Progressive Democrats and the 2016 conundrum

If you are wondering about the direction of the Democratic Party in 2015 look no further than two events this week: Top House members introduced a legislative proposal to tax Wall Street and redistribute wealth, and Sen. Elizabeth Warren knocked out President Barack Obama's nomination of a senior banker for a top Treasury post.

Taken together, the events suggest that the progressive wing of the party is muscling out the more moderate, Wall Street-friendly centrist wing with potentially significant consequences for the 2016 general election.

First, the triumph of Warren.

As I scooped on Politico on Monday night, Lazard banker Antonio Weiss sent a letter to Obama over the weekend asking that he not be renominated for the position of Treasury undersecretary for domestic finance, the No. 3 slot in the department. (You can read the letter here).

Elizabeth Warren and Antonio Weiss
Getty Images
Elizabeth Warren and Antonio Weiss

Weiss will still join Treasury as counselor to Secretary Jack Lew but will not enjoy all the statutory authority and public visibility that would come with the confirmed undersecretary job.

Weiss decided over the holiday break that this was the best way forward even though the White House was absolutely ready to move ahead with his renomination. But the administration did not fight Weiss given what many viewed as a likely monthslong and ugly confirmation process that would have left Weiss with maybe a year's time to actually do the job, if he got it all.

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The decision came after Warren last year ignited the progressive movement on the issue, arguing that Weiss did not have the regulatory experience for the job and might be too deferential to Wall Street given his private sector background.

Never mind of course that Treasury lacks anyone at a senior level with markets experience and that Weiss has never worked for a bailed-out, too big to fail bank. In fact, Weiss himself never actually mattered much in Warren's crusade. He was from Wall Street not Main Street and thus had to be defeated. No amount of support from Wall Street Democrats or Senate Republicans could save him. And he was never able to make his case directly to Warren or anyone else.

Some on the left continued to criticize Obama for allowing Weiss to work in the administration at all, even in the unconfirmed position. Warren herself was more circumspect, issuing an anodyne statement after Weiss withdrew his name.

"We've already seen that the new Republican Congress is going to aggressively attack the Dodd-Frank Act," she said. "It is critical that the Treasury Department defend the Act from those attacks and push for strong implementation and enforcement of the law. The risk of another financial crisis remains too high, and we should be strengthening financial reforms, not rolling them back to benefit Wall Street."

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Warren never mentioned Weiss by name or addressed his counselor position. Some Beltway insiders suggested this was because Warren served as an unconfirmed "special assistant" at Treasury when she helped create the Consumer Financial Protection Bureau.

The other big event this week saw House Minority Leader Nancy Pelosi introduce a legislative agenda including a bill from Maryland Rep. Chris Van Hollen to impose a 0.1 percent tax on financial transactions to help pay for $2,000 per year tax credits to families making less than $200,000. The package also included efforts to force employers to give bigger wage increases and limit other tax breaks for high earners.

Republicans who control Congress of course dismissed the plan. But its legislative future was not really the point. The move suggests Democrats are eager to cast off the more cautious economic policymaking that has been the hallmark of the Obama era and look to more radical policies to try and address economic inequality.

Lazard's Weiss takes position as counselor to Lew: NBC
Lazard's Weiss takes position as counselor to Lew: NBC   

This approach fires up the activist Democratic base as well as prominent progressive media voices. But it's less clear how the approach will fare with the broader electorate as the 2016 campaign approaches. And Hillary Clinton has already proved herself a very imperfect messenger for a political approach that targets Wall Street and focuses on redistribution of wealth.

There is also the matter of fundraising and business support. Progressives may not care or want any support from Wall Street executives or the rest of corporate America. But that money and in some cases public support can help Democrats win elections.

The alternate reality, in which Democrats continue to move strongly to the left, could leave them more ideologically pure and in control of exactly zero branches of government in 2017.

—By Ben White. White is Politico's chief economic correspondent and a CNBC contributor. He also authors the daily tip sheet Politico Morning Money [politico.com/morningmoney]. Follow him on Twitter @morningmoneyben.