The Myths Behind the “budget crisis”

Posted on March 9, 2011

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MYTH # 1

“States and cities have budget deficits that must be solved by cutting expenditures, i.e. public sector worker wage freezes, layoffs, closing of schools, hospitals and firehouses, cuts in state and municipal workers’ wages, pensions and other benefits, raising tuition at city and state colleges and cuts in medicaid to the poor.”

True, state and municipal budgets are largely spent on public services but this is the function of local government. Other ways of solving these deficits are not to be considered–increase revenue by borrowing or raising taxes. Borrowing only delays the problem so what about raising taxes? The working class and the middle class already pay high taxes while their incomes have stagnated. But the ultra rich have greatly increased their incomes while they have reduced their taxes in the past 30 years. In 1980 the top 10% of income earners accounted for 33% of the nation’s total income. Now they account for almost 50%. The top 1% went from 10% to 20% of the nation’s income. 400 individuals possess more wealth than 50% of all Americans combined! Yet Wisconsin’s Gov. Walker gave tax credits to businesses and health savings accounts that cost the state $117 million, nearly the size of the state’s projected budget deficit. Gov. Cuomo refuses to extend the “millionaires” tax of 7.8% for incomes of $300-500,000 and 8.9% for incomes over $500,000. These income brackets paid up to 15.4% in the 1970’s. Cuomo’s projected state budget deficit of 10 billion would be reduced by 4 billion by this moderate tax alone. The partial restoration of a stock transfer tax of only 1 penny per transfer and a 50% tax on bankers’ bonuses over $50,000 would eliminate the deficit and produce a surplus!

MYTH #2

“Raising taxes on corporations and the ultra rich would drive both out of the state.”

In NYS as well as other states, the tax rates of their neighboring states are comparable. There is no evidence that a moderate increase in taxes would prompt corporations or very wealthy residents to up-root their lives to go to a neighboring state. NY State levies a 7.1% flat tax on corporations and nearly 1/2 of the states have higher corporate taxes. The corporate rates of New York’s neighboring states are higher: CT-7.5%, NJ-9%, PA-9.9%, MA-8.8%.

MYTH #3
“Reducing corporate taxes on the rich will stimulate the economy.”

According to the Office of Management & Budget individual tax receipts fell 30% and corporate taxes fell 27% from 2000 to 2009 while profits rose 60%. Per Capita GNP only rose 6% and the average wage declined 6.5%. While the stock market went up 63% from Feb. 2009 to Feb 2011, the national unemployment rate rose from 7.7% to 9%. In NYS, the unemployment rate is 8.2% and 8.9% in NYC. After WW II, the top 1% of income earners paid as much as 90%, although loopholes greatly reduced this, but today the top rate for everyone is only 35%. Taxes went down for the ultra rich but went up for the working class. The top 1% raised their after tax income by 175% in the past 30 years while the income of the bottom 20% of the population stayed about the same! Reducing taxes on corporations and the ultra rich did not stimulate the economy and create more jobs but raising their taxes will solve these budget crises and that in turn will keep jobs and stimulate the economy.

MYTH #4

“The Public sector unions have caused the state and city budget deficits.”

The real reasons that there are state and city budget deficits are because of the high rate of unemployment caused by the unregulated speculations of Wall Street that led to housing and financial bubbles. The outsourcing of jobs by U.S. corporations to cheap labor markets in other countries has decimated union membership and wages in the private sector. Unemployed workers or those who are working at much lower wages have caused a drop in tax revenues. This coupled with reduction in taxes on corporations and the rich have further decreased tax revenues. Attacking the last bastion of decently paid union workers in the public sector will cause more layoffs, cause cuts in social spending, lower the wage scale in the U.S. and further reduce tax revenues. The corporate controlled political establishment and media are on the offensive. Why would the politicians reduce revenues even more by wage freezes and layoffs? The economy has developed a surplus capacity in both production and capital. Profit margins are fragile and the ruling elite is trying to increase profits by lowering labor costs based on high unemployment. That is why there is an attack on unions. The attack on seniority is nothing more than getting rid of higher paid senior teachers and othert unionized workers. Those who are unemployed, those who are making low wages, those who have no pensions and those who are not unionized can easily fall prey to the myth that the unions are to blame. The corporate controlled media and political establishment (both Democrat and Republican) are advancing this argument, pitting workers against each other. Unions must conduct a massive media campaign and organize militant actions to unite with the rest of the public in fighting against lay offs, school closings, cuts in needed social services and reducing wages and benefits. Will Wisconsin show the way? Will the unions face up to their biggest challenge since the Great Depression?

Tom Siracuse- Ad Hoc Committee To Stop School Closings

Manhattan Local of the Green Party

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