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Why one of Wall Street's titans is on the side of the tax reformers — and maybe Joe Biden and Janet Yellen

Submitted by Tech Insider on April 8, 2021 - 12:29pm

JPMorgan CEO Jamie Dimon

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Tax policy has taken center stage in recent weeks. President Joe Biden is aiming to lift tax rates on wealthy Americans and corporations in order to offset the costs of his $2.3 trillion infrastructure proposal. Republicans have balked at the plan, arguing such changes cut into the country's global competitiveness.

One of the leading voices of Wall Street's center-left has weighed in, and he said it's time for a change.

Neither side is particularly right or wrong, JPMorgan CEO Jamie Dimon said Wednesday in an annual letter to shareholders, before going on to say that one side basically is.

A tax-code overhaul can create a more equitable and efficient economy following the coronavirus pandemic, he concluded, highlighting an "extraordinary number" of loopholes and exemptions in the tax code that aren't about competitiveness and cement economic imbalances that should instead be targeted.

The government should instead focus on redistributing income through tax credits that directly help lower- and middle-income Americans. Measures like the earned income tax credit and the child tax credit improve labor force participation and help economic growth, Dimon said. Exactly that kind of redistribution was included in Biden's historic $1.9 trillion stimulus passed in March.

Broadly, he wrote that a tax overhaul can mean the difference between a robust recovery and a slowed rebound that leaves many Americans still struggling. The country should push for a tax code that enables collection of all taxes owed, is transparent and simple, and can be adjusted in times of growth and decline, he wrote. He was also scathing on the subject of tax loopholes.

Dimon says big business takes advantage of unfair loopholes

"Private equity, venture capital, and real estate still get carried interest, and sugar and cotton, for some unknown reason, still get government subsidies," he said. "Suffice it to say, industry gets its share of tax breaks and forms of protection from legitimate competition."

Certain elements of Biden's tax proposals already stand to shift the balance away from industry. The president has pitched a corporate tax rate of 28%, up from 21% but still down from the 35% rate seen for decades. More recently, Treasury Secretary Janet Yellen proposed a global minimum corporate tax rate that aims to level the playing field and keep firms from fleeing the US for tax havens.

"We must remember that the concepts of free enterprise, rugged individualism, and entrepreneurship are not incompatible with meaningful safety nets and the desire to lift up our disadvantaged citizens," Dimon said. "If the wealthy paid more in taxes and the money was put to good use, they would be the main beneficiaries of a stronger economy."

The Wednesday letter isn't the first time Dimon has advocated on policy. The CEO reportedly turned down the opportunity to serve as President Donald Trump's Treasury Secretary in 2016. And when his name came up as a potential Treasury Secretary for the Biden administration, Dimon clarified he "never coveted the job."

That hasn't kept some influential names from backing the chief executive as a strong candidate for a government role. Legendary investor Warren Buffett said in 2012 that Dimon would be the best choice for a Treasury Secretary in President Barack Obama's second term, adding the CEO would be particularly adept at handling market problems in the wake of the financial crisis.

Although mainly a donor to Democrats in the past, Dimon has refused to identify with a single party. He told CNBC in 2019 that "my heart is Democratic but my brain is kind of Republican," although that marked significant progress from a time when he considered himself "barely a Democrat."

For the time being, no signs point to Dimon leaving Wall Street. Yet his latest annual letter suggests he sides with Biden on tax reform, albeit at a safely nonpartisan distance.

JPMorgan did not immediately respond to a request for comment.

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