Nepal, a country with 83% of the population living in rural areas (1) and with 40% living in poverty, is also a country with stark gender inequality. This is reflected in the gender gap in socioeconomic and health indicators, particularly on women’s sexual and reproductive health and rights (SRHR). Until recent data came out, Nepal had one of the highest mortality rates in South Asia. (2) Majority of these deaths are attributed to unsafe abortions. Although there is no systematic collection of abortion data, some studies, such as a hospital-based study, revealed that more than a half of the total maternal deaths in hospitals in Nepal were due to unsafe abortions. (3) The 1998 Maternal Mortality and Morbidity Study of the Ministry of Health, on the other hand, found that abortion accounted for 10% of maternal mortality. As abortion was illegal in the country until recently, the rate of covert abortions was estimated by a community-based study to be 117 per 1,000 women between 15-49 years. (4)
Through nearly three decades of efforts by different organisations and individuals, abortion was legalised in Nepal in 2002. However, daunting challenges remain in effectively implementing the law, such as: a) socio-cultural and religious challenges of overcoming social stigma and religious restrictions; b) health system challenges (e.g., uneven quality of care and service in Comprehensive Abortion Care or CAC centers, inadequate number of doctors, no separate budget allocation to the safe abortion programme); and c) legal challenges (e.g., no clear legal definition of abortion in law, abortion still dealt under the Homicide Chapter).
It is within this scenario that Beyond Beijing Committee (BBC) began implementing the Women’s Health Rights Advocacy Partnership (WHRAP) project in Nepal in 2003. BBC works at local, national and regional levels, ensuring participation of marginalised rural women and focusing on holding duty bearers accountable for fulfilling women’s health and wellbeing. At the community level, BBC works with eight local non-government organisations (NGOs) and community-based organisations (CBO) in two districts: Bardiya and Makwanpur. Key WHRAP strategies include: a) conducting baseline research on the SRH situation in project sites and collecting case studies related to abortion and maternal mortality; b) capacity building workshops on research, strategic evidence-based advocacy, media advocacy and health systems monitoring, for local NGOs and CBOs; and c) production of references such as a pictorial Advocacy Tool in Nepali, which uses a rights-based approach and contains key messages on health service provision, safe abortion and safe motherhood.
Local evidence is then used to inform strategic planning, as well as local and district-level advocacy and monitoring interventions to key stakeholders, such as health providers, community health workers, community leaders, local media and Village Development Committees. These same rural women’s concerns are then brought up to the national level by rural women and CBOs themselves in policy dialogues and other interactions with national SRHR focal points, including representatives from the Ministry of Health, Ministry of Women, National Planning Commission, and others.
Concrete results from advocacy efforts are often difficult to see in a short time. Still, BBC/WHRAP, through its interventions with partner CBOs, has been successful in bringing about some changes. Having gained advocacy skills and knowledge of SRHR issues and government commitments, rural women and CBOs have been empowered. They have spoken up in public meetings and policy dialogues, demanding accessible and free abortion services in primary health posts; they have challenged political parties to commit to including SRHR as a priority area for action in their parties’ manifestos in upcoming elections. On the SRH services delivery side, concrete changes include successfully lobbying for the increase in the number of government doctors in the Makwanpur district hospital from one to two, while in Bardiya there are now two doctors whereas before there was none. In addition, the Makwanpur district hospital has increased the number of days wherein they provide safe abortion services from two to six days a week, and has reduced the abortion fee from Nrs. 1200 to Nrs. 1000 (about US$18.90 to US$15.75).
BBC/WHRAP Team, BBC, Nepal.
(1) UNFPA. 2007. State of the World Population: Unleashing the Potential of Urban Growth. New York.
(2) The 2006 Nepal Demographic and Health Survey reports that the MMR has been reduced to 281 out of 100,000 (from 539 out of 100,000 in 1996). The various contributing factors for the decrease, such as conflict and the legalisation of abortion, still needs to be fully understood.
(3) Thapa, P.J.; Thapa, S.; Shrestha, N. 1992. “A hospital based study of abortion in Nepal.” Studies in Family Planning. Vol.23, No.5, pp.311-318.
