Conservative Tax Policy Is Corporate Socialism
John McCain claims that Obama's plan to cut taxes for 95 percent of Americans earning less than $250,000 annually, including the majority of small businesses, and raise them for corporations and the wealthy would be disastrous given the current economic crisis. Obama's goal is to relieve middle class taxpayers facing declining wages and savings, and rising unemployment as prices for necessities skyrocket and consumer credit hits the wall. They will also help shore up declining demand for goods and services, which is causing further business distress and more lay-offs. CNN reported 8,500 new lay-offs this week alone.
John McCain decries middle class tax cuts as "socialism" because they "spread the wealth around." What are tax cuts for corporate America and the wealthy then? There indeed has been an increase in "socialism" in the U.S. but a smokescreen of conservative ideological rhetoric has hidden it for decades. A closer look at conservative tax policy reveals the extent of McCain's hypocrisy.
McCain proposes continuing the Bush tax cuts for businesses and the wealthy with promises that they will spur economic growth and job creation for the middle class. Sound familiar. It's the same old song that Reagan sang in the 1980s when business tax breaks were the centerpiece of "supply side" economics. The lyrics are: businesses need tax cuts so they have more money to invest in expanding and modernizing production and creating good jobs. That's how the benefits of business tax cuts trickle down to you!
What about the wealthy? Conservatives sing on: cutting their taxes is smart because they will save that extra income. They will drive right down to their hometown banks and deposit it in their savings accounts. The banks will then invest that money wisely by loaning it to worthy businesses whose owners will use it to create more jobs. We've heard this tune again and again. At this critical juncture in our history, it is wise to briefly review the past performance of this tax policy.
Reagan's tax policies provided huge tax rebates for the largest corporations as well as lower rates for them and the wealthy to "stimulate economic growth and job creation" during the severe recession of the early 1980s. Major industries, like steel and autos were seeing their shares of foreign and domestic markets erode as foreign competition intensified. Tax breaks were expected to help manufacturers improve their competitiveness and their abilities to create good jobs. They would upgrade their capital bases (plant and equipment) using the latest technology and implement state-of-the-art managerial techniques. The wealthy were expected to bank their tax savings, providing more potential investment funds for the ailing economy. What would happen absent business tax cuts? Employers would leave the country and take their jobs with them.
How successful were these policies? They didn't rejuvenate our manufacturing base. Companies continued to close plants and ship jobs overseas. Rather than investing to upgrade and expand capacity in their primary product lines, major corporations used the money primarily in two ways. First, they paid their stockholders higher dividends. Second, they used it to diversify into "more profitable" areas through mergers and acquisitions. For example, USX (US Steel Company) used its tax rebate to acquire Marathon Oil rather than invest in its own steel operations. Using steelworkers' pension funds, USX also invested in its major rival - Japanese steel!
Mergers and acquisitions produced job redundancies. Corresponding positions in the companies involved often were combined, others were simply eliminated. Remaining employees often saw their workloads but not their incomes increase. What about the wealthy? They didn't invest in steel either nor did their savings increase. Instead, they rushed to furriers, Tiffany and luxury car dealerships and spent it.
Nonetheless, over the past three decades, conservative tax policy has spread like cancer to states and localities. Competition among them for elusive good jobs accelerated. Lower business taxes in conjunction with other "incentives" came to define a "good business climate." Taxpayer dollars were diverted from other uses, like education, to pay for it.
What were these "incentives"? Beyond business tax breaks, state and local governments began spending tax dollars on land for business sites, site-specific road, water and sewer systems, construction of shell buildings ready for occupancy, and workforce training, often without a target employer in sight. However, by the late 1990s, research on business location decisions had determined that only one factor was highly significant for them - wage levels, the lower the better.
When employers opted for the incentives, they were rarely required to indicate what return taxpayers could expect. The number, quality and duration of the jobs in which the public was investing were never specified. More important, to my knowledge, no in-depth cost/benefit analyses have ever been conducted to determine the true social return from this brand of public investment.
What has been the fundamental problem with conservative tax policy? Neither government nor taxpayers have had any control over what businesses and the wealthy actually do with their tax savings. Absent restrictions that require companies and the wealthy to use their savings for investments designed to create jobs, how that money is spent is entirely up to its recipients. Witness AIG. American taxpayers have doled out millions (probably billions) of dollars through business tax cuts and incentives without any preconditions. The public has foregone valuable public goods and services while diverting scarce tax revenues to corporations and the wealthy blindly assuming that they would be used in the best interests of Americans.
