People are so up in arms about the national debt and deficit, but rather than coming up with creative ways for dealing with it, they just rail against "government spending," especially on any kind of social program that would actually be of benefit to any citizens of the US especially the poor. The fact that Republican Presidents of the last 30 years starting with Reagan have been responsible for 90% of the total national debt seems to be lost on them. When Reagan came to the Presidency in 1980 tha total national debt since the beginning of the Republic was less than a trillion dollars. Reagan and the first President Bush quadrupled that so that by 1992 the national debt stood at $4 trillion. Even though President Clinton actually ran budget surpluses in the out years, another trillion was added during his Presidency so that when the second President Bush took office in 2000, the national debt stood at around $5 trillion. Of course, it would have been a lot more if Clinton hadn't actually paid it down.
But the big, profligate spender was George W Bush who proceeded with large unpaid for tax cuts for the wealthy, two unpaid for wars and a prescription drug benefit for seniors which was again unpaid for. Bush added another $5 trillion to the national debt, doubling it, and drove the nation into the biggest financial collapse since the Great Depression requiring trillions more in bank bailouts undertaken mainly be the Federal Reserve which won't tell us how much it's given to the banks and by the Obama administration trying to undo the mess left to them by the Bush administration. All in all Republican tax cutting policies and wars of the last 30 years have added $9 trillion to the national debt. So when Obama took office amidst the Great Recession when Keynsian economics would indicate more government spending to prevent a second Great Depression, his hands were relatively tied except, of course, for bailouts of the big banks which cost a few trillion more.
While Obama needs to spend money to get the economy moving again, he still is more fiscally responsible than Republican Presidents and policies of the last 30 years. He actually wants to find sources of revenue to offset increased government spending! The sensible thing, of course, is to tax the rich who have made the greatest income and wealth gains in the last 30 years while the middle class has languished. This is actually starting to happen with the new Health Reform bill which increases Medicare and Social Security taxes for individuals making over $200 K a year and families making over $250 K. But more revenue is needed to get the situation under control. The Republicans make the argument that you can't raise taxes on the rich because they are the ones who create jobs and jobs are sorely needed. While it is true that jobs are sorely needed, it is not true that the rich are the job creators. As the economy has become increasingly more financialized, more and more of the money of the rich has gone into speculation and not starting new businesses and creating jobs. Job creation has been offshored to a cheaper labor pool. Therefore, taxes on financial speculation are entirely appropriate.
A blog written around the time the US economy was imploding details other revenue sources:
Tax the Speculators
A Fair Plan to Pay for Economic Recovery
With the specter of financial Armageddon raised in headlines everywhere, two questions keep occurring to me. Where will the government find the $85 billon to bail out AIG and other Wall Street giants? And how will we pay for the proposed Main Street recovery, including federal aid to states, relief to homeowners, and public works projects for the unemployed?
The Bush administration plans to add to the $400 billion projected deficit and our $9 trillion national debt. But it's irresponsible to shift the bill entirely to the next generation. The corporations that rigged the casino economy and the wealthy CEOs and investors that profited at everyone else's expense should bear the recovery costs, not our kids and grandchildren.
We can't recover the money from the companies now. They have extracted the profits and their CEOs have cashed they gilded paychecks. The speculators bought mansions, private jets, and small islands. Lehman Brothers declared bankruptcy on Monday and 25,000 workers are on the brink of unemployment. But Lehman CEO Richard Fuld is sitting pretty, with his $354 million compensation from the last five years and a mega-mansion in Greenwich, Connecticut.
When a CEO or employee improperly takes money from a company and is forced to pay it back, it is colorfully referred to as "disgorgement." In 1999, managers of Compaq Computer cooked the books and gorged on bonuses based on misrepresented profits. The government forced them to pay it back.
But what happens when a whole sector of the economy has been cooked and billions of dollars have already been stashed in offshore bank accounts? How are the crooks held accountable for robbing our entire economy?
Here are six actions that will fairly generate over $400 billion a year to pay for a broad-based economic recovery and reduce the extreme inequalities that fueled speculation at the outset.
Institute a Financial Transactions Tax. Congress should levy a tax on financial transactions such as sale and purchase of stock and more exotic transactions such as credit default swaps, options, and futures. The UK has a modest financial transaction tax of 0.25 percent, a penny on every $4 invested. This is negligible for a long-term investor, but imposes a cost on the fast-buck flippers. Estimated annual revenue: $100 billion.
