The Recession (Part 2)

Make It a Permanent "Stimulus"

In his budget message to Congress Feb. 27, which included a 10-year projection of America’s needs, President Obama put forward a program containing several worthwhile liberal initiatives. These include infrastructure rebuilding, development of alternative energies, health care, education and measures to combat global warming. Many of these initiatives are also included in his stimulus plan to revive the economy. In addition, Obama called for a tax hike on the wealthy and corporations.

Here’s the problem. Many of these projects will come about with temporary start-up funds provided by the Obama Administration’s anti-recession stimulus plans, which will dry up in a year or two. And funding for the annual national budgets, assuming congressional approval, is simply not going to be enough to sustain these initiatives to successful a conclusion without another major source of funding. Part of the reason is that the anticipated tax hikes on the rich are far too low. Another part is that other sources of income are not being tapped, principally by slashing the mammoth military budget.

How about adding a $500 billion program of progressive social services and major projects to benefit the American people and the nation in Washington’s post-recession annual budgets from now on? Some exclaim, “but there’s no money!” No? Read on.

Congress approved the Obama Administration’s $787 billion emergency economic stimulus plan Feb. 13, and President Barack Obama signed the measure into law four days later. Republicans in the Senate and House sought to scuttle the measure — titled the American Reinvestment and Recovery Act — even after they had won major concessions from the Democrats. The legislation passed the Senate 60-38 with only three Republican votes, and was approved by the House 246-183 with not one GOP vote. Senate Republicans actually wanted to replace Obama’s plan with $3 trillion in tax cuts over the decade!

Petulant Congressional Republicans are largely playing the role of obstructionists at a time when their own party is primarily responsible for creating the swamp into which the economy is sinking. And even though most GOP governors welcome the state aid contained in the stimulus, several of them are making a phony show rejecting help, even though their residents of their state face serious cutbacks in social services.

Clearly, the mantra President Obama has repeated in numerous incantations since the 2004 Democratic Convention — “there’s not a liberal America and a conservative America, there is the United States of America” — has not produced the collegial results he sought despite an evident willingness to “split the difference” with the right wing. At last report Obama was still “reaching across the aisle” to cohabit with a reactionary political opposition that views his overtures with contempt.

The antics of Republican politicians seem to be helping Obama, however. According to the New York Times/CBS News poll published Feb. 24. Almost 80% of respondents agreed Republicans should “work in a bipartisan way” with Democrats, and 63% approved of Obama’s job performance against 22% who disapproved.

The purpose of the Reinvestment and Recovery program — which is not to be confused with the Treasury Department’s impending second giveaway bailout plan for the banks and financial markets, mainly to reconstitute the shattered loan market as the expense of taxpayers — is to stimulate demand in a stagnant, sinking economy with a massive infusion of government deficit financing.

Despite the unprecedented size and scope of the stimulus, several progressive economists suggest it is far less than required to achieve its entire objective and will likely require an expensive booster shot in a year or two. They also question the hundreds of millions of dollars in the $787 billion stimulus plan devoted to tax cuts, and to the elimination of several important populist programs demanded by the Republicans, who then turned their backs on the entire legislation. Said liberal Democratic Sen. Tom Harkin of Iowa: “I think our side gave in too much in order to appease a few people …. I think the people are getting shortchanged.”

Dedicated Democrat Paul Krugman, last year’s recipient of the Nobel Prize in economics, has been critical of the Obama Administration on several recent occasions in his regular column in the New York Times. On Feb. 9 he wrote:

[M]any people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy’s dire straits and his own electoral mandate. Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

Mr. Obama’s post-partisan yearnings may also explain why he didn’t do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said — that increasing spending is the whole point of the plan. And Mr. Obama got nothing in return for his bipartisan outreach.

Minus the short-term individual and business tax relief aspects, the two-year stimulus plan will invest $500 billion in meeting needs of the people and country in the name of enhancing the economy. It seems a pity that all this needed spending on education, health, infrastructure, science, the environment, jobs and jobless benefits, poverty, transportation and other worthy investments should just be a one-shot temporary pump-priming program to prevent the latest of capitalism’s periodic recessions from turning into a dreaded depression.

Is it pie in sky to suggest that when the economy starts growing again an annual version of the economic stimulus plan should be included in future U.S. budgets, not as a stimulus but as a progressive social benefit for the American people?

