The bursting of the housing bubble and the imploding financial speculation the bubble encouraged are no long well-contained, contrary to the promises of most of our national leaders. Foreclosures are on the rise, and state budgets are feeling the pinch. Since most states have constitutional provisions prohibiting deficit spending, they have an enormous economic stake in the outcome of the next federal election. Federal health, education, energy and transportation programs could both fill needed gaps and stimulate state and national economic rebound if Congress had the resources and the will to fund such programs.
Perhaps the most crucial economic decision of the new Congress will be whether to repeal the Bush tax cut for citizens earning more than $200,000 a year. If Congress has the courage to take the hard steps to restore a fair rate of taxation and spend the new revenues wisely, economic growth can be restored without ballooning deficits or a catapulting dollar. Voters should closely examine the commitments on these issues from all the candidates in the upcoming primaries and general election.
Preservation of the Bush tax cuts is a recipe for exacerbating a level of inequality not seen in this country since the twenties. The Center on Budget and Policy Priorities notes that over the next decade more than $1 trillion would go to the top 1% of income earners, those with incomes in excess of $400,000 a year.
Bushs defenders maintain that keeping taxes low is the key to economic progress. The wealthy invest their money in capital markets, buy luxury items, and hire personal staff. Yet much of the inordinate wealth accumulated in this decade has been a reward for privileged access to insider information, manipulation of arcane securities, no bid contracts and other means of restraining trade. In addition, the recovery from this decades earlier stock market bubble was anemic at best and has been followed by another bursting bubble and a near financial meltdown that has jeopardized the entire US economy. The combination of huge pools of discretionary income, lax financial regulation, and a Federal Reserve able and willing to rescue the big players has generated an unstable Ponzi economy and sluggish levels of growth.
Repealing Bushs tax cuts for the wealthy would yield about $60 billion a year while making hardly any dent in the lives of the most affluent. Many business leaders argue that if government lays its hands on this money, its spending is sure to be less productive than the investment and consumption choices made by business and the wealthy. Yet beyond the sorry performance of the wealthy and the financial markets in the last decade, there are other good reasons to suggest that increased public sector spending is what this economy needs.
Robert Pollin, co-director of the Political Economy Research Institute (a very readable source of some of the best progressive scholarship), points out that expansion of such federal programs as loans and capital grants for home weatherization, mass transit, and other forms of energy conservation are a kind of two-for. These investments cut costs for the average citizen and reduce our dependence on foreign oil and foreign capital flows. They also generate more good paying jobs here in the United States than do most of the expenditures of the wealthy. Expenditures on education and even in home retrofitting and weatherization involve primarily labor purchases. These jobs also pay more than those labor expenditures typically made by the wealthy, including hotel and restaurant workers and housekeepers. Higher pay for these jobs in turn leads to more domestic expenditure, reductions in the unemployment rates, and overall reductions in inequality.
Expenditure of such funds by the Federal Government does not and need not mean Federal control. Block grants to states for health, education, and energy give states considerable flexibility in establishing and meeting priorities. The decisions that states make in these areas are at least as transparent and accountable as those of the hedge and private equity funds that currently hold such sway over the economic fate of many communities. Since many transportation and energy decisions by individual market participants have spill-over effects on a wider community or involve levels of expenditure or coordination that even large firms are unlikely to undertake, public expenditure is vital.
Nor can individual states be expected to bear these burdens. Not only do states compete often too heavily through tax cuts, the benefits from sound energy, transportation, educational, and health decisions affect other neighboring states. A free rider problem emerges, where each state simply waits for its neighbors to act. And when all states begin retrenching and the Federal government retreats, states and local governments pay a dangerous game of triage with bridges and highways, mental health facilities, and even prisons. One of our most important responsibilities is to ask all our candidates where they stand on continuation of the Bush-era tax cuts and how they plan to fund desperately needed public priorities.
John Buell lives in Southwest Harbor, Maine, and writes regularly on labor and environmental issues. Email email@example.com.
From The Progressive Populist, February 15, 2008
Subscribe to The Progressive Populist