Competitive Enterprise Institute | 1899 L ST NW Floor 12, Washington, DC 20036 | Phone: 202-331-1010 | Fax: 202-331-0640
A Yogi-ism for Congress: “It ain’t over until both houses of Congress vote for an identical bill and send it to the president’s desk — and, barring maneuvers like reconciliation, that means it ain’t over until there are 60 votes in the Senate to bring a measure to the floor.”
These simple rules seem to have been lost on members of the press, who are treating a conference “agreement” of a sweeping financial-regulation bill as almost the same thing as final passage. To use another baseball analogy, the bill is indeed in the home stretch, but the game is not over. One crucial member of the yes team, Sen. Scott Brown of Massachusetts, indicated he may be going over to the no’s because of a last-minute curveball: billions in taxes thrown in the bill by House Financial Services Committee chairman Barney Frank.
Late Friday afternoon, a few hours after negotiations on a conference report were finished (it was posted online late Saturday night), Brown issued a statement blasting the bill’s $19 billion “special assessment” on financial institutions, which Frank had inserted just that morning. Pronouncing himself “surprised and extremely disappointed,” Brown noted that “these provisions were not in the Senate version of the bill, which I previously supported.” Although Brown hedged by saying he was “still reviewing the bill’s details,” he emphasized, “I’ve said repeatedly that I cannot support any bill that raises taxes.”
In May, Brown was the crucial 60th vote to break a filibuster to bring the “Restoring American Financial Stability Act” to the floor. Although Maine Republicans Susan Collins and Olympia Snowe voted yes to cloture, Sens. Russ Feingold and Maria Cantwell canceled them out by voting no, mostly because the bill did not go far enough for them in terms of reimposing Glass-Steagall’s separation of commercial and investment banking and restrictions on derivatives. Sen. Charles Grassley had voted against cloture, but ended up voting for the final bill once it hit the floor, bringing the bill’s total Republican backers to four.
Brown has walked a careful tightrope since his surprise victory in January, sometimes backing his party and sometimes going along with the Democrats. Conservatives have for the most part cut him some slack, given the liberal politics of his state. Yet his cloture vote for the financial bill was contingent on what he called “assurances” from Frank and Harry Reid that there would be carveouts and exemptions on provisions that would hurt Massachusetts financial firms, which struck many as bad policy and bad politics: He was beginning to look like an all-too-typical politician, cutting a deal for his state’s parochial interests to the detriment of the rest of the country.
Yes, the “Volcker rule,” which would restrict banks from “proprietary trading” with their own assets, would hurt Massachusetts firms, as well as many in the rest of the country. And Brown did get concessions in conference that might have alleviated obvious problems, such as custodial banks not being able to invest their own assets to start mutual funds, and insurance companies with limited banking operations not being to able to invest their assets in even blue-chip stocks. (Or it might not have alleviated them, because so much discretion with the exemptions is in the hands of regulators.) But why not argue for real financial reform by making the case that the bill leaves untouched the fundamental causes of the crisis: Fannie Mae, Freddie Mac, and housing policies that encouraged mortgages for people who couldn’t afford them?
In stepping up to the plate against the conference bill’s new taxes, Brown is sounding once again like the reformer that disaffected citizens in Massachusetts rallied to earlier this year. His policy arguments against the taxes could and should be one more reason for Snowe, Collins, Grassley, and possibly Ben Nelson — who in April joined a Republican filibuster against bringing the bill to the floor — to say no to the final version of this regulatory monstrosity.
In his statement on Friday, Brown made the case that “these costs would be passed onto consumers in the form of higher bank, ATM, and credit-card fees and put a strain on lending at the worst possible time for our economy.” This is consistent with the position on financial taxes he took in the last days of his Senate campaign, when President Obama first proposed the “bank tax” and Brown bravely produced a television ad explaining his opposition to it. Obama attacked Brown for this opposition, saying at a Democratic campaign rally two days before the Massachusetts election that Brown “decided to park his truck on Wall Street.”
Frank’s new tax underscores the problem of the entire bill: costly and possibly counterproductive items being dropped in with little debate. Frank and other Democrats call it a “pay-for” item, citing the Congressional Budget Office estimate of net cost of the bill, $19.7 billion. But why should a regulatory bill, let alone a spending bill, cost that much in the first place? Especially since the line of the Obama administration and its defenders has been that this bill would consolidate and focus regulatory functions, rather than simply create new agencies. This cost to the government serves to underscore the costs to the private sector of the bill’s huge new bureaucracies, such as the nannyist Consumer Financial Protection Bureau, which will go well beyond policing for fraud to restrict beneficial choices of businesses and consumers.
But rather than a “pay-for,” Frank’s tax smells like more of a “down payment” on an even bigger financial tax Obama wants to introduce. In his weekly address this Saturday, Obama called for a tax on financial institutions’ liabilities as the next step in “financial reform.” He repeated his earlier lines that the U.S. needs the tax so “we can recover every dime of taxpayer money.” Never mind that both Obama’s proposed tax and Frank’s tax in this bill would tax banks that have already repaid the bailout money, as well as “financial companies” (the broadly defined term in the bill) such as mutual-fund firms and insurers who never took any bailout money in the first place. And this tax would be passed on to ordinary investorsand insurance policyholders, just as it would be to bank customers. And the tax wouldn’t apply to the two biggest beneficiaries of the financial bailouts, Fannie and Freddie.
For whatever reason, July 4 was the day set as the deadline to get this bill sent to the president. But instead of a deadline to get the bill passed, Independence Day should be seen as a reference point to carefully consider the contents of the Dodd-Frank bill. Lawmakers should scrutinize a certain declaration signed on that date and truly examine how this bill comports with promises to never again erect “a multitude of New Offices” and “swarms of Officers to harass our people and eat out their substance.”