Transcript of Secretary Scott Bessent Remarks on Trump’s Tax Bill

So you know, all yields are up. And again, you know, I think that that was a coincident indicator. The market’s very good at latching on to a story. So I’m not particularly worried about what the market’s thinking because you on the other hand, what the market also could be thinking is that this bill is going to create growth.

DAVID WESTIN: At the same time you have things like the term premium up almost to 1% now and you also have real yield up well over 2%. Should we be concerned with that? Is there a question here about the long term ability to repay the debt?

SCOTT BESSENT: Look, I think that again, as growth accelerates, I’m not worried about the US Debt dynamics because a change in the growth trajectory takes care of a lot of that.

DAVID WESTIN: Should we be concerned when we see yields going up on U.S. treasuries and the dollar weakening? Normally that’s not the way it works as I understand it. Is that something we should be concerned about?

SCOTT BESSENT: Well, I’m not concerned about it because I think part of it is we are seeing other countries step up. So I wouldn’t on many of them, I wouldn’t necessarily categorize it as a weak dollar. It’s for the first time in much of my career Europe is actually going through a fiscal expansion back to this new German government that they are opening the German purse for the first time, maybe even since the advent of the euro. They’re taking off the debt break. So the fundamentals are driving the euro. Japan is seeing a large increase in interest rates driven by the Bank of Japan. So you know, I think a lot of this is other countries strengthening or other countries currencies strengthening as opposed to the dollar weakening.

Deficit Reduction Strategy

DAVID WESTIN: You have said you’re concerned certainly about the deficit getting under control and that President Trump and you says that’s really a priority for him to get down to something with a 3 beginning it at least, if not 3.0%, how high a priority is that? And let me push you on a little bit like Mario Draghi, will you do whatever it takes to get it to that level so that if the present plan does not work the way you hope it will, you’ll take other steps?

SCOTT BESSENT: Well, I think what we’ve been trying to do, especially on the cost cutting side you know, whether it’s DOGE, whether it’s OMB, is go line by line. And on a lot of this, the Democrats are fighting us, the courts are fighting us. So let’s see where that ends up. And of course we will. We can keep coming back in terms of making government more efficient. I think I’ve been there three and a half months now and I can tell you the amount of waste, fraud and abuse is startling.

DAVID WESTIN: Yeah, I think most of us who dealt with Washington would not disagree with that at all. The question is, where do you trim and how do you go about it? There was a $2 trillion number thrown out at a rally here in New York City, as I recall, by Elon Musk and Howard Lutnick. Was that a wrong number? Are you going to come close to $2 trillion out of cost?

SCOTT BESSENT: Well, we’ll see over what the scoring window is. Could we end up with 150 billion a year in savings, you know, over the CBO window? That’d be a trillion and a half.

DAVID WESTIN: So, so, but you’re on track, you think, and on the cost cutting side?

SCOTT BESSENT: Well, again, there’s a lot of resistance that the DOGE and Elon were criticized for the pace they did. But I tell you just in my three and a half months in Washington, if you don’t move fast, then the swamp kind of grabs you and you start sinking and the vested interests kick in.

DAVID WESTIN: What other tools do you have in your toolbox to apply to the deficit if the present plan doesn’t deliver all that you hope?

SCOTT BESSENT: Look, I think it’s, why don’t we wait and see how this works out, because I think we can see, as I mentioned, it’s a three legged stool. So I think it would be the third part, trade tax and deregulation. So deregulation is the slowest moving part. I would expect that to substantially kick in to the economic growth in the third fourth quarters and really accelerate next year. Also, one of the most powerful economic parts of the tax bill is the immediate expensing of capital goods. 100% for capital goods. And what we have added to that is 100% expensing of factory structures. So I think that that could really accelerate the growth.

Economic Growth and Banking Regulation

DAVID WESTIN: And as you look at this problem right now, what is your approach to making sure that we bring the US Economic machine in the line and particularly the business community and investment, most importantly?

SCOTT BESSENT: Well, let’s talk about two pieces. But so before I was with you just now, I was with a Group of community bankers. So we are doing a substantial amount of financial deregulation to make sure that the benefits are more evenly distributed across the US economy. That, you know, as I said before, Wall Street’s done great. Now it’s time for Main Street to do well also. And they could both do great together. You know, it’s not an either or.

