Ordinarily the attitude on Wall Street at the approach of an election that promises a Democratic landslide is a bit like it must have been in ancient Rome in 410 AD as the Visigoths under Alaric approached the city gates intent on sacking the place. Fear and loathing were the order of the day in old Rome. And normally they are on Wall Street, too, as Democrats clamber over the barricades.
The Romans knew the Goths were bent on looting and pillaging. Wall Street, at least in the past, braced for a tax hike tsunami as Democrats sacked the wealthy and plundered corporate profits to finance the welfare state. This time, however, Wall Street seems to be handling the prospect of a Democratic takeover with relative calm.
If contribution reports are any indicator, Wall Street and corporate America in general are financing much of the Democratic campaign at the presidential and congressional levels. Strewing flowers, as it were, at the feet of the barbarians.
Why the unaccustomed calm? Maybe it's because, as Rep. Bill Pascrell of New Jersey - a member of the House Ways and Means Committee, Congress' traffic cop on all tax measures - put it, "We don't want to frighten Wall Street." How's that? Democrats? Must be something to it because Pascrell repeated the cautionary note during a recent interview in his Capitol office. "We don't want to scare Wall Street," he said.
Fulfilling that promise will require a deft fiscal touch and much political delicacy. As Pascrell also noted, the new Democratic majorities in the Senate and House intend to make significant changes in the tax code. These include rolling back some of President Bush's big tax reductions for wealthy Americans, closing some corporate loopholes and socking it to hedge fund and private equity executives who've pocketed millions in salaries and bonuses in the global economy. A special goal is amending the alternative minimum tax, designed to guarantee that the wealthy would pay at least some taxes. More recently, it has become a burden for many in the middle class because it has never been indexed for inflation.
"It's a matter of equity and fairness," Pascrell said. "The (Democrats') priority will be to protect the middle class and help the poor. I don't see any increase in corporate taxes. There may even be tax incentives for small business. And there'll be no whacko left-wing policies."
It remains to be seen how such a live-and-let-live rapprochement with old adversaries on Wall Street will play with the Democrats' more aggressive liberals, who'd relish a little score-settling with the carnivorous capitalists who have lived so luxuriously on Bush's beggar-thy-poor-neighbor tax cuts. But Pascrell has an answer he believes should reassure Wall Street: Charles Rangel.
Rangel, chairman of Ways and Means and thus the chief cop on the tax beat, is a New Yorker and of no mind to decimate the investment industry that provides jobs for so many New Yorkers and, not incidentally, political support for Rangel himself. If that were not enough, the Street also can look for lots of help from another New York Democrat, Sen. Charles Schumer.
Serving as he does on the Senate banking and finance committees, Schumer's got clout on tax and financial issues. And he has sworn eternal opposition to any attempt to sock the hedge fund and private equity industries - a likely target, as Pascrell sees it - with hefty higher taxes. No such tax hike will pass, Schumer vows, unless linked to similar increases for other powerful industries.
In short, the tax policy is shaping up as litmus test for the post-Bush Democratic Party being forged in the crucible of the presidential campaign - whether it can embrace, as analyst Fred Siegel writes, "both economic populism and Wall Street." Observing that in the 2006 elections Democrats ran nearly even with the GOP among upper-income Republicans and already enjoy substantial financial industry support, Siegel believes they can appeal to both populists and Wall Street so long as blue-collar workers remain fearful of free trade.
Pascrell, who reportedly owes his Ways and Means seat to support from organized labor, says globalization, the bane of the blue-collar worker, "can't be reversed but should be slowed." Pascrell favors "U.S.-style labor and environmental standards" in any foreign trade deals and something akin to the value-added tax levied by many European countries on foreign imports. The U.S. levies no such tax, which, Pascrell says, puts U.S. companies at a disadvantage in foreign competition.
What are the prospects for a American VAT? Unclear at this point. But with backing from the U.S. Business and Industry Council, a manufacturing industry lobby in Washington, it's one of the few issues on which Big Labor and an important corporate interest have a common goal.
It's a full tax reform plate, as Pascrell described it. But most of it will have to await the election of a Democratic president, he conceded.
