Here’s a fascinating article by Les Leopold:
We are entering the billionaire bailout society.
For the past thirty years we have minted billionaires, and we have created the most unequal distribution of wealth since 1928-29. This didn’t happen by accident. We deliberately deregulated the financial sector and we deliberately eliminated the steep progressive taxes on the super-rich that had kept in check our income distribution.
By unleashing capital and finance we were supposed to get an enormous investment boom in real goods and services. Instead we got a fantasy finance boom as Wall Street marketed derivatives to those with excess capital.
We also got the biggest crash since the Great Depression.
Perhaps the most dramatic measure of our emerging billionaire bailout society is seen by comparing compensation for the top 100 CEOs and to that of average workers (the 100 million or so non-supervisory production workers). In 1970 the ratio was 45 to 1. By 2006 it was 1,723 to one.
Another critical feature of the billionaire bailout society is the creation of institutions that are too big to fail. Historically, our anti-trust division was supposed to prevent that. But it became another casualty of our grand deregulatory experiment. So financial institutions grew to the point where their failure would bring down our system. We tested that idea last fall when we let Lehman Brothers go under: It crashed global financial markets and moved us to the brink of a depression.
So in our billionaire bailout society we bail them out instead of breaking them up. We bail out all of them – not just the basket cases like A.I.G, Citigroup, GM etc. The popular media line is that once a financial institution repays TARP, it no longer is on government welfare. No so.
TARP is only one of the many government bailout programs that pours billions into the coffers of Goldman Sachs, JP Morgan Chase and, Morgan Stanley. Their bottom-lines and bonuses, for example, were fattened when we allowed A.I.G. to pay off its bets (with our money) at par value to these large financial institutions. Had A.I.G. gone under they all would have been on the edge of collapse.
As Joe Nocera put it in the New York Times :
So let’s add it up: the $12.9 billion in A.I.G. help, the $10 billion in TARP, the F.D.I.C. guarantee program, the easy money trading distressed securities into the TALF program. I can’t say for sure how much of the $16 billion the firm has set aside for bonuses can be attributed to government assistance of one form or another. But it’s got to be a fairly substantial amount — at least $2 billion or $3 billion.
And that’s a very conservative estimate. It might be the case that the entire bonus pool is equal to the subsidies pulled in from taxpayer support. But this is to be expected in our billionaire bailout society.
Perhaps the most damaging feature of our billionaire bailout society is the "jobless recovery." This oxymoron refers to an economy that is growing, but that can’t produce nearly enough jobs to reach full employment (an unemployment rate below 5 percent). Our current jobless recovery will be the worst ever. Right now the BLS (U6) jobless rate stands at 17.0 percent — and climbing. (This counts those without work plus those who have part-time jobs because they can’t find full-time work.) If the billionaire bailout society becomes permanent, we may never see full employment again.
Why is that? Because you don’t need a full employment society to mint billionaires. Reflect for a moment on Goldman Sachs. They do not have individual depositors. They are not public brokers. They do not make loans to small business. They are in the business of making money by playing the financial markets, from mergers and acquisitions, from trading, and from creating and selling fantasy finance instruments.
In our billionaire bailout society these are unquestioned positive activities. But what value do they produce in the real economy? What is their contribution to market efficiency? How do they lower the cost of capital? How do these activities create jobs in the real economy? Good luck answering those questions because they don’t do any of that. They just make money for themselves while producing little or no value to our society.
It’s obvious we need to break up these large institutions so that we won’t have to bail them out the next time around — which may come sooner than expected given the lack of jobs and the fact that the financial casino is open again.
But we can’t solve the bailouts without addressing the billionaire part of the equation.
Two years ago the richest 400 Americans had a combined wealth of $1.57 trillion. Last year during the crash their wealth dropped to "only" $1.27 trillion. Now they are set to rise again. We need to tie their wealth of our richest to putting our people back to work.
