Closing Arguments in the Texas Senate Race

0:00At Janice Henderson, we strive to deliver better outcomes through insight-led investing, innovation for clients, and a partnership approach that's core to our identity. I'm Jessica Liancini, Head of Fixed Income Client Portfolio Management. I'm passionate about my role in investments. It allows me to partner with our clients, simplify fixed income, and support them in achieving better outcomes for their clients. Janice Henderson, investing in a brighter future together.

0:32From the opinion pages of the Wall Street Journal, this is Potomac Watch. Election day is less than two weeks away. What is James Tallarico's closing argument in Texas? My colleague Jack Butler will join the show to chat with us, and he's fresh back from a trip to the state. Later in the show, we'll talk about United CEO Scott Kirby's comments that the United States should have a national wealth tax and inheritance taxes of up to 100%. Welcome to Potomac Watch. I'm Kate O'Dell, and I'm your host today. And we're going to jump into it first with my colleague, free expression editor and contributor to our pages, Jack Butler.

1:10Jack, thanks for joining the show. You are fresh off a visit to Texas. We have been following that race here on Potomac Watch. Jack, when I look at the polls, particularly in the Senate race, it looks to me like Democrat James Tellarico is narrowly leading Republican Ken Paxton. But at the same time, we've seen before Democrats look competitive in Texas in what should be strong years for Democrats and not win in the end. So first, tell us a little bit about where you were romping around in Texas and give us your pre-election bet on the outcome, particularly in that Senate race. Ah, the peril of political pundits being forced to prognosticate.

1:49Well, I'll get to that at the end to put it off. Where was I tooling around? So during my week in Texas, I had the chance to see a rally of Ken Paxton in Tyler, Texas, which I think is well known for football, although probably true of everywhere, every town in Texas. That's sort of a thing there. And then I went to a James Tallarico rally in San Marcos, which is sort of a suburb of Austin, I guess is the best way to describe it. And what I found was a race that fans of both candidates are treating as competitive. Now, there are some Republicans who quite understandably think that the Tallarico thing is a mirage to the extent that he seems like he's winning, as he's shown in most polls, or is at least competitive.

2:33Other Republicans I talked to, they seem genuinely worried, and they have reason to be worried. Let's leave Ken Paxton himself aside for just a moment. This is a national political environment in which the primary issues are not, for whatever reason, playing well for Republicans. There are things like corruption and affordability. Those are two buzzwords that Democrats love to invoke all the time, that James Taurico is invoking all the time. You have a primary that left some Republican voters in the state sour, in which John Cornyn, the incumbent Republican senator, was defeated with Trump's endorsement.

3:10So just those factors alone create a challenging political environment for a Republican Senate candidate in Texas. And that's before even getting to who Ken Paxton is, which I'm happy to get to in just a moment if you'd like me to elaborate on Ken Paxton's unique status as a candidate. Well, we certainly do. But first, why don't you give us a little bit more detail on the pitch Tallarico is making? What is he telling voters about why those who might typically be inclined to vote for Republican candidates should vote for him, particularly when he does have this, especially on cultural issues, this hard left background and has said things like God is non-binary and other things that you would not expect to play well in Tyler, Texas.

3:54What is his message to those voters he needs to turn over towards the Democratic Party? That's right. He does have a barrier in that stuff. And you can see evidence of that even on the highway. In the course of my long drives through Texas, a great state, also a big one, takes a lot of time to drive through. I saw one billboard that I believe said only two sexes live in Texas. So this kind of thing is a problem for him. So what's he doing? Well, in the first place, he has a very well-tailored line, I have to admit, that combines the two buzziest issues that I mentioned earlier into one line, which is, we have an affordability crisis because we have a corruption crisis.

4:36Essentially, because self-dealing politicians like Ken Paxton and Donald Trump are rewarding their buddies, they are making everything expensive for your family. Pretty good line, I have to say. But yes, those lines, one of which you mentioned, that he has delivered in his past that evidence a far-left cultural record, are something that Texas voters are really thinking about. I mentioned the billboard. Certainly at this rally in Tyler, the rap sheet of James Tallarico's own words, God is nine binary, there are six biological sexes. The Texas oil and gas industry being at the top is like being the top cassette maker in the 1980s.

5:17Capitalism is an oppressive system like white supremacy. These are all things he has set. So how is he overcoming them? At the same time that I was in Texas, I was not able to attend this event, but he went to a town hall that was hosted by CNN and Jubilee, knowing it seemed that he would be confronted with voters who were skeptical of him. And the town hall gave an evidence of his approach, which is kind of to modulate, mollify, be self-critical of some of these past statements. He called the God is non-binary statement annoying in that past town hall. He said of some of his prior remarks that they missed the mark.

