When Wall Street imploded in 2008, plunging the world into the “Great Recession,” even corporate-sponsored politicians were forced to place blame squarely on the big banks and deregulated markets. Politicians everywhere demanded accountability from greedy financial titans and piously pledged their support to closing tax loopholes and re-regulating casino capitalism.
Now, just three years later, the only real change is the political rhetoric! Suddenly, it’s “overpaid” public sector workers and “bloated budgets” for public services that are to blame for economic stagnation, unemployment and declining tax revenues. Meanwhile, the once-reviled financial oligarchs, whose reckless gambling destroyed our economy, are now being re-cast as “job creators” deserving of further tax breaks and deregulation!
This new mantra is repeated endlessly in the corporate media and by right-wing pundits and is designed to make working people pay for the capitalists’ crisis. But the storyline is also accepted by most Democratic Party leaders who, at both the state and federal level, are proposing far more budget cuts and attacks on public sector unions than tax hikes on the rich or corporate regulation.
In this context, a basic task for socialists remains to expose the lies of the corporate politicians and media. Here we provide brief answers to some of the most pernicious capitalist myths now circulating.
Myth: The country is broke. Everyone must tighten their belts.
Reality: it’s a distribution crisis, not a budget crisis.
Government deficits are the result of 30 years of shifting wealth from working people to the super-rich and big business. Since 1977, the share of national income taken home by the richest 1% of Americans doubled from 9% to over 20% today. The richest 0.1% – just 150,000 households – tripled their share of income, now earning as much as the poorest 120 million Americans combined. Thirty years ago, the average CEO made 30 times what the average worker did; today, top executives make 263 times more than the average worker’s wage, (http://www.ips-dc.org/reports/executive_excess_2010).
Reality: The rich don’t pay their share.
In the 1950s the highest income earners paid a tax rate of 91%, while today it is just 36%. But even this dramatically misrepresents the situation. The richest Americans earn far more from capital gains and dividends than salaries. So the effective tax rate of the richest 400 Americans was just 17% in 2007, down from about 30% in 1995, (Business Week, 4/7/2011). As Warren Buffett likes to point out, he pays a lower effective tax rate than the people who clean his office!
Reality: Cutting military spending could alleviate the crisis.
Nobel Laureate Joseph Stiglitz estimates that American taxpayers have now spent $3 trillion in Iraq and Afghanistan, roughly twice the 2011 federal deficit of $1.5 trillion. On average, the wars cost us $16 billion a month, $22 million an hour, (The Washington Post, 9/5/2010). To put this spending into perspective, let’s measure it up against the 2011 budget cuts:
- 45 minutes of war = the federal cuts to Planned Parenthood
- 5 hours of war = budget cuts to federal housing programs
- 2 days of war = budget cuts to the Department of Labor's jobs creation programs
- 3 days of war = budget cuts to federal Pell grants
- 5 days of war = budget cuts to the Department of Transportation and the EPA
- 2 months of war = the total cuts to the federal budget
Myth: Cutting taxes for the rich creates jobs.
Reality: Corporations are hoarding, not investing.
The Republicans and Obama justify their tax cuts for corporations by claiming this will spur investment and create jobs. All the evidence points in the opposite direction. According to the Federal Reserve, U.S. corporations held a record $1.93 trillion in cash on their balance sheets in 2010. Rather than investing this money in new job-creating enterprises, these companies sat on their money or gambled it on new speculative bubbles.
Reality: The bailouts did not create jobs.
In 2009, after taxpayers bailed them out, bank profits rose 66% to a total of $29 billion. But nearly half of all the money that the big banks sucked from taxpayers has been loaned out to foreign commercial and industrial borrowers. The amount of loans given to small businesses and farms, critical for job creation, actually declined 2.8%, (FDIC, 6/30/10).
Reality: Layoffs are profitable for corporate tops.
In 2009 the top 500 U.S. corporations laid off 697,448 workers. Just 50 companies accounted for over 75% of those layoffs, and CEOs at those 50 firms “earned” 42% more pay on average than their peers in the S&P 500. Three-quarters of these companies announced the layoffs in periods of positive earnings, with their profits increasing 44%, (Institute for Policy Studies, 9/1/2010).
Whirlpool laid off 5,000 workers during its most profitable year, (Investor Report, 2010). Microsoft laid off 5,000 workers and still managed to be listed as one of America’s top ten most profitable companies. IBM cut over 10,000 jobs in 2009, receiving $12.3 billion in profit, doubling the value of its stock, and paying its CEO $22 million, (Economic Policy Institute, 12/23/2009).
