GOP Platform Counterprogramming Glass-Steagall (July 19)

Mike & Co.,

Yesterday, the 2016 Republican Platform was approved at the RNC in Cleveland.  As expected, the document’s language on economic policy reflects positions taken by Donald Trump.  Mostly.  But the Party surprisingly endorsed a reinstatement of the Glass-Steagall Act of 1933.  This is an unforeseen stance, following years of disinterest in Glass-Steagall by the GOP.

Below we examine this unexpected turn of events and offer some Glass-Steagall deprogramming and review the other tax and regulatory proposals in the platform.

Best,

Dana

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Budget and Tax Provisions 

The GOP platform restates the Party’s longstanding support for a balanced budget amendment to the Constitution, which would cap spending to an “appropriate” percentage of GDP, as well as mandating a super-majority in Congress to approve any tax increase. The document adds that all provisions in a budget must be subject to a test of whether the proposed expenditure is “within the constitutional scope of the federal government” and whether it can be justified by foreign borrowing.  With regard to debt, it supports imposing caps on all future debt and accelerating debt repayments.

Similar to the 2012 platform, this one reasserts that a consumption tax must be accompanied by a repeal of the federal income tax under the 16th Amendment.  The document also calls for lowering the corporate tax rate to be “on par with, or below, the rates of other industrial nations,” with a switch to a territorial system of taxation.

The platform is hardline on the IRS, echoing House conservative sentiment tof late.  The “toxic” agency is accused of serving as an “ideological attack dog” for Democrats, and the platform endorses the impeachment and removal of John Koskinen as IRS Commissioner (a position designed to be wholly non-partisan in the Federal government).

Regulatory Rollback

While supporting greater financial regulation under Glass-Steagall, the platform pushed back at every other regulatory efforts.  It allows that sensible regulations could be compatible with a healthy economy but claims that regulators are at present “exploiting everyone.”  The platform pledges to minimize intrusive regulations with an eye to protecting small businesses and new enterprises. Dodd-Frank is a “legislative Godzilla” used by the Democrats to “crush small and community banks.”

The platform endorses requiring the House and the Senate to sign off on new rules with high costs to the American people.  It promises to examine “all current regulations for possible reform or repeal” de novo.

It again calls for an annual audit of the Fed  as way to improve transparency and accountability to the Fed, particularly in its open market operations and its interactions with foreign banks.  The platform criticizes the CFPB, a “deliberately-designed rogue agency” that answers to no higher authority, proposing that it be abolished or subjected to Congressional appropriation.


Glass-Steagall Pulled from Rabbit’s Hat
The platform’s language officially states the Party’s support for “reinstating the Glass-Steagall Act of 1933, which prohibits commercial banks from engaging in high-risk investment,” a relatively late addition to the document.  How and why TBD as of this writing.  The rest of the Republican Party’s document goes to great lengths to disparage other existing bank regulations.
The Democratic platform includes a generic aim to bring back an “updated and modernized version” of the Act.  HRC has not included a revival of the repealed provisions of Glass-Steagall in her own plan for financial regulation but the campaign did not oppose the language in the Democratic platform.

It bears mentioning that much of Glass-Steagall remains in place to this day.  Throughout the 1990s, several key elements of the Act regarding the separation of banking institutions and securities firms were repealed.  It is these provisions that are now under consideration of being reinstated, despite the blunt language that refers to reviving the entire Act.

The fact that both Parties, which routinely disagree on regulatory reform, have officially backed the Glass-Steagall in advance of the election demonstrates clearly the continued distrust of Wall Street by the electorate.  Many believe that Trump is trying to win over former supporters of Bernie Sanders, who explicitly called for reinstatement the Glass-Steagall provisions in his campaign.

A cynical take says Trump’s proposal could be a Trojan Horse loaded with loopholes for large financial institutions.  Combined with the fact that previous drafts of the GOP platform made no mention of Glass-Steagall, some have questioned how thoroughly the Trump campaign vetted the proposal.

Legislative Prospects

Since the financial crisis of 2008, there have been several bipartisan proposals to bring back Glass-Steagall’s restrictions on interactions between commercial banks and securities firms but none has  gained serious momentum.  Congress has held no hearings on Glass-Steagall provisions since the financial crisis, let alone floor action.

Few analysts believe the repeal of elements of Glass-Steagall Act icontributed to the environment that stemmed the later financial crisis.
Despite the salience of the issue, odds of Congressional action on the issue anytime soon are remote.  At the end of the day, particularly given the contradictory stances towards regulation in the Republican platform, the status quo largely remains intact with regard to the revival of Glass-Steagall provisions.

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