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CNBC Exclusive: CNBC Transcript: CNBC’s Sara Eisen Sits Down with Treasury Secretary Jack Lew

Interview to air throughout CNBC's Business Day Programming today, Friday, October 14



Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Treasury Secretary Jack Lew. The interview will air today, Friday, October 14th on CNBC's "Squawk Box" (6AM-9AM ET), "Squawk on the Street" (9AM-11AM ET) and throughout the day. Video of the interview will be available on

All references must be sourced to CNBC.

SARA EISEN: Donald Trump has proposed cutting the corporate income tax to 15%. 10% for those repatriating overseas profits. That certainly would discourage inversion.

SECRETARY JACK LEW: Look, our proposal-- for business tax reform-- would reduce the business tax rate-- the corporate tax rate-- statutory rate to 28%. We did that by eliminating loopholes and deductions. I don't think we ought to be losing revenue when we lower the business tax rate. If there are more loopholes in deductions that could be eliminated, you can perhaps bring the rate down a bit more. But it becomes a tradeoff then-- as to when are you taking away provisions that do real good. I think that-- the-- challenge on-- international-- you know, earnings-- is to get to a political space where we can work on a bipartisan basis to legislate. I've talk to a lot of Republicans and Democrats, who want to do something about it. And if we could have a minimum tax on foreign earnings and decide what that rate should be-- in a negotiation, it would be a good thing. It would stop this problem. It would stop things like the actions in Europe reaching into our tax base to, you know, address something that—

SARA EISEN: But it can't get done. I mean, certainly not with this congress and this administration.

SECRETARY JACK LEW: I think it can get done. You know, I--think that the European Commission's actions actually put a bright light on the fact that if Congress doesn't act, others are gonna start doing things that we think are unfair. We agree with Europeans that it's wrong for companies to be able to avoid taxes almost completely. What we don't agree with is that the U.S. tax base should be, you know, used by another taxing authority, another government authority. I think that the political situation in the new year is gonna be an opportunity to deal with this. One of the things we said in business tax reform was, "you should do two things at once. Tax the income that's overseas, but you can't use that money to cut tax rates, 'cause it's a one-time tax. Use that money to pay for infrastructure."

I think there's a lot of people in this country who want to invest in infrastructure. It's very much a bipartisan issue. And I think there's a lot of people in this country who think that we ought to do something about the--fact that we have income that's going untaxed. I hope that there's a moment when that conversation can come together at the beginning of the next year.

SARA EISEN: The-- just on inversions before we leave that topic, the collapse of the Pfizer-Allergan deal really stands out to most people as a symbol of your crackdown on inversions and what would have been the biggest pharmaceutical deal ever. Is that one of your biggest achievements?

SECRETARY JACK LEW: Well, we've never targeted any individual transaction. We've been pretty clear that we wanted to do what we could to stop inversions. We've taken action three times. Each time we've taken action, it's slowed down the flow of activity. It will take legislation to fix it in a way that stays fixed. I think that the actions we're taking in finalizing the earnings strippings rules, we've done a good thing to shut the door not all the way but a good part of the way.

SARA EISEN: There is a nationalism sweeping the US and Europe and other countries and what we are seeing is a rising tide of protectionist measures, punative tax rules that this could be a part of all creating uncertainty for business and investment and could be potentially damaging for growth-- Do you see this as part of that?

SECRETARY JACK LEW: You know, I have to tell you, Sara, if you think about the -- international meetings that we go to, the G20 meetings, the I.M.F. meetings we had here in Washington last week. In all the years I've been going to these meetings-- you know, I haven't heard the term "inclusive growth" as much as I have in the last six months. You've seen leaders from around the world, finance ministers, and central banks governors from around the world focusing on the fact that we have to do something to make sure that growth reaches working people, works-- reaches people who want their children to have more opportunity. If you care as deeply as I do about both liberal democracy and free market capitalism, there has to be a sense that when the pie grows, there's an opportunity for people who are willing to work hard. I think that, you know, if you look at the kind of global debate right now of-- it's mixing up a bunch of things. You've got technology changing-- the way business is done. You've got globalization changing the way things are done. The answer can't be to kind of try to cabin off each economy. We know that when that happens, it leads to less growth and more political instability.

