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Part of US rulers’ reaction to capitalist contraction
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A socialist newsweekly published in the interests of working people
Vol. 77/No. 10      March 18, 2013


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(lead article)
Gov’t cuts, tax hikes put
crisis on workers’ backs
Part of US rulers’ reaction to capitalist contraction
Sharp fall in capital expenditures in U.S. as percentage of gross domestic product reflects employers’ shrinking investment in new buildings and equipment to expand production and hiring. Government cuts and tax hikes are among rulers’ reactions to financial and fiscal crises precipitated by world capitalism’s contraction in production, trade and jobs.

The so-called budget sequester cutting $85 billion from federal expenditures took effect March 1. This starts a 10-year plan to reduce government spending by $1.2 trillion, a course Congress set in motion in 2011.

The “automatic” budget cuts come just months after the government raised payroll taxes from 4.2 to 6.2 percent, back to the levels they were before 2011, a measure which cuts particularly deep into the income of workers. Meanwhile, cuts in social services and other items that above all affect working people are also being carried out at the state and local level across the country.

The propertied rulers’ “fiscal crisis,” like their banking and financial crises, are consequences of a contraction in production, employment and trade that is worldwide in scope and flows from the normal workings of capitalism. Despite record-low interest rates in the U.S. over the past several years, ostensibly designed to “stimulate” economic growth, companies are investing less and less in production-expanding equipment and hiring (see chart on front page).

With no way to reverse the contraction, bosses are going after our wages and working conditions on the job as they cut social services and implement regressive tax measures, all aimed at foisting maximum burden for the crisis of capitalism on the backs of working people.

Nearly four years into the “recovery” since the last recession, workers face persistently high unemployment and declining real wages. Compared to five years ago there are 3.5 million fewer construction and manufacturing jobs, and those forced to accept part-time hours has jumped by more than 3 million to 7.8 million workers.

In countries hardest hit by the economic contraction, such as Greece, Spain and Portugal, government austerity measures targeting working people have gone the furthest.

In response to the 2 percent increase in payroll taxes that took effect Jan. 1, restaurants, including major chains from Burger King to McDonalds and major retailers like Walmart have been “lowering forecasts and adjusting sales and marketing strategies, expecting consumers with smaller paychecks to dine out less and trade down to less expensive purchases,” reported the Wall Street Journal.

“During the recession, we saw people trading down from Wal-Mart to the dollar stores,” Brian Yarbrough of the Edward Jones investment firm told the Journal. “That hasn’t reversed; people haven’t traded back up and have stayed with the dollar stores.”

Prior to the March 1 “sequestration” deadline, Obama in a public media blitz warned about dire consequences if this agreement goes through. In an appearance at the Newport News Shipbuilding Company in Virginia Feb. 26 he said this is “a dumb way of doing things” that will “weaken the economy and military readiness.”

During his election campaign, the president blamed Republican obstruction in Congress for the approaching March 1 deadline for the budget cuts, asserting it’s not something he proposed. But it was in fact initiated by the White House in the final deal reached with Senate Minority Leader Mitch McConnell in 2011.

The White House proposed that part of the cuts be replaced with tax increases, which Senate Republicans Feb. 28 voted against. An alternative Republican proposal to keep the cuts in place but give Obama more flexibility to decide where to slash was also voted down. Then, when Congress left town for the weekend Obama signed the sequestration deal as it stood into law.

With the law now in effect rhetoric has cooled in the White House and Congress on the plan’s catastrophic impact. Over the coming months, however, growing numbers of workers will feel its effect.

Unpaid furloughs of federal workers could begin in April. Those unemployed for more than six months could see their payments cut by as much as 11 percent. “Texas expects to see its education aid slashed hundreds of millions of dollars, which could force local school districts to fire teachers,” reports the New York Times.

Targets Medicare

The $85 billion in cuts includes $42.67 billion from military spending, $31.32 billion from nondefense programs, and $11.35 billion from Medicare payments to doctors and hospitals.

Budget cuts are also in store for the Centers for Disease Control and Prevention, the U.S. Food and Drug Administration, and the National Institutes of Health, reports Medscape Medical News. This will affect the availability of drug addiction services and HIV testing.

Both Democratic and Republican legislators have in their sights substantial cuts to Social Security, Medicare, and Medicaid—won through social struggles by working people in the 1930s and ’60s. There’s “a long-term problem in terms of our health care costs and programs like Medicare,” stated Obama the day he signed the sequestration law. “I’m prepared to take on the problem where it exists on entitlements, and do some things that my own party really doesn’t like.”

One immediate proposal under discussion is to cut annual cost-of-living adjustments to Social Security payments through using a different inflation index, the “chained CPI.” This “translates into a cut in benefits of 3 percent for those who have been retired 10 years, 6 percent after 20 years, and 9 percent after 30 years,” reported the Huffington Post website.

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