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CNBC Exclusive: CNBC’s Steve Liesman Interviews Treasury Secretary Jack Lew from CNBC Institutional Investor Delivering Alpha Conference in NYC Today

WHEN: Today, Tuesday, September 13th

WHERE: CNBC's "Squawk Box"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Treasury Secretary Jack Lew live from the CNBC Institutional Investor Delivering Alpha conference in New York City on Tuesday, September 13th.

Following are links to the video of the interview on, and Additional clips are available at

Mandatory credit: CNBC Institutional Investor Delivering Alpha conference.

TYLER MATHISEN: Thank you, Mark. So this is Delivering Alpha Number 6. We're going to start using Roman numerals, so it's VI. We've had the privilege on five of -- this will be the fifth time -- save one of our Delivering Alphas, each time we've had the privilege of Treasury Secretary of the United States being with us, back to Mr. Geithner's term and now, for the third time, the 76th Treasury Secretary of the United States, please welcome to the stage, Jacob Lew and his interviewer, Steve Liesman, chief economics correspondent for CNBC. Got to get the title right.

STEVE LIESMAN: Mr. Secretary, thank you for continuing this tradition of kicking off Delivering Alpha with us.

JACOB LEW: Great to be with you this morning.

STEVE LIESMAN: Am I right that you were just a little late because you were meeting with the lyricist for the musical that's going to be made with your tenureship? Is that right?

JACOB LEW: Just like every other New Yorker, I was stuck in traffic.

STEVE LIESMAN: Will it be rap?

I want to start off with some of the headlines. I mean, it's been a series of headlines from your brief, so to speak, over the last several days.

This morning there's a story that an executive who oversaw some of the places where there was alleged phony accounts created at Wells Fargo made $125 million. Do you feel this is money that should be clawed back or there should be systems in place to claw this money back?

JACOB LEW: The consumer protection agency that took action against Wells Fargo is an important new addition to our protections for individuals and for the financial system. It didn't exist before financial reform. I think they uncovered practices that they have taken action against. I don't comment on specific regulatory matters. But what I can tell you is what I've seen from what they've done is bad behavior they were correct to take action against. And how that flows through in terms of next consequences is going to depend on the facts of the case.

What I can tell you is there's a lot of talk in Washington these days about rolling back Dodd-Frank, about rolling back the law, changing the law that created the agency that uncovered and took action against this. This ought to be a moment when people stop and remember how dangerous the system is when you don't have the proper protections in place.

This is something that our watchdogs found. If they were not there, they would still be going on. This is a wake-up call. It should remind all of us, and firms, that culture and compensation make a difference. How you reward people, how you motivate people, and what values you hold people to matter.

There's a public responsibility, and I think the CFCB took action reflecting the public responsibility, and there's a private responsibility. And we each have to do our part.

STEVE LIESMAN: But if culture and compensation make a difference, then why wouldn't you support a clawback of this?

JACOB LEW: I'm not commenting one way or the other on the clawback. I really am not going to comment on the facts of the specific case. It's being reviewed by an independent regulator. It wouldn't be appropriate for me to speculate on something that I don't know all the facts of. I think I'm addressing the issue in a pretty conclusive way. This is unacceptable behavior. And it's the kind of behavior that we need to be able to catch and stop.

STEVE LIESMAN: We've had billions of dollars of fines levied on financial institutions. And still this behavior is still being uncovered. Is Justice going far enough here? Do we need to be in a situation where, for example, companies are not allowed to plead that they didn't commit the alleged act and that there are individual indictments brought? We haven't seen that in any of these financial crimes, or very few of them.

JACOB LEW: We have, I think, taken action on a pretty dramatic basis to put fines, penalties in place for firms that have acted badly. The question of whether or not to pursue criminal prosecution is a decision that prosecutors ultimately make. We have made clear we don't believe that anyone is too big to jail. It's up to prosecutors to decide how you pursue the criminal charges. It's not up to regulators or the policymakers.

What I can say is that the pattern of behavior that we've seen here is something that needs to stop. It is not acceptable to do things that are designed to increase either an individual or a firm bottom line by deceiving consumers and passing along charges that are either invisible or they don't know about.

And this is not the same as a financial crisis issue. This is really a consumer protection issue. I don't think this is a moment where we have to ask the kinds of questions that we did in 2008 about what it means about the underpinnings of the financial system. But when I hear people say we want to roll back the statute that created the consumer protection bureau, this is yet another proof point that it was the right thing to create, it's the right thing to have an independent director, and it's the right thing to make sure that there's somebody, and an entity watching over our system, to make sure that individuals get clear information about their financial products and, when firms or individuals behave badly, that somebody finds out about it and takes action.

