Reconcile This: Lessons From The Latest Legislative Debacle

So the Biden administration has achieved passage of, and signed into law, its Infrastructure Bill, and its Reconciliation/Social Spending Bill, dubbed Build Back Better (BBB), has passed the House and is awaiting decision by the Senate. Watching this process play out over the past months has demonstrated, in a way that could not be more definitive, a couple of core truths about the prospects for achieving social policies that could provide socio-economic security and justice for working-class — most — Americans, let alone any kind of transformative, lasting change in socio-economic structures.

The Outer Limits

The first of those truths, which left-socialists have long understood and many more sincerely concerned progressives are finding inescapable, is that the necessary social policies will never be achieved through the extant two-party system and the normal legislative process. This is so, it is becoming hard not to acknowledge, because that process and those two parties — the Democrats (including their “progressive” squaddies and their “socialist” auxiliary) at least as much as the Republicans — are institutionally designed to be obstacles to any such reform. They are representatives of the donor caste, not of their ostensible popular constituencies.

This truth, commonplace among us marxists forever, has been common knowledge in contemporary academic and political circles at least since the Princeton study of 2014, which found that, in the U.S.: “policymaking is dominated by powerful business organizations and a small number of affluent Americans… the majority does not rule — at least not in the causal sense of actually determining policy outcomes,” and it was succinctly confirmed by a “moderate” Democratic president in 2015, who said the: U.S. “is just an oligarchy with unlimited political bribery.”

We have seen this play out blatantly in the legislative games over the dual Infrastructure/BBB bills. Which is, as David Sirota and Andrew Perez have said, “an illuminating moment [that] reveals the outer limits of possibility for corporate politics.” Without going too far into the weeds, or denying that there are some good provisions in both bills, it’s clear that, as David Dayen points out with the example of broadband reform, the benefits of infrastructure spending were systematically shifted away from “engaging in any meaningful structural reform” and toward protecting and subsidizing extant dominant private industries. And we all saw the social spending component reduced from 6+ to 3+ to 1+ trillion — with adamantly, cross-my-heart promised and popular programs like a $15 minimum wage, college debt relief, free community college, prescription drug-price negotiation, lowering Medicare eligibility age and expanding benefits, public health insurance options, etc., all relentlessly weeded out or pruned to the nubs “amid a flood of industry campaign cash.”

It was all embedded, of course, in the formulaic Democratic-Party theater of foot-stomping progressives and rotating villains. The leading role in the progressive cast’s adamant promise to stand its ground against Republicans and corporate Democrats went to Bernie Sanders, who insisted: “Let me be clear: There will not be a bipartisan infrastructure deal without a reconciliation bill that substantially improves the lives of working families …No reconciliation bill, no deal.” And “you have to have a statement which says A, B, C, D, and E is going to be in the package and 50 members of the Senate are supporting it.” And “Let’s be crystal clear. If the bipartisan infrastructure bill is passed on its own on Thursday, this will be in violation of an agreement …More importantly, it will end all leverage that we have to pass a major reconciliation bill.”

The alphabet soup Bernie & Co. actually swallowed: A) The infrastructure bill passed on its own with B) no concrete commitment to anything, just C) a vague promise to consider, and D) all leverage was lost before the show began, because E) Bernie and the squad are committed to the discipline of the political framework they accept, which dictates that the Democratic Party must be defended as the only, essentially more progressive, bulwark against the essentially more reactionary and apocalyptically dangerous Republican Party, and therefore F) the progressives predictably, formulaically, end the drama, as Sirota puts it, “cit[ing] Republicans’ even worse behavior as the reason we should all supposedly feel thankful for Democrats, even as they are betraying their promises. Do re mi, A B C, 1 2 3.

