I agree with these proposals and would add that allowing the Bush tax cuts to expire for anyone making over $250,000 in non-wage income is another way to help put the Federal government back in the business of serving its citizens with such worthless goodies as safe roads, aid to education, and assistance so that the next Katrina doesn't leave a region in ruins for years.

Of all the proposals, the one that's most important is mentioned here only as part of a general call for regulation. Obviously, when an industry requires a bailout that puts taxpayer funds at risk (anybody out there want to argue that this is NOT what has happened?), it needs to be regulated. Instead, as Jim Jubak, MSNBC's stock analyst has noted, it's trying to use the current crisis to push for LESS regulation -- that's what the Paulson proposal is all about. The theory behind letting the markets work without regulations is that they will produce wealth. The opposite has happened. Sorry, guys, if you were welfare recipients getting into this kind of trouble, you'd be calling for firing squads. Bend over and shut up.

The key regulation is actually not all that onerous -- it's simply that a limit should be set on leverage. I can understand why CEOs get upset about something like Sarbanes-Oxley (though, again, they brought it on themselves with the Enron scandals). It adds a layer of bureaucratic expense both inside and outside the government. The next round of regulation can be much simpler. Just stating that no investing entity can take on leverage beyond a fixed number, on the other hand, limits the risk of a crash for all of us.

As one market follower I've come to trust has noted, the famous subprime mortgages were no more than about 1% of some of the tranches that were sold as debt packages, but when companies were borrowing over 95% to purchase these things, it didn't take many defaults to sink them.

This has been done in the regular stock market for years -- Regulation T of the SEC states that you can only borrow up to 50% of your assets to buy stock. (This rate used to vary but, in fact, it hasn't since the early 1970s.) The rate is lower for bonds -- as they're considered to be safer -- and I'm not going to make a specific proposal except to note that the rate for U. S. Treasuries is higher than what Bear Stearns was leveraged at, and Bear Stearns was doing this to buy instruments a lot riskier than T-bills.

Of course, stock transactions are part of a public record, and part of any regulation is going to have to be to remove from private equity funds the opacity in which they currently operate, or else they'll simply ignore whatever regulations are promulgated.

What has happened is that a small band of men made a LOT of money out of the housing bubble and the government is now hitting the taxpayers to bail out the industry. If this happens without regulation, the lesson will be clear -- make as much as you can during the next bubble (already starting in commodities) by leveraging to the max, and when the whole thing crashes, Uncle Sap will step in, bail out the economy, and leave you with your six second homes. Regulation is the NICEST thing that can happen to people who cynically rape their fellow men in this manner.

"I agree with these proposals and would add that allowing the Bush tax cuts to expire for anyone making over $250,000 in non-wage income is another way to help put the Federal government back in the business of serving its citizens with such worthless goodies as safe roads, aid to education, and assistance so that the next Katrina doesn't leave a region in ruins for years."

"Taxing" citizens is not the same as "serving" citizens. You're simply saying that anyone who makes a lot of money in investments should be punished. I disagree. Investments are mutually benefical to the investor and the company in which he is investing. Punishing investors won't make our roads any safer, and when Ray Nagin spends federal money on statues instead of levee fortification, the feds aren't to be blamed there. Besides, the feds didn't bail out Carnegie, Oakdale, Etna, Sharpsburg, Millvale or Burgettstown after Ivan flooded the entire Pittsburgh area. Amazingly, the towns all survived.

Your solution to the housing bubble situation is understandable, but I disagree that taxes and harsher regulations are the way to go. I'd recommend removing the safety net. The feds can save the money by not bailing out a company that makes a bad investment, or bailing out the individual that defaults on a loan they had no business acquiring. I'm guessing people would be a little more careful witht their money.

You're simply saying that anyone who makes a lot of money in investments should be punished.