STEVE LIESMAN: Moving to another company story which is in the headlines, and you're doing specifically with this issue of Apple, an attempt by the European Union to get 14 1/2 billion dollars of back taxes.

Beyond the company-specific story, is this an attempt by the E.U. to essentially grab unpaid American taxes?

JACOB LEW: You know, Steve, I have an op-ed this morning in the "Wall Street Journal" where I went into some length describing our views on this. But let me briefly reprieve what I've said on this. We have for some time told the European Commission that we believe that this is an inappropriate approach. Why is it inappropriate? We agree with them that it's wrong for companies to avoid paying their fair share of taxes to get to zero or very low tax rates by taking advantage of tax havens.

But the action that the European Commission took is out of the framework of normal tax policy, a retroactive tax that reaches into another country, another jurisdiction's tax base, in order to make sure that a firm pays its taxes. We agree with them that firms should pay their taxes. But when it's U.S. income, we think that that tax should be paid in the United States.

We've done a lot of work over the last two years to work on an international basis to make sure that -- to share information better. And we have an ability to close several loopholes that have contributed to the erosion of tax bases around the world. We need to take action in the United States to decisively change and pushing firms to take their income overseas. We have a broken corporate tax code.

We have the highest statutory tax rate in the developed world. It's riddled with deductions and loopholes that give advantages that we don't really need or would design for for today's economy. And the result is we see U.S. companies trying to impart income in lower tax jurisdictions.

Now, those lower tax jurisdictions are for doing some things that aren't right also. The race to the bottom with low tax rates to be a magnet for those companies, that has to change too.

But what action do we need to take in the United States? We need to fix our tax system. We need to close the loopholes. We need to lower the statutory tax rate. And one of the things that we've proposed, which I believe is an idea that will still have resonance in the year to come is that the revenue that we get by putting a one-time tax on income that's parked overseas will produce one-time revenue that ought to be used to fund an investment in infrastructure in this country.

So we can do two things at the same time. We can fix a broken tax code. We can make it so that our companies don't feel they have to leave the United States to put their income overseas. And we can fix our broken infrastructure.

What I don't think is right is for tax authorities and other jurisdictions to reach into our tax base and to remove the ability for us to execute what I just described.

STEVE LIESMAN: So if they're reaching in on Apple, are there other company cases yet to come?

JACOB LEW: There are a number of pending matters --

STEVE LIESMAN: Pending, but what about ones that you think there's going to be more of a grab at this point?

JACOB LEW: I can't speak to the European Commission, but we have spoken on the policy. We don't address individual cases. As I mentioned before, I'm not addressing the individual case that they choose to act on.

STEVE LIESMAN: So does that mean you won't join as a party to the case in Europe, to join as an amicus, so to speak?

JACOB LEW: Well, the European procedure is a little bit different than ours. They are very aware of our views. We've submitted our views in a pretty formal way. The parties here are the government involved and the company involved. They've both indicated their intention to appeal. And we've made our views known to the authorities in Europe. And we've done it in a way that our views will be before the commission on future matters as well.

STEVE LIESMAN: Let's talk about the tax rate, the right corporate tax rate. 35% is the current top rate, just the federal part. There's another six points or so according to the OECD that would be added on some level. You proposed 28. It seems like the House Republicans wanted 25, and Donald Trump wants 15.

15 would be toward the lower end of the OECD. 12 1/2 is Ireland. Germany is around 15. Why wouldn't we want a rate that low that would make America very competitive?

JACOB LEW: The principle that's driven our work on tax reform is that it has to be revenue neutral. We are -- I don't think -- it would not be right for us to have individuals pay more taxes for us to lower the corporate tax rate.

What we've proposed doing is eliminating loopholes and deductions and using the revenues that we get by doing that to reduce the tax rate on the business side as much as we can. We got to 28% essentially because that was the amount of loopholes that we could close.

STEVE LIESMAN: I get what you're saying, and that makes perfect sense on one side of the ledger. But the other side of the ledger, at 28, you're still not competitive and there's still a 13-point incentive for companies to go overseas.

