The prospect of a tax on deposits in the banks of Cyprus has even left-leaning economic commentators in a tizzy.
“A tactical blunder,” declared Lawrence Summers, who was President Clinton’s Treasury Secretary and chairman of the National Economic Council for President Obama. A proposed tax of 6.75% on deposits up to about $130,000 and of 9.9% on deposits of more than $130,000 “would unfairly punish savers and could do lasting damage to confidence in banks in other euro-zone countries in financial crisis,” the New York Times wrote in an editorial denouncing the idea.
Well, forgive us, but coming from the same Secretary Summers and New York Times editorialists who have championed higher taxes here in America, this strikes us as a bit rich.
What, after all, are the differences between the taxes on deposits in Cyprus that Professor Summers and the Times oppose and the higher taxes on income and capital in America that Secretary Summers and the Times support?
Perhaps it is the nationality of the taxpayers? By this distinction, higher taxes paid by Americans are good, but higher taxes paid by Russians or Cypriots are bad. Apply for a job, a place in school, or an apartment in America, and you’ll get a boilerplate statement of nondiscrimination based on national origin. Yet now the left would have us believe that taxes work differently based on what country the payer is from.
Perhaps it is the fact that the Cyprus bank taxes would be deducted directly from the accounts in question? Yet plenty of taxes here in America are taken directly by the government. What’s the difference, really, from having a tax payment withheld from a paycheck by the government or having it taken out of a bank account? When a person with taxes due files an electronic return with the IRS or a state government, and when the tax due is paid via electronic withdrawal from a bank account, the money is taken out of the account just as surely as is the money that would be taken out of accounts in Cyprus under the bank deposit tax plan.
Perhaps it is the retroactive nature of the tax, the fact that the people who deposited the money in banks in Cyprus did not expect that it would be subject to taxation? But American tax increases are just a variant on that. What about the person who goes through medical school and residency and fellowship only to have the federal and state government raise the rate of income tax that will be imposed on his earnings as a physician. Or what about the person who bought a piece of real estate, or a business, or a stock, only to have the government raise the rate of capital gains tax that will be owed when it was sold? I suppose one can argue that the Americans in such examples knew, or should have known, there was a possibility of tax increases, while the taxes in Cyprus were more of a surprise. But is a tax really worse because those subject to it were too foolish to anticipate its imposition, or better because those subject to it were pessimistic enough to forecast it?
Is the objection that the tax is to go to support banks rather that general government operations? The Times and Mr. Summers both supported the U.S. Treasury’s program to prop up banks through capital injections and additional debt guarantees during the recent economic downturn, even though that money was raised by taxing Americans (and by borrowing from China and from future generations), by diluting bank shareholders, and by driving interest rates to low levels that in their own way punished bank depositors.
Is it the lack of representation? The proposed tax would be imposed on foreign depositors who do not have a vote on it. Yet many of the plans to raise taxes in America involve increasing taxes on a tiny minority of “the rich,” who, while they have some influence because of their wealth, are so far outnumbered in a one-person, one-vote system that it raises legitimate issues about the consent of the governed.
Is it the taking? Bloomberg View columnist Caroline Baum, a sage, criticized the Cyprus proposal on the grounds that it is a confiscation that “amounts to a seizure of private property.” For those of us Americans who will see the IRS or state governments withdraw funds from our own bank accounts next month for tax owed, or who are seeing payroll withdrawals and estimated tax payments this year that are higher than they have been in a decade, the distinction between “seizure of private property” in Cyprus and here at home will be, alas, an awfully fine one.