5:53This, to me, gives all the signs of a politician who wants to say, basically, I'm sorry for how that went over to you without saying, yeah, I still believe those things and I'm not going to change my beliefs. But he still at least recognizes he has a problem with such voters. Whether they're going to be persuaded by it, I'm not sure. I saw live and then talked to subsequently one voter at this town hall, Jody Hunt, a U Dallas professor who was very unconvinced by his attempt to appear moderate on abortion. And I'm not at all convinced that he's moderate on abortion either. But he's at least trying to seem like a palatable guy for perhaps these Republicans who would have been John Cornyn voters, may have been John Cornyn voters in the past, who are put off by Ken Paxton or put off by President Trump for whatever reason.

6:35Whether it works is a separate question. Hang tight. We're going to take one quick break on Potomac Watch. At Janice Henderson, we strive to deliver better outcomes through insight-led investing, innovation for clients, and a partnership approach that's core to our identity. I'm Jessica Lianzini, head of fixed income client portfolio management. I'm passionate about my role in investments. It allows me to partner with our clients, simplify fixed income, and support them in achieving better outcomes for their clients. Janice Henderson, investing in a brighter future together.

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7:59Welcome back. What is Paxton's basic closing argument to the electorate? He's very vulnerable on that corruption issue, given his own florid professional and personal history. He is a very known quantity to voters and not necessarily for the right reasons. They know him. Exactly. But nevertheless, he also has a record of winning in the statewide elections that he's won. So what is his closing argument about why voters should overlook this really incredible history of self-dealing and personal ethics scandals and elect him over Tallarico? What is he pinning his campaign on? Yeah, I've seen some stirrings of interesting arguments his campaign is making.

8:40At one point, at least, pointed to the amounts of money he's been able to reclaim for consumers as Texas Attorney General. Leaning into culture war stuff, talking about suing the Texas doctors who are transitioning our kids. Trans stuff is still a live issue in the country, especially in Texas. James Tallarico has had to run away from it as best as he can without actually abandoning his views. I see stirrings of a case that could be sort of interesting and perhaps effective. But really what he's leaning heavily on is pure oppositionalism. This James Talofrico guy, as is often said by Paxton and others, you can't have him in the Senate.

9:21He will just do the bidding of the Democrats already in Washington, which I, despite Mr. Talofrico's protestations to the contrary on multiple occasions, I find that extremely plausible. I find it hard to believe that this guy with record of statements and votes like he has would suddenly become a maverick as a freshman senator representing Texas after all of the stuff that he said and all of the support he's gotten from outside of the state. In fact, the streamer Hassan Piker has said something to this effect, basically, you're in our pocket and you better not forget us. But such an oppositionalist campaign can be pretty effective in a state that has voted for Trump three times, that hasn't voted for a Democrat statewide since 1994, when I guess James Tallarico would have been eight or something like that.

10:04I think Ken Paxton is uniquely positioned to test the limits of the Republican Party, both nationwide machinery and Texas machinery. And when I was in Texas, I could see that machine working in overdrive, and I could perhaps see a little smoke coming out of it and some gears flying here and there. Maybe it'll be enough to get him to drag him across the finish line. So you mentioned that he's been successful in statewide elections in Texas before. That's when Greg Abbott has been in a better position to kind of drag him over the finish line. This time, Greg Abbott seems to be in, at the very least, a closer race than he has been in the past.

10:40Who knows how close it actually is? Polling is challenged these days, but Greg Abbott certainly is treating it like a more serious race than ones he's had to face before, which presents a problem for Ken Paxton because he won't be able to rely as much on avid coattails as he has previously. I take your point that, and it's a good one, that Paxton has reduced a lot of this oppositionalist politics. But dare I even ask, I mean, does Paxton have an economic agenda at all? I mean, voters are thinking about gas prices, cost of living agenda. Has he said much of anything about what policies he's interested in enacting in the Senate if they were to elect him?

11:16And my second quick one for you is connected with that. Has Paxton said anything about the Iran war? How is the Iran war playing in the Texas Senate race? So what is the Paxton economic agenda? Fascinatingly, you have to look to these extensive leaked remarks to find it. Much to my amusement, he sounds more like a kind of Wall Street Journal editorial board guy behind closed doors when he, for one example, said that we have to suck it up and do something about entitlements. He's right. But this is being made hay of in the state. One thing that was fascinating to me at this Tyler rally, the vice president, J.D.