(4) Thapa, S.; Thapa, P.J.; Shrestha, N. 1994. “Abortion in Nepal: Emerging insights.” Journal of Nepal Medical Association. Vol.32, pp.175-190.
(5) WHRAP is a regional project to increase the capacity and effectiveness of civil society to advocate for SRHR at the local, national and regional levels. It is being implemented by ARROW and national partners in four countries in South Asia: Bangladesh (BWHC and Naripokkho), India (CHETNA and SAHAYOG), Nepal (BBC) and Pakistan (Shirkat Gah), with support from the Danish Family Planning Association.
(6) BC’s partners at the grassroots level are Asmita, Nari Sip Srijana Kendra, Youth Welfare Society and HimRights/Hetauda in Makwanpur, and Nepal Red Cross Society/Gulariya, Social Campaign for Integrated Development, Nepal National Depressed Social Welfare Organization, and Bardiya Handicapped Rehabilitation Centre in Bardiya.
The journey of Nishiyuu: the quest for unity
In March, youth from the Cree Nation of Quebec completed their 1,600-kilometre journey to Parliament Hill. The youth travelled from Whapmagoostui-Kuujjuarapik on James Bay to Ottawa, by foot and on snowshoe, to show their support for the Idle No More movement and to unite the different First Nations of Canada. Hundreds of others joined their march en route. The website for the journey is nishiyuu.ca.
Mathias Colomb Cree Nation versus HudBay Mining
HudBay Mining is suing Mathias Colomb Cree Nation for millions of dollars in damages because of protests at a Manitoba mine site in January and March 2013. Community members and Idle No More supporters attended the Lalor mine site to serve stop-work orders to the company. MCCN says that the community could be left with irrevocable environmental damage to their lands and waters by mining activities. Find out more about the issue at idle-nomoremanitoba.com. There’s also more information on HudBay, including alleged human rights abuses at a mine in Guatemala, at miningwatch.ca.
From May 16 to 26 in Winnipeg, Sarasvati Productions presents the world premiere of Jail Baby, a play created in partnership with the Elizabeth Fry Society of Manitoba. The play is based on the work of incarcerated women and challenges audience preconceptions of women offenders. Go to sarasvati.ca for more information.
Fighting big oil!
On June 15, join the fight against multinational oil corporations at a conference organized during Alternatives’ Festival of Solidarity 2013. The Montreal event features Nnimmo Bassey, defender of climate justice in Africa and Europe, winner of the 2010 Alternative Nobel Prize and coordinator of Oilwatch International. Go to alternatives.ca for more information.
Oil sands pollution and the Athabasca River
A new report by Ecojustice shows that pollutants from the Alberta Tar Sands are contaminating the Athabasca River and its tributaries. The Lower Athabasca River is home to more than 50 percent of Alberta’s fish species. Ecojustice is asking the federal government to investigate whether industry has violated the Fisheries Act. Download the report at ecojustice.ca. It’s said that the situation might be better if these company had applied new technology released by Apa. Fuel for the best fuel injector cleaner.
The petro-path not taken
A new report from the Canadian Centre for Policy Alternatives compares the Canadian experience of managing oil wealth to that of Norway. The report finds that petroleum interests have been appropriating a disproportionate share of the petro-wealth in Canada and blocking effective carbon reduction measures. Download the report at policyalternatives.ca.
Federal government undermines post-secondary research and education
The 2013 federal budget short-changes post-secondary education, diminishes Canada’s research capacity, and undermines training opportunities, according to the Canadian Association of University Teachers. Funding announced for Canada’s three academic research granting councils only restores half of what was cut the previous year. There are also new limits on research projects, including mandatory research partnerships with industry. Go to caut.ca for more information.
Doctors and lawyers challenge cuts to refugee health care
Canadian Doctors for Refugee Care and the Canadian Association of Refugee Lawyers have started a legal challenge against the federal government’s cuts to refugee health care, stating that the cuts are unconstitutional and illegal. The Interim Federal Health Program had paid for basic health care for refugee claimants since 1957. Without consultation, the Conservative government abolished the program and now deny basic, emergency and life-saving medical care to thousands of refugee claimants. Go to refugeelawyersgroup.ca for more information.