Myth: Reducing the deficit is our top priority.
Reality: Deficit payments are upward wealth redistribution.
The hysteria to pay down the rising federal budget deficit comes from profit-hungry banks and billionaire bondholders, not ordinary working people. The federal debt is now over $13.5 trillion. About $4.5 trillion is “inter-governmental loans,” which is a nice way of saying they’ve raided Social Security and Medicare to pay for military spending. Nine trillion dollars is held by private investors - mainly banks and billionaires - looking to get rich off of interest payments. In 2010, U.S. taxpayers paid $415 billion in interest, (U.S. Department of the Treasury, 11/1/10); most of this went to big investors, not to the savings bond grandma gave you for your sixth birthday.
Reality: Deficits are how bankers dismantle democracy.
The big bondholders who own government debt use their economic leverage to override democratic political decisions, threatening to suspend new loans unless governments enact sweeping budget cuts and privatization programs. This method, long used against semi-colonial countries, is now wreaking havoc in Europe. Banks are directly intervening to force savage cuts to pensions, health programs and education in Greece, Ireland, Portugal, Spain and other countries whose ability to repay is in question. In this way, decisions that should be left up to the people in a democracy are hijacked and made by wealthy investors.
Using their control of global credit supplies, the big financial monopolies can demand low taxes, high interest rates and privatization of public assets. They get to pass go and collect twice while working people struggle to get around the board once amid harsh budget cuts and layoffs.
Obama Rewards Corporate Tax Dodgers, Arbitrary Layoffs
Every campaign needs a general, and the two corporate parties’ war on workers is no different. Jeff Immelt now chairs President Obama’s Council on Jobs and Competitiveness. Previously, Immelt was the CEO of General Electric, a company that famously paid zero taxes in 2010 and actually claimed a $3.2 billion dollar tax credit, (NY Times, 3/24/11). During the same year, GE announced plans to fire 1,200 workers (GE Investors News, 2/22/10), and now they are slashing health care benefits for both non-union and union employees (ThinkProgress.org, 3/28/11). Fittingly, Jeff Immelt was rewarded for his accomplishments with a 100% raise!
Socialist Answers to the Budget Crisis
It is not enough to simply expose corporate and political corruption; we also have to explain a clear alternative to capitalist politics. Just as important, we have to map out a strategy on how to achieve socialist policies.
Stop the Cuts! Launch a Massive Jobs Program!
The San Francisco Labor Council – representing the majority of unions in their city – recently passed an excellent resolution pointing in the right direction:
“The San Francisco Labor Council calls on the AFL-CIO and Change to Win to organize massive demonstrations in major cities across the country to demand that the federal government bail out the cash-strapped states through one or more of the following: a national mass public works program to put 27 million people back to work now; taxing Wall Street and raising taxes on the rich and on corporations; a major and systematic reduction in the Pentagon budget, with funds redirected to create jobs and meet human needs; and/or the repossession of improperly used federal bailout funds that are sitting idly in the Wall Street coffers.”
Tax the Rich and Corporations!
Raising taxes on the rich is not only necessary, it is wildly popular. After Obama agreed to extend Bush’s tax cuts to the rich, a January 60 Minutes/Vanity Fair poll showed that 61% of Americans supported taxing the rich as the best way to tackle budget gaps. The second most popular solution? Cutting military spending.
Apologists for capitalism argue that if we raise taxes on big business, it will just push them to off-shore jobs to more “business friendly” countries with lower taxes, wages and regulations. Socialists argue that any corporations threatening capital flight to undermine democratically agreed policies should be taken into public ownership under democratic workers’ control, with investment decisions made in the public interest rather than the profit-driven demands of CEOs and rich shareholders.
Cancel the Debt! Nationalize the Banks!
Similarly, instead of paying off the big banks – who take low-interest loans from the Federal Reserve, then buy back government bonds and charge taxpayers higher interest! – we should cancel the debt, only repaying creditors with proven need, like retirees.
Pro-capitalist economists object to this approach, arguing that canceling the debt would produce a financial crisis, with banks refusing to make future loans to the government. But this only underscores how the entire financial system is totally reliant on taxpayer money to stay afloat; the big banks and hedge funds are essentially parasites sucking the lifeblood out of our public finances. These financial institutions should also be brought under public ownership and democratic control, with their massive ill-gotten assets invested in green jobs programs, rebuilding crumbling urban centers, infrastructure, health programs and other social needs.