Illustration by Tim Denee – www.timdenee.com
Stock markets jittery, the price of gold heading through the roof… the vandalising of the US economy by the Republican Party is showing every sign of having global repercussions, as last week’s concerns about debt have mutated into this week’s concerns about growth, or likely lack of it. As night follows day, that’s what happens when you impose the massive spending cuts central to last week’s Obama/Republicans debt ceiling deal onto a US economy still barely flickering back into life after the global recession. US employment and consumer spending, in particular, has barely come off life support. The last thing needed – in the US or Europe – is another round of austerity for low and middle income earners.
In any sane world, the lethal cocktail being administered to the US economy – the ongoing Bush-era tax cuts for the rich plus the latest round of spending cuts on government programmes – should consign this ideology to the trashcan of history. Without the Bush era tax cuts for the wealthy – and the wars in Iraq (also started by you-know-who) and Afghanistan, there would be no debt crisis in the US. Juan Cole as usual, sums it up pretty well – and do check out the startling graph on debt, wars and tax cuts that accompany his post:
Standard & Poor’s is saying that if you project out the US structural deficit– caused mainly by the Bush tax cuts, prescription drugs give-away and debt-financed wars–over the next ten or fifteen years, it is going to get worse and worse because rich people have started refusing to pay their taxes in the US…..There is a long-term structural deficit that the Republicans in Congress are refusing to allow the country to redress.
People who say that the rich ‘create jobs’ and that taxing them would hurt the economy have to explain why corporations are making record profits but the rest of the population is increasingly living on food stamps.
There is no good structural reason to entice and reward the wealthy with tax breaks. More often it is ordinary people, and not the rich, who create jobs – by buying goods and services. The example used by Cole (of taxes paying for a public good that the wealthy benefit from more than most) has special relevance for New Zealand, given the close attention customarily paid by Key’s heir apparent and Transport Minister Steven Joyce, to the wishes of the roading lobby:
The wealthy use the nation’s highways to transport their goods around the country. Interstates mainly benefit trucking companies and their clients. It is the trucks that are hard on the roads and require them to be rebuilt every summer. The highways are paid for by taxes. When Congress lowers taxes on the wealthy, it is saying they don’t have to pay for this public good that they benefit enormously from. It is saying that the people who make $50,000-$200,000 a year have to pay for the highways instead. And if the government uses tolls to pay for the highways, it is saying that even the minimum wage worker who uses a toll road to get to a fast food restaurant for employment has to pay for these highways and for the constant damage to them done by the big trucks serving the corporations, who are now held harmless from paying their fair share. Reducing taxes on the super-wealthy is a way of increasing taxes on everyone else…..
Not that Standard & Poor’s is too concerned about that sort of thing. They’re a credit rating agency, after all. As Cole says, what they want to know is how the Obama government plans on paying back the trillions it is having to borrow, given that – for now at least – it won’t tax the people who have trillions of dollars. “They [Standard and Poor’s] don’t see how it can be sure of doing so with real dollars that are worth anything (the US government can always print more money to “pay,” but that will cause the real value of the currency to fall). So they are warning investors about that. The likely outcome is that it will be more expensive for the US government to borrow money, which will worsen the debt crisis.”
If the current settings are maintained… namely, of tax breaks for the wealthy and spending/services cuts for everyone else… we can be reasonably sure of the outcome. There will be slow or negative growth in employment, little in the way of consumer spending, further pressure to sell state assets, and a further cycle of cuts in government spending… all culminating in minimal economic growth, if in fact, we manage to avoid a dip back into outright recession. Despite the way this dismal prescription has been administered in New Zealand, managing the economy is still seen by voters as one of National’s electoral strengths.