What’s wrong with Obama’s tax-bill compromise

There are four basic issues with the tax deal President Obama announced Monday: economic stimulus, fairness, the federal deficit, and (surprise! It has nothing to do with the basic issues) social security. Let me take them in order.

1. Economic stimulus. In times of recession, government is supposed to put more money into the economy than it takes out — i.e., run a deficit. It can do this in two ways: spend more, or tax less. Spending more provides a more direct link to jobs, since jobs are created directly by the spending; it also allows government, through democratic processes, to determine what the public priorities are. We could spend a lot on a high-speed train network, renewable energy, education, and other things everyone agrees are desirable. Tax cuts for working people also lead pretty directly to jobs, since people are likely to use the money to increase consumption. Tax cuts for the rich are another matter — the rich can consume as much as they want already (that’s what “rich” means), so they will invest the money. In the 1980s, Reagan argued that there wasn’t enough investment money around to get the economy moving, so he turned to tax cuts as a “supply-side” stimulus. Whether or not that was right then, it is certainly not right now. The problem is just the opposite — because most available investments are risky, investors are sitting on their money. So tax cuts from the rich are not likely to lead to jobs at all.

2. Fairness. Ever since the Reagan administration, the capitalist class has been continuously increasing its proportional share of the national income. There are many parts to this: lower taxes for the rich, higher taxes for the poor; eliminating the estate tax, so that the children of the rich can be rich without having to work; limiting the power of labor unions, the major institutional force for greater equality, by weakening the labor laws (see Michael Goldfield’s book The Decline of Organized Labor in the United States); and now, the Citizens United decision permitting corporations to spend unlimited money to influence elections. This involves more than fairness – it’s also a matter of power. Money buys power, so as the rich get richer it becomes harder and harder for the rest of us to bring fairness back into the system. The progressive alternative was to give everyone a tax cut (that is, extend the existing tax cuts) on income less than $250,000 per year. The compromise accepts the Republican alternative to give those with higher incomes an additional, larger tax cut. This is contrary to fairness, and should be rejected. (The package does contain one progressive component, extension of the Earned Income Tax Credit. This is the only part of the tax package that gives more to the poor than to the rich.)

The Federal Deficit. As I said in the stimulus portion above, a deficit is a good thing right now, but it should be the kind of deficit that goes away with prosperity. Spending more on unemployment compensation is a good example; with prosperity, unemployment goes down and so does spending. But extra tax cuts for the rich are a permanent hole in the government’s ability to do positive things.

Social security. The most outrageous part of the deal is the “temporary” cut in payroll taxes. For years the establishment has been howling that the social security trust fund is going broke. It isn’t, but that’s the topic for another essay. However, it will go broke if we cut the flow of revenue into the fund. All the conservatives complaining about social security should be complaining about this – they are not, only because they understand that this payroll tax cut will achieve their real objective: destroying social security. As Jed Lewison has been pointing out on Daily Kos, there will be just as much pressure to extend the “temporary” payroll tax cuts when they expire as there is to extend the “temporary” Bush tax cuts today. Labor Notes has a good article with further analysis of this point.
Obama’s tax deal gets some temporary good things by making some bigger bad things permanent. I hope it is defeated.

Veterans Day vs. Armistice Day: What’s in a Name?

In 1954 the holiday formerly known as Armistice Day, which celebrated the Armistice that ended World War I, was renamed “Veterans Day” in the United States. This was ostensibly due to a belief that all veterans should be honored, not only those who fought in World War I. However, the change has greater significance.

Most importantly, Armistice Day glorified peace, while Veterans Day glorifies the sacrifices of war. Partly, this is because of the date: the end of the war, not the decisive battle or the turn of the tide (like D-Day, for example). Beyond that, Armistice Day kept alive at least some understanding of how the armistice came about: through the revolutionary uprising of the German people, which began with a naval mutiny in Kiel and Wilhelmshavn on October 29-30 and spread rapidly through the entire country, bringing the Socialist Party into power, electing revolutionary councils, forcing the abdication of the Kaiser, and proclaiming a republic in Germany on November 9. The military, which had been resisting Woodrow Wilson’s peace terms, now had no choice but to accept them, leading to the Armistice on November 11.

The revolution did not fare well. Socialists and Communists were unable to work together, leading to a left-wing insurrection in Berlin in January 1919 that was put down by the military, and the resulting murder of Rosa Luxemburg and Karl Liebknecht, the leaders of the Spartakusbund. The bad blood between these two left parties made it easier for Hitler to come to power, as they were unable to unite against him. All the same, November 11 marks the ending of a war by a popular revolution, and it is unfortunate to see this history forgotten behind the name of “Veterans Day.”

For more about the revolution, you can read Pierre Broue, The German Revolution, 1917-1923 or Paul Frohlich, Rosa Luxemburg.

The strikes in France

The press reaction to the strikes in France is sort of amazing. In the depression of the 1930s, people thought that strikes and protests were perfectly natural. In fact, most of the social benefits that governments provide — both in the US and in France date from that period: think of the Social Security Act and the National Labor Relations Act, for example.

The press reaction has been along the lines of ‘Those silly French – why don’t they want to postpone retirement?’ Similarly, I heard one commentator on NPR mention that the last Socialist government in France had tried to move to a 35-hour work week, which the commentator thought that France ‘obviously’ couldn’t afford. (I know, I should give names and citations, but i was listening on a car radio while driving and didn’t get the details).

Just think about it — in a period of high unemployment, what would be the result of shortening the work week? More job! Less unemployment, as the amount of work available was spread over more people. That’s not unaffordable indulgence, it’s about solidarity.

The more basic issue is who should pay for the crisis. Investment bank executives continued to pay themselves huge bonuses after their banks went broke. Right now in the US, the right wing is arguing that we can’t afford to let the Bush tax cuts for the rich expire — in other words, that higher incomes for the rich help the economy.

In fact, it’s just the other way around. Higher incomes for the rich just fuel speculative investments, like the recent bubble in mortgage-backed securities that triggered the crisis when it burst. It can’t fuel productive, job-creating investment, because there is no demand for the additional products that such investment would produce.

On the other hand, higher income for working people would generate increased demand, since it would put more money into the pockets of people who are struggling to get by, and therefore spending everything they take in. That’s precisely what is needed now.

Earlier retirement spreads the existing jobs around, and it puts more money into the hands of working people — so it’s just what is needed in this crisis. The French strikers are right.

Reference: For a good analysis of the causes of the crisis, see Martijn Konings, ed., The Great Credit Crash (London: Verso, 2010).