Proposals to raise taxes on the superwealthy appear to be gaining momentum as Democratic presidential contenders prepare for their first debates.
That should give a boost to the many candidates who have already embraced such a plan -- including Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) to former congressman Beto O’Rourke (Tex.) and South Bend, Ind., Mayor Pete Buttigieg. And it signals a potential sea change in the broader debate over taxes, marking the first time policymakers have given serious consideration to targeting the ultra-wealthy.
On Monday, 18 people rich enough to face higher taxes under the proposals released a letter calling for “a moderate wealth tax on the fortunes of the richest one-tenth of the richest 1 percent of Americans — on us.” (Read the letter here.)
And today, at an all-day conference the Economic Policy Institute is staging called “Taxing the (Very) Rich,” Sen. Chris Van Hollen (D-Md.) will announce a new plan to impose a 10 percent surtax on income above $2 million. He intends to pair it with a provision to end the “stepped-up basis” treatment of inherited assets, which helps shield the ultrawealthy from income taxes. Van Hollen will propose dedicating the resulting revenue to “fully fund the federal commitment to K-12 education,” spokeswoman Bridgett Frey says in an email.
“Senator Van Hollen believes we need to ensure we have a fair tax code that asks the very wealthy to pay their fair share — and make a clear case for what we would do with that new revenue,” she writes.
Recent polling shows strong popular support for raising the tax burden on the richest of the rich. A December survey found 76 percent of all voters support higher taxes on the wealthy, according to a presentation Democratic pollster Celinda Lake will give at the EPI conference today. On the specific proposals, a January poll found 59 percent of all voters support Rep. Alexandria Ocasio-Cortez’s (N.Y.) plan to raise the marginal rate on income above $10 million to 70 percent; and, per a February poll by Morning Consult, 61 percent back Warren’s plan to impose a 2 percent wealth tax on households with more than $50 million.
While Democrats pitching the levies this year have focused on the ambitious policy initiatives the new revenue could fund, Lake said the issue also provides an opening for Democratic presidential hopefuls to make a broader critique of President Trump’s economic record. Voters trust Democrats and Republicans evenly on taxes, she said, but her party still lags about 10 points behind the GOP on the economy.
“The single biggest thing Democrats have to worry about is getting even on the economy,” Lake says. “And the best argument for us is, ‘Who’s benefiting under this economy?’ These tax proposals are a major, major opportunity.”
That’s because as voters warm to taxing the super-rich, they’ve also soured on Trump’s signature 2017 tax law. Only a quarter of Americans say they paid lower taxes after the cuts took effect, according to a March poll by the Economist. By a margin of 53 percent to 33 percent, voters say the tax cuts benefit the wealthy more than the middle class, a CNN poll this year found.
“There’s been a lack of courage among politicians, both Democrats and Republicans, around taxation,” EPI president Thea Lee says. “Maybe we’ve come to the place where people have lost their fear of raising taxes.”
To that end, the Monday letter from the likes of Facebook co-founder Chris Hughes, Disney heiress Abigail Disney, Regan Pritzker, president of the Libra Foundation, and liberal mega-donor George Soros help make the case, Lake says.
She said with surprising frequency, voters in focus groups still invoke the example of billionaire investor Warren Buffett noting in 2011 that he pays a lower tax rate than his secretary. The statement launched a Democratic push for a “Buffett rule” that would impose a minimum 30 percent rate on those earning more than $1 million a year. It went nowhere. But Lake said the Monday letter could help move the needle for policymakers. “It legitimizes the idea to elites. To some extent the audience here is Congress,” she says. “Voters are already wildly in favor of it.”
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— Trump threatens Powell, again. The Hill's Jordan Fabian and Saagar Enjeti: "Trump on Monday said he has the power to fire Federal Reserve Chairman Jerome Powell but said he has no intention to do so. In an exclusive interview with The Hill, Trump said Powell is 'incorrect' that he is entitled to serving a four-year term that expires in 2022. Asked if he thinks he has the power to remove Powell, Trump said 'If I wanted to, but I have no plans to do anything.'"
The comment came after Trump fired off a pair of tweets Monday morning blasting Powell's performance:
....Think of what it could have been if the Fed had gotten it right. Thousands of points higher on the Dow, and GDP in the 4’s or even 5’s. Now they stick, like a stubborn child, when we need rates cuts, & easing, to make up for what other countries are doing against us. Blew it!— Donald J. Trump (@realDonaldTrump) June 24, 2019
The New York Times's Jeanna Smialek notes the attack comes at an odd time, considering the economy's strength: "As of July 1, the United States will have experienced the longest economic expansion on record, ten years and running. The unemployment rate is at its lowest level in nearly 50 years, and inflation — though quiescent — has at least gotten close to the central bank’s 2 percent goal. By lifting rates from near zero and shrinking the massive volume of government-backed bonds on its balance sheet, the central bank has bought itself precious space to fight the next economic downturn when it comes."
Powell will be on stage at the Council on Foreign Relations for an interview with the NYT's Neil Irwin today at 1 p.m.