That's not what the post said. It just said that the tax rates for the wealthy should go back to where they were in the early 90s. And as I recall, the 90s were very good for the wealthy. Unless any taxation is deemed "punishment," you need a baseline to support the claim that a tax rate is punitive. After all, you could say that taxing people who can barely make the rent anything at all is just as "punitive," even if the rate is minimal.

I'd recommend removing the safety net. The feds can save the money by not bailing out a company that makes a bad investment

I don't think you understand why the fed intervened with Bear Stearns. It wasn't to bail out the company; it was to provide some stability to the hundreds of other companies that had deals with Bear Stearns. There is little debate that the entire financial system was at risk, and letting it collapse in a massive credit freeze would have been a disaster for everyone. No one liked federal intervention, but no one had a better answer.

Moreover, the investors in the company did not get bailed out. They lost their shirts--unless you think it's good having your stock go from $60 a share to $2 (though it may go for $10, it seems).

"you need a baseline to support the claim that a tax rate is punitive."

That baseline exists. It's called a "progressive tax code." The more you make, the higher the percentage you pay. Sounds punitive to me.

"After all, you could say that taxing people who can barely make the rent anything at all is just as "punitive," even if the rate is minimal."

Therein lies the problem. A flat tax rate takes away the whole idea of "to each according to his needs, from each according to his means," a concept that has failed repeatedly. Ever find it interesting that Russia has a simpler and more fair tax system than the US? By the way, their economy is thriving.

"That's not what the post said. It just said that the tax rates for the wealthy should go back to where they were in the early 90s. And as I recall, the 90s were very good for the wealthy."

So, people got rich because they were taxed more? Uh...Pittsburgh was once overflowing with money and no one noticed the insane city/county taxes and screwed up left-wing government. Now that the steel industry has gone bye-bye, the area is suffering and the idiots keep electing the same useless Democrats into office. So much for "change," eh?

As far as bailouts are concerned, I concede the point on Bear Stearns. I understand what you're saying. But this isn't the only bailout in history (Chrysler, airlines, etc). In those cases, it's hard to make a case that the "entire financial system" was doomed. In fact, it's been stated that federal policy (including tax policy) is what led to the savings and loan debacle a decade and a half ago. Federal deposit insurance granted a flat-rate safety net for S&Ls in spite of the high risk factor of individual S&Ls. The "bubble" that everyone has been talking about happened before too...in 1981. The feds tried to fix it in '86 by putting the clamps down on the industry, but alas, it only exacerbated the problem. Unfortunately, we're not learning much from history. We're back to the same-old, same-old. It seems like every time the feds "fix" something, another problem pops up.

It's called a "progressive tax code." The more you make, the higher the percentage you pay. Sounds punitive to me.

I think we've had this discussion before .... anyway:

Do you believe in a true flat tax? Someone who makes less that $10,000 a year should pay taxes on every single dollar? Even Steve Forbes proposed an exemption for the first X-thousand dollars. But then we don't have a flat tax anymore; we have a two-tiered system, zero percent at first and then the "flat" rate above it. That's really a progressive tax with two rates.

But then where's the justification for shunting everyone into that top rate at that threshold? Why not ease people into it as they earn more? And there's your progressive system. Nothing punitive about it.

Similarly, one could argue that a flat tax is punitive. After all, the more make, the more you pay. How is that fair?

What is "fair" depends on what you're trying to treat fairly. You can treat each person the same individually through a head tax, but I don't know anyone in favor of that (especially when it would mean taxing some people more than they make). You can treat each dollar the same through a flat tax, but as noted above very few people support a true flat tax because it seems unfair to low-wage earners.

Or you can try to equalize the unpleasantness of paying the tax. I think it's fair to say that if someone making $20,000 and someone making $200,000 each get a $1,000 raise, it's a lot more painful for the lower income person to pay 15% in taxes on that raise than the higher income person. That would seem "punitive" to me, and so would be a justification for different rates.

So, people got rich because they were taxed more?

