We’re All Supply-Siders Now: An American Odyssey
Reporting on the payroll-tax debate, in the Leesburg Daily Commercial as elsewhere, has focused on the intramural incompetence and barefaced hypocrisy of the Republican Party, particularly in the House. The Republicans’ sudden embrace of a tax cut they never liked – because it helps the wrong people – has been quite entertaining for those of us who appreciate a good farce. After years of telling us that tax cuts are the best way to stimulate the economy, they finally realized that they didn’t look too bright opposing tax cuts that benefit the 99%. Of course, it was much easier to hold one’s nose when the President and the ostensibly Democratic Senate could be blackmailed into faster action on the Keystone XL pipeline in exchange for extension of the cut. But that neat little exercise in hostage-taking – an art long since perfected by the most cynical Republican majority we’ve ever seen – has been derailed by Tea Partiers who don’t understand how the game is played, leading the House to clutch defeat from the jaws of victory. John Boehner will have some explaining to do the next time he meets with his clients in the oil and gas industry.
While it is essential to be fully cognizant of the Republican game plan, there are few subtleties to be discerned on that side of the aisle. We know they are cynical; we know they are depraved; we know they don’t give a damn about ordinary Americans. What a lot of people don’t know, because the corporate-controlled media never spell this out, is that the nominally Democratic President – the very man portrayed by the idiot-baiting Fox News as a socialist who threatens to destroy the American way of life – is in fact more of a Republican than any actual Republican president prior to, and possibly including, Ronald Reagan, a man for whom Obama has repeatedly expressed much admiration. While the Republican Party needs, as a matter of salesmanship, to differentiate itself from the other political product in our duopolistic marketplace, that task must increasingly rely on untenable hyperbole when the President governs like their ancestors would have done. For readers struggling with the unfamiliarity of that proposition, a little background is in order before we return to the subject of taxes.
Socialism: From Meaningful Practice to Useful Rhetorical Device
To start with, the so-called center of American politics has been very skillfully moved by the corporate oligarchy ever further to the right. The most important illustration of this phenomenon, which has had the biggest (and most negative) impact on our welfare, has been the Democrats’ love affair with Wall Street, a national scandal largely attributable to a former president better known for a different kind of affair. After a rocky start to his first term, enabling the Republicans to retake the House for the first time in decades (under the leadership of one Newt Gingrich), Bill Clinton had to come up with something to save his own skin. His solution, eagerly midwifed by Robert Rubin, a former head of Goldman Sachs who later returned to the private sector to make even more money, was to cozy up to Wall Street in a way that would have FDR spinning in his Hyde Park grave. The resulting deregulation unleashed a veritable orgy of profit-taking by the financial sector, and led directly to the great meltdown barely ten years later. (The whole, sorry story is brilliantly laid bare in the movie Inside Job.)
The Clinton example was not lost on a very smart, and very ambitious, Barack Obama. (Nor was it lost on Tony Blair in Britain, whose New Labour abandoned all its former principles and sold its soul to the devil in order to seize and retain power – the very definition of the Conservatives’ M.O.) Those of us who didn’t fall for the “Hope and Change” shtick in 2008 were troubled by Obama’s receipt of huge campaign contributions from Wall Street. That investment by the masters of our universe paid off handsomely, for in the wake of the greatest economic crisis since the 1930s, with culpability quite clear to any conscious human being, the Obama Administration did essentially nothing to rein in the beast that Clinton and Rubin had unleashed. Dodd-Frank did not reinstate the Glass-Steagall Act that had served us so well for sixty years until a Democratic Administration conspired with such odious Republican cretins as Phil Gramm to kill it off. No major bank figures have suffered the indignity of criminal prosecution. Instead, the banks were bailed out – transparently by the taxpayer, and covertly (and massively) by the Federal Reserve – and we now have an even-more-heavily concentrated banking sector than we did before. In other words, the next crash will be so big that Humpty Dumpty will not be susceptible of reconstruction. A once-in-a-lifetime opportunity was missed, and for that Barack Obama must never be forgiven.
