Sharpening inequality, rocketing “financial partnership” income, and obscene levels of executive “compensation” make all the more unacceptable the accompanying massacre of job-related entitlements to health care and pensions. Mounting foreclosures, bankruptcies, and threats to employment itself have led to a deepening and widespread sense of insecurity. Many of these insecurities affect the middle class as much as the poor.
One response has been outbreaks of economic populism. Unfortunately, some populists aim at the wrong target and fail to press the most important measures of redress. For example, some attack Hispanics rather than a tax system that the corporations and the rich evade almost at will. A system that fails to tax those most able to pay creates a spending problem.
The Democrats talk about permanently raising the Alternative Minimum Tax (AMT) so that it will not apply to households earning less than $200,000 or $250,000 a year. AMT is now gnawing away at medium-earning households, many of them in states that the Democrats have to win. But if AMT is to go, or its threshold be raised permanently, where will the nearly trillion dollars of taxes it raises come from?
The Democrats’ spending plans are too modest, but they still require more, not less, public revenue. Thus Robert Rubin, the former treasury secretary, has warned that Democratic spending promises cannot be met by an already overburdened public purse. Yet there are many good causes out there that demand funding—health care insurance, lower college tuition fees, more research and development, better pension funding, and protection against climate change, to mention just a few.
Of course, withdrawal from Iraq could save the treasury hundreds of billions of dollars. But much of the trillion-dollar cost has already been incurred, so even a rapid withdrawal would still leave a sizable spending gap. What is really needed are taxes that cannot be easily evaded and that target the new financial aristocracy, especially hedge fund managers and the general partners in private equity outfits.
What defines an aristocrat today, as in the France of the ancien régime, is not blue blood but privileged exemption from the ordinary workings of the law and of the tax system. About five hundred executives and financial officers have ended up in jail over the last few years. But despite an extraordinary raft of financial scams, the number of Wall Street professionals who have ended up behind bars can be counted on the fingers of one hand (and those against whom prosecutions are pending are almost all small fry). Likewise, almost nine times as many Wall Street fund managers earned more than a hundred million dollars a year in 2006 as public company chief executive officers. Moreover, the princes of private equity will typically pay tax on much of their declared capital gains at a 15 percent rate, while chief executive officers will find much of t...
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