HEDGE PAPERS NO. 70: LORI LIGHTFOOT’S FAVORED FEW

Download as PDF or read below

422,000 reasons the Mayor won’t tax the rich to fund our schools

There’s a revenue raiser out there that you likely won’t hear about from Mayor Lori Lightfoot.  A financial transactions tax of $1-$2 on all options traded on the Chicago Mercantile Exchange and the Chicago Board of Options is projected to raise between $10 and $12 billion per year for the state of Illinois.[1]  That’s real money, that could go a long way to improving the quality of life for millions of Illinoisans.  Such a tax exists in at least forty other countries, including one in the United Kingdom that covers the London Stock Exchange—the seventh largest exchange in the world as of 2018.[2]  Combined, countries with these financial transaction taxes raised $38 billion in 2011 alone, according to one estimate.[3]  As an added benefit, the Congressional Research Service has opined that financial transaction taxes could reduce both market volatility and speculation.[4] 

Given the benefits to Illinois budget, it could be puzzling that you haven’t heard Chicago Mayor Lori Lightfoot champion a financial transactions tax as a solution to the City’s financial issues.  One possible explanation can be found by examining her donors: Mayor Lightfoot has taken $422,000 from Chicago-area investment firms who would likely be affected by a financial transaction tax.   

Donor

Affiliation

Contribution to Mayor Lightfoot

Donald R Wilson

Founder, DRW Holdings

$100,000

Michael Sacks

Chariman, GCM Grosvenor

$50,000

Cari Sacks

Spouse of Michael Sacks

$50,000

Kenneth S Brody

Partner, DRW Holdings

$50,000

Daniel Tierney

Founder, Getco/Adviser KCG Holdings

$50,000

Donald R Wilson

Founder, DRW Holdings

$25,000

David B Nelson

Partner, DRW Holdings

$25,000

Kevin B Kroeger

Partner, DRW Holdings

$25,000

Stephen Schuler

Founder, Getco

$25,000

Daniel Tierney

Founder, Getco/Adviser KCG Holdings

$10,000

Jeffrey Levoff

Partner, DRW Holdings

$10,000

David J Walsh

Special advisor to CEO, DRW Holdings

$1,000

Stephen Schuler

Founder, Getco

$1,000

Michael Palumbo

Founder, MJP Capital

$10,000

James W Mabie

Investment Manager, Chicago Capital

$5,000

RMS Investment Group Inc.

 

$2,500

RMS Investment Group Inc.

 

$2,500

 

Mayor Lightfoot’s donors include a number of individuals linked to DRW Holdings, a high-frequency trading firm based in Chicago that counted Rahm Emanuel as one of its major political allies, as we wrote about in Hedge Clippers Paper No. 7.[5]  High frequency trading firms like DRW trade huge volumes of options and futures contracts, and would be forced to pay a lion’s share of any proposed financial transaction tax.

Mayor Lightfoot’s campaign windfall from DRW Trading’s Donald Wilson was $125,000, which Wilson gifted across two donations in less than three months.  As a point of comparison, Wilson donated a total of $162,200 to Rahm Emanuel’s mayoral campaigns over a period of seven years.  When Wilson opened his checkbook for Rahm, the most he was willing to shell out at once was $50,000, half of what he gave to Mayor Lightfoot on a single day in April 2019.  

Rahm Emanuel repaid Donald Wilson generously. In 2011, Rahm flew to Washington, DC on Wilson’s private jet to meet with regulators from the Commodity Futures Trading Commission (CFTC), in one of his first Washington, DC trips after being elected mayor.[6]  At the time of this trip, Donald Wilson had only directly contributed $50,000 to Rahm’s mayoral committee (other employees of DRW had donated to Rahm by that time).  Rahm’s 2011 trip to visit federal regulators with his high-speed trading pals had to do with the firm’s reluctance to be subjected to capital reserve requirements — a financial stability measure that was strengthened after the 2009 recession. Rahm’s influence in Washington must have helped: DRW and similar firms were not subjected to these regulations.

If Donald Wilson could get Rahm Emanuel to fly to DC for $50,000, just imagine what he has in store for Chicago’s newly installed mayor. 

