matt taibbi | Normative Narratives

A recent New York Times poll on the achievability of “The American Dream” produced some concerning yet unsurprising results:

Notwithstanding the bleaker view of upward mobility, the majority of those polled said they were more concerned about the possibility that too much regulation in Washington could stymie the economy than they were about the prospect of inequality. Fifty-four percent of respondents said that “over-regulation that may interfere with economic growth” was a bigger problem than “too little regulation that may create an unequal distribution of wealth.” Only 38 percent said that too little regulation posed a bigger problem.

That answer was particularly noteworthy given the persistent concerns among economists and politicians from both parties about a growing gap between the wealthiest Americans and the middle class.

Still, almost six years after the height of the financial crisis, Americans’ wariness about the banking industry that was at its center remains. Only 4 percent of respondents said they had “a lot” of confidence “in Wall Street bankers and brokers,” though 31 percent said they had “some” confidence in Wall Street. Nonetheless, 44 percent said they trusted their own bank “a lot,” and 37 percent said they trusted their banks “some.”

My question is, if not the federal government, who can regulate Wall St?

Recently attention has focused on the Federal Reserve Bank of NY, which plays an outsized roll in financial regulation as NYC is the world’s largest financial hub. However, the NY Fed’s role in financial regulation is complementary to federal regulation–it is not a substitute.

People may not be enamored with federal financial regulation, but the answer is more regulatory power, not rolling back key provisions of the already insufficient Dodd-Frank Act.

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These reported beliefs on government regulation are not surprising (to me) because the rationale behind them is clearly explained by Matt Taibbi in his book “Griftopia” (which he discusses in an interview on Wall St. Cheat-sheet):

Basically, government regulation is the kind of stuff a lot of them see on a day-to-day basis, but in a different form. If they’re a hardware store owner, they see a local health inspector or an ADA inspector coming by to make sure they’re in compliance with something. These are all little annoyances and costs that they see when they interact with government. Unfortunately, that’s what they think financial regulation is. They don’t get that it’s a completely different ball game when you’re talking about JP Morgan Chase (JPM), Goldman Sachs (GS), and that level of power requiring oversight.

This is how the GOP sells its agenda to the average Americans (aside from exploiting social rifts, which can only go so far): anything provided by the public sector (regulation, welfare programs) is ineffective and holds back growth, therefore the path to prosperity lies in deregulation and slashing the social safety net.

Over-regulation may be a problem for regular Americans at the local level. But federal under-regulation of the financial sector, environmental concerns, and campaign finance, threaten our economic stability, future, and democratic processes respectively (these also happen to be the areas where Republicans are rolling back regulations in the current government spending bill).

But the way the GOP is pushing its deregulation agenda is almost as reprehensible as the socioeconomic consequences. The environmental issue is divisive, but there is a broad consensus among Americans in favor of tighter financial regulation and campaign finance reform.

No Congressman or woman campaigned on financial deregulation or easing campaign finance restrictions, as such an agenda would never be popular enough to get someone elected. But the GOP has essentially tied the ability to run the country to these very issues.

Compromise should be measured not only quantitatively (how often did congress compromise) but also qualitatively (what did congress compromises on). While there certainly needs to be more bipartisan cooperation in Washington, there also needs to be red-lines.

Original Article:

At its winter meeting in Washington, the RNC approved by voice vote a resolution in favor of abolishing the 2010 Foreign Account Tax Compliance Act (FATCA), set to take effect in July, marking the party’s first explicit attack on the law.

FATCA will require most foreign banks and investment funds to report to the U.S. Internal Revenue Service information about U.S. customers’ accounts worth $50,000 or more. The law was enacted after a scandal involving Americans hiding assets in Swiss bank accounts to dodge U.S. taxes.

Critics have blasted the law as an unfair government overreach and invasion of financial privacy.

“The Republican National Committee … urges the U.S. Congress to repeal FATCA,” said the measure, staking out a campaign position ahead of 2014’s mid-term elections.

Tax watchdog groups that support FATCA slammed the Republican vote. “It is mind-boggling that a major political party would even consider endorsing a resolution to facilitate tax evasion,” said Heather Lowe, director of government affairs at anti-graft watchdog group Global Financial Integrity.

“Repealing the law would cripple the U.S. and global efforts to fight offshore tax evasion,” she said in a statement.

The Center for Freedom and Prosperity, a group that advocates for lower taxes and financial privacy, praised the RNC vote. “The GOP’s adoption of FATCA repeal to its platform is a major victory for taxpayer privacy rights,” said the center’s Director of Government Affairs Brian Garst.

Repeal is unlikely and the issue was not expected to resonate with average U.S. voters, said lobbyists on both ends of the political spectrum. But they said Republican opposition to the law could help the party raise campaign funds.

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It is certainly mind-boggling that a major political party would endorse such a view. And even if a repeal is unlikely, this issue should “resonate with the average U.S. voter”. In an era of constant budget-battling and debt-ceiling standoffs (the next one is right around the corner), where stimulus spending is unthinkable and welfare programs are constantly coming under attack (even though both are extremely important during an economic recovery), it is important for Americans to understand the main drivers of U.S. government debt. Once you understand these main drivers, it is obvious why this G.O.P. position on FATCA is unconscionable.