JACOB LEW: In the 25-28% range, we're getting pretty close to the average. And a few minutes ago, I talked about the race to the bottom. Some of the pressures on countries that cut their tax rates to low rates in order to be a magnet, if we, as we have discussed in the G20 and the OECD and other international bodies, truly believe that we need to close down the pathways to tax avoidance, we're going to need to conform to some norms. And having countries go to very low tax rates is part of the problem. We have our problem. We have a very high rate and a broken system. We need to fix our system and take a look at theirs as well.

STEVE LIESMAN: Is this a failure of the administration for corporate tax reform here?

JACOB LEW: I actually think that if you look at the history of tax reform, it often takes many years for it to kind of take hold. And it's not unusual for it to begin in one administration and finish in another. I feel we've made actually a great deal of progress working through bipartisan conversations to build a growing consensus around the kind of approach that I've described.

I think that there's an environment now where the political environment is not one where it has been ripe to take up something like this. But the ideas that we've been promoting will be the foundation for action in the future.

So I actually feel we've moved significantly toward tax reform. You know, it takes a desire on the part of Congress to do something hard. Hard things don't happen unless there's a real, real desire to do it. And you need a partner. We have had individual partners, but, as a whole, we have not had that commitment.

STEVE LIESMAN: But if you look at this issue from outside the Beltway, one guy is at 28, the other guy is at 25. Let's get in the room, spend 7 minutes, and we'll make a deal. It seems like you were impossibly close almost the entire time and didn't make it down there.

JACOB LEW: You and I have discussed this a number of times, Steve.

STEVE LIESMAN: And I still don't have a good -- not from you, but in general.

JACOB LEW: I do believe that the people that we've engaged with, who have been leaders on the Republican side, now Speaker Paul Ryan, some senators who have been engaged in it, we've had a lot of conversations that lead me to believe there is the basis for an agreement. I just think the time for that agreement is probably not the next four months.

STEVE LIESMAN: Do you look back --

JACOB LEW: In terms of need to do it, you look at the infrastructure component of this, I think there's an urgency right now to dealing with infrastructure. You look at the action taken by the European Commission, that's an urgency that we need to act if we want to protect our tax base.

You have an alignment of forces right now that I think create a real opportunity. And I certainly think that's an opportunity the American people would be well served if Congress takes advantage of.

STEVE LIESMAN: Let's talk about the Trans-Pacific Partnership. Again, that's another program or effort by the administration, worked hard on it, seemed to get agreement, and now can't get it through Congress. Do you regret that? Is that a failure of the administration?

JACOB LEW: Well, first, I wouldn't draw conclusions about what we can and can't get through.

STEVE LIESMAN: I'm watching my clock here.

JACOB LEW: There's still time for the TPP, Trans-Pacific Partnership, to be approved.

Let's start with the substance. TPP is a good economic deal for the United States. It's good for American workers. And it's good for U.S. security interests in the world. It means that they will have a more level playing field. American products and services, which are best in the world, will be able to compete on stronger ground. And it retains the U.S. leadership in the world on important strategic issues.

So I think it's vitally important that we get it approved. I believe there's still support for TPP. There's clearly opponents of TPP. I can't question that. We've passed through the Congress, about a year ago, the underlying legislation, Trade Promotion Authority, which provides the procedural basis to approve TPP. TPA, I believe, was a harder vote than TPP. It was an abstraction; it wasn't a specific agreement.

I can point in TPP to how it strengthens labor standards, how it strengthens environmental standards, how it raises business practices closer to our own. I can point around the world to countries that are already taking policy actions, whether it's Mexico or Vietnam, to meet some of those standards.

I think we have the substance profoundly on our side. What I think the challenge we have -- and this is a big challenge. We can make the case that it will improve growth in the United States, and more GDP should be good for everyone. Where we're running into a problem right now is the sense that is not just in the United States, but it's in other parts of the world, that more growth does not necessarily mean better wages or better opportunity for working people.

I think the issue that is the real issue that we're going to have to deal with is to show how the benefit gets to individuals. And that's bigger than TPP. I think we saw that in the United Kingdom in the vote recently on the referendum.

STEVE LIESMAN: And that's a failure at every level of leadership, when it comes to economic issues, the issue of trade and its benefits. The support of the American people has eroded almost across the board.

JACOB LEW: Right. But the point I just made, Steve, is it's broader than trade. I think it gets to the question of a social compact. I think it gets to the question of how free market capitalism and liberal democracy thrives. We have to ask some serious questions about what is it that's holding wages back? What is it that's preventing individuals from feeling that they have a share in growth?

