By James Freeman
Jeb Hensarling may be the most important Republican elected official you’ve never heard of. He will become even more important if his party wins control of the U.S. Senate in November’s elections, two weeks from this Tuesday. He’s also a leading candidate to eventually succeed John Boehner as House speaker.
So it’s a good moment to sit down with the Texan, who represents a district near Dallas and is now chairman of the House Financial Services Committee, to talk about the political possibilities and strategy. He believes the GOP is “poised for a good election” but not a great one. Good because President Obama is ineffectual and unpopular. Not great because Republicans haven’t talked enough about their plans to encourage job creation and rising incomes.
But if Republicans do win a majority, count Mr. Hensarling among those who think they will have to do more than stymie Mr. Obama for his final two years. They’ll have to produce legislation, he says, putting bills on the president’s desk that he will have to sign or veto. The political trick will be calculating what to pass that Mr. Obama might conceivably sign, and what to pass anyway to educate the country and prepare for the 2016 election.
Together with Rep. Paul Ryan (R., Wis.), who is expected to become chairman of the tax-writing Ways and Means Committee, Mr. Hensarling will drive economic policy in the House. A cerebral veteran lawmaker who opposed the bank bailouts, he carries the respect of both tea party conservatives and establishment moderates within the GOP.
He’ll need that credibility because he is aggressive in sketching out a 2015 legislative agenda for faster economic growth. The common theme he stresses with Journal editors is liberating people from bureaucracy, whether they are seeking a mortgage, buying health insurance, crossing America’s southern border to make an honest living in the U.S. or simply filling out their tax returns.
This last one provides an opportunity to liberate Americans from billions of hours of unproductive labor. “Nothing says economic growth like fundamental tax reform,” says Mr. Hensarling. The idea is to slash tax rates, along with loopholes, to enact a simpler, more user-friendly tax system.
Contrary to much Washington wisdom, including among conservative pundits, he says tax reform is possible in 2015 not only because the IRS is in such ill repute, but also because Republicans will have no excuse for inaction if they control both houses of Congress. “It’s a put-up or shut-up moment for us,” he says.
An early gut check for Republican reformers will come next year when Congress will decide whether to once again reauthorize the Export-Import Bank, a monument to crony capitalism that provides cheap financing for selected international trade deals.
Mr. Hensarling views the Ex-Im battle “somewhat as a precursor to the tax reform fight because there are so many vested corporate interests” served by the current tax code: “If we can’t get rid of this agency and the corporate welfare it represents, how will House Republicans ever muster the intestinal fortitude to be able to do fundamental tax reform?” He adds, with some political poignancy, “I don’t know how we will ever have the moral authority to deal with social welfare if we can’t deal with corporate welfare.”
On the Financial Services Committee, Mr. Hensarling has been quietly crafting bipartisan reform bills that now lie buried in Majority Leader Harry Reid ’s Democratic Senate. But if Republicans control the upper chamber after November, Mr. Hensarling suddenly will have someone to work with, probably Alabama’s Richard Shelby, who is expected to become chairman of the Banking Committee in a GOP Senate.
Mr. Hensarling sees an opportunity to revisit the 2010 Dodd-Frank law, which was drafted in haste after the financial crisis and was falsely promoted as an end to too-big-to-fail banks. Mr. Hensarling says that “given the state of the economy, people are taking a second look” at both the law and the story they were sold by its authors. “We’ve all heard about Wall Street greed. I think people are now starting to be a little bit more sensitized to Washington greed—the greed for power and control over our lives and our economy.”
He notes that consumers aren’t pleased with the results: Free checking and credit-card perks are disappearing, and more generally the economy is lagging. Mr. Obama’s approval ratings on economic policy are down, and Mr. Hensarling thinks one reason is the burden on lending and small community banks by Dodd-Frank’s “sheer weight, volume, complexity and number of regulations.”
He is particularly focused on the law’s Financial Stability Oversight Council—which can vote to rescue certain huge corporations it deems “systemically important”—and on the Consumer Financial Protection Bureau (CFPB), which he calls “the single most unaccountable agency in the history of America.” Housed within the Federal Reserve, it draws funding from the Fed but doesn’t answer to any Fed officials, or to congressional appropriators, or to a bipartisan commission, as most independent agencies do. The bureau is run by a single director who cannot be removed unless the president can show cause.