So when I was with these community bankers, they were talking about the substantial amount of regulation that’s been crushing them over the past 10, 15 years. And a huge amount of small business loans, huge amount of real estate loans, ag loans are made by these community banks. So we are really focusing on that, you know, on U.S. business. We want to make the U.S. the most attractive location for capital. I was just. You and I were talking, I was just with the President in the Middle East. We were in Saudi, we’re in Qatar and we’re in the UAE and the trillions of dollars that are going to be pushed into the U.S. one form.

DAVID WESTIN: One form of regulation gets a lot of attention in New York and on Wall Street is banking regulation. Let’s talk about the supplemental leverage ratio which seems like an obscure thing off to the side, but it has been the subject of much discussion and it does, as I understand, relate to U.S. treasuries and yields on U.S. treasuries so that if major banks held more U.S. treasuries, it would bring yields down. You’ve said you’re going to take more of an active role as I understand it, with respect to some of that banking regulation. Where are we then?

SCOTT BESSENT: I think we are very close to moving the supplementary leverage ratio SLR that is moving along very quickly between the three banking regulators, the Fed, the SEC and the FDIC. So I would think we could see something on that over the summer.

DAVID WESTIN: Over the summer. And knowing the markets as you do, would you anticipate that might have a significant, significant material effect on treasury yields?

SCOTT BESSENT: Well, I think it could. Because banks are being penalized for holding Treasuries, there’s a large supplementary leverage charge. So I think for holding the risk free asset we can reduce that. And you know, I’ve seen estimates that it could bring yields down by tens of basis points. Certainly during COVID crisis it was the temporarily taken off and it had a big effect.

DAVID WESTIN: Let me ask something different but I think might be related which is stablecoin. If really we went big into stablecoin in this country, what effect could that have on the strength of the dollar? Because we might have to hold dollars in order to match against it. Or even for Treasuries.

Digital Assets and Stablecoins

SCOTT BESSENT: Well, we are going big on digital assets. So Trump administration has made digital assets a priority. Past administration starved and almost made extinct a lot of these companies and pushed it offshore. So what we want to do is apply the highest US Regulatory and AML standards to digital assets, especially stablecoins. And I’ve seen estimates that just over the short term stablecoins could create 2 trillion of demand for U.S. treasuries and treasury bills. To put that in context, the number is probably about 300 billion right now.

Fannie Mae and Freddie Mac Privatization

DAVID WESTIN: There are reports, including Bloomberg, that there may be, if I can call it privatization of Fannie Mae and Freddie Mac. Something that’s been talked about since I think they were nationalized essentially during the great financial crisis. I heard the President say I’m going to ask Scott Bessent about this. So has he asked you and where does that stand?

SCOTT BESSENT: We, it is a goal for this administration. You know, again, we’re doing peace deals, tax deals, trade deals. So as we land some of those deals, then we will focus on that. But David, what I can tell you, we are doing a great deal of studying at treasury because the one requirement, the one requirement for this privatization is that they are privatized in such a way that mortgage spreads do not widen. And in fact, is there a way that we could make the spread between the risk free rate and mortgages tighten as the Fannie and Freddie are privatized?

DAVID WESTIN: That was exactly my question. So do you know the answer to the question? Is there a way to do that? Because most people are concerned that will drive up mortgage rates.

SCOTT BESSENT: Sure, there are several ways to do it and we’re exploring it. So we will move forward again after we land some of the peace deals, trade deals and tax deals, then we will work on this privatization deal.

IRS Modernization

DAVID WESTIN: One of your many responsibilities has to do with taxation and the IRS. I know that you are really pushing hard for modernization of the IRS. At the same time, we’ve lost a lot of people. The IRS isn’t that hurting their ability to do their job?

SCOTT BESSENT: So David, my three priorities, collections, privacy and customer service. And if we look over a long view, we haven’t lost a lot of people at the IRS. There was a massive headcount increase from the Inflation Reduction act and back to this crazy CBO scoring by increasing expenses. There was the scoring that you would actually somehow up collections, which didn’t happen. So we had a great collections year. This year came in above target.

And this modernization program, the tech modernization program at the IRS was begun in 1990. The young man who was in charge of it was not who I put in charge of it was not even born then. So that it’s 15 billion over budget, it’s three and a half billion a year budget. I think it’s running on Cobol, which is what I may have learned in College on 12 different systems.

So we are going to fix that and I think all three of my priorities are going to be served and I think it could be substantial savings to the American people because the IRS roughly processes as many transactions as a mid sized US bank which does it at 10% of the number of people, 10% of the cost.

