Too Big To Fail: It's Time For The Ultimate Bailout, The Federal Government

By Manifesto Joe

AIG (American International Group Inc.), Americans are being told, must be bailed out because it is too big to fail. Originally the world's biggest insurance company, AIG got into trouble with a vast foray into derivatives trading, insuring the kind of trash that giant financial institutions were bundling after they got into the subprime mortgage quagmire.

It's useful to extend an argument. I pose that the ultimate entity that is too big to fail is the federal government itself. Hell, it now owns 80% of AIG, anyway. Let the ultimate bailout commence.

So, where would the bailout money come from? There used to be, even in this country, the allegedly socialist notion of progressive taxation -- that those with the ability to pay should be taxed more. I understand that we don't want to punish successful people, you know, like those bonus-wealthy executives and derivatives traders at AIG. After all, we've got to keep attracting and retaining "the best and the brightest" to our giant financial institutions.

But one cannot even propose a more progressive income tax in this country without having to endure endless caterwauling from the right-wing attack apparatus. This is from MoveOn.org:

The media has been obsessing about President Obama's plan to roll back the Bush tax cuts for the wealthiest Americans—from 35% to 39.6% -— even asking if that makes him a socialist.

But do you know what tax rate the wealthiest Americans paid on the top portion of their earnings at the end of Ronald Reagan's first term? 50%.

Under Richard Nixon? 70%. Under Dwight Eisenhower? 91%!

Yes, we once had a progressive income tax in this country, and we even took that for granted -- like the right to organize a labor union, among other such quaint New Deal-era notions. There was even once a corporate income tax. It still exists on the books, but there are so many ways to elude it that 60% of American corporations don't pay anything. According to expert tax reporters Barlett and Steele, in 1959, corporations actually provided 39% of all IRS revenue. It's a fraction of that now.

I'm not even radical on this issue. To me, a 91% marginal tax rate on personal income does seem punitive. Even 70% sounds like too much. What sounds right? I'd say 50%, like at the end of Reagan's first term.

Even at 39.6%, the Clinton administration rate, the U.S. saw its last federal budget surplus, and the last we're likely to see for a while. President Barack Obama wants it there again, and he has shown an admirable fighting spirit.

But he's up against something very powerful. Facts and history mean nothing to these people. The objective is to defend the economic status quo, however toxic and indefensible. And they have a history of being able to mobilize armies of wage-enslaved fools who are more than willing to blame the wrong people for their problems. The idea at the core of their mission is not where we will be in 10 years. It is how much profit can be made for the right people in the next 10 minutes.

When we get down to it, the bailouts of financial institutions, all generally undeserving, won't cut it unless we do the ultimate bailout -- our own federal government. It is far too big to fail. Two plus two do not equal five, and if this economy is going to be put back on the tracks any time soon, it's clearly the federal government that's going to have to do it.

Granted, that's a scary thought -- almost as frightening as leaving it in "free-market" hands such as AIG's "best and brightest."