Keynesian Economics on its Head (and Acid)

My brother forwards me an article about section 382 of the tax code and how its unilateral repeal by our Treasury Department is going to be a multi-billion windfall for US banks--perhaps as much as $140 billion.

It looks almost certain to be illegal:

"Did the Treasury Department have the authority to do this? I think almost every tax expert would agree that the answer is no," said George K. Yin, the former chief of staff of the Joint Committee on Taxation, the nonpartisan congressional authority on taxes. "They basically repealed a 22-year-old law that Congress passed as a backdoor way of providing aid to banks."

But the Treasury Department doesn't think so, of course:

Andrew C. DeSouza, a Treasury spokesman, said the administration had the legal authority to issue the notice as part of its power to interpret the tax code and provide legal guidance to companies. He described the Sept. 30 notice, which allows some banks to keep more money by lowering their taxes, as a way to help financial institutions during a time of economic crisis. "This is part of our overall effort to provide relief," he said.

The Treasury itself did not estimate how much the tax change would cost, DeSouza said.

The Bush Administration is not known for rigid compliance with law, nor competency, so this comes as no great surprise. But it continues to amaze me how many supposedly conservative economists and politicians absolutely prostitute themselves for big business. Actually, it's not even prostitution--that's at least a business relationship. It's more like a star-gazed groupie blowing the bass player on the bus. And it's done sincerely:

Some conservative economists argue that not only should a firm be able to use losses to offset gains, but that in a year when a company only loses money, it should be entitled to a cash refund from the government.

Now that's brilliant. Create an economy that makes it impossible to fail if the bank gets big enough. How is that not national socialism--and terribly misdirected national socialism at that? Privatizing profits and socializing losses is "conservative?" And how is this not wealth distribution on a grand scale?

I don't know near enough to speak to section 382 of the tax code. Perhaps there is an argument to be made that it is somehow unfair. But I don't think that this, along with decades of Republican measures, can be interpreted as anything but a sincere belief that government needs to be active in helping big business make more money--even at the cost of small business and everyday citizens--because that is what fuels the American economy, in their view.

That is an argument to make, and some may find it a good one, but what it most certainly is not is an argument for laissez faire, free market capitalism. It is more of a sloppy De Gaulle approach to economics where government subsidizes anyone in the Russel 2000--preferably the Fortune 100--and uses the tax revenue from average citizens to do it.