NEW YORK – The movers and shakers of scandal-ridden Wall Street are busy scapegoating a “few rotten apples” – and hoping the rest of us don’t notice they’re still holding billions in ill-gotten gains.
Remember Ina Drew? This past spring Drew had her 15 minutes of fame as the JPMorgan Chase exec in charge of the reckless derivatives trading that may end up costing the Wall Street banking giant as much as $7.5 billion.
Drew will apparently pay a price for her role. JPMorgan CEO Jamie Dimon announced the bank will “claw back” approximately two years worth of the pay Drew has already collected. Which two years? Dimon didn’t say. Drew collected about $14 million last year and $15.9 million the year before.
Drew resigned from JPMorgan in May after 30 years of faithful service. In all those years – a span of time that included one financial industry scandal after another – no other bank executive as high-ranking as Drew has had to suffer the indignity of having take-home clawed back.
Bankers, in other words, appreciate the public relations value of shouting out willingness to claw back “ill-gotten gains.” But they seldom ever do any clawing.
Clawbacks, on the other hand, do raise some difficult practical questions. Where, for instance, do you draw the clawback line?
Consider Dimon, for example. In 2011, Dimon pocketed an 11 percent raise to $23.1 million. Doesn’t Dimon, and not just Ina Drew and the power suits she so poorly managed, bear some responsibility for the JPMorgan trading mess? It occurred, after all, on his watch.
But let’s be fair. On Wall Street, Dimon hardly stands alone. Sky-high rewards for financial industry executives that we’ve seen over recent years rest, across the board, on a recklessness that almost crashed the nation’s entire banking sector – and would have, if taxpayers hadn’t come to the rescue in 2008.
In July, the now-retired CEO who helped swing open the door to that recklessness, Sandy Weill of Citigroup, went public with an apology of sorts.
In the late 1990s, Weill pressured Congress late to gut the federal law that for years prevented banks from gambling with federally insured bank deposits. A GOP-run Congress eventually passed, and Democratic President Bill Clinton signed, legislation that did just what Weill demanded. Now Weill’s calling for a regulatory do-over, a restoration of the old rules that kept apart commercial and investment banking.
Giant banks, proclaims Weill, should never again be able to place taxpayers and depositors “at risk.”
The banking colossus Weill created, Citigroup, made him a billionaire, and Weill spent most of the first decade of the 21st century on the Forbes list of America’s 400 richest. Should a chunk of his huge fortune now be clawed back?
Former CEOs at two other financial industry giants, Merrill Lynch and Morgan Stanley, also now acknowledge the disaster that our reign of big banks created. Should they be clawed back, too?
We as a nation actually answered questions just like these generations ago. In 1916, we enacted a federal estate tax – a national levy on the grand fortunes that affluent people leave behind at death. Back then, most Americans agreed that the richest among us had either ripped the rest of us off to build up their grand fortunes or benefited much too royally from an infrastructure the rest of us, through our tax dollars, had fashioned.
Either way, our forebears concluded, the wealthy had a responsibility to give back to the society that had made them fabulously rich. They saw the estate tax, in effect, as the ultimate clawback. In future years, the estate tax would do some serious clawing. Between 1941 and 1976, the estates of the rich faced a tax rate of 77 percent on wealth over $10 million. In 1980, the top estate tax stood at 70 percent on wealth over $5 million.
Estate tax levies have been falling ever since. In 2010, thanks to the Bush tax cuts enacted in 2001, we had no estate tax at all. Since then, thanks to a late 2010 deal between the White House and GOP leaders in Congress, we’ve had an exceedingly weak estate tax. Couples have had all wealth under $10 million totally exempt from any estate tax, and no estate with a value over $10 million has faced a tax rate higher than 35 percent.
If the current Congress does nothing on the estate tax over the rest of this year, the pre-Bush estate tax of 2000 – with a 55 percent top rate – would go back into effect as of Jan. 1, 2013. Lobbyists for America’s most comfortable are, predictably, working hard to prevent that eventuality.
To help in that effort, Republican lawmakers are seeking to make the 2010 estate tax deal permanent. Top Democrats in Congress and the White House want to revert back to 2009’s 45 percent top rate. But the Democratic congressional leadership hasn’t been able to round up enough Democratic votes to move forward on even this mildest of stabs at significant estate taxation.
How mild? In real life, a 45 percent top estate tax rate translates, after exemptions and deductions, into not much of a burden on the super rich.
In 2007, for instance, the top estate tax ran 45 percent. In that year, 1,192 wealthy Americans died and left behind estates worth at least $20 million. These estates held a combined $75 billion. But after exemptions and deductions, only $10.2 billion of that $75 billion, 14 percent, went to federal estate tax.
Two years ago, three U.S. senators introduced legislation that would, if enacted, subject net estate wealth over $50 million to a 55 percent top tax rate, with a surtax of an additional 10 percentage points on wealth over $500 million.
Estate tax rates at that level might do some serious clawing. And claw we must.
“The man of great wealth owes a particular obligation to the state,” the great Republican estate tax champion Teddy Roosevelt noted a century ago, “because he derives special advantages from the mere existence of government.”
Wealthy Americans today aren’t meeting that obligation – not even coming close.
Veteran labor journalist Sam Pizzigati edits Too Much Online, a newsletter about wealth and income sponsored by the Institute for Policy Studies’ Program on Inequality and the Common Good.
Photo: Jason Fedarow, MO SEIU State Council/PW