The Contrarian

“In the investment markets, what everyone knows is usually not worth knowing.”

Draining the Swamp—not exactly!

Drainage, anyone? Because I’m sure not seeing it! The tax reform bill was supposed to finally “drain the swamp”. Of course, that is not happening at all. K-Street’s corporate loopholes that were supposed to be removed are slowly being added back due to pressure from corporate lobbyists and Washington insiders. Even new loopholes are being created that cater specifically to entities like the Trump Organization. This includes a new special privilege that Trump created specifically for pass-through entities (like Real Estate developers) that allows them to be taxed at a flat 15% instead of paying the top 39.6% rate. That carried-interest loophole that allows Hedge Fund managers to pay a 15% rate on their income? Many political leaders ran against it but it’s also staying due to insurmountable pressure from lobbyists. These loopholes are so clearly designed to benefit the wrong people. The power of money and political influence does not seem to end in Washington and the swamp continues to fill.

Albert R. Hunt of Bloomberg continues:

When Tom Price was pushed out of his cabinet job last month for sticking taxpayers with $1 million worth of private jet travel, the White House explained that his behavior was unacceptable in an administration devoted to draining the Washington swamp.

I wonder where the former Health and Human Services Secretary got the notion that it was OK to mix public service and personal privilege? The values of a presidential administration flow from the top. President Donald Trump has been signaling loudly through his personal behavior that it’s fine to use government service for private enrichment.

“Trump’s rhetoric about draining the swamp is breathtakingly phony,” said Karen Hobert Flynn, president of Common Cause, the good-government organization.

Unlike every predecessor for more than four decades, Trump hasn’t divested his financial holdings, only claiming they’re being run by his sons. His hotels in Washington and elsewhere are hustling foreign business. He doubled the membership fee for his Mar-a-Lago resort in Florida to $200,000 between Election Day and his inauguration.

He has weakened important restrictions on lobbyists serving in government after campaigning against the power of special interests, and turned the clock back on transparency.

The Citizens for Responsibility and Ethics in Washington, a watchdog outfit, has filed more than 150 legal actions against the Trump administration. Many of these are freedom-of-information actions, but some are lawsuits charging that Trump is violating the emoluments clause 1 of the U.S. Constitution forbidding presidents from receiving payments from foreign governments.

Enrichment is a family affair. Trump’s daughter Ivanka, while holding a White House position, got trademark permits from China for her clothing and jewelry line, which she still owns. Her accessories also are made in India, which she’s scheduled to visit in November and meet with Prime Minister Narendra Modi. Ivanka’s husband Jared Kushner and his associates sought foreign investors in a financially troubled Kushner-family-owned building on Fifth Avenue in Manhattan. He has been given a wide-ranging portfolio in foreign affairs.

“Jared and Ivanka have all kinds of potential conflicts,” said Noah Bookbinder, executive director of CREW.

Donald Trump Jr., the president’s oldest son, is raking in $100,000 for speaking at a Texas university, a fee usually given to people who’ve actually accomplished something.

Price was cashiered. But not Interior Secretary Ryan Zinke, Environmental Protection Agency Administrator Scott Pruitt or Treasury Secretary Steve Mnuchin, who have also shown a fondness for taxpayer-subsidized private flights. The Interior Department’s inspector general has launched an inquiry into Zinke.

Although the administration has toughened rules on lobbying by officials after they leave government, it has blown a hole in restrictions on lobbyists seeking government jobs. The No. 2 people at the Departments of Energy and Interior were previously major lobbyists for the industries they now oversee. Last Thursday, Trump nominated Andrew Wheeler, who has lobbied for Murray Energy Corp., a coal giant that has paid millions of dollars of fines for safety violations, to be the deputy EPA administrator.

By one count, 100 registered lobbyists had been brought into the Trump Administration by June, with 69 working in the same terrain they lobbied. But the most egregious appointment may have been the billionaire investor Carl Icahn, who after being brought in as a special regulatory adviser then sought relief to benefit a company he owns, Bloomberg News revealed. He has since departed.

A runner-up would be Squire Patton Boggs, the law firm and Washington lobbying powerhouse, which in April formed what it called a “strategic alliance” with Trump’s New York personal lawyer, Michael Cohen.

 

My View: in Washington DC, K-Street is where all the lobbyists have their offices. This is the secret seat of power in our country. The two tax proposals, one from the Senate and one from the House show the power. Where tens of billions of dollars depend of profits on the type of legislation that is passed, the lobbyists are essential in determining who gets the benefits.

For example, candidate Donald Trump promised that the preferred tax rate on “carried interest” of multibillionaire hedge fund managers and private equity tycoons would be eliminated. This is basically ordinary income, but these billionaires pay the much lower capital gains rate instead of ordinary income tax rate paid by us ordinary folks. Yet, both the Senate and the House bills keep this preference untouched. The rest of us will see most of their deductions eliminated.

This shows that the Washington swamp is not drainable. The sewage flows in much faster than it can be drained.