Robert Reich

Microsoft Chairman Bill Gates (left) chats with Portland Trail Blazers owner and Gates's former business partner, Paul Allen, during a game between the Blazers and Seattle SuperSonics in Seattle in 2003. Mr. Allen wants Congress to keep the capital gains tax at 15 percent for individual investors, like himself, even if it raises it for hedge fund and private equity managers. (Elaine Thompson/AP/File)

Close tax loopholes for billionaires? A billionaire responds.

By Robert Reich, Guest blogger / 06.04.10

The following from David Postman, who says he’s writing for Paul Allen:

“I work for Paul Allen. I’m writing to point out errors in your recent piece, ‘Closing Tax Loopholes for Billionaires.’ It is absolutely incorrect to say that Mr. Allen is ‘opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains.’”

“We have asked lawmakers to clarify their intent of the proposed language to make clear that it does not include individual investors like Mr. Allen, who are purely investing, not offering advice or management services. Democrats have been clear that they did not intend to include individual investors. We believe that individual investors - not hedge funds or private equity — should be able to continue to receive capital gains investment treatment.”

My apologies to Mr. Allen if I misstated his purpose in seeking to influence pending legislation. Evidently his only goal is to continue to pay 15 percent of his earnings in federal taxes on the grounds that he is an investor rather than an advisor.

Forgive me, though, if I still have doubts about the wisdom of treating his earnings this way. One of the most basic principles of taxation is known as “tax equity,” whereby two people drawing the same income should be treated the same for tax purposes.

Assume that Mr. Allen earns $200 million this year from his investments. (This is a conservative estimate since Mr. Allen’s personal wealth is estimated to be $13.5 billion, with earnings also from Vulcan Inc., his private asset management company, and a multi-billion dollar investment portfolio including stakes in Digeo, Kiha Software, real estate holdings, and more than 40 other technology, media, and content companies. Allen also owns three professional sports teams: the Seattle Seahawks of the National Football League, the Portland Trail Blazers of the National Basketball Association, and the Seattle Sounders FC franchise in Major League Soccer.)

Mr. Allen evidently believes most or all of this income should be taxed at 15 percent.

But suppose a high-tech entrepreneur (as Mr. Allen used to be) earns $200 million in income this year from a $10 million salary and $190 million bonus. The salary and bonus would be treated as ordinary income and subject to a marginal income tax of about 38 percent.

This would seem to violate the principle of tax equity.

Of course the moment we we tax capital gains at a lower rate than ordinary income we invite these sorts of inequities. More to the point, we also invite games through which wealthy people and their clever tax attornies try to dress up their earnings as capital gains rather than income.

So maybe the lesson here is we should go back to 1987 and treat income and capital gains the same.

Or the lesson is that any amount of earnings over a certain level — say, $1 million a year — should be irrebutably presumed to be income, subject to the tax rate on ordinary income.

Or maybe the real lesson here — given that median wages are going nowhere, public services are being cut, and America is going ever deeper into debt — is we need a more progressive income tax covering earnings from any and all sources, so that someone receiving $200 million a year (regardless of whether it’s attributed to salary or bonus or capital gains) has to pay a marginal rate of 50 percent. Or more.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on www.robertreich.org.

Scores of job seekers wait on line to see potential employers at a job fair in New York on June 2. High unemployment in 2009 led to a growth in the number of entrepreneurs - the new "self employed." (Bebeto Matthews/AP Photo)

A new wave of entrepreneurs, or a growing class of the anxiously self-employed?

By Robert Reich, Guest blogger / 06.02.10

Last year was a fabulous one for entrepreneurs, at least according to the Kauffman Index of Entrepreneurial Activity released last month by the Ewing Marion Kauffman Foundation. “Rather than making history for its deep recession and record unemployment,” the foundation reported, “2009 might instead be remembered as the year business startups reached their highest level in 14 years — even exceeding the number of startups during the peak 1999-2000 technology boom.”

Another surprise is the age of these new entrepreneurs. According to the report, most of the growth in startups was propelled by 35- to 44-year-olds, followed by people 55 to 64. Forget Internet whiz kids in their 20’s. It’s the gray-heads who are taking the reins of the new startup economy.

And if you thought minorities had been hit particularly hard by this awful recession, think again. According to the report, entrepreneurship increased more among African-Americans than among whites.