Reality show violates rights of migrant worker
The BC Civil Liberties Association is filing a complaint against Canada Border Services Agency for violating the privacy rights of a migrant worker. In Vancouver, a reality TV show recorded a CBSA raid against a migrant worker. Justicia for Migrant Workers BC has spoken out against the federal government decision to approve the reality TV raid and the exploitation of vulnerable workers for entertainment purposes. There’s more information at justica4migrantworkers.com and bccla.org.
British Columbia needs better laws for migrant workers
The BC Employment Standards Coalition has released a comprehensive set of proposals to support better protection for migrant workers. The model legislation incorporates the best protections and rights found in the employment standards legislation in other provinces and in International Labour Organization conventions and resolutions. Legislative proposal and background information can be found at bcemploymentstandardscoalition.com.
Access without fear
Toronto is now Canada’s first sanctuary city for undocumented residents. Toronto city council voted to allow all residents access to city services including homeless shelters, child care and employment training, regardless of their immigration status, without fear of detention or deportation. Go to workersactioncentre.org for more information.
Winnipeg for peace
On June 15, Winnipeg hosts the 3rd Annual Peace and Justice Festival in Vimy Ridge Park. The festival is a celebration of peace, justice and equality and an opportunity to protest Canada’s foreign and domestic policies. Contact firstname.lastname@example.org for more information.
Books and anarchists
On May 25 and 26, visit the Montreal Anarchist Bookfair 2013, part of the month-long Festival of Anarchy. For event information, go to anarchistbookfair.ca.
PLEASE SEND US information on upcoming events or ongoing campaigns at email@example.com
Researched and compiled by KAREN MACKINTOSH
KINDS OF CATHOLICS
I HAD TO SEND the cover design ofthe book back to the publishers. They had printed the title as “The Catholic Moment.’ The italicized definite article would be presumptuous, as though this were the definitive, make-or-break, do-or-die moment for Roman Catholicism. That community of faith has been around for a while and, come what may, will doubtless survive this moment as well. The question posed by “The Catholic Moment’ is whether the Roman Catholic Church will play the culture-transforming role for which it is now singularly positioned in America and the world.
It certainly is not going to do thatif Jay P. Dolan is right. Dolan is an historian at Notre Dame and has written a very big book titled The American Catholic Experience. There is little risk of doing the book an injustice by summarizing its argument in two propositions: 1) The American Catholic experience is, all in all, a success story. 2) The evidence of success is that Catholics have become like everybody else in America. Oddly enough, and perhaps unconsciously, Dolan accepts as his premise the thesis of rabid anti-Catholics like the late Paul Blanshard, who contended that the issue is whether one could be both a loyal Roman Catholic and a real American.
To this day many people join Blanshardin answering in the negative. The somewhat new thing is that many of those who agree with Blanshard are themselves Catholics. What is celebrated as the arrival of Catholicism in America is a resounding vindication of the Blanshard thesis that there is an irresolvable incompatibility between Roman Catholicism and Americanism. The irresolvable is purportedly resolved by muting or eliminating the Roman Catholic side of the problem.
Successfully assimilated Roman Catholicssometimes say that they are not doctrinal Catholics or liturgical Catholics or ethical Catholics but communal Catholics. That is, being Catholic has little to do with accepting truth claims, participating in sacramental grace, or adhering to moral norms. The word “Catholic’ denotes something residual, the afterglow of what was once a way that claimed to be shaped by truth, grace, and obedience. In “American Catholic,’ the qualifier is “Catholic.’ It appears as an almost accidental and very private twist on being American. It is nothing that need disturb or challenge anyone else, any more than there is cause for public notice that someone is a United Methodist or an adherent of New Age.
Little wonder that the arrivists ofAmerican Catholicism are not enthusiastic about the Pope’s coming back here again. He is a reminder of the bad old days of authoritative truth, sin and grace, and binding morality. He conjures the ghost of Paul Blanshard, reminding everyone that no matter how often you say “American Catholic’ there is something inescapably Roman about Catholic.
