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The Great "Budget Repair" Swindle

It’s certainly clichéd to claim that “those who cannot remember the past are doomed to repeat it.”  This dictum, however, remains as relevant today as ever, particular with regard to the state budget “crises.” Conservative claims that tax cuts for the rich are the only way of ensuring economic recovery have been tested in the past; this policy approach has failed miserably.  Sadly, in the United States of Amnesia, few are aware of their own country’s basic political-economic history.  Furthermore, few possess the policy expertise or knowledge needed to challenge the specifics undergirding the bi-partisan attack on state unions – undertaken in the name of promoting “balanced budgets.”

On the one hand, the public (and protestors I’ve spoken with in Madison, Wisconsin) deserve credit for rejecting claims that the “repair” of state budgets can only be achieved by eviscerating unions, public pensions, and basic health care services.  On the other hand, few throughout the country seem to be aware of the specific problems with the policy arguments made by Wisconsin Governor Scott Walker (and other political leaders) with regard to the economic crisis.

Most Americans seem to share a vague distrust of conservative public policies (and of the political system more generally), understanding that they, as members of the working class, serve to lose in the latest neoliberal policy wave that targets any programs serving the poor and middle class.  A more thorough exploration of the absurdities of conservative propaganda, however, is clearly in order.  I’m thinking most specifically of the claims that collective bargaining is bankrupting the states, and promises that tax cuts (targeted at business elites and the rich) are the only effective or acceptable means of promoting economic recovery.  Neither claim is even remotely grounded in available empirical evidence.

During my multiple visits to Madison and my participation in the protests against Governor Walker (during the week of February 21st to 26th), I routinely engaged with protestors who rejected claims that the elimination of collective bargaining is necessary in order to reduce growing state deficits.  Few I spoke with expressed any sort of thorough or all encompassing understanding of the exact causes of the economic crisis.  They were, however, intimately familiar with the political context surrounding Governor Walker’s war on unions and public services, and I was thoroughly impressed with how well they understood the unfairness of conservative demands that they pay the price for an economic crisis that they did nothing to create.  I was also impressed with their ability to recognize a manufactured crisis.  These protesters were angry at Walker (among other reasons) because of his false sincerity with regard to “balancing budgets.”  After all, why cut taxes for businesses by more than $100 million dollars in the middle of a budget crisis?  Why contribute significantly to the size of the deficit if one is truly interested in cutting it?

What seemed to make most protestors so angry was their clear understanding that the question of short term concessions (with regard to health care and pension costs) could be separated from the larger issue of collective bargaining rights.  They were outraged that Governor Walker was stubbornly refusing to do separate the issues, primarily due to his longstanding ideological commitment to dismantling public sector unions.  Walker has a lot of contempt for the people of Wisconsin.  He’s shown that contempt with his assumption that state workers can be fooled into thinking that collective bargaining is the cause of the contemporary economic crisis and growing budget deficits.

There is little merit to the claim that Americans can no longer “afford” basic union protections due to growing budget deficits.  With regard to union rights, a close examination shows that there is no relationship between the presence or absence of collective bargaining and growing state deficits.  Analyzing data from the Center on Budget and Policy Priorities, one sees that those states without collective bargaining (Virginia, Georgia, North Carolina, South Carolina, and Texas) actually have higher deficits than states with collective bargaining.  These five states’ projected deficits for fiscal year 2011 averaged 19 percent of their budget, compared to states with collective bargaining, whose deficits averaged just 14 percent of their budget.  If Governor Walker is right that Wisconsin (and other states) can no longer “afford” collective bargaining, one would expect to see the exact opposite of these findings.  That states outlawing collective bargaining are actually in worse fiscal shape speaks poorly of Governor Walker’s claims.

Then, of course, there is the issue of the tax cuts for the rich, so widely celebrated by Republicans (and a growing number of Democrats) as the only means for promoting economic growth and widespread prosperity.  These claims are entirely lacking in empirical validity.  Previous data collected by the Economic Policy Institute (EPI) clearly demonstrate that tax cuts for the rich are a poor means of promoting economic growth.  Closely examining previous economic cycles (characterized by periods of recession and then by economic recovery/growth), EPI finds that the 2001 Bush tax cuts (passed during the 2001 recession) were followed by a weak economic recovery, in fact the weakest recovery, when compared to the recoveries seen in the previous four economic cycles.  EPI concludes that “by virtually every measure, the economy (following the 2001 recession and tax cuts) has performed worse in this business cycle than was typical of past ones.”  EPI does not stand alone in this conclusion.  A recent study from the Center on Budget and Policy Priorities finds that tax cuts (as directed at the rich) are actually the least effective means of economic stimulus, when compared to other means of stimulus such as the extension of unemployment benefits, cuts in payroll taxes (aimed at the working class), and national fiscal assistance to states (as seen in Obama’s 2009 stimulus).  These alternative options are actually far more effective in promoting economic growth because they focus on a far larger segment of the American public – a segment that is much more likely to immediately pump any money it gets into the economy in order to provide their own basic needs.  Tax cuts for the rich, in contrast, may be a boon for corporate elites, but they do little to promote widespread economic growth and prosperity.