At first glance, all this seems a bit odd. Usually new businesses take off in good times when consumers are flush and banks are eager to lend. So why all this entrepreneurship last year?

In a word, unemployment. Booted off company payrolls, millions of Americans have had no choice but to try selling themselves. Another term for “entrepreneur” is “self-employed.”

According to an analysis of Bureau of Labor Statistics data, the number of self-employed Americans rose to 8.9 million last December, up from 8.7 million a year earlier. Self-employment among those 55 to 64 rose to nearly two million, 5 percent higher than in 2008. Among people over 65, the ranks of the self-employed swelled 29 percent. Many older people who had expected to retire discovered their 401(k)’s had shrunk and their homes were worthless. So they became “entrepreneurs,” too.

Maybe this is a good thing. A deep recession can be the mother of invention. These Americans are now liberated from the bureaucratic straitjackets they thought they had to wear. They can now fulfill their creative dreams and find their inner entrepreneurs. All they needed was a good kick in the pants.

But this upbeat interpretation doesn’t include lots of people who don’t particularly relish becoming their own employers, like an acquaintance whom I’ll call George. George was an associate partner at one of the world’s largest technology and consulting firms until he lost his job last year in a wave of layoffs. For months, George knocked on doors but got nowhere because of the deep recession.

Finally, his old firm got some new projects that required George’s skills. But it didn’t hire George back. Instead, it brought him back through a “contingent workforce company,” essentially a temp agency, that’s now contracting with George to do the work. In return, the agency is taking a chunk of George’s hourly rate.

Technically, George is now his own boss. But he’s doing exactly what he did before for less money, and he gets no benefits — no health care, no 401(k) match, no sick leave, no paid vacation. Worse still, his income and hours are unpredictable even though his monthly bills still arrive with frightening regularity.

The nation’s official rate of unemployment does not include George, nor anyone in this new wave of involuntary entrepreneurship.

Friday’s job numbers are likely to show substantial gains but they’ll still be small relative to the army of America’s unemployed and underemployed — and the growing number of anxiously self-employed.

Yet to think of the latter group as the innovative owners of startup businesses misses one of the most significant changes to have occurred in the American work force in many decades.

Typically each year, large numbers of Americans leave their old jobs to find new ones. Unemployment rises during recessions mainly because companies hire fewer workers, not because they lay more people off. But this Great Recession has been different. Layoffs by mid-sized and large companies have surged while hiring has almost disappeared.

These companies have used the sharp downturn as an opportunity to cull their payrolls for good — substituting labor-saving technologies and outsourcing to workers abroad or to contract workers here. This explains why almost half of America’s unemployed have been jobless for more than six months — a greater proportion than at any time since the Great Depression. It also explains why so many people like George have joined the ranks of the self-employed.

Yes, a growing number of Americans went out on their own before the recession, but clearly their numbers have vastly increased. While some are happy about their new status, most are worse off than they were before. It’s one thing to be a contingent worker in good times and when you’re young; quite another in bad times when you’re middle-aged.

Still, many would rather view these people as entrepreneurs and owners of startup businesses, and see their major challenge as getting adequate credit. Congress’s Joint Economic Committee reported last week that small businesses continue to face tight lending standards. “Small business is the job-creation engine that powers this economy,” said Representative Carolyn Maloney, the New York Democrat who heads the committee. Democrats will be pushing bills to make loans more available to them.

Indeed, America’s startup businesses do need better access to credit. But many entities that look like small new businesses are actually self-employed people who need more than bank loans. They need predictable income and benefits.

For starters, they could use what might be called “earnings insurance” that would pay for up to two years part of the difference between what they earned on the old job and what they earn now on their own. Employed workers would contribute to the insurance fund through their payroll taxes, as they do with unemployment insurance, but the total bill for benefits would be unlikely to rise because earnings insurance would get them back to work quicker and thereby reduce the number of weeks they relied on unemployment benefits.

The self-employed also need more help saving. Since they can no longer depend on tax-free corporate matches to their 401(k)’s or I.R.A.’s, they should be entitled to tax credits that match them. Fortunately, thanks to the reform package passed by Congress, they will have more help getting affordable health care, as they will be able to use their aggregate bargaining power in medical exchanges to push down insurance costs.

