Cameron Izadi

Personal Financial and Informational Blog

Tag Archives: Bush Tax Cuts

How the ‘Smart Money’ is Influencing Tax Law

It has been the subject of much debate, and even reason for Senators to return to Capitol Hill for a brief work session before continuing campaigning for the midterm elections. I am, of course, referring to the end of the Bush-era tax cuts. With their seats on the line, Democrats are eager to take advantage of this opportunity to win back some favor among constituents.

Wall Street Political Contributions (Dem v Rep)

However, with the legislation that the Democratic majority has pushed through this year, especially the Dodd-Frank Wall Street Reform and Consumer Protection Act, large financial institutions and hedge funds have been sharply shifting financial support from Democrats to Republicans. Dave Levinthal, spokesman for the Center for Responsive Politics commented, “We noticed a very dramatic shift right around the beginning of this year, which coincided with financial reform.” Levinthal sees this as a “major shift in the opposite direction and one that has persisted ever since.”

Here are just a few examples of large banks and investment firms that have participated in political contributions this year:

Citigroup is still partially government-owned, thus it has given equal contributions to Republicans and Democrats this year.

  • Bank of America (NYSE:BAC) is strongly supporting Republicans, with 61% of total contributions made this year. This is a large change from the 2008 elections, where 56% of the bank’s contributions went to Democrats.
  • Morgan Stanley (NYSE:MS) is also favoring Republicans, with 55% of the company’s contributions going to Republicans. Morgan Stanley also favored Democrats in 2008.
  • Citigroup (NYSE:C) appears to be playing it safe by giving equally to Democrats and Republicans (as the federal government still owns a sizable portion of the company). However, in 2008, Citigroup favored Democrats as well, contributing 63% of funds to Democrats.
  • Even Goldman Sachs (NYSE:GS), which has favored Democrats for 20 years, is channeling the majority of its political contributions to Republicans this election cycle.

The question is whether or not the new tax-cut program endorsed by President Obama will help Democrats fare well in the elections this fall. The cuts are, however, namely different from the Bush-era cuts in that they exclude cuts previously available to individuals with over $250,000 in annual taxable income (which really only affects about 3% of Americans). Despite this revision, House Republican Leader John Boehner said Sunday that he’d support an extension of tax cuts for the middle class, even if he couldn’t do the same for wealthier Americans.

President Obama's $50 billion infrastructure improvement plan's aim is to create jobs, something this halted economy needs desperately.

Other forms of economic aid, including a new $30 billion small-business lending fund (details available here), President Obama’s $50 billion infrastructure improvement plan (details available here), and other small-business tax incentives, are all aimed at creating jobs. However, it is clear that, in the end, they do not benefit the “big boys” (or the “smart money”). This is why we continue to see large institutional support for republicans whose political philosophies are more closely aligned with corporate bottom lines.

Whether or not these programs will help Democrats during the elections is yet to be seen. All that is certain is the large role that financial institutions are playing in legislation. Whether this involvement is constructive or detrimental is up for discussion.

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