Obama faces open rebellion amongst Democrats for his capitulation to extending the Bush-era tax cuts… Why?
Apart from its extraordinary cost and regressive impact (helping most those who need it least, while helping least those who need it most), the tax deal negotiated between the president and the Republicans has another fatal flaw:
The “Tax Deal” confirms the republican false-dawn worldview.
Americans want to know what happened to the economy and how to fix it. The republicans have a story… and they tell it well — the same one they’ve been indulging for thirty years: The bad economy is big government’s fault and the solution is to shrink government. Yawn.
Obama’s capitulation is so harmful to the nation: At a time when income inequality has reached record levels in modern America and crippled our democracy, Obama has given in to bullies who made increased inequality their central goal.
THE REAL STORY: For three decades, an increasing share of the benefits of economic growth have gone to the top 1 percent of citizens. Thirty years ago, the top earners took 9 percent of total income. Now they take in about a quarter of all income. Meanwhile, the earnings of typical earners have barely budged and, in fact, declined in real terms. Ahhhh… So Sad.
So sad? Yes… The vast middle class no longer has the purchasing power to keep the economy growing, at least as a consumption-based society. Plus, the wealthy (which by-the-by does not include those making just a few-hundred-grand-a-year) spend a much lower portion of their incomes, creating a drag on the overall economy.
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The crisis of this confluence was averted before now only as middle-class families found means to keep spending more than they took in: • by women going into paid work, • by working longer hours, and finally • by using their homes as collateral to borrow.
When the housing bubble burst, this shell game ended: • by destruction of nearly all home equity, • by desperate families raiding 401k investment portfolios for survival, and • by wholesale liquidation of 401k and IRA accounts by long-term unemployed middle-class households.
- The middle-class no longer has significant financial resources and is constrained by stagnant cash flow,
- while the wealthy can only purchase so many more trinkets, such as private workout facilities in homes, exotic cars, artificial waterfalls in landscaped yards, etc.
- Small businesses flounder with restrained cash flow and lack of access to financial liquidity,
- while large businesses hoard cash,
- refuse to hire in large numbers
- pass along increased health care costs to beleaguered employees, and
- sit “Waiting for Godot.” (That one will test your literary knowledge)
THE SOLUTION is to reorganize the economy so the benefits of growth are more widely shared:
- Exempt the first $20,000 of income from payroll taxes, and
- apply payroll taxes to incomes over $250,000
- Extend Medicare to all
- Extend the Earned Income Tax Credit all the way up through families earning $50,000
- Make higher education free to families that now can’t afford it
- Rehire teachers
- Repair and rebuild our infrastructure, including the establishment of high speed rail networks and a more efficient energy grid
- Create a new WPA to put the unemployed back to work.
PAY FOR THIS PROGRAM by:
- raising marginal income taxes on millionaires (under Eisenhower, the highest marginal rate was 91 percent, and the economy flourished)
- A marginal tax of 70 percent on this earning more than $1 million a year would eliminate the nation’s future budget deficit
- In addition, impose a small tax on all financial transactions (even a tiny one — one half of one percent — would bring in $200 billion a year, enough to rehire every teacher who’s been laid off as well as provide universal preschool for all toddlers)
- Promote unions for low-wage workers.
HERE IS THE PROBLEM… OUR OWN “DEMOCRACY”
As income and wealth have risen to the top, so has political power. Money is being used to bribe politicians and fill the airwaves with misleading ads that block all of this. The Robert’s Supreme Court choked off the final breath of democracy in its United Citizens decision allowing corporations unlimited ability to fund political campaigns, shutting out any tiny little voice the “people” may have enjoyed.
The midterm elections offered dramatic evidence. NBC news reported shortly after Election Day, for example, that Crossroads GPS, one of the biggest Republican secret-money organizations, got “a substantial portion” of its loot from a group of extremely wealthy Wall Street hedge fund and private equity managers. Why would they sink so much money into the midterms? Because they’ve been so strongly opposed to a proposal by congressional Democrats to treat the earnings of hedge fund and private equity managers as ordinary income rather than capital gains (subject to only a 15 percent rate). In a word, greed.
This is the same power and privilege that sought and won the Bush tax cuts in the first place and took the largest share of its benefits. This is the same power and privilege that sought and won the estate tax phase out.
Maybe folks will start to see that “spreading the wealth around” a bit and imposing some tougher taxes on the uber-rich isn’t such a bad idea after all. I mean, the “tricklers” have had decades to prove their point that wealth trickles down, and failed; maybe now it’s time for the “spreaders” to have go. That WAS the Progressives’ point of electing Obama and his original agenda. Americans are optimists, so I guess people have to be eating dirt before they realize.
THUS, THE PROBLEM IS NOT BIG GOVERNMENT. THE PROBLEM IS POWER AND PRIVILEGE CONCENTRATED AT THE TOP.
THEREFORE… ANOTHER PART OF THE SOLUTION is to limit the impact of big money on politics:
- publicly-financed campaigns
- disclosure of all sources of political spending, and
- resurrection of the fairness doctrine for broadcasters.
By agreeing to another round of massive tax cuts for the uber-wealthy, President Obama confirms the Republican’s false story.
Cutting taxes on the ultra-rich while freezing discretionary spending (which he’s also agreed to do) affirms that the underlying problem is big government, and the solution is to shrink government and expect the extra wealth at the top to trickle down to everyone else… somehow… somewhere… sometime.
Obama’s new tax compromise is not only bad economics; it’s also disastrous from the standpoint of educating the public about what has happened and what needs to happen in the future. The President’s “compromise” reinforces the Republican story and ignores the truthful one Democrats should be telling.
Meanwhile, Obama launched another petulant attack on his strongest supporters. The administration’s daily floggings will continue until morale improves among progressives. Generations of political scientists will marvel at this administration’s self-destructive reflexes.