If Only We Had Some Means of Taking Rich People’s Money and Devoting it to Public Purposes
Internal Revenue Service headquarters, Washington DC (cc photo by cliff1066)
I don’t think it should come as a shock that the Obama administration’s efforts to reign-in or reform compensation policies at the big banks have run into some snags. For one thing, there’s are no real populist firebreathers on the administration economic team and that kind of shifts the balance of power in favor of the bankers. But most important of all, you don’t get to be an important person in the world of finance without being really, really, really good at figuring out ways to pay yourself a lot of money. That’s what the field is all about. And it’s extremely difficult for the government to catch up with the ingenuity that can be deployed when people’s livelihoods depend on it.
That said, we compensation reform aside, we actually have a well-established method of taking market distributions of income and trying to transmogrify it into a more just, useful, and welfare-enhancing deployment of social resources—taxes and public services. The world of finance has been the main driver behind the growth in inequality at the extreme high end, and establishing additional tax brackets with higher rates would help lean against that trend. So would something like the Obama administration’s proposal to curb the extent to which high-income individuals can shelter income from taxes through itemized deductions.
It strikes me as ultimately unlikely that the political process will be able to micromanage high finance in a way that strikes people as meeting the claims of justice. But the political process very much can collect tax revenues and use that revenue to finance things that we currently “can’t afford” like more widespread provision of health care services, better rail transportation, cleaner streets, more police officers, more and better pre-kindergarten, etc.
37 Responses to “If Only We Had Some Means of Taking Rich People’s Money and Devoting it to Public Purposes”
Register
RSSLogin
Topic Cloud
ArchivesBlog RollAbout Matt YglesiasContact Me
Donate
August 10th, 2009 at 10:49 am
Tax & spend?
August 10th, 2009 at 10:54 am
Rein in, Matt. Not reign.
August 10th, 2009 at 10:54 am
Good luck with that. Congress needs to approve tax increases and spending, and Congress is completely in hock to the financial industry, not withstanding some pointless showmanship in “oversight” hearings.
This compensation czar is a bit stupid, but he’s an executive official with some power to dictate pay. If you believe that paying wealth-destroying Wall Streeters less is a good in itself, then I’m afraid the ineffectual czar is the only realistic option.
August 10th, 2009 at 10:56 am
But if the problem is the distortions that the financial industry big shots introduce into the economy and financial system in order to pay themselves big money, rather than the fact that they are really rich per se, then taxing their income won’t do a whole lot to discourage them from encouraging those distortions.
Spending tax money on public goods can do a lot of things. Taking that money from the people who can most afford to pay it is a good idea. But neither of those things are a substitute for regulation.
August 10th, 2009 at 10:57 am
This eggcorn is actually starting to become accepted usage.
August 10th, 2009 at 11:01 am
Obama really has no heart for taxing the rich. Pelosi asked him to rescind the Bush tax cuts in February, and Obama refused. That would have set a tome, with little harm to the economy. There is the possibility that Obama has secretly bought into the Reaganism/Lafferism.
Anyway, I am expecting spending cuts in programs that don’t please SWPL before any tax increases on the creative classes.
August 10th, 2009 at 11:02 am
And it’s extremely difficult for the government to catch up with the ingenuity that can be deployed when people’s livelihoods depend on it.
Some distinction should be made between “ingenuity” and “corruption” here. For example the Gramm-Leach-Bliley Act had nothing to do with the former and quite a bit to do with the latter. The government doesn’t need to “catch up” so much if it can enforce reasonable standards of transparency.
August 10th, 2009 at 11:02 am
bob mcmanus doesn’t know that Bush’s tax cuts are set to expire.
August 10th, 2009 at 11:04 am
Rein in, Matt. Not reign…
This eggcorn is actually starting to become accepted usage.
I keep a small bottle of potassium cyanide on my desk for the day I see it in the New York Times.
August 10th, 2009 at 11:04 am
I don’t see how it would work. Anything with teeth would probably be unconstitutional, or, if not, it could be found unconstitutional easily enough. As soon as we have a conservative in power, it would all be undone.
A better solution would be regulation that gives stockholders more say in chosing their board members. I had always thought that was how it worked, but it doesn’t work that way. Financial companies are the worst offenders. Stockholders have almost no say in the creation of the board, consequently, the board is made up of senior executives who gladly approve their own exhorbitant pay.