It’s all so 2009. As when Obama repeatedly promised and told Congress he wouldn’t sign any healthcare bill that didn’t include a public option, and 60 members of Congress huffed and puffed with a “sharply worded letter,” proclaiming themselves “firm in their position that any legislation that moves forward … for the president’s signature, MUST contain a public option” [their emphasis]. In that production of the show, Democratic Senators like Max Baucus and Joe Lieberman played the roles now held by Manchin and Sinema, with those sharp-penned Democratic representatives were the reluctantly folding progressives played today by the progressive squad — with Bernie Sanders reprising Dennis Kucinich’s role as the last holdout, laying down his guns in the final scene to save his Captain from failure.

Then, as now, this was an entirely Democratic show and cast, without a single Republican necessary, directed by the president (Obama and Rahm Emanuel in 2009, whoever’s running the Biden animatronic today). Do not let yourself swallow a story about the brave Democratic president being held back by the evil Republicans; getting you to believe that narrative is the most important and pernicious effect of these productions.

As I’ve said before, that narrative is hogwash. The possibility of real progressive healthcare reform — which would have been single-payer, but not even the half-assed “public option” — was betrayed by Obama and conservative Democratic legislators, who never wanted any public plan, and by compliant progressive Democratic legislators who reneged on their sworn and signed promise not to vote for exactly the kind of capitulation to the insurance companies Obamacare is.

Same old song today. It is the progressive constituency, not the Republicans, who are being fought and played by the Democratic President and Party, and it is the Democratic Party and its leadership that is the most effective obstacle to, and must be the target of, progressives’ relentless and unforgiving pressure for, any kind of significant social reform.

Having seen this show so many times, many, many more people now recognize and reject the game that’s being played. At this point, the social house is on fire, and many, many fewer people are going to feel thankful to the Democrats for bargaining over a few cups of water, as they are betraying their promise to bring the pumper trucks.

So, let’s hope this is indeed “an illuminating moment” that, to rephrase Sirota’s remark for the necessary clarity and difficulty, reveals the outer limits of possibility for American two-party capitalist politics. Because we like to think there may arise some “anti-corporate” politics within one of those parties, but we (better) know damn well there will be no anti-capitalist politics necessary to solve our significant social problems from either of the two capitalist parties and the political paradigm they enforce, no matter how many “progressive” or “justice” or “populist” candidates are elected in either of them.

But let’s also recognize what a fucked-up and difficult place that leaves us in. It’s nothing unusual to recognize that any radical socialist politics is not centered on electoral politics. But, in a modern society, it’s also hard to conceive that a socialist, or even mildly social-democratic politics can advance, without establishing a foothold in the normal electoral and legislative processes of a country. It is from the reciprocal relationship between “normal” electoral and “radical” non-electoral organizing and actions that a socialist movement can achieve any kind of significant reform peacefully, and build the breadth and strength of public support necessary for a revolutionary transformation that will require revolutionary force.

In our two-party capitalist parity, there is no way to establish such a foothold. None. We now know that there’s no essential pro-working-class, social-democratic identity in one capitalist right-wing party that gives it essentially “better” potential for socialist purposes than the other capitalist right-wing party we always knew that about. We know there is no change coming though electing “progressive” Democrats or “socialist” sheepdogs (Bernie Sanders) who are going to persuade their colleagues of the virtue and rationality of even the most basic ameliorative, and enormously popular, social-democratic programs, like single-payer.

But the parties are only nodes in a system of deeply entrenched political and ideological institutions that effectively make anything else impossible.

So let’s start a third party! A fine idea. A People’s Party. You mean like the Peace and Freedom Party? Or the Greens? I support it, but I’ve also seen it.

Such a party must, of course, define itself around some core principles and issues (the fewer the better), and one of them — the first working task, the prerequisite for and no less substantive and important than any other — is to create the conditions that would enable it to fairly and effectively contest elections. A third party cannot just enter the arena where the matador and picadors await. It must fight for changing ballot laws, for changing campaign finance practices, for equal-time major media policies and open, uncensored social media and internet platforms, for ranked-choice voting, for fair, transparent voting processes that make voting easy to do and hard to manipulate (something neither party is now interested in), etc. At the federal level, and in every state and county.

