Offering frequent news and analysis from the majestic Evergreen State and beyond, The Cascadia Advocate is the Northwest Progressive Institute's unconventional perspective on world, national, and local politics.

Thursday, January 24, 2008

Congress falls for the tax cut myth - again

This morning, Democratic congressional leaders announced they had reached an agreement with the Bush administration on a tax cut package that would "pay stipends of $300 to $1,200 per family and provide tax incentives for businesses to encourage spending", as the New York Times put it.

To us, this deal - a misguided proposal that addresses a symptom, not a cause - is a symbol of what is fundamentally wrong with the Democratic establishment's approach to pulic money. Certainly, Democrats are more fiscally responsible in the management of our nation's treasury than Republicans are, but how can we afford more revenue cuts when we have a record deficit?

If there was compelling evidence that this proposal would truly benefit the economy, it might be worth the cost. But Pelosi and Reid have not justified the deal they are making with Bush. A one time check might help a family pay off some of that credit card debt or make the monthly mortgage payment, but it does not solve the underlying problems that are causing our economic duress.

Michael Mandel, writing for BusinessWeek, echoes my thoughts in asking, how real was the prosperity of the last few years?
The Fed originally was created to deal with just this kind of financial crisis, and it's capable of pumping enormous amounts of money into the financial system if needed. "I have a basic faith in the Fed," says Christina D. Romer, an economist at the University of California at Berkeley. "We don't make the kind of mistakes that we used to."

But the underlying problems that ail the markets and the economy cannot be waved away by the Fed's magic wand. In truth, we're at the beginning of a long, arduous process of figuring out how much of the post-tech bubble prosperity was real and how much was the result of a credit-induced frenzy. The answer will determine what we can expect.
In the current issue of the magazine, Mandel proposes a meaningful and sensible course of action for staving off a recession, which we agree could have a positive, long term effect on the economy:
[T]here's a surprising force that could keep the bottom from falling out of the economy: the $3.5 trillion health and education job machine, which created 640,000 new jobs in the last year alone. Propelled by aging baby boomers and rising student enrollments, hospitals and schools are still hiring while almost everyone else is cutting back.

Could adding more nurses, teachers, and hospital orderlies really hold off a recession? The answer is yes — with an asterisk. What people don't realize is that health and education combined make up the single largest source of jobs in the U.S., employing 28 million people, or about 20% of the total workforce. What's more, government funds support many of these jobs, either directly or indirectly, making them less subject to the business cycle.

The hidden danger now is that fading tax revenues may cause state and local governments to cut back on their funding for schools and medical care. That could weaken health and education spending just as the consumer slump hits — a double whammy that could send the economy into recession.
Mandel doesn't say this, but what he's basically talking about is an example of how our common wealth supports our economy.

Interstate highways and airports make it possible to transport goods. The Internet provides for the exchange of ideas and ecommerce. Courts allow companies to enforce contracts and agreements. Quality public schools give employers a trained and skilled workforce. The Centers for Disease Control and the National Institutes of Health are investments in our collective wellness.

The list goes on, and on, and on. Our common wealth is what makes America strong! What do we gain by recklessly and foolishly draining our nation's treasury? We are hurting ourselves. And it's time we realized that!

Many Americans have already made a mess of their personal finances by refusing to delay instant gratification. The principle of thriftiness has been abandoned.

If we, or our government, spend nonexistent money, it had better be for a good reason. Wasteful, immoral military occupations and tax cuts for the wealthy are the worst uses of our nation's funds. Investing in education and healthcare, on the other hand, yields a prudent return and strengthens our common wealth:
Or policymakers can do something different: boost outlays on education and health. Remember that in the 1930s, John Maynard Keynes forcefully advocated the idea that government spending could bolster the economy in a downturn. Today, increasing federal health and education grants to the states, while politically controversial, could be a quick and effective way of slowing the cutbacks in jobs when tax revenues turn down. If so, Keynes could be back—and coming to schools and hospitals near you.
The Nobel prize-winning economist Joseph Stiglitz made largely the same suggestion a few days ago in an excellent guest column for the New York Times.

Congress needs to be reminded that simply authorizing checks for middle class Americans does not address the inequity in our federal tax structure - the huge tax cuts for the wealthy, the special exemptions fo profitable businesses (i.e. the oil industry), or the outright subisides to those same corporate interests. Congress' failure to address this elephant in the room is embarrassing and disgraceful.

Arguing that tax cuts (no matter who they are for) will miraculously solve our economic problems is comparable to pitching a special bottle of medicine that can magically avert and fully heal a life threatening disease.

Today's "deal" reminds me of a May 2003 cartoon in the Seattle Post-Intelligencer, drawn by its Pulitzer Prize winning editorial board member David Horsey, which brilliantly mocked the Republican Congress for stupidly embracing tax cuts as a magic economic medicine. Here's the text of that cartoon:
In 2001, Republicans theorized that tax cuts for wealthy people and rich corporations would stimulate the U.S. economy and create more jobs...

"So we passed a whopping tax cut!" - Unidentified Republican Congressman

Since then, millions of Americans have lost their jobs...

Real wages have taken their biggest drop in 12 years...

States and cities have run out of money...

The stock market has fallen...

And the federal deifict has risen to record levels.

In response, what has the Republican Congress done?

"We've passed another whopping tax cut!"
- Unidentified Republican Congressman

"And by golly, we'll do it again if need be!" - Unidentified Republican Congressman No. 2.

Insanity Defined: Repeatedly performing the same action and expecting a different result.
The Bush administration got us into the fiscal and economic mess we're in today, yet Nancy Pelosi and Harry Reid seem too eager to sing Kumbaya with Dubya... and jump behind what amounts to a cheap and shiny piece of legislation that looks pretty and sounds hefty but doesn't tackle the cracked foundation that is the real source of all the trouble.

It's hard not to notice that Democrats (both here in the Pacific Northwest and in D.C.) struggle mightily to articulate a consistent and progressive view on fiscal issues. The right wing has been so successful in framing the dialogue that Democrats fall into the trap of repeating the other side's language and reinforcing its frames. Insofar as taxes are concerned, Democrats are suffering from hypocognition - a lack of needed ideas.

The right wing's view of taxes is so prevalent and so widespread that few Democrats - let alone Americans - understand the concept of the common wealth.

Consequently, libertarian figures like Tim Eyman have an easy time selling proposals to slash taxes, and elected Democrats always have to be concerned about being blasted at election time by Republicans hoping to score cheap political points, whether said Democrats supported revenue increases or not.

Restoring the idea of the common wealth in our political dialogue may be the single greatest challenge facing the progressive movement today. And it is imperative that we do so, because without the common wealth, we can't have environmental protection, universal healthcare, transit for all, unemployment insurance, quality schools and colleges, top notch disaster response, or any other public service.


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