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September 20, 2014
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editorial

What causes deficits?


The reason rising government debt is said to be a threat to economic recovery is that, in theory, government demand for money makes interest rates go sky-high, impeding the flow of credit to businesses. But that’s just not the case currently. On the contrary, interest rates hover at record lows, impoverishing people on fixed incomes who rely on interest income, while enriching banks who can borrow practically for free from the government. In fact, all corporations have prospered in this cheap money environment, pushing the cost of investment toward zero. The problem is that they’re not using that cheap money to invest in the U.S. or hire U.S. workers.

Worker productivity increased by 2.6 percent in the fourth quarter of 2010, while real hourly compensation dropped. Unemployment remains at levels normally associated with recessions. Tax income from workers suffers accordingly. Meanwhile corporate profits grew 36.8% in 2010, the biggest gain since 1950—and how much of that goes into taxes? Corporate taxes accounted for 35% of all federal revenues in 1945, but less than 9% in 2010, as corporations wangle better and better deals for themselves from increasingly compliant Congressmen.

Money is also being funneled increasingly to the top one percent of households that now takes home almost one quarter of the national income. That’s another hit to tax revenues, as the proportion they contribute to taxes has declined dramatically. The cost of the Bush tax cut for the top two percent of income earners, extended last year, is estimated at $700 billion over 10 years. Having thus looted the treasury for the very rich, deficit hawks are now using the shortfall as an excuse to axe programs that support the middle class and poor.

Meanwhile, Obama and many Democrats have shamefully acceded to the misguided narrative that government spending is responsible for the current economic malaise and that spending cuts are a solution rather than a problem. And the cutting isn’t over; the Republicans plan another showdown when the debt ceiling comes up for a vote a few weeks from now.

There’s no leadership in Washington, and if things are going to change, the grassroots are going to have to make it happen. We need to tell our representatives to stop cutting the legs out from under the economy. It’s time to spend money in a way that will help American Main Street businesses and households regain their vigor—and yes, to raise taxes in a way that will make the big multinational corporations and the wealthy elite shoulder their fair share.