Monday, March 16, 2009

Too Big To Fail: It's Time For The Ultimate Bailout, The Federal Government

By Manifesto Joe

AIG (American International Group Inc.), Americans are being told, must be bailed out because it is too big to fail. Originally the world's biggest insurance company, AIG got into trouble with a vast foray into derivatives trading, insuring the kind of trash that giant financial institutions were bundling after they got into the subprime mortgage quagmire.

It's useful to extend an argument. I pose that the ultimate entity that is too big to fail is the federal government itself. Hell, it now owns 80% of AIG, anyway. Let the ultimate bailout commence.

So, where would the bailout money come from? There used to be, even in this country, the allegedly socialist notion of progressive taxation -- that those with the ability to pay should be taxed more. I understand that we don't want to punish successful people, you know, like those bonus-wealthy executives and derivatives traders at AIG. After all, we've got to keep attracting and retaining "the best and the brightest" to our giant financial institutions.

But one cannot even propose a more progressive income tax in this country without having to endure endless caterwauling from the right-wing attack apparatus. This is from

The media has been obsessing about President Obama's plan to roll back the Bush tax cuts for the wealthiest Americans—from 35% to 39.6% -— even asking if that makes him a socialist.

But do you know what tax rate the wealthiest Americans paid on the top portion of their earnings at the end of Ronald Reagan's first term? 50%.

Under Richard Nixon? 70%. Under Dwight Eisenhower? 91%!

Yes, we once had a progressive income tax in this country, and we even took that for granted -- like the right to organize a labor union, among other such quaint New Deal-era notions. There was even once a corporate income tax. It still exists on the books, but there are so many ways to elude it that 60% of American corporations don't pay anything. According to expert tax reporters Barlett and Steele, in 1959, corporations actually provided 39% of all IRS revenue. It's a fraction of that now.

I'm not even radical on this issue. To me, a 91% marginal tax rate on personal income does seem punitive. Even 70% sounds like too much. What sounds right? I'd say 50%, like at the end of Reagan's first term.

Even at 39.6%, the Clinton administration rate, the U.S. saw its last federal budget surplus, and the last we're likely to see for a while. President Barack Obama wants it there again, and he has shown an admirable fighting spirit.

But he's up against something very powerful. Facts and history mean nothing to these people. The objective is to defend the economic status quo, however toxic and indefensible. And they have a history of being able to mobilize armies of wage-enslaved fools who are more than willing to blame the wrong people for their problems. The idea at the core of their mission is not where we will be in 10 years. It is how much profit can be made for the right people in the next 10 minutes.

When we get down to it, the bailouts of financial institutions, all generally undeserving, won't cut it unless we do the ultimate bailout -- our own federal government. It is far too big to fail. Two plus two do not equal five, and if this economy is going to be put back on the tracks any time soon, it's clearly the federal government that's going to have to do it.

Granted, that's a scary thought -- almost as frightening as leaving it in "free-market" hands such as AIG's "best and brightest."


Jack Jodell said...

Welcome back, Manifesto Joe! I hope your illness is under control and that we'll be hearing a lot more from you from now on.

This is a brilliant piece that is thoroughly accurate. The economic and political right will indeed do anything they can to preserve the status quo, and they have willing and unwitting legions of foolish lower wage earners and bought out pundits and politicians to spread their lies and fear stories of socialism. Of course, all of that talk is total malarkey. A truly socialist government would never allow shenanigans like AIG's bullshit bonus giveaway. And we would already have an honest and truly universal health care system devoid of any insurance company participation or profiteering off of human suffering. The only socialism going on in this country today is the type of socialism for the rich and "crapitalism" for everyone else that has basically been in place since the Reagan era. I'm with you on a 50% tax rate for the wealthy corporate criminals. TAX THE RICH AND FEED THE POOR! UNIVERSAL SINGLE-PAYER HEALTH CARE FOR ALL!!!

Jack Jodell said...

Here's another scary thought: I heard the other day that the Chinese were becoming nervous about underwriting our $1 trillion economic bailout. If they pull out and call in their cards, it will certainly be hello Great Depression II and hello third world country for us!

Marc McDonald said...

I normally don't put much stock in what George W. Bush says, but in 2004, he made a comment that was actually pretty insightful. He was commenting on Kerry's proposal to raise taxes on the rich. Bush said that Kerry's proposal would be meaningless because "the rich can always figure out how to avoid paying taxes."
Note that this wasn't Michael Moore. It wasn't Noam Chomsky. It wasn't Al Franken. It was George W. Bush.
And Bush ought to know: Bush, after all came from a wealthy background, with his daddy a millionaire president and his grandfather a millionaire U.S. senator.
Bush's words were wise because they raise an important issue. Tax brackets aren't really that important in the real world. What's important are the amounts that people REALLY pay. And the fact is, the rich pay less than the working class, as a percentage of income, when you factor in the various tax breaks that exist for the wealthy.
Even Warren Buffet, the 2nd richest man in the world, has acknowledged this. He pointed out a couple of years ago that he pays less of his income into taxes than does his secretary (who makes around $60,000 a year).

Jack Jodell said...

And the rich love to allege "class warfare" when anyone below their income level seeks to redress the inequalities of income and taxation currently in vogue. The pot shouldn't call the kettle black now, should it? Clearly, the rich's exportation of good paying jobs, their freezing of workers' wages and cutting of benefits, together with the massive tax cuts Bush gave them are all atomic bomb blasts of warfare against the poor and middle class when compared with the measly 4.6-11% tax increase on them proposed by Obama. The pampered rich in this country just need a good case of whup-ass to straighten them out, that's all. What a pack of pigs!

