Austerity psychosis grips this capital, as the US government lurches from fiscal cliff to sequester and soon from budget resolution to debt ceiling.
Lost in the chaos is the dearly bought lesson of the last world depression: austerity cuts never succeed in their announced goal of reducing deficits and debt, and instead tend to destroy the economic and political systems of countries where they are carried out. Austerity, in a word, kills. But austerity is the program, avowed or concealed, of both US political parties.
A week ago, the US federal budget for fiscal year 2013 was cut by about $85 billion, concentrated in defense and in domestic discretionary spending. These cuts, known as the sequester, are the poisoned fruits of the bipartisan Satan Sandwich of austerity measures approved by Obama and the Democrats in August 2011 as a means of blunting the insane fury of the Republican Tea Party faction, who were eager to drive the United States into default and national bankruptcy in order to stop further federal borrowing. When a group of twelve congressmen and senators widely known as the Twelve Tyrants could not agree on a package of draconian budget cuts and tax increases in the fall of 2011, the government was legally compelled to cut almost $100 billion per year in the impacted categories, starting now. Medicaid, Social Security, and food stamps are not targeted for the moment.
But Medicare faces $10 billion in new cuts over the next seven months, on top of the $700 billion already imposed by Obama. Long-term unemployed who have been jobless for more than six months and who therefore depend on federally funded extended unemployment benefits will see their checks cut by 9.4%. The elderly poor will receive 4 million fewer meals from federally assisted charities. School lunches for poor children will be cut. Some 125,000 families will lose rental assistance, and 100,000 may revert to homelessness.
Despite attempts by reactionaries and ruling class media to ridicule the notion that these cuts are hurting real people, it is impossible to carry out austerity on this scale without a measurable loss of life. As a result of the Budget Control Act of 2011, spending caps or limits will by 2013 cut defense, medical research, education, assistance for low-income families, food and water safety, law enforcement and related categories by 8% below the 2010 levels. Factoring in the additional cuts embodied in the sequester, spending in these areas will by 2013 be down 14% compared to 2010. By 2021, spending will be down 19% due to caps and sequester, according to the Center on Budget and Policy Priorities.
The impact of these cuts and be seen through the example of the Special Supplemental Nutrition Program for Women, Infants, and Children or WIC, which provides high protein nutritious meals for expectant and nursing mothers and their infants. This program is vital in preventing birth defects and cognitive impairment in babies whose mothers have suffered from malnutrition or vitamin deficiencies during pregnancy. Participation in WIC peaked at 9.2 million mothers and children in 2010, and has already declined to 8.9 million last year as a result of caps. Sequestration will cut the WIC budget by $692 million or about 5% compared to 2010 levels, meaning that 315,000 mothers will be denied benefits. Because the fiscal year began on October 1, this means that between 575,000 and 750,000 mothers would be turned away from the program in the final months of fiscal 2013, which ends on September 30. How many babies must die, and how many must have their growth stunted for life, because of the absurd reactionary theory that budget cuts are required to reduce the deficit? Even for those who survive, childhood hunger and malnutrition can cause irreversible, life-long damage, with social costs many orders of magnitude greater than the relative pittance that can be economized by cutting a program like WIC.
Reflecting a growing pro-austerity consensus in the ruling class, the controlled media have tended to minimize the impact of the cuts. But a survey of local media paints a much more disturbing picture. In Georgia, reconstruction in the wake of a tornado in the Atlanta area is being stopped because of sequestration cuts. At the same time, the Georgia Department of Labor is reducing unemployment benefits by 11%. In Washington state, cleanup at the Hanford nuclear reservation toxic waste site is being slowed because of $171 million lost through the sequester. Border protection officers in Arizona will face unpaid leave for as many as 24,000 employees for up to 14 days each; homelessness will be increased in the state because less money will be available for rent assistance for the poor. In Utah, 23 employees of Tooele County are being laid off. Food pantries in Mississippi are preparing for a larger influx of needy people. In San Antonio, Texas $140 million in budget cuts will impact Head Start, a program which offers breakfast and pre-school for disadvantaged children, as well as impacting WIC and transportation programs for the elderly. A total of 173 airport control towers are closing in places such as Detroit, San Francisco, St. Petersburg, Florida, Oklahoma, Pennsylvania, and Connecticut. Any airline disasters will henceforth be the responsibility of the austerity ghouls. The Weather Service, which has already fallen below European forecasting standards because of a lack of computer investments, will suffer.
Sequester cuts in biomedical research will set science back an entire generation
In a genuine crime against humanity, the National Institutes of Health - the greatest single biomedical research capability on the planet - will be cut by $1.6 billion over the next seven months. Younger scientists seeking new research grants will be facing hopeless odds, and it is feared that many will abandon their careers in scientific research altogether. This also applies to older and more experienced scientists. Dr. Elias Zerhouni, a Bush Republican who led the NIH from 2002 to 2008, has predicted that the sequester will set medical science back an entire generation. This is an act of the most grotesque vandalism.
