Wayne O'Leary

Monetizing Congress

One of the salient features of the Schumer-Manchin Inflation Reduction Act signed into law this past August is that it will have little or no negative impact on corporate America. Business as usual on Wall Street and in the corporate suites will continue to be the abiding rule.

The 15% minimum corporate income tax enacted amounts to a drop in the bucket compared to the comprehensive upward rate revision contemplated earlier, and the law’s new 1% stock-buyback tax appears likely to affect management behavior only at the margin in the judgment of financial analysts. Furthermore, there will be no added tax increases on millionaires or on investment incomes. Investors, it appears, are taking it all in stride.

If anything, the corporate sector will benefit immensely from a piece of legislation based on subsidies, rebates and tax credits rather than on regulatory requirements. Even the imposition of Medicare price negotiations on a tiny handful of prescription drugs will cause Big Pharma little loss of sleep — or revenue.

But why would anyone be at all surprised by this outcome? It was brought about, after all, by a Congress that in many respects is connected at the hip to the nation’s corporate establishment. Last month (9/14/22), the New York Times, in an exemplary example of journalistic public service, published a timely exposé of how the best Congress money can buy is involved up to its neck in stock trading; the disclosures paint an unflattering picture of our representative branch of government as, in effect, a thoroughly compromised institution.

The Times piece, based on an examination of the three-year period 2019-21, reveals that about a third of the 535 members of Congress bought and sold stock or other financial assets during this time, and that roughly half of those trading (97 senators and representatives) engaged in personal transactions that in many cases intersected with their work (committee assignments, hearings and investigations), raising questions about conflicts of interest. Researchers uncovered 3,700 potentially conflicted trades (10% of the total made) over the years examined, using a database called Capitol Trades compiled by a German financial firm.

The 97 congresspeople (75 men and 22 women) whose trades were selected for in-depth analysis included 27% of all senators and 16% of all representatives, a combined 18% of Congress. Both major parties were equally involved — 47 Democrats (36 representatives and 11 senators) and 50 Republicans (34 representatives and 16 senators).

The notion that Democrats as a group reject corporate values and the primacy of the market, a legacy of the New Deal, is one that no longer applies in this generation. In fact, among the dozen congressional members investing in 100 or more companies, eight or two-thirds were

Democrats. Among members with a dozen or more potential conflicts, the parties were equally split with nine each — the very definition of bipartisanship.

One way around culpability for all concerned is to plead lack of personal day-to-day participation in stock trading. A third (30) of the 97 members with potential conflicts of interest claimed their portfolios were managed by their brokers or financial advisors, who proceeded with little or no instruction.

Another way to deflect negative scrutiny is to maintain that family investments are supervised by one’s spouse without the principal’s knowledge or consultation. At least 15 elected members (10 of them Democrats) utilized this dodge; pillow talk or kitchen-table chats never, apparently, entered the picture. Representative Zoe Lofgren (D-Calif.), for example, whose husband traded in pharmaceutical stocks while she participated in an investigation of drug prices, dismissed queries with the comment that hubby’s trades were handled by “some guy at the bank.”

None other than House Speaker Nancy Pelosi (D-Calif.) is among those with questionable family involvement in securities trading. Her husband is Paul Pelosi, a wealthy real estate and technology investor who bought and sold $25 million to $81 million in stocks and options during the three years under review. Pelosi herself reported 24 trades; none of them were tagged as in conflict, but it’s not a good look for a speaker who’s a millionaire many times over and has been noticeably reluctant to address the issue of trading by her House and Senate colleagues.

Few of those colleagues have been openly belligerent in resistance to reforming the system as it exists, but one stands out. Sen. Tommy Tuberville (R-Ala.), whose 20 potential trading conflicts involving drug, technology and agricultural stocks were the ninth most, told Times interviewers, “I don’t trade stock, my brokers do … I don’t limit them to anything.” Restricting the ability of lawmakers to trade would be “ridiculous,” he added.

Tuberville is following in a shabby American tradition dating back to the original Gilded Age of the late 19th century. Here’s Sen. Matthew Quay (R-Pa.), renowned political boss of the Keystone State, commenting in 1889 on his investments: “I do not feel there is anything in my connection with the Senate to interfere with my buying or selling stocks when I please.”

This quote, courtesy of David J. Rothman’s excellent historical study “Politics and Power: The United States Senate, 1869-1901” (1969), typifies the congressional attitude of the time. Senators, Rothman relates, built bulging portfolios using inside information, then righteously denied (not unlike today’s lawmakers) that such investments influenced their votes, despite the contemporary public’s view that “stock holdings necessarily determined voting behavior.”

Returning to today, it appears pressure is slowly building for tightening or supplanting the largely toothless 2012 Stop Trading on Congressional Knowledge (or Stock) Act, which requires the disclosure of investment transactions by officeholders within 45 days but does not establish an outright ban on trading individual company stocks. Speaker Pelosi has been slow-walking any response, first opposing stricter measures last February, then ironically delegating good old girl Zoe Lofgren, the 25th most active congressional trader, to formulate a compromise bill. As of this writing, nothing has emerged from Pelosi’s House or Chuck Schumer’s Senate, though something is said to be coming “sometime soon.”

The reluctance to enact reform, particularly on the Democratic side, is telling, and it explains much about the party leadership’s disinclination to attack excess corporate profits during the present midterm elections. Corporate price gouging is the leading cause of America’s inflation woes, but why bite the Wall Street hand that feeds (and funds) you?

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, December 1, 2022

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