Impose an Income Tax Surcharge Rate on Incomes Over $5 Million. The 50,000 households with annual incomes over $5 million are the bigger winners from twenty-five years of Wall Street deregulation. They've also seen their effective tax rates decline under President George W. Bush. Instituting a 50 percent tax rate surcharge on incomes over $5 million and a 70 percent rate on incomes over $10 million would generate $105 billion a year.
Eliminate the Tax Preference for Capital Gains. Wealth extracted from Wall Street windfalls will pay out income for years to come. There's no economic reason for taxing income from corporate dividends and capital gains at 15% while taxing income from actual work at 35%. Taxing wealth and work at the same rates would generate $95 billion a year in revenue.
Progressive Inheritance Taxes. When great amounts of wealth passes to the next generation a portion of it should be taxed. A progressive estate tax could generate $50 billion a year in the short term, but much more in outlying decades.
Eliminate Taxpayer Subsidies for Excessive CEO Pay. Five loopholes that benefit top executives should be abolished. These include eliminating offshore deferred compensation, capping the tax deductibility of excessive pay, and eliminating double standards for stock option accounting. Closing these tax loopholes would generate $20 billion a year. (Read more about this in this recent report from the Institute for Policy Studies and United for a Fair Economy.)
Close Offshore Corporate Tax Havens. Congress should prevent corporations from playing games by claiming expenses in the United States and profits in countries that don't collect taxes. According to the Government Accountability Office, two-thirds of US corporations paid no corporate income tax between 1998 and 2005. Closing this loophole would generate over $100 billion.
Government action should prioritize protecting ordinary people and the real productive economy, not further reward the superrich and the speculative sectors of the economy. A fair plan to the pay for the recovery is a good start.
Copyright © 2008 The Nation
And then there was the excellent blog by Thom Hartmann on the subject:
How Wall Street Can Bail Itself Out Without Destroying the Dollar
For Grover "Drown Government in the Bathtub" Norquist, this bailout deal will work out very well. At a proposed cost of $4,780 per taxpayer, it'll further the David Stockman strategy of so indebting us that the next president won't have the luxury of even thinking of new social spending (expanding health care, social security, education, infrastructure, etc.); taxes will even have to be raised just to pay for the bailout. It'll debase our currency, driving up commodity prices and interest rates, which will benefit the Investor Class while further impoverishing the pesky Middle Class, rendering them less prone to protest (because they're so busy working trying to pay off their debt). It'll create stagflation for at least the next half decade, which can be blamed on Democrats who currently control Congress and, should Obama be elected, be blamed on him.
But there's another way: Create an agency to fund the bailout, loan that agency the money from the Treasury, and then have that agency tax Wall Street to pay us (the Treasury) back.
It's been done before, and has several benefits.
In the United Kingdom, for example, whenever you buy or sell a share of stock (or a credit swap or a derivative, or any other activity of that sort) you pay a small tax on the transaction. We did the same thing here in the US from 1914 to 1966 (and, before that, we did it to finance the Spanish American War and the Civil War).
For us, this Securities Turnover Excise Tax (STET) was a revenue source. For example, if we were to instate a .25 percent STET (tax) on every stock, swap, derivative, or other trade today, it would produce -- in its first year -- around $150 billion in revenue. Wall Street would be generating the money to fund its own bailout. (For comparison, as best I can determine, the UK's STET is .25 percent, and Taiwan just dropped theirs from .60 to .30 percent.)
But there are other benefits.
As John Maynard Keynes pointed out in his seminal economics tome, The General Theory of Employment, Interest, and Money in 1936, such a securities transaction tax would have the effect of "mitigating the predominance of speculation over enterprise."
In other words, it would tamp down toxic speculation, while encouraging healthy investment. The reason is pretty straightforward: When there's no cost to trading, there's no cost to gambling. The current system is like going to a casino where the house never takes anything; a gambler's paradise. Without costs to the transaction, people of large means are encourage to speculate -- to, for example, buy a million shares of a particular stock over a day or two purely with the goal of driving up the stock's price (because everybody else sees all the buying activity and thinks they should jump onto the bandwagon) so three days down the road they can sell all their stock at a profit and get out before it collapses as the result of their sale. (We ironically call the outcome of this "market volatility.")
Investment, on the other hand, is what happens when people buy stock because they believe the company has an underlying value. They're expecting the value will increase over time because the company has a good product or service and good management. Investment stabilizes markets, makes stock prices reflect real company values, and helps small investors securely build value over time.