SARA EISEN: And yet, that's not what we're hearing on the campaign trail. It's not what we're seeing in the Brexit vote.

SECRETARY JACK LEW: So I think that that is actually a bit of a wakeup call-- you know, which some of us have been preaching inclusive growth for a long time. But it is now something that there's broad focus on. What does it mean? What do you do about it? You know, in the United States, we know the answers. We have broken infrastructure fix it so the people don't get stuck two hours going to and from work. And you create good jobs. You have an economic foundation for the future. Have better daycare, better you know, childcare benefits, better education and training programs, and deal with the people who are disrupted by abrupt change by providing support. We know how to do that. And I think we actually know how to get bipartisan consensus to do a lot of those things. I mean, hopefully, what you're going to see is governments responding by doing the things that send a message. The answer isn't to grow more slowly. The answer is to make sure that growth is spread more fairly.

SARA EISEN: And yet we continue to see some of these cross-border regulations. You mentioned the E.U. and Apple. You know, right now the D.O.J.'s fine of Deutsche Bank is causing a lot of stress, $14 billion. And a lot of people see that as retaliation for what the commission did with Apple in the U.S.

SECRETARY JACK LEW: I'm not gonna comment on any specific law enforcement matter. I think that the situations are totally different. State aide-- is a different concept than we have in the United States. We think that it was applied to a tax matter in a way that was unfair. We've said so. But that has nothing to do with law enforcement matters. And the Justice Department-- has its own policies-- that-- it's-- not our—


SECRETARY JACK LEW: --mandate. And-- I just don't think there's any relationship between them.

SARA EISEN: As far as monitoring the stability of the financial system, how risky do you see the European banks right now, banks like Deutsche Bank, dealing with slow growth, negative interest rates, and weaker capital positions than those in the U.S.?

SECRETARY JACK LEW: I think that European banks are in a better place than they were before. They're better capitalized, as we just this summer saw stress tests of the European Central Bank that had much better results than would have been the case before. But I've said many times that we've done more in the United States. We've built up more capital. We've done more in terms of resolution. We're one country, so it's easier. But we have banks that are more resolvable. The more Europe does to build up capital and to have its banking system have the kind of protections that we have, the better. But it's much stronger than it was. I think, you know, you saw after the Brexit vote that there was a lot of concern that there'd be a loss of confidence in banks in the United States, in Europe, not just in the U.K. There was a volatile moment. But things kind of restabilized pretty quickly. I think that was actually a vote of confidence that the financial systems are better than they were. It doesn't mean they're all the way there. And, you know, we have pressed for Europe to do more. And we're glad that they've improved from where they were before the financial crisis. But I think we've proved in the United States that when you take massive action to fix your financial system, it builds a really strong foundation—

SARA EISEN: And yet we—

SECRETARY JACK LEW: And that's actually a good thing for the prospect for U.S. growth.

SARA EISEN: And yet we still have questions about the U.S. financial system, bad behavior in banks. I know you spoke at Delivering Alpha last month about the Wells Fargo situation. Does Stumpf resigning matter?

SECRETARY JACK LEW: You know, the decision about who should be CEO is for the board and the executives of the company. I think what the whole set of events around Wells Fargo shows is that anyone who thinks that it's yesterday's problem to worry about whether there are abusive practices, whether there are predatory practices, it is still an important issue for today and tomorrow. You know, we created a Consumer Financial Protection Bureau that is a cop on the beat now. It has levied a very large penalty in this case. There's some people who want to roll it back, who want to take its power away. I think it's a mistake. We saw in 2007-2008, how bad practices, bad consumer practices could actually accumulate and contribute to a financial crisis. I don't think this has that characteristic. It's bad enough that it just takes away people's confidence and trust in their own banking relationship. We need to protect consumers. And we also need to protect the financial system. And we shouldn't be rolling back Wall Street reform.