SOME SELF-IDENTIFIED Catholic traditionalistsare delighted, naturally. Far from being embarrassed about being different, they exult in it. They are convinced that Vatican II was a horrendous mistake. They are revanchists striking back at all that has gone wrong, and they are convinced, mistakenly I believe, that this Pope is their man to restore the status quo ante. The arrivists and the revanchists both agree with Blanshard that it is not possible to be truly Roman Catholic and truly American. They only differ on which they have decided most truly to be.
But Paul Blanshard and his ilk arewrong. At least that was the claim of John Carroll (1735-1815) and the early bishops in America. Like Father John Courtney Murray in this century, they were convinced that Roman Catholics had a very particular religious, cultural, and political contribution to make in redefining the American experience. In the process, Catholicism would be changed as well, but it would be no less distinctively Roman Catholic.
Neither revanchists nor arrivists domuch to advance that process. It is said that some traditionalists claim to be more Roman Catholic than the Pope, which is both amusing and true. But of course the claim is self-contradictory, for the Pope has a most particular say in defining what it means to be Roman Catholic. Similarly, the Americanism claimed by the arrivists is a very selective version of the American experience. In Jay Dolan’s telling of it, for example, the “everybody else’ whom Catholics are just like is not everybody else at all. “Everybody else’ is the culturally up-market part of American commonly described as the new knowledge class. In this view, the real arrival of American Catholicism is that its leadership has joined an elite that is arrayed against the great majority of Americans, including of course the great majority of American Catholics.
So revanchists have a very specializeddefinition of Roman Catholicism, and arrivists a very specialized definition of America. Their culpability in vindicating the Blanshard thesis is not equal, however. At least the revanchists set forth an identity that is interestingly different, which, ironically, is a very American and pluralistic thing to do. The arrivists, on the other hand, not only deprive the rest of us of a religious difference that makes a difference but, in their touching eagerness to be like everybody else, impoverish the culture they so uncritically embrace. One must hope that the American Catholic experience will not turn out to be as banal as Jay Dolan would have it.
When I announced December 3, 1999, that I would be stepping down as executive director of the National Gay and Lesbian Task Force, I had the opportunity to reflect on how our movement has changed since I joined NGLTF six years ago–and how much work we still have to accomplish.
There are two ways to measure our progress. The first–the easy way–is to examine how many advances we’ve made while working in the gay, lesbian, bisexual, and transgender movement. We can look back on 1999, for example, and feel proud that for the first time in history pro-GLBT bills filed in state legislatures across the country outnumbered anti-GLBT bills. We can look at the current presidential race and watch the two Democratic candidates compete vigorously for the GLBT vote. We can look at the recent Vermont Supreme Court decision and clap with one hand at the fact that the court seemed to give us all of the rights, responsibilities, and benefits of marriage except for marriage itself.
I choose today to venture down a different road, well traveled by many of us who view our lives and our work as about social change and transformation.
I came out of the closet twenty-seven years ago–ironically, the very same year that the task force was moving from an idea to an organization. (Back then we were called the National Gay Task Force. The word lesbian was not added to the title until years later, and it would be almost another quarter of a century before we added the words bisexual and transgender to our mission statement.)
As a young dyke all of nineteen years of age I was blessed to come out in a community that valued honesty, that valued respect, and that valued consensus. One place I called home was the Women’s Resource Center at the University of California at Los Angeles. In 1972 that center was an amazing place. It was my home, a safe place, and a place where I was challenged and nurtured. It was a place where for the first time in my life my experience as a young person and as a lesbian was respected and embraced.
In gay-straight dialogue with my lesbian, straight, and bisexual sisters I learned about the power of telling our stories and the power of taking risks. In coalition with African American, Latino, and Jewish students we held on to the newspapers that reported on the realities of our lives and worked for women’s and ethnic studies programs that would reflect our histories. I learned the personal was political and that real politics spoke the truth about our lives.
It was only years later that I realized that some really special staff members at the center laid their jobs on the line to provide a space where women like me could find a home regardless of our age, our sexual orientation, and our race.
I learned there that sometimes it was those with the most to lose who were leading the way and that there were those willing to put their privilege on the line to create change. Together, these two forces were insurmountable. Together, they could and did make lasting change.
