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Jan. 27 (Bloomberg) -- Newt Gingrich took aim at Wall Street and by extension Republican presidential opponent Mitt Romney yesterday as the former U.S. House speaker said he isn’t running for president to “represent Goldman Sachs.”
Yet the investment firm Gingrich derided and the banking industry as a whole stand to gain from his proposals to eliminate the capital gains tax and repeal two financial-sector measures, four analysts said in separate phone interviews.
Gingrich’s tax package, which also calls for a reduction of the personal income and corporate tax rates, would be beneficial to many on Wall Street, including those at Goldman Sachs Group Inc., an investment banking firm based in New York, the analysts said.
“This is negative political rhetoric that’s not based on anything, either his own history or his proposed policies,” said Douglas Holtz-Eakin, an economic policy adviser to Republican presidential candidate John McCain in 2008. “He is proposing a flat, consumption-style tax, which gives incentives for people to use the financial system.”
Gingrich’s comments yesterday are “inconsistent with what he’s proposing,” said Holtz-Eakin, president of the American Action Forum, an anti-tax organization based in Washington. “It’s hard to defend on the logic.”
In campaign speeches, Gingrich has promised voters that on his first day as president, he’d repeal, in addition to Obama’s health-care legislation, the 2002 Sarbanes-Oxley Act to monitor corporate auditing and the 2010 Dodd-Frank Act of Wall Street regulations.
He often highlights his proposal on the capital gains tax rate, which is scheduled to rise to 20 percent from 15 percent by 2013. Gingrich would eliminate it.
“Balanced budgets, streamlined government and the biggest capital gains tax cut in history led to unemployment falling to under 4 percent by 2000,” Gingrich, who served as House speaker for four years until resigning in 1999, said as he released his economic plan Sept. 29 at a town hall meeting in Des Moines, Iowa.
The Dodd-Frank Act, passed in the aftermath of the 2008 financial crisis, authorized hundreds of new regulations to curb misconduct and excessive risk-taking by Wall Street financial firms.
It includes new rules restricting the kinds of trades banks can make with their own money, increasing supervision and oversight by federal regulators, and imposing new requirements to protect consumers from unfair or complicated products.
The new law requires most derivatives to be traded on exchanges, gives shareholders a say in how executives are paid, and limits the amount merchants pay for debit-card transactions.
The Sarbanes-Oxley Act, which Congress passed with an overwhelming majority in the wake of the collapse of Enron Corp., formed a new watchdog to oversee U.S. auditing and required managers to sign off on financial reports and internal controls at their public companies.
“If these laws were removed, you would see, over time, an increase in profitability, an increase in hiring to work for financial firms, an increase in economic activity,” said Gerard Cassidy, managing director of bank equity research RBC Capital Markets LLC. “It would enable financial companies to become more profitable.”
Many in the financial industry “might like that rhetoric, but there’s a level of skepticism of what he’d be able to accomplish as president,” said Brian Gardner, senior vice president of Washington research for Keefe Bruyette & Woods Inc.. He said it’s “not realistic” to eliminate the capital gains tax and repeal Dodd-Frank and Sarbanes-Oxley.
Gingrich pivoted to a different tone yesterday. He and Romney are locked in a tight battle to win the Jan. 31 Florida primary, registering in a tie in recent polls that put them well ahead of Texas Representative Ron Paul and former Pennsylvania Senator Rick Santorum.
“We’re not going to beat Barack Obama with someone who owns Swiss bank accounts, Cayman Island accounts,” Gingrich said during a stop yesterday in Mount Dora, Florida. “I am running for president to represent you, not to represent the Washington establishment, not to represent Goldman Sachs.”
Gingrich again referred to New York-based Goldman Sachs later yesterday in a meeting with reporters. He said Romney, who released his 2010 tax returns and 2011 estimate on Jan. 24, had personal holdings in “a part of Goldman Sachs that was explicitly foreclosing on Floridians.”
Mouse or Elephant
During a debate in Jacksonville, Florida last night, Romney pointed out that Gingrich also has invested in mutual funds that had Wall Street and housing holdings. Gingrich, who reported $3.1 million in 2010 gross income, tried to deflect that by saying it was like comparing “a tiny mouse with an elephant.” Romney’s tax returns showed his gross income of $21.6 million in 2010.
Andrea Saul, a Romney spokeswoman, said yesterday it’s “puzzling to see Speaker Gingrich and his supporters continue their attacks on free enterprise. Unlike President Obama and Speaker Gingrich, Mitt Romney spent his career in business and knows what it will take to turn around our nation’s bad economy.”
Goldman Sachs’ employees and their families provided more contributions to Romney than any other single employer through Sept. 30, the most recent campaign finance information available, according to the Center for Responsive Politics, based in Washington. The contributions totaled $367,200, according to the center.
Romney’s campaign collected $3.6 million from the financial industry, according to the center. The former Massachusetts governor, whose assets are valued at as much as $250 million, was a co-founder of Bain Capital LLC, a Boston private-equity firm.
New campaign finance reports are due out Jan. 31.
Wall Street, generally speaking, has a “comfort level” with Romney, Gardner said “He’s one of them.”
By contrast, Gardner said, “there is lack of comfort with Gingrich,” dating back to his years in the House. “I don’t think he was ever comfortable with the New York financial crowd. There was no real, major move on his part to reach out to the investment and commercial banking communities.”
Many in the financial industry have determined Gingrich is “unelectable and volatile,” Gardner said.
Business leaders are concerned with the country’s financial integrity and bringing taxes and spending into alignment more so than their individual tax rates, said Clinton Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington.
“They want a candidate whose plan makes sense and who can get it done,” he said.
Gingrich’s tax policies “aren’t so much born of Wall Street as they are aimed at Main Street,” Stretch said.
Gingrich and Romney would both retain some form of special treatment for earnings tied to investments. Capital gains and dividends are taxed at 15 percent compared to rates on wages, which are as high as 35 percent.
Romney would continue the 15 percent rate on dividends and capital gains and exempt anyone with adjusted gross income of less than $200,000 from paying the tax at all. Gingrich would eliminate the tax for all income brackets.
More than half of Romney’s 2010 income of $21.6 million was tied to capital gains or dividends, which helped lower his tax rate to 13.9 percent. Romney has been criticized for paying a lower rate than middle-class taxpayers.
Ben Ginsberg, national counsel for Romney’s campaign, said Jan. 24 that the Bain founder’s tax rate would have been even lower if Gingrich’s proposal were in effect because it doesn’t tax capital gains at all.
--With assistance from Steven Sloan, Jesse Hamilton and Maura Reynolds in Washington and Jonathan D. Salant in Jacksonville, Florida. Editors: Jeanne Cummings, Robin Meszoly
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