A Wall Street Windfall Profits Tax
Until oil prices dramatically dropped in recent months, there was a lot of talk in Washington about once again imposing a windfall profits tax on oil companies similar to the windfall profits tax that was imposed in 1980. President Carter had then lobbied for the tax on the grounds that the oil companies would "reap huge and undeserved windfall profits" due to the sharp increase in oil prices brought on by the OPEC embargo. The tax was imposed on the difference between the market price of oil and a statutory base price and, while the rate of tax depended on a number of factors, it generally ranged between 50 - 70%.
If Congress really wants to tax undeserved profits during the current economic melt-down, however, it should be looking at the finance industry. It is the greed, recklessness and irresponsibility of that industry that has caused our economic turmoil, exploding bail-out costs, rising unemployment and ballooning deficits. Why not tax the undeserved bonuses, severance packages, and capital-gain taxed carried interests of CEOs, hedge fund managers and the other masters of the universe who exploited deregulation and the good-old-boy "you scratch my back and I will scratch yours" milieu of the finance industry and reaped obscene amounts of undeserved profits?
For example, E. Stanley O'Neil, former CEO of Merrill Lynch and a poster boy for a windfall profits tax, led Merrill Lynch into substantial investments in the mortgage industry, including high-risk mortgages. When the mortgage industry came crashing down, Merrill Lynch was on the verge of collapse before being acquired by Bank of America. Nevertheless, O'Neil walked away with a severance package of $160 million on top of the $70 million he had made during his four year term as CEO. In other words, he received $230 million for a reckless strategy that failed and resulted in the takeover of his company. Would anyone other than O'Neil and his family seriously argue that he deserved that amount of compensation?
And how about hedge fund managers. They generally get 20% or so of the profits on funds they manage, which they pay only capital gains tax on. In other words, while most of we working stiffs pay ordinary income tax on our wages, they pay only 15% capital gains tax rates on their compensation, even while their risky investment strategies contributed to the collapse of our economy. Why not impose a windfall profits tax on their excess profits?
The Wall Street Windfall Profits Tax could tax only those profits that exceed a base compensation that Congress thinks is appropriate for corporate titans. Even if Congress set the base level at an amount that far exceeds what most Americans will make in a lifetime, the tax would still capture billions of dollars of excess profits. Congress should also evaluate the constitutionality of making the Wall Street Windfall Profits Tax retroactive to all profits earned in 2008 and earlier so that excess profits received this year and in earlier years would be taxed.
Not only would a Wall Street Windfall Profits Tax help raise critical government revenues, it would insert a small modicum of fairness in the system: Main Street would know that at least those who made the most obscene amounts of undeserved profits from their greedy, reckless and irresponsible conduct that is now causing global panic would not keep all of their undeserved windfalls.
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I would vote in favor of a flat federal income tax and a removal of most deductions and exemptions (other than for extreme hardship). Well, at least I'd need someone to carefully explain to me why it is a bad idea.
The 15% capital gains tax on investments seems pretty fair. It provides significant federal revenue without discouraging risk.
I hear that some of these 'masters of the universe' are falling on hard times -- so maybe there's really no need for a witch hunt.
"I'm driven. You're ambitious. He's greedy."
:)
Screw taxing them. Just take their money and put them in jail. They stole it from us
Schatsie,honey, How can the I.R.S. price a Quadrillion dollars worth of leveraged dept,to determine a tax rate.The huge banking firms don't know how to value what they have! How to writedown all of this is new ground.Tra
It may take a while for the poweres that be to understand the situation enough to re-regulate,never mind evaluate the worth of delivitives,and the reations to credit default swaps and how they effect values added by the leveraging. 1+1=5? peace
This won't work because it does not understand the problem
There is no way for you to tax wall street because they have you by the neck. You tax them, they take their money out, then you have to lower taxes again. Its basic extortion.
There are only 2 options for companies that get to be "To Big to Fail"
1. Divestment - This means that you separate the divisions of a major company. So for example Banks should not also be insurance company;. Oil drillers should not also own gas stations; ect.
