Austerity has taken hold in much of Europe. In some countries, like Greece and France, it has begun generating a great deal of social unrest. In Britain, a drastic austerity program that has just been announced will reduce the benefits of millions and lead to reducing the size of government by almost 500,000.
Austerity is much on view in this country as well, but so far only at the state government level where budgets have to be balanced. At the federal level, huge borrowing has put off the austerity ax for awhile.
This is about to change, however. No matter which party wins congress in November, a combination of politics and financial market pressures is going to force significant austerity measures to be implemented by Washington quite soon.
The big question now is thus not whether austerity will soon lead to significant changes in Washington spending and taxing, but whether austerity will be angst shared by all Americans — whether the greatest protection from its effects will be reserved for those at the bottom of the economic ladder or the economic top.
Here, basically, is the economic case for taking it easy on those at the top of the economic pyramid: We need their spending to keep a present recession from becoming a worse recession; we need the investing power of the well-to-do to animate the economy and lead to a genuine recovery; the richest among us have earned their wealth and it would be unfair (as well as unwise) to take too much from them to subsidize those who haven’t earned as much; and if we did pursue this unfair confiscation, wealth would simply gravitate abroad and the U.S. would lose its regenerative power.
All these arguments have some intellectual merit. And if the soon-to-be national austerity debate were simply a theoretical one about whether wealth is appropriately allocated in our society, the case above might be worth considering carefully.
But this is not a theoretical debate, not a matter of competing economic ideologies. A lot of oxen are going to be gored very deeply soon. A lot of real American lives are going to be altered in fundamental ways. Let’s therefore consider the case of protecting the well-to-do from austerity’s bite in purely economic terms.
With regard to the purported dangers of reducing upper income spending power, consider the current debate over whether to extend Bush-era tax cuts for the wealthiest 2 percent of income earners as well as the other 98 percent. While its true that some spending power would be lost by not extending these cuts for all, far more spending power will in fact be lost by reducing benefits generally for the poor and middle class, people who now spend every penny to live on without doing what the rich now do — put some of this extra cash into stock market churning and emerging market investments.
It’s also worth noting that the U.K., with one-fifth our population, in the name of austerity necessity is cutting its public workforce by almost 500,000. Comparable austerity-based reductions here would reduce the federal payroll by 3 million government workers, all of whose own spending would be dramatically reduced in consequence.
So yes, it would be nice to spare the rich income tax increases to spur spending. But its a fatuous argument to suggest that doing so is somehow sensible when so many other Americans are having their own collective spending reduced so much more.
On the question of cosseting the rich to spur investment. The simple fact is that a shortage of investment capital is not what’s holding back our economy these days. Corporate America has a reported $1.6 trillion in-house that it could use for new equipment or to hire more workers. What it doesn’t have is customers.
Generous new tax breaks were part of the much disparaged stimulus program of Obama. They didn’t bring us out of recession. There’s even a tax incentive in the new health insurance bill, which is not being used very much. Relatively high corporate tax rates are irrelevant, since large corporations no more end up paying these rates (after deductions and other legal games) than the very rich ended up paying the 90 percent income tax rate that was in effect in this country for years after WW II. Cap gains gamesmanship for takeover artists and generous taxes that allow companies to shift income abroad and avoid paying tax here haven’t goosed up the economy. So more tax advantages that work to protect the well-heeled from austerity’s bite in the name of promoting investment just doesn’t pass the reality test in these very difficult times.
On the question of protecting the rich from austerity measures because they earned their money and don’t deserve to have more of it taken away. Sure. Everyone feels that way, including Wall Street traders who think they deserved huge chunks of the $139 billion paid big banks in compensation in 2009 and the $144 billion that is projected to be paid to these worthies this year. But really, just because some rich folks think they deserve to keep everything they earn because they are intrinsically more valuable to society is not only silly, it doesn’t pass the democratic smell test.
Finally there’s the argument that making the rich share austerity’s bite will drive needed capital abroad. Well, much of it is already gravitating abroad to emerging economies, and not getting invested here (as noted above) because weak demand is not calling forth more demand for capital here. If demand were suddenly to spike here, and there was a great profit potential for investment domestically, there would be no gravitating to speak of.
So here’s what it all comes down to: Far more austerity is going to be on view in these United States very soon. Will it hurt all Americans in terms of benefits and taxes, or spare the rich? Will we share the pain of this ongoing crisis,
of merely intensify our national war on the poor?
Important questions to consider carefully in the months ahead.
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