Yesterday, President Obama spoke at Federal Hall in New York — right across the street from the New York Stock Exchange — to lay out his vision for reforming the country’s financial regulations. “We will not go back to the days of reckless behavior and unchecked excess at the heart of this crisis, where too many were motivated only by the appetite for quick kills and bloated bonuses,” he said. “Those on Wall Street cannot resume taking risks without regard for consequences, and expect that next time, American taxpayers will be there to break their fall.”
The regulatory reform effort has encountered stiff opposition in Congress from both the financial services industry and Republicans, who contend that the legislation is “an unwarranted intrusion on markets that could hamper the nascent economic recovery.” But Sen. Jim DeMint (R-SC) went a step further, claiming that instead of looking at better ways to regulate Wall Street, Obama should really be looking for ways to cut Wall Street’s taxes:
Instead of looking at more regulation, we could do a lot by fixing our tax system here in this country, to make us globally competitive. The President needs to focus on what really has caused problems and look at what has really made America so prosperous, and I’m afraid that’s not the lens he’s looking through right now.
So in DeMint’s world, Wall Street placed huge bets on the mortgage market and leveraged itself 40-1 because its taxes were too high? And lowering their taxes would prevent them from ever again imploding the financial system?
Actually, Wall Street banks already pay far below the statutory corporate tax rate of 35 percent by taking advantage of myriad tax credits and write-offs, as well as by sheltering income in low-tax (or no-tax) countries. For instance, Morgan Stanley had an effective tax rate of 21 percent in 2008, which was huge compared to the one percent (yes, one!) that Goldman Sachs paid. And this is by no means a phenomenon restricted to Wall Street, as many U.S. corporations lower their tax rate by ten or twenty points thanks to tax havens and other intricacies of the corporate tax code.
DeMint is espousing the same rhetoric as the CNBC crew, which believes that as long as Wall Street is making money, regulation is unnecessary, and that money-making should be abetted by all aspects of the tax code. But Goldman Sachs made a record breaking $3.44 billion profit in the second quarter of this year, so the tax code doesn’t seem to be holding it back. In fact, the profits that Wall Street is starting to rack up make a financial transactions tax (which levies a small tax on trades and, as Dean Baker pointed out, “would be too small for normal investors to even notice”) something worth exploring.