The Administration is about to launch a new plan designed both to stimulate the economy and clean up Wall Street at the same time. The "Responsible Wall Streeter Tax Credit" will provide Wall Street executives and traders a credit against their 2008 income taxes in an amount equal to their individual share of responsibility for the nation's financial collapse.
The Congressional Budget Office estimates overall losses from the collapse to be about $7 trillion but figures only about 10 percent of that sum will be claimed by Wall Streeters seeking the tax credit because of the reluctance of some executives and traders to take responsibility for the financial mess. That would put the cost of the new program at about $700 billion -- roughly the amount the federal government is now paying to bailout the Street.
In effect, the plan redirects the bailout money to these honest executives and traders who fess up and take responsibility. It's a win-win-win. They get to clear their consciences, which is a first step to clearing up their balance sheets. At the same time, they get big tax breaks which will cause them to spend more, and thereby stimulate the economy. And the plan won't cost taxpayers a dime more than we're already spending on the bailout, since the bailout money will go to these honest executives and traders.
One potential glitch: Many Wall Street executives and traders don't pay enough income taxes to take full advantage of the tax credit. Their earnings come in the form of capital gains, taxed at 15 percent, or they're parked in the Netherlands Antilles and other tax havens. The only way around this is to make the RWSTC fully refundable. That way, executives and traders who don't pay enough income taxes to get the full benefit of the credit will be able to collect it anyway, in the form of a direct cash subsidy from the federal government.
by Robert Reich
Robert B. Reich is Professor of Public Policy at the Goldman School of Public Policy at the University of California at Berkeley. He has served in three national administrations, most recently as secretary of labor under President Bill Clinton.
This article first appeared on Robert Reich’s Blog. Republished with permission