Recovery: Prelude to Deficit Spending
by Alan Silvius
AS A GREEN, I believe in thinking globally. Nevertheless, I do not believe
in exporting capital when it results in the misery of unemployment at home.
Neoclassical economists, however, (Milton Friedman, Alan Greenspan, Gary
Becker, etc.) see nothing wrong with exporting capital-indeed, favor it
as a means of increasing the return on capital. President Reagan assured
the public that the so-called "supply-side" tax adjustments would
result in "jobs, jobs, jobs!" Relatively little of the vast sums
that were released from taxation provided jobs for the American unemployed.
Indeed, the jobs provided were largely minimum-wage service industry jobs.
A considerable investment was made in taking over existing firms by the
issuance of junk bonds. The capital gains tax reduction stimulated speculation:
the much-publicized Dow-Jones Index issues are largely military contractors
as well as transnational firms. As military suppliers, these firms wave
the flag; an investors, they tend to ignore American labor in civilian manufacturing.
That infamous suede shoe salesman who was president from 1981 to 1988 revised
Labor Department standards for counting the unemployed. Anyone with a part-time
job was counted as employed. Previous administrations had attempted to estimate
hard-core unemployed-those who, having repeatedly been told that there was
no work for them, had ceased to call at the employment office. The percentage
of unemployed reported by the Reagan-Bush administration never came close
to reality.
Last month Robert Reich, Clinton's Secretary of labor, announced that there
were 16 million underemployed. This has to be a guess even though Reich
is more reliable than any Reagan or Bush appointee.
The Perotistas have scared both political parties out of their wits. Clinton
ran on promises that he is either unable or unwilling to keep. Both parties
now aim to reduce "spending" (read "except military spending")
and to increase regressive taxes. They choose to ignore the structural fault
of the American economy-the underinvestment in civilian manufacturing.
The Establishment calls for "growth" as the cure for all social
ills. Unqualified growth, however, can be just more of the same old exploitation
of which we have had too much. If, contrary to logic, the Establishment-desired
growth should ensue, it is highly unlikely that the entrepreneurs will turn
to the towns of the abandoned factories or attempt to revive the rusting
hulks. The entrepreneurs consider it more efficient to destroy additional
wilderness and recruit new workers to operate the factory. A faulty tax
policy got us into this jam. A socially conscious tax policy is needed to
get us out of it. Taxes on the poor should be eliminated. Taxes on the lower
middle class (those below the median household income) must be substantially
reduced. Between the median household income and the $1,000,000 annual income,
tax rates should progress in even increments up to a nominal marginal rate
of 70%. Given that there would be an initial $16,000 exemption per filer
(to relieve the poor), plus the following deductions, the actual rates of
taxation would be much less than the nominal marginal rates.
Deductions: 1. All expenses necessary for the production of income, including
education 2. Most socially-desirable investments made in America, whether
by a proprietary firm, a partnership, a cooperative, or a corporation. 3.
A small donation to a political party, say up to $100.
In effect, America would invest in its own future, with the investment selected
by an individual investor. It would be most socially desirable for investments
to be made in reviving those rusting hulks, with the communities dependent
upon them coming back to life. The revenue yield from this tax pattern will
be less than the revenue yield from the present taxes unless massive investments
in America result. In the latter case, a large percentage of those 16 million
underemployed will become taxpayers, resulting in rapid deficit reduction.
Only structural policies that deal directly with the underlying problems
of declining industrial competitiveness and diminishing absolute technological
advantages can overcome the unfavorable income elasticities and structural
trends, as well as reverse the persistent hysteresis. -Journal of Post Keynesian
Economics, Vol 14, No. 3 (Spring 1992)
