Last week, we acquired through the Ogle Mole Network (buy the t-shirt here!) a 6,000-word transcript of a conference call between US Senator James Lankford and executives with local heavy-hitting manufacturing companies like M-D Building Products, Jasco Products, KimRay.
Although there's nothing wild or scandalous in the transcript, it was a fascinating read from an inside baseball policy perspective. Lankford was a bit more unfiltered than usual. He talked a lot about Trump and admitted that he's nervous about the conman president's first state dinner. He was also very giddy about taking away overtime pay from hardworking Oklahomans.
Since the average Oklahoman isn't rich or powerful enough to talk shop and gain policy insight with a US senator over a conference call, I figured I'd just share the transcript on here for everyone to enjoy.
Check it out:
Notes from Conference Call with Senator James Lankford
Brent: We are contemplating a number of decisions to make as we go forward, such as in trade, energy, etc. The uncertainty is a little bit of cause for pause as we make decisions how to invest, how to deploy capital etc. We know it is too early to suggest what may or may not happen, but as our Senator, we would appreciate your insights.
Lankford:
You are right, it is early in the process and I am watching the same things as all of you are; the people he assigns. There is a difference in the Trump as a candidate and Trump as a president. That difference is not two different people—it is just the reality of what can and should be done, and that is driven a lot by the people who are tasked to be in leadership. Let me give you an example. For instance, when he moved to Mike Pence as leading the transition team-that is a very good sign for me. Mike is not just a solid human being, he understands the art of what is possible but is very conservative in his views. He has also been very outspoken that he is a free trade guy and he has been very, very focused on that. When you put a Reince Priebus as your chief of staff, a very solid person in whom you put your trust, he will be the one that is going to negotiate the different fields with the Congress-he has a very good relationship with Congress-he will be the one that that is very positive for me to watch.
I am watching for a lot of the Cabinet taps and to be able to see where he is going to go on tapping the Cabinet officials in the different areas, like, commerce, trade, and treasury. You remember that one of his campaign promises was declaring China as a currency manipulator and going after them immediately. The reality of what that really means or looks like will sink in on President Trump and who he selects for the treasury. If that treasury person selected is familiar with international trade that is a very different position than someone who is not familiar with international trade being in a treasury position. The steps so far have been positive to me and the people he puts in leadership-we are going to try and stay engaged in that.
I would also tell you that I expect Paul Ryan to be the point person to negotiate any tax policy that may be happening.
Paul was very deliberate and particular in putting together a large-scale proposal for our tax policy and included some on health care. That would be an agenda item when we have someone at the House, Senate and White House, who would have a full-on agenda and Paul would have that ready to go. Paul is the one with a plan in his desk and, as all of you know, whoever has the well-written plan becomes the strong man and the starting point, so I would expect that the House tax policy would be what actually starts the conversation.
Brent: Senator that is a very good starting point. I know in some of our discussions here, we are thinking about what does the first 100 days of the Trump administration look like. He is an enigma to many of us and he seems to be one that very much oscillates a lot. We are seeing him temper some of his positions somewhat, including right now, including that the wall may be a fence and not wanting to repeal all of the Obamacare, but he did make a lot of rather bold promises to the folks in order to tap into a sentiment that has enabled him to be elected.
What do you see as his first 100 days? What will he tackle first? Will he be out to prove a point or will he modulate and move more in a calibrated fashion in the process?
Lankford: I think it will be a little bit of both. We had better do regulatory reform quickly. There are a lot of regulations that are exposed to what is called the Congressional Review Act. As this group probably knows all too well, the Congressional Review Act only works every eight years and it only works for six months. It was really designed for midnight regulations that if there is a change in presidency, those regs that were put in the last six months of a presidency, when they move to a new presidency, if a Senate is in place and if a President is willing to be able to go through it, you can.
Let me give you a for instance, something we are looking at right now. The overtime rule that the President finalized in May is within days of that Congressional Review Act. If we can settle the issues in the next couple of days, then the overtime regulation would be exposed to the Congressional Review Act and would mean that in early January we would do a fast track vote, no filibustering, you could get a fast track vote and put that up to the President, the president signs it and then you cannot repropagate a rule on that issue until there is new legislation. It is a very powerful legislative tool. It has only been effectively used one time.