These things are not impossible, but are very difficult. In the present hostile context, where they disrupt the accepted model, even large sectors of the working-class population will be suspicious of any such changes. Frankly, as I‘ve argued previously, I think the extant electoral system is nearly impossible to change from the inside, and boycotting it — not just the “voting with their feet” individual withdrawal that’s already widespread, but with a political boycott campaign organized around that disaffection — may be the necessary first step to force it open.

More generally, the now-confirmed outer limits of possibility for American two-party capitalist politics, the fact that our polity is so tightly controlled, politically and ideologically, and the present party structure so resistant to change, means that we will not get any significant change — from “process” changes in the electoral system like ranked-choice voting to social policies like Medicare-for-all — via legislative debate alone. It will likely require storming the Capitol, or some similarly disruptive direct action. Somebody’s got to get gored.

Any third party will need to explain, propagandize, and take up that fight as a primary priority, from day one. Getting the nuts and bolts of the electoral system in a condition that allows the party to exist politically must be understood as a substantive founding issue. The party will only be able to affect the larger, historically entrenched, undemocratic constitutional structures of the government that block other substantive policies — from the Electoral College to the Senate, the filibuster, etc. — if it has succeeded in the prerequisite. The party organization and membership must be united in focusing on that, unaffected by all the much-loved leftist infighting on other (e.g., identity-politics) issues, or it may as well go home.

To add what should be obvious: Any such party must be committed to fighting the Democrats as much as the Republicans, must know and embrace the fact that it will not win any election until it makes the Democrats lose some. They’ve got to get gored. If you’re not willing to do that, go home.

So, Lesson One, in full: Necessary social policies will never be achieved through the extant two-party system and the normal legislative process. If you enter the ring, use your horns. Or go home.

The Inner Limits

As I said, many more people have learned that first lesson or had it confirmed from this congressional debate, and that’s a good thing,

Lesson Two, on the other hand — though it’s one this legislative rigamarole so obviously teaches, about an impediment that’s so obviously central and so clearly must be overcome — is one that many of the same people find hard to accept. Not because of any external obstacle, but because it disrupts a framework of thought and “reality” in which they’ve found a comfortable “progressive” niche. It’s a niche built on a false foundation, however, in which progressives are killing themselves with constant self-cutting.

Lesson Two is: “Taxpayer money” destroys social programs.

Let me reprise what I said in a previous article:

  • There is no such thing as “taxpayer money.”
  • Taxes do not pay for federal government spending. Nor does federal government “debt,” which is not that thing. No revenue is needed.
  • Leftists who continue to think and say that “taxpayer dollars” must be collected to “pay for” federal government programs will continue to destroy the possibility of every universal social policy.

However one is primed to react to those statements, it is undeniable that they speak directly to the central issue in this truly bizarre “reconciliation” process and in every congressional debate over social programs: How are you going to pay for it? And the answer from every Democratic and Republican politician, and from every progressive and leftist who does not understand or accept these statements is the same: “With taxes.” For most political actors across the spectrum, the money to pay for national social programs must come from a “revenue” source outside the government — the taxpayer (corporate or individual), from which the government gets its money and on whom the government depends.

Those who want the programs — Bernie, the Squad, et. al. — say they can be paid for with higher taxes on corporations and the wealthy; those who oppose them — Manchin, Sinema, et. al. — say no you can’t, you’ll never raise taxes enough to pay for them, taxes are already too high, we must cut back on other programs that are paid for with taxes, etc. This is, as it always is, the entire debate, whose terms both sides accept, that is consuming the Congress, the Democratic Party, and the country.

How’s it going?

Really, for the purpose of achieving universal social programs of significant, irreversible benefit, how’s this debate working out? How does it always work out?

Whatever one’s reflexive reaction to my theses above, it is undeniable that they change the debate, radically. If they are true, the entire fight over where to get the money to pay for necessary social programs just disappears.

If it is true that the federal government creates money — U. S. dollars — by spending, which is prior to, and the source of, any taxes paid, then “taxpayer money” doesn’t exist, the “taxpayer” is an irrelevant character for federal spending considerations, and the debate centered around those categories is a fictional diversion that the progressive left is wasting its time, and losing, with. Because you cannot win a fake debate.

