Yesterday, the citizens of Oregon ratified a large tax increase on corporations and the wealthy. The top personal income tax rate will rise by two percentage points and the minimum tax on corporations will also rise, including a new tax even on those with no profits to report, according to a Wall Street Journalreport. According to Tax Foundation data, this would make the top rate in Oregon 13 percent
This vote is considered a bellwether because the state has previously beensupportive of tax limitation measures. Also, it appears that populist anger, which has previously been channeled toward the anti-tax tea party movement, may have the potential to swing in the other direction when people are faced with cuts in programs with wide support.
I can easily see many tea party goers becoming rabid tax-the-rich folks if the alternative is higher taxes on them. Let us not forget that just about a year ago many of the House of Representatives' most conservative members voted to impose a 90 percent tax rate on bank bonuses. As I noted at the time, those supporting this confiscatory tax measure included Eric Canter, Peter Hoekstra and Paul Ryan.
I have foreseen this development for some years and feared that once our budgetary problems forced action that sharply higher tax rates on the rich, corporations and capital in general would be the inevitable consequence. “
Unfortunately, there has been a dominant liberal discourse about why “Kansas is Republican” – why the people who theoretically benefit most from government outlays vote for the GOP – which posits that this is the primitive instinct of people who are stupidly afraid of losing their guns. Actually, this notion of the general barbarity of the populace has broad and deep roots in progressive history, which is why, at the turn of the century one hundred ten years ago, most progressive reform was about taking power away from the corrupt and giving it to the managers. In other words, you can’t trust the people.
There might well be reasons not to trust the people, but this is not because they are barbarous and don’t know how to make a simple calculation. The calculation is that you get more of an advantage in every way if you vote for tax cutters who will never really have the power or desire to cut government programs that benefit you. On the one side, you protect your guns, get lower taxes, and get your agricultural supports and your Big Pharma pills – and on the other side, you get ruled by people who think your culture and guns are shit and may not raise your taxes, but you never know – plus you get about the same level of government support. Score GOP!
When you consider the people in the sticks to be too stupid to define their own self interest – which the what’s a matter with Kansas crowd always defines in terms of money, as if the East Coast liberal would give up his culture in a heartbeat if you offered him a hundred more bucks – they understandably vote against you.
But the money is running out. It is still running out. We have been told that Ben Bernanke ‘saved us’ from the Great Depression. What that means is: by performing a prodigious slight of hand, the Fed has, for the moment, produced the illusion that the banks are solvent. It is a delusion that has resulted in big payouts to bank officials and announcement of a bumper year. But, as the guy at Rortybomb argues, because the banks aren’t writing down their massive losses doesn’t mean the masses losses disappear – rather, the game now seems to be simple predation, with the support of the government. The mortgage modification program, if it works, is a disaster, and if it doesn’t, is a disaster. The money, I have long thought, should be yanked, all of it, and a small business loan agency created from it to inject money into the system in real time in a sector that employs people right away. Those small businesses that currently owe at 10 percent could pay off with money they borrow at 2 percent – which would be a big gain – and thus regain a certain limberness, which they simply can’t afford to have at present. Since one of the most hard hit sectors among the unemployed are the 18-28 year olds, and since small businesses disproportionately employ them, this would be a win for the party that does this.
It would be a loss for the banks, however, and they would put the keebosh on it. I only float this balloon as a sort of test of the terrain, a demonstration of the no future that is our present policy.
Felix Salmon has a nice overview of Rortybomb’s point, and makes one of his own:
“Konczal also looks long and hard at the banks’ refusal to write down the principal on their loans, despite the fact that if you modify a loan so that it remains seriously underwater, you’re pretty much guaranteeing an extremely high redefault rate. After all, negative equity is pretty much the best single predictor of delinquency.
Why are the banks behaving like this? I think the obvious answer is the right one: they’re holding these loans on their books at much more than they’re really worth, and they can’t afford to take the write-downs which would accompany principal reductions of roughly the same magnitude as the decline in housing prices. This kind of head-in-the-sand behavior can only possibly work if housing prices suddenly rebound in the next couple of years, and that ain’t gonna happen.
Both the Bush and the Obama administrations tried to put together programs to deal with the banks’ toxic residential real-estate assets: the original TARP was one, the PPIP was another. Neither went anywhere, and as a result the problem is just as bad now as it’s always been. Remember that, when you look at the enormous 2009 bank bonuses, and ask yourself whether any of them will be clawed back if it turns out that last year’s profits were dwarfed by the write-downs that banks should have taken and didn’t.”
It is a puzzle how a potential 4 trillion dollar shortfall in December 2008 became all righty when fed about half of that amount by March, 2009. If these admittedly drive by analyses are right, then the smoke and mirrors act just gave us an intermission.
All of which means that the political establishment is working in such a disconnect from the political reality in the hinterlands that there are going to be changes of one kind or another. Both parties, I think, are going to tacitly converge on a solution: America’s medium income is going to have to slide down. This was the grand pact of the Reagan era, but at that time, the idea was that credit could take up the slack and the country would grow enough to carry that credit burden. I think the new grand pact will be that the country can’t really afford such a, well, extravagant middle class. What, after all, do those householders do? Whereas important people, people at the top, work hard – they play hard, but they get their rewards because they are the smartest and the best. But they are getting tired of trickling down to such losers.
If this is the new Dem-GOP pact, we’ll go into the second phase of the Reagan era. The problem will be getting the doggies to eat the dogfood, as always. I think that the political elite on both sides is sorta convinced of the stupid red state thesis – it would make sense to them, and, in their onesided understanding of the world, it would never occur to them that freeriding can be a calculated decision. Thus, there may be a lot of fluidity between the teabaggers and a left of the Oregon type. Bartlett, to his horror, might turn out to be right.