The election last Tuesday proved one thing above all — that the American public is in support of progressive tax reform and greater government involvement in economic recovery. It also proved that the public won’t be bullied by “deficit hawks” anymore and won’t blink when they use political charades such as the impending “fiscal cliff” to promote social welfare slashing.
Despite all the fear mongering by deficit hawks and the coming “fiscal cliff,” a reduction in the deficit is, as macroeconomist Paul Krugman explains, not a viable solution to our economic recovery. Instead, as the recent IMF report on the effects of austerity on the global economy, indicates, spending reductions during a time of recession have negative consequences exemplified in countries such as Greece and Spain, where the lack of public investment is exacerbating the predicaments of already underperforming economies.
Moreover, history provides a sort of laboratory in which the consequences of policy can be examined. Although it is not an idealized set of reproducible conditions that scientists use in natural experiments, it is, nonetheless, a tool for greater understanding of our economic situation. Thus, when we examine the recession of 1937-38, it is clear that the American economy was damaged by Franklin Roosevelt’s decision to scale back government spending — a decision based on demands made by the deficit hawks of his own day.
The necessity of public investment then, is supported, by historical considerations as well as by ongoing cases, such as Greece and Spain. A need to continue deficit spending, as well as the likely need to increase it, means that federal revenue should be increased. This is precisely why Obama should implement higher taxes for the 1%.
Not only do we currently have the lowest income taxes on the highest earners, but according to the 2009 tax data, the richest 400 families paid an average income tax rate of 19.9%, a highly regressive rate given that it is lower than the income paid by the average American worker. But to add insult to injury, this perversion is in strict violation of the most fundamental economic ethic: that those who have benefited the most from society should contribute the most. Not so in the United States of Inequality. Indeed, the neoliberal policies implemented since the Reagan era have ensured that the wealthy have gotten wealthier. Conversely, the rest of the population has not been a part of that growth, and in fact has largely stagnated or declined, while paying tax rates comparatively higher than the super-rich. What kind of country is this exactly?
Now that the economy has been derailed by deregulation, free trade policies, outsourcing, lack of public investment and financialization, it is time for a correction and a new direction. At present the only institution that has the resources and the power to do so is the state, which thankfully has a level of democratic control that private institutions do not, the most significant, being public elections.
Bolstered by the need for greater revenues to increase public investment and a basic moral principle that those who benefit the most should also contribute the most to society, the wealthy should pay a much greater share of taxes than they do now.
As for the fiscal cliff and deficit reduction, I agree with Paul Krugman that deficit hawkery is effectively a fear tactic, that plays on the public’s anxiety about high levels of debt, in order to cut social safety networks, necessary programs for the good of the public that the wealthiest, no longer wish to support.
This game of chicken that the budget hawks are playing serves only one purpose, to waste a tremendous amount of time and energy distracting the public from the real issue at stake here: tremendous social inequality due to regressive tax codes and low public investment which perpetuates depression economics. Indeed, if the hawks are at the helm, America would be turning the clock back to a sort of feudalism, held in place by the iron chains of repressive economic policy and social inequality.
And that is why the election of Barack Obama last Tuesday was an important step in fighting back these attempts. He was elected on a clear mandate to up the ante on progressive economic policy, or more explicitly, to tax the rich and increase public investment. If the opposite sentiments prevailed, then Mitt Romney would be the president-elect. Thankfully, that is not the case.