2. Nationalization - This means the government hires its own employees and does the job itself. They already take on all of the risk they should also get the profit.
I'm not a big fan of windfall profits taxes (they should just set a tax rate and do away with all the Mack truck-sized loopholes), but I do agree, if anyone should be taxed, it should be the financial services industry.
And harrync, that's an excellent idea about the premiums. I know all my credit cards have "Payment Protection", which costs me a percentage of my balance, there's no reason the banks shouldn't have to pay "Insolvency Protection" premiums.
The proposal doesn't make sense to me. First, many of the large financial institutions aren't making any profits, and the whole idea of the recent bailout and federal reserve moves was to help these institutions, so punishing them at the same time doesn't make any sense. Second, the pay related tax must be addressed through the federal income tax and capital gains tax, not the corporate tax.
Most of what is proposed on this website makes little sense. It isn't about money; it is about control and power. The power to tax is awesome power but the power to establish how much one can earn, well, that is something that Old Joe Stalin liked, too. Being a liberal means eating your cake and then asking the government to seize your neighbors cake for your consumption.
I say we (like the Norwegians) get access to ALL TAXPAYER RETURNS FOR THE LAST 5 years for the CEOs who say their banks need the money... THEN WE also look at the DEFERRED TAXES FOR THESE INSTITUTIONS. TRANSPARENCY AND ACCOUNTABI
Anyone remember Leona Helmsley saying, "Only the little people pay taxes..." right before she went to jail.
The problem is that the wealthy have always found ways in which to not pay taxes. By the time all write offs are taken and money is hidden, they pay a less percentage than the rest of us.
I was amazed this last election season watching 2 friends talk politics. One friend made way over 250,000 selling commercial real estate in Atlanta, Ga. Mr. Real Estate Guy had luxury boats, luxury cars, 2 homes and plenty of disposable income. He talked another friend that sells software into voting for McCain because to his tax increase under the Obama plan. Oddly, Mr. Real Estate Guy writes off more that Mr. Software Salesman and actually pays less % in taxes. But sadly, Mr. Software was an easy sell and slightly in awe of his friend, so even though Mr. Software would benefit with Obama's plan, he voted for McCain. What aggravates me is that the higher earner talked the lower earner into voting Repub so that the higher learner would not have to pay 3% more in taxes.
Actually, most of the write-offs and deductions disappear like magic with the AMT. Your real estate friend is either made-up or blowing smoke up your keister.
The hedge fund capital gains tax has long been a dirty little secret that has eluded most Americans. Hedge fund managers are only taxed on 15% and make obsene profits. Just to compare another segment of the population
Hedge fund managers keep the majority of their year end paper profits in invested in their funds, just like regular investors and their capital gains. If you tax that money, more money comes out of the markets and it results in lower equity values (or values of whatever the fund is invested in). "Restaurant servers" usually report very little of the money they receive in tips, and servers besides those in up-scaled restaurants in large metro areas don't make enough money during the course of the year to have to pay federal income tax anyway. I bet 90% of waiters in this country pay no federal income tax.
Yes! And we should institiute a 10% FLAT MINIMUM TAX on income over $250,000 (10% FALT TAX is a term Republicans use a lot without the Minimum) to avoid the loopholes their tax consultants always find!
This will generate a lot of money as many companies and individuals pay $0 tax year after year!
tax oil and bailout airline/auto.
in other words, penalise the winners and smart people. subsidize the losers.
how about letting a few airlines and autos fail...
Calling it a "Profits Tax" is most likely a political loser. Better politically (and probably more accurate) would be "bailout insurance" premiums.
(Sort of like the FDIC "premiums" the banks pay to insure deposits - though, of course the banks deduct it from the interest they pay depositors - or like unemployment insurance "premiums" or retirement plan insurance "premiums". And like these other plans, you could adjust the rates depending on plan needs. Right now it looks like the National Bailout Insurance Fund is about $700 billion short, so "premiums" are going to have to start out pretty high.)
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