The New Consensus
When an alleged socialist is in fact a tool of the corporate oligarchy that is destroying America from within, then we know we have passed through the looking glass into a fantasy land of grotesque distortions and monstrous realities. One of the distortions that has taken up permanent residence in the American scene, but which desperately needs to be deported, is the right-wing obsession with supply-side economics, otherwise known as trickle-down economics or, as George H.W. Bush so piquantly described it, voodoo economics. The supply-siders seized their moment in the early 1980s, after persistent stagflation shattered the decades-long Keynesian Consensus that had emphasized the role of government fiscal policy in managing economic cycles. With a professional corporate spokesperson as President, government was no longer the solution to the problem; government was the problem. Whole sectors of the economy had to be deregulated; taxes had to be reduced; inflation had to be controlled by strict monetary policy; and then a remarkable wirtschaftswunder would take place, in which productive resources would miraculously produce more goods and services.
Unfortunately for Ronnie’s latter-day torch-bearers, there is the small problem that the Reagan years also saw a huge increase in defense spending and a sudden deterioration in the budget posture that amounted to a massive fiscal stimulus (correctly identified later by Ross Perot). With good, old-fashioned, government spending getting in on the action, it is not at all clear that Reagan’s tax cuts stimulated the economy, but it is clear that they cost the government a tremendous amount of revenue (at a time when debt service, thanks to high interest rates, was unusually expensive). This empirical ambiguity matches the theoretical ambiguity at the heart of the supply-siders’ case – the Laffer Curve. Arthur Laffer’s eponymous curve is a simple bell curve (what statisticians call a normal distribution) describing a relationship between government revenue and tax rates. At very low tax rates, rather obviously, little revenue is raised. Higher tax rates bring higher revenues – up to a point. Beyond that point, tax rates become a disincentive to productive endeavors, the economy shrinks, and revenues decline. Although the curve does not have to be so simple, its impact on the tax policy debate has been very simple indeed: for Republicans, we are always on the high side of the optimal tax rate. Although there is absolutely no way to actually know that, facts are no match for the financial interests that can be satisfied by such an appealing article of faith.
All of that is old news. But what doesn’t get discussed nearly enough is the way in which our alleged socialist, Barack Obama, is actually a supply-sider as well as a corrupt tool of the oligarchy. Obama’s first, major stimulus bill in 2009 included multiple tax cuts and credits for the working poor and the middle class. Of course, that fact was ruthlessly ignored and distorted by the right, which couldn’t allow someone else to assume the coveted mantle of tax-cutter in chief. So the average Republican voter – and the average reader of the Leesburg Daily Commercial – subjected as they are to incessant distortions of reality, thinks of Obama as a tax-and-spend liberal. All Obama’s talk about taxing millionaires and billionaires is just that – talk. He knows very well that it’s never going to happen with the current disposition in Congress, leaving him at complete liberty to take public positions that will curry favor with targeted groups that will be needed in 2012. Obama is nothing if not ambitious and calculating – the consummate professional politician for our time. He knows who he has to please to raise money (Wall Street) and he knows who he has to please to secure enough votes in the electoral college.
Delivering tax cuts to his base, whether through reductions in withholding, as under the original stimulus bill with its Making Work Pay Credit, or through its successor gimmick, the payroll-tax holiday, is simply supply-side economics for the middle class instead of for “job creators.” Those of us concerned about income and wealth inequality might say this is all good, but there is a cost that is not being acknowledged. Obama’s tax cuts reinforce the belief that cutting taxes is always good for the economy as a whole. Apart from being factually questionable, this plays right into the Republicans’ hands, greatly facilitating their constant argument against any kind of tax increase on their own electoral base. (There may be a few savvy Republicans out there who actually appreciate this irony.) Further, it contributes to the insignificance of even the mooted tax increases on the highest incomes. Thus, we were offered a return to the Clinton-era top marginal rate of 39.6% at a time when the national debt is similar in scale to that of the post-war decade, when the country paid its debts down with rates as high as 90%. And that was under a Republican president, lest we not forget. Truly, we are all supply-siders now.