Wall Street Firms Funnel Millions to Bush
Finance Sector Produces Surge of Cash to President Who Cut Taxes on
Dividends, Gains
By Thomas B. Edsall and Jonathan Weisman
Washington Post Staff Writers
Monday, May 24, 2004; Page A04
At Merrill Lynch & Co. Inc., a suggestion from chief executive E.
Stanley O'Neal is not to be taken lightly.
O'Neal eliminated 24,000 jobs, froze pay and steadily pushed out
competitors for executive power, including colleagues who had
championed his rise up the corporate ladder. "Ruthless," O'Neal has
reportedly told colleagues, "isn't always bad."
So it came as no surprise that when O'Neal sent letters to senior
executives at Merrill Lynch in early June asking them to contribute to
President Bush's reelection campaign, the response was prompt and
generous.
Between June 12 and June 30 of last year, the Bush-Cheney campaign was
inundated with 157 checks from Merrill Lynch executives and at least
20 from their spouses; 140 checks were for the maximum allowed by law:
$2,000.
Total take generated by the O'Neal letter: $279,750 in less than three
weeks. When that total is combined with the rest of the money
contributed to Bush by employees during the current election cycle,
Merrill Lynch personnel have given $459,050, according to Dwight
Morris & Associates, which studies political money.
The money flowing from Merrill Lynch employees is part of a $12.14
million tidal wave of cash to the Bush campaign from the finance and
insurance sectors.
Wall Street has stepped up to the plate in support of Bush, and Bush
has sponsored legislation producing billions of dollars in revenue on
Wall Street.
Capital gains and dividend tax cuts have encouraged substantial asset
shifting by investors -- transactions producing commissions for
securities firms. In addition, in 2001, Bush secured a gradual repeal
of the estate tax, allowing the accumulation of investment wealth
without fear of large tax liability for heirs.
The 10-year revenue loss from the elimination of the estate tax will
be $133.2 billion, according to Congress's Joint Committee on
Taxation. The revenue losses from the dividend and capital gains cuts
will be $125.3 billion through 2010, according to the committee.
In addition, the administration has proposed creation of tax-free
"Lifetime Savings Accounts" that, if approved, would result in a major
shift from savings accounts to investment accounts managed by Wall
Street companies.
O'Neal is one of nine Wall Street "Rangers" -- each one has raised at
least $200,000 for the Bush campaign. In addition, five other
executives of prominent securities firms have raised at least $100,000
each to qualify as Bush "Pioneers."
The O'Neal-generated cash is a record for such a short time period,
according to Morris and other campaign finance experts.
O'Neal's success, however, represents only a small fraction of an
unprecedented drive by top Wall Street firms in support of the
president.
When employers of contributors to the Bush campaign are ranked, seven
out of the top 10 are major securities firms. Employees of Morgan
Stanley & Co. Inc. have contributed the most of any single company to
Bush: $505,675.
Asked why so many of the top 10 employers of contributors are Wall
Street securities firms, Scott Stanzel, spokesman for the Bush-Cheney
'04 Campaign, said, "We are proud that we have over 1 million donors
to the Bush-Cheney campaign representing every county in every state
in this nation."
Altogether, personnel at these seven top 10 firms have given Bush
$2.33 million, or a fifth of the $12.14 million from employees of the
finance and insurance sector that has flowed to Bush this election
cycle.
By comparison, the presumptive Democratic nominee, Sen. John F. Kerry
(Mass.), has raised $472,564 from employees of the same seven firms,
and the entire finance and insurance sector has given Kerry $2.7
million.
Many of the Wall Street Rangers and Pioneers are, like O'Neal,
chairmen and CEOs -- top executives who rarely engage in the mundane
work of political fundraising.
This year, the Wall Street Rangers include Philip J. Purcell, CEO of
Morgan Stanley; Joseph J. Grano Jr., chairman of UBS Financial
Services Inc.; Henry M. Paulson Jr., chairman and CEO of Goldman Sachs
& Co.; and John J. Mack, CEO of Credit Suisse First Boston Corp.
None of them tried to become a Pioneer for the Bush campaign in 2000.
Spokesmen for the firms that replied to inquiries about the
contribution patterns denied that the money was related to Bush tax
policies. Mark Herr, of Merrill Lynch, said, "The simple facts are
these: Mr. O'Neal wrote a letter to executives and asked them if they
wanted to contribute to the president. He also made it clear that no
one was obliged to do so." In a prepared statement, UBS Financial
Services said employee contributions "reflect personal decisions by
UBS employees with their own funds and are not from UBS as a corporate
entity."
For the securities industry, a lot has changed since 2000, and the
changes wrought by the Bush administration have produced large new
profits. Those profits stand to soar higher if Bush is reelected.
Three successive tax cuts proposed by Bush and passed by Congress were
specifically designed to lower taxation on savings and investment. The
tax rate on most corporate dividends fell from 38.6 percent to 15
percent. Most capital gains on investment are now taxed at 15 percent
rather than 20 percent.
Such measures were explicitly designed to encourage investment, thus
channeling billions of dollars through Wall Street investment banks.
The liberal Institute for Taxation and Economic Policy said last week
that those tax cuts -- coupled with other tax advantages -- have
lowered the average federal tax rate on investment income to 9.6
percent.
In contrast, federal tax rates on wages -- including Social Security
and Medicare taxes -- average 23.4 percent. The Social Security
payroll tax falls most heavily on wage earners making $87,900 or less
because income above that level is exempt.
The most dramatic Bush tax proposal has yet to be enacted.
The administration has proposed the creation of "Lifetime Savings
Accounts," to which any individual could contribute as much as $7,500
a year. The capital gains, dividends and interest earned in the
accounts would be free of taxation, and the money could be withdrawn
at any time for any reason.
The proposed savings accounts contrast sharply with existing tax-free
accounts, which are often restricted to lower- and middle-income
savers, have much lower annual contribution limits and can be accessed
only for certain expenditures, such as retirement, education and
health care.
Under the proposal, a family of four could shield earnings of as much
as $30,000 a year from taxation. That would, in effect, eliminate
capital gains, dividend and interest taxation for most families. The
median pre-tax income for a family of four is $63,278, and only very
high-income families could afford to put as much as $30,000 annually
into a tax-free savings account.
In a major boon for Wall Street, the new accounts would make
traditional bank accounts all but obsolete. The Securities Industry
Association (SIA) firmly backs the proposal.
"Lifetime Savings Accounts will allow people to save more of their
money tax-free," said Richard Hunt, SIA senior vice president for
federal policy. "SIA has strongly advocated the expansion and
enhancement of savings and investment options available to Americans,"
the organization said in a statement.
Bush's plans for Social Security are potentially even more lucrative
for the securities industry. The president has repeatedly said he
would like to allow individuals to divert some percentage of their
Social Security taxes into personal investment accounts, which in many
cases would be managed by financial services firms.
The idea -- a centerpiece of Bush's 2000 campaign -- has gone nowhere.
But White House economic policy aides have said Social Security reform
could become the crowning domestic achievement of a Bush second term.
© 2004 The Washington Post Company
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