NEW YORK: It was only about five years ago that powerful people in finance loved talking about the horrendous consequences for the United States if it didn’t get its finances under control. They warned that the federal debt – and the interest payments – could eventually get high enough to drag down the economy, burden future generations, and even threaten national security.
Chief executive officers of five of the biggest US banks joined a campaign called Fix the Debt, signing on with hedge fund billionaires, asset managers, and private equity executives, as well as former lawmakers and others.
The conversation on Wall Street changed after November’s election. Some of the same people who were anxious about the debt sounded delighted by Donald Trump’s plan to cut taxes for corporations and high earners, trumpeting it as a way to fuel growth.
Never mind that estimates from the conservative-leaning Tax Foundation showed Trump’s campaign plan could reduce federal revenue by US$3.9 trillion over 10 years. Case in point: Goldman Sachs Group Inc CEO Lloyd Blankfein, a Fix the Debt supporter who in 2012 told CNBC he’d be for higher taxes if they helped mend the fiscal gap.
After the election, Blankfein told colleagues in a companywide voicemail that Trump’s proposals, including tax reform, “will be good for growth and, therefore, will be good for our clients and for our firm.”
He wasn’t alone. It’s “about capitalism,” JPMorgan Chase & Co CEO Jamie Dimon said in February, as he pushed Washington to lower corporate taxes. He suggested that if corporate rates fell, wages would come up. A few weeks earlier, Bank of America Corp head Brian Moynihan said Trump should focus on cutting taxes. They were part of the antidebt campaign, too. (Michael Bloomberg, majority owner of Bloomberg LP, is listed as a member of Fix the Debt’s steering committee.)
Trump’s relationship with business has soured in recent weeks. His councils of top corporate advisers imploded after he equated torch-carrying white supremacists with protesters against fascism. Tensions on Capitol Hill have been high since Republicans in Congress couldn’t pass a repeal of the Affordable Care Act. Still, the chaos in Washington hasn’t ended enthusiasm for tax cuts.
“Passing tax reform becomes even more critical,” because it’s now a matter of political survival, says Judd Gregg, a veteran of both Wall Street and Washington who became co-chairman of Fix the Debt in 2012.
He was a Republican senator from New Hampshire before he advised Goldman Sachs and led the Securities Industry and Financial Markets Association in 2013.
Gregg says it wouldn’t be so terrible if slashing taxes added US$1 trillion or US$2 trillion to the US$20 trillion the United States already owes. The way he sees it, there should still be attention paid to the fiscal health of the United States, “but concern in my opinion should be focused on entitlement reform.”
Entitlement programmes such as Medicaid, Medicare, and Social Security take up a large and growing slice of federal spending. Tackling them to address the debt would mean cutting future spending on benefits for the old and poor.
Wall Street’s swerve from deficit panic to tax-cut cheerleading annoys Douglas Holtz-Eakin, director of economic policy for John McCain’s 2008 presidential campaign. “They’re incapable of holding two thoughts” at the same time, says Holtz-Eakin, now head of the conservative advocacy group American Action Forum.
Wall Street switches from one to the other depending on what party is in the White House, according to left-leaning economist Dean Baker, co-director of the Center for Economic and Policy Research. “They were yelling, ‘Deficits, deficits, deficits!’ ” he says about the Clinton years. “As soon as George W. Bush gets in the White House? ‘Oh, we’ll have a big tax cut.’ ” The same thing, he says, is happening now. He thinks it’s hypocrisy, but a banker might call it two strategies to get to the same goal: a business-friendly government that keeps entitlement costs down and taxes low. (Fix the Debt says it opposes tax cuts if they increase the deficit.) Beyond the top executive suites of the biggest banks, support for cuts can be even more full-throated. — Bloomberg