With Joe Biden and President Trump somewhat beleaguered, there is a chance Elizabeth Warren becomes the Democratic Party’s nominee and then the next US president.
Her website states: “Elizabeth has a lot of plans, but they’re really one simple plan: We need to tackle the corruption in Washington that makes our government work for the wealthy and well-connected, but kicks dirt on everyone else, and put economic and political power back in the hands of the people.” But it looks as if 11 out of her 45 campaign-platform “plans” would dramatically affect the US economy and financial markets.
Ms Warren would tax the wealth of households with a net worth of $50m or more, or the top 0.1 per cent. They would pay an annual 2 per cent tax on every dollar of net worth above $50m and a 3 per cent tax on every dollar of net worth above $1bn.
She would cancel some or all student-loan debt for more than 95 per cent of the nearly 45m Americans with such debt and more than 75 per cent would see theirs eliminated entirely. This would seek to “provide an enormous middle-class stimulus that will boost economic growth, increase home purchases, and fuel a new wave of small business formation”. She also plans to create “universal free college”. The cost, $1.25tn over 10 years, would be paid for by the ultra-millionaire tax.
Ms Warren is worried about household and corporate debt, a manufacturing slowdown and the inverted yield curve. She cites a survey that projects the next recession will come by the end of 2021 and to avert it wants to reduce household debt by increasing the minimum wage, cancelling student-loan debt, lowering rental costs, providing universal affordable childcare and instituting universal free college. She plans to monitor corporate lending, especially leveraged lending, upon which she would enforce new guidance.
Ms Warren dislikes the cosiness of corporate defence contractors and lobbyists with the Pentagon. She would cut the US defence budget and sever connections between “giant corporate contractors” and the Pentagon.
She also aims to change what she sees as the primary aim of corporations: “maximising shareholder value”. Her plan requires US corporations with more than $1bn in revenue to obtain a federal charter as a “United States corporation”, which would obligate directors to consider the interests of all corporate stakeholders, not just shareholders, and mandate that employees elect at least 40 per cent of the company’s board members.
Ms Warren also has her sights on private equity. She wants to make private equity firms responsible for the debt and pension obligations of companies they buy, limit fees and dividends, raise the tax rates on their deals, and close the carried-interest loophole. To reduce speculative excesses, she would enact a new Glass-Steagall Act, rebuilding the wall between commercial banks and investment banks; institute new executive compensation rules for bankers; and strengthen rules on big banks’ capital, liquidity, leverage, and resolution-planning.
On trade, agreements would be negotiated and approved via a transparent process with public disclosures and commentary. Countries would have to meet a set of standards as a precondition for trading with the US. She wants to break up big tech companies like Amazon, Facebook, and Alphabet, requiring “large tech platforms to be designated as ‘Platform Utilities’ and broken apart from any participant on that platform”.
She plans to “pursue an agenda of economic patriotism, using new and existing tools to defend and create quality American jobs and promote American industry” through “fundamental, structural changes in our government’s approach to the economy” that put “American workers and middle-class prosperity ahead of multinational profits and Wall Street bonuses”. To do so, she plans to mirror other countries’ plans like “Made in China 2025”. She says it is not globalisation, automation and the skills gap that are to blame for US job losses and flat wages but US trade and tax policies.
Ms Warren supports “Medicare for All” and would institute the Affordable Drug Manufacturing Act to “allow the Department of Health and Human Services to step in where the market has failed”. Her Behavioral Health Coverage Transparency Act “would hold insurers accountable for providing adequate mental health benefits”.
She would introduce a new tax, the Real Corporate Profits Tax, which would apply to companies that report more than $100m in profits – for every dollar of profit over $100m, corporations would pay a 7 per cent tax to ensure no major corporations have a zero tax liability.
Ms Warren’s plans would be shocking for markets and investors and it is worth keeping a close eye on developments.
James Bevan is CIO at CCLA IM
