Is there a Plan B?
In 1802 Thomas Jefferson said “I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.” Once 3 pages, the bailout bill is now the length of a novel. Once the Senate was finished adding sweeteners Wednesday to entice reluctant House Republicans to change their minds and vote for the bailout, the bill heading for passage had grown to 451 pages.
Labeled as a Bailout, the plan was hard to sell to a skeptical public but now repackaged as the Emergency Economic Stabilization Act, will it have the support of tax payers?
According to a Rasmussen poll conducted on Monday, 41% of the public are “very concerned” that the US will slip into a Depression similar to the one triggered by the stock market crash of 1929.
Nevertheless, the public is deeply split over the value of a rescue. Some 44% of the public say that Wall Street should take care of its own problems, while 45% back Congressional action to solve the financial problem. Only 45% say the rejection of the plan will hurt the economy.
According to polling by the Pew Research Center, support for a bail-out plan has actually fallen from 57% to 48% in the past week (surveys conducted between 19-22 September and 27-29 September).
According to Forbes Asian investors placed little faith and credit in the U.S. Senate’s passage of a revised bailout package; stock indexes in Japan, South Korea and Australia deepened their morning descent into the red as Thursday wore on. Markets were moving on signs of a intensified global downturn rather than on U.S. bailout developments.
A new report from Citizens for Tax Justice, a not for profit public interest research and advocacy organization focusing on federal, state and local tax policies and their impact upon our nation explains that if Congress is going to enact some rescue plan it would be sensible to include provisions ending the subsidies we are currently doling out to Wall Street. The biggest and most unjustified of these subsidies is the special low tax rate on capital gains and dividends. These tax loopholes subsidize people whose income comes from investments rather than wages, as well the Wall Street brokers who rely on their business.
As an example the report says “Imagine that a woman who is the heiress of a hotel chain is so wealthy that she does not have to work. She has a huge amount of stocks and other investments. She gets an excellent income from two sources. She receives stock dividends, and when she sells assets (through her broker, of course) for more than their original purchase price, she enjoys the profit, which is called a capital gain. On these two types of income, she only pays a tax rate of 15 percent, thanks to the tax cuts enacted under President Bush.
Now let’s imagine a receptionist that works in the investment bank that handles some of the heiress’s dealings. Let’s say this receptionist earns $50,000 a year. Unlike the heiress, his income comes in the form of wages, because, alas, he has to work for a living. His wages are taxed at progressive rates, and a portion of his income is actually taxed at 25 percent. (In other words, he faces a marginal rate of 25 percent, meaning each additional dollar he earns is taxed at that amount).
But that’s just the federal income tax. He also pays the federal payroll tax of around 15 percent. (Technically he pays only half of the payroll tax and his employer pays the other half, but economists generally agree that it’s all ultimately borne by the employee.) So he pays taxes on his income at a higher rate than the heiress who lives off her wealth.”
It is also interesting to look at Washington Mutual CEO Alan Fishman. When WaMu failed and was seized by government regulators, Fishman had been on the job for just 17 days. However, he was contractually guaranteed $11.6 million in cash severance on top of the $7.5 million signing bonus he got for taking the job. Basically, Fishman netted just under $20 million for 17 days of work, which is a pretty nice setup for the head of a collapsing corporation.
What if the plan does not work, is there a Plan B? According to Forbes No. Once Congress passes a bailout package, it will almost certainly not give the administration any more money to rescue the economy.