The business of managing Washington

With media outlets crowding around the current impeachment probe, it can be hard to realize that in the rest of the federal government is continuing apace with new ideas and avenues for helping the country. To learn more about the work the government is doing despite all eyes being fixed on the president, we spoke with Richard Levick, founder of LEVICK, Barry Bennett, founder of Avenue Strategies, and Manuel Ortiz, founder of VantageKnight.

ABERMAN: So, give me what’s happening in Washington. Let’s start with taxes. That seems to be something that a lot of people care about. I’ve seen a lot of proposals. Has there been any action? What’s going on?

BENNETT: Well, everybody’s paying a little bit less. The coffers are filling more rapidly than ever, but coffers can’t keep up with our desire to spend. Unfortunately, eventually, the truth is going to have to hit this town very hard. But right now, we just continue to look the other way and pretend it’s not happening.

ABERMAN: You mean from the standpoint of just the realities we collect, what, 17 percent of GNP in taxes and spend 23 or so on government? It’s just it’s not sustainable. The perspective is it’s not sustainable, but there’s there’s conflict about how to address that. You can cut expenses, which Congress seems to be unable to do so far. Or you can raise taxes. I see and hear that a lot from Democratic advisers.

ORTIZ: Not many subjects change the bottom line of a company more than taxes. The Trump GOP tax bill did a lot to lower corporate taxes, and reform the way offshore taxes were being treated by the tax code. But it was done so quickly that there’s a ton of technical corrections and issues that they’ve got to fix. So, there’s bipartisan agreement that there needs to be a tax corrections bill. So, folks are anticipating and working on that. The politics of that are similar to Obamacare and the Medicaid field and the healthcare field, where it got passed by only Democrats.

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So there’s a lot of resentment back and forth on such a big tax reform. The first one to be done since the 80s. And now, they know they need to rework to package again. But the politics are so tricky. So, folks are looking to tax extenders and other things, and looking at the end of the year type of big bill to put certain tax provisions that hurt or help bottom line, depending on where you sit.

ABERMAN: It’s interesting to me that, you look at something complex like the tax bill. You know, just a very narrow example, which I’ve looked at. You know, the idea of driving money into specific parts of the country. People who want to invest for risk, you know, like venture investing, they can’t figure out whether or not the rules will allow them to do it. And that would be something that would be good to clarify. Are there areas where there is a bipartisan acknowledgement that there need to be technical changes made in how the country functions that can transcend the polarization? Do you see that happening?

BENNETT: You know, I think it actually has to start with an education campaign. People have to understand a lot more about how much wealth there is out there, what you can do to tax it, what the tax effect means. I mean, Bill Gates is now the richest man in the world. He could afford to build 20 Wilson Bridges. So, he’s got a lot of money. But we could take all of his money and not make a dent in that highway trust fund. It’s easy to throw out solutions about, you know, we’re going to just take all of Bill Gates’ wealth. Even that doesn’t get us anywhere near where we need to be.

LEVICK: Haven’t we in fact, gone backwards? George Will would argue that we never created a deficit, we never borrowed from the future, unless it was for the future. It was for highways, it was for the military. But now, we do it as an accounting gimmick to help us get reelected. And as Jonathan says, not have to worry about paying the piper now.

BENNETT: Absolutely. I think I think debt is a good thing. If you’re using debt to build a building on a campus, or building a bridge is fine with debt, but borrowing money to make transfer payments is absurd.

ABERMAN: I think that that’s really the fundamental question that I see as a former financial service professional. And I’m a Democrat, and yet, I know that at some point the books have to balance, otherwise we become Greece. And I’m sympathetic to that. But I find when I try to have conversations about that on either side of the aisle right now, it’s very hard to have a rational conversation.

ORTIZ: Well, one of the things that the lawmakers that passed the tax bill were counting on was, for as you reduce the corporate rate, you have these companies reinvesting in other things, using that money to grow the economy. I guess to Barry’s point, if you issue debt to make the economy grow, and your GDP is up, jobs are down, then the economics would say that’s a good that’s a good deal, because you’re growing the economy. We’ve seen that in other places that tried to cut themselves to drive off economic crisis. It doesn’t work very well. Greece comes to mind.

ABERMAN: Austerity doesn’t create growth.

ORTIZ: I think that’s what people are counting on. The New York Times had a piece on some of the corporations, which, I didn’t necessarily think it was all that fair. But the point was that the corporations were doing what they said they would do in terms of creating jobs and so on. Fedex, for example. And I have to tell you, Fred Smith is, in my view, one of the best CEOs out there. And I think they’ve done a pretty good job of using that money and recapitalizing some of their pension spending. You know, Mr. Smith had a few priorities. Certainly lowering corporate rates was one of them. He gave a couple of speeches in D.C. to that effect. So, I thought he got a little kind of a bum deal there, that I know he took personally, because he invited the editor of the New York Times to debate policy.