“We can’t afford it,” Washington will reply whenever social programs are advocated, but the money is there. Remember last September, when the Bush Administration’s Secretary of the Treasury and Chairman of the Federal Reserve suddenly discovered that U.S. capitalism was about to implode in few weeks, a deus ex machina abruptly materialized in the White House offering trillions of dollars in cash and guarantees to save the sacred system?

But we’re not recommending that the Treasury Department simply print more money to finance greatly expanded benefits for the people in future annual budgets, as Washington is doing now to finance the bailout and stimulus — leaving it to our grandchildren to pay the piper.

There is no need for a mechanized deity or high-speed printing press to finance $500 billion a year in additional social service and national projects for the common good. The money to finance progressive programs already exists in two locations:

• First, it is in the budget for militarism and the military-industrial complex, which has increased 74% since George W. Bush entered the White House. In total, military spending now amounts to over $1 trillion a year. This is several hundred billion more than Washington admits but we shall explain the discrepancy below. Rep. Barney Frank (D-MA) has been calling for a 25% cut in the “official” Defense Dept. budget, which is about half the real military budget. We think a 50% reduction in the real budget is more appropriate, for starters.

A lot more jobs can be created by investing in labor intensive peacetime pursuits instead of financing a high-tech war industry, computerized battlefields, nuclear submarines and remote-controlled wars. (Speaking of modern American warfare, guess how much it costs to send a single U.S. soldier to fight in Afghanistan for one year? According to the Dec. 26 Time magazine, the cost “is about $775,000, three times more than in other recent wars.” Multiply by 17,000 — and you must know where that number comes from — and it’s $13.2 billion, not counting the other 35,000 U.S. troops already in Afghanistan, or the 140,000 in Iraq.) Such monies could rebuild America, develop alternative energy resources, reduce global warming, and provide better lives for America’s working people.

• Second, the funding for enhanced social programs is in the vaults of big corporations, giant financial houses, stock market profiteers and the wealthy 5% of American families who possess 58.9% of all assets and wealth in our country. These companies and individuals do not pay a fair share of taxes due to decades of government policy favoring a regressive redistribution of wealth and income from the bottom to the top.

Given that 44% of American workers live from paycheck to paycheck with low wages and few benefits, mandating higher taxes from those sectors of society abundantly able to pay their share of national expenses is simple justice in a genuine democracy.

Now we will discuss the real cost of “defense” expenditures, which are much higher than official statistics acknowledge, followed by an examination of the real taxes on business and wealth, which frequently are lower than the rates suggest.

The Office of Management and Budget (OMB) states that the fiscal 2009 Pentagon budget that began in October amounts to $518.3 billion, not counting the war appropriations. Actually, the Defense Dept. spent a great deal more, but that’s routinely concealed from the public.

According to the annual computation by the War Resister’s League (WRL) titled, “Where Your Income Tax Money Really Goes,” real military expenditures for fiscal 2009 will total $1,449 trillion.1 This is composed of current military expenses of $965 billion combined with past but not yet paid military expenses of $484 billion.

The current Pentagon payment costs, which WRL itemizes, include many billions in military monies concealed in non-Pentagon budgets, such as those of the State Dept., NASA, Homeland Security, intelligence services, and elsewhere. The 2009 Pentagon budget estimates the allotment for the wars in Iraq and Afghanistan will amount to about $60 billion this year, a gross understatement. The WRL anticipates the two wars will cost $200 billion this fiscal year.

Expenditures for past wars are not included in the Pentagon budget. They amount to $94 billion in veterans’ benefits and $390 billion in interest on the national debt (80% of which is for past wars).

Chalmers Johnson, an author we have quoted many times before (he wrote the trilogy Blowback, Sorrows of Empire, and Nemesis), calculated the fiscal 2008 military budget as amounting to $1.1 trillion.2 A splendid and well researched article in the October 2008 Monthly Review (MR) titled “The Military, Industrial, Media Triangle”3 argues that the real fiscal 2007 war budget was just over $1 trillion. The figures from the WRL, Johnson and MR are between two and three times higher than the “official” figures, and we believe them far closer to the truth than misleading government estimates.

There are three reasons why the Defense Department and related budgets are considered sacrosanct.

First, despite America’s rapidly declining international stature, or because of it, a rate of military spending larger than the rest of the world combined is perceived to be necessary to retain America’s unipolar and hegemonic global leadership. Second, investment in the military-industrial complex and its resulting arms sales abroad and wars is viewed as a major boost for the domestic capitalist economy. This is known as Military Keynesianism.4 Third, Washington has consistently cultivated fear, jingoism and hyper-patriotism among the people in order to maintain excessive military spending.

