One of the subplots to the Great Tax Reform Effort of 2017 is the relatively shoddy outcome for Wall Street in the final tally. Sure, a reduced corporate rate should free up cash that will inevitably pour right into Wall Street, and big banks will enjoy significantly better profit margins, which can't hurt bonuses. But the drawback is that denizens of New York and the tri-state area will no longer enjoy sizable deductions for state and local taxes. Cue all the tiny violins:
One trader, sipping a Bloody Mary on a morning flight to somewhere more tropical, said he’s going to stop registering as a Republican. En route, he sent more than a dozen text messages ripping the tax bill.
A pair of hedge fund managers said they’ll stop donating to Republicans they’ve long supported. One of them said he spent weeks berating a politician who’s taken his money, arguing the tax bill is too tilted toward corporations, rather than individuals who should get more relief.
This isn't a Wall Street issue exclusively, but pretty much everyone who lives and toils in the New York financial industry or thereabouts will feel some sting from Uncle Sam cutting off SALT deductions at $10,000. And surely these folks would have appreciated their supposedly fearsome business lobby stepping up and knocking on a few congress members' doors, intimidating expressions on their faces and lists of donor-approved demands in their hands. Although the final bill has a higher SALT limit than before, whatever efforts were made to ditch the deduction changes were ultimately unsuccessful.
Which makes Wall Street's lobby look like chopped liver compared to their private equity peers. To demonstrate, here's our favorite Trump administration wind-up doll Gary Cohn on the administration's putative attempts to do away with the tax loophole (or, if you prefer, long-term investment incentive) at the heart of private equity:
"We would have cut carried interest," Cohn said Wednesday. "We probably tried 25 times."
He blamed resistance on Capitol Hill. "We hit opposition in that big white building with the dome at the other end of Pennsylvania Avenue every time we tried," he said in the interview. "It is just the reality of the political system."
He went on:
"The reality of this town is that constituency [hedge funds and private equity] has a very large presence in the House and the Senate. They have really strong relationships on both sides of the aisle," he said. "We just didn't have the support on carried interest."
See, this is how you do it. All you need is a totalizing, inescapable grip over the legislative apparatus of the largest democracy in the world – something we were led to believe Wall Street had, but now we're not so sure.
Of course, it could be less about the American Investment Council being composed of Sith lords and more that Steve Schwarzman happens to be Steve Schwarzman. But if it's just a case of a few well-placed friends of the administration getting their word out to Congress, whatever happened to Cohn and the legions of Goldmanites and other bankers in the White House we've heard so much about? What use were they in all this? Clearly not much.
Still, the bellyaching from traders and I-bankers might be a little overwrought. All it should take is an enterprising tax lawyer, a personal Wyoming LLC and a little elbow grease to carry on as before.