Wall Street Makes Nice

One Letter Spurs Another

Posted June 2, 2008 at 6:41pm

Wall Street’s most powerful lobby just learned the lesson that while dollars are the currency of the markets, words are the coin of the realm on Capitol Hill.

The Securities Industry and Financial Markets Association ruffled feathers among the majority staff of the House Ways and Means Committee last month by expressing only qualified support for a package of tax extensions. Democrats on the panel had labored to make sure the bill included a major industry priority — one that weighed in at $4 billion. But in a letter to Chairman Charlie Rangel (D-N.Y.), SIFMA tempered its thanks by pointing out concerns about the offsets tapped to cover the overall measure’s cost.

Democratic staffers — and soon after, lobbyists for SIFMA member companies who had not approved the letter — immediately complained, according to several people close to the situation. That outcry prompted an unusual move by the trade association: a follow-up letter aimed at damage control.

Several people close to the association said the episode exposed a vein of lingering tension between the Republican-dominated group and the relatively new Democratic majority on the panel.

Some called SIFMA’s misstep an honest mistake, a result of the group overestimating members’ objections to the revenue raisers in the bill and therefore offering a response that was evenhanded to a fault. SIFMA spokesmen and Rangel played down the significance of the group’s dueling letters.

“As is common practice, before the markup, SIFMA provided a letter to the committee laying out our views,” SIFMA’s Travis Larson said. “After the markup, given additional input from a broader range of our membership, we submitted a second letter to the committee. SIFMA has had, and continues to have, a good working relationship with the committee.”

Ways and Means spokesman Matthew Beck said, “They sent a letter across that expressed support but outlined some concerns. They’ve since reaffirmed their strong support for the measure, and we expect to have that support moving forward.”

Several Democratic lobbyists, however, saw partisan motives at work in SIFMA’s maneuvering. They said the group, whose lobbying ranks includes Richard Hunt — former chief of staff to Rep. Jim McCrery (La.), the top Republican on Ways and Means — set out to help Republicans make their argument that extensions of current tax breaks don’t need to be offset.

Democratic pay-as-you-go budget rules require that all new tax cuts, including tax extensions, be offset. But Republicans don’t believe PAYGO should apply to tax cuts, extensions or otherwise.

“That’s the heart of Republican theology right now,” a Democratic lobbyist said. “And it’s at the heart of the debate between the two parties.”

Another Democratic lobbyist for a SIFMA member company suggested the group was doing the bidding of panel’s Republicans.

“If SIFMA were run differently — and had a different relationship with the majority staff — they wouldn’t have gotten this kind of heavy-handed response,” the lobbyist said. “It reflected less a rejection of the legitimate expression of a viewpoint than complete impatience for passive-aggressive shots at the majority and its commitment to PAYGO.”

Several financial services lobbyists said the frustration of the majority staffers on the tax panel was compounded by the fact that the extension they helped SIFMA secure was no easy lift.

The “active financing” provision is worth $4 billion over a year. It preserves an exception to the ban on deferring income earned overseas. Wall Street lobbyists argue it is critical to ensuring American companies operating in other countries can compete with foreign multinationals by exempting them from double taxation.

It was not going to be in Rangel’s original mark of the extenders package, sending financial services industry lobbyists into a flurry when they discovered it last month. They prevailed on several Democratic Ways and Means members to help make their argument to Rangel, with Reps. Joe Crowley (N.Y.) and Richard Neal (Mass.) taking the lead.

In a huddle on the night of May 13, two days before the markup, Democratic panel members persuaded Rangel to add the extension to his package.

Over the next two days, Rangel received a number of letters expressing unequivocal support for the measure. They included one from 18 companies, at least six of which are SIFMA members; one from the Rob Nichols, president of the Financial Services Forum; and another from Nick Calio, a former Bush administration lobbyist who now runs Citigroup’s Washington, D.C., office.

The original SIFMA letter, dated May 15 and signed by Hunt and Scott DeFife, another top lobbyist for the group and former aide to House Majority Leader Steny Hoyer (D-Md.), said SIFMA appreciated the decision to include the active-financing provision, before noting that the group remains concerned about two offsets.

The blowback was immediate. At the markup that day, committee staffers, clearly angry, pressed lobbyists for SIFMA member companies about why the group had stopped short of endorsing the measure, according to lobbyists in attendance.

“The letter was ill-advised,” Neal said in a brief interview, adding later that SIFMA was “notified the letter was ill-advised.”

On May 20, SIFMA convened a conference call with lobbyists of member companies to make suggestions for a follow-up letter. With the package headed to the House floor the next day, they had little time to act. This time, the message from the group prominently featured a statement missing from the first letter — “SIFMA supports House passage” of the package — while stepping gingerly around the offsets.

The next day, the House approved the measure by a comfortable margin, 263-160. A companion measure awaits Senate action.

Some insiders said the second missive did the trick, effectively containing any fallout. Another possible mitigating factor is that the industry continues to be one of Rangel’s most reliable sources of campaign contributions. The securities and investment industry has been his top backer so far this Congress, according to the Center for Responsive Politics. Of the five most generous companies in terms of employee contributions to his coffers, four are SIFMA members.

One lobbyist for a SIFMA member company said Rangel’s staff would be “professional” with the group and continue to keep its door open. But, this lobbyist said, “as a member company, it’s not clear to us that SIFMA will be especially effective on tax issues going forward.”