And it is true. Though it’s been deliberately obfuscated, by most people for a long time, the managers of the US financial system have always known, and said, it’s true. Increasing numbers of politicians and political actors across the spectrum know it’s true. They just don’t want to say it.

On the right, they want people to continue believing that our government and public welfare depends on the wealthy, conceived as society’s breadwinners and donors who subsidize non-taxpaying “takers.” On the left, many activists just can’t give up on the “Make the rich pay!” approach they’ve been comfortable with, despite the fact that it reinforces all the “payers and takers” crap and the general notion that the public sphere depends on private wealth. They do not want to recognize that approach makes the rich an indispensable resource we must keep around. They cannot see, or don’t want to work with, the much more empowering attitude about the rich for the left: “We don’t need you or your stinkin’ money.”

Of course it’s true, because money isn’t conjured up in “taxpayers’” pockets; it is created by political decisions of the US Congress to spend money into the economy. That money goes out as effectively interest-free loans that are only partially paid back in taxes. Those taxes extinguish part of the loan, turning -1s to 0s in the federal government’s ledger. They do not pay for federal government programs, whether aircraft carriers or child care. All those programs are “paid for” — i.e., funded — by congressional money-creating “appropriations.” It is not “tax and spend”; it is spend, then tax.

The federal government does not collect revenue; it creates money. The amount of money spent/created into the economy in a given year and not collected back in taxes is the “deficit” — a good thing, since it would be ridiculous to take it all back in taxes. To paraphrase Stephanie Kelton: The government’s deficit is the economy’s surplus. It would also be ridiculous to try and take back all the money the federal government has ever created and left in the economy — which is what’s called the “national debt.”

It’s also ridiculous to think the national “debt” is anything like the “debt” people incur from private banks, the other institutions federally authorized to create dollars. Unlike money created by congressional spending, the dollars created by bank loans constitute a debt that must be paid back fully, with interest.

Indeed, recognize that one of the reasons banksters hate government spending, deficits, and debt is because there is a tendentially inverse relationship between the government’s deficit/“debt” and your personal debt to the banks. The less money the government creates/spends and leaves in people’s and businesses’ accounts as interest-free loans never to be fully paid back in taxes, the more people and businesses will have to turn to the banks for loans that must be paid back with interest, to their profit. Which is why we should have a public banking system.

For political reasons, these economic truths are swaddled in a set of diversionary ideologies, policies, and laws — PAYGO, CBO scores, debt ceiling, etc. — that both parties accept and endorse, which make it look like the U.S. government must be run like a household. These serve no purpose but to help us internalize the ruling class’s insistence that we must, and usually can’t, “find the money” to do the things we want and need. But, unlike any household, the U.S. government is a monetary sovereign — it creates money and pays all its bills in the money it creates. The relevant question is never: “Where will the government get the money?” It’s always: “What is the government creating/spending money for” and “Where does the economy’s surplus go?” “In whose pockets does it end up?” Those are exactly the questions leftists should be insisting on.

Unless leftists and progressives who want robust, universal (non-means-tested) social programs start understanding, explaining, and acting within this paradigm, they will fail, now and forever. Really in a context where we’ve just seen the federal government create about $6 trillion dollars — which did not come, and will never be paid back, from “taxpayer money,” where we’ve just seen increase on top of increase of “Defense” spending to $740 million, with nary a peep about CBO scores or the national debt or “finding” the money, and with the social house on fire, how is it that progressives and leftists do not recognize the obvious truth and usefulness of this paradigm? How self-defeating it is to allow themselves to be dragged into the ridiculous “How are you going to pay for it?” fight that is eating away every aspect of their program no matter how furiously Bernie waves the “Make the rich pay their fair share” flag?