If board members had incentive to not waste money overpaying executives, they might not do it. If they viewed the money as coming out of their own pockets, they might have incentive to actually set a rational salary.
August 10th, 2009 at 11:13 am
But if the problem is the distortions that the financial industry big shots introduce into the economy and financial system in order to pay themselves big money, rather than the fact that they are really rich per se, then taxing their income won’t do a whole lot to discourage them from encouraging those distortions.
I think this is spot-on. Very often when the subject of increasing taxes on people who make a lot of money comes up, people on the right will say that this will disincentivize work, while people on the left will say that high earners are more motivated by the desire to afford particular products, in which case higher taxes will incentivize work, or are more motivated by keeping up with their peers, in which case, if everyone is taxed more, then the relative position of someone with respect to their peers is unaffected.
If the people on the left are correct, then, taxing bankers more won’t curtail their corruption or the distortions they introduce into the financial markets. It might even make them worse, as they have to chisel more money out of the system to maintain their old net incomes.
Of course, an effective regulatory regime could be implemented for a tiny fraction of the increased revenue the state would collect from higher taxes on people who make 500k or more a year.
August 10th, 2009 at 11:26 am
May all your hopes and dreams come true for using the word ‘transmogrify’ in a post, Matt.
August 10th, 2009 at 11:26 am
It’s impossible to raise taxes or reduce spending now. That’s just the way it is, thanks to Reagan’s catastrophic presidency.
August 10th, 2009 at 12:03 pm
“more widespread provision of health care services, better rail transportation, cleaner streets, more police officers, more and better pre-kindergarten, etc.”
Hold on, there. I thought that MY has been making some good, honest points with regard to health-care financing of late. Specifically, he has pointed out that you can’t just pay for it by taxing rich people. Instead, middle class people are going to have to pay up, regardless of campaign promises. On the other hand, hopefully, the spending side of the equation will offset the regressive nature of some of those taxes.
But now we have taxes on the rich not only paying for health care, but cops and street sweeing and pre-K to boot. Hell, why not a chicken in every pot, too. And cash for every clunker!
But I think that if we are going to have to hit the middle class for health reform (and the lower class through MY-approved taxes on cigarettes and beer) it’s reasonable to expect that there might not be a whole lot left over for the chickens and the pots and the clunkers and the street sweeping. Right? because as MY pointed out, the taxes on the rich won’t even pay for the health care.
So is it really politically feasible to propose broad new taxes on the middle class to support this cavalcade of programs? On top of the tax hit for health care?
Good luck with that.
August 10th, 2009 at 12:21 pm
I am so naive. Back in January I fully expected there would be a no holds barred push for single-payer health care and a strong public option would result out of compromise. Wrong!
Back in January I thought Wall Street in its current incarnation was a goner. I honestly believed we would nationalize a bank or two, or create our own National Bank, or chop up the existing system and regulate the hell out of the inoffensive little pieces. Or do all three. Wrong!
It appears it makes little difference who is in charge. Yes, there are many small, incremental things that are being accomplished. Less damage is likely to result from having a sane person in the Oval Office. And it is nice to know that Ken Salazar is over at Interior, instead of James Watt.
That is a big plus, especially for the endangered bobolink.
August 10th, 2009 at 12:34 pm
As mentioned above, the big issue is that the financial sector is becoming the major force in the economy, rather than the adjunct, facilitating factor it should be. If that problem were resolved, compensation would also be less of an issue.
In addition to restoring regulation to its pre-Reagan state, a useful step might be to adjust capital gains tax rates such that financial gain is taxed at a much higher rate than real assets. A transaction fee on trades would also behelpful.
August 10th, 2009 at 1:18 pm
“can’t afford”
Ha. When asked about the huge price tag associated with going to war in Iraq, conservatives (and many moderates and liberals I might add) said we couldn’t afford NOT to spend the money. But when it comes to healthcare and other important domestic issues, we “can’t afford it”?
Whenever I point this out to somebody, I either get a giant eye roll, or a sentence that starts with “Well, now that we’re there…” or “Yeah, but we must look forward, not backward.”
Whatever. I for one won’t stop bitching about it.
