Leon Cooperman says the coronavirus crisis will change capitalism forever and taxes have to go up
Published Thu, Apr 23 20208:59 AM EDTUpdated Moments Ago
Jesse Pound
@jesserpoundBillionaire investor Leon Cooperman said on CNBC’s “Squawk Box” on Thursday that the coronavirus crisis will “likely” change capitalism forever and that taxes will need to be raised soon.
“When the government is called upon to protect you on the downside, they have every right to regulate you on the upside,” Cooperman said. “So capitalism is changed.”
The chairman and CEO of Omega Family Office said the country is shifting to the left and that taxes will have to go up regardless of who wins the presidential election in November.
“Quickly if Biden wins, slowly if Trump wins, but taxes have to go up. So things like carried interest, capital gains taxes, the ability to roll over real estate sales tax free, all that stuff is going to have to be eliminated. For the good, by the way,” Cooperman said.
The billionaire said last week that the U.S. government should not let companies go bankrupt due to economic destruction caused by the coronavirus pandemic. Some of the provisions in the CARES Act directed at major companies, including a program for airlines, included restrictions on stock buybacks and executive pay for those that accepted the money.
Cooperman has previously said that he supported higher tax rates but strongly opposed the idea of a wealth tax, such as the plan proposed by Massachussetts Sen. Elizabeth Warren during the Democratic primary.
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What might the future hold out of this?
Everyone gets bailed out now, apparently (bankruptcy is just too painful personally and politically now)?
States should go bankrupt or get bailouts (where does that end)?
Some kind of universal income (hello Andrew Yang)?
A public Medicare option (going exclusively single payer still seems difficult and distant)?
Public ownership and more subsidies for companies vital to national interest (wide swath of companies could apply here, medical devices, PPE and medicines in spot light now)?
Widespread fallout of Coronavirus will push further action on climate change to avoid other potential economic and humanitarian catastrophes?
Capitalism isn't going away. This is a crisis like none seen before in the US & it will take years to recover. Let's face it, WWII caused the recovery of the Great Depression not the WPA.
I've said this before, but trends already in motion - death of brick/mortar retail, massive education reforms, changes in work/life integration, & the implementation of telework, telemedicine, telelaw - are being accelerated. That will cause job shifting & company re-organizations just as other changes in technology have. In the meantime, there will be some temporary government assistance. That's not socialism; it's a response to a crisis.
Corporations need to do their part. Walt Disney's grand-niece made a statement this week that it's obscene for Disney to furlough thousands of $15/hour workers while executive compensation is at $47mm (down from $65mm the previous year) for the CEO. Her exact words were "What The Actual F***?"
I'd like to hear from an economist rather than a cherry-picking investor like Cooperman w/roots at Goldman Sachs & a $5mm SEC fine.
This crisis is a wake up call for many people accustomed to just living their busy lives and stuff appears at their home via amazon or other delivery services just in time. I suspect hoarding will now become a "good thing" for many who will now have entire rooms stocked with TP and other essentials.
I was using Cooperman’s interview on CNBC just as a means to start some broader discussion. I’ll come back later tonight with some thoughts.
I'm curious about what we view as essential in the post-COVID U.S. and if that will reflect in the actual value of services and goods. The rich can only make money if the market is active, if it hits a brick wall no one can spend and the system breaks down rather quickly.
Some goods and services have proven to be necessary (food markets, freight transport) while others have proven to be luxuries that we took for granted (sports, movies). What of the health care industry? Nurses have always been priceless, but they have been indispensable during the pandemic. Every country fighting COVID-19 is proving health care is more of a right than an insurance company's bottom line.
I'm not sure if COVID-19 will change U.S. capitalism, but I think it's proven just how precipitous so many people live - 2 paychecks away from an empty bank account - while others will hardly feel the financial sting at all. But those at the top 1% are dependent on the market working so someone can save up and buy an iphone that gets more and more expensive every year. Will there be a financial cushion put in place at the Federal level, another piggy bank of sorts, to break open in the event of another economic brick wall?
