Taxes are the topic du jour, particularly after the New York Times’ bombshell report on President Trump’s taxes. But while headlines may cause ripples, the reality of financial regulation is far murkier. Edelman’s Ashley Lewis, vice president in financial services, hosted a discussion this week on what the election will mean for the future of financial regulation. Here’s what you need to know.
The big picture: Democrats, if they win, will eye tax changes to fuel spending.
Biden and Democrats in Congress frequently decry the Republican Party’s 2017 tax reform law. But if Democrats take control of Washington come January, you can expect them to look closer at the corporate tax rate, a financial transaction tax and an increase in personal income tax rates for high earners. We can expect the associated revenue increases to lead to spending on infrastructure, education and other priorities.
How much of a priority will this be?
Biden and Democrats are unlikely to tackle a standalone tax reform bill of their own. “It certainly wouldn’t be the first time that policymakers will try to legislate by anecdote,” said Paul Thornell, principal at Mehlman Castagnetti Rosen & Thomas. But the headlines, in this case, may actually make change happen. Thornell does not see corporate tax reform as the Day One priority for a Biden administration.
Biden will look for an easy win in the first few weeks.
The economy will decide what actually gets attention under a Biden administration. For Victoria Guida, financial services reporter at Politico, taxes won’t necessarily pay for a stimulus. But on the broader agenda, Biden will probably look for an opportunity to raise taxes on the wealthy and focus on the corporate tax rate. Guida said this will happen early simply because it’s an easy win for the presidential candidate.
Your personnel are your policies.
Many factions within the Democratic Party have called on a prospective Biden administration to ban former lobbyists and Wall Street executives from serving in cabinet and other agency postings. Thornell, however, said this may limit diversity in a potential pool of appointed secretaries and regulators. Thornell was also bullish on Federal Reserve Board member, Lael Brainard getting the nod to serve as Biden’s Secretary of Treasury.
As for Trump…
The president has made offhand comments on redoing his entire cabinet in the next term. “You’ll probably see some musical chairs,” Thornell said. “But there’s no campaign website; there’s no platform.”
Other positions to watch.
Randy Quarles, regulatory chief of the Federal Reserve, has his term coming up in October 2021. Trump may not choose to reappoint him or Quarles may choose to leave on his own—if either happens, that’s one to watch, said Guida. “The types of appointees President Trump appointed at the beginning were very different from what came later,” she said. It needs to be someone acceptable to the Senate and continue in the deregulatory bent that Quarles had.
What is next for ESG?
It might receive a boost with Democrats in control of Washington, but as we shared in last week’s ESG perspective, large-scale reform efforts and legislative changes to corporate governance remain a distant prospect for both parties.
Other things up in the air…
- The Senate composition will remain in flux, with run-off elections in Georgia slated to be decided into December.
- Continued legislative gridlock will mean the regulatory arena becomes more active, said David Hirschmann, president of the U.S. Chamber of Commerce Center for Capital Markets.
Something to think about: Hirschmann said that addressing inequalities in wealth by race needs to be a priority, in terms of strengthening minority lending institutions and fair lending, as well as finding new ways to build credit ladders. “So much of this comes down to who is in the room,” said Thornell. “As far as I’m aware, there are no people of color in the room… this isn’t just a failing of the Trump administration. The Obama administration wasn’t much better.”