Sunday, December 28, 2008

Connecting the Haves and the Have Nots

David Cay Johnston, investigative journalist and best-selling author of "Free Lunch," writes:

"Notice that in the current bailout, foreclosure relief has been minimal and the official debate is wrapped in language about moral hazard, and borrowers who were irresponsible. Unmentioned is the role of the 2005 bankruptcy law in prompting people who are in a financial squeeze to choose, intelligently, to stop the mortgage payments, so they can keep up with their monthly credit card payments, fueling a surge in foreclosures...almost 11,000 extra subprime mortgage foreclosures each month are traceable to the 2005 law."

Johnston adds: "Let’s start with going after people who cheated and abused the tax system. There is no moral argument for cheating on taxes, especially calculated cheating that requires the use of tax professionals and planning."

What kind of inverted logic can rationalize a government ethic that bails out Fannie Mae and Freddy Mac, AIG, and is planning to do the same for the big three automakers, as well as allows the upper one percentile of its citizens to shelter billions in taxes and, at the same time, denies working men and women, who are the backbone of this country, who find themselves in debt over their heads relief from credit card debt, and usurious high interest rates? We trust that President-elect Obama will honor his campaign commitment for greater regulation of the credit card industry. We also hope that he will revisit the 2005 bankruptcy reform bill, and acknowledge how damaging it has been to home owners and renters.

Leaders of both the Republican and Democratic parties have allowed the 2005 bankruptcy reform bill to pass, and Johnston is right on the mark when he connects this insidious legislation with the ever-escalating rise in foreclosures.

Mr. Johnston's article, "Invade the Caymans," appears in the Dec. 22, 2008 issue of Tax Notes.