New businesses are vital to job growth, and entrepreneurship does fuel the economy. And surely some of America’s new independent workers will build their own companies. But when the economy is still so hard on so many, it’s important to distinguish between entrepreneurial zeal and self-employed desperation.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

BP CEO Tony Hayward travels aboard the Discover Enterprise drill ship May 28 during recovery operations of the Gulf spill south of Venice, La. Is it time the federal government put BP under temporary receivership? (Sean Gardner/AP)

Five reasons Obama should put BP under receivership

By Robert Reich, Guest blogger / 06.01.10

It’s time for the federal government to put BP under temporary receivership, which gives the government authority to take over BP’s operations in the Gulf of Mexico until the gusher is stopped. This is the only way the public can know what’s going on, be confident enough resources are being put to stopping the gusher, ensure BP’s strategy is correct, know the government has enough clout to force BP to use a different one if necessary, and be sure the President is ultimately in charge.

If the government can take over giant global insurer AIG and the auto giant General Motors and replace their CEOs, in order to keep them financially solvent, it should be able to put BP’s north American operations into temporary receivership in order to stop one of the worst environmental disasters in U.S. history.

The Obama administration keeps saying BP is in charge because BP has the equipment and expertise necessary to do what’s necessary. But under temporary receivership, BP would continue to have the equipment and expertise. The only difference: the firm would unambiguously be working in the public’s interest. As it is now, BP continues to be responsible primarily to its shareholders, not to the American public. As a result, the public continues to worry that a private for-profit corporation is responsible for stopping a public tragedy.

Five reasons for taking such action:

1. We are not getting the truth from BP. BP has continuously and dramatically understated size of gusher. In the last few days, BP chief Tony Hayward has tried to refute reports from scientists that vast amounts of oil from the spill are spreading underwater. Hayward says BP’s sampling shows “no evidence” oil is massing and spreading underwater across the Gulf. Yet scientists from the University of South Florida, University of Georgia, University of Southern Mississippi and other institutions say they’ve detected vast amounts of underwater oil, including an area roughly 50 miles from the spill site and as deep as 400 feet. Government must be clearly in charge of getting all the facts, not waiting for what BP decides to disclose and when.

2. We have no way to be sure BP is devoting enough resources to stopping the gusher. BP is now saying it has no immediate way to stop up the well until August, when a new “relief” well will reach the gushing well bore, enabling its engineers to install cement plugs. August? If government were in direct control of BP’s north American assets, it would be able to devote whatever of those assets are necessary to stopping up the well right away.

3. BP’s new strategy for stopping the gusher is highly risky. It wants to sever the leaking pipe cleanly from atop the failed blowout preventer, and then install a new cap so the escaping oil can be pumped up to a ship on the surface. But scientists say that could result in an even bigger volume of oil – as much as 20 percent more — gushing from the well. At least under government receivership, public officials would be directly accountable for weighing the advantages and disadvantages of such a strategy. As of now, company officials are doing the weighing. Which brings us to the fourth argument for temporary receivership.

4. Right now, the U.S. government has no authority to force BP to adopt a different strategy. Saturday, Energy Secretary Steven Chu and his team of scientists essentially halted BP’s attempt to cap the spewing well with a process known as “top kill,” which injected drilling mud and other materials to try to counter the upward pressure of the oil. Apparently the Administration team was worried that the technique would worsen the leak. But under what authority did the Administration act? It has none. Asked Sunday whether U.S. officials told BP to stop the top-kill attempt, Carol Browner, the White House environmental advisor, said, “We told them of our very, very grave concerns” about the danger. Expressing grave concerns is not enough. The President needs legal authority to order BP to protect the United States.

5. The President is not legally in charge. As long as BP is not under the direct control of the government he has no direct line of authority, and responsibility is totally confused. For example, listen for the “we” and “they” pronouns that were used by Carol Browner in response to a question on NBC’s “Meet the Press” Sunday (emphasis added): “We’re now going to move into a situation where they’re going to attempt to control the oil that’s coming out, move it to a vessel, take it onshore ….We always knew that the relief well was the permanent way to close this .… Now we move to the third option, which is to contain it. If [the new cap on the relief well is] a snug fit, then there could be very, very little oil. If they’re not able to get as snug a fit, then there could be more. We’re going to hope for the best and prepare for the worst.” When you get pronoun confusion like this, you can bet on confusion — both inside the Administration and among the public. There is no good reason why “they” are in charge of an operation of which “we” are hoping for the best and preparing for the worst.

