We here in the United States have had it pretty doggone good for a long, long time. We’ve been riding the gravy train for decades, borrowing from tomorrow so that we can have it all today…
April 18, 2009 — In the wake of nation-wide “tea parties” on Tax Day this year, another teacher and I had occasion to discuss our different views. In as much as his political persuasion is strongly conservative and mine is more liberal, I celebrate the fact that we are able to have civil, respectful discussions like this. He, by the way, used to teach advanced macroeconomics at the high school level while I teach the same subject currently.
My colleague said that he thought these protest demonstrations (they were a pretty big deal for conservative voters here in Texas) were entirely appropriate. My position was that they were less about taxing and spending and more about protesting the fact that Democrats have taken control of Washington and are now in a position to push their liberal agenda on a wide range of issues. Based on some of the protest signs I saw in news coverage by the various networks including Fox, I also said that I thought many attended because of the outrage they feel at having an African American in the White House. He disagreed saying that he thought the primary focus of the demonstrations was on the economy and that the right thing to do to combat the recession would be to reduce taxes even more and to tighten governments’ belts: local, state and federal.
I reminded my colleague that this is exactly what government did prior to and during Hoover’s one term as president. This was during the recession that took hold of us in the 1920s, the resession that bloomed into the Great Depression of the 1930s. We have learned from that experience, at least some of us have, that tightening the money supply and reducing government spending only serves to exacerbate the decline of aggregate demand, and it is aggregate demand that drives the economy, not aggregate supply. Supply only follows demand or the anticipation of improved market conditions as businesses have no motivation to produce goods and services that cannot be sold — hence higher unemployment during recessions. My colleague teaches U.S. History now, by the way.
My colleague countered with the view that raising taxes on people who earn $200,000-plus, which is what he said the president’s tax provisions in the current budget plan will do, will hurt small businesses causing them to have to scale back on production and services.
Hmmm… no one, it seems, enjoys having to pay taxes, but — and I pointed this out to my colleague — the Obama administration and the Congress is not raising taxes this year on people making more than $200,000. Their taxes will not change until after the Bush/Cheney tax cuts expire, and that won’t happen until the end of the year. When it does, their marginal rate will increase by only 2 percent. This year, everyone making less than $200,000 will see their federal taxes decline.
We here in the United States have had it pretty doggone good for a long, long time. We’ve been riding the gravy train for decades, borrowing from tomorrow so that we can have it all today, which has allowed the rich to get ever richer while the earning power for all the rest of us has actually declined. Investment bankers and senior executives of major corporations are laughing all the way to their off-shore, numbered bank accounts. According to the text book from which I teach my high school seniors, because of inflation and the demise of manufacturing in the United States, the minimum wage, as a percent of average manufacturing wages, buys only about 70 percent of what it did in 1968.
On the right is a listing of countries’ average taxes paid in 2007 by citizens as a percentage of their GDPs. Notice how the United States is ranked. I found this information on the Internet at Wikipedia. The data came from a publication by the Organization for Cooperation and Economic Development. After Obama’s tax cuts for 95 percent of the population are approved and implemented for 2010, we will probably be paying slightly more than South Africans do. Can you even imagine what Japan’s taxes would be like if they had anything like the defense budget to fund that we have? Further, since Obama’s cuts target the preponderance of citizens who have the highest propensity to consume, our aggregate demand will increase and short-range aggregate supply will respond returning us to full employment — eventually, all of which is text book macroeconomics. So, I told my colleague, I can’t quite understand why Republicans and Libertarians believe that making the Bush/Cheney tax cuts for the super rich permanent would be a good thing for the economy, unless y’all still believe in Say’s Law, i.e., that supply creates its own demand. Trickle-down/supply-side economics has failed us. That is why we are in our current situation. That is why it is time for change, time for us to adopt the bottom-up approach that Obama and all his economic advisors support.
Yeah, but what about the massive government spending in the Democrats’ budget plan for 2010? It’ll generate a 1.2 trillion dollar deficit at projected revenue levels. Yes it will. But where was the conservative base of the Republican Party for the previous eight years? Why weren’t they protesting the spending that exceeded revenues during the Bush/Cheney years, years when we weren’t having a recession, years when we should have been balancing the budget or better yet, paying down the national debt — saving for the next business cycle decline. During the Bush/Cheney years the national debt grew from $5.66 trillion to $10.62 trillion? So, the only truly conservative president we’ve had in recent years was Bill Clinton.
Yes, once we are out of this recession, it is reasonable to anticipate that tax levels will rise for those who can afford it, especially if reasonable leaders are still in power and if we don’t get control of rising health, energy and education costs. But we’ve a debt to repay to future Americans, my sons and daughters and yours. We need to be about repaying it — and I for one think that those who can do more should do more.
No, the tea parties were not about taxing and spending — big government vs. small government. No matter what the demonstration organizers claim, the demonstrations were about a whole host of “social” conservative-value wedge issues, issues like abortion, gay rights, gun control and… sadly, race. Yes, race. The demonstrations were about consolidating elements of the GOP that have been fragmented by the last two elections. The demonstrations were about salvaging the Republican Party in advance of the mid-term elections in 2010. And if some in attendance actually thought they were there about taxing and spending, they were misinformed — misled by the money interests in this country, which are the real base of the Republican Party.
When the Bush/Cheney tax cuts expire in 2010, the rich will still be rich and everybody will be better off with the economy on the mend.
I invite your comments whether pro or con.