Economist Joseph Stiglitz Says To Cut U.S. Deficit — End Corporate Welfare and Raise Tax Rates On The Wealthy

Economist Joseph Stiglitz in an article in The Guardian, says, “It’s possible to cut the US deficit in a growth-friendly way that reduces inequality. But certain powerful groups won’t like it.”

He says that new austerity strategies now being championed, “will almost surely lead to weaker national and global economies and a marked slowdown in the pace of recovery.” He says, “Those hoping for large deficit reductions will be sorely disappointed, as the economic slowdown will push down tax revenues and increase demands for unemployment insurance and other social benefits.”

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Stiglitz says that the deficit-reduction agenda in the U.S., “is an attempt to weaken social protections, reduce the progressivity of the tax system, and shrink the role and size of government – all while leaving established interests, such as the military-industrial complex, as little affected as possible.”

The plan Stiglitz proposes would curb corporate welfare and would increase tax rates on the wealthy. About his deficit-reduction package, Stiglitz says: “lt would more than meet even the most ardent deficit hawk’s demands. It would increase efficiency, promote growth, improve the environment and benefit workers and the middle class.”

But he is not optimistic that such a sensible plan would ever be enacted because, “It wouldn’t benefit those at the top, or the corporate and other special interests that have come to dominate America’s policymaking.” Here is Stiglitz’s plan:

First, spending on high-return public investments should be increased. Even if there are emergency loans options available, this widens the deficit in the short run, it will reduce the national debt in the long run. What business wouldn’t jump at investment opportunities yielding returns in excess of 10% if it could borrow capital – as the US government can – for less than 3% interest?

Second, military expenditures must be cut – not just funding for the fruitless wars, but also for the weapons that don’t work against enemies that don’t exist. The US has continued as if the cold war never came to an end, spending nearly as much on defence as the rest of the world combined.

Third, corporate welfare must be ended. Even as America has stripped away its safety net for people, it has strengthened the safety net for firms.

  • Corporate welfare accounts for nearly 50% of total income in some parts of US agro-business, with billions of dollars in cotton subsidies, for example, going to a few rich farmers, while lowering prices and increasing poverty among competitors in the developing world.
  • An especially egregious form of corporate special treatment is that afforded to the drug companies. Even though the US government is the largest buyer of their products, it is not allowed to negotiate prices, thereby fuelling an estimated increase in corporate revenues – and costs to the government – approaching $1tn dollars over a decade.
  • Another example is the smorgasbord of special benefits provided to the energy sector, especially oil and gas, thereby simultaneously robbing the treasury, distorting resource allocation and destroying the environment.
  • Then there are the seemingly endless giveaways of national resources – from the free spectrum provided to broadcasters to the low royalties levied on mining companies to the subsidies to lumber companies.

Fourth, create a fairer and more efficient tax system.

  • Eliminate the special treatment of capital gains and dividends. Why should those who work for a living be subject to higher tax rates than those who reap their livelihood from speculation (often at the expense of others)?
  • Increase tax on the wealthy. With more than 20% of all income going to the top 1%, a slight increase, say 5%, in taxes actually paid would bring in more than $1 trillon over the course of a decade.
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5 Responses to Economist Joseph Stiglitz Says To Cut U.S. Deficit — End Corporate Welfare and Raise Tax Rates On The Wealthy

  1. Rick says:

    Mike, this man is insane. Our debt is so huge, we have got to stop adding to it. Second, it should not be the policy of the United States government to reduce inequality. That is not an enumerated power. Besides, when class envy prevails the economy suffers. Remember when Congress put a luxury tax on yachts? Rich people quit buying them and that put the boat builders out of work. What was supposed to punish the rich ended up hurting the little guy.

    While I want to eliminate welfare for corporations, I also want to reduce welfare for the poor. There is a very real moral hazard with welfare which liberals refuse to recognize. Generations of families learn to live off welfare. In addition, the majority of poor folk are poor because of bad lifestyle decisions. I do not want to reward bad behavior. Liberals want to.

    The rich already pay a grossly disproportionate portion of the income tax. If taxes increase on them, many will leave the country. For years the educational blobaucracy has striven to reduce patriotism by harping on the evils of America. Well, guess what, in part it worked. Unlike it times past, many of the rich will emigrate. Just like in California, when the rich leave, the tax revenues decrease significantly.

    Another reason class envy is wrong is because envy is one of the seven deadly sins. Repent!

  2. Stan Hirtle says:

    So’s greed. Reducing inequality, while not enumerated in the constitution, is a good thing and doesn’t have to be enumerated. Producing more inequality isn’t enumerated either and is not a good thing. Full employment would reduce the need for welfare at least for those who don’t have disabilities or other barriers. Much of defcit cutting is aimed at the elderly and disabled (social security and medicare) and those who can not afford health care. Reducing unemployment and “welfare” too (opposing unemployment compensation extensions when there aren’t enough jobs) is just cruel. And an economy dependent on the rich (building yachts for them) may meet trickle down ideology but does not make sense and is not sustainable. Neither is an economy based on making war around the world, even if it is to get access to oil.

  3. dave moore says:

    I love Stiglitz, very smart man. Great comments Mr. Hirtle. I am middle class but don’t want to live in a country where we don’t care for the poor and unfortunate. I think everyone knows a person who is screwing the system with welfare but there are alot of people who really need it. Would rather my money go to them than the rich. The republicans try and get you to believe everyone on welfare is just cheating the system

  4. Mike Bock says:

    Rick, you write, “I do not want to reward bad behavior. Liberals want to.”

    I’ll accept that some of your philosophy of government stems from your aversion to rewarding bad behavior, but it hurts to read that you might think that my philosophy of government stems from my desire to reward bad behavior. I think it is fair to say that welfare policies have failed to achieve their objective and that have created some awful consequences, but I don’t know that it is fair to call such policies “liberal.” It’s more accurate simply to call them “dumb.” What were they thinking? But, I think you make a mistake when you assume that those who engineered the welfare system were guided by evil motives, that they wanted to encourage bad behavior. They were not bad men, they were bad wizards. I make a longer response here in a new post.

    Stan — I agree with everything you say.

  5. Rick says:

    Mike, just like the “whole word” movement in teaching reading, I believe that architects of that system were evil. The majority of folks promoting it were what Lenin called, “useful idiots.” What the architects of the welfare state wanted was a dependent, dependable voting class to vote for Democrats. And it worked.

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