Deficit reduction debate is really about which class pays

The federal government and state governments across the country have been forced to confront sudden budget deficits in the wake of the 2008 recession. For state governments, the overriding cause of the deficits was a more than 30% reduction in state revenues following the economic downturn. For the federal budget deficit, the causes are more varied as this chart from the Economic Policy Institute indicates.

Although varied, none of the causes of the present deficit problems across the country can be reasonably blamed on poor and working people. The recession resulted from the near total economic meltdown that followed the bursting of the housing speculation bubble. Investment bankers — struck by a dangerous mix of greed, incompetence, and perverse incentives — are the culprits in that catastrophe.

The Bush tax cuts — which make up nearly 20% of the present federal deficit — were primarily a giveaway to the wealthy. Even the sudden public employee pension problems are largely the result of the economic recession as the investments of the pension funds took a hit when the market fell.

Despite the fact that poor and working people did not cause these deficits, efforts to reduce them have relied on policies primarily focused on making them pay. The infamous Scott Walker budget repair bill seeks to plug the Wisconsin state budget deficit in part by decreasing compensation for teachers and other public employees. Texas cut $15.2 billion dollars to shore up its deficit, primarily in the areas of education and health care. Ohio followed suit with Governor Kasich signing a budget that reduced taxes while slashing spending on education, libraries, nursing homes, and social programs.

As the eclipse of the federal debt-ceiling nears, it is not out of the question that similar approaches will be tried at the federal level, especially if Republicans win the present standoff on the matter. But cuts are not the only way to respond to budget deficits. Bringing in more revenue is the other option, an option which is not getting nearly the sort of play that it ought to.

Republicans predictably oppose revenue increases; the official line is that revenue increases reduce investment, destroy jobs, and fail to increase revenue due to decreased economic production. The response to this line has been disappointingly technocratic in nature.

Christina Romer pushes back with a dispassionate economic analysis about the relative economic impacts of spending cuts and tax increases, the takeaway being that spending cuts decrease economic production more than tax increases do. Paul Krugman keeps forwarding the Keynesian line that cuts would be devastating, and possibly result in a double-dip recession due to a decrease in consumer demand.

While these technocratic responses have merit, I think a much more moralistic argument is called upon here. What the deficit reduction question centers around is not really whether tax increases or spending cuts are best for the country as a whole. Analysis about the country as a whole is totally inadequate as the country is not made up of a unified population with unified economic interests. Cuts in education, health care, and worker pensions have no impact whatsoever on the wealthier classes as they already enjoy private education, can afford their health care, and do not rely on public pensions for their retirement.

The question of how we reduce our budget deficits is really a question about which class should pay. Should it be the poor and working people who had nothing to do with the causes of the present crisis, and — after 41 years of total wage stagnation — are not in a position to afford to pay for it to begin with? Or should it be wealthier people whose tax cuts are a significant driver of the deficit problem, and whose mismanagement of financial markets precipitated the crash that caused almost all of the rest of the budget shortfalls?

The answer to me is clear. Poor and working people should not be forced to pay for the tax cuts and market failures of the wealthy. To force them to do so is nothing more than a form of redistribution of income from poor and working people to the very rich.