Jon Stewart: In Dodd We Trust Posted on March 17, 2010 by Yves Smith Hat tip reader Carrick. Enjoy! The Daily Show With Jon Stewart Mon – Thurs 11p / 10c In Dodd We Trust www.thedailyshow.com Daily Show Full Episodes Political Humor Health Care Reform Post navigation ← Will the Chinese yield to external threats? Guest Post: More Evidence that Banks Create Credit Out of Thin Air → Subscribe to Post Comments 29 comments Timbo March 17, 2010 at 5:39 pm They only got away with it because Democrats and Republicans voted to bail them out. There’s nothing capitalist about a system where the government gives the rich money from the poor. They need to be lined up and dealt with. Hu Flung Pu March 17, 2010 at 7:26 pm Isn’t it more a case of the government giving money to the relatively rich from the less relatively rich? I believe the top 20% of earners in the US pay about 85% of all income taxes. The bottom half pay on the order of 5% after deductions. My point is that this is really the top 3% stealing from the next 10%-20% with the government’s blessing. It’s just jello moving around on the plate near the top of the economic spectrum. The “poor” have little to do with it. Anonymous Jones March 17, 2010 at 8:56 pm This is a very good point, but it does omit the self-proclaimed plan of certain folks to use the budget “crisis” to gut social security and Medicare, government programs which *do* affect the poor. lambert strether March 17, 2010 at 9:23 pm “Certain folks” including the President of the United States and head of the Democratic Party. john bougearel March 17, 2010 at 7:42 pm I can’t believe that Dodd just said “this legislation won’t stop the next crisis from coming” What a total jackass Dodd has been and always will be! Jon Stewart retort to Dodd: “You can’t short your own reform bill.” Later, and more disturbingly, CNN correspondent Christine Romans who summarized Lehman’s bankruptcy examiner report as “Lehman imploded because of a lot of mistakes that had been made.” As Yves has repeatedly pointed out and I quote from end of Chapter 1 in Yves new book Econned: “Until we learn to call looting [fraud and other criminal activities of banksters, policymakers, and lawmakers] by its proper name, it is certain to continue.” Repeatedly throughout this crisis, the powers that be are being allowed to frame the events leading up to, during, and after the crisis as mere “mistakes.” The word “mistakes” should be banned from the lexicons of the powers that be who are rewriting the history of this crisis as just one big mistake, it is a dangerous,vague, inaccurate, and disingenuous word to the public. anon March 17, 2010 at 7:49 pm Hu, Why look only at the Federal income tax? It is only one of the elements of policy that redistributes wealth. You’re ignoring all the rest of the mechanisms of wealth distribution, including monetary policy effects. Many things redistribute wealth, including real estate prices, inflation, unemployment, regulation (or the lack thereof), and most (all?) of our laws. Vinny March 17, 2010 at 9:06 pm anon, How about sales tax and social security tax? Those hit the poor far harder than the rich. Vinny Hu Flung Pu March 17, 2010 at 9:16 pm True, but… even if you add up all of the taxes (SS, medicare, property, sales, etc. and add in more esoteric issues like inflation, etc), the bottom half of the income distribution are still net beneficiaries of redistribution (at the expense of the top half). It’s not even close, really. I’m not complaining about this, mind you, just pointing it out as a fact. Again, the real issue is the distribution among that top 20%. That’s where the vast majority of the income gets earned and taxes get paid – no matter how you want to define “taxes.” Now, if you want to get into the argument that our society’s laws engender a system which exploits the poor to the advantage of the rich… well, that’s a separate matter and a much longer discussion that I don’t have much interest in. anon March 17, 2010 at 10:16 pm My point was that you can’t just look at taxes. They are but one component of fiscal policy. (And you seem to be ignoring a lot wrt the federal income tax component, e.g., business deductions, treatment of various kinds of income – like foreign income, mortgage deductions, etc. which many view as distributions to the favored recipients.) To determine the redistributive effects of the government’s FISCAL policies, you also need to look at expenditures. E.g., TARP and other components of the bailouts are a big part of that picture, as are the military/defense/other MIC, agricultural subsidies, Medicare and SS, highways, police protection, and government workers. You don’t seem to be doing that. In addition to fiscal policy, you need to look at monetary policy to determine who benefits from the government. I also think you need to look at “non-economic” policies like who benefits