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COLUMN LEFT : Democrats At Their Moment Of Truth : Will they now work for the people who vote for them, or those who fund them?

<i> Robert L. Borosage is a fellow of the Institute of Policy Studies in Washington</i>

While chortling at President Bush’s ungainly backflip on taxes, Democratic leaders should remember Oscar Wilde’s caution that “when the gods wish to punish us they answer our prayers.”

With the President’s lips effectively sealed and the economy in trouble, the Democrats face a moment of truth. The country desperately needs a progressive program for economic growth. But to pass one, Democrats will have to decide where they stand--with the interests that finance them or the people who vote for them.

Bush’s bellyflop on taxes is part of an Administration package for reducing a federal deficit that is ballooning primarily because of slow growth and the zany costs of the savings and loan fiasco. The Bushmen want a deal: increases in taxes (mostly regressive taxes on gas, cigarettes and liquor) and cuts in defense spending in exchange for reductions in domestic spending, limits on entitlements such as Medicare and Social Security and a capital-gains tax break for the wealthy. By changing his tune on taxes, Bush hopes to gain bipartisan support for the same old song--soaking working Americans for the benefit of the rich in the name of growth and economic “responsibility.”

Already, earnest Democratic leaders seem ready to fall for it. Congressional leaders are meeting with the Bushmen to review ways to cut Medicare, to tax Social Security payments. New York Gov. Mario Cuomo recommends agreement on a package in a closed room so that critics will face a unified leadership of both parties. We have to be “responsible,” House Speaker Thomas Foley intones, sounding much like the unlamented Mike Dukakis. But the real question is to whom are Democrats responsible?

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Most of us are already paying a tax increase. Nine out of every 10 American families now pay more in federal taxes than they did before the Republicans took over the White House in 1980. Only the richest 10% enjoy a significant tax break. The wealthiest 5% saw their incomes rise 46% over the decade while enjoying a 10% reduction in taxes. That is why America suffers the worst inequality since Washington began keeping count.

Most Americans are now paying more for less in services. Federal spending on domestic programs was skewered through the decade, cut by over 25%. Unrepaired highways, overcrowded airports, overwhelmed schools, homeless in the streets, a bridge failing every other day are all testimony to the cuts. The deficit grew because of tax cuts enjoyed by the wealthy and because of bloated military spending in peacetime, now up to $300 billion a year.

The Reaganauts and the Bushmen believe that giving money to the rich fuels economic growth. But the moderate economic growth of the last years has succumbed to an orgy of speculation--junk bonds, leveraged buyouts, S&Ls--a; casino economy where the highrollers kept raising the stakes, confident that the taxpayers would cover the losses.

Now the party is over and the bills are coming due at a time when the economy is stagnating. The elixir the Bushmen are peddling is not only bad for the Democrats politically, it may be poisonous to the country’s economy.

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The elements of a sensible program for growth are relatively clear. The Cold War is over so the boys can come home and military spending can be sharply reduced. The money saved should be invested in rebuilding America--educating our children, retraining workers, repairing roads and bridges, cleaning up the environment.

At the same time, fair taxes on the very rich and the large corporations can help clean up the mess they made in the ‘80s. According to the Congressional Budget Office, raising the top income tax rate to 38%--still barely more than half the marginal rate 10 years ago--would raise $25 billion a year by 1992, with only the top 5% of wealthy Americans (the very same ones who enjoyed huge tax cuts over the last decade) facing significantly higher tax burdens. A tax on securities speculation could raise another $7 billion to $10 billion a year, while encouraging long-term investments. Increasing the top corporate rate to 38% (again still lower than a decade ago) could produce another $11 billion a year by 1992. The deficit should be reduced, but slowly to avoid triggering a recession.

Basic programs that provide security for our parents--like Social Security and Medicare--and more than pay their own way could be protected.

This is a fair and sensible program. It has one telling liability: it taxes the very people who finance election campaigns. We know from reading Bush’s lips that he talks from both sides of his mouth. Now the Democrats face their moment of truth.


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