The most common estimate is that the sequester will by itself wipe out 750,000 government jobs at all levels. Given the multiplier relationship between federal spending and private-sector jobs, this would imply between 1 and 1.5 million jobs lost across the entire US economy. Estimates of jobs destroyed by the sequester in defense industries specifically reach up to 2 million.
The alleged goal of the sequester is to cut total federal spending and borrowing by about $1 trillion or $100 billion per year for 10 years. But, as we have seen, the resulting damage is unacceptable. The example of Great Britain, now in the third dip of a triple-dip recession, suggests that austerity will also fail to deliver the promised shrinkage of the deficit. Indeed, researchers at the International Monetary Fund have studied no fewer than 173 episodes of fiscal austerity in developed countries between 1978 and 2009. Their finding is that austerity policies created economic contraction and made unemployment worse.
Wall Street: The greatest untaxed river of cash in the world
It would therefore be better to procure additional revenue. One obvious place to start is in Wall Street, where the majority of the too big to fail money center banks pay little or nothing in the way of federal corporate income tax (nominally 35% of profits), and almost nothing in the way of sales tax on their many quadrillions of dollars of yearly trades and transactions. The zombie bankers and hedge fund hyenas, like the French aristocracy before 1789, evidently claim immunity from all taxation. The most basic cause for current world depression is the tremendous growth since about 1970 in financial services at the expense of tangible physical production and manufacturing. This has given rise to service economies in the US and Europe which cannot be viable. As long as manufacturers are taxed and speculators pay nothing, speculation enjoys a subsidy. A tax on speculation is therefore indispensable in tilting the playing field back towards the production of those commodities upon which human existence depends.
In response to the irrational and sociopathic demand for budget cuts, a movement has emerged to tap in to the largest untaxed flow of money in the US economy - the quadrillions of dollars in largely speculative transactions which pass each year through the New York stock and bond markets and the Chicago futures and options markets. This movement is now becoming a bandwagon, and represents our best hope of defeating the austerity ghouls.
On February 28, Senators Tom Harkin and Sheldon Whitehouse along with Congressman Peter DeFazio re-introduced their proposal for a Wall Street Sales Tax, which they call a financial transaction tax. (Calling it a tax on transactions is dangerous and misleading, since the average person might think that withdrawing money from one’s own savings account could be considered a transaction and taxed along with Wall Street flash trading at a million trades per second. Congressman DeFazio’s website warns against ongoing disinformation operations which seek to play on precisely this confusion. The answer is to call it a Wall Street Sales Tax!)
Officially entitled the Wall Street Trading and Speculators Tax, the new bill would tax sales of stocks, bonds, options, futures, swaps, derivatives and other financial instruments by financial institutions at three basis points or three one hundredths of 1%. Derivatives would be valued at the cash price actually paid, rather than the notional value of the underlying assets on which the derivative is based. Even at this unrealistically low level, this proposal would generate an estimated $352 billion in revenue over the coming decade, or $35.2 billion per year, according to the Joint Tax Committee.
A trillion dollars of federal revenue to roll back austerity
The fully developed Wall Street Sales Tax advocated here is for 1% on all transactions of financial instruments, with a $1 million per person exclusion to allow for family investments. Assuming that trading and speculation would continue at the same level, the authentic Wall Street sales tax would therefore provide the federal treasury with $1.173 trillion of revenue, half of which should be passed on to the states as revenue sharing. In reality, revenue is likely to be somewhat lower because of the tendency of the Wall Street Sales Tax to discourage parasitical speculation.
Senator Harkin correctly estimated that the current protracted conflicts over the fiscal cliff, the sequester, the continuing budget resolution, and the debt ceiling offer real possibilities for getting a Wall Street sales tax enacted. Such a tax offers considerable revenue but would have “a negligible impact on middle-class Americans and Main Street businesses,” Harkin pointed out
Harkin-Whitehouse-DeFazio is cosponsored by Vermont independent Senator Bernie Sanders. There are currently 19 cosponsors in the House. Previous versions of the bill have been co-sponsored by Earl Blumenauer (D-OR), Bruce Braley (D-IA), John Conyers (D-MI), Donna Edwards (D-MD), Bob Filner (D-CA), Maurice Hinchley (D-NY), Mazie Hirono (D-HI), Henry Johnson (D-GA), John Sarbanes (D-MD), Louis Slaughter (D-NY), Betty Sutton (D-OH), and Peter Welch (D-VT). Other versions of the Wall Street Sales Tax has been supported by House Democrats Raul Grijalva of Arizona, Rosa DeLauro of Connecticut, Elijah Cummings of Maryland, and Keith Ellison of Minnesota, currently the leader of the House Progressive Caucus, which is also backing the WSST.
