Economic Downturn and Traditional Party Politics
Today, as we enter a recession that threatens to become severe, there are indications that this may become the deepest economic crisis since the 1930s. This has the potential to cause widespread suffering because it is taking the form of a crisis of stagflation, that is simultaneously an economic downturn and rising prices. Along with rising unemployment, recession would eventually result in millions more men, women, and children living in poverty, people losing health-insurance coverage, and an estimated drop in family incomes of $2,000-3,700 per year. Effects may extend as far as 2010 or 2011, depending on the severity of the downturn (”What We’re In For: Projected Economic Impacts of the Next Recession“).
Impact on State of Vermont
At least twenty-five states face budget shortfalls in fiscal year 2009. Vermont has a projected shortfall of $59 million, or 5.1% of the FY2008 General Fund. The combined budget shortfall for these states is at least $39 billion.
The federal economic stimulus package enacted in February not only cuts federal taxes, but also threatens to reduce many states’ corporate and personal income tax revenue this year and next year. Vermont may lose $7 million annually in revenue due to a provision of the stimulus package known as “bonus depreciation,” retroactive to January 1st, which allows businesses to claim an immediate tax deduction for new equipment purchases. Most states’ personal and corporate income taxes are based on federal law. So tax cuts at the federal level that reduce federal taxable income normally reduce state taxable income as well, and therefore cost states money.We can protect ourselves from this revenue loss by decoupling our business depreciation rules from the federal tax code that allows bonus depreciation. During the 2001-04 period, when a similar bonus depreciation provision was in effect, over 30 states fully or partially decoupled from it.
Beyond such purely defensive measures, we need to invest in education, infrastructure, or other areas of state spending that have been shown to increase long-term economic growth. The state can switch its use of scarce dollars to infrastructure, instead of to the benefit of individual companies. For a useful discussion of immediate measures that we should consider, see the Public Assets Institute’s “Vermont’s 2009 Budget: The State Should Step In, Not Step Back.”
Federal Assistance is Needed
Federal assistance can lessen the extent to which states like Vermont turn to budget/service cuts and regressive (usually hidden) tax increases per Gov. Douglas’ proposals — measures that can further harm the local economy.
During the last recession, the federal government provided $20 billion in fiscal relief to the states with:
- a temporary increase in the federal share of the Medicaid program;
- block grants to states, based on population.
The increased Medicaid match averted even deeper cuts in public health insurance than actually occurred, while the general grants helped prevent cuts in a critical services.
The AFL-CIO is pushing for federal funding for:
- modernization of state unemployment systems, including extension of benefit eligibility to: low-income workers (by using most recent work history); workers who are only available for part-time work; and workers who leave their jobs for compelling family reasons.
- federal funding for state and local governments to accelerate ready-to-go construction projects, including school repair and maintenance.
When Government and Traditional Party Politics Fail
Unfortunately, even such modest, but meaningful, measures seem to be “off the table” as most Democratic politicians have turned away from even the limited liberal programs of Kennedy’s New Frontier, and Johnson’s Great Society, and adopted the conservative policies long identified with the Republicans.
Meanwhile, taxpayers in Vermont have already paid $663.2 million for the Iraq War; and Bush has requested another $102 billion for Iraq! We’re borrowing $343 million every day to finance the war. This skyrocketing debt will be a huge drag on the economy -slowing recovery and burdening future generations. With the economy in the tank, think about what that money could do here at home. People are making the connection between the billions we’ve spent over there and the crumbling economy here at home. In fact most Americans think ending the war is the best way to help the economy. Again, it is a decision to shift resources.
The truth is our economy was failing working families long before there was news of a housing crisis, a mortgage crisis, or a stock market crisis. These crises are the result of decades of economic policy that prioritized Wall Street over Main Street. Stagnant or declining real wages and vast wealth inequities form the house of cards upon which our current economy was built.
The bubble in housing and other real estate, spurred on by easy access to mortgage lending, home equity loans and other forms of consumer credit, substituted for the wage increases that workers were not getting. Workers were told they couldn’t get wage increases, but “have we got a loan for you.”
Obviously these are big problems that our “business as usual” legislature and obstructionist governor have proven unwilling to recognize, no less lead on. When government and traditional party politics fail in times of crisis, people tend to look for other alternatives, for options to the right and left of the mainstream. I think that we are seeing the beginning of the discrediting of the free market fundamentalism that has shaped the political agenda of both major parties since the 1970s.
We may now have an opportunity to make the economy work for all, not just the few. That means turning America in an entirely new direction. Fundamentally, we need a mass movement that can pry money and power away from the corporations and put it in the hands of working people.
April 23rd, 2008 at 6:30 am
[...] Duh! Apparently, legislative leadership hadn’t been paying attention – or maybe they just don’t read the Prog Blog closely or here. And their answer to a revenue shortfall? Do exactly the wrong thing: budget cuts and layoffs. Not to be outdone by the Governor, the legislative leadership has proposed their own budget cuts that threaten vital services and jobs. [...]
March 15th, 2009 at 12:03 am
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