Last week, the Obama administration announced new “tax inversion” regulations designed to discourage U.S. companies from pretending to relocate overseas as a ploy to evade taxes. The rules change was of course sharply criticized by congressional Republicans, who took the side of corporations wanting to flee for tax purposes even while they keep most of their profit-generating operations here in the United States.
In short, those corporations want all the benefits of this country, without having to help pay the bill.
And GOP opposition notwithstanding, the new rules have already had a powerful and beneficial impact. Two days after the new rules were announced, the pharmaceutical giant Pfizer — which reported $49 billion in revenue and $7.74 billion in net income last year — canceled plans to move its official headquarters to Ireland, thus keeping jobs and corporate tax revenue right here in the United States.
In a second important initiative completed last week, the U.S. Department of Labor finalized new “fiduciary rules” that require stockbrokers and other financial advisers to actually honor the best interests of their clients when people come to them for financial advice.
What a concept, huh?
Under previous regulation, certified financial planners were already required to give advice based on their clients’ best interests; stockbrokers, however, were not. They were legally free to steer unwary customers into high-cost investment options that padded their own income, even at the expense of the client. They were also under no obligation to disclose that glaring conflict of interest to their clients.
For example, brokers could — and research shows they usually did — steer their unwary customers to invest in funds for which the brokers received a big commission or an undisclosed fee that in other industries would be called a kickback. According to the Obama administration, that practice drains retirement accounts of some $17 billion a year in reduced savings, and adds that $17 billion annually to Wall Street’s bottom line.
Now, I don’t know how the White House arrived at that figure, and I’m sure you could quibble with it if you wish. Wall Street, however, seems to agree with its overall thrust.
“Many financial firms’ stocks plummeted in recent weeks as it became clear the White House was moving forward with the rule.
The stock of LPL Financial, the nation’s largest independent broker-dealer, has tanked over 40 percent this year. Charles Schwab and E*Trade are both down about 20 percent. Firms have until January 2018 to comply fully.
There are concerns that financial firms won’t make as much money once the rule is fully in effect, but a recent Morgan Stanley report says the impact is likely to be ‘substantially less’ than what the beaten-down stocks imply.”
So which side did congressional Republicans take in this dispute? As if you had to ask:
“Congress must act to stop this costly, complicated and potentially conflicting rule that’s unfair to millions of American families who only want the freedom to plan for financial independence and the right to shape their own destiny,” House Financial Services Committee Chairman Jeb Hensarling (R-Texas) said in opposing the new rules.
Please note how Hensarling attempts to frame the issue in terms of “freedom” and financial independence for American families, with no mention of Wall Street’s 17 billion reasons to keep putting its its own interests over that of its clientele. Note also that over the previous two years, Hensarling has received almost $735,000 in campaign contributions from the banking, financial services, real estate and insurance industries.
In one sense, the tax inversion and fiduciary rule changes announced last week are technical fixes to the regulatory system. But in a larger sense, they offer important illustrations of how the system can be gamed one way or the other to advantage certain well-connected parties. American voters concerned that they’re not getting a fair shake, that the “big guys” have gained too much unchecked power, ought to take note of who is fighting for which side.