That was the ergonomics rule. Bill Clinton did an ergonomics rule in the final days and it was kicked out under President Bush. So it is possible. There has never been an ergonomics rule since then that has been propagated since there is no statute on it. President Obama has a lot of regulations that he has done in the last six months. We now have the opportunity to take those out permanently and no future administration, Republican or Democrat, could repropogate that. I would expect that that would be a major part.
There would have to be some conversation on immigration. I think it will be interesting to see what that shot is. I would expect that there would be a border security focus more than anything else, other than other policies, and I would think that would have to be followed up fairly quickly by a conversation about VISAs and a conversation about the H1B’s and other travel opportunities for others overseas to come and work in the United States, but that will be after there is a border security piece.
But that is probably going to be a two and three phase piece with the first phase being border security. I expect there would be some conversation about trade that would probably be about President Trump stepping up and saying we are not going to sign the GDP until we solve a few things. I have yet to ever hear from him what those few things are. He said they are a terrible deal. I have spoken with him privately with a small group of us and he has reassured me that he is a trade person and does want deals—he just wants a good deal, but I have never heard what a good deal is. My theory is that he is going to look at one or two areas and see that most of it works very well and say let’s change this area and this area and if you will change these areas, then it will be a good deal and will push it through. We’ll see what that actually does in the days ahead. It could very well be a “Nixon goes to China” kind of moment if you have a President Trump suddenly stand up and say OK, the other deals were horrible, but now I have changed it into a good deal and we ought to do it—that there would be a populous to say I am finally going to get a good trade deal and now we can actually move on. So I am a little more optimistic on that, only because I think he actually as a businessman “gets” international trade, but also “gets” what has happened to jobs in America, manufacturing in particular.
Brent: Very good. He has talked a lot about his infrastructure plan. Where do you think that could be heading in the rebuilding of roads, airports, high speed trains, things like that that he said in the campaign. Was this slogan-ism or was that a legitimate program?
Lankford: I would say that I have never heard the details of that, other than there are lots of countries that are ahead of us on airports and such. Airports are mostly a local and a state entity more than they are a federal entity and so if a local airport is falling out of place, as we know in Oklahoma City at the Will Rogers Airport, it is a beautiful airport, but that is something that the federal government did not have to pay for, we all did. There was a federal portion of it, but the major portion we capitalized. He will have to determine what that partnership looks like with the federal government. I don’t see a lot of energy coming from a Republican House and Republican Senate to say let’s do a giant stimulus program again unless that is well paid for. The debt and deficit conversation has got to rise to a higher level because it was not a major part of the conversation during the presidential debates. It certainly will be in the coming days, because as interest rates rise, and I do expect them to rise, our interest payments right now are about the same as what they were ten years ago, but out debt has doubled. So if our interest payments just go up to what they should be, we will be at about 800 billion dollars a year just in interest payments. An example on that. We pay 600 billion dollars a year in total defense. So it very well may be more likely that within eight years we are paying more interest on debt than we do on our national defense. That is intolerable. So this conversation with a large infrastructure program with a lot of debt attached to it will not fly unless there is some way to pay for that effectively. The conversation about how to pay for roads and everything has been around a long time and the gas tax conversation is significant and will get larger and larger as we have more and more electric vehicles on the road. So I would expect there is probably a two or three year future conversation on gas tax, when we know what exactly how many electric vehicles are really coming and what the trend lines are. I expect a much higher number of electric vehicles which would put more pressure on whatever tax is done and however it is done and what we pay for roads. I have not seen a major proposal on infrastructure and have not seen any documents that indicated urgency.
Brent: Opening it up to my colleagues around the table here.
