Tax Overhaul Tops Tumultuous Year for Finance, With GSE Reform Possible in 2018

Possibility of further changes to financial regulation, CFPB loom large heading into new year

White House Budget Director Mick Mulvaney, who's also acting director of the Consumer Financial Protection Bureau, walks back to the White House from the CFPB building after he showed up for his first day of work on Nov. 27, 2017, in Washington. (Alex Wong/Getty Images)
  • The year culminated with the congressional passage of tax overhaul legislation.

  • Republicans won smaller victories in other areas, too.

Financial and fiscal policy played a prominent role during the first year of President Donald Trump’s administration, with major initiatives coming both from Congress and regulatory agencies.

The year culminated with the passage of tax overhaul legislation, and that was preceded by smaller victories for Republicans, namely Office of Management and Budget Director Mick Mulvaney being named by President Donald Trump to lead the Consumer Financial Protection Bureau after Richard Cordray, an Obama administration appointee, left his post atop the CFPB in November. Other regulatory agencies, either through guidance from the White House or from officials nominated by Trump, overhauled financial rules as part of Republican pledges to loosen or eliminate regulations.

Promises fulfilled

• Rewriting the tax code was a central component of the “Better Way” platform that congressional Republicans pitched to voters in 2016. And despite numerous differences between that plan and the tax proposal initially put forth by the Trump administration, GOP lawmakers and the White House came together to pass legislation that will eliminate most itemized personal deductions and cut the corporate tax rate from 35 percent to 21 percent. Economic models have projected that it will add around $1.5 trillion to the federal deficit over the next decade.

• The Trump administration took steps to reshape financial regulations through executive actions. Throughout the year, the Senate confirmed nominees to lead regulatory agencies, which by extension gave them positions on the influential Financial Stability Oversight Council.

•Rolling back the Dodd-Frank Act was one of Trump’s campaign promises, and during his first year in office the Treasury Department released policy papers on financial policy that called for major changes to the the 2010 law by advocating for looser regulations on banks and financial institutions. In another blow to Dodd-Frank supporters, Congress blocked a CFPB rule that would have limited the use of mandatory arbitration clauses in consumer contracts with financial institutions.

Expectations unmet

• Executive action on financial regulation did not prompt any statutory changes to existing rules beyond blocking the CFPB’s arbitration regulation. While Congress has come up various bills that would ease financial rules, Republicans are at odds over the extent to which Dodd-Frank statutes should be rolled back.

• In June, the House passed the Financial CHOICE Act, which would make across-the-board changes to the industry’s regulatory regime and repeal key elements of Dodd-Frank. The measure, a priority for House GOP leadership and Financial Services Committee Chairman Jeb Hensarling (R-Texas), did not gain traction in the Senate. Instead, Senate Republicans opted to work with a handful of moderate Democrats on a regulatory-relief package designed to benefit smaller lenders. The measure barely touches sensitive issues like the CFPB, and instead is targeted at making stress testing and regulatory requirements easier for small and mid-sized lenders. The Senate Banking Committee advanced the legislation, which hasn’t received a floor vote in the chamber.

On tap for 2018

• GOP lawmakers are expected to continue their push for deregulation, and several leading Republicans have signaled they’re interested in working on legislation that would address the government’s relationship with Fannie Mae and Freddie Mac.

• The controversy over the CFPB’s leadership is likely to drag into the new year. Mulvaney is the current interim director, but Trump could nominate someone to hold the position on a permanent basis. Meanwhile, the courts have yet to resolve a lawsuit over whether Mulvaney or Cordray’s chosen successor, Leandra English, should hold the top post at the CFPB.

• Further down the line, implementation of the GOP’s tax-code rewrite is shaping up to be a major campaign issue for the midterm elections in November, as Democrats attempt to reclaim control of the House and Senate.

Morning Consult