The Democrats' War on Economic Success assumes that you can fund your huge federal programs by simply soaking the rich. But let's look at the demagoguery put forth by Pelosi and other progressive Democrats that the Bush tax cuts were simply a giveaway to the wealthy. In fact, the top 5% got 30% of the tax benefit. That seems to support the progressives point of view, until you realize that the top 1% pay 25% of the tax burden and the lower 40% effectively pay no federal income tax, i.e., the people who paid the most tax got a proportionate amount of the tax cut. In fact, the current tax scheme encourages consumption (including foreign-produced goods and services) and discourages saving and investment. The fact that, in fact, Obama's infamous campaign promise to lower taxes on the bottom 95% (including tax rebates/credits to the 40% whom don't currently pay taxes) goes beyond a tax scheme which is already too progressive and redistributive; what incentive do the lower 40% getting "free" government services (and in fact get transfer payments from other American taxpayers) to keep government costs down? There is moral hazard run amuck.
If you look at it from another way, the top 400 richest account for about $1.3T in total wealth--less than last year's Democratic Party National Deficit of about $1.8T (keep in mind that's over and beyond what was actually collected in federal revenues). (Never mind the fact that the bulk of Gates' and Buffett's personal fortunes, for instance, are tied into Gates' philanthropic foundation.) The point I'm making is that there is only so far you can soak the rich--and even if you confiscate the assets of productive individuals (which violates the Bill of Rights), it's counterproductive.
Obama's attempts to tax the banks under a sham rationalization to retain costs of TARP (and renewing the attacks on how financial services sector compensates its executives, i.e., bonuses) not only targets the wrong parties but is counterproductive and fraught with moral hazard. For example, many banks did not require or desire a federal bailout but were essentially forced to participate in the TARP program. In fact, the government says that it will net around $20B in profit from its $250B in TARP loans. Instead, the federal government has recently lifted its reserve cap to about $200B for losses from Fannie Mae and Freddie Mac. Most of the losses from TARP are expected, not from banks, but from AIG (an insurance company) and automakers. Let's get this straight: the GSE's Fannie Mae and Freddie Mac, which operated with an implicit government guarantee and cheap Treasury money, captures the major portion of the market; the Democrats opposed conservative attempts to reform the GSE's (even after the accounting scandals around 2004); clearly the Congress did not diagnose the risk and require fees from the GSE's commensurate with the risk they were taking, including a significant percentage of gimmick loans.
This tax is essentially punitive and arbitrary in nature--why should companies which handled risk prudently pay for the sins of others? One might figure that a lawyer President would attempt to go for "deep pockets". What about the bank regulators, the Fed, the Congress, etc., whom failed to assess the risk during the housing bubble? The end result is that these taxes, which some estimate could amount from 12 to 22% at JP Morgan and Bank of America respectively. What does this mean, in practical terms? Well, Obama "the genius", at the same time he's encouraging banks to lend to small business, is announcing a policy that increases the cost of providing those very same loan (meaning less profit). What that means is fewer loans will be made by banks. Of course, taxes are costs that must be passed along, ultimately, to the consumer.
I know Obama is continuing his populist demagoguery on bank bonuses. He needs to let that go; the government will get back a significant chunk of those bonus dollars at high tax brackets. Moreover, executive compensation packages will likely evolve to respond to changes in tax policies; for example, executives can respond to tax increases by deferring income.
Luckily, I believe this proposal will be dead on arrival in the Senate, because centrist Democrats will probably join the Republicans in a likely filibuster. What's frustrating is seeing clueless Obama and his progressive legislative colleagues engaging in precisely the wrong tax-and-regulate policies which cause analysis paralysis in the private sector and delays a recovery. Now if in the future banks want federal reinsurance, then they should pay a commensurate fee to the government for that, the government should set up a reserve lockbox, and there should be relevant criteria and assessments for program eligibility; but you don't change the rules of the game after it's been played. Progressive meddling in the financial services industry does not encourage investment in the sector, the development of innovative products and services, or bolster the sector's global competitive position.
But, going back to the original point, there's no such thing as a "free lunch". Taxes are like squeezing a balloon. They ultimately get passed back to the (middle-class) consumer. It may not be as explicit as a line on your 1040 return, but it affects the nature and extent of consumer goods and services (and hence their availability and cost).
VP Joe Biden: Even His Schedule is a Gaffe...
Did you hear about the following oxymoronic item in Biden's January 14th schedule?
Then, at 2:15 PM, the Vice President will meet with Earl Devaney, chairman of the Recovery Act Transparency and Accountability Board. This meeting is closed press.The President Doth Protesth Too Much
Remember how Obama pushed for transparency? Railed against the influence of "lobbyists" during the general election season? Promised to broadcast key health care reform meetings on C-SPAN? Apparently Democratic special interests are "more equal":
- Obama has not held a press conference since July
- Yesterday the White House came to an agreement (in closed sessions) with unions to basically raise the tax deduction ceiling for health insurance and exclude vision/dental coverages from tax considerations; it's also looking to get more concessions from Big Pharma and medical device manufacturers
- There were the GM/Chrysler bankruptcies a few months back where lower-standing unions were provided equity positions ahead of bondholders
I continue this week's retrospective of favorite American Idol alumni performances with the Velvet Teddy Bear, whom had my vote and barely edged Clay Aiken in perhaps the closest finish in the history of the show. Ruben did well as his debut pop album and a follow-up gospel album, and continues to chart well on the soul charts, but his more recent album sales have been disappointing. Ruben's cover of the original Carpenters' hit (later remade by Luther Vandross) was a key performance, strong enough to subsequently merit a Grammy nomination.