11:53Vance, was there. One of the main economic arguments Vance made for Paxton was that Paxton was willing to take on big corporations, big tech, big pharma. Paxton himself has emphasized this. Paxton's economic agenda, he presumably is anti-socialist, But I struggled in his public remarks to find a really enthusiastic defense of free markets, of free enterprise. If anything, he was priding himself on how willing he was to confront business in his state. So that's interesting in itself. And the Iran War was not mentioned at all in the Paxton rally attended by anyone who spoke. Interestingly, at least one voter I talked to expressed her desire to reduce U.S.

12:40involvement in foreign conflicts. So this just seems to be something that, as in many other cases, as in this whole race, Republicans in Texas are basically being told to treat this vote as a chore. You just got to do it. And they're being forced to, in Ken Paxton's words, suck it up. Vote for this guy. He may be uninspiring. He may be bland. And the sentence is never there's no like but if there is a but it's he's our guy. He's a Republican. We've got to get it in. We can't let the Democrats do these things. So. Right. Well, and President Trump has started saying, you know, the Trumpy kind of comments that he doesn't like the way Paxton dresses.

13:17And those are usually rhetorical flourishes for saying he's concerned that Paxton is a loser. Yeah, I have a theory about those, which is that it's actually probably one of the best bets or best ways to boost Ken Paxton is to cast him as this pitiable figure, almost like an animal in an ad with acoustic music playing softly in the background. For just 10 votes, you can get this man into the U.S. Senate. That, I think, is the Trump strategy. Either that or he's setting him up to blame him if he loses. Maybe it's a combination of both. Trump's always wily in that way. So but you're right. He is doing that.

13:52Well, I did want to ask you alluded to it earlier that because of this ugly primary between Ken Paxton and John Cornyn, that some percentage of the Republican base is really not enthusiastic about coming out and voting for Paxton. To what extent is that phenomenon real? Do these voters see the risk of a Democratic Senate to simply too high to bear in Tallarico, too outside their views on any number of issues from the culture issues to economics? Are those voters, does it appear that some of them are going to come home or is there really is a sizable Texas electorate that just can't pull the lever for Ken Paxton?

14:25I think that even Republican partisans at both the elected and voter level are worried about that. At the Tyler rally, one of the politicians who spoke just decided to be blown with the crowd and say, we need to stop looking in the rearview mirror and start looking through the windshield. And the fact that he would say that suggests to me that he feels he needs to. Some of the voters I talked to, they weren't convinced that this would be an issue. who is sort of dismissed as the Bush crew. But in Texas, there are probably still a lot of Bush voters left, people who voted for Bush happily, and sort of dismissing them out of hand might be a problem.

14:57Now, James Tallarico and his supporters are very convinced that this is a gettable group. Tallarico claims that when he sort of stays behind at rallies and shakes hands, takes photos with people, as he did in San Marcos, that people sort of nervously sidle up to him and whisper, as though they were in the witness protection program, in Tallarico's words, I'm a Republican. And one voter I talked to described himself as an ex-Republican who's in a lot of group chats, fantasy football leagues, with Republican voters who are just displaying no desire whatsoever to vote for Ken Paxton. So people are convinced it's out there.

15:32The degree to which it's out there will obviously make all the difference. But it's worth noting that Ken Paxton can be hurt both by people like that voting for James Tallarico and by just not voting for him, leaving that blank on the ballot, voting for there's a libertarian candidate who made the ballot, voting for a write-in. So if that is a big population, that population has ways to make itself known that don't involve necessarily an affirmation of the Democrat. Right. Or just staying home altogether, which is a real risk for Paxson. You mentioned perhaps tighter competitiveness of the governor's race.

16:07But as we close out our conversation here, what other races should we be watching closely in Texas on election night? Well, I'm very curious about the race that Beau French is running. Beau French has made himself a national figure, and he's done it in a rather odious way. Listeners to Potomac Watch may or may not recall him from the comment he made about students celebrating a UT Austin victory over Ohio State at a college football game, who in the particular image he selected in the foreground, it appeared that they were all of South Asian descent. And to Beau French, this was unacceptable. And he's made other remarks of this nature, some of which he's doubled down on, some of which he's tried to hide.

