Future historians will likely look back at the debt ceiling rituals being reenacted these days with a frustrated shaking of their heads. That otherwise reasonable people would be so readily deceived raises the question that will provoke those historians: How could this happen?
The US Congress has imposed successive ceilings on the national debt, each one higher than the last. Ceilings were intended to limit the amount of federal borrowing. But the same US Congress so managed its taxing and spending that it created ever more excesses of spending over tax revenues (deficits). Those excesses required borrowing to cover them. The borrowings accumulated to hit successive ceilings. A highly political ritual of threats and counterthreats accompanied each rise of the ceiling required by the need to borrow to finance deficits.
It is elementary economics to note that if Congress raised more taxes or cut federal spending—or both—there would be no need to borrow and thus no ceiling on borrowing to worry about. The ceiling would become irrelevant or merely symbolic. Further, if taxes were raised enough and spending cut enough, the existing US national debt could be reduced. That situation has happened occasionally in US history.
The real issue then is that when borrowing approaches any ceiling, the policy choices are these three: raise the ceiling (to borrow more), raise taxes, or cut spending. Of course, combinations of them would also be possible.
In contrast to this reality, US politics deceives by constricting its debate. Politicians, the mainstream media, and academics simply omit—basically by refusing to admit or consider—tax increases. The GOP demands spending cuts, or else it will block raising the ceiling. The Democrats insist that raising the ceiling is the better choice than cutting spending. Democrats threaten to blame the GOP for the consequences of not raising the debt ceiling. They paint those consequences in lurid colors depicting US bondholders denied interest or repayment, Social Security recipients denied their pensions, and government employees denied their wages. The unspoken agreement between the two major parties is to omit any serious discussion of raising taxes to avoid hitting the debt ceiling. That omission entails deception.
Here are some tax increases that could help solve the problem by avoiding any need to raise the debt ceiling. The Social Security tax could be applied to all wage and salary incomes, not only those of $160,000 or less as is now the case. The Social Security tax could be applied to nonwage income, such as interest dividends, capital gains, and rents. The corporate profits tax could be raised back to what it was a few decades ago: near or above 50% versus the current 37% rate. A property tax could be levied on property that takes the form of stocks and bonds. The current property tax in the United States (levied mostly at the local level) includes land, houses, automobiles, and business inventories, while it excludes stocks and bonds. Perhaps that is because the richest 10% of Americans own roughly 80% of stocks and bonds. The current property tax system in the United States is very nice for that 10%. Another logical candidate is the federal estate tax which a few years ago exempted under $1 million of an estate from the tax, but now exempts over $12 million per person (over $25 million per couple). That exemption makes a mockery of the idea that all Americans start or live their lives on a level playing field where merit counts more than inheritance. The US could and should go back from that tax giveaway to the richest. There are many more possible tax increases.
Of course, there are strengths and weaknesses entailed in raising every tax, positive and negative consequences. But the exact same is true of raising the debt ceiling and thereby increasing the US national debt. Likewise cutting spending has its pluses and minuses in terms of pain and gain. There is no logical or reasonable basis for excluding tax increases from the national debate and discussion about raising the debt ceiling and thereby the national debt.
It is rather the shared political commitments of both major parties that require and motivate the exclusion. There is no reason for US citizens to accept, tolerate, endorse, or otherwise validate the debt ceiling deception perpetrated against us.
Nor is the debt ceiling deception alone. The previous national debate over responding to inflation by having the Federal Reserve raise interest rates provides another quite parallel example. That debate proceeded by debating the pros and cons of interest rate increases as if no other anti-inflationary policy existed or was even worth mentioning. Once again elementary economics teaches that wage-price freezes and rationing have been used against inflations in the past—including in the United States—as alternatives to raising interest rates or alongside them. US President Richard Nixon in 1971 used wage-price freezes. US President Franklin Roosevelt used rationing during World War II. But the government, Federal Reserve, major media, and major academic leaders carried on their recent policy debates as if those other anti-inflationary tools did not exist or were not worth including in the debate.
Wage-price freezes and rationing have their strengths and weaknesses—just as tax increases do—but once again the same applies to raising interest rates. No justification exists for proceeding as if alternative options are not there. The US national debate over fighting inflation was deceptive in the same way that the debate over the debt ceiling is.
Nor is the deception any less if it is covered by a claim of “realism.” Those who grasp elementary economics enough to know that tax increases could “solve” the debt ceiling issue become complicit in the deception by invoking “realism.” Since the two major parties are jointly subservient to corporations and the rich, they rule out tax increases on them. It thus becomes “realistic” to exclude that option from the debt ceiling debate. What is best for corporations and the rich thus gets equated to what is “realistic.” It is worth remembering that throughout history ruling classes have discovered, to their shock and surprise, that the ruled can and often do quickly alter what is “realistic.”
The debt ceiling deceptions favor corporations over individuals and the richest individuals over the rest of us. In our thinking and speaking too, the nation’s class structure and class struggles exhibit their influential power. The mainstream debt ceiling debate deceives by lying by omission rather than commission.
Richard D. Wolff is professor of economics emeritus at the University of Massachusetts, Amherst, and a visiting professor in the Graduate Program in International Affairs of the New School University, in New York. Wolff’s weekly show, “Economic Update,” is syndicated on radio and TV via Free Speech TV. His recent books with Democracy at Work are “The Sickness is the System: When Capitalism Fails to Save Us from Pandemics or Itself,” “Understanding Marxism” and “Understanding Socialism,” available at DemocracyAtWork.info if you can’t find it at your bookstore. This article was produced by Economy for All, a project of the Independent Media Institute.
From The Progressive Populist, June 15, 2023
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