Fight Racism! Fight Imperialism! 231 February-March 2013
After weeks of ‘will-they-won’t-they’ speculation, Congress finally passed the American Taxpayer Relief Act on 1 January. The ridiculous antics and accusations, the tension and the finger- pointing are not just ‘playing politics’, as the bourgeois commentators wearily call it, but reflect the inability of the ruling class to come to a final decision about the economic strategy they have to pursue. US capitalism, weighed down by some $16.4 trillion of Federal debt, needs to drastically cut back on state spending. To do the job properly means flushing all the expectations of more or less secure employment, increasing income and comfortable retirement, collectively known as the ‘American Dream’, down the toilet. With them will go forever the material basis for the political illusions that have contained class conflict in the United States for the last half century. The Republicans are the party with the necessary policy to do this, but they do not have the power; the Democrats have the power, but know that massive cuts will undermine the social and political coalition they rely on for support. This is the impasse in which the ruling class now finds itself.
So we have been lurching from compromise to compromise for the last few years. In December 2010, Congress extended the ‘Bush tax cuts’ of 2001 for another two years. Since there are only two ways to pay for state expenditure – increasing taxes or borrowing – this meant that the US government would have to go deeper into debt. When borrowing approached the ‘debt-ceiling’, a limit set by Congress, in August 2011, it passed the Budget Control Act which provided for huge cuts in government programmes (‘sequestration’) to take effect on 2 January 2013, unless Congress took a number of steps to eliminate the budget deficit. With a lame-duck Congress in an impasse inevitably nothing happened. With the election over in November, an end of year deadline loomed which, without Congressional intervention, would have seen sequestration begin, the Bush tax cuts expire, expiration of extended unemployment benefits, a 2% increase in payroll tax and other fiscal events. This was the ‘fiscal cliff’. After weeks of squabbling and finger-pointing, both party leaderships managed to devise a compromise.
The Republicans wanted to avoid tax increases for millionaires, while the Democrats insisted that anyone earning more than $250,000 should lose their tax cuts. The compromise settled on a limit of $450,000, which was hailed by the media as a Democratic victory, since the tax rate for the rich would rise from 35% to 39.6%, and sequestration was deferred for two months. Yet the 2% increase in the payroll tax also quietly went ahead, affecting anyone earning less than $113,000, raising the rate from 4.2% to 6.2% and pushing taxes up for the 77% of the population who are lowest paid. This meant an absolute increase of $960 per year for the average worker and $600 for anyone earning $30,000 – a significant sum to many families. The working class got booted off the cliff.
On examination of the Act, this ‘great victory for the middle class’ turned out to be stuffed with ‘pork’ – US political slang for spending which benefits some interest, usually someone who has lobbied or donated to a Congressperson’s campaign. So the US motor racing franchise, NASCAR, received $100m tax breaks over seven years; rum producers Diageo and Bacardi received tax breaks worth $580m; Hollywood got $430m over the next two years; finance capital got an $11.2bn tax break on interest income on money lent overseas; $1.5bn was doled out for multinationals selling through overseas affiliates; the railroad industry got a $331m tax credit; the energy industry received some $18.2bn and Goldman Sachs benefited to the tune of $1.6bn tax relief on its corporate headquarters, disguised as a redevelopment incentive for lower Manhattan.
At the same time as the fiscal deadline loomed, Federal spending was approaching the debt ceiling and it seemed likely that the US was heading toward another crisis in mid-February over increasing the ceiling. Right-wing Republicans were eagerly expecting to play a game of chicken with the Obama administration until they realised that there is no point taking hostages unless you are prepared to shoot them and that their popularity ratings were under water. So on 23 January the Republicans agreed to a limited increase in the debt ceiling until 19 May. There are two intervening deadlines: 1 March when the deferred sequestration cuts are due to kick in, and 27 March, when spending for government agencies must be renewed. The Republicans are hoping that both of these will give opportunities to extract concessions from the Democrats in the shape of cuts in the ‘entitlement programs’ – Medicare, Social Security, etc. Like a drunk staggering from lamp-post to lamp-post, US capitalism will lurch from crisis to crisis until confronted sooner or later with the next financial collapse. We will report on the next lurch in this journey in the next issue of FRFI.
Steve Palmer