Dave: I have a question going back to the overtime rule. This is more of a procedural question. As the conversation ramps up more around the overtime ruling and what may happen with it--
No. 1: Can we expect to hear as we get closer to Dec. 1, about the direction this is going, and depending upon the direction it is going, is there any such thing as a stay of execution so to speak for Dec. 1 to take us into January because changes have to be made as a result of that ruling are somewhat hard to undue a month and half later for employees.
Lankford. Right. There are 3 hooks in the water right now, legislative hooks. I have a piece of legislation that is a full repeal of it, I have one that is a 6-month delay to get into the next administration and one that is a 5-year delay on it, so it just stalls the whole thing out. The implementation is still the same, but it doesn’t do it over 25 weeks, it does it over five years. It also takes out the non-profit organizations entirely and trying to find a way to build a coalition around it. Those three hooks are in the water right now. The fourth one that is hanging out there is the Congressional Review Act. That would certainly not be until January.
Lamar Alexander from Tennessee, he and I are leading this focus on the overtime rule. I had conversations with staff earlier this morning about how do we get floor time and how do we help push this issue? I will tell you that even this weekend I have gotten conversations from Democratic Senators just on the phone, and they are not paying attention to this. I am just stunned by that because my conversations with them is that this is not a red state-blue state issue. This is every business in America being negatively impacted, every university, every state and local government and every non-profit in the country.
It is a very significant issue that for whatever reason my Democratic colleagues are absolutely not paying attention to. In fact, I had one this weekend I talked to and laid all the issues out and at the end of it she said, OK is this something that Trump can just reverse in January and us not have to take a vote on it—they do not want to vote against their own President in the lame duck.
I said no, this is not one. This is coming December 1. We have to make a decision on this. We are trying to push. It’s hard to tell, but I will tell you that I am skeptical that we are going to get anything done by December 1st.
John: Two different questions. One is, I am curious that the average maturity for a government debt is somewhere around six to seven years. Given how low rates are, would you expect someone to start looking at this and move that maturity curve out so we can lock in the rates that are relatively low at the time being?
Lankford: Yes. That has been somewhat the focus of the Federal Reserve, though on and off again. They have lengthened out that maturity over the last couple of years. Because of that, because of our low rates, it is another issue that’s been inching into the presidential elections. I am sure you are watching international currencies and a lot of international currencies have taken a beating in the last week. People are moving out of international investments into the United States. That should push down our rate somewhat. Because of that I would recommend the same thing that you just said—make them longer term and be able to hold some of these rates down because it is certainly going to go up at some point. It is just the timing of it. That will be a Federal Reserve issue.
John: Second question is on foreign policy. Trump made a lot of noise about getting our allies to pay more for defense. Again campaigning is different than governing. I am just curious if you have a perspective of how you would expect a Trump foreign policy administration to be prosecuted?
Lankford: That is the biggest wild card of all this. I said to a lot of people even two weeks ago when they wanted to know if I am comfortable with Trump as President. I said I am more comfortable with Trump as President than Hilary Clinton as President by far. My one nervous moment will be the first State dinner when Trump has a foreign leader over to the White House for dinner, meeting with all those different folks and what is going to be said and done because the President’s words do have international effect. I am not sure what his foreign policy is going to be. I will tell you NATO has an agreement as a part of the NATO partnership that a certain percentage of their GDP will stand on national defense, but not a single member of NATO does that. All of them just assume that the United States will carry the burden.
This has been an issue for several decades. If Trump is able to push our NATO allies to say I know your economy is struggling, so is ours, you can’t count on us; you need to step up and spend more on your own national defense, I think that would actually be a positive thing. Now how he will get that done, we will have to see. The other NATO partners have not fulfilled the treaty obligation which is a percentage of GDP on their own defense. We are talking low numbers, it is one to two percent of their GDP that has to be spent on their national defense. So it is not some giant number, but we are carrying it and they need to carry it more, which, by the way, would be a benefit because most of those NATO countries would be able to meet their standard on what they are going to do on defense that would also be a purchase of American equipment, whether that would be refueling, equipment, tankers for their Air Force, F-16s or F-18s, whether that be weapons systems, for them to do that would be trained in the U.S. so that would be a an economic benefit to us as well just as in our own manufacturing here. Ultimately they will have to carry this out. Hopefully, Trump can do that in a way that is not sloppy. It was pretty sloppy during the presidential debates.
