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Tuesday, August 9, 2011

A budget engineered for a dysfunctional national family

Danville Advocate-Messenger

            Last week’s debt ceiling agreement was a striking victory for Republicans, although they almost threw it away under pressure from the Tea Party fringe. They got nearly $3 trillion in spending cuts with no tax increase.
How did they extract this from a Democratic president and a Democratic majority in the Senate? They did it by cloaking an act of extortion with the language of fiscal responsibility and family budgets.
            Their message went something like this: the American people are like a self-indulgent family. Through their government they are spending more money than they actually have. The only responsible, adult thing to do is cut their spending.
            Even President Obama has used this simple-minded argument, and the mainstream media repeat it constantly. It makes people afraid that scary things will happen to the national family unless they mend their ways.
            This message of fear builds on the stress and anxiety most Americans have about their own household budgets. Average household incomes are stagnant. Over 10 million households owe more on their home than it's worth. Jobs and income are insecure, even as health care and educational expenses rise.
             Republicans got Americans to transfer this anxiety to the national budget. Then they presented themselves to a frightened public as rescuers: tea-partiers, “young guns” and Ayn Rand devotees became a patriotic posse galloping in to save us from government fiscal abuse.
This clever rhetorical trick allowed Republicans to get away with political terrorism. They took the American people hostage by threatening to inflict a great harm (sovereign default) on our society unless they got what they wanted.
By agreeing to the debt deal, Obama and the Democrats have rewarded the GOP hostage takers. The GOP will come back for more.
            Republicans took the nation hostage in order to save the wealthiest Americans from paying a cent more in taxes. This is the most important and morally indecent feature of the debt deal.
            For a second time Obama has broken his campaign promise to end the Bush tax cuts for the wealthiest 2% of taxpayers. According to the Center on Budget and Policy Priorities, ending them would raise $826 billion in ten years. That would be a big help in reducing the deficit.
            The simplest way to reduce federal deficits is for the economy to grow, thereby increasing the amount of tax revenue. As economists across the political spectrum have warned, major cuts in federal spending will further weaken the economy, thereby shrinking government revenue and worsening the deficit.
            The Congressional Budget Office (CBO) in January 2010 issued a report examining various options for achieving economic and job growth. Its conclusions were similar to those of Mark Zandi, chief economist of Moody’s Analytics: you get the most economic growth per dollar from spending on extending unemployment insurance, fiscal relief for state governments and infrastructure spending.
Cutting taxes for the wealthy is the least effective option. It’s not hard to see why.
Consumer spending accounts for 70% of economic activity in the U.S. As the CBO report explains, wealthy families are more likely to save than to spend the money they get from tax cuts. Programs to relieve poverty and unemployment or to help states pay the salaries of teachers and construction workers immediately increase consumer demand.
The Republican threat to send the United States into default unless they got huge spending cuts was in effect an attempt to harm the nation in one way or another. The GOP forced us to choose between harming our country by going into default and harming it by reducing consumer demand in an already fragile economy.

Let’s go back to the comparison between a family budget and the national budget. It’s a sad truth that the average American household is less able to buy into the “American dream.”
But the nation as a whole (the national family) is quite rich. The national income is the GDP (Gross Domestic Product—the dollar value of the sum of goods and services produced by our economy). The U.S. has one of the highest GDPs or incomes per capita in the world.
But our national income is very unequally distributed, to a degree that is common in third world countries. In the economic expansion of 2002-2006 under Bush, the top 1% captured almost three quarters of national income growth. During that same period, the Bush tax cuts fattened their after-tax income.
            Our national household has quite enough income to pay for social security, universal health care and other valuable social programs. The problem is that a minority in the national family are hogging so much of the household income that the rest of the family is suffering.

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