The Spark

“The emancipation of the working class will only be achieved by the working class itself.” — Karl Marx

The Federal Budget:
Reagan and the Democrats Hand in Hand Against the Working Class

Mar 31, 1985

In the name of fighting the massive deficit, the Reagan administration’s federal government budget proposal for fiscal year 1986 proposes even harsher and more sweeping attacks against the working class and the poor than those of the previous years. Undoubtedly Congress will not pass the budget proposal in its exact original form. But the proposal serves as a declaration of the administration’s intention to continue and intensify the war against the workers and poor. It continues and extends huge cuts in spending on social programs as a means to finance increases in the military budget and in interest payments on the federal debt, that is, funds which go into the coffers of the bourgeoisie.

While this proposal is a continuation of recent policy, it is also a more open attack; it is the first time that a budget calls for big cuts across the board in current dollar spending – not simply cuts effected by inflation. In the administration’s proposal, only Social Security was spared from such a cut. Republicans in the Senate Budget Committee, however, have proposed to cut cost-of-living adjustments on Social Security as well.

Subsidizing the Bourgeoisie...

The administration proposes an enormous increase in military spending. It calls for a military budget of 285.7 billion dollars, an estimated increase over 1985 of 31.9 billion dollars or 12.6 per cent (8.3 per cent, when adjusted for inflation).

While the military defends world-wide the general interests of the U.S. bourgeoisie, a huge proportion of military spending also goes directly to corporate contractors, to the accounts of the bourgeoisie. And that proportion continues to increase: excluding the expense of military personnel, other military spending (procurement, research, construction, etc.) for 1986 is proposed to be 75 per cent of the total, an increase from 73 per cent in 1985.

Interest payments on the government’s debt is the other means by which large amounts of federal outlays are channeled to the bourgeoisie. That figure for 1986 is estimated to be 142.6 billion dollars, an increase of 12.2 billion or 9.4 per cent (4.8 per cent, adjusted for inflation) over 1985. The administration’s own figures project that interest payments by themselves will surpass the total annual federal deficit by 1988.

In addition to writing checks payable to the ruling class, the administration and Congress are also discussing cutting the tax rates imposed on the corporations and wealthy individuals. The tax reform proposal of the Treasury Department would reduce the number of income tax brackets, cutting the maximum tax rate for individuals from 50 per cent to 35 per cent; at the same time, it would establish a uniform corporate tax rate of 33 per cent, down from the current maximum of 46 per cent.

The corporate tax reduction would supposedly be offset by the elimination of investment tax credits, the repeal of the 1981 accelerated depreciation system, and other mechanisms. The lower rate for wealthy individuals would supposedly be countered by limiting deductions such as those for capital gains, charitable contributions, and so on. Of course, no one expects this proposal to pass as is, this year or ever, especially regarding the increased taxes for the bourgeoisie. But even if, at some point, the politicians were to implement a package of reforms formally placing a greater tax burden on the corporations, those corporations would have a variety of means to pass this burden on to their customers and their employees, i.e., to the working class, as they always do.

Whatever the politicians finally do with it, this proposal at least reveals their real intentions – to find mechanisms to reduce further the taxes on the bourgeoisie.

... At the Expense of the Working Class and the Poor

Excluding military expenditures and interest payments, the 1986 budget proposal shows a decline of 29.5 billion dollars or 5.2 per cent (8.5 per cent, adjusted for inflation) compared to 1985. These cuts come overwhelmingly from social programs which provide benefits directly or indirectly to the workers and poor. For example, previously projected spending on Medicare and Medicaid would be cut 5.1 billion dollars; housing assistance, 3.6 billion; aid to college students, 2.3 billion; child nutrition, 648 million; Aid to Families with Dependent Children, 175 million. Aid to the already strapped cities, including general revenue sharing, transit, and development money, would be cut by more than four billion dollars. In addition, civilian employees of the federal government would face a five per cent pay cut. All government pensions, civilian and military, would lose their cost-of-living adjustments.