Taking the budget seriously helped create market conditions where people at all income levels benefited. So yes, if taxing the wealthy leads to budgetary responsibility, then the resulting gains can more than compensate for the few percentage points than their tax rates went up. Of course, there's a point at which higher tax rates become (literally) counterproductive, but we obviously didn't hit it. (And it's just as clear that at some point lower tax rates become counterproductive because you can't fund anything with a tax rate of zero.)

Ever find it interesting that Russia has a simpler and more fair tax system than the US? By the way, their economy is thriving.

Can you say "high oil prices"? When you've go that much revenue coming in, it doesn't matter what tax system you have.

By the way, Scandanavian countries did quite well too with systems that are far more progressive than ours. Don't cherry-pick the data!

As far as bailouts are concerned, I concede the point on Bear Stearns. I understand what you're saying. But this isn't the only bailout in history (Chrysler, airlines, etc). In those cases, it's hard to make a case that the "entire financial system" was doomed.

I make no claim as to the wisdom or lack thereof of prior federal intervention. I'm only pointing out that there seems to be near-universal consensus among those who seem to know what they're talking about that this time around the fed didn't have any better options available, even if the one they chose wasn't very appealing.

Pittsburgh was once overflowing with money ...

I'm not going to go into the problems of local governance here. I don't think one city's economy and politics can be generalized into macroeconomic theory. There are too many individual differences to do so.

The problem with forcing "fairness" is that someone always gets screwed. Or do they really? Is a true flat tax (or for that matter, a consumption tax) "screwing" anyone? This is America, after all. No one is forcing you into a $10K a year job. Add to that the fact that one of America's founding principles is freedom with limited government interference, I think I'll take my chances with lower tax rates. Now, I know there's the crowd that thinks the rich "owe" the country something, but understand that I never had a poor person sign my pay check. I'm not in the business of forcing money out of the hands of rich people, because when they want it back, they lay off people like me. Again, I'll take my chances with lower tax rates.

"Taking the budget seriously helped create market conditions where people at all income levels benefited."

How does this require high taxes?

"Of course, there's a point at which higher tax rates become (literally) counterproductive, but we obviously didn't hit it."

So, keep taxing and taxing and taxing until we do hit it? Uh, again, I'LL TAKE MY CHANCES WITH LOWER TAXES.

"I don't think one city's economy and politics can be generalized into macroeconomic theory."

I think they can be when the same mistakes are being proposed on a national scale. Would anyone in the country vote for Ray Nagin or Tom Murphy for President? Take away the collapse of Pittsburgh's steel industry, and insert insanely high gas prices. It doesn't matter which economic glitch you're looking at. The idea is still the same. The more we try to let (or make) government fix every problem, the more problems we're going to have. That certainly seems to be the trend. Programs and polices can't replace the free market.

The problem with forcing "fairness" is that someone always gets screwed.

I think you missed my point. How we distribute the tax burden has to be based on something. Usually, it's some conception of "fairness." But as I pointed out, there are at least three different notions of what is "fair," each defensible in its own way. How does one choose? (Heck, you could even have a regressive system. Why not?)

No one is forcing you into a $10K a year job.

True. But that didn't answer my question: do you think people who are making $10,000 a year should pay a "flat" rate on every dollar earned? As I wrote above, even flat tax guru Steve Forbes didn't think so. (It seems that his proposal exempted the first $36,000 of income.) If there's an exemption, it's not a flat tax. So I don't know anyone who really supports a flat tax; perhaps you are the principled exception (and I mean that without irony).

Add to that the fact that one of America's founding principles is freedom with limited government interference, I think I'll take my chances with lower tax rates.

The question of the size of government should be is different from how the costs of paying for programs should be distributed. You can have a flat or progressive system with high rates, or a flat or progressive system with low rates. So saying one wants smaller government doesn't, I think, answer the progressive/flat/regressive question. (By the way, I've read that once one figures in sales taxes, Social Security taxes, real estate taxes, and everything else, the total comes out pretty close to a flat tax.)

So, keep taxing and taxing and taxing until we do hit it?

