Posted on April 17, 2013 by the Communications Committee

Starting last month,  Americans from all walks of life  began gradually feeling the effects of budget sequestration. But some will feel it more than others.

Congress passed the Budget Control Act of 2011 to resolve one of many debt-ceiling  crises. This bill created a committee to propose a debt reduction plan. If no agreement was reached, a hard cap on government spending across the board, or “sequestration”, would be invoked, to take effect on January 1, 2013.

President Obama and his Democratic Party allies claimed that this time they were serious about ending the Bush tax cuts for the wealthy. This would have been possible when Obama took office in 2008 with Democratic Party majorities in both houses of Congress. After having lost their majority in the House of Representatives, all they could manage was an increase in taxes on incomes over $400,000 ($450,000 for joint filers) and  some changes to capital gains and estate taxes. Taxes on capital gains and dividends are raised for only those in the top bracket. That increase from 15% to 20% is only about half the marginal tax rate on earned income. A new top tax rate of 40% on very high inheritances is accompanied by a permanent end to taxes on estates  under $5 million left by individuals or $10 million by couples, indexed to inflation.

The resulting gain in revenue was far too small to fill the budget gap. And no one could agree on spending cuts since they wanted to fund the wars and their favorite brands of pork. With the “fiscal cliff” looming at the end of 2011, Congress passed the Taxpayer Relief Act of 2012 (so called because it makes permanent most of the Bush tax cuts) and delayed the implementation of sequestration until March 1, 2013.

Implementing Austerity

That date has passed, and some agencies are implementing cuts. People contemplating summer travel will find canceled flights, longer lines at security, and shuttered airports. National parks will close some campgrounds and reduce hours at visitor centers.

Poor and working class people are finding elimination of  Head Start and day care programs, dwindling housing subsidies, disappearing health care, and less food support. For many, these programs have been declining for years but the pace is accelerating. Since workers who staff these services are being laid off, there will be more poor people trying to survive on less.

Under sequestration, the military is also supposed to face cuts. But that will not stop U.S. invasions and occupations of other countries. People who work at military bases, teach the children of military families, and work in industries that supply the military are losing their jobs, while the wars go on.

Obama proposes to spare the Pentagon in the new round of budget talks. Instead of the $475 billion allowed under the sequester, he suggests $526 billion plus an additional $88 billion for the war in Afghanistan. He also proposes to augment our security with increased funds for an updated nuclear weapons program. The idea of cutting all programs equally is quickly fading.

Low Income Seniors in the Cross-hairs

Social Security and Medicare are exempt from the sequestration cuts, but President Obama proposes to nibble at these popular and essential programs to remove the sequester. He calls for a different formula for cost of living adjustments (COLAs) to Social Security. The “chained CPI (consumer price index)” would readjust these increases downward as seniors adjust their expenditures to match their dwindling budgets.

Under a “chained CPI,” increases in Social Security checks would go from being tied to the increase in the cost of hamburger to being tied to the cost of cat food, or from the cost of fruit juice to the cost of Kool Aid. The formula is complicated by the fact that as seniors age, their increasing health care costs are not factored into Social Security COLAs, even under the present formula.

President Obama ignores the increasing health care needs of seniors as he calls for reducing Medicare expenditures. He claims that his cost reduction proposals arise from his determination to keep the program going. But the real way to support Medicare is to expand it to cover everyone, regardless of age. That way the recipient pool would include younger people whose health care costs are generally lower, and we could eliminate the waste of the vast array of insurance companies, their piles of paperwork, and their huge profits.  

An Unnecessary Dilemma

The people who control the economy would like us to believe that we have to “live within our means” and accept immiseration (while they fly in their private jets to their exclusive resorts). But not everyone agrees.

Some liberal economists point out that the national debt is not as much of a problem as unemployment. In order to reduce the debt without increasing revenue (raising taxes), it is necessary to cut government programs with its accompanying jobs. Unemployed people spend less money and pay less taxes, creating an ever contracting economy. If the government spent more money on job-creating stimulus programs, like rebuilding crumbling infrastructure, supplying much needed housing, and expanding public transportation, more money would get pumped into the economy, more people would have higher income and pay more taxes, and eventually the debt would level off and decrease.

Seriously taxing the rich would help to balance the budget and pay for social programs. In addition to raising the marginal tax rates on high earners and taxing capital gains and dividends as ordinary income, the government could tax stock and bond transactions and high net worth. We could raise taxes on corporations as well as on wealthy individuals. Economist Richard Wolfe points out that between 1980 and 2012, corporate profits before taxes rose from 8% to 12% of GDP (gross domestic product, the sum of all goods and services produced in this country), while after tax profits rose from 4% to 10% of GDP. While corporate profits rose, falling corporate tax rates made profits rise even more, while these “job providers “ removed our jobs. Yet both the Democrats and the Republicans promise to reduce their taxes further.


The Peace and Freedom Party has printed signs that say “Tax the Rich and their Corporations.” We recognize the need to stop the hemorrhaging  of our vital services. But  rearranging the way that we raise revenue under the present system is only a temporary fix. The capitalist system is driven by the quest to accumulate profits for the wealthy class at any price. It naturally resists any efforts to enhance or even maintain the livelihood of working class people or protect and restore the environment. That is why the Peace and Freedom Party stands for socialism. We need to build a movement to take control of industry and natural resources away from the current owners and use our wealth to democratically and cooperatively provide for the common good.


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