US states’ budget crisis sets stage for new attack on the working class

Published on World Socialist Web Site WSWS, by Tom Eley, June 27, 2009.

By Tuesday, many US state governments must pass budgets for the coming fiscal year. The state capitals are now the scene of bitter feuding among governors and legislators over how the deficits will be met. But there is unanimity that the working class must foot the bill.

Forty-six states confront significant deficits, and their collective shortfall for 2010 stands at more than $130 billion. This comes after a $104 billion deficit in 2009, for a two-year total of $234 billion in red ink—$91 billion more than President Barack Obama’s stimulus package allocated to all municipalities and the 50 states for the next two years. 

At its heart, the state budget crises are driven by the recession and the impoverishment of the working class. Layoffs and wage cuts are rapidly diminishing returns on state and local taxation—income, sales, and property taxes. At the same time, increasing numbers of unemployed workers and their families are turning to state-administered social safety programs already woefully unprepared for hard times …

… Finally, rising unemployment is forcing hundreds of thousands of workers who have lost their employee-based medical insurance to turn to state-run Medicaid plans, further burdening state budgets. Even as Obama touts his proposal for a health care “overhaul” that he claims will expand coverage, state capitals across the country are moving to cut Medicaid funding and to make eligibility more difficult for working families.

In an effort to make up the deficits, state governments are collectively increasing revenue this year by $24 billion, mostly through various forms of regressive taxation of the working class, such as sales tax increases, taxes on tobacco and alcohol, user’s fees on public services, taxes realized through the promotion of gambling, and increases in income taxes, which in many states are “flat” rather than graduated. But these new taxes on workers will meet not more than a fifth of the states’ collective budget deficits.

Moreover, it is unlikely, in most cases, that states will be able to meet their obligations through significant deficit spending. Many states are constitutionally required to balance their budgets through reactionary “pay-as-you-go” rules. And the Obama administration, using California as an example, has made clear that it will not step in to meet the needs of the states’ underfunded social spending requirements. By downgrading California’s credit rating, thus making its interests rates more expensive, ratings agencies and the finance industry have served notice to states and local governments that “fiscal discipline” shall be the order to the day.

Nor will new proceeds be realized through taxation of the wealthy—in spite of their immense resources. According to Forbes magazine, the richest 400 Americans had a combined net worth last year of $1.57 trillion last September. Less than 10 percent of this vast fortune could resolve the combined budget deficits of 46 states. None of the states are planning increases in taxes on the wealthy. (full long text).

Comments are closed.