Deficits: Real Issue, Phony Debates

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from Dollars & Sense:



Deficits: Real Issue, Phony Debates
What's at stake on either side of the class divide.

By Rick Wolff


Deficits have now risen, yet again, to headline status. Conservatives inside and to the right of the Republican Party frame the national debates by attacking deficits. They want to reduce them by cutting government spending. Liberals respond, as usual, by insisting that overcoming the crisis requires big government spending (“stimulus”) and hence big deficits. Most Americans watch the politicians' conflicts with mixtures of confusion, disinterest, and disdain. Yet deficits pose a real issue for everyone, one that the debates among politicians and their economist advisors miss, ignore, or hide.

When the federal government raises less in taxes and other revenues than it spends, it must borrow the difference. Such annual borrowing is each year's deficit. The U.S. Treasury borrows that money by selling bonds, federal IOUs, to the lenders. The accumulation of annual deficits comprises the national debt, the total of outstanding U.S. treasury bonds. So the first and simplest questions about deficits are (1) why does the federal government choose to borrow rather than to raise taxes? and (2) why does it borrow rather than cut its expenditures? The twin answers are profoundly political. Elected officials are afraid to raise taxes on business and the rich because their profits and great personal wealth can then finance the defeat of officials who do that. Cutting government spending that benefits business and the rich is avoided for the same reason. As the tax burden shifted increasingly onto middle- and lower-income people in recent decades, elected officials have faced rising tax revolts coupled with demands for more government services and supports.

In the United States—as in most capitalist countries—business and the rich, on one side, and the middle-income and the poor on the other, have placed the same demands on the government budget. Each side has wanted more government spending on what it needs and less taxes on its incomes. Both political parties thus fear raising taxes or cutting spending on the masses because that risks electoral defeats. This has been a very real, basic, and socially disruptive contradiction built into capitalist systems.

These days, business and the rich want both massive government supports to overcome the current crisis as well as their usual government benefits. The latter include government activities abroad—including wars—that secure export markets and access to crucial imports (e.g., the needed quantities and prices of business inputs and consumer goods not domestically available). They also demand the particular subsidies typically provided to agricultural enterprises, transport companies, defense producers, and so on, as well as tax reductions offered for various kinds of investments. Businesses press government to maintain or expand roads, harbors, airports, schools, mass transportation systems, and research institutes crucial for their enterprises' profits. Wealthy individuals want government spending on the police and judicial systems that protect their wealth. ..........(more)

The complete piece is at: http://www.dollarsandsense.org/archives/2010/1110wolff.html