First, the estate tax.
After eight years of Republicans' tax-cut-and-spend mentality, you'd think that the new Congress would step back, look at the economic mess that has resulted, and reconsider the Republican proposals that started with the 2001 Bush bills and continued on throughout the Bush administration. The Bush administration and Congress enacted tax cuts that paved the way for enormous inequality, as the wealthy became wealthier and the rest barely hung even or lost ground. Don't they get that it has got to be reversed, now? That is, after all, part of the change the American people voted for.
One person who obviously doesn't get it is Earl Pomeroy, Democrat (at least in name) from North Dakota. On Jan. 9, Mr. Pomeroy introduced H.R. 436, a bill that would fulfill Obama's campaign statements about the estate tax by keeping the tax at the ridiculously low levels enacted by the Republicans on their way to complete repeal--$3.5 million as the base exemption amount, at a 45% rate. (The bill currently has no co-sponsors--dare I hope that means that people know this is a foolhardy piece of legislation?) Read more in the Tax Justice Digest, Estate Tax Proposal Would Partially Extend One of Bush's Tax Cuts for the Wealthy, Jan. 16, 2009.
Remember that estate tax repeal is something that has been lobbied for extensively by the very wealthiest families in the country who happen to be the primary targets of the estate tax. See prior ataxingmatter postings about the coalition of 18 families put together by the Wal-Mart heirs to push estate tax repeal. They've resorted to the extensive propaganda tricks that have marred the Bush Administration--choosing representative families that are by no means representative, claiming that the estate tax causes families to lose their family farms (when, in fact, they have not been able to show that there is any such problem), misleading ordinary Americans to think that the estate tax threatens almost everybody's home and heirlooms--in order words, misrepresenting the facts to portray the estate tax as evil when in fact it is an unmitigated good. There is, in short, absolutely no tenable reason for reducing the estate tax to this bare minimum.
In fact, there are a number of substantial and undeniable arguments for increasing the estate tax so that it 1) retains its impact on the smaller of the large estates ($2 million or more) and 2) has a much greater impact on the megaestates of people like Bill Gates and the Walton heirs.
The estate tax is a powerful tool that needs to be used to reduce the gaps between the haves and the have nots in this country. That gap between the wealthy and everybody else has gotten so big because of four decades of wealthy-friendly subsidies in the tax code and wealthy-friendly provisions in the marketplace (like disdain of labor laws that help workers, allowing companies to renege on pension benefits, leaving the minimum wage so low that workers can't manage, letting Wal-Mart intimidate workers to avoid unionization and then push workers onto taxpayers for health care to save the Wal-Mart heirs more billions). In 2006, with the $2 million exemption in place, only 0.7% of deaths were subject to any estate tax (and, of course, for many of those estates, the tax was relatively small). Id.
The estate tax offers a best-choice way to reduce inequality, eliminate some of the advantages provided to heirs that do nothing to deserve the benefits of inheritance, and make up some of the enormous deficits that are currently being created by programs like TARP. The estate tax should go back to the 2001 level--and retain the 55% tax rate (perhaps increasing it to as high as 65% for the largest multi-billion dollar estates).
It even looks like the public view on the estate tax has changed as people have realized just how bankrupt the Bush Administration tax policy ideas are. Our friend Roth who runs a taxpractitioner website on taxing matters conducted a poll on the "worst" tax idea of the last eight years. (Talk about a hard exam--I could list 100 bad ideas that might qualify for that title.) While the majority of tax folks answering the quiz picked the new 409A deferred compensation rules, a solid 13% picked estate tax repeal. A similar group picked the lowering of the top rates on high income taxpayers.
Second, the "aggregator bank":
Sheila Bair, FDIC head, is busy making the argument for the U.S. government to buy up all the toxic assets held by banks and put them in a bad asset aggregator bank. See this discussion on the Wall St. Journal's Real Time Economics site (an interview with Bair), Jan. 16, 2009. The claim is that this will work like the US intervention in the savings and loan debacle of a couple of decades ago, when the US created the Resolution Trust Co. to work things out.
But as Paul Krugman ably demonstrates in his op-ed on the issue (Krugman, Wall Street Voodoo, New York Times, Jan. 19, 2009), that's a crock of lies. The Resolution Trust Corp. worked because we took over bad savings and loans and let the shareholders and managers sink away with nothing. In this deal for the banks, under bank-friendly Bair and Paulson (and Obama's leadership on these issues--Larry Summers and Tim Geithner--do not promise to be any better at all), the good ole US taxpayers would dole out money to keep the banks in business --the only way to do it being to pay a premium more than the market would pay for the toxic assets--while allowing the shareholders and managers to keep right on trucking and making money out of the taxpayer bailout. Since market prices for the assets are low (that's why banks can't sell the assets at anything but a loss), Bair thinks the US should pay higher prices and that would make all well. Here's what Bair says:
Some are concerned that you’d have to mark the assets down to purchase them, but I think it could help provide some rational pricing, actually, for the market in some of these assets because we don’t have really any rational pricing right now for some of these asset categories.
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I think everybody agrees it’s important to provide some troubled asset relief, because I think it’s key to getting private equity capital back into banks. They need to have some certainty about what the tail risk is on some of these assets. By doing the insurance wrap or providing a bank to just get them off the balance sheet complete, I think that would help us get some private capital back into banks.”
Real Time Economics, above.
Stunning. Scandalous. Stupid. Stealing.
Read Krugman. Weep. This is not like RTC, since there the government did what we should be doing here--it took over the failed S&Ls and put their assets in the RTC to try to get what it could out of them.
After you finish weeping, get on the phone to your Congressional representative and senators. Write your local newspapers. We have to stop this no-strings giveaway to the big banks now. Take 'em over. Let the shareholders and managers lose--they're the ones that reaped gargantuan profits before by causing the systemis risk that we are enduring now and they should not benefit now. It is absolutely absurd for us to buy toxic waste at a premium so the big banks can go on doing what they've always done--making the system work for themselves, and ripping off ordinary people in the process with usurious credit card rates (32% or higher), subprime loan securitizations that leave mortgage holders unable to work out their mortgages because they can't find the appropriate party to deal with, and the inability of mortgage holders to work out their mortgages in bankruptcy because of the careful lobbying of the big banks to ensure their own profits.
Oh, by the way, Treasury has issued additional executive compensation rules under TARP. See Treasury Issues Additional Executive Compensation Rules Under TARP, US Treasury Office of Public Affairs, Jan 16, 2009; Revised Notice 2008-PSSFI; and FAQs. Better, I suppose, but still a farce. They should just be fired.
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