The President should temporarily take over BP’s Gulf operations. We have a national emergency on our hands. No president would allow a nuclear reactor owned by a private for-profit company to melt down in the United States while remaining under the direct control of that company. The meltdown in the Gulf is the environmental equivalent.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

Sen. Blanche Lincoln (D) of Arkansas, seen here speaking at a candidate forum in March, has an amendment to stop the big banks from being subsidized by taxpayers for their risky derivative trades. But many in Congress oppose it. If you want to keep it in the financial reform bill, there are steps you can take. (Danny Johnston/AP/File)

Want real financial reform for Wall Street? Do this.

By Robert Reich, Guest blogger / 06.01.10

The most important remaining battle to rein in Wall Street is over Senator Blanche Lincoln’s measure to stop the big banks from being subsidized by taxpayers for their risky derivative trades. Miraculously, it’s still in the bill but it’s on life support. The bill has now gone to the conference committee where differences between the House and Senate bills are to be ironed out.

But official Washington (read: dependent on Wall Street for money) is dead set against it. Even Barney Frank — who Massachusetts voters used to consider a reliable progressive until he became chair of the House Financial Services Committee — has vowed to kill Lincoln’s provision. And the White House says the measure is “not core,” which in Washington-lingo means “you’re free to dump it.”

Big, big money is at stake. Wall Street’s five largest banks have a corner on the trade, raking in about in about $30 billion in over-the-counter derivatives last year. It’s the single largest reason they’re too big to fail. So they’re spending like mad on Washington lobbyists and campaign donations in order to keep the subsidy in place. (Lincoln’s provision doesn’t force them to give up derivative trading, by the way; it only forces them to do it in a separate entity that doesn’t get subsidized by deposit insurance or the Fed’s discount window).

All the guns are aimed at this measure. But it’s still possible that the people can prevail, if we’re organized and active. Here’s a list of all the Dems on the Senate Banking and House Finance Committee, as well as Republican conferees. All conferees are indicated by ->.

Organize and mobilize your friends and acquaintances, especially those who live in these states or districts, to call their members and make their voices heard. Tell them you want Lincoln’s measure (Section 716 of the Senate bill) to remain in the final bill. Say you’ll hold them responsible if it goes.

Alabama -> Senator Richard C. Shelby (202) 224-5744

Arkansas -> Senator Blanche Lincoln (202) 224-4843

California -> Rep. Maxine Waters (202) 225-2201 (California-11)
Rep. Brad Sherman, CA (202) 225-5911
Rep. Jackie Speier, CA (202) 225-3531
Rep. Joe Baca, CA (202)225-6161

Colorado -> Senator Michael Bennet (D-CO) (202) 224-5852
Rep. Ed Perlmutter, CO 202.225.2645

Connecticut -> Chairman Christopher J. Dodd (D-CT) (202) 224-2823
Rep. Jim Himes, CT (202) 225-5541

Florida -> Rep. Ron Klein, FL (202) 225.3026
Rep. Suzanne Kosmas, FL (202) 225-2706
Rep. Alan Grayson, FL (202) 225-2176

Georgia -> Senator Saxby Chambliss 202-224-3521
Rep. David Scott, GA (202) 225-2939

Hawaii -> Senator Daniel K. Akaka (D-HI) (202) 224-6361

Idaho -> Senator Mike Crapo (202) 224-6142
Rep. Walt Minnick, ID (202) 225-6611

Illinois -> Rep. Luis V. Gutierrez (202) 225-8203 (Illinois-4)
Rep. Melissa L. Bean, IL (202) 225-3711
Rep. Bill Foster, IL (202) 225-2976

Iowa -> Senator Tom Harkin (202) 224-3254

Indiana -> Senator Evan Bayh (D-IN) (202) 224-5623
Rep. Joe Donnelly, IN (202) 225-3915
Rep. Andre Carson, IN 202-225-4011

Kansas -> Rep. Dennis Moore (202) 225-2865 (Kansas-3)

