Capitalism, economy & financial well-being in America, Government & Law

“ClawBack” – Should This Be a Part of Our Political Discussion?

September 24, 2018

According to Wikipedia, ‘ClawBack” is defined as follows:

A clawback or clawback provision is a special contractual clause typically included in employment contracts by financial firms, by which money already paid must be paid back under certain conditions. The term also is in use in bankruptcy matters where insiders may have raided assets prior to a filing, and in Medicaid, when a state recovers costs of long-term care or covered medical expenses from the estates of deceased Medicaid patients. The aim of the clause is to secure an option for an employer or trustee to limit bonuses, compensation or other remuneration in case of catastrophic shifts in business, bankruptcy, and national crisis as the financial crisis of 2007–2008, and for states to recoup the cost of administering Medicaid services.  The term clawbacks or claw backs can also be used to refer to any money or benefits that have been given out but need to be returned due to special circumstances or events, which are mentioned in a contract.

For our purposes the last sentence is critical – ‘…money…returned…due to special circumstances…’.  So how does this relate to today?  We are seeing a huge increase in debt – public and private.  The government is increasing spending while at the same time decreasing revenue with tax reductions.  Promised benefits are also huge at the national, state and local levels – primarily pension and medical benefits.  Personal debt is also increasing – examples are student debt, mortgage and credit card debt.  Liberal politicians are advocating more social programs such as free college education and single payor healthcare for all.  Conservative politicians seem to advocate less government, lower taxes (especially for corporations) and less government regulation.  Both continue a troubling trend – an accelerating increase in debt and a greater migration of wealth to a very small fraction of the population – the financial elite.

The Congressional Budget Office thinks federal debt will be 200% of GDP by 2048, and that by 2041 it will take all federal tax revenue just to support Social Security, the various health care programs and pay interest.  Clearly before we get to this point we will likely experience a political crisis over how to solve the crisis.

Any solution will have to deal with debt.  While some will likely be monetized by accepting some inflation (decreased value of the dollar), most will have to be repaid by increasing government revenue.  The revenue needed will be substantial and will have to come from where the wealth of the country has been concentrated – the top 1%, the financial elite.  The fairest and most straight forward approach to this is to create a wealth tax – an annual tax on net worth.  One can argue that most, if not all, of this wealth accumulation was acquired as a result of government policy favorable to corporations and the financial elite.  Hence, the rational of a “clawback” –  …money…returned…due to special circumstances

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