Diary of a Financier

Bookshelf Update: Excess & America’s Gaping Class Divide

In Bookshelf on Fri 15 Jul 2011 at 16:15
  • Matt Taibbi is absolutely right about the need to trim entitlements and close tax loophole for high-income individuals.
  • From politicians to constituents, everyone is too busy complaining. Someone draft a cogent plan!

Matt Taibbi is the Rolling Stone columnist known for his meticulous attacks on Goldman. His writing obviously conveys a liberal skew, but in the following piece, he’s fair to slam fat public pensions in the same breath as high-income tax loopholes. In my personal life, I’ve talked a lot about this 15% Hedge Fund “carried interest” tax (rather than straight income tax). This is Mr. Taibbi’s article released Thursday morning, “Greed, Excess and America’s Gaping Class Divide”:

To most people, the undeserving rich guy is the ex-police lieutenant down the street who’s been collecting a six-figure pension for years after spending two decades writing traffic tickets before retiring at 43. Seeing that guy lounging in the dugout pool you paid for with your constantly rising property taxes is enough to piss anyone off, which is why it’s not hard to understand where a lot of that Tea Party anger is coming from.

But if you want to see a real asshole, you have to somehow get invited to things like the $5 million birthday party of another guy on Sirota’s list, private equity creep Steven Schwarzman. After throwing his elaborate fete for himself, Schwarzman — who is said to make $400 million a year, and made $600 million when his company went public — compared Barack Obama to Hitler for even considering rolling back his carried-interest exemption, which, again, allows him to pay 15% taxes while some of the rest of us pay twice that or more. “It’s a war,” he said. “It’s like when Hitler invaded Poland.”

If you think your local Andy Griffith is a greedy pig because he retired in his forties and built an addition to his garage with your tax money, try hanging out with a guy who eats $400 crabs, throws himself $5 million parties… and then compares the president to Hitler when word leaks out that he might have to pay taxes at the same rate as a firefighter or a kindergarten teacher.

I added that to my Bookshelf. I don’t have time today to get political with this, but I think it’s clear where I stand on these issues. I know the force of accountants’ lobbying is keeping our taxcode complicated. Simplify the tax code, flatten the gradation, close the loopholes, axe some deductions, done. Like I’ve said about manipulated capital markets, you can’t long-term socially engineer, because eventually the gravitational pull of a natural equilibrium is too powerful. Social engineering doesn’t happen in a vacuum. For every give there is a take, and eventually the imbalance topples the scale. Maybe a chart can resonate:

Maybe I will dabble in the politics a bit. (I don’t know why I go off on tangents like this, but this is my Diary, so I’ll do what I want.) I exchanged some emails with a friend who’s part of the bureaucratic vegitation down in Washington, DC (haha). His kicking and screaming ticks me off sometimes–much like the politicians’ on CNN. A recent response I sent to him via email:

I have 2 suggestions…

  1. propose a fix, not a literal “call to arms”: there’s a lot of complaining out there and not a lot of solutions. When an American or a band of Americans has a cogent solution, he can march on Capital Hill, diplomacy in hand. Very few understand that we can’t have both our prosperity and our solvency for the long term. Both came from a mix of military juggernaut-ing, abusing the status of global reserve currency, and disinflationary policy since the Volker Fed. Whether entitlements, grants, infrastructure, healthcare, et al, the American standard of living cannot go on without either redoubling Debt/GDP or defaulting in the future. It’s best, in my opinion, to carve out chunks of that “prosperity” which was not built on sand, but certainly fortified with sand (deficit). Americans can’t bemoan the deficit from one side of their mouths AND the threat to their prosperity from the other, because the two fed off one another for generations. So suck it up and lay a plan for cuts. Take your medicine in your lifetime so your grandkids have a chance at their “American dream.” (the royal “you” there, of course.) the UK was the world’s banker until the end of WWI. We’re retracing their footsteps today.
  2. you want “a family of 300million Americans,” but that’s already what we are now: our many voices are bottlenecked by representative democracy, such that a few oligarchs speak for the cacophony. Ask a foreigner, and he’ll speak of “Americans” as if all were but one. Part of it lends to my earlier comments on Americans’ precious prosperity at all costs. You know where the idea of TARP came from? A wall st analyst. Not that it’s that easy to grab the attention of DC, but for all the brainpower in this country, I haven’t read one complete, coherent proposal from the constituency regarding the debt ceiling. For God’s sake, the complaining is deafening, I’m want for solutions.

Now I’ve talked to my representatives and I’ve drafted plans of my own (I know you have too), but much of it should’ve come years ago. Like y2k, we wait until it’s too late.




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