Making a judgment on the tax deal

What should progressives think about the proposed tax and unemployment insurance deal announced by President Obama? Here are some quick notes, meant as background resource for the discussion – more of a blog posting than an organized article.

Some disclaimers:
1) I have not studied the plan in detail, nor much of the commentary.
2) If I was in Congress, I don’t know how I would vote. See the final paragraph.
3) I don’t discuss the need for organized mass movements. So far, massive protests and general strikes in Greece, France, Portugal and Ireland have not defeated austerity programs there. But it is certain that without massive organization and mobilization, neither the workers in Europe nor those in the U.S. can win. Far too much attention is paid to quarterbacking presidential and congressional tactics.

A few background facts

* The economic crisis continues for the majority of working families.
* The richest 1 percent have seen their income triple in the last 20 years. Most of the rest of us have stood still or moved backwards.
* The Bush tax cuts did little to stimulate the economy – the recovery from the Bush-II recession was the weakest since World War II.
* The Clinton tax increase on the wealthy in 1993 did not hurt the recovery from the Bush-I recession. That recovery resulted in the lowest unemployment in decades.
* Corporate profits are at record levels, Wall Street bonuses still in the stratosphere, and the super-rich are rapidly regaining the dizzying heights they occupied before the current crisis hit.

Some things in the deal that are bad

* Provides tax breaks for the super-rich – money they don’t need. Giving more money to rich people might boost sales of luxury cars or even yachts. But it is likely that the CEOs of Goldman Sachs, JPMorgan Chase, ExxonMobil, and News Corp. (Robert Murdoch) – each of whom will receive more than $1 million from this deal – already have as many yachts as they need. This does little to stimulate the economy, and increases the wealth and power of a class of people whose actions are increasingly destructive to the economy and the general welfare.
* Allows a huge $5 million to $10 million exemption for inherited wealth, and a very low rate of 35 percent above that. Allows further growth of a parasitic, hereditary aristocracy in the U.S.
* Continues the hedge fund managers’ loophole and special treatment of capital gains and dividends, rewarding rich people for gambling in the financial markets.
* Allowing corporate tax deductions for 100 percent of new investment is a giveaway. It creates very few jobs, at high cost.

Some things in the deal that are good

* Avoids increasing taxes on working families. A worker making a typical wage will avoid a tax increase of about $800 a year.
* A 2 percent reduction in the payroll tax, thereby increasing workers’ take-home pay. This replaces the more progressive Obama stimulus “making work pay” credit.
* Continues a college tax credit, and a few other good things.
* Extends for another year Temporary Extended Unemployment Compensation (TEUC – extended unemployment benefits for up to 99 weeks).

Defending and condemning

President Obama defends the deal. “This isn’t an abstract debate,” he said. “This is real money for real people and it will make a real difference in the lives of the folks who sent us here. I’m not here to play games with the American people or the health of our economy. My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation. My job is to look out for middle-class families who are struggling right now to get by, and Americans who are out of work through no fault of their own.”

Any criticism of the deal that ignores the issue of Temporary Extended Unemployment Compensation is irresponsible. If you condemn the deal, you have to explain how you will win the fight for unemployment benefits for over 4 million families, 1 million of whom have already been cut off.

Getting the economy moving: how?

On the other hand, the president says, “My job is to do whatever I can to get this economy moving. My job is to do whatever I can to spur job creation.” But although this deal prevents some backward motion, it does not include any of the urgently needed measures to accomplish those goals (getting the economy moving and job creation). Those measures were never even on the table for negotiations. I agree with Campaign for America’s Future leader Robert Borosage on this point:

“In a period of mass unemployment, the result of failed conservative economics, we get in return a largely conservative recovery package built around tax cuts. No public investment to create jobs. No aid to states and localities to save the jobs of teachers and police. No investment in new energy to keep us from defaulting in the race to capture a slot in the green industrial revolution.” Borosage goes on to acknowledge the positive features of the deal.

Sen. Bernie Sanders, I-Vt., also makes the point: “… if we’re serious about creating jobs in this country, which should be our main priority, that’s one of the worst ways to do it. [It’s] much better to take that money, invest in our roads, bridges, railroad systems, infrastructure. You create jobs doing that.”

Deficit argument is a mistake

Progressive critics of the deal make many good points about its weakness. But they tend to emphasize the budget-busting aspects. This is a mistake.

For example, Congressman Peter Welch, D-Vt., calls the plan “fiscally irresponsible. Adding $700 billion to our national debt, as this proposal would do, handcuffs our ability to offer a balanced plan to achieve fiscal stability without a punishing effect on our current commitments, including Social Security and Medicare.” Nancy Pelosi issued a statement saying, “Any provision must be judged by two criteria: does it create jobs to grow our economy and does it add to the deficit?”

As a growing number of economists agree, including some conservative ones, deficit spending is both necessary and good for the economy as a temporary measure. As economist Dean Baker sums it up: “Of course we would be much better off if the $50 billion going to the rich each year instead went to other purposes, such as preventing cutbacks by state and local governments or rebuilding infrastructure, but if the question is whether the economy will do better with the tax cuts or a smaller deficit in 2011 and 2012, the answer is that we will unambiguously do better with the tax cuts to the rich.”

And, we might add, the extension of unemployment insurance and tax breaks for working families are a positive good, not just a necessary evil.

By using the deficit as an argument, progressives give ammunition to the Republicans when, early next year, they will attack every useful government program in negotiations over raising the debt limit. Whatever was gained in this deal, and more, could be lost in this coming battle.

Whatever the politics, the economics of this are clear. While the economy, and the working class, are suffering from an economic depression, the deficit is not a problem. Deficit spending is necessary to overcome the crisis. The main problem with tax cuts for the rich is not that they cost $50 billion per year. It is that the $50 billion, and more besides, would be much better spent on other things.

Making a judgment

Spending money on tax cuts for the rich stinks. It is offensive to the majority of working Americans who are suffering in this economic crisis. And it is bad economics. But if it is a price necessary to continue unemployment benefits for millions of families, and to prevent a tax increase for all workers, it might be worth it.

The real weaknesses of the compromise are not what it contains, but what it does not contain. Federal intervention is urgently needed to prevent massive spending cuts and tax increases at state and local levels. Federal intervention is urgently needed to directly fund infrastructure and other jobs-producing, useful and necessary investments. But there is a real threat that the corporate-based ruling class, acting through the Republican-Blue Dog block in Congress, will go in the other direction.

They will try to prevent any of the necessary actions, and attack Social Security, Medicare, health care, education, and every program that benefits the people. To the extent they are successful, recovery from the economic crisis will be difficult, and the likelihood increases of a deeper depression, with double-digit unemployment, continued foreclosures and evictions, and deterioration and breakdown of local government services. The political judgment of the compromise should be, at least in part, based on whether it strengthens or weakens the forces that are opposing this corporate-Republican plan.

Photo: Jobless workers wait in line for information on unemployment benefits and job listings in Las Vegas this September. (AP/Julie Jacobson)



Art Perlo
Art Perlo

Art Perlo lived in New Haven, Conn., where he was active in labor and community struggles. He did research and writing on economic issues in Connecticut, including work with the Coalition to End Child Poverty in Connecticut which helped pave the way for the movement for progressive tax reform in the state. He wrote on national economic issues for the People's World and was a member of the CPUSA Economic Commission.