A quick simplified lesson: There are two sides to government debt, receipts (tax revenue) and outlays (spending). While there are certain drivers of long-term spending which must be reformed (social security, and medicaid, and defense spending specifically), these long term issues have little to do with economic recovery fiscal policies (government stimulus spending and “automatic stabilizers“).

A few historic graphs from the White House Office of Management and Budget (full tables from 1938-2012 can be downloaded: reciepts_endpenditure_history, reciepts_by_source) tell the story of U.S. government debt.

RECEIPTS, OUTLAYS, SURPLUS/DEFICIT(–)% GDP | PERCENTAGE COMPOSITION——————————————————————| OF RECEIPTS BY SOURCE

Year	GDP (in billions of dollars)	Total			Individual Income Taxes	Corporation Income Taxes
Year	GDP (in billions of dollars)	Receipts	Outlays	Surplus or Deficit (-)	Individual Income Taxes	Corporation Income Taxes
1992	6,242.0	17.5	22.1	-4.7	43.6	9.2
1993	6,587.3	17.5	21.4	-3.9	44.2	10.2
1994	6,976.6	18.0	21.0	-2.9	43.1	11.2
1995	7,341.1	18.4	20.6	-2.2	43.7	11.6
1996	7,718.3	18.8	20.2	-1.4	45.2	11.8
1997	8,211.7	19.2	19.5	-0.3	46.7	11.5
1998	8,663.0	19.9	19.1	0.8	48.1	11.0
1999	9,208.4	19.8	18.5	1.4	48.1	10.1
2000	9,821.0	20.6	18.2	2.4	49.6	10.2
2001	10,225.3	19.5	18.2	1.3	49.9	7.6
2002	10,543.9	17.6	19.1	-1.5	46.3	8.0
2003	10,980.2	16.2	19.7	-3.4	44.5	7.4
2004	11,676.0	16.1	19.6	-3.5	43.0	10.1
2005	12,428.6	17.3	19.9	-2.6	43.1	12.9
2006	13,206.5	18.2	20.1	-1.9	43.4	14.7
2007	13,861.4	18.5	19.7	-1.2	45.3	14.4
2008	14,334.4	17.6	20.8	-3.2	45.4	12.1
2009	13,960.7	15.1	25.2	-10.1	43.5	6.6
2010	14,348.4	15.1	24.1	-9.0	41.5	8.9
2011	14,929.4	15.4	24.1	-8.7	47.4	7.9
2012	15,547.4	15.8	22.8	-7.0	46.2	9.9
2013 estimate	16,202.7	16.7	22.7	-6.0	45.5	10.6

Government expenditures will go down when we experience full economic recovery (and not just a recovery for the top 1%)–that’s why welfare programs are known as “automatic stabilizers”. What will not automatically change are tax receipts, which are at their lowest levels since 1950. The American public has been paying a fairly constant portion of total federal taxes over the past 6 decades through income taxes–between 40-50%. Corporate taxes have fluctuated wildly; between 1940 and 1967 they made up 20-30% of federal tax revenue, since 1980 they have hovered around 10%.

The American public continues to pay its fair share, while corporations get a pass (and actually get huge bailouts and subsidies). America, in reality, has a regressive tax system. This low effective corporate tax rate stems largely from tax loopholes; a difficult problem to address rooted in corporate lobbying (money buys influence buys loopholes). Overcoming this problem will take an overhaul of the government tax code and a change in the current lobbying system, neither of which is an easy task.

Much less contentious should be targeting offshore cash holdings. While loopholes at least (allegedly) contribute to job creation, offshore tax evasion is a crime which robs the U.S. of vital tax revenues with no benefit to society. But even this “slam-dunk” reform is being challenged by the G.O.P.

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Privacy Narrative:

I thought it was interesting that the Center for Freedom and Prosperity, a conservative think-tank, used the privacy narrative to justify the G.O.P. stance on FACTA. This reminded me how Matt Taibbi, in his book “Griftopia”, explains how the wealthy sell financial sector deregulation to the lay-man.

According to Taibbi, financial regulation is equated to local / state level government regulation–the average person, who experiences government overreach in their day-to-day lives, feels for the “poor banker trying to earn a buck”. Of course this equation is false; however, many people do not know enough about our political system to understand this fallacy, especially when their favorite news outlets are driving this false narrative home.

It seems that something similar is being attempted with this privacy narrative. One of the main issues of the day is NSA “spying”. Perhaps conservatives are trying to latch onto this privacy narrative to drum up popular support for repealing FACTA. I think this is a tougher sell, although financial deregulation sounded like an impossible sell until pundits begin selling it. It is therefore important to expose this fallacy to the general public before the narrative hits the newsroom.

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Next time you hear an argument about “fiscal responsibility”, remember the G.O.P is the party of offshore tax evasion. Social spending programs and the tax code need to be overhauled; these issues will take time to remedy and must be addressed with care, they cannot be attached to short term issues like economic recovery or the debt ceiling.

Enabling offshore tax evasion by repealing FACTA benefits nobody except those who engage in offshore tax evasion–this should not be a contentious issue. Those who engage in such activities do not deserve our understanding or support, regardless of your stance on NSA surveillance.