It’s been somewhat baffling how little taxation has been discussed in the press as a possible answer to the problems of the bailout, among them moral hazard and the spectacle of the bankers who caused the mess back at the trough for record paydays.
I first noticed the idea of a windfall tax hitting the major press a month ago in The Wall Street Journal, of all places. Its Heard on the Street column argued for a windfall-profits tax on banks.
Now the Financial Times‘s esteemed Martin Wolf, perhaps the sharpest economic commentator in the press, is adding his estimable voice to the call. He calls windfall taxes a “ghastly idea” that “no sensible person should support.” But this is different, he says, and he lists six reasons why that’s so.
One is the government support for the system, which Wolf calls “the largest business subsidies ever.” And it’s benefiting from this massive support and the right to print money. “What the state gives, the state is entitled to take back, if it is not used for the state’s purposes,” Wolf says. But most important:
Fourth, ordinary people can accept that risk takers receive huge rewards. But such rewards for those who have been rescued by the state and bear substantial responsibility for the crisis are surely intolerable. What makes them yet more so is that the crisis has devastated the prospects of tens, if not hundreds, of millions of innocents all over the globe. The public finances will be devastated for decades: taxes will be higher and public spending lower. Meanwhile, bankers are about to reap huge rewards. This damages the legitimacy of the market economy.
In other words, if there’s another leg down in this crisis that requires another bailout—watch out, all ye in pinstripes. It’s not going to be pretty.
Wolf, smartie that he is, is aware of unintended consequences and tries to address them, including calling for the tax just to be on bonus pools to incentivize banks to use the money for what most economists think it ought to be used: shoring up their capital bases.
But it’s indicative of the times we’re in that such a thing can be called for straight-faced in the Journal and the FT, two of the last publications that can be accused of being dirty commies.
This is now out there in the mainstream. Discuss.
Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu. Follow him on Twitter at @ryanchittum.