At the same time, the taxes which fall most heavily on the poor are those which are proposed to increase. The Treasury Department’s tax reform proposal would raise the minimum income tax rate for individuals from 11 per cent to 15 per cent. (This is the same proposal which lowers the maximum rate for the rich.)

While this proposal would increase the amount allowed for personal exemptions, which for many workers could offset the higher tax rate, it also would begin taxing a portion of workers’ employer-paid health insurance premiums; unemployment compensation regardless of total income; and workers’ compensation. It also eliminates the deduction for state and local taxes paid.

Again, this proposal will not be enacted as is. But within it are evident a number of new tax mechanisms the bourgeois politicians are likely to try to impose on the working class.

While these changes in income taxes are being debated today, the Social Security tax rate has already gone up to 7.15 per cent for 1986 from 7.05 per cent in 1985. This is the perfect example of a regressive tax, with a flat percentage across the board and a ceiling on taxable income of $41,400 in 1986 – a pittance to the rich.

So there is a combination of cuts in social programs with actual and proposed tax increases on the working class, which helps to subsidize the bourgeoisie in this period of economic crisis.

The Deficit

The other principal means the state is employing to subsidize the bourgeoisie is the budget deficit. Acknowledging the eventual threat to the economy posed by large deficits, both the Reagan administration and Congress have claimed that cutting the budget deficit (about 222 billion dollars for 1985) is their top priority. In fact, this stance seems to be little more than the justification for cutting the social programs still further, while leaving an enormous deficit in place.

In the long run, the continuing large deficit, with its effect on interest rates and consequently on monetary exchange rates and international trade, can threaten the bourgeois order. But in the short run, a large part of the bourgeoisie is taking substantial benefits from the deficit. They evidently are willing to take the long term risks for short run gain. So the politicians are not seriously ready today to undertake reducing the deficit.

The Democrats’ Objective: “Not to Disagree with the President”

Reagan may be the one who makes draconian budget proposals, but this doesn’t mean that the Democrats’ hands are any less dirty than the Republicans’. In their reply to Reagan’s State of the Union speech, the Democratic leadership was not even ready to pretend to be an opposition: they said, “Our objective tonight is not to disagree with our President and his party.... We must celebrate any success that builds a better future.” Earlier, in response to Reagan’s budget message, House Speaker Tip O’Neill said that Reagan’s budget “deserves the serious consideration of the American people.... The severity of this budget reflects the severity of the problem.”

Once Reagan’s budget got to the Senate Budget Committee, the Democrats began to decry the size of the increases in military spending and of the cuts in the social programs.

There is nothing new in this. Each year of Reagan’s Presidency, the Democrats have covered themselves by loudly protesting his plans to cut social programs – but each year enough of them eventually found the way to vote for Reagan’s cuts. During the first two years of the Reagan Presidency, the Democrats controlled the House of Representatives by a margin of 242 to 190 (during the next two years, 267 to 166, and presently 251 to 182). If they had opposed Reagan’s budget, he could not have put it through the House, given that immense majority. But when the speeches were over, the Democrats voted to accept budgets based on Reagan’s proposals. We shouldn’t expect anything different this year.

Continuing a Long Trend

The evolution of the budget is as much the Democrats’ responsibility as the Republicans’. As the economic crisis deepened during Carter’s term, the bourgeoisie had a greater need for a federal spending and tax policy which would intervene to protect it from the impact of the crisis. Both the Democrats and the Republicans have found the means to give that protection. Certainly the attacks on the poor layers of the population increased dramatically under Reagan, but the trend was already underway when the Democrats controlled both the White House and Congress.

Consider first the military budget. During the Carter administration, there was an adjusted increase in annual military spending of 10.8 per cent. Although this is much less than the corresponding increase of 29.8 per cent during Reagan’s first term, it is a marked reversal from the preceding period, when real military expenditures actually fell steadily, starting in 1969 and bottoming out in 1976.

