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Forum Post: Will Further Cutting Taxes and Further Deregulating Save Us?

Posted 13 years ago on Oct. 11, 2011, 9:20 a.m. EST by rmmo (262)
This content is user submitted and not an official statement

No. Over 30 years of cutting the marginal tax and cutting regulations and failing to regulate have gotten us here.

We have had 30 years of tax cuts. In the 1950's the highest marginal rate was 90% (if you made over $2 million in today's dollars you were taxed at 90% on the amount over the $2 million), in the 1970's it was lowered to 70%, in the 1980's it was lowered to 49%, in the 1990's it was lowered to 39%, and in the 2000's it was lowered to a meager 36%. Likewise the tax on Wall Street earnings was lowered to a shocking 12% in the 2000's.

What happened as the high marginal tax rates disappeared? Executive salaries ballooned and middle class salaries stagnated. The middle class, the economic engine of our country, spends its money on goods and services and the corporations take in that money as profit. What happened is that as unions disappeared (now only 7% of all private sector jobs are unionized) and the marginal tax disappeared, there was no disincentive for corporations to pay out all of the money to the few at the top.

This caused a massive wealth redistribution. The top 10% now controls 70% of our entire nation's wealth and the bottom 50% control 2%. Why didn't the middle class realize this? Corporations can up with "financial innovations." Corporations discovered that they could replace wages to buy goods and services with easy credit. They could loan people money to buy their products -- the modern indentured servant. The middle class became a debtor class.

And as for regulations, we likewise have had 30 years of deregulating. Hedge funds are still not regulated. The commodities market was deregulated in 2000 by the Republican controlled Congress' Commodities Futures Modernization Act and has allowed the Commodities Market (gold, oil, silver, food) to be a haven for rampant speculation and bubbles.

The banks were deregulated in 1999 by the Republican controlled congress with the Gramm-Leach-Bliley Act decoupling the risk of making a mortgage from making the mortgage. So banks could make a loan, take the loan origination fees, and resell it to someone else, usually Fannie and Freddie for the taxpayers to hold the bill of the bad loans. So banks made as many loans as they could not caring whether anyone was credit worthy because they did not have to keep the loan.

Wall Street Derivatives were not regulated allowing them to sell insurance policies on wall street gambling bets without having to hold reserves on their books to pay out on the insurance policies so taxpayers had to bail them out. Under the law, insurance companies must hold money, reserves, to pay out on the policies, but our government did not require it for insurance policies on risky wall street bets and so we taxpayers had to foot the bill so that the wall street executives could get paid for their bad bets. Wall street made bad bets, bought "derivatives" (insurance policies) on those bets and the taxpayer had to pay them 100% on the dollar for their bad bets. So, they lost nothing. Where is the moral hazard? They lose and they still get paid.

The truth is that our government is already not regulating industry. As an example, the FDA has been stripped of its regulatory power. The FDA cannot order recalls on bad products and has become cozy with big business. Tried to go by Motrin, Tynenol, or Benedryl lately? You cannot get it or 55 other Johnson & Johnson drugs. Why? Because for a decade Johnson & Johnson was not being regulated by our government and sold us contaminated medicines. Was this in China? No, these were US plants in Pennsylvania. In 2008, the J&J drugs got to be so contaminated and they got so many complaints, J&J hired independent contractors to secretly rebuy the products off of the shelves. The government caught wind of this, but J&J denied it until they found documents showing it was true.

It took until 2010 for the government to do a Congressional hearing on it and it turned out that the American J&J plants were so dirty and had no safety and precautions that the drugs contained much more or less of the active ingredients, unapproved ingredients, bacteria, metal, wood particles and more. So, what happened, was the CEO indicted? Was J&J ordered to pay millions in fines? No the CEO got a merit pay raise. Wall Street rewarded the stock because they were releasing new prescription drugs. And the government entered into a 5 year "consent decree" with J&J to shut the plants down and work with the government to reopen them in 5 years. This is American regulation. What did the Congressional investigation find: that the FDA has been made to be too cozy with industry and the FDA has no enforcement power, the FDA has been stripped of resources to do its job. What was changed by Congress? Nothing. Let's further deregulate so we can become China.

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3 Comments


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[-] 1 points by toukarin (488) 13 years ago

Deregulation has created more problems than it has solved, and the problems it solved were only the ones for the rich... the problems it created were the ones for the common man...

  1. Too big to fail dinosaurs
  2. Too little competition allowing the five major banks to engage in implicit collusion to screw the customer. Example... how neatly they were planning to stagger their institution of debit card fees...
  3. Reckless risk taking and outright fraud due to lack of effective oversight and liabilities
  4. Increase in scale and incidence of money laundering.
[-] 1 points by Progression (143) 13 years ago

Very well said. Deregulation is a significant determinant in what allowed banks and the rest of Wall Street to create rampant fraud. Even now, bubbles are being produced under the same reasoning as you have stated.