Massachusetts -> Chairman Barney Frank (202) 225-5931 (Massachusetts-4)
Rep. Michael E. Capuano, MA (202) 225-5111
Rep. Stephen F. Lynch, MA (202) 225-8273

Minnesota -> Rep. Keith Ellison, MN (202) 225-4755

Mississippi -> Rep. Travis Childers, MS (202) 225-4306

Missouri -> Rep. Gary Peters, MI (202) 225-5802

Montana -> Senator Jon Tester (D-MT) (202) 224-2644
Rep. William Lacy Clay, MO (202) 225-2406
Rep. Emanuel Cleaver, MO 202.225.4535

New Jersey -> Senator Robert Menendez (D-NJ) (202) 224-4744
Rep. John Adler, NJ (202) 225-4765
Rep. Scott Garrett (NJ) (R) (202) 225-4465

New Hampshire -> Senator Judd Gregg (202) 224-3324
Rep. Paul W. Hodes, NH (202) 225-5206

New York -> Senator Charles E. Schumer (202) 224-6542
Rep. Gregory W. Meeks 202/225-3461 (New York-6)
Rep. Nydia M. Velázquez, NY (202) 225-2361
Rep. Carolyn McCarthy, NY (202) 225-5516
Rep. Dan Maffei, NY (202) 225-3701

North Carolina -> Rep. Melvin L. Watt (202) 225-1510 (North Carolina-12)
Rep. Brad Miller, NC (202) 225-3032

Ohio -> Senator Sherrod Brown (D-OH) (202) 224-2315
Rep. Charles Wilson, OH (202) 225-5705
Rep. Mary Jo Kilroy, OH (202) 225-2015
Rep. Steve Driehaus, OH (513) 684-2723

Oregon -> Senator Jeff Merkley (D-OR) (202) 224-3753

Pennsylvania -> Rep. Paul E. Kanjorski (202) 225-6511 (Pennsylvania-11)

South Dakota -> Senator Tim Johnson (202) 224-5842

Tennessee -> Senator Bob Corker (202) 224-3344

Texas -> Rep. Rubén Hinojosa, TX (202) 225-2531
Rep. Al Green, TX (202) 225-7508
Rep. Jeb Hensarling (TX) (R) (202) 225-3484

Wisconsin -> Senator Herb Kohl (D-WI) (202) 224-5653
Rep. Gwen Moore, WI 202-225-4572

Vermont -> Senator Patrick J. Leahy (202) 224-4242

Virginia -> Senator Mark Warner (D-VA) (202) 224-2023

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

At the podium, Senate Minority Leader Mitch McConnell of Kentucky and other leading House and Senate Republicans discussed the federal budget at a 2009 news conference on Capitol Hill in Washington. Are deficit hawks killing the recovery? (J. Scott Applewhite/AP/File)

Deficit hawks are killing the recovery

By Robert Reich, Guest blogger / 06.01.10

Consumer spending is 70 percent of the American economy, so if consumers can’t or won’t spend we’re back in the soup. Yet the government just reported that consumer spending stalled in April – the first month consumers didn’t up their spending since last September.

Instead, consumers boosted their savings, probably because they’re worried about the slow pace of job growth (next Friday’s report will likely show gains, but the number will continue to be tiny compared to the overall ranks of the jobless), as well as a lackluster “recovery.” They’re also still carrying enormous debt burdens. One in four home owners is still underwater. And median wages are going nowhere.

So what’s Congress doing to stoke the economy as consumers pull back? In a word, nothing. Democratic House leaders yesterday shrank their jobs bill to a droplet. They jettisoned proposed subsidies to help the unemployed buy health insurance, as well as higher matching funds for state-run health programs such as Medicaid. And they trimmed extended unemployment insurance.

“Members who are from low unemployment areas are very concerned about the deficit,” Nancy Pelosi explained. She might have added that so-called Blue Dog Democrats have the same warped view of fiscal policy as most Republicans. They fail to distinguish between short-term deficits (good) and long-term debt (bad).

Deficit-cutting fever has also struck the Senate – except when it comes to the military, of course. Last night the Senate okayed a $60 billion war-funding bill for Afghanistan.

So far this year, the Afghan war has cost more than the war in Iraq, in part because the infrastructure in Afghanistan is so much more primitive than in Iraq that our tax dollars are needed to build it so troops and tanks can move more easily over the terrain. But spending on road-building in Afghanistan does little to boost the American economy.

