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More Information and Talking Points on the State & Local Budget Crisis and the role of the Federal Government

 

Bush Administration’s tax cuts falling short in job creation See JobWatch.org for more...

The national economy has been in recession or sluggish for almost three years.

• The sluggish economy has resulted in substantial losses of revenue for states (income, sales, capital gains, and other taxes are down). As a result, many states in the U.S. are experiencing a budget deficit for the fiscal year 2005.

• To deal with these deficits, states’ main options are to cut spending, raise taxes, and/or draw from their rainy day reserves, if available.

• When states don’t raise revenue to deal with their deficits, they resort to cutting spending, often in vital areas like education, public safety, healthcare, and human services. Such cuts hurt all people who rely on the services and also result in job losses in the public sector.

• If a city or town wants to restore funding to these vital programs, it often must raise property taxes, since this is the main tax under local control.

• When a state or locality cuts spending or raises taxes, these actions negatively impact the recovery of the economy.

The federal government has a responsibility to help stimulate the economy when it is sluggish.

• President Bush and the U.S. Congress could have provided $85 billion in aid to the states during this nationwide fiscal crisis, which would have eliminated every state’s deficit and prevented states from taking actions that drag down the national economy.

• Instead, President Bush and the U.S. Congress chose to pass a tax bill that provides only $20 billion in aid to states over two years (12% of what was needed) and gives away $330 billion in tax breaks, primarily to the wealthiest Americans.

• President Bush and the U.S. Congress’ 2001-2003 tax laws will exacerbate the states fiscal crises, as the law will cost the states $3 billion dollars over the next two fiscal years, and the ten-year cost to states could be $16 billion or more if the new tax provisions are made permanent.

Why should the City Council/organization care about federal tax breaks?

The federal government provides money to states and localities for such programs as Medicaid, general economic assistance, special education, childhood nutrition programs, transportation and housing development, and homeland security, among other programs.

• When the federal government gives away massive tax breaks, less funding available for these domestic priorities.

• If the federal government doesn’t help the states when they are in a fiscal crisis (states have been grappling with the worst fiscal crises since World War II), states are forced to raise revenues and/or cut spending to deal with their budget shortfall.

• If states choose not to raise revenue, they must cut spending. Since the overwhelming majority of a state’s budget goes to education, health care and human services, these areas often take a big hit.

• At the local level, these cuts translate into layoffs for policeman, firemen, teachers, human service workers, larger classroom sizes, fewer people with healthcare, elderly not able to afford prescription drugs, closed libraries, increased fees for college, among many, many additional painful consequences.

• Localities that want to maintain vital services must find ways to raise revenue, such as increasing property taxes, increasing local sales taxes, increasing fees for such services as garbage collection, and establishing new fees such as charging parents for transporting their children to school.

• None of these service cuts or increased taxes/fees would have been necessary had the federal government sent adequate aid to the states ($85 billion was needed) instead of giving a $330 billion tax break, primarily to the wealthiest Americans (see details below).

• Clearly, the effects of federal tax cuts are being felt in towns throughout the nation. Tax cuts ultimately result in a service cuts.

To make matters worse, most Americans will get very little from the Bush tax cut and 8 million Americans will get nothing at all.

• Nationwide, the bottom 60% of taxpayers will receive, on average, less than $100 per year for the next four years. Meanwhile, the richest 1% of Americans will receive, on average, $96,634 a year over the next four years. (The specifics for your state can be found at: Citizens for Tax Justice, “The Bush Tax Plan, State-by-State.”

• In other words, 124,000 millionaires will receive the same amount of tax cuts as the bottom 88% of Americans combined (that’s 121 million people)!

• So the people getting the tax breaks are the ones who need it the least, and the people not getting the tax breaks are the ones who feel the impact of the local budget cuts the most – the ones who can’t afford the increased fees and property taxes and who depend most on public education and other public services.