Federal aid urgently needed to avoid state budget catastrophes

Published on People’s World, by John Bachtell, November 24, 2009.

CHICAGO—Looming behind the 17 million jobless tsunami hitting the country is another disaster: over $180 billion in accumulated budget deficits set to devastate state governments, according to a new study by the Pew Center for the States.

The Economic Policy Institute (EPI) says in addition, city and town governments are expected to have deficits of $100 billion over the next two years.

This threatens a calamity like the one playing out in California. Many states face horrendous cuts to education, health care, mass transit and other human service programs, skyrocketing taxes and fees that will severely slow any economic recovery … //

… The Institute for Taxation and Policy suggests combining both Quinn’s original proposal and Hynes super rich tax surcharge as the path to a progressive tax system. They also argue that taxing working families will remove additional purchasing power from the state economy, slowing the economic recovery.

If HB 174 passes it would raise about $6 billion in revenues, still leaving a gap of nearly $8 billion.

On Nov. 17, the AFL-CIO and major civil rights organizations announced a five-point plan to pull the country out of the economic crisis. In addition to calling for the government to fund the creation of 2 million public sector jobs, the plan calls for extending more federal aid to the states.

The American Recovery and Reinvestment Act granted $144 billion in aid to the states mainly through payments to cover Medicaid and education. This is widely regarded as one of the most effective uses of the economic stimulus money. Illinois has been able to pay Medicaid reimbursements to health providers only because it received $2.9 billion in short term aid from the Act.

The EPI calls for extending federal relief from the Act for $150 billion to state and local governments over the next 18 months.

A path out of the economic and state budget crises is needed that doesn’t place additional burdens on working families and moves in the direction of redistributing social wealth more equitably. It will take the massive might of the labor-led people’s movement, small and medium businesses, along with state, city and town governments to win. (full text).

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