The consequences for state governments that have collectively absorbed $430 billion in revenue shortfalls have been grim. Although most are now seeing increased revenue, Fiscal 2012, which for many states begins July 1, will be as financially problematic as 2010, which was devastating:
To date, budget difficulties have led at least 46 states to reduce services for their residents, including some of their most vulnerable families and individuals. Over 30 states have raised taxes to at least some degree, in some cases quite significantly.If revenue remains depressed at low levels, as is expected in many states, additional spending and service cuts are likely. Budget cuts often are more severe later in a state fiscal crisis, after largely depleted reserves are no longer an option for closing deficits.
Spending cuts are problematic during an economic downturn because they reduce overall demand and can make the downturn deeper. When states cut spending, they lay off employees, cancel contracts with vendors, eliminate or lower payments to businesses and nonprofit organizations that provide direct services, and cut benefit payments to individuals. In all of these circumstances, the companies and organizations that would have received government payments have less money to spend on salaries and supplies, and individuals who would have received salaries or benefits have less money for consumption. This directly removes demand from the economy. ...
The roughly $97 billion shortfall that states are facing for fiscal year 2012, after taking federal assistance into account, equals about 0.65 percent of GDP. Assuming that economic activity declines by one dollar for every dollar that states cut spending or raise taxes, and based on a rule of thumb that a one percentage point loss of GDP costs the economy 1 million jobs, state shortfalls could cost the economy 650,000 public- and private-sector jobs next year relative to the jobs that otherwise would be created.
The vicious circle continues. Sluggish job growth means less consumer demand, which means reduced sales tax receipts, which puts pressure on state treasuries, which gives budget hawks the excuse they need to push what they always want to do anyway: slash services, including Medicaid and unemployment insurance outlays. Those services, of course, should be enhanced, not axed, during periods of greater need like the one we have been facing.
It is all so abstract in public discourse. The charts and graphs are eye-opening but antiseptic in their presentation. None of this does justice to the ruthlessness of the attacks being visited on workers. Not only do we get to suffer most for the economic catastrophe created by pin-striped grifters and the whole panoply of ruling-class scam artists, but we also get the blame for it. Sacrifice we're familiar with. But who is "sharing" that sacrifice with us? It's nobody among those who are now raking in record profits.
The pain runs deep and wide as millions of middle-class Americans continue to get a taste of what life is always like for the poor. It's a wake-up call for Americans who pretend that the middle class is somehow not working class. Those who run the economy don't make that mistake. More than three-and-a-half years since the nation's chronic economic imbalances?stagnant wages, growing income inequality and a malevolent deindustrialization?were exacerbated by the most disastrous economic downturn since the 1930s, talk in Washington is perversely dominated by what to do about deficit spending.
What should be at the top of the agenda instead is no news to progressives: a full spectrum of job programs to ameliorate the acute situation accompanied by programs and policies which address the longer term issues. Dave Johnson of the Campaign for America's Future noted at the Netroots Nation panel, "Revitalizing America's Manufacturing," that the longer-term programs include an industrial plan, enforcing existing trade deals and renegotiating many of them, and raising the top tax rates to reverse decades of making life easier for the most prosperous among us.
But the forces with a stranglehold on what passes for economic debate in Washington and Wall Street are the same folks (or their ideological kin) who designed the very policies that have gutted the economy, demolished cities and transferred wealth to the uppermost tiers. Today, at the state level and nationally, they push policies that amount to putting a knife into the wounds they've inflicted. Like everyone who has ever been in charge since the beginning of history, they call this the natural order.
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