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Taxing Bankers Is Only a Start

A Commentary by Froma Harrop

Tuesday, January 19, 2010

Tax the bankers' profits, tax their bonuses, tax their golf scores. I mean it. Take their windfall, and give it to the taxpayers who bailed them out. Britain and France plan a 50 percent tax on banker bonuses -- coordinated lest their financial bigwigs think of crossing the channel for a better deal. President Obama's proposal to tax the big banks' extraordinary profits fits the theme.

This should help slake the public's thirst for revenge against Wall Street. Europeans don't seem to be complaining about these special taxes, and a little economic populism couldn't hurt Obama's approval ratings, such as they are.

But as a move toward serious financial regulation, this is just a shot over the industry's bow. Washington must pass new rules to curb the sort of financial recklessness that took America to the abyss of economic ruin. Such crusades aren't so crowd pleasing, mainly because the crowd doesn't understand them.

That's why the moment's political passions are so focused on the bailout that created these record bank profits. With the panic over, it's easy to believe or pretend to believe that the bailout wasn't needed. But remember the day when tough talkers in the House defeated the Bush administration's bailout plan? The Dow Jones Industrial Average promptly plunged nearly 800 points. Congress quickly changed its mind and passed the measure.

Democrats don't need Republicans to promote counterproductive statements that draw warm applause from the apoplectic masses. They have Sen. Evan Bayh of Indiana, who recently said, "I don't think the American people last year voted for higher taxes, higher deficits and a more intrusive government."

Actually, the people did vote for a more intrusive government. They wanted a government that would intrude on financial industry practices that pushed them into a deep recession. The people wanted a government that would intrude between them and the health insurer trying to drop their family after a member was diagnosed with cancer.

No, there cannot be lower deficits without higher taxes. (How would you lower deficits, Senator?) In any case, by taxing bank profits, Obama would have banks paying back "every last dime" of their bailout. Perhaps the voters knew what they were doing.

And don't anyone send me quotes about Ronald Reagan and the magic of tax cuts. Taxes were cut in Reagan's first year, then rose in every other year of his administration. Meanwhile, the national debt doubled.

A far more perceptive (though sickening) quote came from another Democratic senator last April. Illinois' Dick Durbin said on a radio show that despite all the economic pain America has endured, the financial industry "still owns the place" -- the place being Congress.

Clearly, there will be no serious financial reform unless Congress unchains itself from the Wall Street money masters. Real reform means ending the "too big to fail" doctrine that in effect places a taxpayer guarantee under the big banks' speculation. It means regulating the markets for derivatives. It means creating a consumer protection agency that puts the brakes on the riskiest loans.

Sure, a tax on bank profits is justified. The big banks' fabulous year came out of the public's hide. We speak of the government guarantees of bank-issued debt; the AIG bailout (and by extension, AIG's creditors, the banks); (and) near zero interest rates, courtesy of the Federal Reserve. The taxpayers earned their share of the pot.

But the spotlight of outrage should linger only briefly on what the bankers did, then fix itself on what Washington let them do. America must protect its economic well-being against future marauding on Wall Street. The future is the only thing we can influence.

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