But then, probably nothing will change. People have short memories.
Capitalism is always changing, or maybe evolving, through the years.
People like to say the profits are private, the losses are public. We are on our second massive rescue package in a little over 10 years.
This health crisis is similar to a hundred year type flood thing, an act of God - it's not like the economy or policy or greed ran it off a cliff this time. None-the-less we are in shambles. And when it comes back together I think there is a chance we see some changes.
I'm not talking about changes in the way businesses operate online vs physical stores or how restaurants space tables. More people working from home perhaps. That is going to happen.
Let's just take labor for instance. We are seeing protests and strikes for safer conditions and benefits like we haven't seen before. AOC has implied work in America is oppression. Whether or not she has a point about economic inequality or insecurity isn't my point. The point is there might be some legs on this movement that runs right into the election with a Democrat back in the White House and perhaps a Democrat controlled Senate.
Not that better pay, better benefits and worker protections is bad. That is what unions are all about.
What do corporations do with unionized labor? They try and avoid it, or water down their exposure to it with locating facilities in nonunion states or abroad.
It's something to think about.
There are going to be some unexpected changes that come from this. And with Joe Biden and the party going further left, we could see new regulations and pressure on businesses not seen before. Then the question becomes how do companies respond? In some cases, how will the government allow them to respond?
For whatever Cooperman says, the one thing that jumps out is that "if government protects you on the downside, they have every right to regulate you on the upside". And he's correct.
We really don't have capitalism in the true sense of the word, because businesses are usually not left to suffer the negative consequences that come with business cycles/recessions or unexpected events and market forces. Up to this point, unless your name is Lehman Brothers, everyone gets saved...or in the case of Chrysler, you get a shotgun wedding partner to save you.
That isn't how capitalism is supposed to work. There is a thing with creative destruction.
But nobody likes the destruction part. I'm not saying I do, it just that we have something closer to a managed economy that capitalism.
And with the Democrats potentially having all 3 houses for 2021, what might their management style be for this every heavy handed and involved federal government be? Good? Bad? Indifferent? I don't know. But I do know some things are going to be changing out of this.
Expanded safety nets? More safety nets? Some continuing basic income for those who don't want to return to work due to certain unsafe or inequitable conditions? Caps on CEO pay? More mandates on business to suit this political policy agenda or that political policy agenda?
I'm ending a post with questions again. So my mind just wanders a little bit on what the future holds. I think a change a gonna come.
But then, probably nothing will change. People have short memories.
Yes they do and I think plenty will change but this change will vary from household to household. Priorities for the individual family will evolve and as they do society and routine will bend to accommodate. Prices will come down and greed and profits will be on full display. More manufacturing will take place here as people and industry streamline and decide for themselves what is really important. Want to see real change and fast?...Go to the polls at every opportunity and vote out EVERY single Congressman and Senator who've held their seat for more than eight years, do your homework; sadly I am afraid this is the one place where people and their short memories could change things, but will choose not to.
I can't recall his name at the moment, but he's a multi-billionaire hedge fund manager who was interviewed last week on one of the NPR shows ("All Things Considered" maybe?) and he was adamant that what really needs addressing as we move out of this pandemic is the ever growing income inequality in America.
He pointed out, as have many economists and historians over the past few years, that whenever income inequality has grown to extremes like we have again in this third century of the American republic, very bad things happen.
He suggested a complete revamping of the tax code to prevent the hoarding of wealth by the already ultra wealthy ownership class, a basic universal health program for all Americans, and a basic income for every American citizen along with ending some of the safety net programs currently in place.
Part of the discussion included his opinion that capitalism is unsustainable in its current form and must evolve in order to survive. He stated that our fixation on what we consider capitalism now and before is meaningless really as capitalism can be whatever we want it to be and refusing to reform it out of some adoration or fear is absurd.
Elizabeth Warren and Alexandria Ocasio-Cortez have an idea. According to this op-ed it is "triply wrongheaded".
