Wednesday, January 13, 2010

Tax Bank Bonuses and Capital Gains

Tax Bank Bonuses and Capital Gains of Wealthy to Pay for Jobs Program


By Robert Creamer

Huffington Post


Jan. 11, 2010 - This column is about pornography.

Yesterday's New York Times ran a front page story

headlined: "For Top Bonuses on Wall Street, 7 Figures or

8." The story was chocked full of obscenity:


"Bank executives are grappling with the question that

exasperates, even infuriates, many recession-weary

Americans: Just how big should their paydays be?" asked the Times.


"Despite calls for restraint from Washington and a

chafed public, resurgent banks are preparing to pay out

bonuses that rival those of the boom years," it

continued. "The haul, in cash and stock, will run into

many billions of dollars."


"Industry executives acknowledge that the numbers being

tossed around -- six-, seven- and even eight-figure sums

for some chief executives and top producers -- will stun

the many Americans still hurting from the financial

collapse and ensuing Great Recession."


"During the first nine months of 2009," the Times

reported, "five of the largest banks that received

federal aid -- Citigroup, Bank of America, Goldman

Sachs, JPMorgan Chase and Morgan Stanley -- together set

aside about $90 billion for compensation."


The Times piece quotes a Wall Street insider who

apparently has avoided being infected by Wall Street's

inability to see past greed and understand what's going

on in the real world. John Reed, a founder of Citigroup

said: "There is nothing I've seen that gives me the

slightest feeling that these people have learned

anything from the crisis.... They just don't get it.

They are off in a different world."


I'd say. These people must live on the planet Xenon. Or

perhaps they are time travelers from the Palace of

Versailles, before the French Revolution.


Imagine a new, revised version of Moby Dick. In this

version, Captain Ahab's obsessive pursuit of obscene

wealth -- rather than his pursuit of the Great White

Whale -- has destroyed the ship and left all of the

ship's company in danger of drowning. But this time, the

ship's crew valiantly salvages a lifeboat and rations --

and rescues Ahab from certain destruction.


Now, in the last chapter, instead of acknowledging that

his decisions led the ship to ruin, instead of thanking

his crew for saving his life, he demands that he receive

a massively disproportionate share of the lifeboat's

rations -- hundreds of times that of the average sailor

-- which he insists should be his because "he, after

all, is the captain -- and the market for captain's

rations demands it."


The author of this new version of Moby Dick has proposed

two alternative endings to this saga. All present assume

the captain is daft, and he is put under the supervision

of the ship's dashing young doctor. Or he is simply

thrown overboard.


What are these people thinking? Last month, Americans

lost an additional 75,000 jobs and these people are

arguing over whether they get 7- or 8- figure bonuses

for making brilliant trades at the great Wall Street casino?


When we say people are out of work, we are saying more

than that they are not receiving income. We're saying

that they are not productively employed creating the

wealth that contributes to society's well-being. From

the standpoint of the economy, the work that they would

have done -- the wealth that they would have created

while they are unemployed -- is gone forever.


The real economy is made up of the total sum of that

kind of real work. It constitutes the sum total of the

energy and creativity of all of the construction

workers, and teachers, and doctors, and software

engineers, and waitresses, and farmers -- who actually

create real wealth -- who provide the goods and services

that we need to live fulfilling lives.


From the standpoint of creating real economic wealth --

of making goods and services -- many of the people who

are debating whether they get 7- or 8-figures bonuses

are actually "unemployed" themselves -- or at least

unengaged in doing productive work. They are not

creating new furniture, or driving a product to market,

or writing a computer program that helps cure a disease.

Many of them are simply betting on the price of one

derivative, hedging his bet with another derivative,

taking risks with other people's money -- and trying to

become as rich as possible. They are professional

gamblers. From the standpoint of the economy, many of

them are parasites who simply feed off of other people's labor.


And what's truly amazing is that, like our latter-day

Ahab, it was their reckless pursuit of their own greed

that destroyed the economy -- cost so many others their

livelihoods -- and caused such massive waste in the

economy at large. Many of those people who are now

unemployed -- eager, but unable to contribute

productively to our common store of wealth -- are unable

to do so because these people, personally, wrecked our

economic ship.


They, and their institutions, were rescued by the

taxpayers -- the people who actually produce wealth for

a living. Yet not a word of contrition. Not a thought

that they don't deserve hundreds of times the income of

average Americans -- a massively disproportionate share

of what's left of the fruits of everyone else's work --

even though the total economic pie has been diminished

because of what they did. Amazingly, they are now

grabbing a larger share than ever.


The real need in our economy is to put our fellow

Americans back to work -- back to the task of creating

goods and services -- as soon as possible. Right now

everyone in that lifeboat needs to pull an oar. And most

Americans desperately want to.


The Federal Government needs to act immediately to get

businesses to increase employment by stimulating more

demand for its products and to provide the funds to

directly to employ people into productive activity

through state and local government and the Federal

Government itself.


The Federal Government is the only entity that can do

this, and Congress will be shirking its most basic

responsibility if it refuses to do so.


The first priority for Congress must be to get people

employed. Every day we wait to employ them, we allow

their labor to go to waste.


Much of the cost of creating those jobs could be covered

by following the lead of the British and imposing a big

tax surcharge on the bonuses paid by the big banks.


Another portion could be paid by raising the income tax

rate on capital gains to the same level as ordinary

income for all the individuals making more than $250,000

and the couples making more than $500,000. Be clear. I'm

not suggesting taxing the pension income or college

money of average Americans -- just the capital gains of

the wealthiest Americans.


About 70% of all capital gains goes to 3.5% of the

population. I'm suggesting that the wealthiest of those

pay taxes on capital gains at the same rate that they

would if they got the same income by working.


When you think about it, it's absurd that "ordinary

income" -- the income generated when you work for a

living -- is taxed at up to 35%, and "capital gains" --

income generated when your stocks, bonds, or derivatives

appreciate -- is taxed at 15%.


It makes no sense at all that the marginal income of a

middle manager who makes $50,000 a year is taxed at 25%,

and the income of a wealthy person who spends his time

on the French Riviera "day trading" on the stock market

is taxed at 15%.


The percentage of income going to the largely

unproductive financial sector has skyrocketed in the

last two decades. Let's tax that income to put the

people who actually produce goods and services back to work.


To those who argue that this would reduce the incentive

to come up with "innovative financial products" or

clever trading schemes, I say that's exactly the idea:

to decrease the incentives our economy provides for the

best and brightest to waste their careers gambling on

Wall Street instead of doing something productive for our economy.


Ronald Reagan once famously said: "When you tax

something you get less of it." Precisely. America needs

to tax speculation, and incentivize productive work.


And most importantly, nothing -- including increasing

the deficit -- should stand in the way of a crash

program to put America back to work. Nothing is more

costly to our economy, and our economic future, than the

waste of unemployed Americans who are unable to

contribute to America's store of wealth.


Robert Creamer is a long-time political organizer and

strategist, and author of the recent book: "Stand Up

Straight: How Progressives Can Win," available on



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