On the rich and taxes

How much should the rich pay in taxes?

An opinion: Did you know that Margaret Thatcher declared war on the wealthy, a war so extreme it makes Obama's seem meek by comparison? The top tax rate in the UK was 60% for most of her term in office, and 40% for the last year or so. At no point was it lower than what Obama proposes -- and that's without taking into account the VAT.

Likewise, Ronald Reagan was apparently a Class Warrior: for six of the eight years during which Reagan was President, the top tax bracket was 50%. It's a wonder anyone worked at all! In Reagan's defense, though, he was just carrying on a long tradition of wealth expropriation carried out by socialists like Harry Truman, Dwight D. Eisenhower and John F. Kennedy.

We need more of this...

"At a time when millions of Americans are losing their jobs, their homes and their health care, it is appalling that more than 50,000 of the wealthiest among us have actively sought to evade their civic and legal duty to pay taxes” (From here)

- John A. DiCicco, acting assistant attorney general in the Justice Department’s tax division after the U.S. government sued UBS AG, Switzerland’s largest bank, to try to force disclosure of the identities of as many as 52,000 U.S. customers with secret Swiss accounts.

Taxing the rich - forgotten promises?

I hope that Obama has not conveniently forgotten his campaign rhetoric of increasing taxes on the rich. I waited for some mention of this hyped up promise in the economic team rollout event this afternoon, but did not see even a passing reference. Even if the current economic climate is not the most conducive for a statement on taxing the rich, one hopes sincerely that he has not forgotten this plank that he ran on...

As mentioned previously on this blog, only 2% of all households in the US make more than $250,000 a year. That leaves 98% of all households below the $250,000 limit. The median income of US households is about $50,000. A sensible tax on the elite 2% will help pay for the stimulus/infrastructure plan that the President elect unveiled over the weekend. We cannot go on deficit financing all of our expenditures and lay the repayment responsibilities on future generations.

From here: But there were no plans to balance the tax cuts with an immediate tax increase on the wealthy. During the campaign, Obama said he would pay for increased tax relief by raising taxes on people making more than $250,000. "There won't be any tax increases in the January package," said one Obama aide, who spoke on condition of anonymity because the details of the Obama package have not been fleshed out.

The last eight years of 'trickle down from the rich to the not so rich' just has not worked. It is clear from the staggering disparities between the upper crust and the rest.

Meanwhile on the bailout front, the current administration is not even trying to act coy about raising the possibility that the bailout mania will end with Citigroup. The pledges made by the US government to ease the credit crisis now totals $7.7 trillion. It is indeed strange how the bailout czars trip over themselves to rescue the world of the virtual (a service economy that deals in cooked up financial instruments) even as it lets the nuts and bolts economy (an automotive industry employing real people and producing tangible goods) by the wayside. I do agree that the automotive industry led itself into the current mess by lobbying for policies that was more in its short term self interest than strategic, but the last great manufacturing lynchpin in this country will crumble in the blink of an eye if we ignore the $25 billion bailout requested by the automotive industry. Why is Detroit not included in the elite 'too big to fail' category when it is responsible for directly or indirectly employing nearly 3 million US residents?

On what we could learn from the Chinese regarding bailouts

Today was yet another great day for bailouts. Firstly, there was yet another bailout of the beleaguered insurance giant AIG, then there was news that the Treasury Department on the sly decided to give American banks a tax windfall of $140 billion and thirdly, there was news of a half a trillion dollar Chinese bailout. OK, now why am I mixing the Chinese bailout with similar measures taking place here? Well, it is indeed interesting to see how these monies are being put to use. To get a quick idea on the differences between the plans hatched by the Treasury as opposed to the Chinese in bailing out, it is instructive to see the details. Or, maybe it is even time to learn from the Chinese.

On what the Chinese would do with their bailout:

At a time when major infrastructure projects are being put off around the world, China said it would spend an estimated $586 billion over the next two years — roughly 7 percent of its gross domestic product each year — to construct new railways, subways and airports and to rebuild communities devastated by an earthquake in the southwest in May.

On the sly tax windfall to US banks:

Late September, the Treasury Department issued a five-sentence notice that attracted almost no public attention. Administration officials had just given American banks a windfall of as much as $140 billion. The change to Section 382 of the tax code came after a two-decade effort by the Republican administration to eliminate or overhaul the law. Section 382 of the tax code was created by Congress in 1986 to end what it considered an abuse of the tax system: companies sheltering their profits from taxation by acquiring shell companies whose only real value was the losses on their books. The firms would then use the acquired company's losses to offset their gains and avoid paying taxes.

On bailing out AIG again and yet again:

The government created an $85 billion emergency credit line in September to keep A.I.G. from toppling and added $38 billion more in early October when it became clear that the original amount was not enough. As part of the new revision announced today, the Federal Reserve said it would reduce that credit line to $60 billion. When the reorganized deal is complete, taxpayers will have invested and lent a total of $150 billion to A.I.G., the most the government has ever directed to a single private enterprise.

So just to get this clear:

• China spends its bailout money on actual projects like infrastructure additions that benefit its citizens and in turn keep the economy humming and productive.
• In the United States, the Treasury decides to award tax write-offs to banks that shelter their profits from taxation by acquiring shell companies whose real value indicates losses on their books, but then manage to offset imaginary losses with actual capital gains to avoid any payment of taxes.