Tax on Thrift
- Share via
Two problems: Banks are in very poor condition with the deposit insurance grossly underfunded. The federal deficit interest takes a growing and significant portion of each year’s tax revenue.
The honest solution: Raise taxes and where possible reduce spending, trying to avoid making the recession worse.
The chosen solution: An old geezer tax. The Federal Reserve has set the discount rate at under 3%, allowing banks to push interest rates on CDs down to under 3%. But the prime rate is 6% and loans (if they are available) cost 8% to 10%. Banks profits are up. Being able to borrow at less than 3% and loan at greater than 6% means big profits. With high bank profits, bank defaults are less likely.
Furthermore, the federal debt can be financed with short-term 3% Treasury bills and notes that the same old geezers glumly continue to purchase. The 3% differential between the discount rate and the prime rate is an indirect voodoo tax on purchasers of CDs and short-term government securities.
Read my lips: It is a tax on the retired, the thrifty and the conservative. It continues to provide little or no monetary stimulus to the economy.
BYRON EDWARDS
Orange
Inside the business of entertainment
The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.
You may occasionally receive promotional content from the Los Angeles Times.