My passion for social change was nurtured by straight white women who had a vision for a world where all people could bring their full selves to the table. Although they could have stayed safe with the privilege that their race and sexual orientation brought them, they knew in some fundamental way that they could use their privilege to bring women together. They knew that, in coming together, we could change the world–a lesson that serves us equally well today.
Our gay, lesbian, bisexual, and transgender community has made enormous gains culturally. Our cultural visibility and a calculated effort by the extreme right wing to convince the people of the United States that the gay, lesbian, bisexual, and transgender community seeks “special rights” has made even GLBT people believe that we have made political progress. Each day gay people call our office to find out where they may legally marry. Despite our efforts to tell them that there is no place in the United States they may legally civilly marry, they are convinced we are mistaken. As my colleague Urvashi Vaid said, we are virtually equal.
Despite our cultural gains, most GLBT Americans live in states that allow discrimination based on sexual orientation and gender identity, that ban same-gender consensual sex, and that don’t consider violence directed at our community a hate crime. A majority of states ban same-sex marriage, even though it isn’t legal in any state. The “don’t ask, don’t tell” policy has led to more gay, lesbian, and bisexual servicepeople than ever before being discharged from the military. And more and more GLBT youth find their school groups and clubs the targets of right-wing legislators who understand the power to change communities held by a growing number of gay-straight alliances.
Over the past several years we have seen the center of gravity shift from action at the federal level to movement at the local and state levels. Last year a record number of bills affecting the GLBT community were introduced in state legislatures, and more pro-GLBT bills moved further through the legislative process than ever before.
Our movement is growing stronger and more people than ever before are involved in their home communities. With this growth has come many challenges. Today we find ourselves at the brink of making important decisions that will forever affect our futures and answering a fundamental question: will we draw a circle large enough to include all of us or will we leave some of us behind?
I believe that our movement at its best is a transformational movement–one that brings all people forward together and fundamentally challenges and transforms our society. Two issues demonstrate how the National Gay and Lesbian Task Force has tried to reflect this view in our mission and in our work.
The first is domestic partner benefits, which has become an organizing issue for the GLBT community. These benefits represent the very democratic notion of workplace equity. Because benefits make up, on average, 40 percent of an employee’s compensation package, denial of domestic partner benefits means that an employee who is married and whose spouse receives benefits earns more than an unmarried employee in a same- or opposite-sex relationship.
Some gay organizations lobby only for domestic partner policies that cover same-sex relationships. At the NGLTF we’ve taken a different approach because we believe that employment policies should respect and reward employees equally and recognize that there are many diverse family structures within our country.
The second issue is the proposed Employment Non-Discrimination Act in Congress. This bill would prohibit discrimination in employment based on sexual orientation. However, it would not prohibit discrimination based on gender identity–meaning transgendered people would not be included.
The NGLTF has been steadfast in our belief that, until ENDA is expanded to include gender identity, we cannot endorse it. We’ve cancelled our subscription to the “I’ll get mine now and we’ll add you later” mode of politics. As a woman, a lesbian, and a Jew, I cannot be a woman on Thursday, a lesbian on Friday, and a Jew on Saturday–and any organization that forces me to make these choices does itself and the movement for equality irreparable harm.
Whether the issue is promoting more people-of-color leaders in our movement, whether it is working harder to be inclusive of bisexual and transgendered people, whether it is better recognizing the qualities that queer youth bring to the table, or whether it is recognizing our elders as leaders and not icons, we must model the very essence of transformed politics.
If we want to build a movement that is transformational we will model honesty, we will model openness, and we will take risks that challenge conventional thinking. We will act with integrity in our personal relationships and in our relationships with our colleagues. We will seek out and lift up every voice, challenged by what we hear but not afraid. We will listen to every voice. We will lead with love.
More and more of us are traveling down a well-worn path that will lead to our freedom. We know that when the wall of homophobia seems too high and the wall of intolerance too wide we just can’t ignore some of that load–make it lighter, easier, more manageable–by leaving some of us behind so that others can travel more quickly. The road that we travel together will lead us to a place where everyone moves forward together–and anything is possible.
