Tax Analysts Blog

GDP Down, Delmonico's Up

Posted on Jul 31, 2009

The new GDP numbers are out and the preliminary figure for second quarter growth is negative one percent. That's the fourth consecutive negative quarter--the first time that has happened since 1947. The unemployment rate is 9.5 percent and rising. The government is selling record amounts of debt. State governments are in turmoil.

Meanwhile, bailed out Wall Street traders are making a fortune on the market's rebound from March lows and on a new form of financial gimmickry, using supercomputers to trade by the microsecond, a practice called "high frequency trading." A report from New York Attorney General Andrew Cuomo reveals that nine banks that received government bailouts paid $33 billion in bonuses in 2008. 5,000 employees got more than $1 million each. Now, instead of worrying about red ink, the financiers are feasting on red wine and red meat at Delmonico's steakhouse two blocks from Wall Street.

Republicans say we can't raise tax rates on the rich because it would hurt small businesses who would have to cut jobs. But small business owners are only a small part of the economic elite. What can Republicans say about Wall Street millionaires? There is nothing virtuous going on here. Every firm on Wall Street is trying to emulate the hedge fund model: leverage up, use obscure trading strategies, make a fortune on the upside, lose nothing on the downside. They have built gambling houses 100 times larger than any on the Las Vegas strip. And when disaster strikes, like it did last year, the federal government must bail everybody out or the whole economy will collapse.

The U.S. federal government made the world safe again for Wall Street capitalism. With skyrocketing public debt on the horizon, if we must consider raising taxes, it seems only fair to focus attention on those whose fortunes were made possible by taxpayer money.

Update: Paul Krugman in his August 3 column for the New York Times agrees that there should be more tax on Wall Street's "supersized incomes": "Neither the administration, nor our political system in general, is ready to face up to the fact that we’ve become a society in which the big bucks go to bad actors, a society that lavishly rewards those who make us poorer."

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