Mr. Hensarling also notes that the Bureau doesn’t even have true oversight by the courts because of the Supreme Court’s Chevron legal doctrine that compels judges to show deference to the bureau’s decisions. This lack of accountability may be why the bureau has been constructing what Mr. Hensarling calls “the Taj Mahal” to serve as its Beltway headquarters.
Mr. Hensarling believes the CFPB’s lack of accountability is also leading to “consumer protections” that Americans don’t want or need. Once the bureau’s rules are fully implemented, he says, “one third of all blacks and Hispanics” will “no longer be able to buy the homes that they have traditionally been able to buy. We are protecting them out of their homes! The qualified-mortgage rule should have been called ‘quitting mortgages’ because that’s what it’s all about. So I think I’ve got the argument that is very compelling and people feel it,” says Mr. Hensarling. “They’re less free and less prosperous.”
Does this put him in the company of affordable-housing advocates who favor degraded underwriting standards for politically favored demographic groups?
“Possibly, yes,” he says. “I don’t want degraded standards. I want market standards. I don’t want government fiat standards. I don’t want one view coming out of Washington on what acceptable mortgage risk is.” Because, he adds, that view is guaranteed to be wrong.
Will he try to put a repeal of the CFPB on Mr. Obama’s desk next year? “It would be a very different CFPB,” he replies. “I want government to vigorously police our markets” and it’s not necessarily a bad idea to have this function centralized in one department. “What is bad is giving an unelected, unaccountable bureaucrat the unilateral power to essentially decide what credit cards go in our wallets, what mortgages we can have on our homes, which is exactly what CFPB is doing.”
What about the stability council in Dodd-Frank? Would a GOP Congress vote to repeal it?
“I would hope so,” Mr. Hensarling says, and he expects such a plan would enjoy “a little more bipartisan buy-in.” He’s willing to seek whatever reforms to the law can attract 60 votes in the Senate. “Absolutely, whatever the market will bear. I came here to make a difference, not to make a speech,” he says. He’d like to combine a repeal of this big-bank rescuer with a new bankruptcy plan for large financial firms crafted by the House Judiciary Committee, along with requirements that banks hold more capital.
In fact, he’s already agreed with liberal Democratic Rep. Maxine Waters on dozens of modest reforms to financial laws that provide regulatory relief, even though the two lawmakers “come fairly close to representing ideological bookends of the United States House of Representatives.”
He’s particularly optimistic about being able to lessen the bureaucratic load on small banks next year. And he thinks a housing-finance reform that ends the dominant role of Fannie Mae and Freddie Mac is possible as well, provided Democrats don’t demand “another affordable housing slush fund on steroids.”
But why would Democrats cooperate with any of this, given the political benefit they seem to see in blaming Republicans for obstructing the president’s agenda? “I don’t think that is selling like it once did,” he says. “I don’t want to hurt their careers so they shall remain nameless, but there are a number of Democrats on my committee who have indicated an interest in working on certain issues. It’s always a tough thing to do, and a lot of times you don’t want to do it unless you think that ultimately you can make a difference because you end up taking flak from your party.”
He adds that “there are some Democrats on that committee that have done some pretty good work on some issues. Now they still tend to vote the party line because they don’t think this would see the light of day and thus it is not worth the risk for them to step out, but they’re there.”
Beyond Mr. Hensarling’s committee, he says the GOP agenda next year should include “making ObamaCare optional.” And the Texan would like to see immigration reform that allows more H-1B visas for high-tech workers and also creates a “vibrant guest-worker program” for low-skill workers who want to come here to work in agriculture for example.
He also favors more border security but says that doesn’t mean a physical wall is required over the entire length of our southern border. He believes a good guest-worker program is a form of border security because it allows law enforcement to focus on catching criminals and terrorists: “Less hay to find the needles.” This focus on immigration’s economic benefits is consistent with his free-market principles, though it puts him at odds with the drift of many Republicans who are falling for the fallacy that there are a finite number of jobs in the country and every immigrant robs a job from someone already here. Mr. Hensarling acknowledges the drift but thinks a GOP Congress would still be able to move piecemeal immigration reform to Mr. Obama’s desk.
Mr. Hensarling recounts walking at his local July Fourth parade this year and noticing a woman come running at him from the curb. As a public official he’s learned this “is either a very good thing or a very bad thing.” But she had a smile on her face and said in a thick accent, “I had to learn your name for my citizenship test and I’ve always wanted to meet you.”
When he asked where she was from, the woman said, “Russia. And I love freedom.”
“Welcome home,” he replied.
Mr. Freeman is assistant editor of the WSJ’s editorial page.