There are two ways of cutting a deficit: raising taxes or reducing spending. Raising taxes means taking money from the rich. Cutting spending means taking money from the poor. Not in all cases, of course: Some taxation is regressive; some state spending takes money from ordinary citizens and gives it to banks, arms companies, oil barons and farmers. However, in most cases the state transfers wealth from rich to poor, while tax cuts shift it from poor to rich.
So the rich, in a nominal democracy, have a struggle on their hands. Somehow they must persuade the other 99 percent to vote against their own interests: to shrink the state, supporting spending cuts rather than tax rises. In the US, they appear to be succeeding.
Partly as a result of the Bush tax cuts of 2001, 2003 and 2005 (shamefully extended by US President Barack Obama), taxation of the wealthy, in Obama’s words, “is at its lowest level in half a century.”
The consequence of such regressive policies is a level of inequality unknown in other developed nations. As the Nobel laureate Joseph Stiglitz points out, in the past 10 years, the income of the top 1 percent has risen by 18 percent, while that of blue-collar male workers has fallen by 12 percent.
The deal being thrashed out in Congress as this article goes to press seeks only to cut state spending.
As the former Republican senator Alan Simpson says: “The little guy is going to be cremated.”
That means more economic decline, which means a bigger deficit. It is insane. How did it happen?
The immediate reason is that Republican members of Congress supported by the “Tea Party” movement will not budge, but this explains nothing. The Tea Party movement mostly consists of people who have been harmed by tax cuts for the rich and spending cuts for the poor and middle class.
Why would they mobilize against their own welfare? You can understand what is happening in Washington only if you remember what everyone seems to have forgotten: how this movement began.
On Sunday, the Observer claimed that “the Tea Party rose out of anger over the scale of federal spending, and in particular in bailing out the banks.”
This is what its members claim. It is nonsense.
The movement started with Rick Santelli’s call on CNBC for a tea party of city traders to dump securities in Lake Michigan, in protest at Obama’s plan to “subsidize the losers.” In other words, it was a demand for a financiers’ mobilization against the bailout of their victims: people losing their homes.
On the same day, a group called Americans for Prosperity (AFP) set up a Tea Party Facebook page and started organizing Tea Party events. The movement, whose program is still lavishly supported by AFP, took off from there.
So who or what is Americans for Prosperity? It was founded and is funded by Charles and David Koch. They run what they call “the biggest company you’ve never heard of,” and between them they are worth US$43 billion. Koch Industries is a massive oil, gas, minerals, timber and chemicals company.
In the past 15 years, the brothers have poured at least US$85 million into lobby groups arguing for lower taxes for the rich and weaker regulations for industry. The groups and politicians the Kochs fund also lobby to destroy collective bargaining, to stop laws reducing carbon emissions, to stymie healthcare reform and to hobble attempts to control the banks.