Sat, Jan 01, 2011 - Page 9 News List

Class struggle in the US heightens

For the past three decades, US fiscal policy has favored the rich and powerful, but it has come at a price and, without a drastic change, both political parties will soon pay

By Jeffrey Sachs

The US is on a collision course with itself. Last month’s deal between US President Barack Obama and the Republicans in the US Congress to extend the tax cuts initiated a decade ago by former US president George W. Bush is being hailed as the start of a new bipartisan consensus. I believe, instead, that it is a false truce in what will become a pitched battle for the soul of US politics.

As in many countries, conflicts over public morality and national strategy come down to questions of money. In the US, this is truer than ever. The US is running an annual budget deficit of about US$1 trillion, which may widen further as a result of the new tax agreement. This level of annual borrowing is far too high for comfort. It must be cut, but how?

The problem is the US’ corrupted politics and loss of civic morality. One political party, the Republicans, stands for little except tax cuts, which they place above any other goal. The Democrats have a bit wider set of interests, including support for healthcare, education, training and infrastructure. However, like the Republicans, the Democrats too are keen to shower tax cuts on their major campaign contributors, predominantly rich Americans.

The result is a dangerous paradox. The US budget deficit is enormous and unsustainable. The poor are squeezed by cuts in social programs and a weak job market. One-in-eight Americans depends on food stamps to eat. Yet, despite these circumstances, one political party wants to gut tax revenues altogether, while the other is easily dragged along, against its better instincts, out of concern for keeping its rich contributors happy.

This tax-cutting frenzy comes, incredibly, after three decades of elite fiscal rule in the US that has favored the rich and powerful. Since Ronald Reagan became US President in 1981, the US’ budget system has been geared to supporting the accumulation of vast wealth at the top of the income distribution. Amazingly, the richest 1 percent of US households now has a higher net worth than the bottom 90 percent. The annual income of the richest 12,000 households is greater than that of the poorest 24 million households.

The Republican Party’s real game is to try to lock that income and wealth advantage into place. They fear, rightly, that sooner or later everyone else will begin demanding that the budget deficit be closed in part by raising taxes on the rich. After all, the rich are living better than ever, while the rest of US society is suffering. It makes sense to tax them more.

The Republicans are out to prevent that by any means. Last month, they succeeded, at least for now. However, they want to follow up their tactical victory — which postpones the restoration of pre-Bush tax rates for a couple of years — with a longer-term victory next spring. Their leaders in Congress are already declaring that they will slash public spending in order to begin reducing the deficit.

Ironically, there is one area in which large budget cuts are certainly warranted: the military. However, that is the one item most Republicans won’t touch. They want to slash the budget not by ending the useless war in Afghanistan and by eliminating unnecessary weapons systems, but by cutting education, health and other benefits for the poor and working class.

In the end, I don’t think they will succeed. For the moment, most Americans seem to be going along with Republican arguments that it is better to close the budget deficit through spending cuts rather than tax increases. Yet when the actual budget proposals are made, there will be a growing backlash. With their backs against the wall, I predict, poor and working-class Americans will begin to agitate for social justice.

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