from any of the laws (or lack of laws or enforcement), policies, or governmental actions (or lack thereof). “the bottom half of the income distribution are still net beneficiaries of redistribution (at the expense of the top half). It’s not even close, really. I’m not complaining about this, mind you, just pointing it out as a fact.” Please provide some evidence of this. AFAICS, you aren’t pointing out any facts, just reiterating your unsupported opinion. Hu Flung Pu March 17, 2010 at 10:39 pm The “FISCAL policies” (capitalized by you) are funded with TAXES (my capitalization) and borrowings, the interest on which is paid by more TAXES (and “quantitative easing,” of course). Many of the things you rightly mention – agriculture, military/industrial complex, bailouts, etc. etc. etc. – predominantly benefit “the rich.” But, again… it’s the rich who are largely paying the taxes that subsidize these very adventures. If you think about it for one second you’ll see that you’re using circular reasoning here. While, admittedly, Table 1 below doesn’t tell the entire story… it certainly tells a lot of it. http://www.taxfoundation.org/news/show/250.html (Source: Internal Revenue Service) And this tells a story too. The Federal Government’s sources of revenue are 45% individual income tax (mostly the rich), 12% corporate income tax (largely the rich), 36% payroll taxes (partly the rich, part non-rich) and 7% other. http://www.taxpolicycenter.org/briefing-book/background/numbers/revenue.cfm (Source: Congressional Budget Office) So, there’s your evidence. anon March 17, 2010 at 11:40 pm Hu, WRT the federal income tax, the tax foundation document uses AGI so you are using data that only begins to look at incomes after some of the most important redistributions via the federal income tax have already been made. More importantly, except for your acknowledgment of payroll taxes and the need to factor in quantitative easing (yet not factoring QE in), you’re still ignoring monetary policy, state and local government, private debt, and pretty much everything except the federal income tax. “But, again… it’s the rich who are largely paying the taxes that subsidize these very adventures. If you think about it for one second you’ll see that you’re using circular reasoning here.” It’s circular only if I accept your premise that the rich pay for the adventures. You have not established that. I’m saying “Look at the whole picture. Don’t just look at one small part of it.” I don’t see how that’s circular. anon March 18, 2010 at 12:10 am income /= wealth anon March 18, 2010 at 1:45 am “Assuming that the rich are out to exploit the poor by whatever means necessary (which seems to be your principal argument)” Hu, You have badly misread what I wrote here. I have no idea how you can conclude that I’m saying anything remotely like the above. The gist of what I have said is that you are not accurately representing the transfer of wealth and that you will never be able to do so if you look only at federal income taxes (corporate or individual), especially if you look only at AGI (though that is a relatively small part of the problem). As an example of something you should consider besides income taxes, look at the recent bank bailout. A lot of money was transferred from ordinary Americans to the banks. Most of it will not show up as a net expenditure (which would theoretically need to be paid by taxpayers or via money creation) of the federal government. Therefore, the taxpayers won’t have to pay for it (at least on the government’s books). Yet it was a real transfer of wealth. Similarly, the banks’ use of the discount window, where they can borrow money for almost nothing and use it to invest in assets like stock, futures, etc., pocket the profits, and repay the Fed will not show up as a government expenditure. Therefore, it won’t show up on the government’s books but it will still be a governmental transfer of wealth. Policies that encouraged companies to relocate in lower wage countries (or lower tax countries) transfer wealth. Virtually every law has a wealth transfer effect. The RE bubble (which was encouraged by governments at all levels) had the effect of transferring wealth upward, whether you look at increasing rents or homeowners who are underwater. Had the banks that owned the bad RE assets been allowed to fail, that may not have been the case but that’s not what happened. (But even if the banks had not been bailed out, bankers and i-bankers would have still received huge bonuses.) Some of the things you should consider may have the opposite effect. Without empirical data, I don’t know who benefited from inflation or other monetary policies. I doubt that the effects were uniform across any economic class. anon March 18, 2010 at 1:48 am The above anon says: March 18, 2010 at 1:45 am was in response to: Hu Flung Pu says: March 18, 2010 at 12:36 