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Reagan to the Power of Ten

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1 Reagan to the Power of Ten on 6/19/2017, 9:53 am

By Thomas Piketty, Le Monde
16 June 17

Is Trump a UFO in American history or can he be seen as the continuation of long-term trends? While we have no desire to deny “Donald’s” obvious specificities, including his inimitable art of the tweet, we do have to admit that elements of continuity prevail.

The tax agenda which he has just tabled in Congress is eloquent. It can be summed up in two central measures: reduction of federal income tax on corporate profits from 35% to 15% (a rate which Trump would also like to see applied to individual entrepreneurs like himself); a total end to inheritance tax. This is clearly a direct prolongation of the programme for ‘scrapping’ the progressive tax launched by Reagan in the 1980s.

Let’s go back a bit. In order to counter the rise in inequality and the excessive concentration of wealth (at the time, considered as contrary to the democratic spirit in America) and also to avoid any resemblance with Old Europe one day (considered across the Atlantic in the 19th century and at the Belle Epoque as aristocratic and oligarchic, and rightly so), between 1910 and 1920, the United States set up a level of progressive taxation, hitherto unknown in history. This major movement of compression of inequalities implied both taxing income (the rate applied to the highest incomes was on average 82% between 1930 and 1980) and estates, (with rates rising to 70% on the transmission of the largest estates).

All this changed with the election of Reagan in 1980: in 1986, the reform reduced the top rate of income tax and ignored the Social Policies set up by the New Deal under Roosevelt. These were accused of having ‘softened’ America and to having helped those who lost out during the war to ‘catch up’. But Reagan left a high corporate tax in place and high progressive rates of taxation on estates. Thirty years after Reagan and ten years after the first attempt by Bush junior to abolish so-called « death duties », in 2017 Trump has launched a new wave of presents to the biggest and wealthiest fortunes, and all this after abolishing Obamacare.

There is a fair chance that he will be followed by Congress. The Republicans will, of course, attempt to add a “border adjustment mechanism” consisting in authorizing the deduction from exports of the taxable profit and, conversely, in forbidding the deduction from imports (the well-known Ryan plan). This unprecedented blend of corporate tax and of European style V.A.T. has already aroused the anger of the WTO (something which pleases Trump) but also of importers (for example the Walmart supermarkets) which is more problematic. Theoretically the measure could be neutralised by a rise in the dollar, but in practice the exchange rates are determined by many other factors and nobody wants to take the risk.

It is likely that those concerned will settle for targeting specific imports and exports (with the intention of getting the message out that the Republicans defend American industry better than the Democrats, who are described as covert free traders and always ready to give everything to the Mexicans and all those other jealous people who surround America) and that a compromise will be found both for estate duties and for a massive reduction in the rate of corporate company profits, doubtless in the range of 15% to 20%, which may relaunch fiscal dumping in Europe and in the world.

The main question remains: how does a programme which is so clearly pro-rich and anti-social succeed in appealing to a majority of Americans as it did in 1980 and again in 2016? The classical answer is that globalisation and cut-throat competition between countries leads to the reign of each man for himself. But that is not sufficient: we have to add the skill of the Republicans in using nationalist rhetoric, in cultivating a degree of anti-intellectualism and, above all, in dividing the working classes by exacerbating ethnic, cultural and religious divisions.

As early as the 1960s, the Republicans began to benefit from the gradual transfer of part of the vote of the white and southern working classes, unhappy with the civil rights movement and the social policies, accused of benefitting primarily the Black population. This long and in-depth movement continued with the crucial victory of Nixon in 1972 (faced with the Democrat, McGovern, who suggested implementing a universal basic income at federal level, financed by a new increase in estate duties: this was the summit of the Roosevelt Programme), Reagan in 1980, and finally Trump in 2016 (who had no hesitation in racially stigmatising Obamacare, as Nixon and Reagan had done previously).

In the meantime, the Democrat electorate focussed increasingly on the most highly educated and the minorities, and in the end, in some ways resembled the Republican electorate at the end of the 19th century (upscale Whites and Blacks emancipated), as if the wheel had turned full circle and the Roosevelt coalition uniting the working classes over and above racial differences had ultimately only been a parenthesis.

