In a recent article, “Pensions Under Attack in America?,” Mr. Leo Kolivakis took issue with a proposal by Mark Vorpahl, a union steward, to defend pensions by taxing the rich in order to create jobs (see Pensions Under Attack). Both authors agree that solving the jobs crisis is indispensable to solving the pension crisis, but their divergence occurs with Mr. Kolivakis’ assertion that “taxing the rich to create jobs is not a long-term solution to this jobs crisis.”
Of course, under capitalism there is no long-term solution to the jobs crisis. But leaving that aside, taxing the rich and using the money to finance a massive jobs program, as was done in the 1930s, can certainly substantially lower unemployment.
Mr. Kolivakis’ argument is difficult to follow since he mixes several points without providing argumentation for either. He says, for example: “Look, serious economists have weighed in on the topic of tax fairness in the United States. I think it’s fair to say that the uber rich (say, net wealth of $100 million and more) don’t pay their fair share of taxes but this isn’t the cause or solution to the jobs crisis. And unless you fix the jobs crisis, you will never repair the ongoing slaughter of public and private pensions.”
He seems to be suggesting that only taxing the super rich (not the mere rich) would be morally appropriate. But he presents this claim as an objective fact. Whether the super rich are paying their fair share or not is a value judgment, not an objective fact. And Mr. Kolivakis’ values diverge from most Americans who support raising taxes on people who make more than $250,000 a year, according to numerous polls.
As for Mr. Kolivakis’ claim that the failure of the super rich to pay their fair share of taxes “isn’t the cause or solution to the jobs crisis,” he overlooks a number of crucial links between these two seemingly independent economic facts.
First, because taxes on the rich have been steadily declining for the past three decades, state and local governments have suffered declining revenue that in turn has led them to lay off teachers and other public workers, thereby raising unemployment.
Secondly, lower taxes on the rich has been a major contributing factor to the growing inequalities in wealth, because money has essentially been transferred from the working people to the rich through the tax system. (See Hacker and Pierson: “Winner-Take-All Politics: How Washington Made the Rich Richer — and Turned Its Back on the Middle Class.”) Yet the rich tend to save their money at a significantly higher rate than everyone else. Hence effective demand for consumer products has declined, causing corporations to contract their operations and lay off employees. Corporations have not expanded for lack of money; they are sitting on huge profits. They have not expanded out of fear additional products will not be sold. In any case, the tax policy has consequently had a direct impact on employment in this way.
Thirdly, if the government raised taxes on the rich and used the revenue to launch a massive jobs creation program along the lines that was done in the 1930s, millions of people would be earning paychecks that would then be spent on consumer items. These expenditures would act as a stimulus to the economy. Businesses would experience a rise in demand for their products, and they could expand their operations and hire additional people in order to meet the demand. Such government job creation programs could become a permanent staple of the economy — along the lines of unemployment insurance — to be activated when unemployment reaches a certain percent. In this way it could provide a long-term response to the jobs crisis.
As for his own solution to the pension crisis, Mr. Kolivakis suggests “America needs a wholesale pension reform which includes compromises at the state, federal and union level. Now more than ever, politicians need to sit down and bolster, not weaken, public pensions.”
Again, he provides no elaboration on these points, so one is left to speculate that when he talks about compromises at the union level he is suggesting that workers agree to lower their pensions. If this inference is correct, his proposal will further decimate the “middle class” that is already struggling with inadequate pensions. For example, in California a recent report concluded “half of California workers will face ‘significant economic hardship in retirement,’ says a new report from the UC Berkeley Center for Labor Research and Education” (San Francisco Chronicle, October 9, 2011).
Finally, if Mr. Kolivakis believes that the solution to the pension crisis simply resides in asking the politicians “to sit down and bolster, not weaken, public pensions,” then he is contributing to the mystification of the real role the politicians are playing in their subservience to the 1%.