THE BLOG

Tax Bank Bonuses and Capital Gains of Wealthy to Pay for Jobs Program

Mar 18, 2010 | Updated May 25, 2011

This column is about pornography. Yesterday's New York Times ran a front page story headlined: "For Top Bonuses on Wall Street, 7 Figures or 8." The story was chocked full of obscenity:

"Bank executives are grappling with the question that exasperates, even infuriates, many recession-weary Americans: Just how big should their paydays be?" asked the Times.

"Despite calls for restraint from Washington and a chafed public, resurgent banks are preparing to pay out bonuses that rival those of the boom years," it continued. "The haul, in cash and stock, will run into many billions of dollars."

"Industry executives acknowledge that the numbers being tossed around -- six-, seven- and even eight-figure sums for some chief executives and top producers -- will stun the many Americans still hurting from the financial collapse and ensuing Great Recession."

"During the first nine months of 2009," the Times reported, "five of the largest banks that received federal aid -- Citigroup, Bank of America, Goldman Sachs, JPMorgan Chase and Morgan Stanley -- together set aside about $90 billion for compensation."

The Times piece quotes a Wall Street insider who apparently has avoided being infected by Wall Street's inability to see past greed and understand what's going on in the real world. John Reed, a founder of Citigroup said: "There is nothing I've seen that gives me the slightest feeling that these people have learned anything from the crisis.... They just don't get it. They are off in a different world."

I'd say. These people must live on the planet Xenon. Or perhaps they are time travelers from the Palace of Versailles, before the French Revolution.

Imagine a new, revised version of Moby Dick. In this version, Captain Ahab's obsessive pursuit of obscene wealth -- rather than his pursuit of the Great White Whale -- has destroyed the ship and left all of the ship's company in danger of drowning. But this time, the ship's crew valiantly salvages a lifeboat and rations -- and rescues Ahab from certain destruction.

Now, in the last chapter, instead of acknowledging that his decisions led the ship to ruin, instead of thanking his crew for saving his life, he demands that he receive a massively disproportionate share of the lifeboat's rations -- hundreds of times that of the average sailor -- which he insists should be his because "he, after all, is the captain -- and the market for captain's rations demands it."

The author of this new version of Moby Dick has proposed two alternative endings to this saga. All present assume the captain is daft, and he is put under the supervision of the ship's dashing young doctor. Or he is simply thrown overboard.

What are these people thinking? Last month, Americans lost an additional 75,000 jobs and these people are arguing over whether they get 7- or 8- figure bonuses for making brilliant trades at the great Wall Street casino?

When we say people are out of work, we are saying more than that they are not receiving income. We're saying that they are not productively employed creating the wealth that contributes to society's well-being. From the standpoint of the economy, the work that they would have done -- the wealth that they would have created while they are unemployed -- is gone forever.

The real economy is made up of the total sum of that kind of real work. It constitutes the sum total of the energy and creativity of all of the construction workers, and teachers, and doctors, and software engineers, and waitresses, and farmers -- who actually create real wealth -- who provide the goods and services that we need to live fulfilling lives.

From the standpoint of creating real economic wealth -- of making goods and services -- many of the people who are debating whether they get 7- or 8-figures bonuses are actually "unemployed" themselves -- or at least unengaged in doing productive work. They are not creating new furniture, or driving a product to market, or writing a computer program that helps cure a disease. Many of them are simply betting on the price of one derivative, hedging his bet with another derivative, taking risks with other people's money -- and trying to become as rich as possible. They are professional gamblers. From the standpoint of the economy, many of them are parasites who simply feed off of other people's labor.

And what's truly amazing is that, like our latter-day Ahab, it was their reckless pursuit of their own greed that destroyed the economy -- cost so many others their livelihoods -- and caused such massive waste in the economy at large. Many of those people who are now unemployed -- eager, but unable to contribute productively to our common store of wealth -- are unable to do so because these people, personally, wrecked our economic ship.

They, and their institutions, were rescued by the taxpayers -- the people who actually produce wealth for a living. Yet not a word of contrition. Not a thought that they don't deserve hundreds of times the income of average Americans -- a massively disproportionate share of what's left of the fruits of everyone else's work -- even though the total economic pie has been diminished because of what they did. Amazingly, they are now grabbing a larger share than ever.

The real need in our economy is to put our fellow Americans back to work -- back to the task of creating goods and services -- as soon as possible. Right now everyone in that lifeboat needs to pull an oar. And most Americans desperately want to.

The Federal Government needs to act immediately to get businesses to increase employment by stimulating more demand for its products and to provide the funds to directly to employ people into productive activity through state and local government and the Federal Government itself.

The Federal Government is the only entity that can do this, and Congress will be shirking its most basic responsibility if it refuses to do so.

The first priority for Congress must be to get people employed. Every day we wait to employ them, we allow their labor to go to waste.

Much of the cost of creating those jobs could be covered by following the lead of the British and imposing a big tax surcharge on the bonuses paid by the big banks.

Another portion could be paid by raising the income tax rate on capital gains to the same level as ordinary income for all the individuals making more than $250,000 and the couples making more than $500,000. Be clear. I'm not suggesting taxing the pension income or college money of average Americans -- just the capital gains of the wealthiest Americans.

About 70% of all capital gains goes to 3.5% of the population. I'm suggesting that the wealthiest of those pay taxes on capital gains at the same rate that they would if they got the same income by working.

When you think about it, it's absurd that "ordinary income" -- the income generated when you work for a living -- is taxed at up to 35%, and "capital gains" -- income generated when your stocks, bonds, or derivatives appreciate -- is taxed at 15%.

It makes no sense at all that the marginal income of a middle manager who makes $50,000 a year is taxed at 25%, and the income of a wealthy person who spends his time on the French Riviera "day trading" on the stock market is taxed at 15%.

The percentage of income going to the largely unproductive financial sector has skyrocketed in the last two decades. Let's tax that income to put the people who actually produce goods and services back to work.

To those who argue that this would reduce the incentive to come up with "innovative financial products" or clever trading schemes, I say that's exactly the idea: to decrease the incentives our economy provides for the best and brightest to waste their careers gambling on Wall Street instead of doing something productive for our economy.

Ronald Reagan once famously said: "When you tax something you get less of it." Precisely. America needs to tax speculation, and incentivize productive work.

And most importantly, nothing -- including increasing the deficit -- should stand in the way of a crash program to put America back to work. Nothing is more costly to our economy, and our economic future, than the waste of unemployed Americans who are unable to contribute to America's store of wealth.

Robert Creamer is a long-time political organizer and strategist, and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on Amazon.com.