Conservatives hold it as a religion that tax cuts for the rich promote growth.  As the theory goes, such cuts allow businesses the extra reserves they need to invest in hiring additional workers, therefore increasing employment, and stimulating aggregate consumer demand, economic growth, and personal incomes.  None of these claims withstand basic empirical testing.  Data from the Center on Budget and Policy Priorities (CBPP) spanning back to the mid-1990s through the post-2000 period demonstrate the utter bankruptcy of conservative claims.  This data documents the changing national and state economic conditions as the country emerged from recession during the early 1990s, and as a number of states decided to pursue large tax cuts in the name of “promoting economic growth.”

The data from the CBPP is illuminating.  It shows that the sixteen states that pursued large tax cuts actually suffered the highest growth in unemployment, experienced the weakest growth in personal incomes, witnessed the greatest declines in spending on public services, and saw the largest growth in their deficits.  The “top sixteen” tax cutting states saw an average growth in unemployment of 1.4 percent, compared to the other 34 states, which saw a growth in unemployment of just one percent.  The top sixteen saw a growth in personal incomes of 4.4 percent, compared to the 5.8 percent growth in the other 34 states.  In the case of public services, the top sixteen saw services decline by an average 2.5 percent, compared to the other 34 states, which saw a decline in services of just 1.1 percent.  With regard to state deficits, the top sixteen saw their deficits increase by an average 14.9 percent, compared to the other 34 states, whose deficits grew by just 8.9 percent.  This last finding is hardly surprising, considering that large and tax cuts remove vital funding needed to sustain state spending and budgets.

There’s little room for interpretation in the above figures.  Those states pursuing a conservative policy of tax cuts see their economic situations and indebtedness become qualitatively worse.  There’s little reason to think that the same won’t happen again if state governors follow Wisconsin’s path, cutting taxes for the rich, while gutting basic welfare services and worker protections for most Americans.

State and national attacks on social services will also harm working class Americans.  Goldman Sachs caused quite a bit of anger among Republicans when it called them out for seeking to cut spending on social services.  Goldman’s recent public policy report warns against the $61 billion in proposed Republican cuts in the national budget – those seeking to force cuts in the areas of education spending, nutritional programs, housing and heating subsidies for the poor, and environmental protection. Goldman predicted that the cuts would reduce growth by as much as two percentage points through the end of the year, cutting in half annual growth projections.  As Moody Analytics reports, the cuts would reduce prospects for growth by eliminating an estimated 700,000 jobs, thereby reducing aggregate consumer demand and spending.  Such cuts will inevitably exact a powerful toll on a public that has been left reeling due to massive declines in personal worth and savings, in addition to suffering under growing unemployment, stagnating wages, falling home prices, skyrocketing consumer debt, and lingering economic instability.

The data above paint a stark picture.  The Republican state and national political agenda, if successful, will greatly harm the American people.  Tax cuts for the rich (as passed by Obama and Congressional Republicans) will not ensure sufficient economic growth, although they will greatly benefit the wealthy.  The pay freeze for federal workers recently declared by Obama functions like a tax increase on the American people (after taking into account the declining value of federal workers’ pay due to inflation). At a time when the Obama administration is hypocritically cutting taxes for the rich, the pay freeze looks like a classic example of class war.  Attacks on public service workers will greatly reduce Americans’ standard of living, while doing nothing to “balance budgets” and “reduce deficits” at a time when Republicans are pushing massive, budget-busting tax cuts for the rich.  Deep cuts in national spending will depress economic growth, while reducing personal income and eviscerating basic public services.  It is difficult to see how these changes will in any way benefit the working class.

The assault on public unions, social welfare services and environmental protections, and the obsession with tax cuts for the rich are all part of a larger neoliberal class war, declared by both parties against the American people.  The sooner we master the specifics of these reactionary policies, the better position we will be in not only combating them, but in demanding better policies that ensure prosperity for the American worker.

Most Americans know that their political officials are not working in favor of the common good.  We need to move beyond such a vague distrust, however, and begin to grasp the specific policy problems that confront us.  The protests in Wisconsin are a major step in the right direction, as those who are demonstrating against Walker have developed an impressive knowledge of the policy details at hand.  Their success shows that the rest of the American public can, and must become better educated if they are to work toward democratic, progressive change.

ANTHONY DiMAGGIO is the co-author (with Paul Street) of the forthcoming “Crashing the Tea Party” (Paradigm Publishers) due out in May 2011.  He is also the author of When Media Goes to War (2010) and Mass Media, Mass Propaganda (2008).   He has taught U.S. and Global Politics at Illinois State University, and can be reached at: adimag2@uic.edu

 

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Anthony DiMaggio is an Assistant Professor of Political Science at Lehigh University. He holds a PhD in political communication, and is the author of the newly released: The Politics of Persuasion: Economic Policy and Media Bias in the Modern Era (Paperback, 2018), and Selling War, Selling Hope: Presidential Rhetoric, the News Media, and U.S. Foreign Policy After 9/11 (Paperback: 2016). He can be reached at: anthonydimaggio612@gmail.com

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