Meanwhile, state and local governments continue to slash and burn. They’re laying off even more teachers, fire fighters, social workers, and police; cancelling more programs for the poor and working class; and raising sales taxes. The fiscal drag from all of this will be around $150 billion in 2010.

Without consumers opening their wallets, and without government making up the difference, we’re careening toward a double-dip recession. The long-term deficit (i.e. Medicare as boomers become seniors) needs attention, but right now it’s critical for government to spend. Otherwise we have no hope of getting free of the gravitational pull of this recession.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

Jolie Van Gilder holds her mother's hand during a rally against BP and the Gulf spill in New Orleans May 30. In this and other recent corporate scandals, President Obama hasn't summoned the necessary outrage. (Jae C. Hong/AP)

Gulf spill: Where's the outrage, Mr. Obama?

By Robert Reich, Guest blogger / 05.31.10

According to a new CBS News poll 70 percent of Americans disapprove of how BP has handled the oil gush, compared with 45 percent who disapprove of how Obama has handled it. This could change in the days or weeks ahead if the spill continues to worsen and the White House looks and acts powerless.

The poll also points out a danger for Obama: Only 35 percent approve of his words and deeds so far during the crisis. He seems too willing to defer to BP executives, even as Bad Petroleum Ltd. tries to shift blame to Transocean Ltd., the rig operator, which is trying to put blame on Halliburton, which made the cement casings.

But it’s not just the oil gush. Most Americans continue to be livid at Wall Street executives and traders — for which they blame an economic crisis that’s cost many their jobs, savings, and homes — a crisis that’s still costing taxpayers a bundle even as the bankers are back to collecting huge compensation packages.

Yet the President continues to consult and socialize with many of them. Inexplicably, the White House won’t go along with proposals by several Democratic senators to cap the size of the biggest banks (the only way to ensure they’ll never be too big to fail and their political power is contained), to resurrect the Glass-Steagall Act (except in its weaker “Volker rule” form), or to force the biggest banks to do their derivative trading without the artificial support of tax-payer insured commercial deposits.

Most people are also furious that executives at Massey Energy failed to use mandated safety equipment and procedures that might have saved the lives of 29 miners. Where were the regulators? What does the Administration plan to do to the company or its executives?

Most Americans upset that the top guns at Anthem, WellPoint, and other health insurers are still hiking insurance rates. Why are these health insurers still immune from the antitrust laws? How can the Administration not blow the whistle on their current attempts blunt regulations that would cap their premiums?

Many are angry that the executives of credit card companies still charging outlandish rates on overcharges that are still hard to compute. What happened to the new rules that were supposed to stop this?

Most Americans who know about it are bothered that the managers of hedge funds and private-equity funds (the 25 richest of whom took $1 billion each last year) are taxed at only 15 percent because of a loophole in the tax laws that the Senate continues to protect.

You get my drift.

Yet the President is treating these corporate and financial executives the way he treats Senate Republicans. At most, he respectfully disagrees.

Respectful disagreement is virtuous in a democratic society, but so is appropriate indignation. Indignation signals to the public that social responsibilities have been breached, and thereby lends credence and authority to all those who are working toward them. Franklin D. Roosevelt had no hesitancy blaming the “economic royalists” – the rich bankers and executives who stood in the way of the New Deal.

Moreover, without indignation, the President opens himself up to libertarian critics such as Rand Paul, who oppose almost all government regulation (“What I don’t like from the president’s administration is this sort of, ‘I’ll put my boot heel on the throat of BP”), as well as right-wing opportunists who claim the President is pulling his punches because he receives campaign donations from oil companies.

Here’s Sarah Palin, of all people: “The oil companies who have so supported President Obama in his campaign and are supportive of him now — I don’t know why the question isn’t asked by the mainstream media and by others if there’s any connection with the contributions made to President Obama and his administration and the support by the oil companies to the administration [and] President Obama taking so doggone long to get in there, to dive in there, and grasp the complexity and the potential tragedy that we are seeing here in the Gulf of Mexico.”

It’s also important for the President to connect the dots – providing Americans a clear narrative for why government is so critically important. Corporations are organized to maximize profits, not to achieve public goals such as environmental protection, financial trust, safety, and so on.

