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After the 2008 financial meltdown, the U.S. unemployment rate and median household income did not return to pre-crisis levels for many years. Since that national tragedy, Congress and regulators have taken some important steps to prevent such crises. But financial institutions still extract too much wealth from working families and funnel too much of that wealth into executive bonuses that encourage excessive risk.
And, as we saw with the regional bank failures of 2023, reckless executives can still drive their firms into the ground and walk away with grand fortunes while relying on taxpayer money to contain the damage.
Tax policy is one tool for ensuring that our financial system contributes to a healthy economy instead of short-term speculation to pump up CEO pay. As Congress prepares for the 2025 tax debate, lawmakers should consider two questions:
- Would our tax system be more fair if financial institutions and executives contributed more to the cost of vital public investments?
- Can we use tax policy to discourage financial activities that increase instability and inequality and instead incentivize activities that create long-term value?
In my view, the answer to both questions is “yes.”
Here are a few reasons the financial industry is undertaxed:
First, big profitable firms pay nowhere near the statutory corporate tax rate. Citigroup and Bank of America paid just a 4 percent effective tax rate in the first four years after the 2017 tax reform. The new 15 percent minimum will help, but we need to do more to close loopholes.
Source of original article: Institute for Policy Studies (ips-dc.org).
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