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The new austerity agenda: What lawmakers failed to learn from the Great Depression

As we reflect on the 50 years since President Johnson waged a “War on Poverty,” [1] it is important to also examine our public policy response to the more recent economic downturn that pushed many more Americans into poverty. The historic job loss of the Great Recession created a hardship deeper and more widespread than any previous modern recession, and recalled for many the Great Depression.

Yet policymakers’ response to growing poverty and countless struggling families across the U.S. was largely opposite that of the lessons learned from previous downturns.  Instead of pursuing robust stimulus spending to support struggling families or supporting job creation directly, policymakers opted for austerity.

Austerity is largely a term used to refer to European responses to the Great Recession but the American response took much the same tact. Policymakers dismantled investments in tools that have proven they can ameliorate families’ struggles for their most basic needs and maintain economic activity while the private sector recovers.  Austerity came to the United States in the form of lower-than-needed stimulus spending and spending cuts. Most recently, sequestration reduced government spending dramatically at a time when demand for services is high and the private sector has only reluctantly created jobs.

If lawmakers hadn’t chosen austerity, the U.S. could have added more than 8 million jobs since 2010 [2] by investing in infrastructure, education, scientific research, and job training. Such investments would have bolstered the economy and helped nurture a growing middle class.

Instead, the growing divide between wealthy corporations and middle- and low-income families further show how little our lawmakers have learned from history. During the Great Depression, policymakers recognized that part of the economic challenge facing the country was growing inequality and a segment of the population and society—wealthy taxpayers and profitable corporations—that was wholly uninvested in the plight of their neighbors.

The corporate income tax was born in 1935 largely as a tool to ensure that business was contributing to the public infrastructure that supported their workers and operations, as well as provided some protection against another depression.  Yet here we are again, this time with an austerity agenda that fails to recognize the ways in which corporations avoid paying taxes and, worse yet, includes genuine proposals for reducing corporate income taxes.

Closing corporate tax loopholes would provide much-needed revenue to support our state’s economic recovery with no effect on the job creation potential of corporations. The Stop Tax Haven Abuse Act [3] would be instrumental in replacing budget sequester cuts. The bill would raise at least $220 billion over the next decade by closing corporate tax loopholes that enable multinationals to shield their offshore profits from taxation. It also takes away an incentive to export jobs overseas, and levels the playing field between large, multinational corporations and American small businesses that pay their fair share in taxes.

Instead of making cuts and falling back on antiquated means of austerity, it’s time for our lawmakers to advance policies such as the Stop Haven Abuse Act that will help close corporate loopholes as well as ensure equity to all taxpayers, save American jobs, and allow us to invest in a growing economy.