I don't believe I wrote that, or even implied it. I will say that some people said the Clinton tax hike in the early 90s would kill the recovery wreck the economy. I think the evidence shows they were wrong. That's all. I also think recent and past evidence show that tax cuts don't pay for themselves. I'm all for responsible budgeting; whether that's achieved through program cuts or higher taxes depends on what most people decide they want. (The problem is that most people seem to want both more programs and lower taxes.)

Take away the collapse of Pittsburgh's steel industry, and insert insanely high gas prices. ... Programs and polices can't replace the free market.

I agree ... for the most part. And it seems to me that the market is pretty unfettered in this country.

But the market doesn't always work. For instance, it puts incentives in the wrong places for health care. We spend up to twice as much on health care as many of our peer nations with no better statistical results. One would think the market would spur competition and bring down prices and improve quality, but in this case the market incentive is to make a profit which means leaving people out of the system who are likely to get sick an then get treated in a much more expensive fashion in our emergency rooms. I'd like to believe in the market, but I'm not going to ignore evidence that says it doesn't work well here.

As far as gas prices go, we missed an easy opportunity to put ourselves in better shape over the past 30 years. There were conservatives and liberals calling to end our dependence on cheap gas by gradually increasing the gas tax. Now before you say "We shouldn't have to pay more to drive around!", let's remember that if the price of gas goes up by 30%, you don't pay more to drive around if your car is 30% more fuel efficient. So there's no pain at the pump, if you choose to do so.

A gradually increasing gas tax would have given consumers notice and an incentive to get those vehicles and automakers to produce them, bringing down the price. Revenues from the tax could have been used to provide rebates for cars meeting certain efficiency standards, making them even more affordable. When hit with a price spike, as we are today, the tax could be lowered to smooth out the effects on consumers. All in all, it would have been relatively painless.

But we chose not to take that path, and now the market has imposed a very costly and painful transition on us. I think this is a pretty clear example of how a government program could effect a market-based solution that would have helped all of us--not just with paying for gas, but sending less money overseas to countries that hate us, and thereby freeing up our foreign policy and making live easier for our military. The market generally works, but it's very, very short sighted. Yes, it's a mistake to think government can fix every problem. But this is one we could have planned ahead for. And now we're paying the price.

By the way, taxes in NY and SF and Boston are high. They're doing OK, last I heard (I'm in NY, and while we're bracing for budget problems, no one is predicting the inevitable decline of the city). I don't think one can translate the problems in Pittsburgh, which has seen a severe and probably inevitable decline in its main industry and economic base (and, as you imply, simple mismanagement and/or corruption) to every other place in the country. There are just too many counterexamples.

A general reply to the points you and dsimon kicked back and forth:

A fair tax rate is one which meets the needs of the country and which falls most heavily on those best able to bear it. If you consider it "punitive" to say that Warren Buffett should pay a higher tax rate than his secretary, color me punitive. By the way, right now Buffett pays a LOWER rate than does his secretary. I use Buffett as one example and it is true that Buffett earned his fortune through skillful investment and does use his fortune creatively. There are lots and lots of very rich people, however, who never earned it at all, but had it handed to them by winning the genetic lottery and spend their lives living off it parasitically.

Since it is not the function of government to decide who "deserves it" and who doesn't, it makes sense to tax ALL those with the highest levels of income equally and at rates higher than those who need pretty much every nickel they earn to make ends meet, send the kids to college, and try to afford retirement. Nobody's being punished here, Ford. We're simply trying to do the best thing for the greatest number without hurting anybody, and forcing people to have five second homes instead of six is not my definition of hurting someone.

A flat tax obviously doesn't do this. By the way, we HAVE a flat tax in this country. Surveys have shown quite clearly that if you take into account all forms of taxation, everyone pays pretty much the same except for those below the poverty line. If this seems incomprehensible to you, remember that payroll taxes fall heaviest on incomes below the top 10-15% level, and hardly at all on the highest incomes. And that sales taxes tend to fall disproportionally heavier on lower incomes.

