Wayne O'Leary

The Tax Wall Street Fears

It’s been a great run for the investor class in the wake of the financial crash and recession. While the working incomes of average people (those fortunate enough to have jobs) have remained stagnant during the “recovery,” and the social safety net for the poor and unemployed has been shredded by austerity measures like the sequester, American members in good standing of the Capitalist International have rarely had it so good.

Counterintuitive as it may seem, the Great Recession was good for American big business. Most glaringly obvious are the enhanced fortunes of the too-big-to-fail banks that brought the disaster about; they’re now fewer in number, but larger as a result of sanctioned mergers, and both more profitable and more economically dominant than before the downturn.

The rest of corporate America has benefitted from capitalism’s creatively destructive post-recession shakeup as well. In the past four-plus years, company profits have risen three times faster than wages, an anomaly in recoveries; they are actually higher as a percentage of gross domestic product (GDP) than prior to the crash — the highest by that measure in over 30 years. Reflecting this, the Dow Jones industrial average has grown 15% per year (or seven times the annual rise in GDP) since the beginning of 2009.

We are, in fact, in the midst of a bull market for stocks that rivals the bubble years of 2004-07 and 1990-2000. Yet the benefits are not being broadly shared; they are accruing to only a few. According to The Economist, real household incomes, averaged across the board, are 5% lower now than in 2005, but the share of income going to the top 1% of households, the ultimate ownership class, remains unchanged from that pre-collapse year, when the concentration of wealth was the greatest it had been since the 1920s. In other words, despite all that’s happened, wealth inequality remains at its highest level in a century, and nothing pro-active has been done politically to democratize the shape of the so-called recovery.

Americans have been hit economically by a double whammy. As they fight their way back from the aftereffects of crash and recession, struggling to compensate for lost jobs, lost homes, lost pensions and lost savings, the government support structure designed to help them is under siege. The safety net of unemployment insurance, job retraining, food and medical assistance, and so forth is being routinely gutted by mindless fiscal policies masquerading as debt reduction. Sorry folks, no money is available. Hard times, you know. Deficit’s too big. Can’t afford to help. Suck it up and fend for yourselves.

So where to turn? The iconic bank robber Willie Sutton, once asked how he picked his venue, answered, “Because that’s where the money is.” And where is the money that could address America’s economic crisis? Much of it resides with the 1 Percent, of course, who have garnered 95% of post-recession economic gains — the 2011 income-tax hike hardly impacted them — but, more particularly, it sits in the coffers of globalized big business.

Corporate America hasn’t really earned its unprecedented riches; it hasn’t “built it.” Instead, it’s gamed the system, more or less with impunity and often with government assent and cooperation. At present, US corporations have more liquid assets than they know what to do with — except to periodically pad executive bonuses or increase dividends for comfortable shareholders. So, they’re hoarding it.

As of mid-2012, publicly held companies were sitting on an estimated $2.23 trillion in “dead money.” This figure is down slightly in 2013, but not by much. Meanwhile, corporate profits are the highest they’ve been since the 1950s. Asked last year if General Electric, number one stockpiler of fallow wealth (holdings of $85 billion in late 2012), planned to usefully spend any of its cash by, say, investing it, CEO Jeffrey lmmelt responded, “It’s not burning a hole in our pocket.”

So why should these institutional money grubbers receive a corporate income-tax cut, as President Obama proposed last year and reiterated this past July? A much better tax-policy option would be what progressive tax reformers across the globe have advocated for years: a financial transaction tax or FTT. An FTT, hyperbolically referred to by critics as a redistributive “Robin Hood tax,” is simply a nominal tax on everyday market transactions (the buying and selling of equities, derivatives, futures contracts and the like), typically in the range of 0.1% to 0.5% on the value of each transaction.

Although contemporary conservative opponents of an American FTT trumpet the usual bugaboos about the tax — that it will supposedly undermine pensions, retirement savings, annuities, and investment accounts benefitting “working men and women,” the real reason they fear it is transparent: it’s a “capital tax” aimed at the higher orders. Harvard economist and deficit hawk Kenneth Rogoff, lately prominent in the debate over government spending, makes the alarmist claim that targeting these sacrosanct transactions increases the cost of capital and thereby lowers investment. However, there is little proof of this, and a large swath of the economics profession is coming over to the view that keeping capital-tax rates low, the conventional wisdom for a generation, has actually caused more inequality than growth.

There’s also this: corporations and the wealthy, not average Americans, are the real beneficiaries of untaxed capital. Corporations, in fact, are the main players in the stock-market game. Three-quarters of the shares traded on the New York Stock Exchange are traded by corporate computers, operating according to algorithms (programmed software models) that generate trades every few seconds — thousands in the course of a few minutes. This “high-frequency trading,” which accounts for 65% of equity trades, is the province of institutional investors, including hedge funds, and it’s the source of the speculative volatility responsible for causing the crash of 2008 and nearly destroying the Western economies in the process.

A modest FTT pegged at 0.25% would apply the brakes to such rampant speculation and simultaneously provide some badly needed government revenues (up to $150 billion a year) in a critical time. Just such a proposal has been introduced in Congress by Sen. Tom Harkin (D-Iowa) and Rep. Peter DeFazio (D-Ore.). France and the UK have FTTs. So does the European Union. And so did the US from 1914 to 1966. It’s an idea whose time has come — again.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He is the author of two prizewinning books.

From The Progressive Populist, October 15, 2013