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States: Drop The Budget Ax!

By       Message Karen Kraut     Permalink
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In the most shocking cut yet seen in the nationwide state budget cutting frenzy, 38,000 poor children in Arizona no longer have health insurance. Arizona policymakers eliminated the State Children's Health Insurance Programa first for any stateas a budget gap closing measure.

Like many governors faced with a budget crisis caused by the Great Recession, Arizona Governor Janice Brewer said she had a duty to cut this program in order "to preserve State government's fiscal integrity and to ensure Arizona's long-term health."

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But if the Governor really wanted to achieve these two important goals, she would have put the budget ax back in the shed.

This does not imply that state governments should stop looking for new efficiencies or dismiss concerns for frugality. These efforts must continue, as always.

The problem is that budget cuts during a recession are counterproductive. They deepen the recession and stifle recovery by immediately putting people out of work, reducing public and private investment, and abandoning residents in their hour of need. At least 45 states have already cut programs ranging from K-12 and higher education to programs for the disabled and elderly, and more cuts are expected for the next fiscal year.

The long-term effects of budget cuts are also damaging: people become sicker due to lost health care coverage which means greater suffering, lost work days and productivity, and costlier medical treatment down the road. In the case of education cuts, kids learn in crowded classrooms with fewer resources, receiving a lower quality education, which leads to a less-skilled workforce and higher unemployment.

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Calls for a more "balanced" approach--that mixes some cuts with some new revenue--steer us wisely away from a cuts only vicious cycle. However, with many jobs, essential public services, and the fate of the economic recovery hanging in the balance, even a balanced approach falls short by allowing for continued budget cuts that help no one.

Since budget cuts are harmful, do states have another choice? After all, states, unlike the federal government, are limited in their ability to engage in "deficit spending"--spending more than the money they raise each year.

Yes, the best choice is progressive tax policy which is based on the taxpayer's ability to pay. Progressive taxation raises revenue, underwrites critical public investment, stimulates additional private investment, and maximizes job retention and creation. These are the remedies for achieving the twin goals of closing budget gaps and enhancing economic recovery. And to boot, progressive taxation results in long-term budget stability and more widely shared prosperity.

To the extent that state governments have raised taxes to close budget gaps, they have too often increased sales taxes, fees, and less visible excise taxes. These types of taxes and fees fall more heavily on low- and middle-income people. And, they are counterproductive to economic recovery, because partly like budget cuts, they stifle demand, investment and economic activity.

Progressive taxation is the centerpiece of several pragmatic approaches for closing state budget gaps delineated in a new report authored by economist David Shreve for the Tax Fairness Organizing Collaborative, a project of United for a Fair Economy that brings together 28 grassroots organizations in 24 states.

Some states have made strides in the right direction. In Oregon, voters decisively approved two ballot measures that raised income taxes on upper-income residents and corporations. Kansas suspended its film production credit for two years, and Tennessee eliminated a tax exemption on rental income earned by certain businesses. But these progressive reforms were often coupled with deep budget cuts.

Because so many people's lives are being upended by this recession, it is critical that states not settle for ineffective approaches likely to prolong the economic downturn or delay the recovery. Progressive taxation is a state's most effective anti-recessionary tool. It gets money moving through the economy again, jump-starting the economic recovery that is the principal engine of state fiscal health.
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Karen Kraut directs the Tax Fairness Organizing Collaborative at United for a Fair Economy, a national nonprofit based in Boston. She has been a community organizer, a Congressional staffer, and in the nonprofit sector for 20 years. She has two (more...)

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States: Drop The Budget Ax!