August 10th, 2009 at 1:33 pm
As well you should not Tessa. The monsters who supported those things should be reminded at every turn that they wasted hundreds of thousands of lives and trillions of dollars on their vanity. We couldn’t afford it, the Iraqis sure as hell couldn’t afford it, and we all would have been better off spending 10% of the money on making Iraq a better place and 90% of it on making the United States better.
But we have an idiotic debate that gives murderous dipshits a large voice in “defense” and rational people almost none. Hell, before he realized that it was going to be a clusterfuck under Bush, even Matt was in favor of the war on Iraq.
August 10th, 2009 at 1:46 pm
The two simplest (but not easiest) things would be a surtax on millionaires of up to 5% additional tax on taxes paid or raising the top bracket to 45% marginal tax plus enacting a .005% transaction tax on stock and bond transactions, including options and futures.
This would be understanfdable and would raise a ton of money. It would redress some of the imbalances created by the Bush tax cuts and might slow excessive trading.
But the influence of money on policy is too great. The really rich seem bent on crippling the consumer (unless s/he is high end) and thus preventing a real recovery.
August 10th, 2009 at 2:45 pm
The truth is, we just don’t have enough fabulously wealthy people to fund everything we need. Taxing the wealthy is a bad way of funding public services since in order to squeeze enough out of them you’d essentially tax them out of their income brackets. Any tax code needs to extend in a relatively smooth arc up the income brackets in a progressive manner.
That said, it is vitally important for democracy, social stability, the meritocracy, and social equality for the wealthy to bear a relatively healthy share of the burden. Certainly more then they bear at the moment. The extent to which money becomes more heavily concentrated in fewer hands can determine the relative health of the economy and society. Concentrated wealth is dangerous to democracy, as wealth is power and having incredibly wealthy actors rivaling governments in wealth is dangerous for everyone.
Furthermore, concentrated wealth is inefficient. Like any good gambler will tell you, you’re far more likely to hit a winner if you spread your bets around. Likewise, it’s more effective if you have many smaller actors in control of capital flow then a few large ones. This is, ironically, and argument conservatives use against government control of markets, but it’s equally, if not more applicable to the super-wealthy. As the saying goes, you don’t want all of your eggs in one basket, and this is especially true when this basket has little to no interest in the public good.
August 10th, 2009 at 2:53 pm
Along the lines of Why oh why at #13, what is so derogatory about the label “tax and spend”? Isn’t that exactly what a government is supposed to do, use taxes to generate revenue and then spend those revenues?
Or is this all part and parcel of “tax” having become a dirty word since 1980?
August 10th, 2009 at 2:55 pm
I think Matthew needs a Grammar Czar.
August 10th, 2009 at 3:43 pm
The proper role of government is force – due process violence – in order to secure (a security function) basic rights such as life, liberty and the pursuit of happiness. That is why governments are often good at defense, and so very poor at everything else.
If you want to destroy something or punish someone, taxing and spending work. If you want to build something, improve something, or help someone (in some way other than to defend them from aggression), you had better look to the profit motive, or to the charity of compassionate individuals and compassionate groups.
Governments at any level are not restricted by profits, and not sustained by compassion. When governments do what governments do well – and no more – both peace and freedom are optimized.
August 10th, 2009 at 4:22 pm
MKS–
Is that right? I assume defense contractor cost overruns and the whole military industrial complex are just necessary evils, then? And those poor seniors must be dying to drop social security and Medicare, but they’re just too polite to complain? Agh, and moving around–the interstate highway system barely goes anywhere, and the post office can barely do its job, either. And the national parks, what a waste of resources!
I could go on all day, but why belabor the point? You’re right, let’s shut everything down but the military. Might as well be honest about it, which is more than you can say for the GOP.
August 10th, 2009 at 5:08 pm
If you want to build something, improve something, or help someone (in some way other than to defend them from aggression), you had better look to the profit motive, or to the charity of compassionate individuals and compassionate groups.
Yes, indeed. Why, just look at our privately built weather data collection network, our privately built air navigation and traffic control system, our privately built and run Centers for Disease Control and Prevention and, of course, our privately built interstate highway system.
Jackass.
August 10th, 2009 at 5:30 pm
It always amuses me to see liberals prattle on about how “the rich” should pay more. There are a lot of rich liberals. They can pay more TODAY if they want to. It’s called the Voluntary Fund to Reduce the Public Debt. There’s a line for it on your 1040 form. The fact that guys like George Soros don’t write a huge check speaks volumes. Ditto for Susan Sarandon and all the Hollywood bozos who mock those of us who work for a living.