At the February 28 press conference, Congressman DeFazio recalled that in 2009 the Obama administration had been “very interested” in a financial transaction tax. Indeed, such a measure is known to have enjoyed the support of Peter Orszag, Obama’s first budget director. But any notion of making Wall Street pay its fair share was blocked by White House economics czar Larry Summers and Secretary of the Treasury Tim Geithner, both incorrigible tools of Wall Street. Now, DeFazio noted, both Summers and Geithner are no longer in office. Senator Harkin added that Jack Lew, Obama’s new Secretary of the Treasury, while repeating pro-forma the administration’s opposition to a tax on speculation, “was basically open to looking at it and engaging on further discussions on it. That’s the difference in two secretaries of the Treasury.” (George Zornick, “Financial Transaction Tax Introduced Again - Can It Pass This Time?”, The Nation, February 28, 2013)
The Euro Tobin is coming soon to eleven countries
One standard argument used by Wall Street and the City of London against a tax on speculation it is that traders will go elsewhere if they are forced to pay their fair share. That argument is now much weaker because 11 countries of the European Union are in the process of enacting a Tobin tax (financial sales tax) of 0.1% on stock trades and 0.01% on derivatives transactions. This tax may be enacted as soon as the end of 2013 by European Union countries including Germany, France, Italy, Spain, Belgium, Austria, Estonia, Greece, Portugal, Slovenia, and Slovakia. The impost is expected to generate about €35 billion in revenue. This EuroTobin is designed to have global bite, since the EU wants it collected on all financial instruments originally issued in Europe, no matter where they may change hands. It will also apply to all trades carried out by financial institutions based in the EU. These features allow the EuroTobin to penetrate such dens of unbridled speculation as the London and New York stock exchanges, and the principal derivatives exchanges in Chicago. The US Chamber of Commerce, determined as always to defend the exorbitant privileges of the financier oligarchy, is already joining the British in screaming that the Bolsheviks are at the gates.
Since the beginning of 2013, a movement in favor of the Wall Street sales tax has been rapidly developing. One key turning point was doubtless on January 20, when activists of the United Front against Austerity brought a banner calling for a 1% Wall Street Sales Tax to the National Mall in Washington, DC on the eve of Obama’s inauguration. CNN was broadcasting from a special booth located near the Smithsonian Castle, and the banner was clearly legible in the background of CNN programming for a period of several hours.
The new Harkin-Whitehouse-DeFazio bill was immediately publicized and supported by Katrina vanden Heuvel, the doyenne of the left liberal establishment and publisher of The Nation. Vanden Heuvel, writing in the Washington Post, called the tax on speculation “an idea whose time has come,” and cited polling which shows that “when it comes to cutting the deficit, six in 10 Americans prefer taxing the financial industry to cutting social spending. Recalling that even some Republican financial experts are now backing a Wall Street sales tax, vanden Heuvel speculated on the ability of this measure to break the logjam in the Congress, asking: “For Tea Partiers, wouldn’t a tax on Wall Street, the beneficiaries of the bailout they so revile, be less objectionable than most of the revenue options?” (Katrina vanden Heuvel, “It’s Time to Tax Financial Transactions,” Washington Post, March 5, 2013, also published in The Nation)
Sheila Bair, who was appointed by George Bush to head the Federal Deposit Insurance Corporation, and who stayed on in that capacity under Obama, has been on record in favor of the Wall Street sales tax since last autumn. Bair wrote that “developed nations in Europe and elsewhere are moving forward with fees on financial transactions. Instead of resisting these efforts, the US should lead the way. For decades, we imposed a fee on stock transactions with no adverse effects on our markets.” In addition to the revenue, Bair also looks forward to a general calming of stock exchanges, noting that “… high frequency traders who buy and sell by the millisecond would pay a lot. Such a tax would penalize those who destabilize our markets with rapid-fire trading, while rewarding those who invest for the long term.” (Sheila Bair, “Four Ways Wall Street Can Ante Up for Fiscal Health,” Fortune, November 19, 2012)
Robert Reich, who was the Secretary of Labor under Bill Clinton, and who is one of the most influential US economists thanks to his frequent television appearances, is telling Obama to build his second term strategy around the Wall Street Sales Tax. Reich recommends that Obama act to repeal the sequester using a reconciliation bill in the Senate, which could pass with 51 votes and would not be subject to filibuster, thereby isolating the House Republican austerity fanatics. That should be followed up, argues Reich, with a Build America’s Future Act assembled around “a small (1/10 of 1%) tax on financial transactions....” This and other revenue would be used for “investments in our future through education (from early childhood through affordable higher ed), infrastructure, and basic R&D.” In Reich’s view, Obama could make the 2014 elections a referendum on this measure and a few others, and would have a fighting chance to take back control of the House of Representatives. More broadly, Reich sees the Wall Street sales tax as the keystone of a package of measures that would allow the reframing of the “public debate around the future of the country and the investments we want to make together in the future, rather than austerity economics.” (Robert Reich, “What Obama Should Do Now,” March 4, 2013, robertreich.org)
Other influential economists, including Paul Krugman, Joseph Stiglitz, James Galbraith, and others are also supporting the Wall Street Sales Tax. John Maynard Keynes was favorable to a tax on speculation, so those who belong to Lord Keynes’ school of economic analysis are structurally predisposed towards this measure. Two Washington DC think tanks of the middle rank are active on this front: these are the Center for Effective Government (the former OMB Watch), and The Center for Economic and Policy Research, whose chief resident economist is Dean Baker. Institutional support has been coming from National Nurses United, one of the most militant and intelligent trade unions, as well as from the AFL-CIO and the UAW.
