(MintPress) – Talks of the fiscal cliff have hit a near fever pitch as the Jan. 1 deadline could produce a swath of multi-billion dollar tax increases and federal spending cuts. Although the government is unlikely to shut down, the expiration of Bush tax cuts has led to a tit-for-tat war over the terms of tax increases for top wage earners in the U.S.
The Congressional Budget Office predicts that Americans could see a collective $536 billion worth of tax increases, a pittance of what is needed to trim the staggering $16 trillion debt. However, the real issue is not one of cosmetic tax increases, but rather decades of disinvestment from public education, infrastructure and health care, actually creating a “fiscal canyon,” according to David Schultz, professor at Hamline University School of Law. Further cuts to essential public programs are expected, a measure that Schultz and others believe will only exacerbate the problem by reducing the tax base and denying citizens entry into higher education.
Trickle down, trickles up
“Clearly it’s one of the most pressing issues. We are essentially writing off large chunks of the workforce, preventing them from getting the training they need to compete in the global economy. There are growing gaps between rich and poor, white and black — this clearly is one of the economic problems,” said Schultz in a recent MintPress interview.
Decades of trickle down economics have been put forth as dogmatic tax policy. For decades Americans have been told that by giving the wealthy “job creators” tax breaks, the wealth will then trickle down to the middle and lower classes of society, creating broad jobs and wealth for the society to enjoy.
The radical policy of supply side economic theory championed by President Ronald Reagan has fallen flat. Indeed, the former California governor’s adage, “A rising tide lifts all vessels,” does not apply to the policies that he helped put in place.
The onslaught of privatization, union busting and free trade agreements in the past 30 years turned the U.S. from a once productive manufacturing economy with a surplus, to a declining service economy with a massive debt, held mostly by foreign countries.
Clearly, these policies failed. In the robust post-war boom economy, 1947-1979, Americans enjoyed the prosperity of a relatively strong manufacturing economy. According to Moveon.org, over this period all classes in the U.S. grew equally, including the bottom 20 percent of wage earners enjoying a 118 percent increase in personal wealth over this period.
However from 1979-2008, the period that saw the introduction of Reagan’s regressive tax structure, the distribution of wealth in the U.S. shifted drastically to the upper income earners. The bottom 20 percent of earners lost 7 percent of their share of national wealth while the top 1 percent gained an astounding 224 percent.
Today, six members of the Walton family, heirs to the Wal-Mart fortune, now have more accumulated wealth than the entire bottom 30 percent of wage earners in the U.S. There is no doubt that America is a plutocracy, but what is the cost to the U.S., beyond moralistic considerations of income distribution?
The real issue: a fiscal canyon
Although the fiscal cliff will pose a problem for many income earners in the short term, the real long-term issue seldom discussed in Congress is the “fiscal canyon” in the wake of mass privatization and disinvestment from a bevy of social programs. In a myopic view aimed at curbing runaway debt, Congress has considered cutting the few programs left that provide essential services to individuals.
“The fiscal canyon refers to a long term disinvestment in the U.S. economy that started 30 years ago. It has created the largest gap between rich and poor in 80 years. The fiscal cliff is a result of the fiscal canyon,” added Schultz.
Last year, President Obama proposed $89 billion worth of cuts to higher education over the next 10 years. With college tuitions soaring and students grappling with $1 trillion in collective debt, higher education will become increasingly reserved for the elite few, rather than for all deserving students.
Some historians believe that the 1982 recession was due to Ronald Reagan’s “budget cuts in virtually every department of government.” Reagan tried to cut the federal deficit by slashing funding for social programs, including school lunch programs and payments for people with disabilities. The policy clearly backfired.
Like many economists, including Columbia University’s Joseph Stiglitz, Schultz believes that long term disinvestment creates growing income inequalities and leaves the American economy ill equipped to compete in the increasingly competitive globalized economy.
“In the long term we need to look at three things: investment in K-12 education; significant investment in traditional infrastructure and new telecommunications; and third, it is about addressing the enormous gap between rich and poor in the U.S.,” Schultz said.
Increasing government spending is a hard sell in Washington given the runaway, multi-trillion dollar debt. But clearly, spending on those programs that are essential for Americans’ health and economic livelihood will help the state of the U.S. economy, providing fiscal solvency in the long run. The only trickle down needed is one from the coffers in Washington to middle- and lower-income Americans.
“You have to sell this as a pro-business strategy. These are the type of measures that companies have to take in order to compete. The face that we have so many people burdened with trillions of dollars in student debt is making it impossible for students to buy products. The only way that we are going to compete — with China, with the EU — is to make these investments,” said Schultz.
He added, “We look at taxes and say, ‘My gosh, we have to pay more taxes.’ Seldom do we point out the return on taxes — good education, roads and telecommunications. Businesses need to realize that they benefit from these taxes.”