Steve: Steve Trice, JASCO Products. Candidate Trump said the following: that the Trans-Pacific Partnership is a death blow to American manufacturing. He said that the NAFTA is “the worst trade deal in history.” He also said regarding the Pacific Rim, he would slap a 45% duty on Chinese made products. Now JASCO products import about 98% of their products. We develop them, we engineer them, but we have them manufactured in China. He also said that he would force Apple to manufacture the iphone in the US. Most of the products manufactured in China today have never been manufactured in the US. The engineering, tooling, expertise exists in the manufacturing there. Most of the American jobs as I understand it have been lost due to automation on the factory floor and technology. It doesn’t appear that we have lost clothing jobs to China and it doesn’t look at this point in 2016 that we have exported a whole lot of jobs to China. What are your thoughts on that and what about the 45% duty on products made in China? We are also a large debtor to China; what would that do to the economy if that happens and what do you think would actually happen?
Lankford: Steve, great question. There is no way we can have a duty like that on Chinese manufactured goods. Our economies are too intertwined. It would just not function at all. The greatest amount of pain in that would be to the consumer. The American consumer would go crazy in that everything that they buy just skyrockets in price. My perception is that he was pointing to the Rust Belt states, which obviously he won the Rust Belt states that has a real belief that steel is being undercut by China. I don’t doubt that steel is being undercut by China. They have a major product they are trying to sell and are trying to subsidize that so they can keep the prices down. American steel manufacturing which affects everything and when it is undercut by China, there is a real problem. Textiles I would agree. We have had a major loss of textile jobs in North Carolina, and many on the East Coast that were dramatically affected by that, but they were affected by NAFTA and those don’t come back immediately. I think Oklahoma has the only garment manufacturing still left in the country and all that is the overalls production down in Shawnee, Roundhouse Overalls. Almost all textile and garment jobs are gone now, so that is a whole different set of issues that we have to deal with. What our push would be is an oversight. My biggest concern is his statement that he is just going to walk away from NAFTA. I think that is a long-term enormous problem if he chooses to do that. Now, if there are certain areas that he wants to try and renegotiate and strengthen it, then great, but three nations have to agree to that and that is going to be very difficult to get Prime Minister Trudeau from Canada to agree to opening something that is not beneficial to Canada in his more socialist bent, and then negotiating with Mexico right now, it has its own unique dynamics based on the campaign itself.
That is my biggest concern. I can tell you that when we met privately with Trump about trade issues because most of us Republicans in the Senate are more open to trade, and trade deals, we wanted to voice that of the 20 free trade agreements that we have, 18 are in the black. We win when we get a free trade agreement. When we met with him his response was very clear that he wanted to trade, we need to trade and it is a great place to do this. I have done business all over the world and I want to continue to do business all over the world. We have to have better deals, but we have to find out what the better deal means. I think it is changing one or two things and then coming back to say finally, we have a better deal, and has his signature on it at that point, so it is a better deal. We will see if I am accurate on that.
That’s why to me the selection of the commerce secretary and trade representative are so important.
Steve: One follow-up question. Would you agree that something like a 45% duty on Chinese manufactured products would cause us an additional problem with China as it relates to our debt and the money that they lend us?
Lankford. You know, Steve that is a hard one. I think we have issues in other areas than just on our trade and our products. We have a relationship with China just trying to be able to push back on them to not reverse engineering products and sell them everywhere. If we lose all of that leverage, their incentive is just to reverse engineer it and sell it all over Asia.
The old adage that if you have a $1,000 loan, the bank owns you. If you have a $10M dollar loan, you own the bank because you can’t default. China is also very exposed to us. They need our stability for their economic stability as well, so we are very symbiotic, and their economy, while it is growing at six or seven percent, much faster than ours, they also have a long way to go. They have large cities with no one living in them. These fake construction jobs they have just so they can keep people busy, can only last so long. So their economy is a little more tenuous and I am concerned about that for us. I would also assume that they are concerned as well. We have to be able to work together because our economies are too intertwined. There is just no way we’d do a 45% tariff on our goods because the consumer would feel that first and that would be a massive pushback for the administration.