“Tax the rich” is a fine idea, if it’s a call to tax the rich because they’re too rich and therefore too powerful. Even if we don’t eliminate, we need to limit inequality of wealth and power. I support Eisenhower-level high — call them confiscatory — marginal tax rates (>90%, even 100%) on tiers of income above — What? $10 million? $5 million? Why not $1 million or less? Pick a number that means nobody’s going to starve and nobody’s going to buy political power.

“Tax the rich” is a terrible idea, however, if it’s a call to tax the rich because we need their money in order to pay for Medicare, Social Security, or any social program. Really, a terrible idea.

To see how crucial it is to know how the monetary system actually works, look at the knot of confusion the Democrats are tied up in over the State and Local Tax (SALT) deduction. They’re all a-squirm in the lovely trap set in the Trump administration’s 2017 tax bill, which capped the federal tax deduction for state and local taxes paid, which had been virtually limitless, at $10,000. Why?

One cannot understand what’s at stake here, or what a progressive position might be, unless one understands a fundamental fact about the qualitatively different function of taxes in the different taxing jurisdictions. The federal government does not need tax revenue to pay for its programs, but state and local governments do. They are not monetary sovereigns; they are not creators, but users of money, and must get it from an external source. They need tax revenue to pay for most of the basic services people rely on every day — from schools to running water to paved streets.

Trump instituted the SALT cap specifically to punish Democratic states with high state tax rates (NY, NJ, CA), with the intended effect of incentivizing high-income people, whose taxes those states need, to move or to support local-tax-cutting policies and candidates. It’s an anti-social effect all the way down.

In response, the senators and congresspeople from those Democratic states want to eliminate or raise that cap. Per Trump’s intended effect, the Democrats almost lost the governorship of reliably blue New Jersey, because the Democrat, Murphy, was “hammered” by “how effective [his Republican] challenger… was in playing to voters’ feelings about the state’s high taxes.” So, under pressure, such as letters from seven Democratic governors and nearly every New York Democratic congressperson demanding that he fully repeal the cap, Biden included in BBB a provision to raise the SALT cap to $80,000 through 2030 before falling back to $10K.

Progressives and leftists who do not understand the U.S. monetary system, and think federal taxes pay for federal social programs, are now piling on to attack that provision as a “giveaway to the rich.” Raising the cap, they say, will primarily benefit the top 2% of Americans, who are the only ones who pay over $10K in SALT. It’s a “policy that [gives] tax cuts to rich homeowners in New Jersey, New York and California.” Actually, that’s the language attributed to the National Republican Congressional Committee, which, in its own hypocritical way, seconds the dominant progressive critique of raising the SALT cap as a “politically toxic polic[y] which penalize[s] hard working families to reward liberal elites.” Cute.

So, how to sort out this scrum in which progressives and leftists agree with Trump’s tax “reform,” which will advantage Republican candidates and regressive tax policy down the line, and attack Biden and the Democratic Congress’s reversal of it as a gift to billionaires? (Not that there’s anything wrong with agreeing with reactionaries of either the Republican or Democratic variety, if they’re right. Be “for the truth, no matter who tells it.”)

The answer is that you cannot sort it out if your premise is that both state-local and federal taxes have the same function and both levels of government draw from the total taxes-paid pot for the same purposes. Because they do not.

The federal SALT deduction cap will effectively become a means, not to raise the total tax paid by the wealthy in both jurisdictions, but to shift tax payments from the states and localities to the federal government. That is, it will end up lowering taxes paid to the jurisdictions that need them to pay for things, while raising taxes paid to the jurisdiction that does not.

Whatever Trump pretended or progressives think, you’re not getting more needed money for the federal government to pay for social programs by setting a SALT deduction cap. The SALT deduction deprives the federal government of nothing it needs.

The federal SALT deduction only prevents paying a second tax on income that’s already been taxed. Of course, nobody wants to do that, and of course the rich are going to benefit the most from eliminating it. They are the only ones filling out federal tax forms who have already paid >$10K in state and local taxes, which are actually used to pay for state and local services the federal government does not provide.

