The current gridlock in Washington is reminiscent of the debt ceiling debate over the summer. Democrats in Congress moved to raise the debt ceiling to prevent a default. Republicans in the House, though, saw this as a continuation of reckless government spending. The House, then, threatened to block any measure which would raise the debt limit without an agreement that slashes government spending. Democrats in Congress, desperate to prevent a default, abandoned all efforts to raise taxes on top income earners and agreed on measures to cut taxes and spending.
This was more than just a policy victory for Republicans in the House - they set a precedent for future economic policy. Freshmen in the House framed the debate by conflating the debt crisis with the recession and, ultimately, seized control of the issue when the Democrats compromised without receiving anything in return. From that point on, any bill considered in the Congress had to take care not to add to the debt. In light of this, President Obama has made it clear that the American Jobs Act is fully paid for by raising taxes on top income earners. This, currently, is the new focus of Republican criticism. Not only is adding to the debt harmful to the economy but, Republicans argue, so is raising taxes on top income earners.
However, starving the government of revenue and prohibiting any kind of public spending denies government the ability to do anything to ameliorate the effects of the recession when suffering Americans want the government to do something. Below are the results of a Gallup poll illustrating that most Americans believe that the U.S. government does have some role to play in the recovery.
It's important to emphasize a couple of points. First, Americans want their government to do something to address the recession, whether it's tax cuts for small business owners or investing in our infrastructure. Second, it's clear that this is not a typical V-shaped recession, but an L-shaped one marked by a flat-lining recovery. Can the government afford to do nothing? How do debts and tax breaks for the wealthy fit into the context of our current recession?
First, House Republicans want to slash public spending to bring down the debt. This means, however, that programs that people depend on, such as Medicare, Medicaid, and Social Security, receive much less funding. Who relies on these programs the most - the middle and lower class. An era of austerity will only neglect those who suffer most in a recession, possibly exacerbating the yawning divide between the top income earners and the middle class.
Furthermore, the core issue of our recession is employment, not the debt, and the American public knows this. According to a New York Times/CBS poll, 59% of Americans believe that jobs or the economy is the most important problem facing this country today. Only 8% of Americans believe that the debt is the most important. Nobody denies that the debt is a problem, but unemployment is far more important. Once we put people back to work, then the government can generate enough revenue to pay down the national debt.
This segues to the second issue of raising taxes on top income earners. Many believe that increasing taxes on the wealthy and corporations will stymie the recovery because taxes encumber job creators. However, corporations are sitting on record profits while the American workforce continues to atrophy. In fact, companies are hiring, they're just not hiring American workers. Over the past decade, U.S. mulitnational companies have hired abroad while cutting jobs here at home. Below is a graph from the Commerce Department illustrating the number of jobs going overseas.
Corporate America has hired 2 million workers abroad, cut 3 million workers here at home, and are still asking for more tax breaks. It's time to realize that what's good for corporations is not always good for America. Rather, tax breaks for the wealthy actually contributed to the national debt. Below is a chart from the Center on Budget and Policy Priorities illustrating the effects of the Bush-era tax cuts on the deficit.
If we are truly worried about the debt, then the government should raise taxes for top income earners. There are no indications that raising taxes on the wealthy will hurt the economy or add to the debt. Remember, Bill Clinton raised taxes during a time of economic expansion and left the office with a budget surplus.
Austerity measures simply don't work. Recovering from a recession requires spending money to equalize demand with supply. If Americans continue to tighten their belt, then the only consumer left is the government. If the government fails to act, then the L-shaped recovery continues to flat-line. Whatever programs are slashed won't yield enough money to pay down the debt, and a floundering economy will generate very little public revenue. In the end, the government inherits a debt it can't pay down.
We need some kind of government action because the economy isn't correcting itself. In fact, the lingering recession is creating structural problems. People have been out of work for an extended period of time which makes it harder for them to find work in the future. Lulls in employment look bad on resumes and quality references last for only so long. It's no wonder that public approval of government is at an all-time low. It's no wonder that protests are spreading across the nation. Again, government has to do something.
Ben Luongo teaches American Government and International Relations at St. Petersburg College.