“Liberty of a democracy is not safe if the people tolerate the growth of private power to a point where it becomes stronger than their democratic state itself. That, in its essence, is fascism — ownership of government by an individual, by a group, or by any other controlling private power.” — Franklin D. Roosevelt April 29, 1938.

Fear of “high taxes and big government” haunts voters as they make their choices in the upcoming Presidential elections.  Republicans reinforce and thrive on their anxieties, while the Democrats play cautious defense.  Senators Barack Obama and John McCain each struggle to define the other as the President who would raise taxes, and extend the powers of government into voters’ lives.  During the final Presidential debate, each candidate claimed to be the best savior of “Joe-the-Plumber.” According to the Associated Press, after the debate, Joe Wurzelbacher, a plumber from Ohio, while astonished at his name being mentioned dozen times by the two candidates, declined to say which candidate would get his vote on Nov. 4. However, it turns out that Joe had never held a plumber’s license, which is required in Toledo; he never completed an apprenticeship; and he does not belong to the plumber’s union that endorsed Obama. On top of all that, Joe still owes back taxes to the State of Ohio. Perhaps, the reason for Joe’s uncertainty about his choice for next President is that deep down he realizes that he needs more than a tax cut from the government to run a successful plumbing business.

Like Joe, many others continue to desperately seek clarity, a clear explanation of the differences between the fiscal policies of the Democrats and the Republicans. Voter anxiety is growing over electing a government that will “change its current role in the economy,” because they are uncertain about what those changes should be and what they mean to their lives. The refusal of either party to make clear and honest comparisons does the voters a grave disservice and paves the way for smear tactics and the kind of negativity and schizophrenia that threatens to dominate last the few weeks of their campaign.  The preoccupation of the mainstream media with verifying the facts about each Senator’s claims, simply serves to reinforce the idea that that higher taxes and/or bigger government, are not even remotely appropriate responses to the current economic and social crises. Any comprehensive reappraisal or new thinking about the ‘taken-for-granted’ judgments about the government’s role in the economy, are hamstrung by this approach.

Joe-the-plumber does not really epitomize the concerns of the average voter in to the extent that plumbing is discretionary spending, and it is not severely affected by the recession as much as health care, education, and housing.  Joe captured the imagination of the public and politicians alike because his expectations from the two Presidential candidates reinforced the dominant social contract between the government and the people in the US. The contract is characterized by distrust of the government, the favoring of individual over collective interests, and a high level of intolerance towards government intervention in the redistribution of wealth. The media, by simply sensationalizing Joe-the-plumber in many of the same ways as the politicians, lost another opportunity to initiate a reevaluation of such a ‘misguided’ social contract.

The unfolding realities of the current economic crisis and proposed bailout package suggest that the next president will not only inherit fiscal and economic crises, but also enormously enhanced powers to shape the economy, unprecedented in the history of the nation.  The voters should base their choice for the next President on the respective plans of McCain and Obama to confront an uneasy paradox of forming “a new government to cure ills of a bad government.” Arguably, Obama is better positioned to accomplish this task provided he dares to be consistent and forthright about his overall political philosophy. If he is brave enough to apply his bold and poignant claim that “we need to change the mind-set that led the country to the war,” to ‘changing our mind-set about the economy’, he can begin to debunk Americans’ negative and inaccurate beliefs about higher taxes and bigger government.

By promoting both a historical and broadly international perspective, he can demonstrate that higher taxes and bigger government are associated with higher economic growth, prolonged periods of economic stability, greater economic and social equality, freedom, security and sustainable environments.  Examples of such countries can be found in Scandinavia, Europe and the Far East where ‘big’ governments do not do have a negative ‘ideological’ hold on voter preferences to the extent they do in the US. However, such an ideological fixation is not entirely justifiable in light of a long history of US government interventions in the economy.  In the years to come the size of the government will certainly continue to grow in the foreseeable future, but the manner in which it grows and its implications will differ according to who gets elected President.