Since Ronald Reagan first opined that government was the problem rather than the solution, right-wing Republicans have blasted all forms of regulation. Now we see the consequences of years of regulatory neglect.

The President has an opportunity now to express appropriate indignance and to assert the importance of reasonable regulation. He should waste no time doing so.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

Protestors gathered in Washington on May 17 during a demonstration to take on to take on Wall Street, Anti-Immigrant and the corporate lobbyists crisis. Despite the public's anger with Wall Street, banks' campaign donations keep politicians working in its favor. (Manuel Balce Ceneta/AP/File)

Why politicians love Wall Street, even when no one else does

By Robert Reich, Guest blogger / 05.28.10

Today’s quiz: At a time when California’s Republican gubernatorial candidate Meg Whitman is losing ground to her Republican rival in the primary because of her ties to Wall Street, when Utah’s incumbent Senator Robert Bennett was just booted out by Republicans who are furious that he voted to bailout Wall Street, when New Jersey’s Jon Corzine lost his bid for reelection partly because of he was formerly head of Goldman Sachs, when Connecticut’s Chris Dodd was so tarnished by his close ties to Wall Street that polls showed he had little chance of reelection — at a time, in other words, when Wall Street is political poison, why are politicians still so intent on doing its bidding?

Answer: Wall Street’s almost endless supply of money for upcoming campaigns.

Case in point: The measure in the banking bill that would force banks to push their derivative trading into separate units rather than rely on tax-payer subsidized insured deposits. For reasons I’ve already stated, the measure is common sensical.

Wall Street hates it because it would cost it billions.

Already New York Representative Michael McMahon says he’ll work to remove it from the bill. Yesterday, New York Representative Gary Ackerman, also a member of the finance committee, told his staff to circulate a draft letter yesterday to House members seeking their opposition to it.

Watch who signs Ackerman’s letter. Listen for the positions of members of the conference committee. Vote accordingly next fall.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.

Mark Kurland, who already pleaded guilty to conspiracy and securities fraud surrounding his involvement in the Galleon hedge fund insider trading case, departs from federal court after being sentenced to 27 months in prison, in New York May 21. Hedge funds have received greater scrutiny since the stock market collapse, but closing tax loopholes for billionaire hedge fund managers still poses a unique challenge for Congress. (Chip East/Reuters)

Will Congress close tax loopholes for billionaires?

By Robert Reich, Guest blogger / 05.26.10

Who could be opposed to closing a tax loophole that allows hedge-fund and private equity managers to treat their earnings as capital gains – and pay a rate of only 15 percent rather than the 35 percent applied to ordinary income?

Answer: Some of the nation’s most prominent and wealthiest private asset managers, such as Paul Allen and Henry Kravis, who, along with hordes of lobbyists, are determined to keep the loophole wide open.

The House has already tried three times to close it only to have the Senate cave in because of campaign donations from these and other financiers who benefit from it.

But the measure will be brought up again in the next few weeks, and this time the result could be different. Few senators want to be overtly seen as favoring Wall Street. And tax revenues are needed to help pay for extensions of popular tax cuts, such as the college tax credit that reduces college costs for tens of thousands of poor and middle class families. Closing this particular loophole would net some $20 billion.

It’s not as if these investment fund managers are worth a $20 billion subsidy. Nonetheless they argue that if they have to pay at the normal rate they’ll be discouraged from investing in innovative companies and startups. But if such investments are worthwhile they shouldn’t need to be subsidized. Besides, in the years leading up to the crash of 2008, hedge-fund and private equity fund managers weren’t exactly models of public service. Many speculated in ways that destabilized the whole financial system.

Nor are these fund managers especially deserving, as compared to poor and middle-class families that need a tax break to send their kids to college. Nor are they particularly needy. Last year, the 25 most successful hedge-fund managers earned a billion dollars each. One of them earned 4 billion dollars. (Paul Allen’s personal yacht holds two luxury submarines and a helicopter. Henry Kravis is one of the wealthiest people in the world.)

Several of these private investment fund managers, by the way, have taken a lead in the national drive to cut the federal budget deficit. The senior chairman and co-founder of the Blackstone Group, one of the largest private equity funds, is Peter G. Peterson, who never tires of telling the nation it faces economic ruin if deficits aren’t brought under control. Curiously, I have not heard Peterson advocate closing this tax loophole as one way to further the cause of fiscal responsibility.

