While President Obama and Congressional Republicans try to find common ground on how to reduce the deficit, the issue that does not get attention is the fact that in a recession such as we are experiencing, cutting the federal budget will not help create jobs or stimulate the economy. Congressional Republicans have demanded $2.4 trillion in budget cuts, and the Obama Administration is projecting cuts of $4 trillion over the next decade. To end the recession and create jobs, spending must increase. Budget cuts and deficit reduction measures only add to job loss and decreased spending thereby exacerbating an already serious economic situation.
There are two sides to any budget – income and expenses. Any serious effort to reduce the deficit should look at both sides of the federal budget. However the Congressional Republicans have signed a “no tax pledge” forbidding their members form considering any new taxes. Since the federal government gets its income solely from taxes, this pledge has taken the income side of the budget off the negotiating table. So the conversations between the Republican leadership and the White House are focusing on budget cuts to reduce the deficit. But it is current tax policy, formulated since the Reagan era that has reduced taxes on the wealthy while increasing the federal budget deficit.
In1980, the top 1% of the wealthiest Americans earned 10% of total income, today that number has increased to 20% of total income, during this same period they enjoyed a reduction in their tax rate from 70% to 35%. However since most of their income is not from wages but from investments, they pay a mere 15% capital gains rate on the bulk of their income, resulting in an effective tax rate of a approximately 17%.
However, the Republican mantra of cutting the deficit while not allowing any new revenue sources appears to be a smokescreen for gutting the already tattered social safety net. Take the recent extension of the Bush-era tax cuts for example. Fully fifty-five per cent of the benefits went to the top 10% of highest income households. The top 1% of income households received 38% of the benefits, and if that is not enough, the top .01% received an average of $520,000 in tax benefits as a result. Congressional Republicans held fast to their beliefs that letting these tax cuts for the wealthiest Americans expire would hurt he economy. This in spite of the fact that these tax cuts were awarded to wealthy Americans before the economic meltdown and did nothing to prevent it and may have been a factor contributing to the meltdown.
Candidate Obama pledged to let these onerous tax cuts for the wealthy expire when their authorization ran out in 2011, but President Obama caved into Republican demands and signed legislation extending the cuts. This is spite of the fact that in their first seven years during the Bush administration, these tax cuts contributed $1.7 trillion to the deficit. Just this one item alone, could account for almost half of the proposed budget cuts. In addition to these tax cuts favoring the wealthiest Americans, there are a host of tax loopholes and subsidies for corporations and wealthy Americans, that the Republicans are refusing to close while looking at the social safety net, supports for the most vulnerable among us, to make up the shortfall. In Republospeak, closing a tax loophole or ending a needless and wasteful corporate subsidy is the same as raising taxes. Preserve this tax largesse to the wealthiest among us while demonizing the poor and elderly so that they can be targeted for devastating cuts.
Take Medicaid for an example. The $100 billion proposed cut to Medicaid, the health insurance program for families living under the federal poverty level, will reduce the quality and availability of medical care for millions of low income families, placing a greater burden on states to maintain minimal levels of care. According to Families USA, in just one state, - California – the proposed Medicaid cuts will result in the loss of 187,610 jobs and more than $24 billion in state business. This does not include the increased cost of emergency room care when Medicaid recipients do not have proper preventive health care available. The New York Times has reported that children on Medicaid are more likely to be denied service by medical specialists, and when they are seen they must wait longer for appointments than those with other types of health insurance. As bad as this situation is, it will only get worse when the cuts are implemented.
In a display of political irony and callousness, Governor Walker of Wisconsin has proposed cutting Medicaid which serves 20% of the state’s population by $500 million, while at the same time proposing to increase payments to cover the cost of “burying Wisconsinites who die destitute.”
The current negotiations between the White House and the Republican leaders of Congress was never about the deficit, it is a poorly camouflaged attempt to roll back and gut services for low income and elderly citizens while ensuring increasing profits for the wealthiest Americans. And oh, by the way, while the Republicans scream about raising the debt ceiling and play a game of brinkmanship, it would be good to remember, that while President Bush was racking up the largest deficit spending in history the Republicans voted to raise the debt ceiling four times. Perhaps the real tragedy here is that President Obama has partially bought into their line of thinking.
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