May 17 (Bloomberg) -- Treasury Secretary Jacob J. Lew said in an interview with Bloomberg Television’s “Political Capital with Al Hunt,” airing this weekend, that he was briefed in March on an investigation of selective IRS screening of nonprofit groups though he didn’t learn details of the findings until last week.
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
AL HUNT: We start with Treasury Secretary Jack Lew. Mr. Secretary, thank you so much for being with us.
JACK LEW: It’s good to be with you, Al.
HUNT: We’re going to get to larger economic questions in a little bit, but first the IRS, which reports to Treasury. When were you first notified that IRS agents were targeting conservative groups like the Tea Party?
LEW: Al, I learned the substance of this report last Friday when it became a matter of public knowledge. Before that, in mid-March, I had had a conversation, just a getting-to-know-you conversation, with the inspector general right after I started, and he went through a number of items that were matters they were working on. And the topic of a project on the 501(c)3 issue was one of the things he briefed me was ongoing.
I didn’t know any of the details of it until last Friday. When I learned about it - from the moment I learned about it, I was outraged. The secretary of the Treasury, as a citizen, it is a matter of the highest priority that the IRS be beyond suspicion in terms of its integrity.
HUNT: Did Tim Geithner or Neal Wolin or the general counsel know about it before him?
LEW: I think that there was - the heads-up that I got was something that was a matter of public knowledge. It was posted on the IG’s website in the fall of 2012. I believe that other, it is typically the practice that an inspector general notify the agencies when matters are opened. I was not aware of any details. My deputy was not aware of any details until it became a matter of public knowledge.
HUNT: And you don’t know that - and you don’t know that Geithner or Wolin or any of your predecessors - ?
LEW: Neal Wolin is my deputy.
HUNT: Right, but you don’t know if Tim Geithner was aware of it, and he was with the previous administration?
LEW: Yes. I have to assume, as I was aware of the fact of the matter being subject to a review, that’s very different from the substance of the findings. These practices -.
HUNT: Is that right? IRS reports to the Treasury. Why shouldn’t the Treasury know, “Hey, we’ve got a real problem here.”
LEW: The area of IG investigations is one where once an agency is informed that a matter is opened, the job of the agency is to give the IG access to people and records so that they can do their work. It’s not to interfere with the investigation. So typically, you don’t know a lot about -.
LEW: - an investigation until it’s nearing the end. And as it nears the end, there’s a normal process -.
HUNT: But you think everything was handled right as far as the IRS reporting to Treasury here?
LEW: I think that when - you can see from the body of the reports that the inspector general put out that the IRS responded to the issues that were shared with the IRS late in the process. I think there was a normal back-and-forth between agency and IG. The moment the IG report was public, we took immediate action.
My immediate reaction was we need to restore confidence in the integrity of the IRS. Within 24 hours of the report coming out, I asked for and received the resignation of the acting commissioner. Within 24 hours, we appointed a new acting commissioner who will take over next Wednesday. He’s a person of integrity and he has the confidence of Democrats and Republicans for his professionalism.
And when he begins, there are going to be three things that are on his agenda, first and foremost. One is following up on the need to hold people accountable for actions for which they should be held accountable. Second, making sure that whatever failure there was in communication or management that permitted this to happen is corrected so that it can never happen again. And third, to take a more forward-looking view, is there something systemic here that needs to be addressed - ?
HUNT: Well, they can’t -.
LEW: - in terms of the IRS.
HUNT: They can’t be -.
LEW: And if I could just finish -.
HUNT: I’m sorry.
LEW: I talked this morning with the designee - Daniel Werfel, who is going to be the new acting commissioner. And he is going to come in and get started full bore next Wednesday, and within 30 days he will report to me and we will report to the president on actions taken.
HUNT: Well, Dave Camp, the Chairman of the House Ways and Means Committee, in the Friday morning hearings said the agency is guilty of systematic abuses and there’s a culture of cover-ups at the IRS.
LEW: Al, I’ve got to tell you that I found this report very troubling. I was the one who added this issue of looking at the systemic issues because I want to know and the American people have a right to know if there are systemic problems. If there are -. I met with the IG and he raised this issue to me for the first time. What I said to him was I have always thought of auditors as partners, people to point out where there are problems and help you fix them. I want to know what’s going on, I want to support you to take actions.