I know what we can do at a public policy level. At a public policy level, talking about infrastructure, and we talk about skills. If you want to have working people feel that they have a stake in the future, they have to have the skills to get jobs in the economy of the future, and they have to have the ability to get to and from home and work. And they have to see a growing economy that's going to grow the kinds of jobs that they can take advantage of. That's bigger than trade.

I think we have a confluence of things that have been going on between technology and trade and the changing structure of our economy that are making it a challenging moment. But TPP on its face should be a clear plus. And we're going to continue to make that case. And I think we're going to have to demonstrate the commitment to working families.

STEVE LIESMAN: But, I mean, in that equation, you have to address the omnibus criticism of the Obama administration, which was one of regulation that tamped down on private enterprise, and too much government intrusion into the private sector that really kept some of the gains getting to individuals.

JACOB LEW: I think if you look at where the economy was when we took office just under eight years ago, it was in the middle of the greatest recession since the Great Depression. We were seeing unemployment at 10%. There was no bottom. We put in place an economic program that's lifted the United States out of that recession. We've seen sustained growth. We've seen 15 million new jobs. We're seeing wage growth. And some of these things that you're just labeling regulation are also why we're able to be in a place to meet our commitments to reduce our emissions and to meet the standards to make this a safer world by having our climate problems not engulf our future.

There's a lot of things going on inside the package that you call just more regulation. This economy is a stronger economy because of the policies we've pursued. It's not as strong an economy as we would like to see. A lot of what I see as having held back the U.S. economy is the headwinds internationally. We've seen probably a half a percentage point of GDP shaved off the U.S. economy because demand globally has been weak.

That's one of the reasons we put so much time into trying to help move the global debate towards using more policy tools to grow demand and grow the economy. And we've made progress there. I think we've made real progress. You are seeing a number of countries around the world put in place more aggressive policy using fiscal tools as well as monetary tools.

So I think there's a lot of things going on. And I think right now the United States is looked to in the world as being a resilient economy that's bounced back. What I tell my colleagues around the world is we can't be the only engine in the world economy. There need to be multiple engines.

STEVE LIESMAN: I want to get to the overall economy. But one of the things you've talked about is this need to invest in infrastructure. The Republican nominee has accomplished something like half a trillion dollars for spending on infrastructure. Do you think that's a good number?

JACOB LEW: I have to tell you, Steve, I haven't dissected any of the campaign proposals. I'm not doing politics in my current life. I'm happy to talk about our policies, but I haven't actually taken apart the campaign proposals.

STEVE LIESMAN: Well, what's the right number for infrastructure investment? I assume you're talking over a 10-year period.

JACOB LEW: Yeah, the right number is a very, very big one. We have trillions of dollars that need to be invested. It's not all public money. What we did a year ago, a little over a year ago, is we extended our surface transportation funding for five years, basically at level funding, a little bit of an increase. Enough to maintain what we're doing now, not enough to build the new facilities that we need to compete in the 21st century.

I think putting several hundred billion dollars of federal money into a commitment on a multiyear basis to build infrastructure would have an effect on state and local planning that would bring more state and local resources to bear and, just as importantly, would be a foundation for public-private partnerships, which is what gives you the ability to leverage the amount of resource you are putting in.

This is not all a question of just federal funding. But federal funding has been the foundation. One of the things that we do is we create a kind of certainty out there that there's steady flow to get projects off the drawing board. Without that, the whole system slows down. And I think we have taken some time off from driving that process forward, not to the point that it's irreparable, but we can't take another decade off.

STEVE LIESMAN: At the same time, when we look at overall economic growth, we're doing just around 1% the last three quarters. How much concern has this caused you that we can't even get to the new lower new normal of 2%?

JACOB LEW: I think when you go quarter to quarter, sometimes you can overexplain an individual quarter.

We've seen growth in the low 2% for a number of years now. We're continuing to see strong labor markets. We're continuing to see improvements in wage growth. Consumers in the U.S. are very strong. Housing is doing better. Autos have been doing very well.

The weak spot on the economic picture is investment. And I think that if we could figure out what it is that's going on in investment and productivity to drive the investment numbers forward, that would be very important. I mean, I think that there is a lingering lack of confidence in the global economy coming out of the economic crisis. It was a deep, deep economic crisis. It left concern. How do you know we're not snapping back?

I think in the United States we've demonstrated pretty decisively that we're not slipping back. There are other parts of the world where every three to six months you wonder, is it going one way or the other? There's a lot of geopolitical risks. I think we have to stabilize those risks.

