WHEN: Today, Thursday, July 9, 2020
WHERE: CNBC's "Squawk on the Street"
The following is the unofficial transcript of a CNBC interview with Treasury Secretary Steven Mnuchin on CNBC's "Squawk on the Street" (M-F, 9AM – 11AM ET) today, Thursday, July 9th. Following are links to video of the interview on CNBC.com: https://www.cnbc.com/video/2020/07/09/treasury-secretary-steven-mnuchin-says-traditional-economic-models-dont-work-in-pandemic-shutdown-scenario.html and https://www.cnbc.com/video/2020/07/09/treasury-secretary-steven-mnuchin-on-extending-ppp-loans-and-enhanced-employment-programs.html.
All references must be sourced to CNBC.
KAYLA TAUSCHE: Alright, thank you so much, Rick. We have someone here who can help us sort through that and much more data. We're joined now by the Treasury Secretary of the United States, Steven Mnuchin, Secretary thanks for joining us.
STEVEN MNUCHIN: Thank you. It's great to be here with you.
TAUSCHE: I want to start with what Rick just mentioned and also this basket of economic data that's been eroding over the last week. The first time that we've seen things like retail sales and consumer confidence fall since this recovery began, because the virus is surging across the South and West. How is the administration adjusting its growth forecast for the second quarter based on that?
MNUCHIN: Well, let me just say as I've said before, the traditional economic models, really don't work in this scenario since this was a scenario where we closed down the economy, and we're reopening and it has nothing to do with traditional economic problems. The number one issue that I'm focused on is jobs. We've recreated 8 million jobs in the last two months. People thought we were going to have as high as 40 million unemployed, the highest we ever got to was 22 and we're now down 8 million from there, so that's what the President and I are focused on. Our job won't be done till we get everybody back to work.
TAUSCHE: And you know the Biden campaign is taking aim at the Trump administration on some of those various statistics noting that no party has won the presidency with net jobs lost or with unemployment above 8%. Can you fix those numbers before election day? What's the strategy?
MNUCHIN: Well there's never been a point in the history of time that we've closed down the US economy, so I don't think those traditional numbers are important. What I do think is we are rebuilding the economy. The blue-chip indicators for the third quarter is expecting 17% GDP, we're recreating jobs, we're providing a lot of liquidity to American business and American workers. So, the President's economic plans are really working and we still have more work to do.
TAUSCHE: The Congressional Budget Office has suggested that that rapid rebound in growth in the second half would assume that social distancing measures go to zero, but we're not seeing that happen. So is there going to be a bite taken out of this growth and if so how much?
MNUCHIN: Well, I think we have certain hotspots. We'll deal with those hotspots. People are beginning to learn how to be able to work in this environment, certain businesses have recovered very effectively. Certain businesses will take longer. Just as I heard some comments on the airline industry, I think we're very pleased in the work that we've done at Treasury to help the airline industry. It's strategically important to keep it together, but that's clearly an industry. Restaurants, hotels, airlines are clearly going to be areas where they're going to need more help.
TAUSCHE: Let's talk a little bit about the airlines because the Treasury just announced this week that you've reached terms with most major carriers for $25 billion in loans as sort of a second tranche of aid for that industry. Does that require those companies to maintain jobs?
MNUCHIN: There are certain requirements in the PSP. There are different requirements in the loan agreements, this was all negotiated with Congress. And again, we've signed loan agreements in many cases – I think many of these airlines aren't going to need to use them and we'll finance them in the capital markets. But we wanted to make sure that the airlines had backstops so that they had liquidity. And that's something we've been very focused on. And between the payroll support and the loans, we've created a lot of stability for that industry.
TAUSCHE: But specifically, some of the commentary that we've gotten from the airline industry is still dire. I mean you just heard the Delta CEO has renewed caution for passenger travel in the near future, United has said that it could lay off a third of its workforce. Would you consider these programs a success if these businesses stay afloat and they don't buy back stock and executive pay is limited, but there's still massive layoffs?
MNUCHIN: I think all the airlines want to maintain as many people as they can employ. I know that that's very, very important. Some of these airlines have never had furloughs, they're committed to that. Other airlines are in more difficult economic scenarios. I've spoken to all the CEOs, I know they want to keep as many employees as they can. That's their objective. I do consider the program a success. We need to keep these airlines when the economy continues to rebound, we need to have air travel. I've been briefed on the progress we're making on vaccines. I'm highly optimistic that we're going to have great progress by the end of the year. So, I think as we get through this, we're going to need to make sure that our airlines are there for the rebound and that's what we've been doing.
TAUSCHE: And I know between now and the end of the year you're going to be working with Congress hand-in-glove to institute some new programs, reauthorize some existing programs to get more money into the hands of Americans and these companies. On this stimulus check specifically, the President has said that he supports another round of stimulus. Leader McConnell has said there should be a $40,000 income threshold. Is that a level that the administration supports?
