Surely, Not Again
Economists occasionally note that large amounts of investments in an economy designed to act as stimulus can sometimes act as a wedge instead, driving up the benefits of those above it and forcing down the financial possibilities of those below. Designing politicians can mask favouritism to the wealthy within broad rescue packages to bail out an economy. It happens frequently during economic turmoil and America, with its brand of wide-open capitalism, often leads the world in such a practice.
Signs of this sleight of hand appeared in the media in this past week, when the Joint Committee on Taxation (JCT) discovered that 82% of the Republican tax provision squirreled away in the massive coronavirus relief fund goes directly to America’s millionaires and billionaires. JCT findings concluded that only 3% of the relief benefits will go to citizens making less than $100,000 per year, while over 80% goes to those making $1 million or more.
The committee opted to investigate the plan after complaints were made that President Trump, son-in-law Jared Kushner, and some within the president’s inner circle were likely to get a healthy share of the benefits of a fund that was supposedly launched to assist average Americans survive the crisis.
To be clear, this is just about a clause obscurely placed within the Coronavirus Aid, Relief and Economic Security Act (CARES) by Republicans in the Senate, allowing businesses to deduct against their non-business income to reduce their tax liability. Given that CARES represented a $2 trillion package, the benefits to the wealthy are huge and left the JCT with no choice but to conclude that it will be hedge-fund investors and real estate businesses that will come out of it all as the biggest beneficiaries.
This is hugely devious and frustrating, but has actually formed a pattern for decades – most recently during the Great Recession of 2008, where the financial sector (banks, hedge-funds and high-end financial institutions) reaped trillions in benefit while the rest of America had to muddle through on its own. The premise, of course, supported by the newly-minted Obama administration, was that if the financial sector went down, so did the rest of the country. Most average citizens at the time never quite understood the complexities of that bailout, and only in subsequent years was it revealed the wealthy became even wealthier with the stimulus. Things quickly returned to normal, but that incentive largely formed a wedge that vaulted the fortunes of Wall Street higher and diverted funds away from those below the wedge.
And now it's happening once again, only this time in an even more serious crisis. The wealthy will be bailed out by pubic funds - citizen funds. There is something remarkably unjust in this pattern.
As this stimulus was being hammered out, Democrats were fighting for unemployment insurance and small business relief. The president, on the other hand, and those closest to him in the White House and the Senate, used it to promote a huge tax cut for the wealthy who required it the least. Once it became increasingly clear what was happening, the investigation by the JCT was launched.
Senator Sheldon Whitehouse, who called for the probe, angrily commented:
“It’s a scandal for Republicans to loot American taxpayers in the midst of this economic and human tragedy. Congress should repeal this rotten, un-American giveaway and use the revenue to help workers battling through this crisis.” Representative Lloyd Doggett added, “for those earning $1million annually, this tax break is so generous that its total cost is more than total new funding for all hospitals in America and more than the total provided to all state and local governments.
This is huge and it’s a scandal, but, sadly, we have become used to this pattern in America, and to a lesser degree in other affluent nations. It has skewed capitalism from its original design and poisoned the political class that was to supposed to guard against this from happening.
Back to the wedge analogy – it will mean that the new stimulus will press down heavily on average citizens struggling to get by in a time of a crisis, when millions of jobs could be lost and life savings wiped away as large swaths of the population seek to survive. And, as we’ll see in the next post, it will further divide an America that is already fatally splintered and ruin a politics that now seems beyond rescue.