16:49And I would be personally curious to see if someone who has doubled down on that kind of strategy of becoming both a national and controversial political figure, that strategy could actually be useful in the state or if it will backfire on him. So that's one I will definitely be watching. Yes, certainly. I mean, Trump won in 2024 on a multiracial coalition, and it's very odd to see some state Republicans determined to shrink the GOP coalition as a strategy of winning elected office. Thanks, Jack, for stopping by the show. And I'm sure our listeners will keep a close eye out for your full dispatch from the state of Texas.

17:21Thank you. We have to take one more quick break on Potomac Watch. Everyone wants health care to be simpler and easier. That's why United Health Group is fast-tracking more than 60 % of children's procedures that used to need pre-approval, so more kids get the care they need when they need it, and speeding up procedure approvals and payments for more than 1 ,500 rural hospitals, so they can focus on caring for their communities. And that's just the start. Learn more at uhg.com slash access. Don't forget, you can reach the latest episode of Potomac Watch anytime. Just ask your smart speaker. Play the Opinion Potomac Watch podcast.

18:07From the Opinion pages of The Wall Street Journal, this is Potomac Watch. Welcome back. We'll turn now to chatting with my colleague on the editorial board, Alicia Finley. Alicia, thanks for joining the show. We're going to turn now to chatting about United CEO's Scott Kirby's remarks this week that he would favor a national wealth tax and perhaps inheritance taxes of up to 100%. Alicia, before we get started chatting, let's take a listen to what United CEO had to say on Wednesday defending these remarks. A lot of people listening to this call today earn their income through income. Income taxes are 40%.

18:43But if you're wealthy enough, you can have passive income. you can just make an investment and the laws are set up that you literally never pay taxes on that, all that growth that can happen and never pay taxes. That just feels unfair to me. One guy's opinion, other people can have a different opinion. My view would be that a more fair system is some way of taxing that wealth growth, whether it's a wealth tax or some other way of doing it, and lower income taxes at the same time. It just feels more fair to me. But again, I'm not a policy advocate. I was asked for a non-consistentist opinion. That's my non-consistentist opinion.

19:16I wasn't trying to make a political statement on this, by the way. I absolutely was not trying. I was asked for a non-consensus opinion. Like I'm not advocating for it. Do you have any other non-consensus opinions? Perhaps I learned a lesson to not say it on my TV. Alicia, talk about damage control there. Okay. So this all started when he gave a interview to the New York Times where he was talking about a number of United business decisions, including you have to pay more to sit in a window seat. And he was saying, look, you pay more because you get more. And so he's defending price discrimination and how markets work and they make the most number of people happy.

19:51And then all of a sudden, the Times asks about his views on tax policy and he says he would favor a wealth tax. And now he's saying that's just one man's opinion. But I wondered if you would take on the argument he just made in the clip suggesting that well, all this wealth accumulates on tax. And all I'm suggesting is a humble proposal that we just take a little cut for the good of the public. Why don't you take on that argument for us? Well, there's a lot to unpack there. The higher earners do pay more in tax and income tax because of our progressive tax system with a top rate of 37%. And then we also have the net investment tax, thanks to Obamacare, that adds a 3.7 % surcharge on top of any kind of investment income, which is dividends.

20:35And sometimes dividends are taxed at the ordinary income rate, as well as capital gains. And the top 1 % pays a disproportionate share of the income tax revenue. I think I recall it's almost like 1 % pays close to 20 % of tax revenue. Now, his claim that, well, none of this, they accumulate wealth and none of it ever gets taxed is kind of ridiculous. Because if you want to bequeath it, there is an estate tax, by the way. There is a with a top rate of 40 percent in various states impose their own estate or inheritance taxes. Now, granted, there is what's known as a step up in basis in which when assets are bequeathed to the heirs, you don't have to pay capital gains tax on that.

21:23Maybe there's some kind of system or some kind of compromise in which, as people have long argued, maybe capital gains should be indexed for inflation because that inflation essentially is a tax on those earnings. in return for eliminating that step-up in basis. But I think it's just a complete misconception, and maybe it really is just his misconception, that high earners don't pay as much in tax as lower earners. In actuality, their effective tax rates, not just their marginal tax rates, are much higher. And effective tax rates being your overall portion of your income being much higher. Now, he also said in this original interview with the Times that he would support inheritance taxes of up to 100 % and that he would pay them.

22:09And this seems to have caught the attention of your pen because in an editorial today, you note, actually, it's his heirs who would pay the tax. And is there anything stopping the United CEO from deciding to leave his money to help pay down the national debt? Or is he free to do that today? And who actually is paying the estate tax? It often is not the ultra wealthy who have ways to move around their money. Who is that tax really hitting when we talk about 100 percent tax rates on inheritances? Well, it's typically hitting the small businesses and farmers. And this is actually why the Washington state increased its estate tax.

