Beware Faux Populism

Pity the Grand Old Populists. One day the Republican grandees are railing against President Obama’s Treasury secretary for standing by while AIG gave bonuses to the traders who helped to wreck the economy. Then the memo comes from GOP Central that they are opposed to the Democratic move to claw back those hateful bonuses with a 90% tax. It appears that Republicans and their ideological mentors hate tax increases a lot worse than they hate nameless greedy insurance company executives.

But Wall Streeters really resent it when we rubes stick our noses in their doings. They were alarmed when the House, with 85 Republicans joining the Democratic majority, passed a bill that would slap a 90% tax on bonuses for executives of government-rescued corporations whose family incomes exceed $250,000.

That tax rate would not be the highest in history—the record marginal tax rate was 94% during World War II. But some scholars believe the bonus tax bill could run afoul of the constitutional prohibition against Congress enacting a “bill of attainder.” Such a bill singles out an identifiable group for punishment. It’s an intriguing point of law, but the only way to find out for sure is for the Senate to go ahead and pass the bill and let the AIG bonus babies take it to court.

It would be fun to see how grandstanders like Sens. Mitch McConnell (R-Ky.) and Richard Shelby (R-Ala.), would vote on the bonus tax. After all, they were insistent last year that autoworkers were overpaid when they made $57,000 a year. But when Congress in February debated limits on executive pay for bailed-out businesses, McConnell declared, “I really don’t want the government to take over these businesses and start telling them everything about what they can do.” Shelby said Congress has no role in determining corporate compensation: “It should be up to the board of directors of a private corporation to set the compensation of an executive.”

McConnell and Shelby reflected the general view of Republicans, which turned around a month later to ride the popular outrage at the AIG bonuses, which apparently were authorized by the AIG board last year. Republican spokesmen demanded to know what Obama knew and when he knew it.

Unfortunately, these faux populists in the Senate might escape that troubling vote on the bonus tax. Wall Street financiers apparently spooked Treasury Secretary Tim Geithner when they warned him that they might not cooperate in the government’s rescue of their banking industry if the Senate proceeded with the bonus tax bill. Senate Democratic leaders sidelined the bill.

As the threat of having to cast a vote receded, Republicans resumed their populist pose. House colleagues grilled Geithner and Fed Chairman Ben Bernanke on the AIG bonuses at a House Financial Services Committee hearing March 24.

William Greider wrote in the Washington Post March 22 that Obama may be the victim of his own success in giving people hope that they can reclaim their role as citizens. “This disturbs the routines of Washington but has great potential for restoring a functioning democracy,” Greider wrote. “Timely intervention by the people could save the country from some truly bad ideas now circulating in Washington and on Wall Street. Ideas that could lead to the creation of a corporate state, legitimized by government and financed by everyone else. Once people understand the concept, expect a lot more outrage.”

The pundits write it off as “populist anger,” but Greider wrote, “what’s really going on is deeper and more forceful.”

Populism was a movement driven by farmers and rural people who were outraged by the growing power of monopolistic corporations in the late 19th century. Although disparaged in elite circles, the Populists promoted ideas such as progressive income tax, direct election of senators, increased labor rights including an eight-hour day and antitrust laws, which ultimately bore fruit in the Progressive movement in the early 20th century. Other Populist planks—particularly those calling for aid to farmers and public works projects to create jobs in hard times—became reality during the 1930s as the New Deal responded to the collapse of the financial markets and the Great Depression.

Over the past few months, people have watched Washington move to rescue the very financial interests that wrecked the economy. “They learned that government has plenty of money to spend when the right people want it,” Greider noted. But efforts to let distressed homeowners renegotiate mortgages under the protection of the bankruptcy process has run up against the Wall.

The Federal Reserve is handing out $3 trillion to Wall Street, but it resisted telling Congress, much less the public, which banks or other financial institutions were getting the money, until outrage built and the Fed named a few of its beneficiaries.

It’s fine to be outraged at the $200 million AIG spent on bonuses, but that is just a distraction from the reforms that are needed to get a handle on Wall Street.

Obama and Geithner must go ahead and push re-regulation of the financial industry, re-enacting the Glass-Steagall Act with an update to give Treasury authority over institutions such as AIG that were given free rein in the Clinton and Bush administrations. Congress should give Treasury the power to seize non-bank financial companies, such as insurers, investment firms and hedge funds whose collapse would damage the broader economy. The government now has the authority to seize only banks. And antitrust laws that are still on the books should be used to break up financial institutions that are considered “too big to fail.”

Obama should stick to his plan to limit deductions for the richest 1.2% of taxpayers as well as his proposal to treat the earnings of hedge-fund and private-equity managers as income rather than capital gains. He also should push a tax on stock and/or derivative transactions. Not only would it discourage speculation; it also would help pay for the bailout.

Sam Pizzigati noted at OurFuture.org that Congress placed a $500,000 limit on what companies that get taxpayer bailouts can deduct from their tax bills for executive pay. “That’s a welcome move, but this limit doesn’t in any way impact Lockheed Martin, the defense industry giant that rakes in billions of tax dollars via government contracts,” Pizzigati wrote. Lockheed’s CEO took home $26.5 million in 2008, almost all of which it can deduct on its corporate tax return.

Rep. Barbara Lee (D-Calif.), has introduced the Income Equity Act, HR 1594, which would deny all corporations tax deductions on executive pay that runs over $500,000 or 25 times the pay of a company’s lowest-wage worker.

Obama was elected as a moderate who would reach across the aisle to seek consensus. But Republicans have shown they are not in a mood to act responsibly. Now that Geithner has floated his bank bailout, it’s time for Obama to get his Democratic base in order to look after the needs of workers and small businesses.

That presents a challenge as some Senate Dems are resisting Obama’s plans to use budget reconciliation rules to pass renewable energy and health-care reform by a simple majority. Republicans want to preserve their ability to filibuster, which allows them to block legislation with 41 votes. Senate Finance Chairman Max Baucus (D-Mont.) and Budget Chairman Kent Conrad (D-N.D.) have spoken against the use of reconciliation to force those initiatives through on party-line votes. Other Democratic critics of Obama’s budget plans include Sen. Evan Bayh (Ind.), Sen. Blanche Lincoln (Ark.) and Thomas Carper (Del.), who have organized a Moderate Dems Working Group to push for fiscal conservatism and centrist domestic policies. The group includes Mark Begich (Alaska), Michael Bennett (Colo.), Kay Hagan (N.C.), Herb Kohl (Wis.), Mary Landrieu (La.), Claire McCaskill (Mo.), Ben Nelson (Neb.), Bill Nelson (Fla.), Jeanne Shaheen (N.H.), Mark Udall (Colo.) and Mark Warner (Va.), as well as Joe Lieberman (I-Conn.). Robert Byrd (W.V.), Bob Casey (Pa.) and Carl Levin (Mich.) also have defended the Republican right to filibuster the budget.

Cynical Republicans hope to sabotage economic recovery until after the 2010 elections. Democrats shouldn’t help them.

From The Progressive Populist, April 15, 2009

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