The Obama administration has called for an increase in military spending in the upcoming 2010 Pentagon budget, but it is possible in time there will be reductions in spending for some extremely expensive but redundant pet projects— primarily to convey the illusion of “austerity” during the Great Recession and secondarily to preempt possible demands for greater cuts because war spending is so obviously over the top. In the recent words of Frida Berrigan, a well known peace activist, writer and researcher: “Obama is not about to go toe-to-toe with the military-industrial complex.”

Another reason to doubt the powerful military-industrial complex will lose much business is the Obama Administration’s choice of William J. Lynn as Deputy Defense Secretary, the number two Pentagon official after Secretary Gates. Lynn was the senior VP for government operations (i.e., chief lobbyist) for Raytheon Co., the big defense contractor, until a few months ago.

Now we turn to the matter of increasing taxes on the wealthy sector of society, about which an article in the Feb. 24 Christian Science Monitor pointed out: “The amount of money that goes into executive pockets is staggering. So is the amount that comes out of those pockets in taxes: precious little. America’s super-rich are paying far less of their incomes in taxes than average Americans who punch time clocks.” Authors Chuck Collins and Sam Pizzigati also noted that ” Back in 1955, America’s top 400 paid more than 50% of their incomes in federal tax, almost triple the rate of today’s top 400.”

During the election campaign President Obama pledged to cancel the Bush Administration’s regressive millionaire tax cuts upon taking office, but now he will continue them for nearly two years, allowing the legislation to expire at the end of 2010. The White House suggests that ending reductions now would depress economic activity, but this is not convincing. Writing in the New York Times, Dec. 7, economist Robert H. Frank stated that “we’d get a lot more stimulus for any given budget deficit if we scrapped the Bush tax cuts immediately and steered the resulting revenue to people who would spend it. … Higher tax rates for top earners wouldn’t appreciably reduce their spending.”

Details of the fiscal 2010 budget (beginning in October) won’t be released until April, but the New York Times disclosed Feb. 22 that the White House will propose “to tax the investment income of hedge fund and private equity partners at ordinary income tax rates, which are now as high as 35% and could return to 39.6% under his plans, instead of at the capital gains rate, which is 15 percent at most.” While this is a step forward, it is a very small step, on par with the Pentagon’s spigot closing.

Progressives have long argued that the big corporations are paying too little in taxes considering the enormous profits they have enjoyed in the last couple of decades, often at the expense of stagnant wages for U.S. workers and substandard wages in their foreign factories. But Big Business always points to the 35% statutory tax rate on large corporations (taxes get smaller as the corporations decrease in size), which the Wall St. Journal notes is the second highest in the developed, industrialized capitalist world.

But “second highest” is the official tax rate, not the “effective” rate (i.e., what’s really paid). According to an Oct. 27 report from Center for Budget and Policy Priorities (CBPP), a liberal think-tank:

“The U.S. corporate tax burden is smaller than average for developed countries. Corporations in the 19 member states of the Organization for Economic Co-operation and Development paid 16.1% of their profits in taxes between 2000 and 2005, on average, while corporations in the United States paid 13.4%…. Because the U.S. tax code offers so many deductions, credits, and other mechanisms [i.e., loopholes] by which corporations can reduce their taxes, the actual percentage of profits that U.S. corporations pay in taxes — or what analysts refer to as their effective tax rate — is not high, compared to other developed countries.”

To give you an idea of how corporate taxes have been declining in the U.S., consider this: In 1943, during World War II, corporations accounted for just under 40% of all the tax money collected by the U.S. government. Last year, during the Iraq, Afghanistan and Terrorism wars, it was 7.4%, a drop from the second half of the 1990s when receipts amounted to 10-11%.

In a report Aug. 12, the Government Accountability Office revealed that 57% of U.S. companies doing business in the United States paid no federal income taxes for at least one year between 1998 and 2005, and 42% were in this category for two or more years. Foreign companies doing business in the U.S. compiled an even worse record. In 2005, the report noted, a quarter of the largest American corporations paid no taxes on gross sales of $1.2 trillion.

The GAO report resulted from a request by two Democratic senators, Michigan’s Carl Levin and North Dakota’s Brian Dorgan. Levin said it showed “too many corporations are using tax trickery to send their profits overseas and avoid paying their fair share in the United States.” Dorgan termed it “a shocking indictment of the current tax system.”