Thomas Hill: On energy and energy policy, it does not feel like the US has had an intentional and cohesive energy policy for as long as I can remember. It feels like we are chasing special interest groups or running away from special interest groups. Do you feel like with the shift in the Cabinet and maintaining control in the House and Senate, do you have any optimism that we are going to develop a forward-thinking and cohesive energy policy for the US?
Lankford: Yeah, Thomas, I am not that optimistic. Quite frankly, it seems like we are swapping one special interest group chasing for another special interest group chasing to try and make this work and finally have an American energy policy. My concern is we are still trying to unwind from that naming of ethanol as the policy and now ethanol is going to be one of our major vehicles and they created a statute in 2007 to put in place and it has been disastrous. In fact I am attending a hearing on it on December 1st with the EPA because the ethanol mandate continues to roll up and get worse and worse and worse.
So the hard part is for government to try to predict where the market is going to go in energy. For instance I met with some of the folks that remanufacture batteries that are right across the street from Kimray (Spiers)—are you familiar with Spiers?
Thomas Hill: Very much. We are good friends.
Lankford: When I visited and talked with the Spiers folks about electric vehicles and the direction that it is moving in, Dirk Spiers there, he runs the place, his comment was that in the last 12 months, things have accelerated in solar and in batteries much faster than anyone expected. Because there are so many companies now in the market and they compete with each other, that they anticipate by 2023, the electric vehicle will be the same price as a gas vehicle, and it will have a 500 mile range and be able to charge in 10 minutes or less. If they can charge in 10 minutes or less, and do 500 miles for the same price, there are folks that will for whatever reason, choose electric over gas. This is a game changer. That is technology that is advancing that, rather than government policy. The hard part for government in energy is trying to predict what that is going to be in the future.
President Bush was very optimistic that all of our vehicles were going to be propelled by hydrogen a couple years from now and I don’t know we have any hydrogen vehicles like that on the market right now. It is just tough to predict the technology side of it, so the energy policy is really an environmental policy of the standards that are set for how we are able to do our day-by-day operations and then getting out of the way of the newest technologies in the markets that are going to be able to drive that. Government is most active now trying to be in that market trying to predict the winners and losers.
Thomas: So, is part of that that some of the subsidies that are given will go away?
Lankford: Yes, and they should. For instance, we have been fighting for years on the wind subsidies on the federal PTC, and we finally won that fight last year to be able to phase out the wind PTC. Wind PTC is 25 years old and is a six billion dollar subsidy every year that it is extended and we are fighting over highway dollars--last year we were fighting for two billion dollars in highway funding--while we have a six billion dollar wind PTC. That’s absurd, so we got to deal with that. The other part of it that is sitting out there is the solar incentive. Solar has expanded and their research is moving much faster than anyone expected but they are still sitting on a very large subsidy that I think they don’t need any more because the quality and efficiency is reaching a level that the subsidy is no longer needed. I didn’t think it was needed in the first place, but it is still out there. We have to figure out a way to get rid of those incentives in the future and that will be a part of it.
Beth: How about the environmental piece? Do you see a reversal or loosening of some of the restrictions that are out there, particularly around coal?
Lankford: Yeah. I think the first thing is a loosening on mining restrictions about permitting. As you know, the administration has just been at war with every area they could find on coal, whether it is transporting fly ash, mining restrictions, or new permitting. That has been a big deal. The hard part is for coal, is that a lot of folks are using coal for electricity, and have already made decisions in the last four or five years that they are going with natural gas or something else because they had no idea of what is happening next and they had to make a ten-year plan for how they are going to handle energy. When they have to make claims ten years in advance for capital, they can’t wait around and hope that the next administration will be different, so our use of coal will be less, but we can lift permitting for exports of coal, mining for copper, cobalt, and some other areas where we find rare minerals or minerals that we have been previously limited to go after, we can actually go after now. I would expect that to be a very, very different focus for us. For instance, the energy transfer pipeline, the Dakota access, and if the current administration doesn’t lift it in the next couple of weeks, because of the election, they may very well say we are going to sit on it. I would expect President Trump to lift that pretty quickly.
