Originally published in the February, 2014 Sturbridge Times Magazine.
The fiscal cliff has come and gone
and no doubt will come again. As always,
a deal was done, and the figurative can was kicked down the road.
A constant drumbeat during the
run-up to the agreement was that if the exchequer could just put its hands in
the pockets of the rich, why nirvana would ensue. To cliché it, the tax the rich meme went
viral.
I’m from a working class family and
as resentful of my betters as the next guy.
The pitchfork is by the door and ready at a moments notice to storm the
Bastille with me, at least rhetorically.
Certain segments of the wealthy
should be fair game. The ongoing crisis
that began in 2008 had its origin in large banking institutions that are “Too
Big To Fail” otherwise known as TBTF. What
that means is, as is said, that if they are allowed to sink, they crash
civilization.
In the recent presidential
election, neither candidate addressed the too big to fail issue. The incumbent never said that he had been
working on the problem and the solution was in hand, because he hadn’t. The challenger never suggested it would be a
priority of his administration because he would have gargled razor blades
rather than touch it had the votes had been counted in his favor.
We had a measure in place that kept
the banks from getting TBTF. It was
called Glass-Steagall. The
Glass-Steagall Act of 1933, passed in a previous era of economic turmoil,
prohibited Commercial Banks from engaging in the investment business. What the act meant was succinctly put by
economist and author of the book, Currency Wars. James Rickards. Rickards wrote on August 27, 2012 for US News
and World Report, that under Glass-Steagall, “Banks would be allowed to take
deposits and make loans. Brokers would
be allowed to underwrite and sell securities.
But no firm could do both due to conflicts of interest and risks to
insured deposits. From 1933 to 1999,
there were very few large bank failures and no financial panics comparable to
the panic of 2008. The law worked
exactly as intended.”
If life was not horrible under
Glass-Steagall, why was it thrown overboard?
This can be explained by the nature of our party structure. An anonymous Republican congressional staffer
is credited with saying, “In America we have a two-party system. There is the stupid party, and the evil
party. I am proud to be a member of the
stupid party” The man then said, “Periodically, the two parties get together
and do something that is both stupid and evil.
This is called bipartisanship.”
Deep-sixing Glass-Steagall was
bipartisanship at its most stupidly evil.
The people had not risen up and called for repeal. Almost none of them had ever heard of it. That’s what happens in a nation with a
surfeit of laws. No, it was the world of
finance that used their influence to get what they wanted. When they had sucked as much as they could
out of the system, and it all started to go south, they went crying to the
government for succor. The bankers were
all for profits staying privatized, but supported a healthy socialism when it
came to losses.
So, a class of people did some
looting on a vast scale and got away with it.
The cry has gone up, “Make them pay their fair share.” To paraphrase the old western horse operas, “Taxing
is too good for them.” Unfortunately,
they had gamed the system so that apparently the law, if not the force, is with
them. Of course, The SEC and the
Department of Justice have been desultory at best in pursuing the wrongdoers. There have been a few wrist slaps to pretend
action, but nothing substantial. We
can’t even sentence them to having to listen non-stop to ABBA piped into jail
cells for a few hours. Okay, that is
going overboard.
Taxing a class sounds like a
fantastic idea. Not all the rich were
bankers and many provide honest employment for their fellow citizens. Still, there is an argument that adjusting
the tax rates upwards is a good thing.
The problem is, it is no panacea.
Most economists have admitted it can’t work magic.
Taxing the rich inevitably reaches
down into the pockets of the middle-class.
Don’t think so? I have three
letters for you, AMT. They stand for
Alternative Minimum Tax. I don’t
remember if it was Chet Huntley or John Chancellor or another newsreader in the
60s intoning in a serious talking head voice about an injustice. The evil rich were getting away with murder.
By investing in municipal bonds,
wealthy members of society were able to avoid federal taxes on the
interest. In doing this, they received a
lower interest rate allowing governmental units to finance schools or bridges
or other projects. That did not
matter. Something had to be done.
What was done was the Alternative
Minimum Tax. In the early 1990s, the law
was changed so the AMT could also tax people with lower incomes. Our compassionate solons, troubled by the
injustice, yearly “patch” it so most, but not all, of the middle class
escapes. Nothing permanent is ever done,
though.
Adjusting the tax on the rich may
raise a few dollars and make us feel good, but won’t solve the problem. Taxing the middle-class other than the status
quo is considered bad form. What’s
left? Why of course, doing what has been
done most consistently throughout history, taxing the poor.
Unconscionable you say. Balderdash.
We already tax the poor horribly, and couch it in terms of doing it for
their own good. The cigarette tax falls
disproportionately on the shoulders of folks in the lower income bracket. I have never heard a non-smoking fellow
citizen decry this as an injustice though it raises the price of a small
pleasure several times. Taxes on alcohol
are not light, but see how far you get proposing an excise that triples the
cost of single malt out of compassion for the health of the wealthy.
Throughout history societies sooner
or later get around to taxing the poor.
This can be fraught with danger.
Take the French aristocracy who had their heads handed to them. No, a federal tax on the downtrodden will
have to be done shrewdly.
Fortunately, there is a way to do
it that, if not loved, will be embraced with enthusiasm. In this the states have shown the way. Many of us have stood in line waiting to pay
for gas or coffee at a convenience store.
Often there is someone ahead of us taking what seems years to make
several choices. To the more highly
evolved, they are wasting time, but to that man or woman, it is a momentous
choice. With each new day, it is the
most important decision of their life.
If their choice of scratch ticket or lottery numbers is correct, the
drudge job they hate is history, at least till the money runs out.
As a math professor once said, “The
lottery is a tax on people who can’t do math.”
It is the shrewdest form of impost ever devised. Why should not the federals use it to solve our
ongoing fiscal crises? A nightly
national Powerball drawing will beat even Dancing With The Stars’ ratings.
Ah well, this may take a while to
come to pass. There are a few tricks
left like a trillion dollar platinum coin so why worry. After all the Congress saw it’s duty, came
together and raised taxes on the elite, and while you were feeling good on you
too, Mr. and Mrs. Two Earner Family.
Yup. The two percent increase in
payroll tax will affect you more than anything that might have been done to
Warren Buffett
My countrymen and women, you were
like marks for a three-card monte dealer.
While the barker kept yelling beat the rich, he took your money.
Bipartisanship, ya gotta love it.