am sorry for any confusion Robespierre March 18, 2010 at 12:05 am Then I can assume you will happily trade places with them… Hu Flung Pu March 18, 2010 at 12:36 am anon, Assuming that the rich are out to exploit the poor by whatever means necessary (which seems to be your principal argument) and, at the same time, hold all of the cards to do so… then how have they let the tax code (that is, tax laws) be written in such a way as to redistribute so much of their income (wealth, call it what you want)? Again, I know that you don’t view taxes as an important part of the “whole picture” (you’re not going to find much company with that view), but… if we look at the IRS stats (admittedly, the “small picture”), it just doesn’t seem like they’re doing a very good job of executing their diabolical plotting against the poor. I have explained to you how I believe that the rich largely pay for their own adventures (although, again, we OFTEN see the “less rich” bailing out the “super rich” – which is bad), which you don’t buy. Fine. So, why don’t you explain to me how the poor subsidize the rich? How does the “income” of the poor (define it how you like) make its way up to the rich? Ina Pickle March 17, 2010 at 7:52 pm I was glad to hear him call CDS “fire insurance on your neighbor’s house.” I’ve been having trouble with the concept of why we can’t declare these contracts illegal. We do it all the time – you aren’t allowed to buy insurance on your neighbor’s house because it creates an incentive for mischief. It might not be possible (well, constitutional) to do it retroactively, but at least prospectively you have to have real counter-party exposure in the ballpark of the amount of CDS you take out in order for it to be legal. If you force it to function as an actual hedge, it’s not a destroyer of worlds. The whole thing is incredibly frustrating. I remember the first derivatives crash and wondering why people were allowed to abuse products that have a limited legitimate use until the side bets dwarfed the underlying real deal. Vinny March 17, 2010 at 9:08 pm Or, things like Walmart buying life insurance policies on their employees. Ain’t America great?… Vinny Vinny March 17, 2010 at 9:03 pm Hu Flung Pu, I’m not sure where you got your numbers from, but they’re not accurate. Vinny Hu Flung Pu March 17, 2010 at 9:20 pm See Table 1 http://www.taxfoundation.org/news/show/250.html Not much mystery there. PityTheBankers March 18, 2010 at 12:14 am Hu is spewing the typical right wing libertarian bullshit. Libertarians are the scum of the earth. Hu Flung Pu March 18, 2010 at 12:24 am Actually, I’m neither “right wing,” nor would I be classified as a libertarian. I have no problem with redistribution whatsoever. My only issue is that (a) we call it what it is, and (b) acknowledge where the funds come from and to whom they are distributed. Redistribution of wealth is a valuable tool for maintaining social harmony – revolutions tend to be bad for (most) business. I’m not sure that I’d classify libertarians as the scum of the earth. Perhaps naive and overly simplistic. But to each their own. psychohistorian March 18, 2010 at 3:22 am I believe we will get a test of how that middle class deals with the complaints of the lower class as this fake economy goes forward. With an ongoing high unemployment rate and no real positive outlook for low-end employment that is racing to the bottom elsewhere in the world those on the bottom of America’s economic ladder might get a bit feisty. Will the middle class agree to suppression of these disenfranchised folk? I would hope that the middle class would side with the lower class to maintain baseline food, shelter and social services but with the narrative controlled by the rich all bets are off. Not much of an advanced civilization are we? To the extent that the rich are not engaging society as a whole with issues like population, resource limitations and not violent ways of getting along I fault their moral turpitude or responsibility towards society……bottom line is if you don’t keep enough people happy the ones that aren’t have nothing to lose in their attempt to survive and will organize to overturn the dominant paradigm. Where is my popcorn…..I am perverted/idealist enough to want the world economies to crash so there is opportunity to organize humanity in a fairer manner….in what little is left of my lifetime. I don’t expect revolution necessarily but a bit of evolution would be nice. Vinny March 18, 2010 at 10:47 am Revolution would be the only solution. However the American middle class has been so brainwashed to think one’s misfortune is always one’s own doing and responsibility, a revolution is hard to imagine in this countty of egotists. Not to mention that the police state is do well armed and so brutally-minded, any rebellion is likely to be contained quickly. As I see it, the current system is