Tax loopholes, exemptions, depreciation allowances, credits and the ability of corporations to shift income to lower tax countries are all factors in the declining percentage big business pays to the U.S. government. These tax concessions, even during down times, are a major factor in lower tax receipts. (Of course, a number of companies have taken big losses because of the recession, a factor in lower tax collections this year.)

The CBPP report noted that “the Treasury Department estimates that various corporate tax breaks will cost the federal government more than $1.2 trillion over the next 10 years (2008-2017), a period during which total corporate revenues are projected to equal $3.4 trillion.” Imagine what could be obtained for the social good with $1.2 trillion. And we won’t even go into the $2 to $3 trillion that the Iraq war will cost when the final accounting is taken years from now.

It seems to us that progressives should call upon the Obama Administration and Democratic Congress to immediately end the Bush tax cuts for the rich; substantially increase taxes on high incomes, including on the estate tax; eliminate tax loopholes for wealthy individuals and for the big corporations; and impose a hefty financial transactions tax on the transfer of stock and similar assets.

Through increases in taxes for the rich and corporations coupled with sharp reductions in military spending it seems quite possible for the U.S. government to invest $500 billion a year above its present obligations on significant permanent social programs similar to —but going beyond — those now temporarily receiving support from President Obama’s anti-recession economic stimulus program.

Given the current economic crisis, coming on top of decades of economic stagnation for many millions of workers, now may be the time when the American people — long misled by conservative and centrist politicians — will welcome a major increase in government spending on progressive social programs, and progressive leadership from Washington, over the next years.

But where are the politicians in Washington who will demand huge reductions in military spending, which will mean a serious change in U.S. foreign policy, far fewer or no more wars, and an end to the quest for global domination? Who in the White House and Congress will demand big increases in the taxation of wealth and tight government regulation of corporations, markets and banks, which means greatly weakening the power of the monied oligarchy and transferring some power to the people for a change.

The key to transforming this situation depends on the pressure exerted by the progressive forces, the political left, the trade unions, the various movements for social change, and the masses of people influenced by these various agencies. True, these are still conservative times in America, and the forces of social change are neither strong nor united. But a serious, prolonged economic crisis has ways of educating people politically, of sparking extensive demands not heretofore deemed practical, and of inspiring unity and a desire to fight back.

Read Part 1.

  1. The War Resisters League pie chart detailing the 2009 U.S. military budget. []
  2. The Pentagon Strangles Our Economy by Chalmers Johnson. []
  3. The October 2008 Monthly Review article (“The Military/Industrial/Media Triangle“) is an important analysis of why the U.S. spends so much on the military. []
  4. Military Keynesianism, which is a distortion of Keynes’ thesis (see part 1), has been described as “a government economic policy to devote large amounts of spending to the military in an effort to increase economic growth.” C. Johnson calls the U.S. government’s attachment to Military Keynesianism a “mistaken belief that public policies focused on frequent wars, huge expenditures on weapons and munitions, and large standing armies can indefinitely sustain a wealthy capitalist economy. The opposite is actually true.” The U.S. has been following this policy since World War II for economic growth but mainly to pursue the objective of “world leadership” through expanding hegemony based on superior military and economic power. []

Jack A. Smith is editor of the Activist Newsletter and a former editor of the Guardian (US) radical newsweekly. He may be reached at: jacdon@earthlink.net. Read other articles by Jack.

4 comments on this article so far ...

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  1. arjay said on March 7th, 2009 at 11:56am #

    this guy is a fully paid member of the AOSC (awning on stomach club – needed so that when he looks out from where his head is stuck the sun wont blind him).

    it is easy to list many “needs” for governmental expenditures. it would only take me a few minutes to greatly expand on his litany.

    but as anyone whos borrowed and spent too much knows full well the solution for digging oneself out of such a hole is definitely NOT borrowing and spending even more. there is simply no way to get out of debt by borrowing.

    the problem in this country – and most especially for governments at all levels – is that theyve borrowed and spent too much. the solution is not for increases in governmental expenditures – no matter how attractive to some – but a substantial REDUCTION in the overall level of government in this country. until and unless we do such, we are in for a very rocky ride on a very long economic road.