Let’s hope that Europe, which in some ways is threatened by a similar development with the working classes having greater faith for their defence in the anti-immigrant forces, than in those who describe themselves as progressive – will be capable of learning the lessons of history. And that the inevitable social failure of Trumpism will not lead our “Donald” into a headlong nationalist and military rush, as it has done others before him.

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3 Re: Reagan to the Power of Ten on 6/19/2017, 11:21 am

The Treasury Department has released their report on financial regulations they want to scrap. Spoiler alert: the Wall Street sharpies who Trump put in charge of our economy, who made fortunes on both ends of the housing collapse, think pretty much all regulations on banks, including home lenders, should go.

This report was driven by Craig Phillips, who packaged and sold billions in bundled home loans for Morgan Stanley before he moved over to hedge fund giant BlackRock. His boss is former Goldman Sachs executive Steven Mnuchin, who made his bones by aggressively foreclosing on homeowners at IndyMac after the 2008 financial meltdown.

These guys think we should go a lot easier on the poor, poor megabanks, who've suffered enough, and toughen up on the real culprits -- middle-class families.

First, they want to make the financial system less safe for consumers by repealing the Volcker rule, so banks can gamble with their depositors' money. They also want to ease up on the “stress tests” put in place after 2008 to make sure big banks don't fail and take the whole economy down with them.

Second, they want to defang the Consumer Financial Protection Bureau (CFPB), the only agency that serves as a financial watchdog for the public, by making it basically impossible for the CFPB to either write rules or enforce them.

Third, they take us back in time. In a flashback to their earlier lives on Wall Street, Phillips and Mnuchin want to make it easier for banks to write fraudulent mortgages, then easier to foreclose on people by scrapping the qualified mortgage rules, and stop new rules on mortgage servicing from taking effect.

The Giveaway

There's one provision stuck in this plan that may not seem like much at first glance, but it gives away their game.

Since 1975, banks have been required to report annually on their mortgages -- what, where and to whom they're making loans -- under a law called the Home Mortgage Disclosure Act (HMDA).

HMDA was passed at the height of the red-lining crisis, when banks literally drew red lines on maps around low-income neighborhoods and communities of color, and refused them loans. Banks were happy to take deposits from these communities, but they were never going to offer them home financing.

The bank records and statistics the HDMA brought to light showed beyond a shadow of doubt what low-income and communities of color had been saying all along: credit discrimination was very real, with devastating effects on their families' social and economic lives.

The analysis of HDMA data spurred the passage in 1977 of the Community Reinvestment Act, which says, very simply, that banks must make responsible loans to everyone who qualifies.

The Grand Bargain

Basically, in exchange for all the benefits government showers on banks -- deposit guarantees, borrowing at the lowest possible rates and implicit guarantees against failure -- banks are required not to discriminate in their lending. And HMDA was what was made them keep up their end of the bargain.

Every year since then community groups, regulators and scholars have used HDMA data to show where discrimination happens, and force banks to make loans and meet the needs of the communities in which they operate, if they don't.

The mortgage market has changed dramatically in the last 40 years, so as directed by Congress the CFPB is updating the HMDA reporting process so that the data collected and disseminated shows the true picture of credit availability.

When HMDA was passed, banks could get away with simply not issuing loans; since then, we have seen that toxic credit with huge fees, usurious interest rates and hidden payment time bombs are as destructive or even more than no credit at all.

We know now that in the run-up to the 2008 mortgage meltdown, toxic loans were steered to communities of color. These bad loans then led to a massive erasure of wealth in these same communities.

The Solution?

So what do Trump and his cabinet of Wall Street cronies offer as a solution? They want to hide the evidence: the Treasury report recommends that HMDA data no longer be updated. Even more stunningly, they propose that it no longer be made public.

Just like Mitch McConnell's backroom dealings on health care, the Republican playbook on home lending is to sweep the facts under the carpet. They understand that what they and their corporate sponsors do cannot withstand public scrutiny.

It's our job to continue to shine the light.


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4 Re: Reagan to the Power of Ten on 6/19/2017, 11:23 am


And Obama wasn't tied to bankers and businessmen? LOL

5 Re: Reagan to the Power of Ten on 6/20/2017, 7:55 am

Not all bankers and business people are corrupt.

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6 Re: Reagan to the Power of Ten on 6/20/2017, 8:34 am

Floridatexan wrote:
Not all bankers and business people are corrupt.

How do you define corrupt?

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