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Tax Cuts and Class Warfare

by Gary Sudborough Monday, Jun. 02, 2003 at 9:03 PM

An argument against the beneficial results of tax cuts for the wealthy and trickle-down economics.

There is a whole mythology surrounding tax cuts and their supposed beneficial effects on the welfare of ordinary citizens. Mark Weisbrot of the Center for Economic and Policy Research in Washington, DC has stated that the recent Bush tax cut will not reduce taxes at all for one-third of American taxpayers and over one-half of taxpayers will receive less than 100 dollars for the year.

Even if the prime beneficiaries of the tax cut are the very wealthy, many proponents of cutting taxes will argue that the effects will trickle down to the poor because the rich will invest the extra money to create jobs. Will they? If a corporation produces refrigerators and the market is already saturated with refrigerators, is it wise for that corporation to produce even more of them and increase their inventories? Or will that decrease profits? Rich people are more likely to take the money from tax cuts and buy gold, real estate, yachts, mansions, etc., rather than investing to produce employment.

A more realistic way to create jobs is to raise the minimum wage and increase the purchasing power of the poor. This action would definitely increase demand for goods and services and produce jobs. However, the ruling class and the politicians they control hate this solution because the real goal of tax cuts is not the fictitious one of creating employment, but is, in fact, class warfare and the upward redistribution of wealth. All through history, ruling classes have wanted only one thing and that is everything.

Many conservative ideologues will point to the Reagan era tax cuts and claim that it caused a boom in the economy. This is a very selective memory of the period. During the first years of the Reagan Presidency, there was a very severe recession and subsequently, there was a boom in the economy and a skyrocketing stock market. However, this was caused not by the tax cuts, but by the actions of the Federal Reserve Board in significantly lowering interest rates.

The Vietnam War caused tremendous inflation in the economy. Wars have a tendency to produce inflation because workers are paid money for the tanks, airplanes, missiles and other military equipment they produce. These weapons are often destroyed in the war and need to be replaced, and workers are paid even more money for items which are not part of the consumer economy. Therefore, there is more money chasing a certain amount of goods and services. The value of the dollar goes down and there is inflation.

The Federal Reserve Board tamed inflation by drastically increasing interest rates and driving money out of circulation. Unfortunately, this policy also results in a recession or depression. During the first couple of years of Reagan's first term in office, there was a severe recession, but one could receive interest rates of nearly 20% on some investments. The Federal Reserve Board under Paul Volcker eliminated inflation and then allowed interest rates to fall enough to cause a boom in the economy, just in time for Ronald Reagan's reelection bid. The economic boom had everything to do with falling interest rates and nothing to do with tax cuts.

The goal of tax cuts on the wealthy and corporations and a phenomenal increase in military spending financed by tremendous budget deficits is to preclude the possibility of increased government spending for social services for ordinary people like education, health care, infrastructure repair, social security, etc. By underfunding these programs, conservatives can argue that they don't work and need to be privatized, leading to even more profit for their capitalist buddies. Also, interest must be paid to the bondholders of the national debt, contributing to another significant transfer of wealth from the poor to the rich.

The structural adjustment policies of the IMF and the privatization of essential commodities like water are a form of class warfare waged by the United States in other countries, as are the military interventions on behalf of corporate power. Like all fascist governments, the Bush administration is waging vicious class warfare at home and abroad, all the while attempting to ridicule leftists for being paranoid and conspiratorial in even bringing up the subject.

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