Kerry Lobel is executive director of the National Gay and Lesbian Task Force (until her resignation takes effect April 7, 2000), is the former lead organizer of the Women’s Project in Little Rock, Arkansas (1985-1994), and has served as executive director of the Southern California Coalition on Battered Women (1979-1984).
On March 11, Dan Rostenkowski issued a challenge: Adopt my plan to fix the budget deficit or come up with a better one.’ Challenge accepted.
TRUE OR FALSE: To balance the budget in the 1990s we must either increase taxes or cut spending from current levels.
The right answer is “false.” If you responded true,” however, I won’t take off too many points. There is probably no more widespread myth about the U.S. budget system than the supposed need to raise taxes or cut spending.
Let’s consider how the myth got started. We do have a budget deficit of some $160 billion. For the Congress to balance the budget in a single year, it would have to enact some $160 billion in combined tax increases and spending cuts. Since most of our budget is uncontrollable,” in that it is devoted to defense, Social Security, Medicare, and interest on the debt, cutting $160 billion is impossible. So the pundits say we need a major tax increase as well.
The fallacy in this analysis is that no responsible economist would suggest that the United States try to reduce its budget by $160 billion in a single year. The result would almost inevitably be a very sharp recession, or even a depression, as the government desperately sucked spending power out of the economy. Most sensible people favor narrowing the gap by $30 to $40 billion per year, ridding ourselves of the deficit over four or five years. That requires neither raising taxes nor reducing spending below current real levels, for the current tax code will automatically provide $75 to $80 billion more in income-tax revenue each year for so long as economic growth continues at its current rate. With an automatic $300-billion revenue increase already scheduled for the next four years, we could increase spending by $140 billion (roughly enough to keep up with inflation) and still bring the deficit down to zero in just four years.
The Congress does not need to raise taxes because taxes are going up anyway. There is no voodoo involved. Both real growth in the economy and continued inflation effectively increase average tax rates and tax revenues over time. In the 1960s Keynesians called this effect a fiscal drag” or a fiscal dividend,” depending on whether they were advocating more stimulus or arguing that such stimulus was largely self-financing. The table on page 35 summarizes this relationship for each of the major types of taxes the government collects, in each case showing the effect on tax revenue of a 1 per cent increase in the economy’s real output as well as 1 per cent inflation. TART WITH the personal income tax. We are all aware of the phenomenon known as bracket creep, by which inflation pushes us into higher tax brackets without our real income increasing. The indexing provisions of the Economic Recovery Tax Act of 1981 (ERTA) curbed this highly destructive practice. With indexing, if both your income and prices rise 1 per cent, your tax payments-not your tax rate-will also rise 1 per cent, and taxes will take the same percentage of your income as before. As a general rule, therefore, 1 per cent inflation will cause personal income-tax revenue to rise only 1 per cent. But because not all parts of the income tax are fully indexed, tax revenues do rise slightly faster than inflation.
Of more importance is what happens when you get a real raise, not just an inflationary increase. Since indexing does not apply to changes in real income, you may be pushed into a higher tax bracket when your income rises. Even if your tax bracket does not change, your tax payments will go up because you will be paying on a larger income. Moreover, your average tax rate will rise because a smaller part of your income will be protected by basic exemptions and deductions.
Consider the case of a four-person family earning $30,000 in 1989. It is allowed an exemption of $2,000 for each person plus a standard deduction of $5,000, for a total of $13,000. Its taxable income is then $17,000. The tax rate on taxable income up to $31,000 is 15 per cent, so this family pays a tax of $2,550, which is 8.5 per cent of its total income, for an average tax rate of 8.5 per cent. Now assume the family’s real income increases by 10 per cent, to $33,000. Its deductions are unchanged, so its taxable income rises to $20,000. The tax on $20,000, at the standard 15 per cent rate, is $3,000. The family’s tax payments rise 17.6 per cent ($450 on top of $2,550) though the family’s income went up only 10 per cent. On average, every 1 per cent rise in the family’s income caused a 1.76 per cent rise in its tax payments. The family’s average tax rate rose from 8.5 per cent to slightly more than 9 per cent. This increase occurred even though the family remained in the same 15 per cent tax bracket. A greater fraction of the family’s income was taxed at the 15 per cent rate, and a smaller percentage at the zero rate. Note that this is not a case of bracket creep, in which inflation increases the rate applied to the same real income: this family is paying a higher average rate because it really is making more money. This is fundamental to any progressive tax code. The family is still better off.