Closing tax loopholes for billionaires may seem like a no-brainer, especially at a time when the nation is cutting back spending on the middle class — slashing budgets that fund child care, public schools, and public universities. Tens of thousands of teachers are getting pink slips.

But you can expect a huge fight.

There is also a moral issue here. Call me old fashioned but I just think it’s wrong that a single hedge fund manager earns a billion dollars, when a billion dollars would pay the salaries of about 20,000 teachers.

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Republican US Senate candidate Rand Paul arrives at his campaign headquarters Wednesday, May 19 after winning his party's primary election in Bowling Green, Ky. Tea Party favorite Rand Paul's victory over Republican Trey Greyson in the Kentucky primary shows the anti-establishment surge among Americans. (Ed Reinke/AP)

Bad economy? Good for the Tea Party.

By Robert Reich, Guest blogger / 05.20.10

Kentucky Tea Party hero Rand Paul scores a knockout victory over Republican Trey Grayson. Before that, Utah Senator Robert Bennett loses to a Tea Party-fueled Republican insurgent. Is the lesson here the rise once again of the Republican right?

Not so fast. Arkansas Democrat Blanche Lincoln is also in a tough fight – threatened from the left by Lt. Governor Bill Halter. In Pennsylvania, newly-minted Democrat Arlen Specter is in a heated battle with an opponent on his left. Meanwhile, thirteen-term Democratic representative Paul Kanjorski is challenged by 36-year-old Corey O’Brien – who’s waged a spirited campaign from his RV, accusing Kanjorski of being too tied to Wall Street.

Okay, so maybe all this signals increasing strength on both political extremes?

Not really. To the extent these races represent anything at all (and it’s easy to read too much into early races), it’s a swing against the establishment.

Kentucky’s Trey Grayson was handpicked by Mitch McConnell, who campaigned vigorously for him, as did Dick Cheney. The President and other Democratic notables came to the aid of Blanche Lincoln’s and Arlen Specter.

It’s the economy, stupid. American politics is turning anti-establishment because so many Americans feel screwed by the economy and they blame the establishment. If there’s a trend here, it’s not left-wing Democrats versus right-wing Republicans. It’s the “Mad-As-Hell” Party against both.

Unemployment continues to haunt the middle class – the anxious class of America. There are still more than five jobless workers for every job opening.

But it’s also low wages. The much-vaulted first quarter of this year produced zilch in terms of wage growth. Private-sector hourly earnings rose at a .4 annual rate while prices climbed at about a 1 percent – leaving most workers with less purchasing power than they had when the quarter began. The only reason weekly earnings showed any growth at all is because some workers put in more hours.

What does all this portend for November’s midterm election? Unless the economy moves into high gear, and unless America’s anxious class feels substantially better, incumbents are in trouble.

But the probability of the economy moving into high gear between now and then is not great. Consider that almost eighty percent of the increase in GDP in the first quarter was due to the growth of consumer spending. Where did consumers get the money if their real hourly wage dropped? From drawing down their savings. Obviously, they can’t continue to do this. Had consumers not spent their savings, the GDP would hardly have grown at all

In fact, if you exclude temporary boosts like the government stimulus and the restocking of company inventories, the U.S. economy would not have grown in the first quarter. As these temporary boosts fade later this year, consumer spending is the only thing that will keep the economy going. But consumers won’t be able to spend what they don’t have.

Some economic cheerleaders predict employers will increase wages as their profits grow. That’s nonsense. With five jobless workers for every job opening, employers are under no pressure to raise wages.

Other cheerleaders say the stock market’s rise will boost consumer spending and confidence. That’s nonsense, too. How many consumers feel richer because the Dow is up from what it was at the start of the year? They may see a bit of a rise in their 401(k)s, but their biggest asset is their homes, and housing prices are going nowhere. One out of four Americans with a mortgages now owes more than their house is worth.

The real lesson from today’s political races is the economy still stinks for most people. And the real lesson from the economy’s first quarter is the recovery is so weak that the anxious class is likely to remain anxious through November. Incumbents beware.

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The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. To add or view a comment on a guest blog, please go to the blogger's own site by clicking on the link above.