Fmr. White House Chief of Staff Mick Mulvaney on Biden econ plans, SALT deduction debate

Fmr. White House Chief of Staff and Exegis Capital Founder Mick Mulvaney joined the Yahoo Finance Live panel to talk stimulus, taxes and more.

Video Transcript

ADAM SHAPIRO: Director Mick Mulvaney, I use the term director because he was director of the Office of Management and Budget. He was also an ambassador, a special envoy to Ireland. He's a former White House chief of staff, and he's the founder of an old-fashioned-- your words-- hedge fund. We're going to talk about all of that. But Joe Brusuelas just two minutes ago threw the gauntlet down, director Mulvaney, when he brought up the state and local tax deduction issue that, when you were part of the Trump administration, got rid of SALT. There's a chance SALT's coming back. What do you think of that idea?

MICK MULVANEY: A couple of things, and by the way, I thought it was an excellent segment, but I did hear somebody say it was part of tax reform to try and raise revenues. Let's be perfectly clear about it. The changes that we put in place on SALT actually raised revenues. And if you get rid of the previous administration's rules on state and local taxes, so if you reinstall or reinstill the SALT deduction, it will cost money. It will take money out of the federal government.

The reason we got rid of it-- and I've heard the argument many times that we did it in order to penalize blue states-- had nothing to do with that and everything to do with the fact that we saw it philosophically as an incentive to raise taxes, that it allowed state and local governments to go, well, yeah, we really don't want to raise taxes this year because people would get upset. But with this deduction, we could tell them not to worry because they get to deduct it from their federal taxes.

And over the course of a generation, that's exactly what happened. It became a subsidy to mostly blue states, but not entirely, to raise their state and local taxes, because it was deducted on federal taxation. If you want more of something, you give it a subsidy or a tax deduction. And that's what state and local tax deductions did.

So that's why we got rid of it, to sort of level the playing field, so that if your state wanted to have high taxes, that was great, but you had to pay those. You didn't sort of get a deduction that was paid for by the rest of the country. Similarly, if you lived in a state or locality that didn't want to raise taxes, that's great. It wouldn't have an impact on folks nationwide either.

ADAM SHAPIRO: Well, Director Mulvaney?

MICK MULVANEY: Yeah.

ADAM SHAPIRO: Because this will have ramifications when it looks like they're going to try and restore some of the SALT tax deduction. The majority of federal income tax that comes from the people who used to deduct that SALT tax, they did it in states that were paying more from income tax into the federal budget than they were getting than those states that don't have the higher local taxes. So the argument you're making isn't 100% fair. Why do you penalize [INAUDIBLE]

MICK MULVANEY: No, you're assuming--

ADAM SHAPIRO: --but not Kentucky? Or South Carolina-- South Carolina takes more than it pays in.

MICK MULVANEY: Yeah, well, you know, every time I hear that, I cringe because I'm like, OK, but states don't pay taxes. People pay taxes, and it's my Democratic friends who say that rich people should pay more in taxes. In fact, that's the whole argument behind their tax policy right now, is the rich don't pay their fair share and want them to pay more.

The reason that California, Illinois, New York paid-- people who live there paid so much more in taxes than people in South Carolina, for example, is that people there make more money. And that's the system that the Democrats, I thought they wanted to have. So I don't understand how they're justifying having it both ways. The rich are supposed to pay more, unless they happen to live in New York in that case, so they're being subsidized by folks in South Carolina. So I've never followed that line of reasoning. States don't pay taxes, people do.

SEANA SMITH: Dr. Mulvaney, it's Seana. I want to switch the conversation a little bit here just to the amount of spending that we've seen, not only during the Biden administration, but also during the Trump administration. But as we look at it today, we're coming on the heels of that $1.9 trillion COVID relief package and the White House now talking about a $3 trillion infrastructure plan. You served-- you're a member of the House Financial Services Committee. You were a former director of the OMB. Simply just putting-- breaking it down for us, are we spending way too much, and how concerned should we be about the massive debt numbers that we're looking at?

MICK MULVANEY: Yeah, and I was surprised to hear. I didn't get a chance to watch all of the hearing today. I used to be in the House Financial Services Committee. I've sat on those hearings, like they had today. And I was surprised to hear there wasn't more discussion about spending and debt and inflation. Look, inflation is really easy to define. I'm old enough to remember inflation. I remember when it would take 12% or 14% or 16% mortgage on a house interest for your mortgage on a house.

It's too much money chasing too few goods. And we have a situation where we've pumped an additional $6 trillion into the economy with the various COVID bills. And we have these reductions in supply that is a formula for inflation. And the thing I worry about is folks like your previous guest who comes on and say, yeah, we're going to have a spike in inflation, but it's not going to last long. By the way, those are the folks who, four months ago, said we weren't going to have any inflation.

But I don't understand the reasoning there, because this money is there. The money is not going out. The money is in the system. So the money's sloshing around. We've never had more money than we have now in the economy. But those supply limitations are going to be not permanent, but they're going to be real. Any time you add more regulation onto an economy, it makes it more difficult to bring goods and services to market. So when you have that combination of extra spending-- most of it debt fueled, if not all of it-- and fewer goods and services, you're going to get inflation by definition. And I've not heard anybody address that straight on.

The best example, by the way, the best retort I got, your previous guy talked about the digitalization, the zero cost of reproduction delivery. That's the best argument I've heard yet about the balance to my arguments about risks and inflation.

ADAM SHAPIRO: And yet you're in favor of doing away with the filibuster. I realize it's nowhere in the Constitution. But doing away with the filibuster would give the Democrats the power to do that, which you oppose, which is restore the SALT and even more but deficit spending.

MICK MULVANEY: Yeah, I don't favor getting rid of the filibuster, I'm for reforming it from its current stand-- from its current form. By the way, why do I do that? Because that's the position that I took when the Republicans were in charge. And it would be the height of hypocrisy to say, oh, I wish we had changed the filibuster when we were in charge, but not now. The filibuster was never designed to be what it is today. It has essentially become a 60-vote requirement on every piece of legislation.

That's not the purpose. If the founding fathers had wanted that, they could have written that into the Constitution. This is something that is there for the Senate. It's a rule of the Senate. It was there for the convenience of the Senate. And I understand and accept the history. It's not how it's being used today. It's being abused today. If you wanted to reform it, there's some discussion, I understand, in the Senate about requiring a talking filibuster again. But I don't think anybody ever intended for the Senate to be a body that required 60 votes on every single piece of legislation, and that does merit review.

SEANA SMITH: Director, I also want to ask you quickly just about GameStop. We have earnings out after the bell from this company. We've seen the rise of the retail trader over the last several months-- last couple of years, really, to be frank. We heard from Robinhood, Citadel, Melvin Capital. They all testified in front of Congress a couple of weeks ago. You now run a hedge fund, so I'm curious just to get your perspective on the dynamics that we're seeing playing out in the market and, I guess, just your overall view on what this could mean for future investments.

MICK MULVANEY: Yeah, I watched those hearings. Listen, I sort of liked it. I sort of liked the debate, and I thought it was interesting to see what was happening when retail investors sort of get together and take on the big guys. Keep in mind I don't think there have been any allegations of any market manipulation of the GameStop situation. No one's alleging anything illegal that I've heard of so far.

In fact, I didn't see any allegations of illegality during that particular hearing. I think what you're seeing is a maturation, or at least a change or evolution in markets, and I think that's fascinating. It's going to be a tremendous challenge to the existing ways we look at markets. But I welcome the retail investors. I think it's just another way to add market efficiency once we figure out how to blend it into the rest of the system.