The jurisdictions that use tax money to pay for services, you see, do depend on keeping the rich around to pay that tax. Of course, the wealthy will exploit that dependence to blackmail states by threatening to vote for whoever will cut local taxes or to move if those taxes aren’t reduced.

Progressives who think “Tax the Rich” is a simple panacea, like to dismiss the second possibility as remote. But those 2% who benefit the most are precisely those who already benefit from having multiple residences around the country. They can and will tax-shop among states. As in “people had been migrating away from New Jersey because the cap on the deduction meant an increase in the cost of living.” As in, I personally know people who have done it.

Given the federal structure of our country, the SALT deduction cap will inevitably encourage the worst kind of tax-cutting competition among states, which will have devastating effects on basic local services.

Isn’t it great (Please get this point!) that, unlike the states, the federal government does not depend on those wealthy and their taxes, and cannot be blackmailed by them. (Unless conservatives and liberals and progressives and leftists continue to believe the “taxes pay for federal programs” ideology through which they blackmail themselves.)

This is not a matter of whether to tax the rich. It’s a matter of knowing who is taxing them and for what purpose, knowing when raising unneeded-for-revenue taxes will lower needed-for-revenue taxes. It’s a matter of understanding what a progressive tax policy means in a polity where the central, money-creating government does not pay directly for all local services, but money-using local governments do.

Again, if you want to tax the rich progressively at the federal level (for the relevant purposes of controlling inequality and/or inflation), then raise the marginal tax rates directly. But, even If we succeed in getting a 100% federal tax on income over $1 million (for the purpose of controlling inequality), would we not have to keep some kind of SALT deduction to make sure states and localities got the taxes they need (for the purpose of providing local services)?

Avoiding raising the marginal rates directly, and instead fighting over the at-best questionably effective SALT deduction cap does not demonstrate how tax-progressive you are, but how tax-progressive you can’t be.

With the SALT deduction cap, Trump set a trap, baited with the sticky poison of the false and pernicious “taxpayer money” paradigm, into which Democrats and progressives have jumped and will never get out. Easy prey.

The solution to our problems will not come from raising more taxes for revenue. It will require a clear-eyed re-conception of tax policy as a whole, which will involve raising some and lowering other tax rates, based on a correct understanding of how the system works, as relevant for progressive purposes.

Maybe a robust, effective, progressive tax policy is something more complicated than “Tax the Rich.” It might even lead with a demand to lower taxes on the people who are over-taxed. Maybe with, as I have previously suggested, something like: “Medicare for all and eliminate payroll taxes!” — which would give more direct and immediate benefit to the working-class than fiddling with the SALT shaker. But you can’t even see the possibility of that if you’re stuck in the framework that fixates Democrats, progressives, and leftists on the need to raise taxes — and thus keep a low SALT deduction cap — to pay for federal social programs.

So the second lesson we have been watching unfold over the past few months of legislative battle, for the umpteenth time, is that we are destroying the possibility of social programs, and destroying the possibility of even having a cogent discussion of progressive tax and spending policy, if we continue to accept all the false assumptions underlying the “taxpayer money” mythology.

My summary statement of the two points: 1) Two-party capitalist electoral politics and 2) the conventional paradigm of money and taxes are at a dead end. Dead. End.

They must be replaced. And the obstacles to doing so — institutional and ideological — are severe.

Of course, these are not the only lessons emerging from developments in recent US politics. There are other little things like imperialism in general and three emerging theaters of imminent war in particular that we had better study on. But these two, at least, are the ones that have been staring us in the face for months in this legislative, BBB, “reconciliation” debacle.

Though many more now do understand one or the other of these lessons, few understand or speak forthrightly about both, and no political organization exists that is capable of effectively changing either.

Fortunately, if exhaustingly, school is never out.

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Former college professor, native and denizen of New York City. Political and cultural analysis from a left-socialist perspective. Twitter: @ThePolemicist_

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Jim Kavanagh

Jim Kavanagh

Former college professor, native and denizen of New York City. Political and cultural analysis from a left-socialist perspective. Twitter: @ThePolemicist_

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