DEBT CRISIS IN THE U.S.

The issue is warfare, not welfare

by Paul Kellogg

At the last possible moment, late August 1 , President Barack Obama signed into law a deal to raise the US government’s congressionally mandated debt ceiling above $14.3-trillion. Without such an agreement, the US central government would have been unable to borrow money to pay its bills.

The consequences would have been extremely serious—soaring interest rates, a collapse of the US dollar, not to speak of social security stipends, pensions and salaries going unpaid.

The barrier to raising the debt ceiling came from the sudden rise of a new rightwing in the Republican Party.

One of the toxic products of the 2008-09 Great Recession has been the so-called “Tea Party” movement, a right-wing reaction to capitalist crisis that refuses to blame capitalism.

Deeply reactionary and with barely disguised racist undertones, the Tea Party conservatives have a simple answer to the ills facing the US—too much government, too many taxes.

This simplistic message captured first the Republican Party, and then the House of Representatives, last year’s congressional elections seeing the House fall under the control of a Tea Party-dominated Republican Party.

These Tea Party Republicans would not countenance raising the debt ceiling unless big steps were taken to deal with the US deficit. And they are insisting that this happen without any increase in taxes.

There is an enormous deficit problem in the US central government. The $14.3 trillion debt figure, so much in the news, is the result of a decades-long practice of spending, every month, far more than comes in from revenues. The chart on this page documents this clearly. Through all of the 1980s and most of the 1990s, deficits as a percentage of receipts became quite high, twice reaching annual rates of 30 per cent.

In the context of the economic boom of the 1990s, there was a brief reversal of this trend, the last four years of the Bill Clinton presidency and the first year of the presidency of George W. Bush actually seeing revenues exceed expenditures. But from 2002 to the present, there has been a return to deficit spending, peaking first during the height of the Iraq War, and then soaring in the context of the 2008-09 recession. At its peak in 2009, deficits soared to 70 per cent of revenues.

The deal signed by Obama in fact avoids any mention of immediate tax increases. But is it really credible to try to fix this problem without tax increases?

The key taxes that need to be addressed are not those paid by individuals, but rather those paid by corporations.

In the 1950s, corporations paid 39 per cent of all income taxes. By the 1970s this had fallen to 25 per cent. In the first nine years of the 21st century, the figure was 19 per cent. Making corporations simply pay the share of income tax they did in the 1950s, or even the 1970s, would make a huge dent in the deficit. And in 2011, corporations have the money to pay new taxes. Story after story in the press documents that Corporate America is sitting on record piles of cash.

The Tea Party Republicans would not look at these facts.

Instead they insisted on reducing the deficit strictly through cuts in expenditures. After President Obama’s dramatic speech to the US on July 25, CNN commentators summarized what that means—cuts to “the Big Three: medicare, medicaid and social security.”

But what about the “Big One”—warfare? In Canada, about eight per cent of central government expenditures goes towards warfare. That is enough to rank Canada quite high on the list of arms spenders in the world, 13th in the world, according to arms spending experts in Sweden.

But the United States is in a whole other league. Fully 43 per cent of all arms spending in the world is conducted by the United States government. It means that instead of 8 per cent, a shocking 20 per cent of its budget goes towards the military.

But the military establishment is barely part of the discussion for the Tea Party right wing.

Here’s the big problem. If the Tea Party right wing won’t talk about raising corporate taxes and cutting the bloated military budget, neither will President Obama.

In his speech July 25, Obama talked about “the tough challenges of entitlement and tax reform.”

By entitlement, he means exactly what the CNN commentators headlined—medicare, medicaid and social security. The “Grand Bargain” that Obama tried to win this month involved billions of dollars in cuts to these vital social services. He, like the Tea Party Republicans, will not raise the issue of the biggest driver of expenses in the United States—the war machine.

Unlike the Republicans, he does talk about tax increases. But listen closely. He quite rightly wants to roll back the wildly generous tax breaks given, by George W. Bush, to the richest citizens of the United States. But he is not putting on the table the really big item—the need to seriously tax the corporations.

The bitter truth is that both Democrats and Republicans—for all their differences—share two fundamental viewpoints. Both agree that corporate power needs to be nurtured as the only way to drive the economy. And both agree that the US needs to maintain its imperial interests abroad, an empire which will come unstuck without a truly massive arms budget.

Instead, both are insisting that ordinary citizens pay for the deficit and debt—even though these twin problems were created by handouts to corporations, and trillions wasted on sending young men and women to die for corporate profits abroad.
The deal when it came in included some cuts to the military establishment—$350-billion over ten years. But that is actually a very small amount, less than 5 per cent of projected expenditures, and far short of what will be needed to really reduce US military expenditure.

And because steep cuts to warfare were avoided, and because there are no new taxes, the problem has not been solved, just postponed.

The deficit/debt problem can be dealt with—by taxing the corporations and seriously cutting the warfare state.

But those demands will have to come from new social movements, independent of Obama and the Democrats.