Here’s the simplest and most controversial approach: a 10 percent wealth tax on all those with more than $500 million — until unemployment drops below 5 percent. The money collected would come to about $150 billion a year. That money should be directly invested in public works programs to put our people to work — a Green Corps to weatherize every home and office in the country — a Youth Corps to provide work for unemployed high school and college graduates.
(I realize that many Americans detest the idea of taxing anyone’s assets, even billionaires’. But let’s be realistic: That’s where our society’s wealth has gone and we need that wealth to put people back to work. Some billionaires do create large numbers of jobs, but not enough. They can contribute more and not feel a bit of pain or suffering.)
To break away from the billionaire bailout society we need to tie the creation of wealth to the creation of work. We no longer have a system that can produce an adequate number of jobs through the normal working of the business cycle. The invisible hand of the market just won’t do it. That’s why it’s called a jobless recovery. We need direct intervention… [emphasis added]
Inserted from <Huffington Post>
Instead og a wealth tax, I prefer increasing the income tax rate for the very rich in addition to closing the tax loopholes that allow them to avoid paying taxes. I might say more, but I’m not up to it (please see today’s open thread).
21 Responses to “Why Billionaires Should Pay for the Jobless Recovery”
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10% my ass more like 50% of all income over 25 million. What can you not do with 25 million in personal income that you could do with 2 or 10 billion?
Not only personal exemption loopholes but the offshore address corporate loopholes need be closed and taxed mercilessly to claw back all the taxes that business has avoided over the years.
Warren Buffet polled his office staff and found that his secretary paid a higher percentage of her income in taxes than he did. At least he cried foul at the disparity.
TomCat,
This is SO brilliant and SO true (every single word) that I would like p-ermission to reprint it in its entirety on my blog. Is that ok? Thank you.
great post as usual Tom! I really thought Obama was the president who was gonna stop the insanity, but now I'm having doubts! Come on, he's as smart as you Tom, if he can't implement these things you have outlined then we are shit outta luck!
The heart of the whole mess, is the tax code. If you are a billionaire, pay a tax attorney and a fleet of accountants $5 million a year, they in return, dissect and pull apart the IRS maze and save you $100 million a year. The tax code is made complex to benefit to billionaires club. With all the extra spare change, the billionaires can pick and choose Senators and Representatives to sponsor, to keep the whole scam going.
Your post is spot on.
while we're reading this, believing it would be an equitable solution, they are reading the article in fortune that lists the advantages of doing away with the minimum wage, while a right wing think tank is calling for an end to spending on middle class benefits, such as maternity pay, child benefits, & the winter fuel allowance…
I agree. I also feel congress need to actually do their jobs, and come up with other solutions as well as this.
I'm not certain a 10% tax on wealth would fly… I would however support an increase in the income tax.
I would also agree with Holte Ender's comment above. If you consider the percentage of one's income saved, a person earning 20k could pay roughly 10-20% of their tax return on an accountant, and the result is not guaranteed, but given a certain amount of money, and the amount saved can lower tremendously.
Generally, the poor get all the handouts, while the rich have it all, while the middle class, the driving force of the economy, gets left to the side.
This seems to be a worldwide phenomenon.
I agree with Mr. Kelley. We have a crushing debt and I certainly would be glad to pay some more tax to pay for important programs instead of continuing to borrow. 2% and my tax goes up 6 or 8 bucks a week. Easily affordable. In relative terms, the guy making 10, 20, 100 times more than I do finds whatever his goes up is easily affordable also.
Let's restore the rich folks their Reagan era tax rates. That would be enough to give us our health care.
Dave Dubya,
I think you're right! seems like the top marginal rate under Ronnie was around 50% ?
oso, if memory serves me, the top bracket once paid 78%…of course, that was even before women had to work to make ends meet for the household…remember, ronnie said he would put americans back to work; what he meant was indentured servitude for all…
I'd add the sh*thead Sallie Mae-parasite banks, that force young grads with student loans into slavery, to this excellent list of useless "businesses" that make billions by ripping people off– yet contribute absolutely, positively nothing of true worth to society. (I know a lot of people would add health insurance companies– at least a big fraction of them– to this list, but that's a topic for another post.)
