Baby Formula, A Tax Hike, & The Late Show 2/18/26

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23:28Dr. Scott Gottlieb:Welcome back to Squawk Pod from CNBC. Here's Andrew Ross-Lorkin. New York City Mayor Zoran Mandani is delivering his preliminary budget proposal on Tuesday and threatening to raise property taxes as a last resort if he is unsuccessful in convincing Albany to raise taxes on the wealthy. Taxing the rich will put the city back on its firm financial footing, and taxing the rich at the scale that we proposed not only does that, but also advances the affordability agenda. Joining us right now is Partnership for New York City President and CEO Stephen Fulop. Good morning to you. Good morning. Okay, so do you think that this threat is going to turn into reality?

24:07Dr. Scott Gottlieb:Well, first of all, we anticipated it. I'll start there. So we were kind of prepared with what we wanted to say and point out. But I would tell you, I think it's a political mistake. I think that the governor has showed that she's not going to be bullied. So that was kind of the narrative. People blame the mayor for property taxes, regardless of how you frame it. And I think that giving two choices of taxes only kind of frames things in a way that makes us less competitive relative to other states. So, but I think the real question is, assuming he can't get the wealth tax going and he does want to balance the budget or maybe not.

24:42Dr. Scott Gottlieb:How would you do it? If I was looking to balance the budget, if I was the mayor. If you're the mayor and you're looking around at the money and you're saying, we don't really have the revenue to do all the things we want to do. Yes. What would you do? I think that there are a lot of options. First of all, New York City has entitlement programs that are unique to New York City on rent relief. Most of entitlement programs at the federal level. New York City has those that are astronomically expensive. The rent relief program. But he also ran on trying to make it more affordable for people to live in the city.

25:13Dr. Scott Gottlieb:But taxes and job creation leads to affordability as well. Housing growth takes a decade in time. He's on the right track there, but there's a lot of things you could do. Beyond that, if you want to have a constructive conversation around schools, I know people don't want to go there, but there was 1.1 million children in the schools. Today's 800 ,000. That is a fair conversation to have why the budget keeps increasing. I think that there are other things you can do. The challenge is that his political base is very difficult to please. And he's trying to navigate both the political base and the practicality of being an executive.

25:45Dr. Scott Gottlieb:And that's not an easy thing to do. What do you think the reaction is thus far to what's happening in California? By the way, I don't know if you saw what's happening in Seattle, the state of Washington. I mean, it's pretty wild. I think you could see an exodus from both of those places. Yeah. I spoke to the mayor and asked him about what was happening and this idea of whether he thought everyone's going to move to Miami. And he said he doesn't believe that. Not only does he not believe that the numbers, interestingly, even in the past couple of months, don't seem to be suggesting that business is leaving New York.

26:18Dr. Scott Gottlieb:In fact, it appears that business is coming to New York. And I believe that is giving him, meaning the mayor, you know, a little bit of a oomph in his step, if you will. Yeah, you can you can parse the data in a lot of different ways. So he would say there's more millionaires today in New York City. If you look at the share of millionaires relative to anywhere else, you would say it's decreased. You can make that argument and could have that all day. The reality is, if you do what he's proposing to do, taxes in New York City would be roughly 22 percent on the corporate side relative to New Jersey.

26:52Dr. Scott Gottlieb:New Jersey, a mile away, 11 percent. So you reach a tripwire at some point. If it's 100 % higher than a mile away, people will make this decision. The argument that he's made is that actually taxes in New York City on companies is lower, and he's trying to match New Jersey. Explain why. So he's being a little bit disingenuous in that, because when you layer on New York City taxes, MTA taxes, and the corporate tax for the state, it's roughly 17 % today. So if you mirror what New Jersey has in the corporate tax, you go to 22 % here. That's independent analysis of nonpartisan. So, you know, at some point you reach that tripwire.

27:29Dr. Scott Gottlieb:And the effective tax rate on the income side, right, is more than 50 percent for high earners here in New York. So, I mean, effectively the state or the city is your majority partner without doing the majority of the work. So it is a problem, ultimately. And you do reach a tripwire at some point. Do you think or are you hearing from anybody in the partnership for the city that they are going to leave the city? So you hear across the board that they are looking to grow elsewhere. That is for sure. picking up the entire operation is a tough thing to do for people that want to have a presence here.