Small businesses are responsible for creating 75 percent of all new jobs, 55 percent of new technological developments and account for 97 percent of export companies in the country. Yet the Bush administration presided over the decline of small businesses in US and their competitiveness against large corporations and imports.   The House Committee on Small Business, assessing the impact of 2007 Budget, reported that the FY 2007 budget slashed over $3 billion in funds that enable small businesses to develop innovative technologies, products, and services. That amounts to an aggregate reduction of more than 50% since 2001.  Initiatives such as the Small Business Development Centers (SBDCs) and the Women’s Business Centers (WBCs)—both of which provide crucial technical assistance to entrepreneurs—were cut. The House Committee Report also noted that between Years 2004 and 2007 over 100 programs that existed to assist the small businesses, experienced cuts of up to 200% and program terminations. Of these cuts, 30 percent of the programs that provide access to capital for small businesses have had their funding reduced. Twenty percent of the targeted programs are tasked with providing access for small businesses to modern technologies, which helps to close the technology gap between large and small firms. Another 17 percent of program cuts affect rural development assistance for small firms located in isolated areas and regions with limited infrastructure.  In addition, funding for 14 programs that aid in recovery and redevelopment efforts have been cut in the FY 2007 budget. The FY 2007 budget request reflects a nearly 50 percent cut in funds from the FY 2004 budget to guarantee loans and provide insurance to exporters. For 2009, the President Bush proposed slashing programs under the Small Business Administration (SBA) by 15%.

During the current Bush administration, low taxes have neither trickled down to the middle class, nor led to a stable economy, nor decreased the size of the government. Ironically, the current economic bailout package provides assistance to the very people who have benefited from low taxes, and the bailout will, in fact, lead to far bigger government -unprecedented in the history of our country. President Roosevelt’s intention to change constitutional law in the 1930s was to give powers to the government to tax and spend in order to safeguard the national interest. The current bailout package, by contrast, does not serve the national interests, but a few industrialists, says John Eastman, the Dean of Chapman School of Law.  Historically, the fundamental difference between the Democrats and Republicans in terms of the size of their respective contribution to big government is a matter of how they made it bigger and invested its resources, and on whose behalf they exercised their authority, and who benefited. The time is ripe for a serious reality check concerning Americans’ fear of big government, passed from one generation to another, particularly since the Cold War period.

McCain does not directly counter Obama’s argument that the country would benefit if we imposed higher taxes on the rich and lowered taxes on the low-income earners. Instead, he focuses on the negative impact of higher taxes on small businesses and the ‘middle class’. McCain maintains the legacy of Bush’s low tax economic ideology, but does not provide any convincing explanation of the decline in small businesses under nearly 10 years of such a tax regime. Furthermore, the cost of production for small businesses and the standard of living of the middle classes do not always positively correspond to the amount of taxes they pay. There is no conclusive evidence to support the claim that workers put in more hours when tax rates fall, or that their productivity increases.

Joe-the-Plumber should know that the success of small businesses depends on many more factors than taxes, and in fact, high taxes may have a positive impact on small businesses. Low taxes alone cannot prevent the collapse of small businesses due to foreign competition. Lower taxes in the US will not make small businesses powerful enough to compete with big businesses. The current mortgage crisis is not caused by the failure of small businesses, but by the actions of those who most enjoyed capital gains tax benefits.

Budget deficit resulting from the tax cuts and bailout packages to rescue the bankrupt rich financial firms, has mostly ended up in the transfer of wealth from the middle class to the rich, rather than any significant benefits to the middle class.  Such deficits lead to increasing the debt. As foreigners own most of the debt, in the long run the dollar will depreciate, interest rates will rise, and investments fall. The small businesses dependent upon lines of credit suffer the most. Conversely, the budget deficits attributed to government expenditure on education, health, and infrastructure, lead to increases in investment and economic growth. Eventually, the government can repay their debt and have a budget surplus.

Despite tax benefits given to corporations, the prices of basic goods and services for small businesses have continued to rise. The big businesses that benefit from tax breaks outsource their jobs to foreign countries, and charge predatory prices at home. Nor do they invest their profits in sectors that directly benefit the American people or the US economy.  Their investments in speculative financial markets are not divorced from the current economic crisis. The bottom line is that tax reductions do not yield similar benefits to both small and large businesses. On the contrary, they create undue advantages to big business, and stifle the growth of small businesses that both Obama and McCain consider the bedrock of the economy.