Similarly, the rapid growth of interest payments, not only absolutely, but also as a per cent of total federal expenditures, began in the late 1970s. During the four-year Nixon/Ford term ending with fiscal 1977, the part of the federal budget going to interest payments rose only from 7.0 to 7.3 per cent. During the Carter administration, it rose to 10.1 per cent, and during Reagan’s first term to 13.6 per cent.

On the other hand, corporate income taxes which provided 15.4 per cent of federal revenues when Carter entered office, dropped to 10.2 per cent by the time he left. Under Reagan, the trend simply continued, with the percentage hitting as low as 6.2 in 1983.

We can see the same evolution in taxation policy. While federal receipts from individual income taxes rose steadily under Carter, corporate income tax receipts actually began to decline, not just as a percentage, but also in actual dollars during the last two years of his administration, a trend which continued under Reagan until the recovery. Also, the rapid growth of tax shelters began in the 1970s, with the deepening crisis (and the Democrats in power), paralleling inflation and interest rate pressures on profits in this period.

Just as the Carter administration also helped the bourgeoisie through the crisis with subsidies, it imposed cuts in the social programs to help finance the subsidies. With the Democrats in control of both the White House and Congress, the second extension on unemployment compensation (from 39 to 65 weeks) was eliminated. The Democrats in this period also reduced funding for Aid to Families with Dependent Children. Federal spending on Social Services actually declined sharply (even in current dollars) in 1980, by almost a half billion dollars.

While the tax burden on corporations was declining in the late 1970s under Carter, it was increasing for the working class. The combination of social insurance taxes and individual income taxes increased from 74.2 per cent of revenues when Carter entered office to 78.2 per cent when he left.

Clearly, if the subsidies to the bourgeoisie and the attacks on the workers and poor have been sharp under Reagan, they are not new. Obviously they do not simply reflect Reagan’s predilections. Rather their intensification reflects the impact of the economic crisis as well as the continuing quiescence of the working class in front of the attacks. In any case, they have been carried out by both parties over a long period of time.

The Problem Is More Than Reagan Alone

A recent study compared all federal taxes in 1966 and 1985. For those in the poorest tenth of the population, federal taxes, which took 7.8 per cent of adjusted family income in 1966, had risen to 13.9 per cent by 1985. The change was similar, though not quite as dramatic, for the next poorest layers. But for those in the wealthiest tenth of the population, the federal tax bite dropped in that same period from 21.1 per cent to 17.1 per cent! That is, the gap in the percentage paid by the richest and the poorest narrowed from 13.3 percentage points to 3.2 points! As a result of this process, the distribution of income after taxes became more concentrated, increasing the gap between rich and poor, with the share of the richest fifth of the population rising at the expense of the rest.

This is not the result of Reagan’s policy obviously. It is a long term process.

The bourgeoisie still faces a deep crisis in its economy. What the government has carried out in the period discussed here, both in spending and taxes, was an effort to defend the interests of the bourgeoisie facing this crisis, that is, to subsidize profits at the expense of the standard of living of the workers and poor.

When the economy was relatively healthy, the intervention of the state was less draconian, and less apparent. But as the problems of the economy became more severe, as in this recent period, the class role of the state has appeared more clearly.

The class role of the state is shown by the fact that in this whole period of crisis, it mattered not a bit whether a Democrat or Republican, a liberal or conservative, was in the White House. And it was shown by the fact that Reagan, the politician who took office promising to reduce the intervention of the state in the economy, has in fact increased it.

Union officials, or anyone else who oppose the attacks on the poor and the workers, but who focus on Reagan as the problem, holding out a hope that the Democrats might make a difference for the workers, stand in the way of the working class finding the means to resist these attacks. They misdirect the attention of the working class toward a particular politician and away from the real enemy – the bourgeoisie as a class and the state apparatus which has been established to defend it.