MNUCHIN: Well, I'm not going to go into the specific details today on that, but what I would say is we do support another round of economic impact payments. You know, in most cases, those are not checks, it's direct deposits. And we can get that into hardworking Americans bank accounts very, very quickly. With a level in the criteria, we'll be discussing with the Senate. I had a very productive call with Mitch McConnell yesterday. Mark Meadows and I spoke to him. And as soon as the senate gets back, we're going to sit down on a bipartisan basis with the republicans and the democrats and it will be our priority to make sure between the 20th and the end of the month, that we pass the next legislation.
TAUSCHE: Because the end of the month is when those expanded unemployment benefits expire, as you know, and then the paycheck Protection Program which has supported an estimated 51 million jobs here in the country. Many companies have already exhausted the funds that they've gotten for that. I'm wondering, can you reach an agreement before – what many strategists are calling an income cliff – happens at the end of the month?
MNUCHIN: Well, let me comment on both of those. First of all on the PPP, I've had very productive conversations with Marco Rubio. Both of us are going to have a conversation with Ben Cardin next week, so there is already bipartisan work. I think any extension around the PPP is going to be much, much more targeted to the businesses that really need this money and the smaller businesses. So, we're already working on a plan for that. As it relates to the enhanced unemployment, we've been very clear. We knew there was a problem with enhanced unemployment in that certain cases, people were paid more than they made in in their jobs. That was a technical fix. We were in an emergency, we went along with that, we're going to fix that technical fix. We're going to make sure that people are incented to go back to jobs. I've heard stories of where companies are trying to get people back to work and they won't come because the enhanced unemployment. But we'll fix that and we'll figure out an extension to it that works for companies and works for those people who will still be unemployed.
TAUSCHE: There's actually a study in the last day that shows that two- thirds of workers that were laid off are now receiving more than their prior earnings because of those expanded benefits. So, will the technical fix be a cap on those benefits at 100% of whatever that worker was making before?
MNUCHIN: You can assume that it'll be no more than 100%. So yes, we want to incent people to go back to work. And even at 100%, if people have jobs, we want them to go back to work. So, enhanced unemployment is intended for people who don't have jobs and particularly in industries that are harder to rebound. So, we will not be doing it in the same way. And we're in a dramatically different situation. Many businesses are open, many businesses want to hire more people today.
TAUSCHE: On the Paycheck Protection Program specifically, we learned a lot about the recipients earlier this week, but we didn't get any information on the vast majority of the number of loans – those below $150,000. Why did Treasury not disclose those? Do you expect all of those loans to be forgiven?
MNUCHIN: Well, first let me just say the Treasury very much supports transparency and we had discussions on a bipartisan basis. On all the loans above 150,000, we disclosed them in buckets. And let me just say, you know, as I've said before, loans above $2 million are going to go through a review before they're forgiven. So, you shouldn't assume that everybody who has a loan is necessarily going to be completely forgiven. We'll go through those reviews. And as it relates to really small companies of 150,000 or less, we wanted to protect that information, because there's payroll information and we didn't publish everybody who got enhanced unemployment insurance. So, it's a very similar situation, but we did provide all the details. So over 4 million loans, people can go in and data mine, and they can see zip codes, they can see lots of information about those small companies that I think is very helpful for transparency.
TAUSCHE: I'd love to hear where that audit of the loans above $2 million stands and whether you think it's the likely scenario that loans to billionaires like Kanye West or the LA country club, where you are a member, will those loans get clawed back? Will you pursue that?
MNUCHIN: Well, let me just say it would be inappropriate for me to comment on any specific loan at this point. And they're going to go through a review, so I would describe – they will all go through a review. Some of it will be electronic, some of it will be an audit, some of it will require information. But the vast majority of these loans were hard working businesses where the money went to pay employees, and they'll be forgiven. And as we said early on, if they were companies that shouldn't have received the money, we'll deal with that as well.
CARL QUINTANILLA: Mr. Secretary, it's Carl. Just a quick question on tax day, which is coming up next week, of course. I heard you tell David Rubenstein a couple of weeks ago that you would consider whether or not to delay it to September, but obviously in the end you decided not to do that. What was the calculus behind keeping it in July?
MNUCHIN: Well you know I reached out to a lot of different constituents on this issue. It was something I wanted to carefully weigh. First of all, all of the accountants in the accounting industry, whereas last time they were concerned about getting taxes in, not only did they assure me they could get it done now, but they actually encouraged me. There's about 30 billion of refunds that we still want to get to people, they also wanted to make sure they didn't get backed up into next tax season, so that was something that was very important. And also, I heard from many of the states it created tremendous revenue problems for them when we postponed it beforehand. But I just want to assure anybody who has a specific hardship, they can go to IRS.com, they can go online, the IRS will enter into payment plans for people who have specific hardship. So, I think we got the right combination here.