Finally, as long as taxes reflect the real needs of the country, there is NO point at which taxes become counter-productive. Do you think a top rate of 91% is counter-productive? Your grandfather didn't, when Hitler and Tojo (and, later, Stalin and Mao) were threatening his freedom. Wouldn't that high a rate ruin the economy? To the contrary -- the Depression ended while the rate was that high.

Next to this, Clinton's 1993 income tax increase was small beer. It was proposed by Robert Rubin as a way to signal the markets that the government was serious about balancing the budget, thus bringing down interest rates (because the government would no longer be competing with the private sector for financing) and freeing capital up for investment. It worked, and when the communications revolution began, tax receipts increased dramatically even though tax rates were higher.

Ronald Reagan predicted, as did both Bushes, that cutting taxes would increase tax receipts. The record is clear: adjusted for inflation, Reagan's tax receipts went up 1.2%, both Bushes were slightly negative, Clinton's went up 6.5%. The economy really doesn't give a fuck about tax rates. It cares mainly about the price of capital and the certainty of profit. Tax rates have very little effect on either.

Finally, as long as taxes reflect the real needs of the country, there is NO point at which taxes become counter-productive. Do you think a top rate of 91% is counter-productive? Your grandfather didn't, when Hitler and Tojo (and, later, Stalin and Mao) were threatening his freedom. Wouldn't that high a rate ruin the economy? To the contrary -- the Depression ended while the rate was that high.

Well, I don't think that's right. First, while there have been marginal tax rates of over 90%, I believe there were also lots of loopholes and shelters. You'd have to look at the data to see what people really paid. One of the Reagan-era tax reforms was to lower the rates but get rid of the many loopholes, so I don't think the wealthy wound up paying that much less even under the reformed system.

Also, I think it's true that a 91% rate, if strictly applied, would be counterproductive. The Laffer Curve is clearly correct at its endpoints: taxing 0% would bring in zero revenue, and taxing 100% would bring in zero revenue (because there would be no incentive to earn at that point). What happens in between, though, and where we would be in that spectrum, is speculation.

The economy really doesn't give a fuck about tax rates.

As argued above, I think it does at least at the extremes. But I think the evidence is pretty clear that tinkering with existing rates by a few percent here and there doesn't have a major impact on what people choose to do and how hard they're willing to work.

Ford: Whatever the tax rates are, we will need an IRS, because of the many greedy fucks in this country who think that they're too good to pay taxes like the rest of us. Remember Leona Helmsley, who once said "only the little people pay taxes." When we had a government that wasn't bought and paid for by rich shitheads like her, she was prosecuted and tossed into jail. Today, of course, she'd probably be Secretary of Labor.

And if we had an IRS that went after people like that aggressively, we might not have to raise your taxes as much. Am I going too fast for you here?

dsimon: the top tax rate of 91% was on the portion of incomes over a million dollars. NOBODY got a salary that high. That rate was mainly reached by performance artists, who were paid massive amounts of money per picture or concert and would go over a million dollars occasionally. Ronald Reagan, for example, would only make four pictures a year in those days because if he made any more, he'd be in that bracket.

Reagan or Frank Sinatra or the few other artists who could command that much income were very few and hardly affected the economy at all (athletes, BTW, rarely came anywhere near that level -- this was before they unionized).

People who lived on stock dividends and bond interest would also occasionally go over a million, too. But please note that in order to make a million dollars in dividends, you had to have a humongous amount of money to invest. Assuming the average yield was 5%, you'd need to have twenty million dollars invested in vehicles which were fully taxable. Very, very few Americans were in that position. Furthermore, those that WERE in that position were not acting in an entreprenurial fashion. They were acting as rentiers -- living passively off their investments, and contributing very little to the growth of the economy.

