[Peace-discuss] Both parties lie about a crippled, state-dependent capitalism
C. G. Estabrook
galliher at illinois.edu
Fri Apr 15 16:02:32 CDT 2011
Budget Battles: Sound, Fury and Fakery
Friday 15 April 2011
by: Richard D. Wolff, Truthout
Weeks of highly publicized debates - some in Congress, more in the mass media -
brought Republicans and Democrats to a budget deal. To maximize public
attention, they threatened a possible government shutdown. Both parties said
that large government deficits and accumulated debt were "serious problems."
They agreed that solving them required only spending cuts, not revenue
increases. In unison, they repeated, "we" must "learn to live within our means."
In fact, both sides never actually engaged the deficit and the debt. They
limited themselves to purely cosmetic, symbol-laden cuts (Republicans) and
refusals to cut (Democrats). Aiming at the 2012 election, both parties used the
deficit and budget debates purely to impress their voters.
Basic numbers tell the true story. The current (Fiscal Year 2011) budget spends
about $3.5 trillion while receiving $2.0 trillion in tax revenues. The
difference of $1.5 trillion (the equivalent of $1,500 billion) is this year's
deficit. The US Treasury must borrow that from whoever will lend to the US
government. After much hot air, Republicans and Democrats reached a "historic
compromise," namely a spending cut of $38 billion. That will reduce this year's
deficit from $1,500 billion to $1,462 billion, an economically insignificant
sum. The sound and fury of Washington's debates signified nothing was to be done
about the actual deficit.
Republicans pretend to be deeply troubled by huge government deficits run up in
recent years. They conveniently forget why those deficits soared: (1)
capitalism's crisis increased unemployment, and so, cut income tax receipts, and
(2) Washington response was to borrow trillions and spend them on bailing out
banks and credit and stock markets. Republicans revive their old mantra: reduce
deficits by cutting "wasteful spending" and "government mismanagement," which
turns out to mean the social programs they don't like. Republicans hope to cash
in politically on popular upset over the crisis' costs and the government's
unfair and ineffective response.
Democrats pretend to be as troubled by deficits as Republicans. They parrot
Republicans in denouncing wasteful government spending and mismanagement.
However, they champion fewer spending cuts than Republicans, hoping thereby to
cash in politically on popular support for helpful government programs needed
especially in hard times. Democrats are also loudly oppositional where that
might appeal to their voters (e.g. saving Planned Parenthood from cuts).
Democrats and Republicans did not even discuss, let alone agree on, tax
increases on the wealthy or on corporations as ways to cut deficits. At the same
time, their proposals for cutting spending were economically insignificant. In
short, the two parties' deficit-reduction campaigns were fakes.
What difference do deficits make? When the government's tax revenues fall short
of its expenditures, it must borrow the difference. That borrowing adds to the
country's total accumulated debt. As a result, next year and thereafter,
government spending will have to pay interest on this year's borrowing. That
means using a portion of its tax revenues in the future NOT to provide public
services or help people, but instead, to pay interest on its borrowing this year.
Deficits matter because they divert tax revenues away from serving most
taxpayers to enriching Washington's creditors instead. They also matter when
Republicans and conservative Democrats use deficits and government debts as
excuses to cut government programs they oppose.
Conservatives fear and oppose government economic interventions other than those
that support and protect business interests. When most recessions hit,
conservatives want tax cuts for business and little more. When major recessions
hit, they want massive government bailouts of businesses. If those require
deficits, the conservatives support them (they backed the Bush and Obama
bailouts from 2008 to 2010). They only turn against deficits later, once
business profits are restored and then demand cutting government economic
interventions that benefit other than business interests.
Liberals and Keynesians usually favor government deficits during recessions.
They want the government to spend not only to soften hardships during economic
downturns, but also to compensate for businesses' hesitancy to invest in poor
economic conditions. Otherwise, liberals fear that crises may turn people
against the capitalist system and/or to extremist politics. Thus, Paul Krugman
angrily urges Obama to increase rather than limit government spending and not
worry about deficits. In such enthusiasms, liberals and Keynesians underestimate
the real costs of deficits and who will likely have to pay for them.
The problems with these liberals' logic are many. First, if the government taxed
corporations and the wealthiest individuals more, it could maintain high
spending without having to incur huge deficits. One recent calculation showed
that if corporations and individuals earning over $1,000,000 per year paid the
same rate of taxes today as they paid in 1961, the US Treasury would collect an
addition $716 billion per year. That would cut the 2011 deficit by half and
likewise its interest costs. Second, consider who lends to the US government.
Major creditors include the People's Republic of China, Japan, large
corporations and wealthy individuals in the US and abroad. The greater our
deficits, the more of everyone's taxes go to pay interest to those creditors.
Third, consider the basic injustice of deficits: (1) Washington taxes
corporations and the rich far less than it used to in, say, the 1960s, (2)
Washington therefore runs a deficit and (3) the US Treasury then borrows from
corporations and the rich the money that the government allowed them not to pay
in taxes.
The bottom line: US capitalism collapsed into dependence on massive government
support in 2008 and since. Beyond providing immense, open-ended guarantees for
the debts of defunct banks, insurance companies etc., government support to
business included trillions spent on bank and corporate bailouts. The government
chose to pay for most of that by massive borrowing (rather than raising taxes on
corporations and the rich - not even on those corporations that government funds
saved from certain bankruptcy). That is why those huge bailouts required
correspondingly huge deficits.
On April 13, Obama suggested a small tax increase on rich individuals (raising
the top bracket from 35 to 39 percent compared to the 91 percent it was in the
1960s) and an end to certain corporate tax loopholes. If ever enacted into law,
those suggestions together would not change much. They would yield less than
$100 billion per year. That would cut this year's deficit, for example, by a
mere 7.5 percent. Moreover, more "historic compromises" with Republicans will
only further reduce (or eliminate) even these modest tax burdens on corporations
and the rich.
Both parties in Washington have supported and sustained massive ongoing deficits
supporting a crippled, state-dependent capitalism. Those deficits will continue
to raise our national debt and continue to be used as excuses for cutting
government services to people. Fake debates around deficits should not distract
us from what capitalism has demanded and obtained from both of its parties or
from the urgent need to build a real opposition to them both.
http://www.truth-out.org/budget-battles-sound-fury-and-fakery
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