Lynn: What do you think about Congress—how do they view his tax proposals, especially the large corporate tax decreases that he campaigned on?
Lankford: I still think that Paul Ryan’s tax plan is more developed and I think that is where the starting point will be and has the greatest detail to it. While I would expect Trump to negotiate that there would be some of Trump’s ideas may be in it, but I still think Ryan’s plan is first, again, because of the greatest development. One of the areas I am going to try to push for is for the taxes that are currently parked overseas--that so many companies have where they have operations in other countries and they are not going to move that back. That is a no brainer issue. The only reason that hasn’t occurred is because of CBO scoring. We actually need to do what is actually right for the country, not what is right for CBO, and allowing people to bring money back is the right thing to do rather than encourage them to be able to park it internationally. That is about a two trillion dollar stimulus into the economy of private money that people can bring their own money back and not have to face double taxation.
John: Senator, on the tax reform, was your thinking early on that that would happen, was that on the corporate or personal tax or are they bundled?
Lankford: It would be best case scenario if the two of them were bundled together. I would tell you that is the unicorn that D.C. has been chasing for a long time, to try to go get large scale tax reform that is comprehensive. It is an area that I think we could have done corporate with President Obama. In all of our private negotiations with him, he was willing to do a revenue neutral corporate tax reform, but was not willing to do a revenue neutral S-corps and personal income tax, and we would not budge on that. That was non-negotiable for us to be able to raise the rates on S-corps but keep things simplified for C-corps. If we can put something together for a coalition to be able to do C-corps and S-corps at the same time, I think we would take it, but it would be really tough sliding that through the Senate. You still have to get eight Democrat senators on board with that to be able to move that through the Senate. I think it would be more likely we get big pieces rather than one giant comprehensive tax reform bill.
Loren: and no guess as to timeline for that?
Lankford: I bet he will have some smaller piece in the first 100 days, but then the bigger piece of it is probably a year away.
There is not much on tax policy at this time. The last major change in tax policy was 179 last year. I have not heard anything being discussed on tax extenders and tax policy from the leaders’ office in the last couple of months. In fact, McConnell during a press conference last week was asked about tax extenders and tax policy for the end of the year and he looked around the room at his staff and said “I don’t think we are doing any of that this time. Do you all know of anything that we are doing?” It was a very obvious signal that if there is anything, it would be very small, but there is probably nothing on tax extenders this year, but that would open it up for next year then.
Loren: Senator, this is Loren Plotkin of M-D again. We really appreciate your time this morning and congratulations on an incredible victory in the state and how many votes you carried. We appreciate the hard work you are about to go do in these challenging times. As an Oklahoma-based business and as a manufacturer, we are sitting around this room today to try and figure out how we continue to grow jobs, build products here domestically to supply around the country and around the world. Everything you can do for us, we would very much appreciate.
Lankford: You know what, I appreciate that and I appreciate all the jobs and all of the companies here today as well. I want to continue to make Oklahoma and the United States the best place to do manufacturing. We’ve seen a return in some of the chemical manufacturing just based on some of the feed stocks and such coming back to the United States, Dow Chemical and other large groups handling chemical. It would be great to put a policy in place that keeps costs low here and keeps the regulatory scheme consistent so people can grow businesses and invest here.
So I would hope that Trump is going to surround himself with good business people that will stay focused on some sort of consistency in that policy. I will continue to press on and see what we can get done. Remember legislative action is still going to move through the Republican House and the Senate. There were so many folks during the election that were not “with Trump” that are not afraid to still say let’s still push back to him when he is wrong, so I do not expect this will be a rubber-stamp Congress for a Republican President. I expect there to be good interchange and oversight and we will see how that works.
