Archive for Friday, February 25, 2011

Budget cuts pose threat to recovery

February 25, 2011

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— Deep spending cuts by state and local governments pose a growing threat to an economy that is already grappling with high unemployment, depressed home prices and the surging cost of oil.

Lawmakers at state capitols and city halls are slashing jobs and programs, arguing that some pain now is better than a lot more later. But the cuts are coming at a price — weaker growth at the national level.

The clearest sign to date was a report Friday on U.S. gross domestic product for the final three months of 2010. The government lowered its growth estimate, pointing to larger-than-expected cuts by state and local governments. The report suggested that worsening state budget problems could hold back the recovery by putting more people out of work and reducing consumer spending.

Across the country, governors and lawmakers are proposing broad cutbacks — lowering fees paid to nursing homes in Florida, reducing health insurance subsidies for lower-income Pennsylvanians, closing prisons in New York state and scaling back programs for elderly and disabled Californians.

“The massive financial problems at the state and local levels have and will continue to restrain growth,” said economist Joel Naroff of Naroff Economic Advisors.

State and local governments account for 91 percent of all government spending on primary education, according to the Brookings Institution. And they provide 71 percent of higher-education spending. States also account for more than 70 percent of spending on roads, bridges and other infrastructure.

But those same governments cut spending at a 2.4 percent rate at the end of last year. And economists predict they will slash their budgets by up to 2.5 percent this year — potentially the sharpest reduction since 1943. The deepest cuts are expected to occur in the first six months of this year.

The worst cuts so far — 3.8 percent — came in the January-to-March period of 2010. That was the sharpest quarterly drop since late 1983, when the U.S. economy was recovering from a severe recession. Most economists think the cutbacks this year will exert an even bigger economic drag than last year.

Newly elected Republican governors are leading the charge. They’re acting on campaign pledges to shrink government to meet budget gaps. They favor smaller governments with lower taxes and less regulation, which they say will boost private-sector growth and job creation.

Some Democrats — including Govs. Andrew Cuomo of New York and Jerry Brown of California — have followed suit. They’re pushing for cuts to social programs and concessions from unions.

No state has attracted more attention than Wisconsin. Pointing to the state’s projected $3.6 billion gap, Republican Gov. Scott Walker wants to strip state workers of collective bargaining rights. He also wants them to contribute more to their pensions and health insurance costs.

The budget fight has taken center stage in Congress. Democrats are bending to Republican demands for spending cuts to avoid a shutdown of the federal government next week.

The reduction in federal spending has a direct effect on states and municipalities. They depend on money from Washington to keep schools operating, put police officers on the street and subsidize public services like job training. The end of federal stimulus programs is also widening state deficits.

Many governors, including those in Florida, New York and Colorado, are pursuing tighter budgets. Proposals include laying off public workers and teachers, reducing spending for education and health care, and ending some social services.

Comments

Richard Heckler 4 years, 2 months ago

David Stockman - "GOP guiding nation towards financial ruin"

"In 1982, 1983, and 1984, Reagan signed a series of tax hikes (PDF) that, according to Stockman, recovered 40 percent of the original 1981 tax cut. Meanwhile, unemployment fell from nearly 11 percent in 1982 to 7.4 percent by Election Day 1984, and inflation slowed."

Years later, Stockman says, George W. Bush and his crew repeated "in much greater magnitude the errors we made in the early '80s. A massive increase in defense spending, a massive reduction in the revenue base [via long-term tax cuts], and not even an effort at spending cuts. Then the economy finally collapsed as a result of the credit crisis."

So what's an old-school Republican to do? Stockman, who worked as an investment banker after leaving the Reagan administration (and was indicted in 2007 for securities fraud in a case federal prosecutors later dropped), is willing to live by the basic laws of math.

He opposed extending the Bush tax cuts for middle- and high-income Americans, and now he has a simple three-part prescription: First, cut military spending by $100 to $150 billion a year. Stockman considers both the Iraq and Afghanistan wars foolish.

His second point is classic deficit-hawkery: Apply a means test to Medicare and Social Security.

His third: "Massively raise taxes." His favorite device: a Tobin tax, named after Nobel Prize-winning economist James Tobin, which would be levied on financial transactions.

"There's no productive value for Main Street or the real US economy." Such a tax could generate $100 billion annually (PDF). Stockman also fancies a version of Europe's value-added tax on consumption. "High taxes aren't good," he says. "But at the end of the day, you have to pay your bills as a government."

Stockman has not suddenly turned into a Democrat: He didn't support Obama's stimulus (because he didn't think it addressed the fundamental problems of the economy), and he remains a small-government conservative who would slash all sorts of federal programs if he could. But he has no patience with today's Republicans. On MSNBC's Countdown, he called the GOP "the free-lunch party of tax cuts."

Stockman counters that Republicans' taxes bad/tax cuts good mantra is disingenuous. "I don't think those kinds of propositions are appropriate, and you could call them a lie if you really wanted to use rhetoric," he says. "They can't say government is too big if they're saying hands off defense. It's not responsible to say government is the problem when you've embraced 95 percent of the dollars.

"It's very dismaying," he adds, "to see that 30-year descent into the kind of nihilism, know-nothingism that is represented by the Republican Party today." It's not the Gipper's GOP anymore.

http://motherjones.com/politics/2011/02/reagan-anniversary-david-stockman David Corn is Mother Jones' Washington bureau chief.

Flap Doodle 4 years, 2 months ago

How many threads did you copy/paste this same drivel on, merrill?

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