Monday, 02 March 2009
On Economic Fairness
Crabby Old Lady swore off writing about politics after the November election. Her intense involvement with the campaign for many months bordered on addiction and she is happy to report that her recovery is going well. Her political interest now, she believes, falls into the normal range for a reasonably well-informed citizen.
However, she’s gotten all bothered over two items in particular: taxes and mortgages.
Although it is amusing to watch Republicans squealing like pigs now that President Obama’s campaign proposals are making their way toward realization, some misinformation needs correcting.
The GOP objection to the president’s proposed tax increases for top income brackets is the same old, same old: “You can’t do that. Those are the people who create jobs,” they screech in print and on television.
That, of course, is a disingenuous argument (otherwise known as a lie). Holding down the top tax rate is just “trickle-down economics” from the Reagan administration, sometimes called “supply-side economics” and it never worked.
Instead of investing their extra money in businesses, the rich people and corporations kept the money from their tax cuts for themselves all these years and did not create any jobs. In fact, they shipped as many as they could overseas to countries where they could pay workers substantially less than in the U.S. This also kept down salaries for the jobs that remained. Adjusting for inflation, the average American worker hasn’t had a raise in more than a decade.
While watching the Republican moneybags shriek at the proposition of actually paying their fair share, Crabby vaguely recalled that in her youth the top tax bracket was about 93 percent. A quick check of historical rates here proved that she wasn’t far off. From 1951 through 1963, through all of Crabby’s teen years and a bit beyond, the rate for highest earners was 91 percent. Beginning in 1964, it was lowered to about 70 to 75 percent.
The rate remained around 70 percent until Ronald Reagan was elected when the rate was dropped to 28 percent for awhile. George H.W. Bush raised it to 31 percent and Clinton increased it to 39 percent. Then George W. Bush got the rate down to 35 percent in 2003, where it has remained.
The rich have been making out like bandits for half a century on the backs of working stiffs. No one is asking them to pay 91 percent and a few more percentage points isn’t going to change the lives of the rich and famous much, but it will help a bit to offset needed spending.
As President Obama has mentioned and any thinking person knows on their own, we all need to make sacrifices now, and the rich cannot be exempt.
Now regarding mortgages that are higher these days than the value of the homes. It has become conventional wisdom, repeated by reporters and pundits in newspapers and on television news every day, that the federal government, i.e. taxpayers, should not be bailing out people, as President Obama proposes, who bought beyond their means.
Huh? Crabby could be wrong, but she is under the impression that these borrowers were not taking loans from the neighborhood shark. They went to banks which require many long forms to be filled out. They supplied copies of tax returns and W-4s and anything else loan officers asked for. The banks, presumably, read all this paper, checked employment and credit history, and ordered up appraisals of the purchases in question. It’s what banks do. Or should do and they did not.
If Joe Blow earns $50,000 a year and applies for a loan to buy a $1 million house, who is at fault when the bank approves the loan? Crabby could argue that Joe shouldn’t have been idiot enough to count on winning the lottery to make the balloon payment in 10 years. Even so, the banks approved the loans. So who is the idiot?
However, most people in mortgage trouble are not Joe Blow. They did not buy McMansions. And it is Crabby’s contention that it is the bankers who, in their greed, stupidly handed out loans that they knew could not possibly be paid in the long term.
As we all know now, doing so is what set off the collapse of the economy which has left responsible borrowers with homes they cannot afford to sell (even if there were any buyers) because the houses are worth less than the mortgages.
Bankers are still flying to congressional hearings in private jets. Crabby doesn’t want to hear any more “conventional wisdom” that responsible borrowers shouldn’t get some small amount of help.
[At The Elder Storytelling Place today, Lois Cochran has a few words about the November election in A New Day – New Hopes.]