HUNT: When was that meeting?
LEW: It was in mid-March.
HUNT: OK. That’s before you knew the details.
LEW: Oh, yes. But that doesn’t change - I said this in a statement the other day and it is a view I’ve felt for a long time, zero tolerance for this kind of behavior.
HUNT: The IRS has tapped an official in Ms. Ingram, who used to be in charge of the tax-exempt division. She’s now going to be in charge of implementing the IRS responsibilities in the Affordable Care Act. Do you worry about that appearance?
LEW: So, Al, chronology matters in cases like this. I’ve asked some questions since becoming aware of this, and my understanding is her responsibilities moved over from the tax-exempt unit to implementation of the Affordable Care Act before there was any opportunity to be involved in this. And I think the implementation of the Affordable Care Act is probably our No. 1 domestic -
LEW: - priority, and it’s important that it be done and be done with integrity and it be done effectively.
HUNT: So you’re satisfied with Ms. Ingram being charged with the IRS responsibilities now?
LEW: I have heard that - I don’t know her personally, but I’ve heard that she has a high degree of professionalism and that she was not in a position of responsibility over these actions.
HUNT: Final IRS question, you have known for 13 months now that the previous IRS commissioner was resigning. This is an important job. Hasn’t the Obama administration been guilty of dereliction of duty by waiting over a year now to appointment a new IRS commissioner?
LEW: Al, we are working speedily to deal with this. I think the fact that we brought in a new acting commissioner on such short notice and it’s a person of high quality and high character is demonstration of how important we think it is to have a leader there.
HUNT: But shouldn’t someone have been named already?
LEW: And we will work speedily to address these issues.
HUNT: Do you regret not naming someone over the last year?
LEW: I’m glad that we are having an acting commissioner take over next week who will help to deal with this - not just deal with the problem, because it’s more than that. He has to restore confidence in the IRS.
HUNT: You won’t mind if we move to the economy now, I suspect, Mr. Secretary. You’re forecasting growth of about 3 percent next year, which is OK, but do you think in the next several years that the economy can reach a more robust 4 percent growth and you can start to get unemployment, which you describe as the biggest problem we have, down to below 6 percent?
LEW: Al, I think there are a lot of signs that the economy is coming back. It is not fast enough. We need to grow faster in order to make up for the jobs lost in the recession. This is a year where we’ve had some fiscal drag on the economy, some of it self-inflicted.
The first thing we have to do is work to replace the sequester with a balanced approach. If you look at where we are right now, if the economy is growing at 2 percent, or a little over 2 percent in this year, getting rid of the sequester or replacing the sequester with a balanced medium and long-term deficit-reduction program would restore half to three-quarters of a percent of growth. So, right then and there you’re getting closer to 3 percent.
Next year, we won’t have the expiration of the payroll tax holiday. There’s every reason to believe that without fiscal drag from federal policy, the economy should be growing north of 3 percent.
HUNT: So, without a sequestration you think you could get to 4 percent within a couple of years?
LEW: 4 percent, given where we are in the economy, would be a good goal, but -
LEW: 3.5 percent, I think, is something where I believe we can get there; 4 percent is something we’re shooting for.
HUNT: Well, you talk about the downsides of sequestration, which many people agree with, but you look - gosh, consumer confidence in May, the highest in six years, a lot of the leading indicators are doing pretty well, stock market at new records. That would suggest that sequester hasn’t been the drag on the economy that a lot of people feared?
LEW: Well, the sequester is just a matter of economics. It’s taking a huge amount of spending power out of the economy. We’re seeing it in terms of the effects. If you provide fewer Meals on Wheels and you have fewer defense contracts, there’s less economic activity.
Economists have forecast that it’s taking a half to three-quarters of a percent out of GDP, that it translates into 750,000 full-time equivalent jobs. That’s why the president’s in Baltimore this afternoon talking about getting the economy moving and creating jobs. It’s why I was in Cleveland last week with the same message.
Our priority is to get this economy moving and to create jobs at a fast enough rate so we get at both the overall unemployment rate, but also at the underlying problem of long-term unemployment, particularly amongst young people.
HUNT: But, Mr. Secretary, the deficit is projected to drop to $642 billion, down from $1.1 trillion, and that’s good news. We like the fact the deficit’s down. But at the same time, isn’t that taking any pressure, really - and I know you don’t like this - but any pressure off of Congress to really come up with some kind of replacement for sequester or some kind of long-term deal?