Harvard’s Tax-Exempt Status

DAVID WESTIN: President Trump said a while ago, posted actually on social media that there was, they were in the process of removing the tax exempt status from Harvard. A lot been a lot of issues with Harvard, but that’s one that comes within your bailiwick. Where is that process right now.

SCOTT BESSENT: That the President is moving forward with that? And we’re also looking at taxes on endowments. And I think the important thing here, and it goes a little bit back to this Main street versus the elites that Harvard to have a tax exempt status there are rules you have to follow and if you’re not following following the rules, no one’s above the law. So we will see if they’re following the rules. It looks like there’s a substantial number where perhaps they weren’t. And you know, again too Harvard is a gigantic hedge fund. They run a leveraged investment model. So we’ll see where all that goes.

DAVID WESTIN: Is it Harvard alone or are there other universities or colleges that also might be subject to review on tax exempt status?

SCOTT BESSENT: I haven’t seen that. But again back to cutting government expenses, these things are more out of control. The universities are more out of control than the government. That there is a separate inflation index. It’s called like the Index of Higher Education Inflation index. And most of the expenses have grown at CPI plus 3%. So you know, they need to get their houses in order.

Global Economic Imbalances

DAVID WESTIN: Let’s go back to Banff because you just got back from the G7 meetings and the communique as I read it really focused on imbalances. What were the imbalances you’re most concerned about?

SCOTT BESSENT: Well, I think the group as a whole was very concerned about the global imbalances around China. That China just keeps increasing their share of global manufacturing and has not done a much needed adjustment in terms of consumption. And as I predicted, I normally don’t like to take victory laps. But I did predict it and I was right. I said when the US put up the tariff wall that all those Chinese goods would be go somewhere. And I think the other the G6 has seen that these Chinese goods are starting to permeate into their economies. They’re quite worried about it.

And but there’s a whole series of global imbalances. We have a large trade deficit with the EU, so we’d like to see more pro growth consumer spending there. And you know, but the real thing, when I think about China and the rest of the world, especially the US in the US we are trying to rebalance towards more manufacturing, mostly high end manufacturing, not the kind China has. Everyone agrees that China needs to rebalance toward less manufacturing, more consumption and is there a chance that we could do it together? What Ray Dalio might call a big beautiful rebalancing.

Trade Imbalances and Treasury Bonds

DAVID WESTIN: So as I understand, I’m not a macro economist, as you know, but so as I understand it, when you have these trade imbalances, it means we’re importing, buying more things and we’re exporting dollars essentially overseas. A lot of those dollars have been coming back to us in various forms, particularly US Treasuries. Can you have a rebalancing, for example, with China or with Europe for that matter, that doesn’t necessarily raise the yield on Treasuries because there are less dollars overseas to be invested in US Treasuries.

SCOTT BESSENT: Oh sure, sure. I mean these balances weren’t always like this. You know, in 2000, the, before the China shock. We’ve historically had big inflows into Treasuries. But what used to happen was in the old days, trade would come in and then we would sell the other country a GM. Now we are selling them either treasury bond, private equity or Google stock. And that has a lot of distributional problems within the U.S so that’s how we’ve ended up with the coast or Wall street doing very well, middle of the country, manufacturing being gutted.

So you know, I think it’s the composition of the flows coming back in. And then as you mentioned, I think we can see more bond buying by U.S. citizens, U.S. institutions. But the other thing that I will say is, you know, I have access to the data and we’ve actually been seeing foreign national entities, whether it’s reserve managers, sovereign wealth funds or pension funds, have been buying more Treasuries in the latest auctions.

Capital Flows

DAVID WESTIN: So when we talk about trade, we talk about goods, sometimes services, what about capital flows and how capital Flows work. There seems to be a movement in parts of the world toward stopping capital flows. I mean, we’ve had Macron in France said Europe can make it on its own. We’ve had Australia take certain actions requiring pension plans to invest domestically. Are we moving toward, toward autocracy?

SCOTT BESSENT: I don’t think we have to. You know, there’s certainly nothing the US is doing to prevent, you know, capital flows. We, you know, except for strategic, except for strategic products, high value tech products. The rest, you know, we want smooth capital flows globally. Know. Could we see more people being more nationalistic? Maybe. But again, as we saw with these trillions of dollars from these Middle east countries coming into the US that the US is the premier destination for capital. We are working to do everything we can on that. And David, back to your question on the money coming back in, into the bond market, that a lot of it’s going to come back in in the form of foreign direct investment, which is actually a much more stable kind of investing.