28:01Dr. Scott Gottlieb:I was just going to say, J.P. Morgan just built this gorgeous new building right on Park Avenue. If you look at Texas, J.P. Morgan has more employees in Texas than they do in New York City for the first time. Texas has more employees in financial services than New York City for the first time. And what we try to point out is that Texas has a comprehensive strategy on how they're approaching this. New York is just kind of stuck in this kind of... What kind of reaction are you getting from the mayor on that front? I mean, look, we've had multiple conversations on that. I think we're in a place that, you know, he would say we agree to disagree.

28:32Dr. Scott Gottlieb:But the reality is that he's still navigating the transition from being a legislator to an executive. I think from an activist mindset to being more of the mayor, so to speak, in a responsible governing role. So I think a transition is going to take some time. No, I like some of the things. I'm just looking at some of the comments from your organization. It's not, it's got to be, have we said anything about other than raising taxes for trying to get, trying to figure things out? Nothing yet. And I think that our place is going to try to be to have a constructive conversation in figuring out solutions.

29:05If he wants to partner with the business community, I couldn't tell you. In this Mamdani mayorship, is there any chance that you talk about that rather than just more money coming in?

29:14Dr. Scott Gottlieb:So we've had constructive conversations. The question is really going to be around implementation. and, you know, we're six weeks in, so it's hard to kind of cast dispersions or say laterally one way or the other, but, you know, we're cautious because I think people are concerned about his actions when he does what he did yesterday. Maybe more importantly in the whole dynamic is actually the governor. Yes. And just give me your analysis of where you think her head ultimately is in terms of where New York State ultimately goes because she does have the cards in the end. The most important player is the governor.

29:49Dr. Scott Gottlieb:We are very supportive of the governor. Let's start there. The governor is not one. You're supportive of the governor because so far she's she's holding steady with you. That is correct. And I will tell you, but that's the reason why you support somebody in elected office. Right. When you have consistent views. But she's shown courage to push back on the left in this climate, which is a difficult thing to do. And she's not want to be bullied. So when the mayor gets up there yesterday and says, if you don't raise taxes on the wealthiest people, I'm going to do X, Y, Z. She has showed a willingness to push back.

30:18Dr. Scott Gottlieb:So, of course, we're going to be supportive of her. There was a number that came out, the shortfall. I don't know, was that in your interview with him? And then it was wrong because Wall Street bonuses took care of 60 % of the shortfall. Did it occur to the mayor that maybe Wall Street isn't the enemy? And it'd be nice to not drive everyone out of here. It's a good point. So he came out with a$12 billion budget deficit. We came out that day and said that that's inaccurate. It's going to shrink because of Wall Street. It's going to continue to shrink when the April revenue numbers come out because Wall Street is punching above its weight.

30:54Dr. Scott Gottlieb:And I'm just going to point out that most other states appreciate the biggest industries that they have. Texas appreciates the oil industry. New York City approaches financial services with skepticism. But what do you think is going on in California then? What do you think is going on in the state of Washington? I think you have a political party that has showed that they're just angry. The far left is angry and wants to be punitive. It's the reason that at rallies they say tax the rich. They don't chant fund child care. It's tax the rich. They just want somebody to have less money than they do because they view the system as being an equal.

31:26Dr. Scott Gottlieb:And they get to go on Colbert every night and talk about it. It always comes back. It always comes back to the media, Joe. It always comes back to the media. One side and they talk about it. Stephen, I want to thank you for coming in this morning. I appreciate it. Thank you. Fighting the good fight. Next on Squawk Pod, we're digging into the FDA's attempts to reform baby formula. We're also looking at the impact the agency's leadership is having on investments in health. Former FDA Commissioner Dr. Scott Gottlieb. Investment in vaccines is certainly being pulled back. And I think a lot of people are looking to pull back investments in cell and gene therapy as well right now because it looks like it's a harder space to invest in because of the unpredictability of the agency.

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34:13Dr. Scott Gottlieb:You're watching Squawk Box right here on CNBC. I'm Andrew Ross Dorkin along with Joe Kernan. Becky is off today. The FDA is getting ready to review infant formula products and processed foods. Join us now on this and other health issues. Former FDA Commissioner Scott Gottlieb is a CNBC contributor, serves on the boards of Alumina, Pfizer and United Health. And it's always good to see you. Good morning, Scott. Good morning. It's the latest. Is this Maha more anything that that you agree with in terms of this latest proposal? Look, there's a lot to agree with here. This proposal from the Kennedy, Secretary Kennedy, Operation Storkspeed, as he called it, It came after a March 2025 report from Consumer Reports that had tested about 40 different baby formulas and found high levels of certain inorganic metals in those baby formulas, some of which are trace amounts, which probably are going to be in anything we eat, fruits, vegetables, because we can detect things at very low levels, but some that certainly shouldn't have been there and were in higher levels than what the allowable limits are.

