Tycoons Laughing All the Way to the Bank

Published on Tuesday, August 2, 2011 by The Toronto Star
Tycoons Laughing All the Way to the Bank

by Linda McQuaig
There are likely few characters less loved in America these days than hedge fund managers — widely regarded as among the archvillains of the 2008 Wall Street meltdown.

So, months ago, when Washington embarked on a frenzied search for ways to reduce the massive U.S. deficit, a tax loophole that allowed hedge fund managers to pay tax at the exceptionally low rate of 15 per cent certainly seemed like low-hanging fruit.

Cancelling the loophole would save the treasury $20 billion over 10 years, and the public would surely be unmoved by the pain inflicted on hedge fund managers — the top 25 of whom took home an average pay last year of $880 million each.

But as the stakes rose in the bizarre negotiations over the country’s debt ceiling, the Republicans managed to push reluctant Democrats into taking all tax increases off the table. All deficit reduction was to come exclusively from government spending cuts, hitting the middle and lower classes hard.

Perhaps this seems like evidence of how resistant Americans are to tax increases. In fact, it shows no such thing. Rather, it shows how a band of far-right Republican Tea Party extremists — financed initially by the billionaire Koch brothers — have managed to effectively take control of the U.S. political system and block the will of the American people.

For the past two years, Americans have repeatedly told pollsters that they support higher taxes on the rich as a way to reduce the deficit. A Washington Post poll last month, for instance, found 72 per cent supported raising taxes on those earning more than $250,000.

The battle over whether to cut spending or raise taxes predates the birth of Elvis. But for decades, compromise was found between the Democrats’ support for social spending and the Republican desire to lower taxes, particularly on the rich.

That changed in the mid-1990s, with the rise of a more radical, aggressive Republican flank. Led by Newt Gingrich and backed by big corporate money, these radicals adopted a no-compromise approach, obstructing all Democratic efforts to enhance social spending, while relentlessly pushing for ever lower taxes, regardless of the impact on the deficit.

Since then, the Republicans have grown ever more extreme, intransigent — and flagrantly indifferent to the public good.

Once the party of Eisenhower-style moderation and fiscal restraint, the Republicans have become the party of big deficits — mostly due to tax giveaways for the rich.

Inheriting a surplus, George W. Bush added $5.07 trillion to the debt, primarily due to his tax cuts and secondarily to his wars, while Obama has added just $1.44 trillion, mostly fighting the recession, according to data from the Washington-based Center on Budget and Policy Priorities.

All this set the stage for the hair-raising drama played out in recent weeks over raising the debt ceiling.

With the power to push the country into a Latin-American-style default, the Republican extremists had a loaded gun. And in their sights was not just holding the line on social spending, but their ultimate fantasy of dismantling popular New Deal social legislation — particularly social security — that has seemed untouchable since the 1930s.

In fact, the “debt ceiling” is an artificial creation. The U.S. Constitution doesn’t call for one. Except for Denmark, no other advanced democratic nation has a debt limit. Overseeing government spending is what the political process is all about.

But a radical rump of Republicans, threatening to pull the trigger, succeeded in forcing Democrats to abandon tax increases on the wealthy — at a time when America’s wealthy are as rich as the tycoons of the Gilded Age. Feeling the gun at their temples, the Democrats joined the Republicans in the quest for deeper spending cuts — which will only make the disastrous U.S. unemployment situation worse.

So while programs helping students, the elderly and the poor have been picked over with surgical precision, hedge fund managers can get back to work destabilizing financial markets with full peace of mind, knowing they’ll continue to enjoy a tax rate lower than the mechanics who service their private jets.

L :Yinyangv: :Yinyangv: K :

Even the Monetarists & followers of Milton Friedman
Know that We don't have to "Borrow Money"

:

Can Congress Issue Debt Free Money?

The U.S. Supreme Court, in Julliard v. Greenman (110 U.S. 421, 448) in 1884 ruled that:

“Congress is authorized to establish a national currency, either in coins or in paper, and to make that currency lawful money for all purposes, as regards the national government or private individuals.”

Nobel Prize winning economist, Milton Friedman describes some of the history of the battle leading up to this historic decision by the U.S. Supreme Court:

“During the Civil War, Congress authorized greenbacks and made them a legal tender for all debts public and private. After the Civil War, in the first of the famous greenback cases, the Supreme Court declared the issuance of greenbacks unconstitutional. One 'fascinating aspect of this decision is that it was delivered by Chief Justice Salmon P. Chase, who had been Secretary of the Treasury when the first greenbacks were issued. Not only did he not disqualify himself, but in his capacity as Chief Justice convicted himself of having been responsible for an unconstitutional action in his capacity as Secretary of the Treasury.'

“Subsequently an enlarged and reconstituted Court reversed the first decision by a majority of five to four, affirming that making greenbacks a legal tender was constitutional, with Chief Justice Chase as one of the dissenting justices.

“It is neither feasible nor desirable to restore a gold-or-silver coin standard, but we do need a commitment to sound money. The best arrangement currently would be to require the monetary authorities to keep the percentage rate of growth of the monetary base within a fixed range. This is a particularly difficult amendment to draft because it is so closely linked to the particular institutional structure. One version would be:

‘Congress shall have the power to authorize non-interest-bearing obligations of the government in the form of currency or book entries, provided that the total dollar amount outstanding increases by no more than 5 percent per year and no less than 3 percent.’

“It might be desirable to include a provision that two-thirds of each House of Congress, or some similar qualified majority, can waive the requirement in case of a declaration of war, the suspension to terminate annually unless renewed.

“A Constitutional Amendment would be the most effective way to establish confidence in the stability of the rule. However, it is clearly not the only way to impose the rule. Congress could equally well legislate it."

* * *

Quoted from: A Program for Monetary Stability, by. Dr. Milton Friedman, Fordham University Press (N.Y. 1960, 1992), pgs. X, 66-76, 100-101; and, Free to Choose by Dr. Milton & Rose Friedman, Harcourt Brace & Co. (San Diego 1980, 1990), pgs. 307-308.