Sunday, November 20, 2011

Sachs on the Super Committee's big lie

Jeffrey Sachs once again speaks truth to power as the deadline for the Super Committee approaches without a glimmer of hope that it will resolve anything. One reason is that it assumes the answer lies in cutting those evil government programs that help people while leaving off the table increasing tax revenues just a pinch more on the top 1%. That's the big lie, that raising those taxes even a couple of points will destroy the economy. In case anyone is still living under a rock, the economy has already been destroyed for the 99%. Sure, it's still doing fine for the 1%, and the likes of the Super Committee is dedicated to keeping it that way, since their pockets are lined by those taskmasters. Following are excerpts from Sachs' article today.

"The big political lie of the Super Committee is that the deficit must be closed mainly by cutting government spending rather than by raising taxes on corporations and the super-rich. Both parties are complicit. The Republicans want to close the deficit entirely by cutting spending; Obama has brandished the formula of $3 of cuts for every $1 of tax revenues. On either approach, the poor and middle class would suffer grievously while the rich and powerful would win yet again.

"The key to understanding the U.S. economy is to understand that we have two economies, not one. The economy of rich Americans is booming. Salaries are high. Profits are soaring. Luxury brands and upscale restaurants are packed. There is no recession. The economy of the middle class and poor is in crisis. Poverty and near-poverty are spreading. Unemployment is rampant. Household incomes have been falling sharply. Millions of discouraged workers have dropped out of the labor force entirely. The poor work at minimum wages to provide services for the rich.

"There are two forces that account for this deep divide. The first is globalization.... The second force is politics. When Obama has one of his many $35,800-a-plate fundraising dinners, he doesn't meet young people struggling to cover tuition payments. Obama has been separated from reality by the White House's campaign to collect between $750 million and $1 billion for Obama's reelection bid. The big money on the Republican side is even worse. Big Oil controls the party.

"The upshot is that both parties champion the 1 percent, the Republicans gleefully and the Democrats sheepishly. Both parties have worked together to gut the tax code. Companies use accounting tricks approved by the IRS to shift their profits to foreign tax havens. Hedge-fund managers and recipients of long-term capital gains pay only 15 percent top tax rates. As a result of these irresponsible tax policies and rampant tax evasion, tax collections as a share of national income have sunk to 15 percent, the lowest in modern American history.

"The big lie against raising taxes on the rich comes in two variants. The most preposterous is that the U.S. simply could not collect more revenues as a share of GDP.... The second variant of the big lie is that the U.S. economy would be ruined if the U.S. fiscal system were more like those in Europe.... Europe per se is not in crisis. Southern Europe is in crisis. Northern Europe, by contrast, where the taxes are higher than in Southern Europe, is vastly outperforming the United States.

"When we calculate the Misery Index for the U.S., Canada, and Western Europe, we find that, lo and behold, the U.S. ranks among the most miserable performers, 5th out of 20 countries. The country with the highest Misery Index is Ireland, followed by Spain, Greece, Portugal, and the United States. All five countries deregulated their financial markets and thereby experienced a housing bubble and bust. The lowest macroeconomic misery is in Northern Europe. Norway has the lowest score, followed by Switzerland, Luxembourg, Netherlands, Sweden, Germany, and Demark. All seven countries have lower unemployment rates, smaller budget deficits as a share of GDP, and lower foreign deficits as a share of GDP, than the U.S. We look pretty miserable indeed by comparison.

"Yet, miracle of miracles, these seven countries collect higher taxes as a share of GDP than does the U.S.... The Northern European countries earn their prosperity not through low taxation but through high taxation sufficient to pay for government.... These countries enjoy much better public services, better educational outcomes, more gainful employment, higher trade balances, lower poverty, and smaller budget deficits. High-quality government services reach all parts of the society. The U.S., stuck with its politically induced 'low-tax trap,' ends up with crummy public services, poor educational outcomes, high and rising poverty, and a huge budget deficit to boot."

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