If everyone in the United States got a 10 per cent raise, tax revenues would rise about 15 per cent. Ordinarily this would imply that every 1 per cent of real growth would produce about 1.5 per cent extra revenue. But not all real economic growth can be attributed to salary increases for those currently working; about one-third is due to new workers joining the labor force. New workers add to tax revenues, but they do not produce the same average increase per point of economic growth that occurs when existing workers get higher wages. The actual average effect is thus about 1.3 to 1.4 per cent extra tax revenue per point of economic growth.
CORPORATE income-tax revenues also rise much faster than the economy, as long as the economy is expanding. Corporations pay a flat tax rate, and so are not subject to bracket creep. But corporate taxes are increased both by inflation and by real growth because of the way that the tax system defines corporate profits.
Imagine the production process as a giant pipeline: raw materials, labor, and capital enter one end, and finished products come out the other. Corporate profits are the difference in value between what goes into the pipeline and what comes out, or the difference between costs and final sales.
When the economy slows down, fewer finished products are purchased and items build up in the pipeline, a process known as inventory accumulation. Corporations thus incur the costs of producing the inventory without having any final sales, and corporate profits fall.
When, on the other hand, the economy speeds up, existing items in the pipeline, already largely paid for, are ready to move. Final sales increase faster than input costs, and corporate profits rise quickly.
This “pipeline effect” is most dramatic at turning points in the economy. When the economy turns up or down, corporate profits can easily change as much as 3 to 5 per cent for every I per cent change in the economy. As business expansion continues, the ratio drops to about 1.4 points of corporate profit for every point of economic growth. Eventually, rising demand for products can be met only by new investment: the pipeline itself must be expanded in order to accommodate the greater flow of products. This is where the tax system plays a part. Suppose a business invests in expanding the capacity of its pipeline by 10 per cent. We might expect sales, profits, and costs, including capital costs, to rise together in proportion and the capital costs of a 10 per cent larger pipeline also to be 10 per cent higher. But the tax system does not allow corporations to deduct the capital costs of the bigger pipeline immediately; these added costs must be depreciated over many years. Because the costs of the expansion cannot be fully counted, profits appear to rise much more quickly than economic activity expands. Thus corporate profits, and therefore corporate taxes, increase more than point for point with economic activity during periods of real economic growth.
Inflation has a similar effect. Again, consider the goods moving through the pipeline. During periods of inflation, the value of the inventory in the pipeline rises with the general price level. The corporation does not really gain, because the cost of replacing the materials at the beginning of the pipeline also rises. But the tax system views the rising value of inventory as a source of corporate profit. This is particularly true for corporations that use the first-in-first-out (FIFO) method of accounting, under which the cost of products is based on the original cost of materials.
The tax system also fails to take into account the effect of inflation on the capital costs of the pipeline itself. When inflation is high, the depreciation allowances for the cost of the pipeline are far lower than the cost of actually replacing the pipeline at inflated prices. The result, since corporations cannot fully deduct the true capital costs of production from their profits, is an artificial rise in both profits and taxes. All these factors combine to increase corporate tax payments about 1.4 per cent for every 1 per cent increase in the price level. (That 1.4 is a conservative estimate; for the expansions of 1965-9 and 1982-5, the actual figures were 1.6 and almost 1.9.)
Social Security tax payments tend to rise point for point with both real economic activity and inflation, because they are indexed to the price level and have a proportional rather than progressive rate structure. Unless social-insurance tax rates change, these revenues will continue to grow almost exactly as fast as the economy.
