As we move toward the fifth anniversary of the great financial crisis of 2008, people should be outraged that cutting Social Security is now on the national agenda, while taxing Wall Street is not. After all, if we take at face value the claims made back in 2008 by Fed Chairman Ben Bernanke and former Treasury Secretaries Henry Paulson and Timothy Geithner, Wall Street excesses brought the economy to the brink of collapse.
But now the Wall Street behemoths are bigger than ever and President Obama is looking to cut the Social Security benefits of retirees. That will teach the Wall Street boys to be more responsible in the future.
Most people are now familiar with President’s Obama’s proposal to cut Social Security by reducing the annual cost-of-living adjustment (COLA). While the final formula is somewhat convoluted, the net effect is to reduce benefits by an average of roughly 3.0 percent.
Since Social Security benefits account for more than 70 percent of the income of a typical retiree, this cut is more than a 2.0 percent reduction in income. By comparison, a wealthy couple earning $500,000 a year would see a hit to their after-tax income of just 0.6 percent from the tax increase that President Obama put in place last year.
While President Obama is willing to make seniors pay a price for the economic crisis, his administration is unwilling to impose any burdens on Wall Street. Specifically, it has consistently opposed a Wall Street speculation tax: effectively a sales tax on trades of stock and derivatives. The Obama administration has even used its power to try to block efforts by European countries to impose their own taxes on financial speculation.
If the idea of taxing stock trades sounds strange, it shouldn’t. The United States used to impose a tax of 0.04 percent until Wall Street lobbied to eliminate it in the mid-1960s. Many countries, including the United Kingdom, Switzerland, China, and India already impose taxes on stock trades. (more…)