In our states and cities, we are caught between a drenching rain and a freezing wind. We are getting soaked by the layoffs, lower wages and vanished pensions brought on by the recession and the burst bubble of corporate corruption. And as our need for help increases, we are frozen out by the chill wind of state budgets: Medicaid and libraries, schools and parks, child care and public transit are cut. Tuition at state universities is being hiked, along with taxes paid by working people.
The recession has caused a big drop in state revenues, made worse by the disastrous policies followed by most of the states in the last decade. Facing big deficits from the 1990 recession, many states raised taxes on working people. Later in the decade, when finances improved, they cut taxes. But the tax cuts mostly went to upper-income people and corporate interests.
Some of those tax cuts were passed with the help of Enron-style accounting fraud. In 1999 George W. Bush, then governor of Texas, justified new corporate tax breaks with “creative accounting worthy of Enron,” according to Princeton economist Paul Krugman. And New Jersey Governor Christine Todd Whitman paid for tax breaks with money that should have gone to the state pension fund.
These policies were repeated throughout the country. And with the economy slumping, the states faced a combined shortfall of $50 billion for the budget year beginning last July. Most state governments have responded with more corporate economics and Enron accounting. They have cut spending on schools and thrown kids out of health-care programs. They have cut aid to cities and towns, resulting in local service cuts. They have raised sales and cigarette taxes, which hit low-income people the hardest. And then, to “balance” the budget, they have used emergency funds, bonds, and accounting gimmicks.
Next year, the budget crisis will be even worse in most states. Economists Peter Orszag and Nobel Laureate Joseph Stiglitz wrote that the best solution is for the Federal government to increase aid to cover the state deficits. Tax increases on higher-income families are next best. The worst alternative: “Reduction in government spending on goods and services, or reductions in payments to low-income families, are likely to be more damaging to the economy…” And, we might add, more damaging to the people’s welfare!
In the past year, the right-wing Republicans in Congress have resisted any responsibility to help the states – instead, they have cut vital programs. And the Bush administration’s answer to hardships and unemployment is: more tax cuts for the rich, more giveaways to the corporations, more money for war. If the Republicans lose ground in the November elections, it will be possible to demand that the new Congress change course and help solve the economic problems facing our communities.
At the state level, there is serious discussion of what has to be done to stabilize state finances: tax the rich, end corporate welfare, and reduce regressive taxes that hurt workers and destroy central cities and poor rural areas. In a number of states, bills were introduced this year that moved in the right direction.
In my home state of Connecticut, the legislature passed a modest, temporary 1 percent tax on incomes over $1 million. It was vetoed by Republican Governor John Rowland, who put the interests of 7,000 super-rich households against the other million families in Connecticut. Similar struggles took place in other states.
Rowland, along with most governors and state legislators, is up for election Nov. 5. Will the budgets be balanced on the backs of the working class once again? Or will we elect governors and legislators who will stand up to big money and fight for the people? Setting a pro-people agenda on the state level can be a first step to changing the national agenda. And the union and community leaders we elect to state office this year can become Representatives, Senators and Presidents in the future.
The author can be reached at arthur.perlo@pobox.com
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