MIKE SANTOLI: Mr. Secretary, you mentioned revenue hardship for states. As you try to put together another fiscal support package in those 11 or 12 days toward the end of the month, what's the administration's position on potential federal aid to states as has been discussed?
MNUCHIN: Well, let me make clear. One thing we are not going to do is we are not going to bail out states that were mismanaged before the coronavirus. So that is not the intent. I think you know we gave substantial amounts of money to the states in the last round, that could be used for coronavirus. We also provided flexibility that could be used for first responders to firemen, policemen and others so that there were no layoffs in those areas. And I know that, you know, there's different people who have different opinions in the Senate and the House as to what we should do, and we'll be having those discussions going forward.
TAUSCHE: Mr. Secretary, I'd like to pause for a moment and bring in my colleague Eamon Javers who has the results of the Supreme Court decision that's just coming in. Eamon, what do we know?
EAMON JAVERS: Kayla, the Supreme Court has decided in one of the two pending cases against the President of the United States and in favor of the Manhattan District Attorney Cyrus Vance who was seeking financial documents, regarding the President's business and personal financial empire. The Supreme Court just deciding within the past couple of seconds, ruling for the New York Grand Jury over its bid to obtain the President's financial records, including those tax records. Now, this means that at some point the outside auditors and banks will be required to turn over those documents to the Grand Jury but because of Grand Jury secrecy rules, scope of that investigation may not become public anytime soon, Kayla. The Grand Jury will be expected to keep all of that secret, the tax returns, financial documents and everything else that they are able to obtain now as a result of the Supreme Court ruling will go into the investigative process and the public will only see those at some point in the future if there is an indictment or some kind of criminal proceeding. The President had argued, this was simply presidential harassment and that local district attorney should not be able to subpoena these kinds of records from a president while he was in office. It was suggested the President was entitled to a temporary immunity during his term in office. The Supreme Court, Kayla, though, disagreeing and siding with the Manhattan District Attorney this morning. We're waiting on one other verdict here, this will be on the issue of House committees, who also subpoenaed financial documents. The Supreme Court expected to issue that ruling here in a couple of minutes. That one will have potentially more implications for the public debate because as we know, documents that go to Capitol Hill tend to leak to the press documents that go to grand juries tend not to. Kayla, back to you.
TAUSCHE: Alright Eamon, we'll come back to you as there is more news. I'd like to get the reaction of the Treasury Secretary Steven Mnuchin. Mr. Secretary, you've deferred to legal counsel on this question before, but with the Supreme Court now ruling that the President must provide this to a New York Grand Jury, at what point would you expect to satisfy that request?
MNUCHIN: Well, again, I can't comment on this just because I heard this. But as I understand that case, it doesn't involve the Treasury. I believe that case is between the President and third parties. But I would say the only thing I do agree on on that report is when things go to Congress, they tend to get leaked and when things go to Grand Jury they don't.
TAUSCHE: That is accurate. I'd like to ask you finally about tariffs. The President has threatened new tariffs on China, new tariffs on Europe and new tariffs on Canada. What is the administration's stance about whether new tariffs before the election are a good idea?
MNUCHIN: Well, I think, you know, the President has used tariffs as a way of getting free and fair and reciprocal trade. So, the tariffs we put on China, we're all about it was not a level playing field. So the idea here was we wanted China to open up. That was the intent of phase one. They are following phase one, we expect them to adhere to that. But the President's use of tariffs and all these things, whether it was with Mexico and Canada, that was to get free and fair trade and we couldn't have been happier. The President of Mexico was at the White House yesterday, we had terrific meetings with him all afternoon, a working dinner of both US and Mexican business people with him and President Trump, and we couldn't be more pleased with the USMCA agreement. It's the largest trade deal in history and that's going to have a very positive impact at the US economy and Mexico and Canada, particularly in a time when we all need it as a result of COVID.
TAUSCHE: And where does the decision stand on potentially reinstating the aluminum tariffs on Canada?
MNUCHIN: I think you know as a matter of policy I don't comment on future presidential actions ahead of time.
TAUSCHE: Well I'll ask you one more on tariffs, which is my understanding is that you have to make a determination this week how to proceed. One year after the investigation into Francis Digital Services Tax, can you preview what we should expect there?
MNUCHIN: I can preview that Ambassador Lighthizer and I discussed it and we'll be reviewing it with the President. No decision has been made yet.
TAUSCHE: Alright. Our thanks to Treasury Secretary Steven Mnuchin. Thank you for standing by as we got that news. We hope you'll join us again soon. And again, thank you for your time.
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