Don’t Tax the Banks, Break Them Up
A number of “tax the banks” measures are being pushed by liberal pundits to pay to maintain social spending or to pay for future bank bailouts. These efforts ignore that taxpayers are still subsidizing the banks and that the banks continue to engage in socially destructive practices. In current circumstances adding taxes only gives a patina of legitimacy to the taxpayer-subsidized revenues that the systemically dangerous banks garner.
One suggestion making the rounds is that in order to offset the cuts in social spending soon to be recommended by Barack Obama’s “super-committee,” that banks pay a transaction tax on their financial transactions. This suggestion accepts the false premise that the bipartisan effort to cut social spending is driven by a shortage of government money to pay for these programs. Between the government’s ability to create money as needed, continued heavy spending on unnecessary wars and corporate subsidies and the deep pool of taxable resources held by top income earners, there is no fiscal emergency that warrants cuts in social spending. There is just the lack of political will to put the money into social spending.
A tax to pay for future bank bailouts suggests that the costs of the regular economic crises caused by the banks are limited to the amount of bailout money required to restore the banks to a position to create the next crisis. The true global costs are in the lost economic production, wealth destruction and the mass unemployment that these crises produce. Were the banks to be taxed on these true costs they would cease to exist immediately. Additionally, because of the too-big-to-fail doctrine any tax on the banks would simply refund a portion of the subsidy that taxpayers are currently providing them. The more transparent route than a tax would be to end the too-big-to-fail subsidy.
The way to deal with unneeded cuts in social spending is to address them directly for what they are. If Democrats and Republicans want to join hands to cut Social Security, Medicare and Medicaid then the temporary gloss of a bank tax is a temporary gloss and will more likely facilitate these cuts by giving culpable politicians cover. And if the costs of bank bailouts are only a small portion of the costs of the economic crises that the banks create then either render them incapable of creating economic crises or charge them the full costs to clean them up. Being party to the banker fiction that restoring the banks is all that matters only serves to restore the bankers.
Rob Urie is an artist and political economist in New York.