— Traders aren't holding their breaths for G-20 progress. Bloomberg: "Fund managers are sticking to their positions ahead of this week’s meeting between Trump and [Chinese President] Xi Jinping, saying they don’t expect much progress to be made.A common view among China investors: there’s little chance the two leaders will suddenly reach an agreement and resolve a trade dispute that has weighed on markets over the past year. Most are keeping an emphasis on domestic-focused defensive stocks, though much potential downside is already priced in, while foreign-exchange traders expect a slight weakening in the yuan."
— WTO says trade restrictions are holding back the global economy. “The World Trade Organization warned that a spike in trade restrictions by major nations is threatening to hold back the global economy,” Bloomberg News’s Katia Dmitrieva reports.
“Trade coverage on imports among Group of 20 countries — including tariffs, import bans and new customs procedures — topped $336 billion between October and May, the organization said in a report Monday. That’s the second-highest reading, after the prior period’s record $481 billion. The figure doesn’t include the actions under consideration or threatened by governments.”
— Trump faces bipartisan pressure to stay tough on Huawei. Bloomberg's Jenny Leonard: "Trump faces growing bipartisan pressure in Congress to maintain a hard line on Huawei Technologies Co. rather than ease restrictions on the telecom company to cut a trade deal later this week with [Xi]... Trump said last week that he had a 'very good telephone conversation' with [Xi] and said talks will resume before the two meet later this week at the G-20 summit in Osaka, Japan. It’s not clear if Huawei was part of their call, but it’s an issue Trump himself has said could be on the table. Senate Minority Leader Chuck Schumer is among those calling for a firm hand."
— Chinese bank tied to North Korea could lose access to U.S.: “A U.S. judge has found three large Chinese banks in contempt for refusing to comply with subpoenas in an investigation into North Korean sanctions violations. The order triggers for the first time a provision that could cut off one of China’s largest banks from the U.S. financial system at the demand of the U.S. attorney general or treasury secretary,” my colleague Spencer S. Hsu reports.
“The three banks are not identified, but details in court rulings align with a 2017 civil forfeiture action in which the Justice Department alleged that China’s state-owned Bank of Communications, China Merchants Bank and Shanghai Pudong Development Bank worked with a Hong Kong front company accused of laundering more than $100 million for North Korea’s sanctioned, state-run Foreign Trade Bank.”
— SCOTUS rejects challenge to steel tariffs. “The Supreme Court on Monday announced that it will not yet hear a challenge to [Trump’s] tariffs on steel imports into the United States,” CNBC’s Tucker Higgins reports.
“The news was announced in an order with no noted dissents. The court’s decision not to hear the case leaves in place a March decision from the U.S. Court of International Trade which allowed for Trump’s tariffs.”
— Stephen Moore is creating a crypto central bank. Fox Business's Linda Moynihan and Charles Gasparino: "Economist Stephen Moore, who recently lost out on a bid to join the board of the Federal Reserve, is now looking to start his own mini-Fed through the creation of a cryptocurrency product that is billing itself as “the world’s decentralized central bank,” FOX Business Network has learned.
"Moore has joined a group of entrepreneurs who are starting what they describe as a new type of central bank they believe will stabilize cryptocurrencies like bitcoin and its myriad of imitators, according to an investor pitch deck obtained by FOX Business and interviews with people associated with the effort... 'I’m really excited about doing this,' Moore said. 'I hope it makes me rich.'"
— IG probing Trump administration’s handling of Tubman $20: “A watchdog in the Treasury Department will probe the Trump administration’s handling of Harriet Tubman’s image on the $20 bill, according to a letter released by a Democratic lawmaker on Monday,” my colleague Jeff Stein reports.
“The Treasury Inspector General’s Office will incorporate questions surrounding the timing of the release of the abolitionist’s image on the $20 into an audit “that is about to get underway,” said a letter from the office, which was sent to Senate Minority Leader Charles E. Schumer (D-N.Y.) in response to his requests. Democrats like Schumer have requested an investigation after the New York Times reported earlier this month that the Treasury Secretary Steven Mnuchin delayed Tubman’s appearance on the $20 bill until after the president leaves office. President Trump has publicly lamented the idea of replacing Andrew Jackson, the $20′s current occupant.”
— U.S. airlines look to expand overseas: “U.S. airlines are rediscovering the rest of the world after years of ceding market share to rivals and international partners on overseas flights,” the Wall Street Journal’s Doug Cameron reports. “The big three network carriers are adding more than a dozen new routes and thousands of additional seats each week to destinations as far afield as South Africa, India and Croatia, reversing the trend over several years when they were outgrown by foreign airlines.”
“U.S. airlines are betting that three years of rebuilding their home networks by bolstering hubs and adding flights to smaller cities have given them a better foundation to expand overseas.”
— Facebook’s Libra pushes bitcoin to 15-month high: “After months of “crypto winter,” bitcoin surged above $11,000 for the first time since March 2018, and experts think Facebook could be fueling the rise,” my colleague Taylor Telford reports.
