a federal role here?

JACK LEW: You know, Steve, there are a lot of people who are looking at that carefully to answer that question. I think that up until this last week we were seeing, you know, shippers find alternate paths through. There were delays. But I think that it's important that this get resolved and the sooner the better.

STEVE LIESMAN: Has the concern level been raised in your mind?

JACK LEW: I think it's a situation where the sooner it's resolved, the better.

STEVE LIESMAN: Mr. Secretary we didn't – is there anything else we didn't bring about that you'd like to talk about, for example, India or something along those lines?

JACK LEW: No, I think we covered.

STEVE LIESMAN: Mr. Secretary, thank you for joining us.

JACK LEW: Thanks very much for being here today, Steve.

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