Lost lessons from the Great Depression

Lost lessons from the Great Depression

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As we reflect on the 50 years that have passed since President Lyndon Johnson launched America’s “War on Poverty,” it is also important to examine the nation’s public policy response to the most recent economic downturn that pushed millions of Americans into poverty. The historic job losses of the Great Recession created a hardship deeper and more widespread than any previous modern recession, and recalled for many the Great Depression.

Sadly, the response of policymakers to fast-growing poverty and its devastating impact on countless struggling families across the country has been largely contrary to the lessons learned from previous downturns. Instead of pursuing robust stimulus spending (or, indeed, supporting job creation directly) to support struggling families, policymakers have opted for what can only be described as “austerity” policies.

Austerity is usually a term used to describe the floundering European responses to the Great Recession, but the American response took much the same approach. Policymakers dismantled investments in tools with a proven track record of ameliorating the struggles of families in need and maintaining economic activity while the private sector recovers. Austerity came to the United States in the form of both much-lower-than-needed stimulus spending and significant spending cuts. A classic example is the most recent round of federal “sequestration” cuts that reduced government spending dramatically at a time when demand for services is high and the private sector is only reluctantly creating jobs.

Leading economists assure us that if lawmakers hadn’t chosen austerity, the U.S. could have actually added more than eight-million jobs since 2010 by investing in infrastructure, education, scientific research, and job training. Such investments would have bolstered the economy and helped protect and nurture a growing middle class.

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

In 1935, policymakers established the corporate income tax—a tool that helped ensure that business was contributing to the public infrastructure that both supported their workers and operations and helped provide some protection against another depression. Yet here we are, almost 80 years later, with an austerity agenda that fails to recognize the ways in which corporations avoid paying taxes and, worse yet, includes serious proposals for reducing corporate income taxes.

The simple truth is that closing corporate tax loopholes would provide much-needed revenue to support economic recovery with no effect on the job creation potential of corporations. The “Stop Tax Haven Abuse Act” currently under consideration in Congress 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 new cuts and duplicating Europe’s failed austerity approach, it’s well past time for our leaders 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.

Alexandra Sirota is the Director of the North Carolina Budget and Tax Center and Julia Hawes is a Communications Specialist at the North Carolina Justice Center.

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