Tax & Spend, Liberals!

Sometimes the hostage-takers win. In the case of the Bush tax extension, Republican congressional leaders extorted two more years of tax cuts for the wealthiest 2% in exchange for allowing a 13-month extension of unemployment compensation for the jobless 9.8%.

Republicans resisted the unemployment compensation extension because the Democrats did not offset the $57 billion cost with other spending cuts. But Republicans didn’t blink at the $800 billion worth of tax breaks; they don’t mind if the Treasury has to borrow the $129 billion lost from the tax cuts the GOP demanded for those making more than $250,000 and weakening the estate tax beyond 2009 rules.

The tax deal does have some good points: In addition to the $380 billion for extension of the “middle-class” tax cuts and Alternative Minimum Tax relief, it provides $44 billion tax credits for working families. But the main win for the Democrats was the agreement to extend unemployment compensation for up to 73 weeks of emergency benefits (at an average of about $300 a week) for an estimated seven million people who will have exhausted their first 26 weeks of state unemployment by December 2011. (There is no help in sight for the estimated five million “99ers” who have been looking for work more than 99 weeks.)

Some House Democrats argued that they could have shamed the Republicans into agreeing to the extension without the tax cuts. After Sen. Jim Bunning (R-Ky.) churlishly blocked a renewal of jobless aid last February, the media treated it as an outrage and members of his own party begged Bunning to stop, Rep. Barney Frank (D-Mass.) reminded HuffingtonPost Dec. 9. But since then Bunning’s insistence that federally funded benefits must be “paid for” with cuts in other domestic programs has become a mainstream GOP position. Republican members of Congress wonder aloud if extended unemployment benefits don’t make their recipients lazy. So House Dems may have overestimated the Republicans’ capacity for shame as the teabaggers approach the Jan. 5 takeover of the House, spoiling for a fight.

It’s easy to say that Obama and the Democrats should have played hardball and called the Republicans on their bluff to let unemployment compensation expire. But if I were one of the seven million jobless Americans, including 800,0000 whose checks were cut off as of Dec. 4, I think I’d want the Dems to take that deal, even if the rich got their budget-busting tax break.

But Democrats will continue to give away the store to Republicans as long as they let Republicans dictate the terms of debate.

For example Rep. John Boehner (R-Ohio), the incoming House speaker, repeated the ubiquitous GOP line decoupling the deficit from taxes on 60 Minutes (Dec. 12): “Washington does not have a revenue problem, it has a spending problem.”

For more than 30 years, Republicans have been dishing out that the solution to a bad economy is to shrink bad government. Unfortunately, too many Democrats accept that conservative worldview.

President Franklin D. Roosevelt said in his Second Inaugural Address in 1937, “We have always known that heedless self-interest was bad morals; we know that that it is bad economics.” And bad economics is what we’ve gotten from the Beltway Consensus for the past 30 years.

George H.W. Bush was right in 1980 when he coined the term “Voodoo Economics” to ridicule the neoconservative “Supply-Side,” or “Trickle-Down Economics” embraced by Ronald Reagan. The theory was that lowering taxes for the wealthy and reducing regulations for businesses would spur economic activity and create jobs.

Reaganomics never really worked, but it greatly increased the federal debt. Tax increases engineered by President Bill Clinton in 1993, over the unanimous opposition of congressional Republicans, put the federal government back in black for the first time in a generation, but when Clinton turned over the balanced budget to George W. Bush in 2001, the usurper promptly spent the surpluses and more on tax cuts for the wealthy in 2001 and 2003. When revenue plunged and deficits grew to record heights, conservatives called for cuts in social safety-net programs such as Medicaid and child-support enforcement and privatization of Social Security and Medicare.

Since then, conservatives have managed to keep the debate focused on how to cut federal programs to fit tax revenues, rather than how to adjust tax rates to cover necessary expenditures.

Mainstream journalists adopt the GOP talking points — which happen to reflect the financial interest of their corporate bosses. For example, Sam Dillon of the New York Times reported Dec. 13 that “Republican deficit hawks” will be taking control of the House in January, regardless of the fact that Republicans have embraced $800 billion in tax cuts in the face of growing deficits. This is not the act of a “deficit hawk.” It is the act of a “borrow-and-spend conservative.” Or, a “deficit chicken hawk.”

In the most recent case, President Obama put together a deficit reduction commission and stacked it with conservatives. It still failed to produce a recommendation, in large part because Republicans could not endorse the cuts in defense spending and tax reforms that ultimately are necessary to close a trillion-dollar budget gap.

At a recent luncheon in Austin, economist James K. Galbraith said he expects unemployment to remain close to 10% for the foreseeable future, resulting in the effective impoverishment of a large part of the population, or the collapse of the comfort zone that has been built up over the decades. And that could prove disastrous for Democrats.

Now the House is gone and the Senate is at risk as 23 Democratic senators are exposed in 2012. “It’s not even clear the president is prepared to put up a fight for re-election,” he said.

“As liberals we’re going to be defeated in every major battle. Our task is to make an honorable defense as a record for the future.”

Instead of proposing to raise the retirement age, Galbraith said the government ought to make it easier and more attractive to leave the workforce. “Say for the next few years people who were 62-plus years old could retire at full benefits. Those jobs could go to younger people and you could make a big fraction of the unemployment problem go away next week.”

Galbraith also mocked the idea that the US is in the same bad shape as countries like Greece or Ireland who were forced to adopt austerity budgets to get bailouts from the European Union. He noted that government projects such as rebuilding infrastructure, transportation and housing are the most practical way to generate jobs and US Treasury bonds are still considered the safest investment in the market. And fears that China will stop buying bonds are unfounded. They have to put the profits from their trade surplus somewhere.

Democrats must offer a populist alternative to Republican talking points. Robert Reich calls for replacing the “temporary” reduction in Social Security payroll taxes — which puts Social Security at the mercy of general appropriations to make up the $120 billion difference — with an exemption of the first $20,000 of income from payroll taxes. That revenue can be made up by applying the payroll taxes to incomes over $250,000. We should rebuild our infrastructure. (The American Society of Civil Engineers estimates that the US needs to spend $2.2 trillion not only for new freight and passenger infrastructure but also for maintenance and repair of crumbling bridges, highways, railroads, inland waterways and ports.) If necessary, a new Works Progress Administration should put the remaining unemployed back to work on public improvements.

Reich proposed that we pay for this by raising marginal income taxes on millionaires to 70%. (Under Eisenhower, the highest marginal rate was 91%, and the economy flourished.) In addition, a 0.5% tax on financial transactions would bring in $200 billion a year, enough to rehire every teacher who’s been laid off as well as provide universal pre-school for all toddlers.

Polls show that, given a choice, voters generally prefer progressive economic solutions to conservative solutions. Looking to 2012, Democrats ought to give voters those choices. —JMC

From The Progressive Populist, January 1-15, 2011


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