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Michael Bloomberg’s Big Hedge

With the possibility that a tax on wealth might help forge a more equitable America, the billionaire former mayor is not taking any chances.

Andrew Burton/Getty Images

On Wall Street, traders who manage portfolios worth millions, if not billions, of dollars need a way to offset the risk of losing too much of that money. One way to accomplish this is to use a hedge. If you’re betting the market overall is going up, and have millions invested in that gamble, you might want to spend a smaller amount of money also betting it goes down. This limits the upside of your original bet, but it also limits your downside risk. Risk management is never perfect, and the more complicated your investments, the harder it is to craft a good hedge. But it pays to use your imagination. Michael Bloomberg stands to lose a considerable amount of money should a wealth tax be successfully implemented in the United States. His history-making $34 million ad buy can rightly be seen as a creative hedge against a wealth tax on his $52 billion-and-growing fortune.

Senators Elizabeth Warren and Bernie Sanders, as well as billionaire hedge fund manager Tom Steyer, all take the view that progressive taxation on its own will be insufficient to ameliorate America’s growing income inequalty. In order to reverse this trajectory, all three have proposed annual wealth taxes in their presidential platforms. Sanders’s Tax on Extreme Wealth begins at 1 percent for single individuals with wealth over $16 million and caps out at 8 percent for singles with wealth over $5 billion. Warren’s Ultra-Millionaire Tax begins at 2 percent for households with wealth over $50 million and rises to 6 percent for amounts over $1 billion. Steyer has proposed a 1 percent fee above $32 million. Bloomberg would pay $3.7 billion, $3 billion, or $512 million each year under Sanders’s, Warren’s, and Steyer’s proposals, respectively. (Calculation for Sanders’s wealth tax can be found on the first tab of this spreadsheet.)

Bloomberg’s forthcoming $34 million ad purchase, which he plans to unleash on the world next week, is 1.1 percent of the amount he’d owe each year under the Warren plan. This is just Bloomberg’s initial public offering: He is prepared to spend between $500 million and $1 billion on the campaign overall, according to Astead Wesley of The New York Times. Even on the high end, this outlay is still just between 27 and 33 percent of what he’d owe in a single year under either Sanders’s or Warren’s wealth tax. To offset the risk of his fortune being diminished and then appropriated in a democratic process that includes many mechanisms for accountability, Bloomberg is clearly more than willing to spend a fraction of what he stands to be taxed.

It’s a strategy similar to the one employed by Amazon, owned by fellow billionaire Jeff Bezos, who encouraged Bloomberg to run. Amazon poured nearly $1.5 million into Seattle’s recent City Council elections, dumping almost half a million alone into supporting socialist incumbent Kshama Sawant’s opponent, Egan Orion. Amazon previously faced a per-employee “head tax” that would have cost it $13 million per year. When the tax unanimously passed the council, Amazon launched a campaign against it and secured a repeal in just a single month. Its attempt to stave off a second attempt at this taxation makes perfect mathematical sense—why not spend $1.5 million to potentially avoid paying $11.5 million or more in taxes? Taxes which, it should be noted, would have gone to fund homeless services in the city whose residents face skyrocketing housing costs due to Amazon’s presence. In this instance, the plutocrats’ strategy failed to come to fruition. Two of Sawant’s fellow council members, who had backed a challenger in the primary and declined to endorse Sawant in the general, reversed course and endorsed her after Amazon turned on its democracy-distorting money spigot. Even Orion attributed Sawant’s victory to the Amazon intervention, saying it was a “great gift to the Sawant team.” Overall, five of the seven Amazon-endorsed candidates for the City Council lost their elections.

Bloomberg, however, is likely not playing to actually win the election. Rather, he seeks to ensure that the candidates supporting a wealth tax don’t prevail. He hasn’t been shy with his public criticisms of a wealth tax: “It’s called Venezuela,” is his preferred attack on the proposal. But his considerable fortune is likely sufficient to buy his way onto the debate stage, although it’s unclear if the Democratic National Committee will change its own rules and drop the current requirement for 200,000 unique donors. (Bloomberg is self-funding his campaign.) Steyer has already demonstrated the viability of this strategy by spending $47 million of his own money on the election, netting the billionaire two appearances at Democratic primary debates. Bloomberg is 32 times wealthier than Steyer. If Bloomberg can use the platform afforded to presidential candidates for his message that voters actually want “evolutionary change, not revolutionary change,” as he told MSNBC, he might successfully lower the massively popular support for a wealth tax.

Bloomberg has more at stake than wealth taxes. Bloomberg made his fortune selling technology to Wall Street through his privately owned company Bloomberg L.P.  He created the Bloomberg Terminal, which provides massive amounts of data, charts, and tools to monitor financial securities of all kinds: from stocks and bonds to the most obscure derivatives that are traded outside transparent marketplaces. The terminal also functions as a sort of giant instant messaging platform to Wall Street, where users “bloomberg message” one another. While there is competing technology, it’s hard to overstate how ubiquitous this software is in finance. It’s also incredibly expensive, typically costing the average user around $24,000 per year.

A profitable Wall Street means more subscriptions to more Bloomberg terminals. But a Warren or Sanders administration would potentially impose a host of new rules on a wide range of Wall Street players, which could squeeze banks’ record profitability and reduce Bloomberg’s own profits. Sanders wants to cap consumer loans and credit cards at 15 percent. Both Sanders and Warren (and Andrew Yang) support some version of a tax on Wall Street trades. And the Stop Wall Street Looting Act—a bill that Warren introduced and which Sanders has co-sponsored—would totally rework the way private equity does business, offering more protections to workers whose companies are taken over by private equity firms, including prioritizing their pay in the bankruptcy process. The Chamber of Commerce, the nation’s largest lobbying organization, has predictably warned the bill “would poison the well of innovation and growth.” By contrast, Eileen Appelbaum of the Center for Economic and Policy Research has said the bill would halt “abusive practices that wipe out jobs and cripple strong companies.”

It is hard to say what the perfect billionaire hedge against a Warren or Sanders administration would look like. Despite the abundant fearmongering among the billionaire class that a Warren or Sanders presidency would cause a drop in the stock market, this is a retread of the same alarmism that greeted the Obama administration. That prophecy failed to come to pass, so a simple bet against the S&P 500 probably won’t cut it for the oligarch looking to shield his boodle from the ravages of a more equitable society. Bloomberg is embarking on a more creative hedge, one that also allows him to finally realize his long-dreamed desire to run for president. This is a method that Bloomberg previously deployed at a smaller scale, spending $100 million (or about $174 per vote) in his 2009 campaign to be reelected mayor of New York City.

Whatever ultimately happens in Bloomberg’s bid for the presidency, as long as his presence in the race is able to make a dent in the support for Warren and Sanders, he is further insulating himself from a future where he’d have to pay a single-digit percent of his wealth annually in taxes. We can likely expect Bloomberg to strike the same wealth-friendly tone the company he owns does on its “About” page, which proclaims “we believe profit and principles are not mutually exclusive. They reinforce one another.”  But as one billionaire’s presidential run has already ended in ridicule (remember Howard Schultz?), and the vast majority of Democratic voters remain happy with the existing choices, one might hope Bloomberg would borrow a different section of his company’s motto, “doing the right thing,” and not run at all.