Historically, from the founding of our country until the last century, most people invested rather than speculated. When rules limiting speculation were cut during the first big Republican deregulation binge during the administrations of Warren Harding, Calvin Coolidge, and Herbert Hoover (1921-1933), it created a speculative fever that led directly to the housing bubble of the early 20s (which started in Florida, where property values were going up as much as 70 percent per year, and then spread nationwide, only to burst nationally starting in 1927 as housing values began to collapse), then the falling housing market popped the stock market bubble and produced the great stock market crash of 1929. That speculation aggregated enormous wealth in a very few hands, crashed the housing and stock markets, and produced the Republican Great Depression of 1930-1942.
Franklin D. Roosevelt, as part of the New Deal, put into place a series of rules to discourage speculation and promote investment, including maintaining -- and doubling -- the Securities Transaction Excise Tax. Other countries followed our lead, and the UK, France, Japan, Germany, Italy, Greece, Australia, France, China, Chile, Malaysia, India, Austria, and Belgium have all had or have STETs.
Perhaps the most important benefit of immediately re-instituting a STET in the USA, however, isn't that it would raise enough money to bail out the banks and billionaires (and after that crisis is covered, could pay for a national health care system), or that it would encourage investment and calm down markets. Those are all strong benefits, and absent the current Republican Administration bailout proposal would stand-alone strongly.
But the Republican Bush Administration is currently suggesting that we borrow $700 billion (or more) from China and Saudi Arabia and other countries and investors, add that to our national debt, and repay it with interest (making the actual cost over the next 20 years over $1.4 trillion). This is what Republican Herbert Hoover tried in 1931 when he first created the Reconstruction Finance Corporation (later totally reinvented by FDR) to bail out the banks in 1931. Hoover's RFC bailed out the bankers, paid off huge salaries in the banking and investment world, bought him a few months (maybe that's the real goal of the Bush/McCain Republicans now -- just hold things together until after the elections), but ultimately led to the failure within two years of virtually all the banks in the United States. The bailout failed.
Similarly, in 1998 the Japanese banks were facing a serious crisis of liquidity as the result of a bursting housing bubble in that country. The Japanese government used public funds to re-float a number of large banks that year, and it similarly failed. In one example out of dozens, in 1998 135 billion Yen were given from public tax funds to Ashikaga Financial Group, but the company limped along for a few years and in November of 2003 collapsed again, requiring a second infusion of a trillion yen from public coffers. And, as the BBC reported in a 30 November 2003 article ("Japan Bank Bail-Out 'A One-Off'"): "But experts warn that Ashikaga could be just the tip of the iceberg." Professor of Finance at Tokyo University Takehisa Hayashi said, "It will come as no surprise if we see another Ashikaga case in the near future." And they did.
Japan continues to limp along, as a result of bailing out banks rather than fixing structural problems. (At least the Japanese had enough savings to use their own money, instead of debt, to bail out their banks.)
So bailouts don't work, and never have. And they also have the side effects of damaging a nation's credit, sucking up its taxpayers resources, and (when done with debt) weakening its currency.
So let's go back to what we know works. After Hoover's 1931 bailout of the banks failed, FDR did a cold reboot of the entire system, putting into place strong rules to prevent speculative abuse. And he doubled the STET tax, both producing revenue that more than funded the Securities and Exchange Commission and further prevented a repeat of the speculative bubble of the 1920s that led directly to the Republican Great Depression.
We've done it before. We financed the Spanish American War and partially financed the Civil War, WWI, and WWII with STETs. We stabilized our stock market with a STET from the mid-30s to 1966, and other nations are doing it today. It's time to do it again, this time using the STET so tax Wall Street can pay for its own bailout.
So the true fiscal conservatives have not been Republicans who have been profligate spenders. They only get upset about deficits when Democrats are in office, and then it's because they don't want money spent on social programs or even real national defense for that matter. They only want to feed the fantasy military-industrial complex, fight phony wars and give their corporate sponsors tax breaks and other perks. Another revenue source is to tax mineral recovery including oil, gold and natural gas. Right now, unlike in other countries, the natural resources of the US are given away to private corporations with taxpayers deriving nothing from assets they own.
Bernie Sanders has some good ideas; Michael Hudson has good ideas. A Value Added Tax (VAT) is a good idea. There is no lack of good ideas for revenue enhancement. It just takes political will to enact them, and Republicans will be fighting them all the way except for increased taxes on the poor and middle class.