“Bitcoin soared as high as $11,304 early Monday morning before dropping back, to $10,885, according to market data from Coindesk. The world’s largest cryptocurrency is now up 170 percent for the year, suggesting investors have shed some of the skepticism that took hold after the bitcoin bubble burst in 2018 — its worst year on record. The digital coin had peaked well past $19,000 in December 2017, then went into a months-long tumble that bottomed out near $3,400 in January.”
— Beto O’Rourke proposes “war tax”: “Non-military households would pay a “war tax” to help cover the health care of veterans of newly-authorized wars under a plan Beto O'Rourke's campaign unveiled Monday,” CNN’s Eric Bradner reports.
“Money collected through the “war tax” — which he is proposing for future wars — would go into a new trust fund for veterans established at the outset of each war. Households making less than $30,000 per year would pay $25; those making less than $40,000 would pay $57; those making less than $50,000 would pay $98; those making less than $75,000 would pay $164; those making less than $100,000 would pay $270; those making less than $200,000 would pay $485; and those making more than $200,000 would pay $1,000.”
— Online brokerages slide after Sanders proposes transaction tax. Bloomberg's Felice Maranz: "Shares of online brokers including TD Ameritrade Holding Corp. and E*Trade Financial Corp. slid after Democratic presidential candidate Bernie Sanders proposed canceling the nation’s outstanding $1.6 trillion of student debt and offsetting the cost with a tax on Wall Street transactions. The Sanders plan would include a 0.5% tax on stock transactions, a 0.1% tax on bond trades and a .005% tax on derivatives transactions."
Wall Street pushes back. More from Bloomberg: "Bernie Sanders wants Wall Street to pay off America’s student debt. Wall Street, predictably, says that’s a bad idea... Industry groups and experts say the cost of the levy would be shouldered by Main Street investors: either directly as trading houses pass along the expense in higher fees and wider spreads, or indirectly through lower returns in mutual fund and pension accounts. It’s an argument the industry has made before when facing proposals that could crimp revenue, but outside experts have found it has some merit."
And from Kevin Fromer, president and CEO of the Financial Services Forum: “We believe a financial transactions tax would be a big mistake, by taxing families and households who hold and exchange financial assets, by reducing savings, and by increasing financial risk. The track record for this type of tax is poor both inside and outside the U.S."
— U.S., U.K. regulators to crack down on Blackstone-inspired defaults. WSJ's Andrew Scurria and Dave Michaels: "U.S. and U.K. regulators said they would jointly work to address financial engineering in the derivatives market that may push healthy companies to default on debt, echoing worries about potential gamesmanship involving credit-default swaps.
"Leaders of the Securities and Exchange Commission, Commodity Futures Trading Commission and U.K. Financial Conduct Authority warned against the type of credit-derivative trade attempted last year by Blackstone Group LP. In that case, Blackstone’s GSO Capital Partners LP arm positioned itself to profit on bearish derivative bets when Hovnanian Enterprises Inc. missed bond payments. Hovnanian, in exchange, received a sweetened financing package from Blackstone."
— Firms that disclose SEC investigations suffer. Institutional Investor's Alicia McElhaney: "You might think that companies that are being investigated for financial fraud by the Securities and Exchange Commission would be better off being straight with their investors about it — but you'd be wrong.
"This is according to a paper published on June 19 by David Solomon, an assistant professor of finance at Boston College, and Eugene Soltes, associate professor of business administration at Harvard Business School. The researchers found that transparency can harm, rather than help, companies investigated for financial fraud by the SEC: Firms that choose to disclose such investigations suffer — even those that are ultimately found not guilty. Their share prices fall, and their chief executive officers are often ousted, according to the paper."
- The Council on Foreign Relations holds a conversation with Federal Reserve Chair Jerome H. Powell.
- The Senate Agriculture, Nutrition and Forestry Committee holds a hearing on the derivatives market and possible reauthorization of the Commodity Futures Trading Commission.
- The Senate Banking, Housing and Urban Affairs Committee holds a hearing on whether Fannie Mae and Freddie Mac should be designated as “systemically important financial institutions."
- FedEx is among the notable companies reporting its earnings, per Kiplinger.
- The Economic Policy Institute and the Institute for Policy Studies hold a day-long conference on taxing the “very rich."
- The Peterson Institute for International Economics presents the University of Maryland’s survey of 2,993 voters on trade-related topics on Wednesday.
- The House Committee on Financial Services Taskforce on Artificial Intelligence holds a hearing on the future on the current and future of AI in financial services on Wednesday.
- The Brookings Institution holds an event on the legacy of the late economist Alan Krueger on Wednesday.
- General Mills, KB Homes and Blackberry are among the notable companies reporting their earnings on Wednesday, per Kiplinger.
- The Banking Committee holds a hearing on the reauthorization of the Export-Import Bank on Thursday.
- Nike, Accenture, Conagra and McCormick are among the notable companies reporting their earnings on Thursday, per Kiplinger.