Tax Cuts a Bad Deal

So, the tax-cut compromise is a done deal.

The Republicans were clever; they repeated ad infinitum: don't raise taxes in a recession. But continued tax-cuts for the wealthy will be counterproductive.

We'll have to borrow $700-$800 billion (probably from China or Saudi Arabia) to pay for their lower taxes. But that money will not stimulate the economy. It will buy speculation on the stock market, or investment overseas long before it creates a single job here. It will also exacerbate US inequality. Already the US has one of the most unequal distributions of wealth among developed nations.


Tax cuts for those below $250,000 income, will mostly be spent in the US, on consumer goods, and on homes, creating demand for jobs. Even here, many of the consumer goods would be imports, so many of those dollars will fly out of the country. Leakage of any kind of spending, except direct government expenditures on something like a WPA, is to be expected in an economy as open as ours.

The effects of the tax cuts are not only economic; they are also social. Economic inequality increases social distance. When you have escalating social distance, you lose a sense of community. That's why legislators who have lived lives insulated from economic hardship, elected by money from the wealthy, can credibly threaten to cut off an unemployment extension, or argue that poor rich kids need tax breaks even more than the long-term unemployed need benefits. Further, high inequality is an economic handicap to the nation, since consumption by the wealthy cannot substitute for mass consumption as an economic base for a stable economy; inequality makes economic instability more likely: prosperity depends on a small minority.

Inequality is even a health hazard: inequality of wealth is directly correlated with poorer overall health of the population. This is partly due to unequal access to health care, but is also due to higher levels of anxiety, which extends even to the wealthiest. Why? Greater inequality breeds resentment, crime and violence.

Obama's compromise was a bad deal for everyone. The pre-Bush tax rates for the over $250,000, should have been restored. I think they should be raised, because the top 2% have cornered most of the growth in wealth produced by everyone since 1980. That's why wages have hardly budged since the '70's.

Further, corporations are swimming in cash, and only slowly hiring or loaning out money. So, more money in elite pockets will not promote investment, or create jobs--except maybe in China or Malaysia.

As the recent elections demonstrated, large aggregations of wealth skew the balance of political power. The Compromise illustrates the consequences: a one-year unemployment extension vs two years of high-end tax-cuts and a more unstable economy.

Our equivalent of fifth century Roman Senators has prevailed, to even their ultimate detriment. It is one more step towards our own 476 ( (See: Fall of Rome).