Conservative tax policy has been nothing less than the socialization of investment and risk. Conservatives have very effectively used fear of job loss and economic hardship to convince the public to accept this form of socialism without questioning its underlying rationale or expected returns. Until now. The current economic crisis is leading people to seriously question conservative policies. Rather than trusting big business and the wealthy with our economic futures, we would be much better served if we had an ownership stake in investments made with our tax dollars. Why not? If and when such investments do pay off, at least we'll be entitled to a share of the wealth. Up to now, we certainly have absorbed more than our fair share of the losses.
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Do you really buy the idea that 95% will get an INCOME tax break with Obama's plan?
1. 40% don't pay income taxes, which will increase to 45-50% with Obama's plan. Like Obama, we're only talking about INCOME TAXES.
2. Those who will be hit the hardest will flee to tax havens like tax free bonds or other countries. So you can bet that the $250K will be lowered considerably. That's a big reason for the stock market sell off right now.
3. Obama's plan will increase the amount of FICA taxes on those making over $95K. For nearly all it will offset the income tax cut and for most it will be a net loss.
4. Obama's plan will also raise taxes on gasoline, natural gas, electricity and home heating oil which will offset nearly all those remaining income tax payers and be an increase for most.
5. Obama's tax plan to raise taxes on business's will be passed on to the consumers and will be a net increase on the standard of living for all working Americans.
6. The only one's who MIGHT see a benefit will be those American's on welfare.
7. Obama's bill, the $845 Billion a year Global Poverty Act passed in the Senate in 2008 will insure that the rest of the world's poor will benefit.
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I'm not sure where you are getting your information on the impact of the tax policies. Your first contention was debunked when the McCain Campaign first introduced the talking point. I suggest that you go to the Tax Policy Center for an objective analysis of both plans. I'll tell you what I do buy lock, stock and barrel: free market economic policies have never worked for working Americans. Our economy is not new to crises like the one we are enduring now. Go back and look at the number of bank crises that have occurred in our history and look at the economic policies that were in place at the time. Adam Smith who lots of conservative ideologues like to point to as the father of free market ideology even knew in the 18th century that those who are dependent for wage work in a market system will always be at a disadvantage especially when it comes to economic crises. When it comes to determining who gets what share of the economic pie it is ulitmately "relative power" between owners and workers that determines the result. American workers have increasingly been disempowered in every way possible over the past three decades, that's in part why there are so many angry Americans. Most of these folks are not so stupid that they don't realize what is happening to them. Their frustration and anger comes from feeling that there is absolutely nothing they can do about it.
Fear of job loss and economic hardship have been the game plan to spur anti environmental sentiment also. Here in Michigan, Senator Richardville (R) proposed an amendment to save 300 jobs at a Holcim Cement Plant. Holcim is one of the dirtiest polluters in the world! This Michigan plant was fined for being many times over the pollution limit by the EPA. Drive by the plant and smell it for miles. It burns old tires in an incinerator, which is supposed to be so hot they literally evaporate, except you can see and smell the pollution.
I doubt anyone in Monroe County has ever done an in depth study of the pollution here. Besides Holcim, it is home to the second largest coalburner in the country too. Monroe also has a landfill within a mile of Lake Erie's shoreline, and the Fermi II Nuclear Power plant. DTE Energy owns the nuke and coalburner and subsequent acres of land for a tidy little tax base, and it supplies jobs, so of course conservative Monroe puts up with unknown air pollution while mercury from the coalburner just adds up in our Great Lakes and wetlands. I know this because I write a liberal enviromental blog for the very conservative Monroe News and live near the landfill, and nuke plant.
I can honestly say Michigan hasn't advanced forward environmentally because of our Republican Senate and poor leadership in our Democratic House. It all comes back to politics.
Democratic motto: Spread the wealth
Republican motto: Spread the wealth GAP
Paulson has continued that nonsense when he distributed the billions to big banks without major conditions. We staying on the brink of so many catastrophes (environment, food and education) that reform is not anymore enough! The stock market is about speculation and not really an investment. The system failed on so many levels, because one of the major assumptions of the Reagan idiots was that the wealthy actually would be responsible citizen and act in interest of this nation. They don't: see Haliburton's headquarters in Dubai. With all the wealthy people I know, strength of character is not a trait they have. May be the third ghost of Christmas still to come, will have to appear and show them what they did. Unfortunately we will be out of good will soon.
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Thanks for your comments I heard yesterday (can't remember where because I read and listen to so much news lately) that some of the banks receiving the bailout funds are planning on using them to buy other banks. The bonuses for all of these Wall Street heros are also budgeted in for the future. American taxpayers need to pay close attention and start putting pressure on anyone with influence they know to stop this now before it gets even worse.
