Can Congress Do Something Smart Here (in Financial Reform)?

Elizabeth Warren says Apple’s Ireland moment should be the catalyst “for Congress to fix our own corporate tax code” so large corporates pay a larger share of taxes, incentivize job growth and level the playing field for small businesses, who presently pay the lion’s share of our federal taxes.

In today’s NY Times opinion piece, Ms. Warren points out how federal tax revenues from large corporations shrank from 30% in the 1950s to 10% now. But she fails to mention that U.S. GDP, only $543.3 BN in 1960, was $17.947 TN in 2016. Despite corporate contributions shrinking to one-third the level in the 1950s, our GDP grew 33 times.

Taxes didn’t make the difference. Credit and globalization made the difference.

It follows that what is most urgently needed to restructure our economy and put it back on the road to health, isn’t necessarily tax reform. It certainly isn’t rebuilding walls between financial sectors, or pushing banks to get “smaller and less complex.”

Bona fide credit reforms are most urgently needed.

Economics and finance are no longer games for women and men of leisure and policymakers. Detailed knowledge of a few related disciplines besides the law are needed to motivate the movement of capital towards the values we believe in. That means the ability to think critically about financial rhetoric and financial policy, using our knowledge of algebra, psychology, the balance sheet, and bond pricing.

The best knowledge sources for developing balanced policies that curb imprudent use of capital but simultaneously encourage growth may be the very people E Warren distrusts the most: skilled financial practitioners who disagree with her solutions. She has the tenacity to dismiss financial malarkey, but to lead bona fide credit reforms, she needs to get a whole lot smarter.