WHY FUND WAR
WHILE OUR CITIES DIE?
a lecture by
PHYLLIS BENNIS
director of the New Internationalism Project
at the Institute for Policy Studies in
THURSDAY, NOVEMBER 19, 2009 | 7 P.M.
KELLEY LECTURE HALL
Economic
by Rick Wolff
The B u l l e t
Socialist Project
E-Bulletin No. 268 November 2, 2009
http://www.socialistproject.ca/bullet/268.php#continue
Crises expose the system's irrationalities and
wasteful resource allocations. For example, Madoff
and his many, smaller imitators reveal the tips of
corruption icebergs. More important, the
crisis-induced fiscal emergencies looming in most of
the 50 states demonstrate several absurdities in our
economic system.
The Center on Budget and Policy Priorities (CBPP) in
between the fifty states' tax revenues and
expenditures. The following recent CBPP chart
compares the total state budget shortfalls in both
the last recession and the current one. Today's
record shortfalls measure how many billions states
will need to raise in additional taxes or cut their
expenditures (or combinations of both) in this and
coming years. How Bad Will It Get?
At a time of crisis, while the federal government
injects unprecedented stimulus (tax cuts and
expenditure increases) into the
fifty states are doing the opposite. State tax hikes
and expenditure reductions will continue to undermine
or slow any recovery. Moreover, the American Recovery
and Reinvestment Act (Obama's stimulus program) has
offset only modest portions of the states' fiscal
budget shortfalls for 2009 and 2010. The CBPP
estimates that the worst of the budget crisis will
hit states in 2011 and 2012. The carnage will total a
huge net $260-billion even after allowing for the
federal stimulus funds still available then to flow
to states. Another way of putting this is to note
that the just released third quarter (Q3) of 2009
Gross Domestic Product (GDP) number was lower than it
would have been without the depressing effect of the
fifty states' tax hikes and expenditure cuts. We saw
states and municipalities spend 1.1% less in Q3 than
they had in Q2, despite rising need.
State taxes are generally more regressive than the
federal income tax and so fall relatively harder on
middle and lower income groups. Likewise, state
expenditures tend more immediately to impact those
same groups since they include major supports for
public education and myriad social programs. The
negative economic effect of the states' fiscal crises
will heavily impact the mass of
angered by high unemployment and foreclosure rates as
they observe trillions of bailout dollars flowing to
banks and corporations 'too big to fail.'
The CBPP also studied what kinds of budget decisions
the states have already made because of the crisis.
Key findings include the following:
* 27 states have reduced health benefits for
low-income children and families; * 25 states are
cutting aid to K-12 schools and other educational
programs; * 34 states have cut assistance to state
colleges and universities; * 26 states have
instituted hiring freezes; * 13 states have announced
layoffs; and * 22 states have reduced state workers' wages.
Since the worst of the states' budget shortfalls lies
ahead, we can expect all of these numbers to
deteriorate further.
These state actions not only undercut the federal
government's short-term stimulus goals; they also
impose long-term costs on the economy in the
diminished health and education of the
workforce. Just when the mass of Americans need more
help and support from their state governments, our
economic system provides them with less. This raises
the human and fiscal costs of the crisis.
If the states represent a fiscal train wreck, then
the nation's cities and towns represent another train
not far behind and hurtling toward the wreck. The
basic revenue for
property taxes on land, homes, stores, factories,
offices, and automobiles. As the prices of most of
those properties fall, eventually the local property
tax revenues from them also fall. Reassessing those
property values usually takes a few years. Thus, the
likely drop in tax revenues for cities and towns will
only hit over the next few years. Their fiscal
distress will then pressure them to raise tax rates,
cut expenditures, or both. Doing so will counteract
what the federal government is trying to do for the
economy thereby worsening what the states are already doing.
The depth and duration of this crisis has thus only
begun to bite deeply into the economy. Its negative
social consequences, in the short and long runs, are
rising fast. Recent GDP numbers point to the ability
of torrents of deficit spending (and a fall in the
U.S. dollar's exchange rate with other major
currencies) temporarily to lift the total volume of
sales. However, the much touted GDP numbers for the
second half of 2009 do not represent beneficial
economic change for the mass of citizens.
For those who are willing to look beyond the usual
economic blinders, here's an old suggestion that only
seems new because of the effective ban put on public
discussion for so long. At the present time, the vast
majority of
intangible property from property taxes. That is,
stocks and bonds are kinds of property not subject to
the taxes on other kinds of property (land, houses,
etc.). If we imposed a very low rate of property tax
on intangible property, it would cover the present
and anticipated fiscal shortfalls of
towns, and states. Moreover, an intangible property
tax would fall on those most able to pay, those who
fared best since the 1970s as the gap between rich
and poor widened sharply. If coordinated across all
states and cities (perhaps levied and collected by
municipalities), intangible property owners would
have no incentive to move it from one place to another.
In short, an intangible property tax is a logical as
well as long-overdue reduction in the unfairness of a
property tax system that exempts just that kind of
property - stocks and bonds - mostly held by the
richest citizens. Indeed, an intangible property tax
could exempt, say, the first $150,000 of intangible
property per person to avoid hurting small owners and
compensate by a progressive intangible property tax
schedule for all the larger owners. By falling most
on the wealthiest among us, it would have a
significantly less negative impact on total spending
than broad-based state and local tax increases or
public expenditure cuts. An intangible property tax
thus represents the best state and local response to
the current crisis, minimizing its long-term costs
and bringing some justice to the tax system. *
Rick Wolff is a Professor Emeritus at the University
of
Professor at the Graduate Program in International
Affairs of the New
This article first appeared on the MRZine website.
http://www.monthlyreview.org/mrzine/wolff011109.html
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