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Lloyd's Op-Eds

The Weekender - May 26, 2011

Don’t get fooled again

The Weekender is generally interested in what his fellow Courier columnists write about and always eagerly glances up the page to see what The Chick in the Black Dress has to say. So, it was fascinating to read her column of April 21 about the protest held in Chatham on April 16, with a specific focus on Bank of America and a collective group of targeted bogeymen defined as the “wealthiest Americans” “raking in record-breaking profits” “who received a government bailout,” but “are getting massive tax breaks” and in the case of Bank of America hasn’t “paid taxes in two years.”

Whoa! Don’t get me wrong, I’ve got no problem with the messenger, i.e., the column faithfully and accurately reported the protest and what the protesters were exorcised about. The problem is that these presumably well-intentioned protesters had slapdash thrown together a bunch of grievances in the way children use finger paints. Some of the things the protesters abhor have little to do with others. Some of their implicit demands are antagonistic to others. In almost every case, the protesters were shooting/shouting at the wrong target. Details matter and in the case of especially important public policy issues such as the efficacy of the TARP-bailout and our tax system, details are everything.

There is a lot of room to debate whether the TARP (Troubled Asset Relief Program) was perfectly or even masterfully configured. However, only those who longed for another depression or for the Armageddon will seriously take issue with the need faced by the Bush Administration in fall 2008 to prevent the American and world economies from imploding under the weight of lots of bad and reckless decisions made by greedy bankers and irresponsible homebuyers. This very bad behavior had been facilitated and encouraged by atrocious government policies. The first and foremost of these atrocious policies was the abandonment of the type of prudent financial regulatory safeguards which are now the constant targets of Tea Party and Republican Party attacks.

One major flaw of TARP was failing to sufficiently penalize the gamblers at firms such as Goldman Sachs for their very risky and highly leveraged bets in the housing market. People like Timothy Geithner, working for the Fed during the Bush Administration, urged paying Goldman Sachs 100 cents on the dollar for their risky bets, while many Regular Joe (but still reckless) homebuyers lost their houses. Many of these houses were not their “homes” because the dirty little, but not so secret, fact is that many of these houses were purchased for speculation. For bad decisions like that, Tim Geithner and Larry Summers, another cheerleader for financial deregulation and big bank interests, were rewarded by President Obama with top jobs in his administration.

Now it is a good good thing that the TARP worked and that U.S. banks and financial institutions were quickly restored to solvency and profitability. Without that we all would be up a certain creek. From a $700 billion potential federal expenditure, some $250 billion was actually disbursed. Most of that has already been paid back and it appears that when all is said and done, virtually all will be paid back. The cost of this bailout will be much smaller than the cost of the 1980s bailout necessitated by the savings and loan crisis — facilitated by the deregulatory excesses of the Reagan Administration.

But the Chatham protesters shouted that the banks are back recording billions of dollars in profits — and should be paying their “fair share” of taxes like us common folk. Shouldn’t Bank of America pay that $3.95 billion virtual tax bill which Bob Elmendorph and the protesters tried symbolically to serve upon the Chatham branch of Bank of America on April 16. Bank of America should be, and presumably is, paying exactly what the tax laws specify Bank of America should be paying and not one cent more. That is, unlike Treasury Secretary Tim Geithner, who not only didn’t pay his taxes, but didn’t initially pay the penalties assessed for that evasion.

American financial and industrial giants like Bank of America and General Electric, who also has been flogged for paying little or no federal corporate income tax, usually pay what the law requires. If they voluntarily paid more or even failed to structure their businesses in a manner which takes advantage of every lawful tax break and loophole, they would run the serious risk of losing ground or falling to their competitors, foreign and domestic. They simply can’t do that and it would serve only the interests of those competitors, not theirs, nor their shareholders, nor ours to have them do otherwise.

Indeed, there is a very strong argument for corporate income taxes to be completely eliminated. If a corporation makes $1 billion in profit and pays no taxes, but pays that $1 billion to its shareholders, they will pay income taxes on it. As the tax laws are currently written, huge loopholes allow Bank of America, General Electric and others to avoid most corporate income tax. One of the most destructive ways that occurs is when American companies shift operations to other countries in order to avoid taxes. One clear result of eliminating corporate income taxes would be a significant repatriation of lost American jobs. The TARP and its imperfections and the highly flawed and often counterproductive corporate tax system have little to do with each other. In some ways a reduction or elimination of corporate income taxation would make things a lot better for the average American worker and taxpayer, including the misguided Chatham protesters of April 16. They knew that things were wrong but didn’t understand what those things were or who truly is to blame.

The government was primarily responsible for the economic collapse which necessitated TARP because it mindlessly abandoned regulatory safeguards, even with the damage and suffering of the savings and loan crisis fresh in thinking people’s minds. The government was also responsible for the failure of TARP to penalize Wall Street cowboys for their risky practices, virtually assuring that these or similarly reckless bets will be placed in the near future. And who is ultimately responsible for these government failures? Of course, we are. But we don’t have to continue along that disastrous and repetitive path. The 2012 elections will be fought on a number of key battle grounds, including a Tea/Republican Party call to get the government “off our backs” by rolling back recent regulatory “encroachments,” such as the “Dodd-Frank” Wall Street Reform and Consumer Protection Act, and also by further reducing taxes.

Now is the time for all good men and women to remember their platitudes. “Fool me once, shame on you, fool me twice, shame on me” is one old American proverb worth heeding and another from The Who and my own profligate youth also bears remembering “Won’t get fooled again!” — so don’t!

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