Corporate welfare or the tax brakes for the wealthy do not get enough coverage, I urge you to follow up with specific tax brakes, I think most people would be surprised to see just how socialized we are.
The Republicans think any program that benefits the middle or lower income bracket is socialism, from Social Security to Medicare. But I think the one that scares the hell out of them the most is a national health care plan. I was watching Sunday Morning on CBS this morning, the topic was health care. They were comparing our system with the French which was rated the best @ 1/2 the price. Also 47 million are not insured. The Republicans call it socialism, I call it good governmental spending. But the statistic that jumped out at me was that 22,000 Americans die each year due to no health care insurance. These are middle income people, not the poor who are covered under Medicare. We can afford trillion dollar wars, billion dollar tax brakes for corporations that pay their CEO's hundreds of millions of dollars in compensation, tax loop holes, tax havens or just tax brakes for the wealthy, but we can't help our own people with health care. If a basic health care plan can save 22,000 Americans a year, than you can call me a Socialist!
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Thanks for the suggestion on a follow-up. I plan to continue blogging out economic policy after the election. Will definitely follow the tax policy debate. The loopholes that curretnly exist would be really interesting to investigate.
Neocon tax policy.
Big difference.
Conservative corporate welfare is what we've lived with for many years now. Thanks for your post.
Now we have lower wages, many less jobs, multi foreclosures; thanks to the republican bastards.
Adrienne,
You state "John McCain decries middle class tax cuts as "socialism" because they "spread the wealth around." I think that McCain is talking about his complaint of tax increases to "Joe the Plummer" as the wherewithal to "spread" the wealth and therefore socialism. You know, of course, that all Repubs love tax reductions, even for the middle or poor.
You should be aware, I see you are a professor, of the difference between a social good & service and a private good & service. Some goods and services like : roads, libraries, and national security (the military) are much more efficiently provided as social goods. Some goods and services like: escort services, underware, and cars are much more efficiently provided as private goods. The word socialism is a perjorative usage in this country with few actually knowing the economic or political party name meaing in its usage other than "bad". As it turns out, Adrienne, there is an economic case to be made for social health care as the more efficient and effective method for providing health care. Yet most economists are dead on their asses failing to make the case, rather arguing consultant cases for greedy corporations.
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Thank you for your very thoughtful comments. I certainly am aware of the difference between social and private goods. I agree with your comments on healthcare. Where I work now, to get family coverage the employee's share of the premium is $800 a month! That's out of control. I also heard yesterday that some of the bailout money may go to insurance companies! This really concerns me as I see them as some of the worst culprits in the economy. I also agree with your comments about economists. However, when I first entered the profession in the 1980s there were economists who were trying to educate the public about all of the problems with the conservative agenda. Of course they didn't get much press or attention. They were labeled liberals and radicals (I was one.) and most in the profession were not interested in what they had to say. Most mainstream economists are more interested in their careers than anything else and that means not rocking the boat. They are lost in their own "la la land" and are more interested in developing complex mathematical models than going out into the field and investigating what actually is going on out there rather than crunching numbers Try to get funding to do that.Not that all number crunching is bad. The Economic Policy Institute does a great job analyzing statistics in a very illuminating way. Check out their State of Working America publications.
Brilliant piece Adrienne. Thank you!
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Thanks. It was already in the works when I heard Palin's comments yesterday. I was so infuriated that I put a move on to get it done.
Corporatism=Fascism. It is a Kleptocracy that rules Bush's Banana Republic and the American people are so completely stupid that they are unable to understand it. Truth and reason have been made a partisan political view while the loudest most obnoxious and poisoness ideals rule. Even now the right wing scum bags, in the same fashion as a sociopath unable to accept responsibility or even admit the wrong they have done, point and blame "Liberals". The seething anger that all America feels is misdirected by the landed gentry who point at the poor and feeble, the minorities and chronically disenfranchised. Justice needs to be served and if the malevolent reprobates who continue to defend their corporate masters and the aristocracy are incapable of the basic comprehension it takes to simply have the truth of how it was done presented to them, they can hang with the rest.
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Your comment "truth and reason have been made a partisan political view," is spot on. I believe that many of us have been literally silenced since Reagan's election in 1980. Any criticism of the individuals in charge or their policies and you are labeled "Anti-America." This notion of going along with the "powers that be" has trickled down to workplaces and other organizations in our society. The response to any criticism - if you don't like it then leave!
As AIG was being bailed out they were lobbying for India that allows US sales of nuclear technology to them.
Someone should start inquiries,expose and identify these companies that would "sell out" the American public on our hard earned dollars.
The American people should be able to know if the goods and services they are buying are used by companies lobbying against the best interests of the American people.
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