What Would the Man Who Got Us Out of the Last Depression Do About Wall Street's Greed?
What would Franklin D. Roosevelt do if he were around today to see the bonus bozos of AIG's fast-and-loose Financial Products Unit spit in the face of the American taxpayer?
That's an enormously relevant question. During the current economic meltdown, various pundits have evoked memories of Roosevelt and the Great Depression. If we look back at that time, maybe we can learn something from how FDR handled the rich and powerful rip-off artists of his troubled time.
So far, President Barack Obama has found no magic antidote to corporate looting. He's hoping that some moral suasion from the White House will undo the latest $165 million in bonuses paid out at AIG -- bonuses that have become a blot on his recovery plans.
He's also asking his Treasury people to find some maneuver, any maneuver, that would enable an end-run around the AIG contracts that prompted those bonus millions.
On Capitol Hill, meanwhile, angry members of Congress are talking about taking more direct steps to get those bonus windfalls back. Rep. Steve Israel, D-N.Y., has proposed a 100 percent tax, effective this year, on bonuses over $100,000 that go to employees at companies that receive federal-bailout funds.
"If we can't kill the bonuses," says Israel, "we'll tax the bonuses."
Israel's bill has already won support from key members of the Democratic leadership in the House. If the bill passes, taxpayers would get the latest AIG bonus millions back.
But the bill, as admirable as it may be, won't touch the fortunes that Wall Street's movers and shakers -- at AIG and elsewhere -- so gleefully amassed while they were devastating our economy.
Take Joseph Cassano. He ran the AIG division that wheeled and dealed the company into $99 billion in 2008 losses. Cassano left AIG last March, just before the insurance giant went toxic, after having collected over $300 million in salary and bonus. He'll get to keep all that stash, and the ongoing income that stash generates, even if Israel's tax bill passes. (Cassano is reportedly under investigation for fraud during his time at AIG.)
So how would Roosevelt have handled all this? Actually, we have a fairly good idea about what FDR would have done, because he faced a situation with noteworthy similarities.
In 1940, with the nation facing hard times at home and the Nazis on the march in Europe, Roosevelt announced that no American would be allowed to profit off the nation's escalating crisis.
"Not a single war millionaire," the president flatly pledged in 1940, "will be created in this country as a result of the war disaster."
Key corporate leaders had other ideas. They mobilized to stop FDR's proposal for a stiff excess profits tax on corporate earnings. These corporate heavies actually refused to enter into defense contracts until Congress gave them a more business-friendly tax bill.
The war profiteers won that round against FDR's excess-profits tax. But the attack on Pearl Harbor would soon give FDR the upper hand. In April 1942, just a few months into the war, Roosevelt proposed a 100 percent "supertax" on all income over $110,000 — the equivalent of about $1.4 million in today's dollars — for married couples filing jointly.
The nation's "discrepancies between low personal incomes and very high personal incomes," FDR explained to Americans, "should be lessened."
Congress, in the end, didn't go along with FDR's 100 percent tax rate, but lawmakers did eventually agree to a 94 percent top rate on income over $200,000, around $2.5 million in today's dollars, and the nation's top tax rate would go on to hover around 90 percent for the next two decades, under Democratic and Republican presidents alike.
Over the course of these years of high taxes on America's very rich, the Great Depression would end, World War II would be won, and the United States would usher in the first prosperous, mass middle-class nation in economic history.
FDR's boldness -- his willingness to take on the rich and powerful -- opened the door to all this success. Do the White House and Congress have it within them to be as bold today?
Or will they be content to rap the knuckles of the bonus-happy knuckleheads at AIG and let the rest of our nation's executive-suite gang off the hook?
The Institute for Policy Studies, the think tank where we do our work, has proposed a 70 percent tax rate on all annual income over $10 million. That would essentially double the top tax rate our super rich face today, but still leave them paying less in taxes than rich people paid under Republican President Dwight D. Eisenhower back in the 1950s.
FDR, we're quite sure, would heartily approve.