Hedgehog Party

Two Kinds of Rich

Last week, the Darien News-Review published "Two Kinds of Rich," an article I wrote describing how the Asset Rich are at an advantage over the Income Rich when it comes to paying taxes.  You can find it here.

As the article points out, the Income Rich are facing the prospect of dramatically higher taxes.  At the same time, the Asset Rich are poised to escape much of this additional tax burden thanks to many loopholes and other benefits at their disposal. 

The Hedge Tax addresses this unfairness with the introduction of a small Asset Tax.  The purpose of this tax, like the Hedge Tax proposal overall, is not to "soak the rich" with excess taxes.  Rather, it is to ensure that they pay taxes like everyone else, that they feel the tax burden like ordinary citizens do.

Brother, can you spare a trillion?

This title can be viewed in two ways.  First, compared to the 1930s lament and song (Brother, can you spare a dime?) our modern beggars need a lot more money.  This article from CNN Money summarizes the appropriations and expenditures of each injection of taxpayer funds in this crisis.

Second, the supplicants are not wearing scruffly clothes and arriving on freight trains.  Instead, they wear $2000 pin striped suits and arrive in limos or private jets.  Often, they are (were) the biggest cheese gathering rats of our bubble boom.  Only the $8 billion in additional umemployment benefits represents direct support to citizens.  The rest is supposed to "trickle down" from financial insititutions.  As I recall, "trickle down" was a derisive slogan used by the Democrats during the Reagan battles...but maybe things are different this time.

There are other shoes to drop.  Despite the prop to earnings from removal of "mark to market of assets", there are are lot of insolvent banks.  The FDIC will require massive fund injections to shore up requirements for failing banks. The decline in employment has hurt Social Security and Medicare contributions.  The Trust funds may end the contribution to general revenues next year.  The trust funds contain Government IOUs, so new taxation and deficits will be required to cover the loss.  A number of states are insolvent, and they will require a massive injection of funds .

Depressions like what we have now are only relieved by debt destruction.  Restarting lending and propping up weak debt will only prolong the agony.

Raise Everybody's Taxes

The Hedge Tax is designed to raise everybody's taxes when additional revenues are needed.  Coupled with a balanced budget amendment, politicians are forced to go to a broad spectrum of the voters to gain support.  This scheme strikes directly at the heart of special interest groups

The recent procedural vote on cap and trade demonstrates how this can work.  This article summarizes the "pushback" on the cap and trade scheme to raise carbon taxes.  A number of democratic congresspersons quickly realized that this tax would affect everybody and bailed.  It is fun to mete out taxation punishment on the rich, big oil, or fatcat executives.   But when a tax affects a large number of constituents, suddenly the green turns to yellow. 

Giddy

The financial markets are giddy.  The G-20 has engineered "loans" to the IMF and the World Bank totalling over $1 trillion.  This sum apparently saves everybody from the folly of previous bad lending.

What is the real meaning?  The financial markets are rightly excited.  Every taxpayer's wallet has been opened to the financial barons of the world.  Best of all, the taxpayer doesn't really know it.  The "loans" are financed by deficits, so the inflationary effects of the gift will not be known for months or years.  In the meantime, the financial rats can make new fortunes by trading in the old toxic waste at taxpayer expense.  Our financial and poltical leadership understand this very well...shame on them.  There is no price too high to maintain power...so long as it is the taxpayer that pays it.

With some luck, a new round of lending can commence based on the old lending formulas.  For example, GM (the government motor company) has renewed subprime auto lending.  Why wouldn't you buy a new car?  The payments are low, and if circumstances are dire, the taxpayer will pick up the tab (I'm not making this up).

Rest assured, no politician will be forced to explain why new bad loans cure the effect of old bad loans.  Desperate folly abounds.  It might work...but only for awhile.  The Hedge Tax would have prevented this.  I pray that our republic can survive it.