August 10th, 2009 at 5:33 pm
We can reign in compensation at the banks we supervise but we can do nothing about the compensation at places like Deutsche Bank, UBS, Credit Suisse, Nomura Securities and Barclays Bank.
These firms are in direct competition for the same talent pool with Bank America, JP Morgan, Goldman and Morgan Stanley.
I have yet to hear a solution that addresses that issue. Bankers are not idiots. They will simply jump ship to the foreign banks and eventually the big US banks will be swallowed by them. Not exactly an ideal solution.
August 10th, 2009 at 7:12 pm
I like Nader’s idea of taxing trades. Taxing unearned income isn’t going to discourage people who aren’t working from working. If it did, that would mean that it would, conversely encourage them to indulge in labor, which ain’t going to happen. Economic rent does not translate into working. There should be a price to pay for greedy speculation, and people who actually provide labor in exchange for money, should not pay it.
August 10th, 2009 at 7:42 pm
Nice to see people like Matt, and Frank Rich, FINALLY start to wake up and smell the Obama neolib coffee and clear the cobwebs out of their head.
That’s why I voted Green; I saw this already 16 months ago.
August 10th, 2009 at 9:28 pm
*spit take*
WHAT?!?
August 10th, 2009 at 9:58 pm
The King of Spain reins mostly on the plain, or perhaps he reigns?
I understand that “reins” are those leather thingies attached to the head of a horse, so one can “rein” the horse, and thus, exercise control. However, if the control is exercised by a monarch, or a czar, could it be called “reigning”?
Can The Czar of All Grammars issue a proclamation that would resolve this issue?
August 10th, 2009 at 11:28 pm
@Joe from Lowell – if it’s such a swell idea for rich folks to pay more takes, why don’t rich liberals pay more taxes voluntarily? It’s the ultimate in “put your money where your mouth is”. They’re busy telling me that I need to pay more taxes, hows about they step up to the plate and show me how it’s done?
Is that such a hard concept to grasp?
August 11th, 2009 at 8:37 am
“Why, just look at our privately built weather data collection network, our privately built air navigation and traffic control system, our privately built and run Centers for Disease Control and Prevention and, of course, our privately built interstate highway system.
Jackass.” – - – - -
Government produced none of those. All were accomplished only because private enterprise generated sufficient wealth such that taxes could be taken from earners at higher rates while leaving enough in the earners hands to make the effort still worthwhile. At best, government bleeds resources from the economy without killing it or dragging it down.
Jackass.
August 11th, 2009 at 9:47 am
Because they do, dimwit. George Soros is one of the greatest philanthropists of modern times. So is that other great liberal, and advocate of increasing taxes on rich people, Bill Gates.
No, your concept isn’t remotely difficult to grasp. It is, in fact, childishly simplistic.
It’s also entirely incorrect, easily disproved with mere seconds of googling, and a giant flashing “I don’t know what I’m talking about” sign strung around your neck.
August 11th, 2009 at 9:50 am
…which wasn’t sufficient, in and of itself, to create any of the things listed. Rather, it took the government collecting a portion of that wealth and spending it on useful things to produce them, because no matter how wealthy the private sector became, it wasn’t producing them.
I love people who conceive of themselves as deep economic thinkers, but who are totally unfamiliar with the concept of a public good, or why the government does a better job providing them than the private sector.
August 12th, 2009 at 7:19 pm
We are taxed enough. We have experimented for 70 years with using taxes to level our society. The sad fact is that we can’t tax enough to do that. At some point, the rich will disappear and so will the money. We need to focus on taxing everyone (40% now do not pay taxes), albeit progressively so that every working American contributes to our society. While putting people on a reservation might make the rest of us feel better, it destroys those individuals. You only need to look at our minorities trapped in inner cities to know that a hand out is really a hold down. Let’s focus on investing our resources in opportunities that anyone with average ambition and talent can use to better themselves.
August 13th, 2009 at 6:19 pm
[...] In a recent blog post, Matthew Yglesias, a fellow at the Center for American Progress Action Fund, tries to explain the disappointing results of pay regulation: [...]