One of the things we do when we meet in the G20 is focus on that. And just last week we met in China at the G20 leaders meeting. And I think you heard a few things at that meeting that were important and different.

One is what I just talked about in terms of inclusive growth, in terms of everybody sharing in it. We used to be a chorus of maybe one talking about inclusive growth. All the leaders were talking about inclusive growth. I think there's a clear understanding that we have to show that the benefits of growth get to working people globally right now.

Secondly, there was a commitment to using all policy tools that is much stronger than its been in the past, where heads of state are talking about using the fiscal space they have more vigorously. And I think on the exchange rate issues that have been so vexing for a long time, we have a clear agreement to refrain from competitive devaluation and to coordinate together so that, at moments of volatility, we don't see unilateral actions that destabilize the global economy.

STEVE LIESMAN: I just want to come back to one of the things you just talked about, which is using the fiscal side.

Is the fiscal side getting a message from the monetary side that there's only so far they're willing to go? Mario Draghi last week suggested, you know, we're at a negative place. We don't want to go more negative. Possibility of the feds discussing raising interest rates. Is the fiscal side getting a new message from the monetary side?

JACOB LEW: As you know, Steve, I don't comment on monetary policy, particularly not fed policy.

STEVE LIESMAN: We're talking about fiscal policy.

JACOB LEW: I don't think that fiscal authorities needed messages from anyone that the fiscal tools are important. We've been delivering that message consistently since 2009. I've been doing it as treasury secretary for the last three and a half years. What we've seen over the last three years is a shift in the debate.

When I became treasury secretary, there was a global debate about austerity versus growth. We went to G7 and G20 meetings and there would be debates about austerity versus growth. Those debates are over. There is no more focus on austerity qua austerity. There is a focus on making sure there are sustainable fiscal plans, but in terms of short-term programs, the global community has embraced the idea that we need to use all policy tools.

Now, if you look around the world, even in the last six months, you've seen from China to Canada, from South Korea to Japan, more use of fiscal tools in a responsible way. It doesn't mean build up debt that's unsustainable. But it does mean don't try to hit deficit targets and debt targets in the short term when you need to get your economic engine moving.

I think fiscal authorities during this recession put more pressure on monetary authorities than they should have. I've said that all along. Here in the United States, we went too fast in the terms of some of the fiscal consolidation. There was a big debate in the United States in 2011 and 2012 about this. We've done okay. We could have done better. We could have had a little more growth if we had put some of the savings a few years out and less of the savings in the front end. Other countries didn't do as much as we did. They didn't have the recovery. They didn't do a payroll tax. You know they didn't come back repeatedly and put more fiscal power to deal with economies that needed it.

It wasn't always pretty in the United States, but we used all of our policy tools. Our fed was aggressive, our fiscal program was big, and our reform to the financial system was a structural reform that we needed here in the United States.

There are still challenges in the future, but our call internationally is for all the tools to be used.

STEVE LIESMAN: I want to talk about the challenges in the future. Could you give us an idea -- maybe you've thought about this. What goes in the letter that you leave for your successor?

JACOB LEW: Well, this may surprise you, Steve, but that's something you think about when you get to the last day, in my experience. You don't write it four months in advance.

I think that we're still focused on the work we have to finish in these next four months. I think that the economy that we are working through now and that we will leave behind is much, much stronger in almost every dimension than the economy we inherited. I'm proud of that. That's something the American people are well served by.

That doesn't mean that all of the challenges of the future are addressed. I think these questions of income inequality are deep economic and social issues. And we've put proposals forward that we believe deal with that in a sensible way to pay for things like education, starting with preschool, community college education, and pay for infrastructure and to have an equitable distribution of tax burden to pay for it. Those debates aren't over.

I think that if we take a long break from dealing with all of those issues, we pay a price. It starts to stress both the economy and the social fabric.

I think we've done enormously important work. I don't think any administration finishes the job. You pass the baton, and you give some advice, and then you try from the sidelines to help move things in the right direction.

STEVE LIESMAN: So I wonder if, four months in advance, you think about what you'd do personally. Have you thought about going back to Wall Street or academia? What have you thought about?

JACOB LEW: I have made one key decision: To live in the same city as my wife for the next four years.

STEVE LIESMAN: I'm looking forward to Lew the Musical. And thank you very much for joining us.

JACOB LEW: Thanks, Steve.

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