Legislators tend to point at wasteful discretionary spending, a politically safe area of the fiscal tree to prune, and accuse one another of excessive earmarking and other sundry misappropriations. However, discretionary spending is a small percentage of the national whole, about 18%. Entitlements like Medicare, Medicaid, and Social Security are far larger pieces of the federal pie, totaling 54% of the total national spending budget. However, voters are traditionally resistant to any change in their entitlement benefits and politicians are resistant to voting for anything that will hurt their chances at re-election. Of course, there’s been very little talk of making cuts in the Defense budget, larger than any other single appropriation in our national budget at 20% of the pie. It’s also, coincidentally, more than has been spent on our military since before the Cold War. In one way or another, legislators have decided (and fairly persuasively, according to voters and the media) that the way to put our fiscal house in order is to make cuts.
Don’t raise taxes.
Don’t increase the tax base.
Don’t touch entitlements.
Don’t hurt your chances for re-election.
The fact is that we are deficit spending anyway we look at it, and hacking and slashing national spending is not going to revive our economy the way that supporters say it will. The common approach in this case, particularly advocated by the Republican Party, is to not only to make drastic cuts in spending but to also cut taxes for the wealthy. This is a trademark conservative platform; the assumption that those ultra-wealthy will stimulate the economy by spending their untaxed income. There has never been any evidence that this economic stimulus approach works. Afterall, the Bush Administration tried these tax-cuts for the wealthy in savings did not improve. In fact, savings declined and even reached zero several of those subsequent months.
Spending cuts and tax cuts; that is the fundamental approach by our government when economic times are tough. Why? Because short-sighted rich people have hijacked the political process. Spending cuts don’t directly affect these people, but millions in tax deductions and cuts sure do, as do economic policies that directly benefit corporations and companies of which they’re often shareholders, or that donate to their campaigns.
Joseph Stiglitz, economist and blogger, heavily criticizes our federal policymakers for exactly this kind of unethical game playing. Stiglitz, in an interview yesterday on NPR, accuses political and economic leaders of overemphasizing deficit spending and the national debt, and attempting to overshadow unemployment. Stiglitz argues that the most intelligent, practical way to reduce the deficit is to aggressively create jobs for unemployed Americans. This investment, he says, “has two effects. It grows the economy today by increasing productivity and decreasing social welfare output, but it also increases the future potential output of the economy.” This has the added effect of increasing tax revenues exponentially through the entire period of job growth and beyond. It may mean running up continued deficit spending in the short term, but long-run benefits are undeniable.
If the solution is creating jobs, why haven’t there been more efforts to do it? Why is our unemployment rate still floating just under 10%? The Obama Administration has taken steps to increase job growth, but they’ve been poorly directed (roads only create so many jobs) or watered down by political opposition in the House. The real issue is that out political leaders in D.C. (and many states) aren’t thrilled with the idea of spending money on putting people back to work. On one hand, tax cuts benefit many of these folks directly. On the other hand, putting people back to work means removing some of the poor policies that allow companies to do more with less. Taking subsidies away from agribusiness or closing up tax loopholes for pharmaceutical companies may really put a dent in these people’s campaign finances come the next election.
Nationally, the economic conversation has been manipulated on so many levels that even our elected officials even seem to believe their own stories. Tax cuts for the wealthy stimulate nothing but the wealthy. Creating tax-benefits and reducing regulations for corporations similarly does not benefit the greater American workforce (Oil companies are reporting historic profits while Americans are paying $4.00 a gallon at the pumps). This is classic supply-side economics; a policy failure dating back to the Reagan administration of the 1980’s and a thinly veiled show of American greed.
I’m sorry to say it but thirty years later I don’t see much changing. It’s going to take a concerted grassroots effort at informing middle-class Americans about some hard economic truths, removing those elected officials that have been lining their pockets with preferential policies, and specifically outlining what we want out of those elected officials that are left. I’m not a Tea Party activist by a long stretch, but it is definitely time to “clean house”.
Photo from nj.com by Saed Hindash