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Archive for November, 2010

Tax Cuts and the Deficit

It looks like the next big political debate will be about tax cuts. Why the Democrats didn’t want to have this debate before the election is beyond me — it would certainly have helped to make the point that they care about ordinary people. But for whatever reason, they let it go, and now have to try to get a vote in the House of Representatives structured the way they want it.

To put the whole case in a nutshell, what the Democrats want is what the country needs – tax cuts to put more money in the hands of those who 1) need the money, and 2) will spend it. That’s not the rich – they will invest it, and since we are still in the aftermath of a recession, with low consumer demand, it won’t make sense for them to invest it in something productive, making stuff that won’t be bought – so they will invest it in speculation, the stuff that brought on the recession in the first place.

Working people, on the other hand, will use the money to but things, like food, clothing, and housing. Since, again, we are in a period of low demand, that is just what is needed. For once, the Democrats are proposing more or less the right thing.

What what about the deficit? Won’t any tax cut at all make it harder to balance the budget? Yes, but – and this cannot be said too strongly — that is not a problem right now! Ronald Reagan, of all people, used to argue (following the work of economist Arthur Laffer) that cutting taxes would reduce the deficit because it would encourage growth. That didn’t work for Reagan, because he didn’t focus the tax cuts on people who would spend the money. But from the Keynesian point of view, cutting taxes is one way of running a deficit, and it’s really that deficit that is needed to create demand and get the economy growing. We should return to the concept of the”full employment budget” – tax and spending levels that would produce a balanced budget if we had full employment. In times of recession, tax revenues go down and spending (e.g., for unemployment compensation) goes up, while in times of prosperity revenues go up and spending goes down – so a full employment budget will produce deficits in times of recession and surpluses in times of growth, just what we want in the way of fiscal policy.

There are two complicating factors, however. One is that fiscal policy has to be supported by monetary policy. If the Federal Reserve is trying to fight inflation by reducing the money supply, fiscal deficits won’t work — they will put money into the economy through spending, but take it back out by borrowing to cover the deficit. A deficit needs to be combined with what we’re now calling “quantitative easing” – i.e., action by the Fed to create money to finance the deficit. This would be inflationary in the long run — but for the moment that is not a problem, since we are in a period of deflation.

Second, we probably do not have a full employment budget right now due to the ridiculously high level of military spending. This should be cut about 25%, which would solve many problems. Needless to say, getting all US troops out of Afghanistan and Iraq would help a lot with that! But there are plenty of other ways to cut it, as well.

The other problem is that the Republicans control the agenda of the House of Representatives, and have enough votes to support a filibuster in the Senate, and they are insisting that they will only allow a vote on a bill that includes tax cuts for the rich as well as for working people. I have a simple suggestion: the Democrats should offer a series of amendments that would prove irresistibly popular. The first would be what they are proposing now – tax cuts only for those with incomes below $250,000 per year. That’s pretty popular already, but if that fails how about cuts for everyone under half a million a year? A million? Ten million? I’d love to see Congress having to vote on a tax cut only for people with annual incomes over ten million dollars!

They could also propose even higher rates for those at the upper levels. How about a 95% tax on all income over $10,000,000? We had that (with a much lower cutoff) through the early 1950s, and it did not stop growth!

Just a few suggestions — I just hope that Congress, or the progressives in it, find the courage to fight this issue for.

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Veterans Day vs. Armistice Day: What’s in a Name?

In 1954 the holiday formerly known as Armistice Day, which celebrated the Armistice that ended World War I, was renamed “Veterans Day” in the United States. This was ostensibly due to a belief that all veterans should be honored, not only those who fought in World War I. However, the change has greater significance.

Most importantly, Armistice Day glorified peace, while Veterans Day glorifies the sacrifices of war. Partly, this is because of the date: the end of the war, not the decisive battle or the turn of the tide (like D-Day, for example). Beyond that, Armistice Day kept alive at least some understanding of how the armistice came about: through the revolutionary uprising of the German people, which began with a naval mutiny in Kiel and Wilhelmshavn on October 29-30 and spread rapidly through the entire country, bringing the Socialist Party into power, electing revolutionary councils, forcing the abdication of the Kaiser, and proclaiming a republic in Germany on November 9. The military, which had been resisting Woodrow Wilson’s peace terms, now had no choice but to accept them, leading to the Armistice on November 11.

The revolution did not fare well. Socialists and Communists were unable to work together, leading to a left-wing insurrection in Berlin in January 1919 that was put down by the military, and the resulting murder of Rosa Luxemburg and Karl Liebknecht, the leaders of the Spartakusbund. The bad blood between these two left parties made it easier for Hitler to come to power, as they were unable to unite against him. All the same, November 11 marks the ending of a war by a popular revolution, and it is unfortunate to see this history forgotten behind the name of “Veterans Day.”

For more about the revolution, you can read Pierre Broue, The German Revolution, 1917-1923 or Paul Frohlich, Rosa Luxemburg.

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Thoughts on the 2010 Election

I’m going to add to this later, but I have to say something about the election results! So here goes with a few bullet points:

  • The Tea Party had successes, but was a net loss for the Republicans. Hypotheticals are always uncertain, but it seems likely that the Republicans would have won the Senate elections in Delaware, Nevada, and West Virginia if the Tea Party candidates had not won the Republican nomination. That would have been a Republican majority.
  • Today’s Washington Post cites unspecified exit polls as finding that 23% of voters said that they were voting for the Tea Party while 18% said that they were voting against it.  That sizable left is not doing nearly as good a job at making itself heard.
  • The Right claims a victory when it ousts a moderate Republican, even if it means the Democrats win the election. By the same token, if to a lesser extent, the Left should consider the defeat of Blanche Lincoln a victory. True, she did win the primary, and true, she may well have lost anyway – but they did weaken her.
  • The underlying point of all this is that progressives need to move away from President Obama and start working for what they believe in in every election.

As I said, more later!

I expanded (briefly) on this analysis as part of the Presidents’ Roundtable at the Northeastern Political Science Association conference, Friday, November 12, at 3:45 PM in the Parker House. For a podcast of my remarks, see http://johncberg01.podomatic.com/.

November 10, 2010: See “Did the Tea Party Cost Republicans the Senate?” in Chris Cillizza’s Washington Post blog, “The Fix.”

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