SARA EISEN: Do you see the election as having the uncertainty around this coming election hurting the economy right now?

SECRETARY JACK LEW: I think there's a lot of uncertainty in the world. You know, at the IMF meetings last week, you heard more discussion of political risk and geopolitical risk than economic risk. You know, the optimist in me sees political risk as being something that ultimately policymakers can resolve. Good policy can reduce political risk. Obviously, you know, elections matter. Referendums matter. You know, but things settle down after an election. And I think the question is gonna be here in the United States, do we take policy directions that help to grow the middleclass, that help to generate more confidence in America's future? We have the best economy in the world. We are, you know, world looks to us and says, "How do you bounce back when it's so hard for others to bounce back?" We want to do much better. We can do much better. And we even know how to do to much better.

SARA EISEN: I guess I'm wondering if we're risking having the best economy in the world and the safe haven status of the world reserve currency and the treasury market by what's going on right now on the campaign trail?

SECRETARY JACK LEW: Look, I think that you know, elections are always uncertain times. This year is no exception. I think the U.S. treasury markets remain unique in their depth and liquidity. There is no alternative in the global economy today. But I've always said we can't take that for granted forever. That's something that's precious. And we need to protect it. And we protect it by the actions we take. And that's why maintaining focus on what's the right policy to move this country forward, taking actions to end some of the political gridlock. I mean, ultimately, the political gridlock is something that contributes to that uncertainty. We've seen how many times in my tenure moments of near shut down, near default? Every one of those moments became a kind of setback to an economy that was starting to gain momentum. I hope that with a new congress and a new president, we can turn the page and not see a repetition of that.

SARA EISEN: Are you hearing a lot of worry from some of your colleagues, fellow finance ministers, around the world about this election and about what they're hearing from candidates like Donald Trump, who has threatened tariffs on some of our trading partners?

SECRETARY JACK LEW: You know, Sara, I have not commented on politics in this role. I'm going to continue to stay to that policy. I think it's the right thing for treasury secretaries not to get involved in politics. But I think the policy that I've just described, the things that I think we know are the right path forward, which are reflected in the programs we've put forward, will reassure the world if those are the kinds of policies put in place. Have to leave the political system to work out the election.

SARA EISEN: Fair enough. As it relates to the economy – and you did mention Brexit, so I wanted to ask you, because the pound continues to fall. And it's only gotten worse since Prime Minister May laid out her vision. Seemed to indicate that the immigration policy would be a priority over the access to the open market, to the E.U., in terms of these Brexit negotiations. Do you see that as a mistake financially, economically?

SECRETARY JACK LEW: Yeah, Sara, I think that this is gonna be a long negotiation. We have from the very moment after the results of the referendum been very clear with all parties that we think the best thing is for there to be an amicable negotiation, one focused on maintaining as much as possible, integration. And it's gonna take time. So the atmosphere within which the negotiation takes place will, in and of itself, be something that contributes to uncertainty or relative stability. I hope that the parties continue to kind of take measured positions and look at the direction they're going, the negotiation they're engaging in as a process that will be, you know, a relatively long process. I think that, you know, there's no benefit to trying to rush to a conclusion when it's going to necessarily take some time. And I think there ought to be as much as possible, a focus on emphasizing, you know, how to find a path towards maximum integration.

SARA EISEN: Yeah. And since, you know, it's only a few weeks till the election. And we've asked you this before. But we always have to ask if there's any update to your plans, what your thinking, if you'd like to stay in government or go to the private sector?

SECRETARY JACK LEW: You know, I've been proud of my government service. I've served eight years – it will now be eight years twice in two administrations. And, you know, I think that's a record I can be proud of.

SARA EISEN: Surely you've thought of what the rap musical will look like in two centuries about you.

SECRETARY JACK LEW: You know, I couldn't have imagined the rap musical we're all enjoying now, even a decade ago.

SARA EISEN: Will there be inversions? Is that one of your big legacies?

SECRETARY JACK LEW: I don't know. I'm not sure everyone gets a rap.

SARA EISEN: Thank you, Secretary.

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