Small business productivity would be improved by a better educated, healthier and more skilled citizenry, and by a better local and national infrastructure. The private sector is unlikely to invest in these things because they don’t guarantee direct profits. But even if the private sector wished to invest, such services cannot be provided by small and medium scale businesses due to sheer economies of scale.  A high tax base allows the state to provide these services at low and stable prices even in the midst of a highly volatile global economy. Rather than robbing the private sector to pay for wasteful government activities, higher taxes can be a highly promising means of creating the economic and social conditions necessary for the sustainability of small businesses.

Big government investments in education and health care increase the effectiveness of our educational system, and to a healthier population.  A better-educated, healthier population reduces long-term health costs and makes the labor force more competitive and productive. When basic services are not exclusively subjected to market forces, people can allocate more of their time to pursue leisure, voluntary, philanthropic and political and cultural activities – essential requirements for a vibrant democratic society.   Indeed, it is hard to believe that the sole purpose for Joe-the-Plumber’s existence is to only do his plumbing business!

Low taxes don’t lead to smaller government; they just transfer the functions of big government to corporations. Downsizing government by the Republicans is about transferring power to a minority of rich people, many of who are not even American citizens. History shows that most the beneficiaries of low taxes tend to transfer their fortunes outside of the communities in which they do business. The government, on the other hand, is more likely to invest locally and nationally. Moreover, the general public has a better chance of holding the government accountable and transparent, than the big corporations. The imagery of Joe-the-plumber allowed the politicians to personalize the challenges facing small businesses and foreclosed a debate about them in a broader international context.

Economic trends in the recent past indicate that low taxes do not automatically lead to low prices followed by an increase in consumer demand and employment. Low taxes alone cannot influence the forces that determine the prices and costs of production. Low taxes do not necessarily compensate for what market forces take away from consumers and producers; they can lead to high prices and low levels of employment. No wonder that Joe became McCain’s hero, because Joe subscribes to McCain’s belief that “America didn’t become the greatest nation on earth by spreading the wealth,” “It became the greatest nation by creating new wealth.” With that, McCain was able to reinforce the public fear that Obama is simply trying to redistribute the hard earned wealth of individuals.

The public is apprehensive about high taxes and big government, but they would be far better served if they understood how uncontrolled consumption has undermined their basic well-being and freedoms. High consumption eventually diminishes the amount of time consumers have to enjoy their purchases because they are working longer hours in order to make their payments. In the crisis we face at the moment, consumers have begun to worry about their very survival.   Increasingly, they are making the connections between uncontrolled consumption and corporate greed, and recognize that the promise of greater autonomy and freedom for consumers and small businesses though low taxation and small government is an illusion that deprives them of real control over their actions and desires. They might not be surprised to learn that ‘small’ governments can abuse their powers and constrain human freedoms, and that increasing privatization cedes control of society to a minority of rich people and corporations who are protected from accountability and transparency.

The amount of resources allocated by governments worldwide in the face of this financial crisis, and the enormous efforts currently underway to stabilize their economies, suggest that the size of individual governments is likely to grow, and that they will extend beyond their respective national boundaries. It is naïve to evaluate the role of the government solely in terms of its tax base and direct investments in the economy.  We often forget that the private sector also bears a great deal of blame for waste, bureaucracy, corruption and nepotism; we tend to associate those problems only with the government.  It is not a simple coincidence that a majority of Democrats and Republicans quickly generated billions of dollars to bail out a few big financial firms, while there has been no similar enthusiasm to help the small businesses that began to decline long before the current financial crisis (partly due the actions of large corporations).

We need to change our mindset about big government. Enlightened political leaders must reclaim big government for the people and the environment, and must be willing to act as the peoples’ advocate, rather than bowing to conventional — but demonstrably incorrect–wisdom.

Jude Fernando, Ph.D., is a professor at Clark University in Worcester, Mass.

This entry was posted on Friday, October 24th, 2008 at 12:59 am and is filed under Exclusively Online, Guest Column, Opinion.
You can follow any responses to this entry through the RSS 2.0 feed.
You can skip to the end and leave a response. Pinging is currently not allowed.