22:48The last legislation session to 35 percent from 20 percent. And then one, there was also a concern like, oh, no, rich people are going to leave and that will actually reduce our income tax because they also just impose an income tax on higher earners. And second, the concern was this was really going to whack a lot of small businesses and farmers in the state and really is a disincentive to invest in a business and to grow it. So those are the people who are really disproportionately hit by their inheritance taxes or state taxes. inheritance taxes are levied on the heirs, the state taxes are on the actual estate.

23:26So the small distinction, but not a huge difference between the two. But I think there was broad, even bipartisan realization that it does hurt estate taxes and inheritance taxes do hurt businesses. And that's why there's always been a large exemption right now. It's, I think, about 16 million. Even Democrats have supported a smaller exemption. Alicia, I'm curious what you think has animated the decision to wade into this, that now, again, this is being defended as just one man's opinion. But CEOs are usually quite reluctant to wade into politics. And in the same interview, the United CEO says that he tries to fly exclusively commercial because there's a PR risk to taking private jets.

24:09But he doesn't seem to have thought that perhaps there's a PR risk to endorsing a large national confiscatory wealth tax. What is animating CEOs when they decide to wade into politics this way? Well, I think this strikes me as very similar to what happened in 2021, where you saw a lot of CEOs all of a sudden weighing into the debate over DEI and voter ID laws and such in states. And United actually came out, Kirby came out and took a position on that and said that they were opposed to any kind of election laws that they thought would make it harder to cast a ballot, including by mail. And this created a big dust up.

24:49Some other CEOs did as well. But I think a lot of these CEOs, I think in some part they live a bit in an echo chamber. There's a lot of group think. And I think the other issue here is I think he sees where the winds are blowing or winds are blowing from. And that's from the left. And he's trying to get on the good side of Democrats who are likely to take control of Congress at this point in November. And then in twenty twenty eight, it could be total control of Washington again. And there are a lot of things that United Airlines is dependent on Washington for in terms of regulation and other kinds of dispensations.

25:26And I did see Senator Elizabeth Warren use these remarks from the United CEO as, you know, a juice to say, let's pass my wealth tax. And she's always quick to point out, it's so small, you know, it's just a little small. And I think we should take that on directly. And one way I thought to get into that would be, you have looked at a paper this week suggesting that California, which is considering a wealth tax under Prop 40 in November, its wealth tax, which advertises being 5%, but it's really much larger because the state just gets to decide how much all your illiquid assets are worth, basically.

25:59I mean, I'm oversimplifying there, but it's not a small measure at all. But you've looked at this paper that suggests the state could actually lose revenue by passing this wealth tax. And so why don't you walk through for our listeners exactly how this might actually cost the state revenue as they try to grab as much as they can from the state's wealthy. Right. So this is a Hoover Institution paper. And what they found is that about seven billionaires have already left. But those seven billionaires account for a disproportionate share of the wealth in the state, nearly a third. So California's tax base is bad harmed by the departure of seven billionaires.

26:37Right,$7 billion, and they would constitute about 30 % at least of the wealth tax base. I mean, they have nearly$600 billion in wealth, but they also pay a large amount of income tax revenue every year, around$1 billion to$2 billion. And that would increase over time as their incomes grow. But the other issue here is that the huge legal risks, the authors point out or cite no fewer than eight potential legal challenges, and many of these have been raised before regarding its retroactivity, its application to worldwide assets, the single day residency requirements. There are many provisions in this tax measure that if even one or two of them ended up being held unconstitutional, that the wealth tax would raise much, much less than the supporters say.

27:31They're saying$100 billion on net ilk. The authors of this study say that when you consider the decline in the income tax revenues over time, plus the litigation risk, plus the wealth flight that's already occurred, the overall result over time will be about$38.9 billion to the state. And this isn't really surprising. I mean, most places in Europe or most countries in Europe that have tried wealth taxes have repealed them for this reason. Well, Alicia, thanks for updating us on that. We'll keep our listeners posted on the potential misadventure of the California wealth tax. That's all for Potomac Watch today.

28:05We'll be back on Thursday.

28:09Everyone wants health care to be simpler and easier. That's why UnitedHealth Group is fast-tracking more than 60 % of children's procedures that used to need pre-approval, so more kids get the care they need when they need it. And speeding up procedure approvals and payments for more than 1 ,500 rural hospitals, so they can focus on caring for their communities. And that's just the start. Learn more at uhg.com slash access.