Reas Kroicowl said...

I don't think I can add anymore. Your previous commenters hit the nail on the head.

Burr Deming said...

A very good argument for progressive rates.

Thank you.

Manifesto Joe said...

Hi gang -- looks like the usual suspects stopped in.

What I'd really like to see is not just the marginal rate back at 50%, but then a lot of loopholes closed and corporations forced to actually pay income tax like they used to. We'd have a surplus rather quickly if all that came to pass.

But, we're likely to have to run Keynesian deficits as long as we're in a recession. And that's worrisome, given how leveraged the country is already, and on so many levels.

Anonymous said...

A progressive tax system is not "arguably socialist," and it never has been, Socialism involves the state taking over and operating businesses that were previously in the private sector like we have seen with AIG and several large banks and like we will see with the auto, defense, health and other insurance industries in short order under Obama.
What you are referring to is in fact Marxism. By increasing the top marginal tax rates to punitave levels, you may, in effect, achieve the overthrow of capitalism and put in its place a classless society.
The overlooked principle in your observation is that America does not have a static caste or class system. The rich are allowed to become poor and the poor to become rich based on their own talents, industry and willingness to take on risks. The hope you have for a "level playing field" is the hope of the remainder of the industrialized world. Our global competitors are watching in astonishment as we voluntarily vote to give up our collective wealth and power on the world's stage. We have a president who thinks is is righteous to upturn the treasury and spill its contents into a black hole and we have a group of voters who are taking glee in the spectacle of our most successful businessmen being shamed for their achievements.
There was a time when the well to do were looked up to for aspiration and inspiration in this country. Working men sought to achieve the same or greater heights than the men they worked for. (And later, working women did the same. There. You happy?) But the demonazition of success in this post capitalist paradigm has resulted in the deflation and possible ruination of the American dream. No longer is the rags to riches story lived out on a daily basis across the land. Instead, the rich and successful are dragged down and crushed by the envious and spiteful despite the fact the result will be societal devastation. We need leaders. We need successful, inovative, hard-working people who are rewarded for their sacrifices. We do not need pious, inexperienced, academian Ivy leaguers deciding who is too rich ansd who is too well compensated. We need to let the markets decide that.
Government has never been the answer to our individual needs. We are responsible for seeing to our own needs. If you are incapable of doing that, come see me. I need someone to cut my grass, and I cannot find a Mexican. (Damned border patrol!)

Manifesto Joe said...

Mort, you are living in an insular world, a fool's paradise. You aren't even giving me much of a straight line of thought to respond to here. Progressive taxation has long been the standard in the developed world, which has never regarded the U.S. as the "gold" standard for how to run an economy. All of the others, with the conspicuous exception of the U.S., accepted the concept of a mixed economy decades ago. They socialized their medicine, perhaps with mixed results, but at least virtually anyone can get health care. They mix their approaches according to what gets better results for the greater number.

The "free market," with the deregulation that reigned ideologically in the U.S. from the late '70s until recently, was PRECISELY WHAT GOT US HERE. It would be wonderful if there really were a self-regulating marketplace; but we've had a chance, yet again, to see the results of that laissez-faire delusion. It amounts to putting the foxes in charge of the henhouse. The market is self-regulating only to the extent that people are self-policing. Enron and AIG are the logical result of such an approach.

The definition of socialism is outright, total ownership of the means of production by the workers or a government entity that is supposed to represent them. Until we actually see large sectors of the U.S. economy, i.e., utilities, large numbers of factors, etc., owned outright and operated by the government, Soviet-style, you are being ludicrous talking about socialism. YOU CLEARLY DON'T KNOW WHAT A SOCIALIST IS.

By the way, you're awfully smug, as betrayed in your final sentences. But, those of us with a different perspective have noticed that, among economic right-wingers, that goes with the turf. It is at the core of the entire philosophy.

By the way, I grew up relatively poor, didn't get to go to an Ivy League school. But I did go to a decent college thanks to scholarships, loans, Pell grants and such, and did well enough that I've never had to dodge any taxes, and can afford to hire my lawn done -- by a man with a Hispanic surname and a thick accent. I've never asked to see his green card. His kids speak very good English, and maybe they'll even get to go to college -- but no thanks to you, at least not to you voluntarily.

Marc McDonald said...

>>We have a president who thinks
>>it is righteous to upturn the
>>treasury and spill its contents
>>into a black hole

Uh, actually, that was George W. Bush. And the black hole was his $3 trillion fiasco of a war in Iraq. By contrast, the vast majority of Americans APPROVE of Obama's spending and think it's a wise idea to spend some money on our crumbling infracture and underfunded schools for a change, (especially since we're in the worst economic crisis since the Great Depression, thanks to Bush's policies).

>>>we have a group of voters who
>>>are taking glee in the
>>>spectacle of our most
>>>successful businessmen being
>>>shamed for their achievements.

Successful businessmen being shamed? You mean the swindlers and crooks on Wall Street, whose Ponzi schemes finally collapsed, as they drove the U.S. economy into the toilet? And who is being shamed? These people are pocketing hundreds of billions of OUR tax dollars in corporate welfare. If that is being "shamed," where I can sign up to be shamed?

Vote GOP in 2010 said...

Obama's approval rating is falling, according to the polls:

Read it and weep, LibTards!