Who Will Pay: Wall Street or Main Street? Tobin Tax or VAT?
The financial reform bill agreed to on June 25 may have carved out some protections for consumers, but for Goldman Sachs and the derivatives lobby, the bill was a clear win, leaving the Wall Street gambling business intact.
In a June 25 Newsweek article titled “Financial Reform Makes Biggest Banks Stronger,” Michael Hirsh wrote that:
the bill “effectively anoints the existing banking elite. The bill makes it likely that they will be the future giants of banking as well.”
The federal government and Federal Reserve have advanced literally trillions of dollars to save the big Wall Street players, to the point where the government’s own credit rating is in jeopardy; but Wall Street has not had to pay for the cleanup. Instead, the states and the citizens have been left to pick up the tab. On June 17, Time featured an article by David von Drehle titled “Inside the Dire Financial State of the States,” reporting that
most states are now facing persistent budget shortfalls of a sort not seen since the 1930s. Unlike the Wall Street banks, which can borrow at the phenomenally low fed funds rate of .2% and plow that money back into speculation, states don’t have ready access to credit lines. They have to borrow through bond issues, and
many states are so close to bankruptcy that their municipal bond ratings are collapsing. Worse, states are not legally allowed to default. Unlike the federal government, which can go into debt indefinitely, states must balance their budgets; and they cannot issue their own currencies. That puts them in the same position as Greece and other debt-strapped European Union countries, which are forbidden under EU rules either to issue their own currencies or to borrow from their own central banks.
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The federal government is not only leaving the states high and dry but is threatening to impose even more taxes on their beleaguered citizens. Paul Volcker, former Federal Reserve Chairman and current White House economic adviser, said in April that Congress needs to consider a Value Added Tax (VAT) – a tax on various stages of production of consumer goods. A VAT of 17.5% is now imposed in Britain, and 20% is being proposed; while some EU countries already have a VAT as high as 25%. In Europe, at least the citizens get something for their money, including federally-funded health care; but that is not likely to happen in the U.S., where even a “public option” in health care is no longer on the agenda.
The VAT hits the lower and middle classes particularly hard, since they spend most of their incomes on consumables. The rich, on the other hand, put much of their money into speculative trades, and those sales are not currently taxed.
Business Cycle or Class War?
Ismael Hossein-Zadehi, who teaches economics at Drake University in Iowa, calls the whole economic crisis a class war.
What is being billed as public debt began as the private debt of financial speculators who offloaded it onto the public. The governments that bailed out these insolvent speculators then became insolvent themselves; but the bailed-out banks, rather than lending a helping hand in return, have demanded their pound of flesh, with payment in full.
The perpetrators are blaming the victims and insisting on “fiscal responsibility.”
Wall Street bankers are dictating the terms of repayment for debts they themselves incurred. snip
Instead of “reflating” the collapsed economy, however, national governments are insisting on “fiscal responsibility;” and
the responsibility is all being put on the states and the laboring and producing classes. The financial speculators who caused the debacle are largely getting off scot free.
They not only pay no tax on the purchase and sale of their “financial products,”
but they pay very little in the way of income taxes.
Goldman Sachs paid an effective income tax rate of only 1% in 2008. Prof. Hossein-Zadehi writes:
“It is increasingly becoming clear that the working majority around the world face a common enemy: an unproductive financial oligarchy that, like parasites, sucks the economic blood out of the working people, simply by trading and/or betting on claims of ownership. . . . The real question is when the working people and other victims of the unjust debt burden will grasp the gravity of this challenge, and rise to the critical task of breaking free from the shackles of debt and depression.”
Working people don’t rise to the task because they have been propagandized into believing that “fiscal austerity” is something that needs to be done in order to save their children from an even worse fate. What actually needs to happen in a deflationary collapse is to spend more money into the system, not pull it back out by paying off the federal debt; but the money needs to go into the real economy – into factories, farms, businesses, housing, transportation, sustainable energy systems, health care, education. Instead, the stimulus money has been hijacked, diverted into cleaning up the toxic balance sheets of the financial gamblers who propelled the economy into its perilous dive.
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http://www.counterpunch.org/brown06302010.html
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bears repeating: "What's being billed as public debt began as the private debt of speculators"
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+1, k&r, n/t
