Poor Vikram Pandit. In mid-October, while we were fixated on the elections, the board of directors at banking giant Citigroup asked Pandit to resign as CEO, leaving him destitute except for the $6.7 million “incentive award” he was due for helping the corporation make half as much money in the third quarter of 2012 as it did in the second.
Pandit’s total take for the five years he headed Citi will be $261 million, according to Bloomberg, the financial news company. Under hiswhat’s the right word? It isn’t leadershipCiti’s stock lost 88 percent of its value.
This was around the same time the federal government, as part of the Wall Street bailout, handed Citigroup $45 billion in cashthat’s with a “b”and $306 billion in guarantees for its bad loans and unsound investments.
So if there’s one issue we progressives and our tea party friends can agree on, it’s that bandits like Pandit should be in prison for larceny, not lounging in the Hamptons sipping limoncillo.
Since corporate crime isn’t a real crime, the best we can do right now is raise the tax rates. FDR had it right during World War II when he issued an executive order setting the tax rate at 100 percent on incomes above a gracious plenty.
After the war, the top marginal rate was reduced to 92 percent on incomes above $400,000equivalent to about $6.5 million todayand it remained there through the Truman and Eisenhower administrations. But the principle remained the same. People weren’t allowed to take too much for themselves, especially from corporations they didn’t own. If they did, the government took the excess, or most of it, and put it back in the economy. The point wasn’t to raise revenues. It was to deter greed.
Not coincidentally, the postwar years were a time of enormous and broadly shared economic growth in the United States. Out of the prewar Depression, a majority moved to that new neighborhood called the middle class.
Half a century later, the idea of tax rates as a moral norm has been lost, and the top rate is an amoral 35 percentor less. It’s a lot less if you’re like Pandit or Mitt Romney and you collect your booty as capital gains (or “carried interest”) from stock options. Then the maximum rate is 15 percent. Consequently, economic inequality is at its highest level since before the crash of 1929.
Fortunately, Mitt didn’t win the White House, because he wanted to further reduce tax rates. President Obama is no FDRthe idea of grabbing what the greedy shouldn’t get seems not to have occurred to himbut he did campaign forcefully to end the Bush tax cuts on incomes over $250,000. The effect would be to increase rates modestly on taxable incomes above that level, but only on the portion over $250,000.
Thus, a couple reporting taxable income of $350,000 would still pay less in taxes under the Obama plan than during the Clinton years. That’s because the Bush tax cuts would remain on $250,000 of their income, with only the remaining $100,000 subject to a tax hikefrom 33 percent to 36 percent.
As the fiscal cliff approaches on Jan. 1, one fact you rarely read is that if the Bush tax cuts for the wealthy are allowed to expire, the top rate will go from 35 percent to 39.6 percentwhere it was under Clintonbut only on the portion of taxable income over $400,000.
Still, according to the Congressional Budget Office, there are so many millionaires and billionaires out there paying low taxes that if we merely put the top rate back to 39.6 percent, the federal government will collect almost $1 trillion more in taxes over a decadetaking a big slice out of projected deficits.
In short, Obama’s proposal is a small price to pay to avoid the fiscal cliff, with its multiple tax hikes for everyone and deep cuts in federal spending.
Enter North Carolina’s Erskine Bowles, with his penchant for being in the right place with the wrong message. Bowles, Clinton’s former chief of staff, lost twice as the Democratic U.S. Senate nominee running on his Republican-lite economics.
Two days after Obama was re-elected, however, Bowles penned an op-ed in The Washington Post aligning himself with Romney and Republican House Speaker John Boehner. “I was very encouraged by [Boehner’s] remarks Wednesday indicating his willingness to support increased revenue from tax reform if it were accompanied by meaningful entitlement reform,” Bowles wrote.
Translation: I’m for the Romney plan on taxes and the Republicans’ plan to whack Social Security, Medicare and Medicaid.
No wonder The Wall Street Journal‘s right-wing editorial page is talking up Bowles as Obama’s next treasury secretary. Hopefully, Obama read the op-ed and crossed Bowles off his list. Maybe there’s an opening for him at Citi.