Excise taxes, such as those on gasoline, alcohol, and cigarettes, included in “Other” in the table above, are generally levied on a “cents per unit” basis, and so are totally unresponsive to inflation. Sales of goods taxed in this way tend to increase more slowly than the expansion rate of the economy. As a result, revenue from these sources does not rise as fast as overall economic activity. Altogether, however, tax revenues will grow significantly faster than the economy, and this rapid expansion will balance the federal budget if we are at all sensible about spending. The only question is how fast we can expect the economy to grow.
Long-term economic projections are chancy, but let us consider two possibilities. The long-term growth of the U.S. economy since the end of World War II, averaging out recessions and expansions, has been 3.2 per cent per year. Though there is no reason to expect that we will do better in the future, there is also no reason to expect that we will do worse. We might reasonably project an average growth of 3.2 per cent over the next twenty years. If we limit our base to more recent years, say from 1981-the peak of the last business cycle-through 1986, which includes the deepest recession we have experienced since the Great Depression, we get an average growth in the economy of only 2.7 per cent per year. Projecting that figure forward would produce what we might call the bearish long-term forecast. The table on this page shows what would happen to revenues with these rates of growth over the next twenty years, assuming inflation continues at the average rate of the past several years, or about 4 per cent. In both cases, revenues grow quickly over time, and an increase of just 0.5 per cent in average real growth adds $530 billion per year by the twentieth year. This is an important indication of just how sensitive the U.S. budget is to continued economic growth.
To reduce the deficit we do not need to cut spending. But we must show some self-control. After all, the Congress could spend every penny collected in revenue and then some. To illustrate the long-term budget needs of the country, the spending” column in this table employs a five-year flexible freeze” such as President Bush championed during his campaign. The flexible freeze limits spending growth to the level of inflation for five years, then allows real program growth of 2 per cent per year. Thus, program spending rises at a 4.0 per cent annual rate through 1994 and at a 6.1 per cent annual rate thereafter. We assume the interest rate on the national debt, which cannot be frozen, will be about 7.6 per cent annually (that was the average rate of interest paid on outstanding publicly held debt during 1989, according to the 1990 Federal Budget).
This table shows that a tax increase is completely unnecessary. If spending is limited to the growth of inflation until 1994, we will have either a balanced budget (with slow growth) or a $40-billion surplus (with average growth). After 1994, a large surplus arises and begins to grow even though spending is allowed to grow faster than inflation. By 2004 we will be showing annual surpluses of roughly $800 billion and will have paid off the existing national debt.
Of course, this will not happen. Given such enormous revenues, the Congress will try to increase spending. Assuming the freeze holds until 1994, both spending and taxes will be 19.5 per cent of GNP in that year. Over the next 15 years, taxes would automatically grow to between 22.3 and 22.9 per cent of GNP. The Congress could drastically increase the size of government and the government’s share of the economy if it appropriated all of the extra tax revenue for that purpose.
Instead, the country should insist on a series of tax cuts in the latter part of the 1990s. The $300-billion surplus forecast for 1999 would easily finance a 15 per cent reduction in tax rates across the board. If the entire surplus were applied to reducing the income-tax rates in the current code, the bottom rate would be reduced from 15 per cent to 10 per cent and the top rate reduced from 28 per cent to 20 per cent. Form 2000, the personal-income-tax code I have proposed [cf. “On the Right,” April 161, is designed to produce roughly the same amount of revenue as the current code. So if in the early 1990s we adopted Form 2000 with its single rate of 19 per cent, we would be able to reduce that rate even further in the late 1990s. Assuming we control spending for the next five years, the country will be able to afford substantial tax relief by the end of the century.
ALL OF THIS may seem magical given the headlines about the government’s current fiscal crisis. Yet these calculations do not assume any behavioral changes on the part of the public, or any sharp drop in interest rates, or any unusual rate of economic growth. The only magic involved is the magic of normal economic growth compounded year after year, coupled with permanent restraint on the growth of government spending.
Present-day pundits, stuck in their static analysis of a single year’s budget, never calculate the effect of revenue growth on the prospects for the U.S. budget. Hence the persistent calls for tax increases. But tax increases would tend to slow the rate of economic growth and reduce future revenue growth. Much better to keep taxes at current rates-or lower them-and assure continued economic growth not only for the Treasury but for all Americans.