The Dollar’s Value

DAVID WESTIN: Let’s talk about the dollar for a second and where the dollar is. I’ve seen some charts actually about the nominal value of the dollar versus purchasing power, parity and in fact that there’s a, there’s been a growing difference between those where the nominal value is well above PPP. I mean almost at historical levels. From your experience with markets, does that have to correct itself? Does that mean the dollar is overvalued?

SCOTT BESSENT: It does. It doesn’t have to mean it’s overvalued. And lots of times that levels can stay versus PPP, which is just an academic measure. Many currencies stay above their PPP equilibrium for a long period. And David, I can tell you that when I look at the amount of innovation going on in the US vis a vis the rest of the world, everybody wants to come here.

Concerns and Deregulation

DAVID WESTIN: So as you look forward, what is the thing that worries you the most?

SCOTT BESSENT: That we are not able to, that somehow our agenda gets slowed down. That whether it’s the courts, whether it’s the Democrats, that’s really what worries me the most.

DAVID WESTIN: And on deregulation, how long will it take till we actually see it in productivity?

SCOTT BESSENT: Well, I think we’re going to see it in the economic numbers in the third and fourth quarter.

DAVID WESTIN: In the third and fourth quarter this year. Yeah, that’s fascinating.

SCOTT BESSENT: Yeah. Because you know, again that when you ask me, what worries me is this, we need this substantial permitting reform that we aren’t able to build things that we have because of this AI boom, we’re going to, we’re becoming the AI superpower. Well, that’s going to take a lot of electricity. So you’re going to need energy pipelines, you’re going to need transmission. And the fact that we have that it takes three, six, seven years for the permitting. So what worries me is that somehow we get bogged down in illegal morass because this administration is really trying to get America back to building again.

Sovereign Wealth Fund

DAVID WESTIN: One of the things that people are interested in is the sovereign wealth fund. I remember actually, as I recall, seeing President Trump sign an executive order with you in the Oval Office and talking about at the time, where does that stand right now? Because some people say, you know, if you’re really going to try to build the wealth United States, you’re better off cutting the deficit than borrowing money to put it in a sovereign wealth fund.

SCOTT BESSENT: Yeah, I think the president decided that it’s on pause while we work on everything else that we’re doing now. So and he said the other day that we’re probably spend more time paying down debt. He was laser focused on paying down debt.

DAVID WESTIN: And you’re prepared if it doesn’t go the way you want to, to do other adjustments to make sure we are paying down the debt. Because some people are a little skeptical.

SCOTT BESSENT: Well, again, let’s talk about the can you grow the denominator fast and faster than the numerator? Like the reason we got here was think about taking out a home mortgage. It’s fine if the value of your house is stable or growing faster than the debt. What’s happened is that previous administrations took out a big mortgage. We didn’t grow our way out of it. Now I actually think that there is a chance that we can constrain the spending up the growth and that changes the trajectory.

Because, you know, going back to the CBO scoring, which is alien to anything that makes sense, that if you cut taxes, they still score growth at 1.7, 1.8%. If we raise taxes and if this tax bill didn’t go through, it would be the biggest tax hike in history, then growth stays at 1.8%. So, you know, I think that we can accelerate growth here. So, you know, my worry there would be that somehow the, you know, there is a glitch and the tax bill did not get passed soon enough. So, you know, I would encourage our colleagues in the Senate to push for the July date that Leader Thune has.

Growth Projections

DAVID WESTIN: Last question. Growth is critical to your approach and the president’s approach. What growth are we talking about? What are you projecting and when? Because right now we’re not close to 3% growth.

SCOTT BESSENT: Look, I think we can get to 3% pretty quickly.

DAVID WESTIN: Well, okay, how big is how quickly is pretty quickly? I think quarters, years quarters in quarters will be at 3%. You believe?

SCOTT BESSENT: Yes.

DAVID WESTIN: Sustainable.

Economic Outlook and Innovation

SCOTT BESSENT: Yeah. Look, I think we were in the middle of, as I talk to industry, this US Innovation edge. We are starting to see real productivity increases like no other country is. I think with the deregulation, with the certainty from taxes and with this full expensing, which from 2018, 2019, going into Covid for the industrial economy really gave it big impetus. So I’m expecting that by certainly by this time next year we will be north of 3 and that we will be turning the corner toward the end of the year.

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