I work for a recruiting agency, and even that 17% unemployment figure is a gross underestimate– for recent college grads in particular, it's probably in the range of 30-40% and getting worse.
This is in part because our society is stupid enough to allow companies to use "bad credit" as a reason to exclude people from getting a job– which is basically code for excluding anyone who's ever had the misfortune of being poor, or taken on student loans, or gotten sick (with out idiot-expensive health care system), or suffered a crime, or gotten hit by a drunken driver. Notice, these are *not* gambling addicts or people wasting their cash on booze and drugs– they're people having to take on debt (in our overpriced society) for the kind of s**t that hits all of us from time to time, but didn't have the good fortune of starting out with rich parents. Or just taking out student loans to pay for outrageous tuition costs– which is increasingly difficult to avoid, if one wants to train to get the skills necessary to succeed.
So the way that people pay off such unavoidable debt is– drumroll– to work, save and pay it off. Yet that very initial debt is then used (via the credit-checking BS, which is often inaccurate and difficult to reform, as all of us in the recruiting biz have come to learn) to deny employment. How the f**k is some poor kid just out of college, with student loans– and/or who had the misfortune of suffering crime, or hit by a car (with consequent debt)– able to pay off that damn debt, if that very debt itself is used as a reason to deny employment? Especially when anti-usury laws are thwarted, and the interest on that debt is so outrageous?
In most other countries, they'll throw bankers in jail for usury, and an employer in prison for using prior debt to deny jobs, where their pasty sorry-asses become nice partners for their soulmates– the countries take it that seriously, b/c it's just a way to push a country's young people into slavery, which destroys a nation within a generation. But nah, I guess here in the USA, the attitude is "screw the people and the country– just so long as the least productive fat-cats get to skim off the billions." If our country's policy makers are truly this corrupt, this bought-off by the special interests, and this stupid, then the United States will richly deserve the 3rd-world status that we'll be enduring in 10 years, unless we wise up and change things really fast.
Thank you so much for your words of wisdom. Too bad Obama doesn't reason as well as you. Or does he, but doesn't stand to gain from truthful policies that would actually benefit the middle and lower classes?
Again, my thanks!
And I'm blogrolling you.
S
But we can't solve the bailouts without addressing the billionaire part of the equation.
Great solution, TC.
Now if only Congress had the balls…
🙁
There are some words that are just not spoken. Death, for instance. People pass, pass away, depart, cross over. Speaking about mortality might keep us away from the malls.
Class is another verbotens. we don’t speak about class.
Because in the US we identify with the class we aspire to instead of the class we inhabit. And the myth still lingers of the self made person. In fact, class mobility is more fluid in countries like Britain that have hereditary nobilities and a queen.
I agree with walking man and rjs. The top income tax rates are at record lows. During the first great depression and World War II, the top income tax rate rose from pre-war levels. In 1939, the top rate was 75% applied to incomes above $5,000,000 ($75 million 2007 dollars). During 1944 and 1945, the top rate was its all-time high at 94% applied to income above $200,000.
And we should definitely close the offshore loop holes for corporations.
Another thought provoking post. Hope you feel better soon, Tomcat.
for whatever its worth in debating the issue, bruce bartlett, one of the architects of supply side-economics under reagan, has been advocating for higher taxes in both forbes and on his website…
2 words: Glass-Stegal / this is an excellent post TC. (I too am doing a catch up from flu miseries) Also, great point by V about student loans and satellite banks. REally excellent post!
Thanks to all, and welcome to Vivek and Suzan. I'm sorry I'm still too ill to answer individually as is my usual practice.
the Bush tax breaks cost us $2.34 trillion (Brookings) here's Where the Bush Taxbreaks Went
Thatks, RJ. I saved that pic!