24 August 2010

Disincentivizing Greed

This op-ed by Neal Gabler in this past Sunday's L A Times is 100% correct, in my view. It expresses an opinion which has been gestating in me and others whom I confer with regularly: i.e., that the only way to address the fundamental cause of financial activities that destroy production and extract wealth from ordinary people, to the overall detriment of the US economy, is to disincentivize greed, through massive increases in top marginal tax rates.

I'd go further, and say, forget the Bush tax cuts. Let them expire, of course, but that's not even a real starting point. We need to completely reform taxation. We need to restore the estate tax fully on estates over $1 million, restore tax rates similar to those of the 1950s (at least 80% top rate, and highly progressive), tax financial (as opposed to personal) capital gains, progressively, with those in highest brackets paying the same taxes on capital gains as any other income, and imposing a carefully calibrated, (i.e., small but nonetheless meaningful), short term financial transaction tax to discourage casino like trading and encourage longer term investments (could be waived if securities held longer than one year).

Our real  (i.e. "Main Street") economy has been sliding at least since the regressive "Tax Reforms" of 1986; all the deregulation of the financial services industry just made matters worse. We need both re-regulation, and major progressive tax reform. These reforms would indeed reduce the rewards to our richest citizens, and begin to reverse the historic widening of the income gap since the 1970s. But rich people would still be plenty rich, and people don't "lose their will" to get rich because of high taxes. That's just a myth. It would begin to reduce the size of the financial sector of our economy, but that's a plus, not a minus: the fact that our economy has largely converted from production-based to extraction-based is the main reason real standards of living for the majority of Americans have been flat and then falling for nearly four decades now. What it would also do is begin to provide an adequate revenue base for a gradual switch to European style social capitalism, which would have entirely positive effects on the economy:

  1. Increased competitiveness (Volkswagen and Daimler out-compete GM and Ford, in high-tax Germany): it's a myth that laissez faire policies increase competitiveness. Economic stability comes from having a reliable, incentivized, productive workforce, and a government that encourages innovation and industrial research and development
  2. Keep Jobs in America (see Germany and France, again); public policy can disincentivize outsourcing and provide for adequate education and job training to ensure a well educated and productive work force
  3. Reduce deficit and fund necessary social programs
  4. Incentivize production and disincentivize casino capitalism


  1. When the fire of greed is stoked this way, financial reforms cannot possibly bank it. In truth, probably nothing can. We now live in a country that seems to worship wealth..

  2. Davey, How bizarre. A Canadian gam bling tax recovery company commented on your post. Must have been triggered by your phrase casino capitalism. Cynical. Operant word: seems. Love, N

  3. Oops read that completely wrong . It's a quote from the op-ed. I better go to bed.N


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