likey to continue fir many more decades, only with increasing oppression and poverty. Which is why I chose to leave this country, and raise my kids in a saner place. Vinny sherparick March 18, 2010 at 8:46 am From Wikipedia (and this analysis is a breakdown of 2001, before the 2001 and 2003 Bush Cheney tax cuts drasticly reduced the burden on the upper 5%). The principal reason the upper 5% pays so much income tax is because in the U.S. income distribution they receive 30% of all income. And of course these are 2001 stats and the sources I have read is that almost all income growth in the U.S. the last 10 years, as bad as it has been (see Macroblog and Economist View), has gone to the upper 5%. I note that when the lowest 20% of income earners receive only 4% of all income, that they pay 1% of all tax revenue is not exactly a free ride. From Wikipedia: “When including social security insurance taxes: In 2001 the top 1% earned 14.8% of all income and paid 22.7% of all federal taxes. The next 4% earned 12.7% and paid 15.8%. The next 5% earned 10.1% and paid 11.5%. The next 10% earned 14.8% and paid 15.3%, completing the highest quintile for a total of 65.3%. The fourth quintile earned 20.7% of all income and paid 18.5%. The third quintile earned 14.2% and paid 10%. The second quintile earned 9.2% and paid 4.9%. The lowest quintile earned 4.2% and paid 1% of all federal taxes. Whether this breakdown is “fair” is a matter of some debate.” Boo-urns March 18, 2010 at 10:37 am Relying on Wikipedia is always a little dicey. But assuming for the moment those numbers are accurate, they’re still not a proper summary of total tax burden. 1) “Income” is a pretty questionable and loaded term. Rich people take in a lot of their effective income from capital gains, which most statistics don’t tend to cite as income. A pretty common sophistic device used by the Right is to limit the discussion of taxes to income, when they know damn well that really rich people get a high percentage of their earnings from non-income sources. 2) The claims are limited to federal taxes. Poor people tend to consume all of their income. They get hit hard by consumption taxes, which are virtually all state taxes. So add another 5-10% onto the poor’s tax burden. 3) License and use fees (tolls, gas taxes, other fees imposed by the states) tend to make up a much higher percentage of income for middle class folks than rich folks. The better measure, as Buffett (Warren not Jimmy) alluded to, is to consider how much money are you making, and what percentage of it are you turning over to the government. I don’t see how you get to a place where the middle class (say over 50k a year) is paying less than the top uber-rich (top 1%), due to the sharp difference between capital gains and income tax rates and the cap on SS payroll tax. The most recent figure I saw was that the top 500 households pay on average 15% right now, as opposed to the 50% in total taxes that the middle class ends up paying in total taxes, or the 35% or so that the lower class ends up paying. ted March 18, 2010 at 9:04 am Hu – The percentage of income taken in by the top earners and the percentage of wealth owned by the most wealthy is at all-time highs in the U.S. Taxes are always a method to reditribute wealth and income. The problem is that marginal tax rates are at their lowest levels in over 100 years and need to be raised significantly. In capitalism and in most economies, the wealthy and powerful use their wealth to garner an increasingly larger share of incomke and wealth. After a while the system breaks down as there is little incentive for most of the people in the economy to be productive beyond garnering a sustinence wage – additional work does not result in material benefits becasue the system is gamed. Instead of distributing income and wealth more fairly, we have induced the middle-class to borrow to fund a lifestyle that appears to be more egaltarian with the wealthy. The result has been a cumulative amount of debt that will never be re-paid. The failure to re-pay this debt results in a re-distribution of wealth effectively – the rich get poorer. By bailing out the banks and turning a blind eye towards accounting shenanigans, we are simply prolonging the process of redistributing wealth. It is also high time that marginal tax rates on income be increased significantly to discourage people from entering “lottery” income professions such as investment banking. I would suggest 80% marginal rates on incomes over $1mm and 150% marginal rates on interest and dividend income over $2.5mm. Kevin Bryant March 18, 2010 at 5:44 pm Naked *what*?? Has this turned into a socialism site? Steadyb23 March 24, 2010 at 10:41 am I think a flat tax across the board will fix it. freeze federal spending for 2 years and this country will be fit and trim Comments are closed. Tip Jar Please Donate or Subscribe!