35:20Dr. Scott Gottlieb:And so this is a real concern. And so what I think the secretary is going to do is put more stringent requirements on testing of baby formulas to make sure that these heavy metals don't occur in these formulas at levels that could pose a risk to children. There's also a refrain among folks, including the secretary, that we don't see a lot of variety in baby formulas and new ingredients that could potentially be more healthful. I think that's a tougher issue because we have a drug standard in this country when it comes to baby formula in terms of how they're manufactured and how we regulate them versus Europe, which a lot of people point to, which has more of a food standard and allows more flexibility in how those formulas are derived and how they're made and what ingredients are included.

35:59Dr. Scott Gottlieb:We have that drug standard to help ensure that there aren't contaminants in formulas like, you know, bacteria that could cause outbreaks of foodborne illness. Europe tolerates a much higher level of outbreaks in baby formula than we do in the U.S., so we require drug-like manufacturing standards. And that limits the ability of manufacturers to reformulate these baby formulas. It's much more difficult to do that in the U.S. You have to run effectively a clinical trial, a growth study, that if you reformulate a baby formula in the United States, you have to feed it to children in a clinical study and make sure that their growth is maintained as it would have been on the prior formula.

36:31Dr. Scott Gottlieb:So it's a very costly, long process. And so what you see in the U.S. is most baby formula manufacturers really don't reformulate these products. They stick with old ingredients and old recipes, and that limits the variety on the market. What are we talking about in terms of, and you mentioned it in your pre-interview, is it called GRAS, the GRAS loophole? What's GRAS, G-R-A-S, that RFK talks about? It's problematic, isn't it, but he can't fix it? It is problematic. I think it's going to be challenging to fix through regulation alone. So this is a separate issue. This is generally regarded as safe.

37:06Dr. Scott Gottlieb:So we have a system in this country where food manufacturers can put new ingredients into the food supply by determining based on their own scientific analysis that they're generally regarded as safe. And this is a voluntary process. They submit a notice to the FDA that they want to include this new ingredient. The FDA has 180 days to act on that notice, or the manufacturer can put the ingredient into the food supply. Now, most reputable manufacturers will wait for the FDA to respond. They won't want to formulate a food product with a new ingredient where the FDA has no pind on it. But there is a so-called loophole, and this is what the secretary talks about, that allows manufacturers to self-certify and just put that ingredient into the food supply.

37:42Dr. Scott Gottlieb:And some small manufacturers and those who aren't, in my view, acting as responsibly will do that. They'll go ahead and do that. We looked at closing this so-called loophole where people could self-certify and put a new ingredient into the food supply. When I was there, we tried to do it through guidance and proposed a rule at the time. we drafted a rule, we determined that ultimately we couldn't do it without new authority from Congress. And so I think in a post-Chevron world with even less deference is given to regulatory agencies, it's going to be hard for them to do this through rulemaking alone.

38:11Dr. Scott Gottlieb:I think what they're likely to do when the secretary talks about this, if you read between the lines, I think they're likely to make a determination that certain of these ingredients they no longer view as safe. And I think once they do that, once they make a declaration and perhaps put out a list of ingredients that they're concerned about, you'll see food manufacturers voluntarily withdraw those ingredients. One final point on this, there are certain ingredients where you have to actually file a petition with the agency and go through rulemaking. So things like new food colors or contact substances, packaging for food, those actually need a formal rulemaking process.

38:43Dr. Scott Gottlieb:Scott, I wanted to ask you about this since you ran the FDA. This is, I'm reading from the Wall Street Journal. This is last week. I haven't seen you since this came out. I want you Tell me what you think of this. Quote, it's hard. This is the editorial board of The Wall Street Journal. It's hard to recall a regulator who has done as much damage to medical innovation in as little time as Vinay Prasad. In his latest drive by shooting, the leader of the FDA's vaccine division rejected Moderna's mRNA vaccine without even a cursory review. This is arbitrary government at its worst. Thoughts? This is pointing to Vinay Prasad, who was appointed by the FDA commissioner to run the Center for Biologics.

39:23Dr. Scott Gottlieb:He was also appointed the chief medical officer and the chief scientific officer, and he's the head of biostatistics in the Center for Biologics and runs the vaccine group. So he is effectively running the agency. He's running many components of the agency right now. And then what we know, based on the reporting in top-tier publications, is he's acting unilaterally to make decisions on products in a way that just hasn't been done before, without, in my view, the requisite experience. He's overrolling staff to block the approval of products. It's not just the Moderna vaccine. We've seen more than a half a dozen selling gene therapies where he's intervened to hold up the approval of those products and change guidance that companies were previously given.

