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part of a small rebellion | by maryann johanson

watch it: the weekly address from President-elect Barack Obama

What’s that one-spirit, one-family stuff he’s talking?

As long as the people who engineered this financial disaster — the CEOs of banks and brokerages and auto companies and airlines and big-box superstores and all the others — not only go unpunished and but actually retain the rewards of their incompetence and malfeasance, this is just so much empty bullshit. As long as hardworking taxpayers are bailing out these people while they enjoy lots of ways to avoid paying taxes, this is bullshit.

I’ll believe all of this when sacrifice isn’t just a byword for “squeezing the poor and middle class even more than we’ve been doing for the last 30 years.”

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  • MaryAnn

    As one of my favorite political bloggers, Duncan Black, aka Atrios says:

    [I]t’s very wrong to hurt the feelings of our elite overlords by suggesting that they have some responsibility for, well, anything. It makes them very sad. And the sadness of very rich people is something which hurts us all.

    He’s right. So we’re unlikely to ever see the kind of justice I suggested.

  • AJP

    The only problem with your rant is that the “wealthy” pay far more taxes than most people assume.

    In the U.S., the top 1% of income earners pay about 37% of the total income taxes. The top 5% of income earners pay about 57% of the total income taxes.

    The “poor” pay almost no income tax. The top 50% of income earners pay 97% of the income taxes, leaving the bottom 50% of income earners to pay 3% of the income taxes. The poorest third of Americans pay no income tax at all, and most get a “refund” of money from the federal government despite paying no taxes.

    The wealthy pay most of the income taxes in the U.S., even as people complain they get away with avoiding paying taxes via loopholes. They might be using loopholes, but the fact remains that they pay the bulk of income taxes in the country. Those CEOs that you say need to be punished? They pay most of the income taxes. Punishing them in some sort of draconian way to make everyone feel better will simply erode the tax base of the federal government.

  • JoshB

    Punishing them in some sort of draconian way to make everyone feel better will simply erode the tax base of the federal government.

    Not necessarily. If we “punish” them by docking their pay in some way then that money will go somewhere else, and someone else will have to pay taxes on it.

  • AJP

    Not necessarily true.

    If we punish them by docking their pay, who does the docking? Do we impose a limit on their compensation? Then the company they work for retains the money, and will probably shelter it from taxation completely by not paying it out to anyone. If the government imposes the “docking” as a fine of some sort, then that’s sort of a tax, but it essentially criminalizes being in business rather than taxing money, an important difference. Does the docking come as some sort of civil action by some private group? That will probably degenrate into something akin to shareholder suits, and in those, the only people who end up with money are wealthy lawyers: there’s even a term for this type of suit, “greenmail”, like blackmail, just it is technically legal and done with lawyers.

    A knee jerk reaction to punish the wealthy might make some people feel good, but unless the purpose of the action and the likely consequences are thought through, it will probably do much more harm than good.

  • Mark

    Those CEOs that you say need to be punished? They pay most of the income taxes.

    Incorrect. Corporate officers who draw down multi-million dollar salaries and bonuses aren’t in the top 1% of taxpayers — they’re in the top .1% or .01%. $250K/year puts you in the top 2%. I myself am by no means wealthy — I have a pile of debt and live basically paycheck to paycheck — but I’m still in the top 4-5%. The top 1% is the upper-middle class, not the obscenely rich.

    Punishing a dozen, or even a couple of hundred, executives by imposing salary caps wouldn’t affect tax revenue in any significant way. And, since we’re making up punishments that don’t seem likely to happen, we can just punish them by putting them is a special tax bracket where they pay 99.5% tax and aren’t eligible for large classes of deductions. Bam.

    Of course, there’s no legal basis for doing this, and the problem with telling AIG that we’ll only give them a truckload of money if they cap their executive salaries is that the executives will just go to another company.

    Which leaves us with jail time. Now we’re talking!

  • AlanM

    CEOs and the like might pay the majority of the income taxes, but they make the majority of the income (the vast majority of the income), so that doesn’t seem that unfair to me.

    And the poor do pay income tax. They pay quite a lot. As it happens, the rich typically pay a smaller percentage of their income in taxes than the poor (if you include payroll taxes and long term capital gains in the equation). Remember Warren Buffet saying that he paid a smaller percentage of his income in taxes than his secretary?

    The rich have seen steady cuts in their taxes for the last 50 years. During that time the percentage of the US wealth they they control has grown. From where I’m standing it looks like they are doing just fine.

  • AJP

    No one said the wealthy weren’t doing well, but on the other hand, if you start criminalizing misjudgment (which is pretty much what we are talking about doing here), then the potential harm is quite great. Couple this with the fact that the wealthy pay most of the income taxes (leave aside payroll taxes for a moment), and you have a situation in which a knee jerk reaction to “punish” the CEOs of companies and banks is probably going to exacerbate the economic downturn rather than help.

    Guliani made his initial reputation as a prosecutor, going after fatcats for what he alleged were criminal acts. Though he got high profile convictions, virtually all of those convictions were overturned on appeal, essentially on the basis that bad judgment was not criminal. The convictions were popular, and juries were willing to convict, but they were poorly thought out. Most of the impetus behind punishing the guys running AIG or Citibank or whatever other company one wants to talk about have the same flaws.

    On payroll taxes, the problem with them is that they are usually higher than income taxes and half of them is hidden from the employee (disguised as the matching “employer contribution”, which the employer just looks at as a cost of hiring the employee, effectively the employee pays it and doesn’t know it). But they can’t really be considered in the question of the tax base for operating the government because they are purpose driven: they can’t be used for any other than SSI, so the proposed bailout has no impact on the use of those funds one way or the other.

    Most middle class individuals generally pay about 6-7% of their income in income taxes. That goes down to 4-5% if they own a home and have a mortgage, or have children (or both). There’s not a lot of room to push that down, the only real way to reduce the tax burden on people would be to reduce payroll taxes (unlikely, as touching the “third rail” of American politics is death for a politician) or reduce the myriad of regressive excise taxes the federal government imposes (such as the gasoline tax, which results in the federal government making about twice as much “profit” on each gallon of gasoline as the greedy oil companies).

    When the top 5% of income earners pay 57% of the taxes, almost any scheme to reduce taxes will result in the majority of tax breaks going to them – since they pay the majority of income taxes. With other government income untouchable (SSI) or hidden (excise taxes and user fees, most of which are treated as “off-budget” to allow for programs to be outside the budget process, you can thank Waxman for that bit of sleight of hand), you end up with a tax system that is probably impossible to make “fair” in the way people feel it should be.

    And don’t get me started on the stupidity and dishonesty of baseline budgeting.

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