  2. Barry said on March 7th, 2009 at 2:55pm #

    well, arjay – we are indeed in for a rocky ride – thanks to Conservative Republican economics. They ran up this debt – and we have nothing to show for it but multi-faceted disaster. Priming the pump is an age-old Keynesian way to mitigate the disaster. The problem may be that that Friedmanite economics may have pushed the country over the edge of no return. But they’ve done that before.
    Big country needs big gov’t. After all, whose gonna build water treatment plants? Whose gonna test for Salmonella? And whose going to do these things without demanding huge profits? After the Salmonella/peanut butter fiasco some one in Georgia said inspection should be turned over to the private sector. That’s how the Repubs operate. Destroy the public sector – and then claim it doesn’t work. This guy said it would even be cheaper for us because after all, companies would bid on it. Just what we need – public health in the hands of the lowest bidder.

  3. MrCynic3 said on March 7th, 2009 at 11:35pm #

    arjay,

    Please stop listening to Rush Limbaugh and his drivel. There is nothing
    wrong in temporary borrowing and deficit spending as long as the
    money is spent wisely and on helping the people and productive things.
    You didn’t complain when the banksters got and getting tons of money,
    you didn’t complain when your beloved Bush amassed trillions of dollars in debt.
    To follow your thinking , this country will have maybe 30% unemployment and maybe more with severe hardship to tens of
    millions.

  4. Don Hawkins said on March 8th, 2009 at 7:28am #

    So why is he so sure that the hot world is on its way, within decades? “Compare the Earth with an iced drink,” he says. “The drink stays cold until the last of the ice melts …a great deal of the heat of global heating has gone into warming that huge lump of water, the ocean, and into melting ice.” This could help to explain why temperatures have not yet risen. The danger is that they will rise rapidly once the ice disappears, causing the Earth to flip into a permanently hotter state. Camilla Cavendish

    He is James Lovelock.

    Climate scientists once were befuddled about why Antarctica seemed, if anything, to be cooling while the rest of the world got toastier. It turns out the bottom of the world has been warming after all.
    “More is happening than we thought, and it’s happening faster,” said Douglas Martinson, who studies the impact of polar oceans on global climate at Columbia University.
    Average winter temperatures on the Antarctica peninsula – changing more than the rest of the continent – have risen 11 degrees since 1950. That’s five times the global warm-up and disastrous to the ice shelves that hang over water and act as corks to bottle up glaciers on land.
    In 1950, the Wilkins Ice Shelf was bonded to Antarctica with a 62-mile wide block of ice. Now it clings by an hourglass-shaped link that narrows to just a third of a mile. The Jamaica-size shelf could tumble into the ocean any time. SCOTT CANON

    Amazon forests are a key but poorly understood component of the global carbon cycle. If, as anticipated, they dry this century, they might accelerate climate change through carbon losses and changed surface energy balances. We used records from multiple long-term monitoring plots across Amazonia to assess forest responses to the intense 2005 drought, a possible analog of future events. Affected forest lost biomass, reversing a large long-term carbon sink, with the greatest impacts observed where the dry season was unusually intense. Relative to pre-2005 conditions, forest subjected to a 100-millimeter increase in water deficit lost 5.3 megagrams of aboveground biomass of carbon per hectare. The drought had a total biomass carbon impact of 1.2 to 1.6 petagrams (1.2 x 1015 to 1.6 x 1015 grams). Amazon forests therefore appear vulnerable to increasing moisture stress, with the potential for large carbon losses to exert feedback on climate change. (New study}

    We now hear about a new deal from Obama. Oh we need a new deal alright and is it happening? No it sure isn’t more band-aids. We are not in Kansas anymore and we will not get a second chance on this. Just like the Wilkins Ice Shelf clinging on so are we and these plans from policy makers are plans being made for nobody. The profit-oriented hucksters on this planet are not to bright and when confronted with the thinkers the truth the knowledge there response is USA USA USA drill baby drill no more tax’s. High school stuff and not very good at that. We now see Obama is a Socialist with Marxist tendencies and we will all be saying comrade soon to each other what bullshit. The banks do need to be nationalized and fossil fuels need to be taxed with money going back to we the people and an ongoing World Summit on these problems and that is just a start. These so called leaders need to get graduate from high school and get real. To listen to the news on TV these talking heads or business leaders policy makers act like little children. Put your boots on and think of this as kind of a war. Well going to have a cup of coffee now and see what Rush said today or Jim Crammer said about Obama and what Obama say’s back in this kind of optical delusion of consciousness they think is so fun.