But anyway, the point being, tax committees have usually, traditionally, been less political or partisan than other committees. And the regular order of things works. And I could see something coming together, whether it’s extenders or another package, coming together at the end of the year that tries to address that type of growth or, you know, solar taxes, renewable taxes, some other trade between groups that come together and get some sort of provision to try to do stimulus.

BENNETT: You know, capital is piling up in the country at record levels. I mean, Apple is sitting on tons of cash.

ABERMAN: Well, arguably, the stock market is being driven by all this liquidity. It’s got no place to go.

BENNETT: Right. So I think the one thing that the government could do that it’s not currently doing is, one, investors want certainty. Right. They want to lower the risk as much as possible. So, some kind of long term certainty is vitally important, but we also need to use the levers in these tax committees to incentivize companies like Apple. I mean, the president was down in Austin yesterday, where they’re going to make that the new Apple Macbook, Pro X 15, whatever it is in Texas.

And that’s very exciting. There’s a cell phone that’s being manufactured now in Texas. I think we could be on the cusp of this manufacturing renaissance. The capital is here. We just need the right government incentives, perhaps, or at least the government encouragement and cheerleading, to start bringing these new factories into America, who, granted, I mean, the labor is going to be much, much less. But even if a factory creates 50 instead of 500, those are 50 new important jobs.

LEVICK: A couple thoughts on that. One is, I hope that you’re right regarding the manufacturing renaissance, and you’re certainly right in terms of labor costs. But one area that I don’t think we’ve explored as much is that: we have in America the ability to be more efficient, from a manufacturing point of view, that can more than make up for the delta in labor costs. But the other issue is, in terms of the president’s visit to the Apple factory: it’s a six year old factory that predates him, by his administration by three years.

ABERMAN: I’m really concerned about whether or not we can resolve these things and balance our books. What’s driving us apart, Richard? I know you’ve got a lot of historical context, you travel around the world. Is this an American phenomenon, a national phenomenon? What do you think?

LEVICK: There’s clearly a global phenomenon. And, you know, I’m not sure what part is driving what. Is it the politics, or is it the disruption led by technology? I sort of lean towards the technological disruption, and I don’t think that the disruption is here per se. It’s here for newspapers, it’s here for radio, it’s here for other media, and it’s here for many of our jobs. But we all know, and this is where the fear factor comes in, we’re at the very beginning of the inverted hockey stick. And I think that, you know, recently I was a guest lecturing at a graduate business school. And they asked the question of disruption. They asked the question of income inequality. And clearly, there was fear. We’re afraid we’re not going to do as well. No matter how many more degrees, skills that we have than our parents did. And I think it’s that fear that’s driving. It’s the fear that the future equals less. And because of that, scarcity mentality means we’re all taking what’s ours now, and we’re not leaving any of the seeds in the ground to be harvested later.

ABERMAN: You know, it’s funny you talk scarcity mentality, because I find when I talk with my peers that are well off, there is in a lot of cases almost a hysterical fear that the people are going to tax them like crazy, they’re going to lose everything. And when I talk with friends that are progressive or socialist in politics, they’re absolutely convinced that that the rich people need to be taxed like crazy, and we need to do redistribution. I mean, I’ll tell you, I don’t think either extreme position actually will get us to the right outcome. When you go off and talk with people from the perspective of advising people on how to manage Washington, or work with people who are politically engaged, how do you counsel them, or can you counsel them to move off these extreme positions?

ORTIZ: Well, let me take a stab at that. What I hear all the time from concerned CEOs is the sound bites and the anger, the notion of this income inequality, the middle class. We’re losing the middle class. The rich are getting richer. The poor are getting poorer. That policy gets lost in this legislating or policymaking, and making good policy work for all Americans. And so, we get back to the basics. And my counsel to them is to lead with substance, lead with data. I think being a good advocate has changed through the years, where in the old days it could have been sitting down and having a good relationship with someone, through knowing a person for a long time.

Now, it’s more about narratives and data, and projections and numbers. So, you look at the two areas that we’ve been discussing, namely taxes, and I would put in trade also, we have an incredibly troublesome political environment around both. Yet, we’re likely heading to, at the end of the year, if a budget deal can get done and appropriations get done, we’ll have the renamed NAFTA package done by the House. And we’ll likely have a tax package that aims to regulate the economy. So, notwithstanding the toxicity out there, Congress is working back to the theme of that.

ABERMAN: So notwithstanding the rhetoric that’s external, there are things happening. Barry, what do you see when you talk with folks on the Republican side of things? I mean, are they moderating? And do you think they’ll ever moderate, and be more interested in compromising?