CME Group donations

CME Group, formed out of the 2007 merger between the Chicago Mercantile Exchange and the Chicago Board of Trade, operates the largest futures and options market in the world.[7]  Headquartered in Chicago, CME Group continues to operate both Chicago-based exchanges.  In Springfield, CME Group has been a leading lobby against proposals to institute a financial transactions tax.  In addition to their lobbying, CME Group has waged a public campaign opposing the LaSalle Street Tax.[8]  CME Group president Terrance Duffy testified at a 2016 Illinois House and Senate Revenue Committee Joint Hearing on a financial transactions tax proposal, implicitly threatening to relocate CME out of state if such a tax were to be implemented.[9]

With profits of nearly $10bn over the past five years, CME Group could afford to pay the portion of the transactions tax that they would find themselves unable to pass on to the firms trading on their exchange.[10]  But the company is persistent in their opposition, claiming that a financial transactions tax would be a “detriment to the residents and businesses of the city of Chicago as well as the state of Illinois.”[11]  In their annual report to shareholders, CME Group has called a financial transaction tax one of their “key areas of focus in the regulatory environment” and have consistently listed the imposition of a financial transaction tax as a possible business risk.[12]

As a candidate, Mayor Lightfoot offered technocratic fixes to the City’s budget woes, pushing for legalizing casino gambling and “scouring every department” to ferret out cuts.[13]  Legalized gambling would certainly be popular with her largest donors—the family of casino magnate Neil Bluhm.  With so many of her campaign contributors coming from the ranks of the city’s finance industry, it’s no wonder that Mayor Lori Lightfoot hasn’t thrown her support behind a financial transaction tax.

Mayor Lightfoot looks to help out the city by fattening the bottom line of casino magnates:

With the most obvious fix to the City’s revenue issues off the table, what does Mayor Lori Lightfoot propose to do to fix Chicago’s budget woes?  The answer won’t surprise anyone who has perused her campaign finance reports. Mayor Lightfoot wants a “a change to the tax structure to make a casino in Chicago viable.”  Casino gambling was legalized in the city in early 2019, but a recent report found that casino operators faced the prospect of paltry “single-digit profit margins.”[14]  

That Mayor Lightfoot is carrying water for the casino industry is hardly surprising.  Casino operators are some of her largest donors. The family of casino magnate Neil Bluhm donated a total of $212,500 to Mayor Lightfoot’s campaign committee, and Leslie Bluhm co-hosted a fundraiser for Mayor Lightfoot.[15]  An investigation by the Chicago Sun-Times noted multiple additional funding ties to the casino industry.  The Sun-Times found that “Greg Carlin, a top Rivers executive, contributed $1,000 to Mayor Lightfoot’s campaign, records show. And Craig Duchossois, whose family operates Arlington International Racecourse in Arlington Heights with Churchill Downs, gave $50,000 to Mayor Lightfoot’s campaign.”[16] 

 

[1] http://lasallestreettax.org/faq/

[2] http://money.visualcapitalist.com/all-of-the-worlds-stock-exchanges-by-size/

[3] https://www.politico.eu/article/why-critics-are-wrong-about-a-financial-transaction-tax/

[4] https://fas.org/sgp/crs/misc/R42078.pdf

[5] http://hedgeclippers.org/rahm-emanuel/

[6] http://www.chicagotribune.com/news/local/politics/ct-rahm-emanuel-washington-connections-met-20150202-story.html#page=1

[7] https://www.reuters.com/companies/CME.O

[8] https://www.cmegroup.com/education/articles-and-reports/financial-transaction-tax-myths-vs-facts.html

[9] https://www.cmegroup.com/content/dam/cmegroup/media-room/speeches-and-comment-letters/2007-2016/Duffy_Chicago_Testimony_June_7.pdf

[10] http://investor.cmegroup.com/node/43571/html#sB79EF96DE1B09580537509D06FA26D98 past five years of net income totals $9.93bn.

[11] https://www.chicagobusiness.com/article/20180302/ISSUE01/180309980/lasalle-street-tax-will-jeopardize-industry-traders-argue

[12] http://investor.cmegroup.com/node/43571/html#sB79EF96DE1B09580537509D06FA26D98

[13] https://www.npr.org/local/309/2019/08/30/755826190/mayor-lori-lightfoot-outlines-her-plan-for-chicago-s-staggeringly-large-budget-gap

[14] https://www.nbcchicago.com/blogs/ward-room/chicago-casino-study-location-tax-539801311.html

[15] https://illinoissunshine.org/committees/34589/ ; https://chicago.suntimes.com/city-hall/2019/10/22/20927149/lightfoot-chicago-budget-property-taxes-parking-meters-casino-teachers-strike-city-council

[16] https://chicago.suntimes.com/city-hall/2019/10/22/20927149/lightfoot-chicago-budget-property-taxes-parking-meters-casino-teachers-strike-city-council

 

pdf button

Categories:

HedgePapers