Article by Michael Hudson. Hat tip to James O’Meara.
Tax-Avoidance – The Worst is Yet to Come
“Let me tell you about the very rich. They are different from you and me.”
“The Rich Boy,” by F. Scott Fitzgerald
The 30-year campaign of the wealthy to rig our economic system – especially the tax component – for their own benefit will accelerate with the GOP capture of the House of Representatives and the likely capture of the presidency and Senate in two years. For a foreshadowing of what is to come, a dress rehearsal has been conducted in Latvia, Iceland, Ireland and other financially strapped countries. Latvia has been burdened with the world’s most regressive tax system, while Iceland and Ireland have become record setters in tapping taxpayers to bail out financial crime syndicates, a.k.a. banks.
The Irish bailout will encumber its people with perhaps as much debt as a $9 trillion bailout would be here in the United States. The Irish also are expected to also gut unemployment insurance, their minimum wage and similar social safety nets while boosting interest rates and home property taxes to pay tribute to the European creditor agencies that have “rescued” them. They will relinquish ownership of much of Ireland to their creditors, capped by ownership of government policy-making. The new banks will be owned by foreigners, who will put Ireland on a debt treadmill to transfer its taxable surplus to mainland Europe and Britain.
Just as the U.S. taxpayer saved Goldman Sachs and the other high rollers from taking a loss, the Irish are being forced to “socialize” (that is, oligarchize) the losses of the banks. Think of how the Federal Reserve gave the banks 100 cents on the dollar for the some $2 trillion of toxic assets they took off the books of the banks and you get a sense of how the Irish bailout money will be used. It will keep the banks and creditors whole.
Bad banking is going unpunished. Shareholders, bondholders, large depositors and bank executives are not facing constraints on moral hazard. The European Central Bank (ECB) has cleaned up their mess, enabling and their wealth to grow on its trajectory as before – at the price of impoverishing the non-financial parts of society. Every effort will be made to re-inflate the property bubble putting off the day of reckoning. Taxes – like accountability – are for what Leona Helmsley referred to as the “little people” (not referring to Irish leprechauns).
The key to the success of the wealthy is their ability to hold the economy hostage (dependent of course on the government’s willingness to be unnecessarily held hostage). This dictates the fiscal and financial strategy of the super-rich: to create a crisis and then present their demands. Inasmuch as I expect the U.S. Congress to be plunged into this situation next spring, it is worth quoting Luke Johnson’s observation in Wednesday’s Financial Times: “The probable cost to the Irish taxpayer” of its government’s announcement on September 30, 2008, that it would fully back Ireland’s insolvent banks – a cost “running in the tens of billions of euros – helped the banks but left the country in need of a bail-out. A measured restructuring would have been far better, with domestic depositors kept whole, but all levels of bondholders forced to share plenty of pain. In a panic, the bureaucrats and lawmakers who preserved the banks in their entirety struck an ill-judged, carte-blanche deal that will haunt Ireland’s taxpayers for years.”