BENNETT: You know, when I travel the country or internationally, the frequently most asked question I get is: what the heck is going on? And I think we’re at this point where convergence is not too strong a word, where social media has now made everybody who has an opinion feel free to amplify it, to the point where some mediums are completely worthless. But we’re also at this tectonic shift in an electoral realignment. If you look at, I’ll pick on seniors as a demographic group, George Bush lost seniors both times. John McCain lost seniors. Mitt Romney lost seniors. Donald Trump comes along and wins seniors by nine points. Why? It’s not because he has some kind of secret sauce, right? It’s who constitutes seniors has changed. The New Dealers are dead. I would prefer to say they’re no longer participating in the democratic process. But they’ve been replaced by their sons or daughters, and they have a very different affinity for government.

I mean, my grandparents, my grandfather served in World War Two, the G.I. Bill, all those programs. They helped him. He thought government helped him. He was a lifelong Democrat. My mother, my 80 year old mother, who’s now a senior, doesn’t think the government’s ever done anything to help her. Her generation is the first that didn’t serve 30 years at a company, get a defined guaranteed pension benefit. And so, they have a much, much, much lower affinity towards government. So that whole thing is change. We’re turning what we thought we understood about the silos of Democrat voters, Republican voters, and it’s kind of being overturned. And it’s all going to sort out before we can really figure out how it is we come to some kind of solution.

ABERMAN: I think that’s right. I also think this overturning phenomena you describe, you know, it plays out, for example, in England with Brexit. I mean, Brexit does not cut across Labour and Conservative Party lines at all. And what’s going in Italy with politics, we could go on and on. And here’s my theory. It seems to me that we’re at a moment in time where massive changes are causing people to really, really be angry, and look for simple solutions that will work. And ultimately, because the country, and most countries are 50/50 split roughly, nothing’s really going to change. And my theory is that sometime soon, maybe in our electoral cycle or so, people are just going to get exhausted. And I think that’s going to be the most interesting and dangerous moment for our country, because at that point, people either opt out completely or they actually will get more involved politically, and force their politicians to be more consensus-driven.

LEVICK: And first, we’re going to see record turnout. That’s what we’re seeing in the off year elections, and so we saw in Virginia, we’re seeing record turnout. And I think that will happen first before there is this giving up. But, Jonathan, you’re right that: what happens next? Is that the Iron Age, which is the bottom of the cycle?

BENNETT: Well, I mean, I think that there’s a large portion of America, maybe as much as 30 percent of people live in a state where Democrats control everything in that state. And then there’s another 20 percent of America who lives in a state where the Republicans control everything in that state. So when we look, we see America as a 50/50. Well, it is. But like Ohio, where I grew up, always had a million more registered Democrats than Republicans. Today, it 750 thousand more Republicans than Democrats. To assume that the average Ohio voter and the average California voter have anything in common, that’s kind of a big assumption.

LEVICK: Where does that take us? It’s pulling apart the seams of the fabric of America.

BENNETT: Yeah. I mean, I during the campaign trail, I spent a lot of time on cable news, unfortunately. But, you know, in the green rooms, I would sit with my Democrat strategists. I’m like, how do we get out of this anger period? Right. And consensus always was that in good economic times, that people care less about politics, and that kind of starts to subside. But what we’ve seen are some, frankly, very good economic times. And the anger has done nothing but exacerbate. I just saw a poll where 75 percent of people say that their friends and neighbors are more angry today than they were four years ago, which is a little scary. More than a little scary.

ABERMAN: Well, I don’t want to end the show with that last sound bite, because I agree with you. It is scary. I’m gonna ask you just quickly, Richard, what’s your biggest reason for optimism about how this is going to turn out?

LEVICK: You know, I keep getting asked that question, and I don’t have an answer other than to look historically and see that we keep getting up each morning, and we keep marching forward. I do think a great reason for optimism is the two other people in the studio with us, because they’re among the deepest insiders in Washington, among the kindest people. And we’ve worked together on multiple projects. And I think that kind of wisdom carries us forward.

ORTIZ: I have an unbelievably strong belief that the American public are wise, and in this new age of information, all the information out there is available, that the country will be able to choose wise leaders that will bring solutions to them. We, as a country, have to figure out income inequality and the dying middle class. And once that’s done, I think the institution will be better.

BENNETT: You know, I’m not terribly optimistic to say the truth. I think this is probably the new normal, and we’re gonna have to get used to it for a while, maybe a decade or two. I mean, these politicians are not very popular right now. I mean, I love the stat that, you know, Donald Trump’s approval rating is, what, 43, 44 percent, which is historically awful, but it also makes him the most popular politician in America today.

ABERMAN: That’s a very good point. Well, I’ll tell you. I’m optimistic. I’m optimistic, because 10 and 20 years seems like a long time, but in the history of society and civilization, it’s but an eye blink. And the Roman Empire lasted four thousand years. Governments and countries will subside, and they’ll continue. If the culture is strong and the United States, as far as I’m concerned, it was a great experiment 250 years ago, and will be great experiment for years to come. Gentlemen, thanks a lot for taking the time to join me.

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