Spending cuts are bad policy
| By Robert Cruickshank, Courage Campaign - May 14, 2010 6:05:45 AM PT |
| Also listed in: Courage Campaign Staff |
Later today Arnold Schwarzenegger will release his "May Revise" of his proposed 2010-11 state budget. It is going to be an extremely cruel and destructive proposal. But it will be defended as a necessity given the economic times and the resulting collapse in tax receipts.
That is precisely the *wrong* kind of thinking to use at this time. This latest round of Hooverism will be an economic catastrophe for California, in addition to the human toll it will take. If California does not embrace new revenues to fund the services and jobs we need to produce economic recovery, then California faces a catastrophic slide into a prolonged depression.
The problem we face is that few in Sacramento or in the media have adapted their thinking to this new crisis. They're still locked in the outdated thinking of the last 30 years, which says that if we just cut back on spending, somehow economic recovery will magically appear, and that the spending cuts have no relationship to said recovery.
But it is extremely difficult to see how there can be any economic recovery if we've laid off 30,000 teachers and raised tuition at public colleges and universities to unaffordable levels, destroying the education of an entire generation. The same goes for taking away health care from children and the elderly - someone has to pay those costs, and if it's coming out of family budgets, that reduces their ability to spend money and therefore acts as a drag on the economy.
Austerity budgets like this are inherently deflationary. They make it harder, not easier, to produce economic recovery. They make it harder, not easier, to deal with California's debt problems, small as they are.
And they will merely worsen future budgets. It's no accident that this is the fourth summer in a row where budget cuts are being seriously proposed. The cuts begun in 2007 have produced a downward spiral, where the economy worsens due to lack of state support, causing deeper declines in tax revenues and therefore exacerbating the budget shortfall.
In a situation like this, someone has to pay to close the gap. Arnold Schwarzenegger believes it must be the poor, the sick, the young and the old who must pay. Why? In order to prevent the wealthy and the large corporations from paying.
By closing corporate tax loopholes and raising other taxes on those with high incomes, California can just about close the entire $20 billion deficit expected to be announced today. We can close it without making any further cuts to schools and health care services. We can close it without causing long-term damage to our economy.
The usual argument, of course, is that such tax increases will cause large employers to not hire workers. I'm skeptical that would be the case, and the evidence suggests it won't be the case. In 1991 California pushed through billions in tax increases. It didn't prevent economic recovery from taking hold soon thereafter, and didn't prevent the 1990s boom from taking place. In April 2009, taxes went up in California, and it did not worsen the recession, nor has it prevented a slow and halting recovery from beginning.
But there's a more fundamental issue that needs to be dealt with regarding the question of taxes and jobs. The current budget process, where taxes on large corporations are kept at all-time lows and forcing devastating cuts to services, favors the big businesses over the small ones. It's those small businesses that need our support. Those are the businesses that create jobs, that keep money in the community and in the state, and that ultimately will provide the basis of a 21st century economy in California.
California isn't Greece. We don't need to follow this road to ruin. Instead, by rejecting the concept of spending cuts as well as the specific cuts that will be proposed today, we can begin to provide economic recovery to California and position ourselves to lead the 21st century economy while providing prosperity for everyone.
That is precisely the *wrong* kind of thinking to use at this time. This latest round of Hooverism will be an economic catastrophe for California, in addition to the human toll it will take. If California does not embrace new revenues to fund the services and jobs we need to produce economic recovery, then California faces a catastrophic slide into a prolonged depression.
The problem we face is that few in Sacramento or in the media have adapted their thinking to this new crisis. They're still locked in the outdated thinking of the last 30 years, which says that if we just cut back on spending, somehow economic recovery will magically appear, and that the spending cuts have no relationship to said recovery.
But it is extremely difficult to see how there can be any economic recovery if we've laid off 30,000 teachers and raised tuition at public colleges and universities to unaffordable levels, destroying the education of an entire generation. The same goes for taking away health care from children and the elderly - someone has to pay those costs, and if it's coming out of family budgets, that reduces their ability to spend money and therefore acts as a drag on the economy.
Austerity budgets like this are inherently deflationary. They make it harder, not easier, to produce economic recovery. They make it harder, not easier, to deal with California's debt problems, small as they are.
And they will merely worsen future budgets. It's no accident that this is the fourth summer in a row where budget cuts are being seriously proposed. The cuts begun in 2007 have produced a downward spiral, where the economy worsens due to lack of state support, causing deeper declines in tax revenues and therefore exacerbating the budget shortfall.
In a situation like this, someone has to pay to close the gap. Arnold Schwarzenegger believes it must be the poor, the sick, the young and the old who must pay. Why? In order to prevent the wealthy and the large corporations from paying.
By closing corporate tax loopholes and raising other taxes on those with high incomes, California can just about close the entire $20 billion deficit expected to be announced today. We can close it without making any further cuts to schools and health care services. We can close it without causing long-term damage to our economy.
The usual argument, of course, is that such tax increases will cause large employers to not hire workers. I'm skeptical that would be the case, and the evidence suggests it won't be the case. In 1991 California pushed through billions in tax increases. It didn't prevent economic recovery from taking hold soon thereafter, and didn't prevent the 1990s boom from taking place. In April 2009, taxes went up in California, and it did not worsen the recession, nor has it prevented a slow and halting recovery from beginning.
But there's a more fundamental issue that needs to be dealt with regarding the question of taxes and jobs. The current budget process, where taxes on large corporations are kept at all-time lows and forcing devastating cuts to services, favors the big businesses over the small ones. It's those small businesses that need our support. Those are the businesses that create jobs, that keep money in the community and in the state, and that ultimately will provide the basis of a 21st century economy in California.
California isn't Greece. We don't need to follow this road to ruin. Instead, by rejecting the concept of spending cuts as well as the specific cuts that will be proposed today, we can begin to provide economic recovery to California and position ourselves to lead the 21st century economy while providing prosperity for everyone.
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It is absurd though awful that we would consider closing schools and laying off fire and police dept. personnel before we would raise the taxes on upper end incomes, whether business or personal.