40:00Dr. Scott Gottlieb:You now have many companies coming out saying that they had agreed to certain requirements in terms of what they needed to do in clinical trials to gain approval with the FDA's career staff. And then once those trials were completed and they'd spent a billion dollars on clinical trials, Vinay made a unilateral decision to not approve the products because he either didn't agree with the prior guidance they were given or the data that they produced. What is the long term implication of the way he and other members of the FDA are operating in terms of investment by health care companies, new drugs, vaccines and the like?

40:33Dr. Scott Gottlieb:Because it appears that actually investment, for example, in vaccines is now drying up. And I wonder what the implication of that is, not for tomorrow, but actually for five years from now. in the United States? Yeah, look, investment in vaccines is certainly being pulled back. There was a good New York Times article that documented a lot of this. I think it goes well beyond even what the New York Times captured last week in their article. There's increased unpredictability in the whole process. That increases the cost of capital, not just within the vaccine space, but within the whole biologics space as well.

41:03Dr. Scott Gottlieb:And I think a lot of people are looking to pull back investments in selling gene therapy as well right now, because it looks like it's a harder space to invest in because of the unpredictability of the agency. People just don't know what the requirements are going to be. You can't rely on an agreement with the agency in terms of what the structure of a clinical trial should be because if you do that and you hit the endpoints, you face the risk that Vinay Prasad will act unilaterally because he objects to how the trial was conducted or what the data shows, even if you hit your endpoints that you previously agreed to with the agency.

41:32Dr. Scott Gottlieb:So this is causing people to pull back from investments and just increasing the cost of capital across the board. You asked me, by the way, Scott, this is not for you, this is for Joe. You asked me in the last hour, are the things, reasons to worry about what's going on in the country? This is actually something that I put very high on the list of things that are actually worrisome, not just for tomorrow, but for the long term, next five or 10 years. The way that RFK is running. I don't know if it's RFK. I don't know if it's Vinay Prasad. I don't know who you want to pin the blame on. But I'm just suggesting that right now there are things going on and they're related to this administration that I think are going to have long-term health effects.

42:08You found something. That's not like you. I know that you don't believe that there's anything out there. That's not like you.

42:14Dr. Scott Gottlieb:There are things out there that I would think that even you, even you would say, you know what, actually, maybe that's not the best way. One point I would add about the vaccines. Go ahead. One point I'd add about the vaccines is, you know, we made a decision, and a lot of countries did, that it was important as a strategic priority to have a vigorous vaccine industry in a nation. You saw a lot of companies trying to invest in vaccine platforms coming out of the pandemic. Right now, we're seeing a lot of vaccine manufacturing, frankly, shift to China. You look at mRNA vaccines, almost half of all mRNA vaccines that are in development are in development in China.

42:47Dr. Scott Gottlieb:There's about 900 vaccines in development globally, 300 of them in China. So we're hitting the brakes on this at the same time that China is hitting the gas pedal because they recognize this is a strategic priority to have a vigorous vaccine industry as a hedge against situations like a future pandemic or a new disease. In the U.S., we're pulling back from those investments. I think we're going to be sorry for that in the future when we need new vaccines to mitigate unknown risks. Right. It's never perfect, Andrew. It's at 51 percent at best. I look at even the censorship in the last administration that sort of escaped most people in terms of complaining.

43:24You can always find something. Anyway, Dr. Scott, thank you. It's good to see this. There's some OK things happening in the world, aren't there, in general, Scott? You look like you're smiling.

43:35Dr. Scott Gottlieb:Well, look, I think what the secretary is trying to do on the grass, closing that grass loophole makes eminent sense. I just think it's going to be difficult to do through rulemaking. And I think what they're doing on baby formula is actually good reforms. I think there's some smart ideas embedded in that. Okay. That's Squawk Pod for today. Thank you for listening today and every other day. Squawk Box is hosted by Joe Kernan, Becky Quick, and Andrew Ross Sorkin. and you can catch them live for three hours every weekday morning on CNBC. To get the smartest interviews and analysis from that TV show right into your ears, follow Squawk Pod wherever you're listening now.

44:12Dr. Scott Gottlieb:We'll meet you right back here tomorrow. Have a great day. We are clear. Thanks, guys.

44:49Dr. Scott Gottlieb:Thank you, guys. at schwab.com slash market update podcast or find schwab market update wherever you get your podcasts