In return for her full-throated support for Hillary Clinton since the Democratic convention, Senator Elizabeth Warren is signaling that she would push a Clinton presidency to adopt her vision of a progressive agenda.
Some of her ideas, though, could have consequences counter to what she says her goals are: helping workers, raising incomes and ensuring that the system is fair for everyone.
I’m not even referring to Warren’s blanket opposition to free-trade deals, which have long riven the Democratic Party, nor to her obsession with bringing back the 1933 Glass-Steagall Act to force large banks to break into investment and commercial banking halves. This would address a problem that doesn’t exist, and in any case Clinton isn’t likely to put Glass-Steagall on the table.
The tug of war might occur on other issues, such as tax and entitlement policies and senior appointments, over which Warren hopes to exert her influence. Here are five examples of her bad ideas:
She has called for raising corporate taxes to an unspecified level, while ignoring evidence that workers would bear most of the cost in the form of lower wages. She backs up her position by noting that U.S. corporations account for one-tenth of federal revenue today, compared with one-third in the 1950s. But she neglects to mention that rapid expansions in Social Security and the creation of Medicare affected this equation. By the 1970s, payroll taxes to fund those entitlement programs made the contributions from other sources seem smaller. By the 1980s, corporate taxes had declined to 12.5 percent of all U.S. tax revenue, and that was long before U.S. companies started a wave of tax inversions by moving their headquarters to a lower-tax country. Nor does she say that corporate taxes make up about 2 percent of gross domestic product, the same level it has been for the last half-century, according to the Congressional Budget Office.
If she is vague on new corporate-tax levels, she is specific in her goal of requiring the federal government to allow refinancing of student debt at lower interest rates. But in a forthcoming book titled “Game of Loans,” Beth Akers of the Brookings Institution and Matthew Chingos of the Urban Institute explain why this would do almost nothing for truly struggling borrowers, who can apply for income-based repayments that would allow them to write minimal monthly checks, or to suspend payments. Affluent borrowers who take out hefty loans to attend graduate schools (and presumably obtain high-paying jobs enabling them to repay their debts) would get a windfall.
One of Warren’s wackier proposals would require the Internal Revenue Service to prepare tax returns. Not only would that wipe out private tax-preparation services, including Intuit’s Turbo Tax and other low-cost software, it would also pile billions in new costs onto an agency that has trouble getting Congress to fund it adequately now. The IRS’s conflict of interest would also be huge: What incentive would a government tax-collection agency have to reduce anyone’s tax bill, as Turbo Tax seeks to do?
Warren supports a Social Security benefits expansion by sending cost-of-living adjustment checks to retirees at a time when inflation is almost nonexistent. Admittedly, President Barack Obama and Clinton join Warren in calling for similar expansions, but that doesn’t mean it isn’t fiscal folly. While Social Security isn’t in crisis now, it has a cash-flow shortage. If nothing is done, by 2034 it will depend entirely on payroll taxes to meet expenses, and retirees will get only three-fourths of promised benefits. Future retirees would be a lot better off if Warren proposed a realistic plan to shore up Social Security than by piling on new costs.
Then there is Warren’s application of a “hell, no” litmus test to nominations of people who worked on Wall Street. She stopped Antonio Weiss, a former Lazard investment banker, from becoming the Treasury Department’s undersecretary for domestic finance without ever meeting him, even though he was Obama’s choice for the job. As a Treasury aide, Weiss has been a key architect of the Puerto Rico rescue strategy, for which his financial and deal-making credentials came in handy. Warren’s standard would disqualify someone like Laurence D. Fink, the head of BlackRock, the world’s largest investment manager, from becoming Treasury secretary. Fink was an early supporter of financial-industry reforms, including some that would have adversely affected the money-market mutual funds BlackRock owns.
In pushing these ideas, Warren sees herself as a progressive crusader, protecting the underdog from a rigged system. But if carried out, her policies could end up hurting the very groups she is championing.
Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”