During the financial regulatory reform debate, a fee on the country’s biggest banks that would have gone towards a resolution fund for unwinding a systemically risky financial firm was discarded after complaints from Republican lawmakers. At the same time, the financial services industry is gearing up to fight a $90 billion bank fee proposed by the Obama administration (even though such a fee is required by law to recoup losses resulting from the Troubled Asset Relief Program) on the grounds that “it violates the bill of attainder clause of the Constitution.”

The notion that a bank tax violates the Constitution is silly, but this highlights the difficulty that Democrats in Congress and the administration have had getting such a tax enacted. Today, though, bank tax advocates have one more ally — Minnesota Federal Reserve Bank President Narayana Kocherlakota, who in a speech advocated for creating a tax on bank risk:

I will argue that, knowing bailouts are inevitable, financial institutions fail to internalize all the risks that their investment decisions impose on society. Economists would say that bailouts thereby create a risk ‘externality.’ There is nearly a century of economic thought about how to deal with externalities of various sorts — and the usual answer is through taxation. Taxes are a good response because they create incentives for firms to internalize the costs that would otherwise be external.

“It is useful to tax a financial institution producing a risk externality, just as it is useful to tax a firm generating a pollution externality. The purpose of the tax in both instances is to ensure that the targeted firm pays the full costs — private and social — of its production decisions,” Kocherlakota added.

As Bloomberg News pointed out, the speech puts Kocherlakota, “closer than any other Fed official to the positions taken by the Obama administration and International Monetary Fund.” Plus, the concept of a bank tax has been embraced by the European Union, so there’s no need to worry about competitiveness issues with European banks (though those concerns are likely overblown anyway).

As David Leonhardt wrote in the New York Times, “a bank tax is akin to an insurance policy that taxpayers would require Wall Street to hold. The premiums on that policy would keep Wall Street from making big profits in good times while foisting its losses on society in bad.” Senate Finance Committee Chairman Max Baucus, meanwhile, has called for the U.S. to “step up and lead” by implementing a bank tax, thereby showing the rest of the world that such a move can work. Now it’s just up to a reluctant Congress to actually get it done.

The Bush tax cuts are scheduled to expire in January, and since he was on the campaign trail, President Obama has expressed a desire to preserve the cuts for the middle class while letting tax rates for the wealthy reset to where they were during the Clinton administration. Most Democrats in Congress have embraced that proposal.

Conservative lawmakers and pundits, however, have been fearmongering that allowing the tax cuts for the wealthy to expire will kill job creation and small businesses (despite the fact that fewer than 2 percent of small business owners will be affected). “Republicans must emphasize that they stand for small and medium-size business,” wrote Karl Rove in an op-ed today. “A GOP growth agenda would keep intact the 2001 and 2003 tax cuts.”

Last night on CNBC, Wall Street Journal editorial board member Stephen Moore took this one step further, saying that he can’t “see the sense” of allowing cuts for the rich to expire, and then advocating that taxes be raised on the poorest Americans in order to finance tax cuts for the rich and corporations:

I just don’t see the sense of this. In fact, if I could have my ‘druthers, I’d raise the ten percent tax rate to fifteen percent and lower the [top] rates…Let’s bring the [corporate] rate down.

Watch it:

This is a stunning admission from Moore, as he explicitly advocated raising the lowest tax bracket while simultaneously cutting the highest. But he’s not the only one on the right who would like to see such a plan implemented. Rep. Paul Ryan (R-WI) has crafted a budget plan that raises taxes on 90 percent of Americans while cutting them for the richest 10 percent.

Adopting such a plan would only exacerbate income inequality that is already the worst it has been since the 1920′s. According to the latest data, “the gaps in after-tax income between the richest 1 percent of Americans and the middle and poorest fifths of the country more than tripled between 1979 and 2007.” The top 1 percent of families now receive nearly 25 percent of the country’s income, after earning less than 10 percent in the 1970s.

At the same time, tax cuts for the rich have pushed the difference in tax burden between the wealthy and the middle class to the smallest in modern history. In fact, this year the Bush tax cuts will give millionaires more in tax breaks than 90 percent of Americans will make in total income.

Retaining the tax cuts for the rich in a time of long-term structural deficits and vast income inequality would be bad enough. To actually cuts those rates while raising rates for those on the bottom of the income scale would be unconscionable.

With the country facing unsustainable long-term structural deficits in the coming years, more and more lawmakers have been willing to broach the once untouchable subject of cutting defense spending to save money. House Majority Leader Steny Hoyer (D-MD) said a few weeks ago that “any conversation about the deficit that leaves out defense spending is seriously flawed before it begins.” Rep. Paul Ryan (R-WI) added that “there are billions of dollars of waste you can get out of the Pentagon, lots of procurement waste. We’re buying some weapons systems I would argue you don’t need anymore.”

Sen. Johnny Isakson (R-GA) tried to sing the right notes yesterday, saying with regard to defense spending that “there are savings everywhere. We should be looking, as a Congress, toward finding savings.” However, Isakson that bristled at the notion that a program the Pentagon has repeatedly said it doesn’t want should be cut:

One expenditure, the second engine for the F-35 program, did receive Isakson’s support. Secretary of Defense Robert Gates has recommended President Obama veto any defense spending bill that includes funding of the second engine. “The second engine makes sense from a standpoint of having a redundant system to protect the aircraft,” he said.

Gates has called the second engine “costly and unnecessary,” while U.S. Air Force Secretary Michael Donley has referred to it as “another rock” on top of the F-35 program.

Isakson is hardly alone in paying lip service to cutting defense spending while opposing actual cuts in weapons systems that no one wants. Rep. Mike Pence (R-IN) has said “if we are going to put our fiscal house in order, everything has to be on the table. We have to be willing to look at domestic spending, we have to be able to look at entitlements, and we have to look at defense.” But Pence also supports the second engine.

And then there is conservative darling Sarah Palin, who said in a speech last month that “no government agency should be immune from budget scrutiny,” but then proceeded to say that we absolutely must purchase all the weapons Gates says we don’t need. “[Gates] said we have to ask whether the nation can really afford a Navy that relies on $3 [billion] to $6 billion destroyers, $7 billion submarines and $11 billion carriers,” Palin said. “Well, my answer is pretty simple: Yes, we can and yes, we do.”

In the last 10 years, the defense budget has almost doubled to $549 billion, and in real terms baseline defense spending “is now higher than at the height of the Reagan buildup, and total defense spending now exceeds what we spent any time since World War II.” As Ryan has said, “you know the current Secretary of Defense, Robert Gates, he’s going a pretty good job of identifying obsolete weapons systems that are costing tens of billions of dollars that aren’t needed.” Now if only he could get Congress to go along.