LEW: Conventional wisdom in Washington usually runs all one way or all the other way.
HUNT: It does.
LEW: I think that if you look at the origins of sequestration, it was designed to be bad policy. It was designed to be objectionable to everyone. I think as it’s playing out, it will over time meet that task.
HUNT: So you think at some point - ?
LEW: I don’t know when. I don’t know when, but I know that unless something is changed dramatically in this country, as people are being laid off of jobs in defense subcontractors, as people are being turned away from Head Start and Meals on Wheels programs, it will have more of an effect.
Now, frankly, we’ve got to get this done quickly to get our economy moving and create jobs. That’s a little bit more abstract. The direction consequences will settle in over time.
HUNT: Do you think that Congress will replace sequester this year?
LEW: Look, I think there’s every reason, if you look at the economics and the policy ramifications -.
HUNT: The logic is there. How about the policy?
LEW: The politics - Congress is going to have to do something this year. Just today, I’m sending a letter to Congress notifying them that tomorrow, when we hit the debt limit, we’re going to have to go to extraordinary means. Congress is going to have to act to extend the debt limit.
HUNT: When will you run out of money on the debt (inaudible - multiple speakers)?
LEW: (inaudible - multiple speakers).
HUNT: When right now are you -?
LEW: It’s very hard to make a pinpoint estimate. There are some unusual things going on in the economy. We’re in the midst of an economic recovery, so the rate of revenue coming in is a bit unpredictable. We have this sequestration, which has never been experienced before. We don’t know exactly what the rate of outlays will be.
Once we saw the results of the tax season and once we saw that we were going to be receiving one-time payments from Fannie Mae and Freddie Mac, it became clear that we had at least until Labor Day. But I’ve got to tell you, Congress shouldn’t wait.
HUNT: The problem with later probably -.
LEW: Congress shouldn’t wait. Congress should act immediately - .
HUNT: But you can probably have - .
LEW: - because only Congress can act to take away any uncertainty about the United States being able to keep its obligations and pay its bills.
HUNT: Any downsides to the deficit reduction? Any downsides to the fact that deficits going down, is going to $642 billion?
LEW: Look, I think the piece of it that is a downside is the effect of sequestration. To the extent that bad policy is driving down the deficit more quickly than anyone intended with harsh consequences, it’s something we should replace with balanced spending and revenue measures over the medium and long-term, which would actually meet the structural needs of our economy, relieve the short-term pressure on growth, and avoid the harmful consequences.
HUNT: Just a couple more questions. Tax reform. Despite the best wishes of Chairmen Baucus and Camp, most people think individual tax reform is too big a hill to climb this year. How about corporate or business-only tax reform? What do you think are the odds of Congress doing that? There’s more consensus there.
LEW: I wouldn’t jump to the conclusion that broader tax reform is impossible. If there is any possibility of a broader fiscal agreement, I think broader tax reform would be part of it. I think on the question of business tax reform, there has been a bipartisan consensus that we should deal with it. Now, there are differences in approach and it has to be done in a way that it pays for itself.
HUNT: Can we expect something to happen?
LEW: Look, I’m going to go back to the first principle. We should have an overall fiscal plan. In that fiscal plan, we should raise revenue through the individual tax changes and we should have revenue-neutral business tax reform to improve the competitiveness of our economy. I still think that’s possible.
HUNT: Final question. From the public records, we know your predecessor, Tim Geithner, spoke often to top Wall Street figures about financial markets. Those were revealed. Do you talk to top Wall Street figures about markets. And since it’s going to come out, who are they?
LEW: Well, my meetings are posted publicly, so it’s a matter of public record. I speak to groups on a regular basis.
HUNT: But you have phone calls. Do you talk to Lloyd Blankfein recently?
LEW: I have talked to a number of CEOs. I’ve talked to a number of advocates for various other interests. I think one of the jobs you have as Treasury Secretary is to listen broadly.
HUNT: How about Blankfein and Dimon? Have you talked to them recently?
LEW: I have talked to both of them.
LEW: That depends how you define recently, a week or two ago.
HUNT: OK. All right. Good. Jack Lew, the secretary of the Treasury, so good to visit with you. Thank you very much.
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