Obama’s charm offensive for a grand bargain of killer cuts
All of these forces must realize the total contempt in which they are held by Obama. In a recent press conference, Obama flaunted his eagerness to carry out killer cuts in Social Security and Medicare, despite the fact - Obama gloated -- that key parts the Democratic base are totally opposed to any such cuts. To make matters worse, Obama’s pick to head the Office of Management and Budget is Sylvia Mathews Burwell, who served Bob Rubin of Citibank and Goldman Sachs as chief of staff during the Clinton years and who has most recently headed the reactionary Walmart Foundation, named after a family whose name is synonymous with low wages and shoddy merchandise.
The Republican Tea Party caucus is about as large numerically as the Progressive Caucus on the Democratic side, but the Tea Party gang wields far greater power because of their reckless kamikaze willingness to dump their own leaders and bankrupt the nation in pursuit of their illusory ideological goals. The cowardly Democratic Progressive Caucus, by contrast, counts for very little because of their track record of betraying their own values and caving in for Obama at decisive moments. Now that Obama is well on his way to becoming a lame duck, the Progressive Caucus would do well to dispense with the quasi-religious reverence they have generally shown for the current tenant of the White House, and instead fight for the program the nation needs.
All the more so because Obama is now preparing acts of colossal new treachery against his own base. The Washington scorecard for 2013 gives Obama one run for forcing the reactionary Republicans to raise income taxes on some rich people, in violation of the sacred GOP ideology of greed. But conventional wisdom scores the sequester as a win for Republican budget fanatics who want to cut spending at all costs. Now that the score is tied, Obama regards the Democratic base as quiescent, and senses the time right for his monstrous Grand Bargain of austerity with the GOP. Accordingly, Obama has dropped his recent tactic of staging campaign events against Republicans in cities around the country and gone on a charm offensive instead. This past Wednesday, Obama met with twelve austerity ghoul Republican senators (selected by John McCain and Lindsey Graham) at the Jefferson Hotel to discuss what can only be called a package of genocidal cuts at the expense of the American people.
Obama offering $500 billion in health care cuts, chained CPI
Obama, who won his second term on a commitment to defend Social Security and Medicare from the Republicans, has placed the New Deal and Great Society entitlements firmly on the chopping block with a proposal for $500 billion in additional cuts to Medicare, Medicaid, and other federal health care programs. Cuts of this size by Obama may well be even worse than the 2010 Simpson-Bowles recipe for economic genocide. In return, Obama asked for the fig leaf of some new revenue from limiting certain tax deductions and loopholes. At the same time, Obama reiterated his heinous commitment to the Chained Consumer Price Index, a trick to falsify the real rate of inflation even more that occurs at present, with the goal of gradually shrinking the Social Security benefit. This Chained CPI would allow Obama to realize Newt Gingrich’s old dream of letting Social Security wither on the vine.
Obama has placed phone calls to other senators, and on Thursday invited Congressman Paul Ryan, a top GOP budget honcho, to join him for lunch at the White House. Next week, Ryan is scheduled to present his latest long-term austerity budget, which will reportedly claim to balance the US federal budget within 10 years. (Of course, budget cuts have never balanced a national budget in a depression and never will. ) Already, the pro-austerity corporate media are beginning a campaign in support of Ryan’s savage cuts in entitlements and domestic discretionary spending. Obama, for his part, is always eager to use such a proposal as a pretext for capitulating. All of this means that supporters of the Wall Street Sales Tax are now engaged in a desperate race against time to get this proposal into the center of public attention. Once the American people discover that Wall Street pays no taxes, the political climate can easily shift away from the current ascendancy of the austerity ghouls.
Democratic members of Congress must now be willing to push the Wall Street Sales Tax, whether Obama likes it or not. If a real solution is to be found, it must be built around the vastly increased revenue which can be procured by enacting the 1% Wall Street Sales Tax.