The big loophole, of course, was the capital gains tax, which was capped at 25% (it was slightly higher during WWII and the Vietnam War) on long-term investments, which at that time were, I believe, six-month investments. Those who were playing the stock market as short-term speculators might go over a million in short-term profits and have to pay 91%, but the serious investors -- the ones who sank big money into ventures with the desire to see them grow into mammoth enterprises -- never paid more than 25%. So to them, the 91% tax rate was unimportant.

The capital gains rate has always been low, and as long as it existed, it didn't really MATTER what the top income tax rate was, because that rate didn't apply to major investment decisions.

Don't buy into the tax cut web of lies!! They talk about the income tax rate as if it was the only rate, and they NEVER talk about the payroll tax rate because it is sharply REGRESSIVE. You have to consider how investment decisions are really made by the serious money in this country, and what the tax rates are for THOSE profits. And when you do, you can see that the flat tax argument is a crock of shit.

As usual, I think you (Slasher) made the best arguments, but I think all of you are downplaying the role of capital gains and their effect on wealth. If we can agree that changes in wealth are tantamount to income, in that the additional wealth can be spent as income, then it should be clear that the wealthy, as Buffett admitted, already pay a lower tax rate on their capital gains than workers pay on their incomes--even before factoring in payroll taxes. I read that the top 25 hedge fund managers collectively make more than the CEOs of America's 500 largest companies, and these hedge fund managers are paying the lower capital gains tax rates even when they have little or no personal skin in the game. So enough about the flat or so-called fair tax. Let's clean up the tax system we have first.

Another problem besides the inequality or unfairness of our tax system is that the tax code rewards gamblers, not savers. It rewards consumption, not investment; housing, not production of tradeable goods, unearned, not earned income.

There is indeed a case to be made for eliminating the capital gains tax and making all income equally taxable. When the modern income tax was first instituted in 1916, all income WAS taxed equally and that equality continued until 1922 -- even when the top tax rate was 77% (!) during WWI. From then on, it has been decoupled from the income tax rate except for the years 1988-1990, when it was 28% for both. Bush 41 decoupled it again with his tax increase in 1991 and Clinton continued that policy with his 1993 increase.

Since then, of course, capital gains tax rates have fallen at a faster rate than income tax rates. Clinton cut them to 20% in 1997; Bush to 15% in 2003. Income tax rates at the top dropped by only 4.6% since 1993, so the discrepancy has actually been increasing.

I must disagree somewhat, however, with your description of the capital gains tax as rewarding gambling. While there is, to be sure, a gambling aspect to all stock transactions, there has always been a required holding period for the capital gains rate to apply. It's presently one year. So the wise guys who play the markets for short-term gain -- the ones we think of as gamblers -- don't qualify for the capital gains rate.

Put it this way. Suppose I think ABC Corp., currently selling at 20, is going to the moon and I buy it on April 10. On July 10, it's at 40. In December, 60. Wow. Take my profits here? If I do, I don't get the capital gains break. And it the stock plummets back to 20 on April 10 of the next year, I'm out of luck.

Most investors really ARE investors -- they hold the stock for the long term, selling only when they need the money for retirement, a new house, college for the kids, etc. If they've held it for over a year, I'd agree they're no longer gambling.

The rest of them -- the guys who are basically playing in a very complicated casino -- should pay the same rate that the working stiff pays, and stop acting as if they were doing something productive.

There are two types of gamblers I was referring to. I am aware of the one year holding period for stocks to qualify as long term capital gains, and hence, the lower tax rates. But there is another type of gambler, the housing speculator, who if he can hold onto his pricipal residence for two years, can qualify for a zero percent tax on capital gains up to $500,000 for a maried couple or $250,000 for a single person. This is the best loophole since Swiss cheese, as millions would like to take advantage of it. The chump who instead settles for 4% down at the bank is a guaranteed loser when inflation eats his interest and he has to pay (higher) taxes to boot.

What I meant was that the tax code rewards those who borrow and can deduct the interest on payments they have little intention or even chance of making over a long period. The tax code rewards risky investments, or speculation, at the expense of old fashioned saving.