State Spending Is Already Lower Than 2008

Mar 25 2011 Published by under Uncategorized

The 2012 budget proposals are out and according to the Center of Budget and Policy Priorities,   and 35 States are spending lower than 2008 pre-recession levels. 6 states are not proposing budgets due to their two year budget cycles and 9 are spending 4% or higher than 2008 levels. Those spending more are Vermont, New York, Connecticut, West Virginia, Arkansas, North Dakota, Alaska, Minnesota and Hawaii.

The problem is some of these budget shortfalls have been exaggerated by decreased corporate tax rates.  This further reduction in revenue increases the need for deeper cuts.  Unfortunately for those of us who are community business owners or working class employees, these cuts directly effect us.

For example,

  • Arizona’s Governor Brewer proposed a tax package that included reducing the corporate income tax rate to 5 percent from 6.98 percent and reducing commercial property taxes by 25 percent. The package was signed into law on February 17 and will cost the state $38 million in fiscal year 2012, or 4 percent of the state’s 2012 budget shortfall. By fiscal year 2018, the cost of the tax cuts will balloon to $538 million, half of which will result from the corporate tax rate cut.


  • Maine’s Governor LePage proposes eliminating in 2012 the state’s alternative minimum income tax. In 2013, he would also lower the top income tax rate, for income above about $50,000, to 7.95 percent from 8.5 percent. And in 2014 he would double from $1 million to $2 million the income exempted from the state’s estate tax. These cuts would cost the state $203 million in the coming two-year budget cycle and would widen the two-year budget gap by 25 percent.

 

  • In North Carolina, Governor Perdue proposes cutting the state’s corporate income tax rate to 4.9 percent from 6.9 percent, beginning in calendar year 2012. This tax cut for corporations would cost the state more than $400 million over the upcoming two-year budget cycle, and eat up 25 percent of the revenue protected by her proposed extension of the state’s current sales tax rate described above. The tax cut is equal to about 10 percent of the state’s projected two-year shortfall.

The biggest issue that could result from these cuts is reduced economic activity.  When we reduce spending, governments lay-off workers, cancel contract with private vendors and cut benefit payments to individuals.  All of this sucks money out of circulation in the economy, and reduces economic demand.

I could understand if reducing government spending lowered tax bills, like property tax or income tax on workers.  That would transfer money into people’s hands and keep the money circulating in the economy.  Instead we see those savings go to cover the cost of reduced taxes on corporations or increase a state’s rainy day fund.

The conservative plan of cutting spending doesn’t seem to be doing too well in other areas of the world.  According to Business Insider, The economic situation in the United Kingdom is going from bad to worse since the conservatives took over with David Cameron.  Not only is the economy back in recession, inflation is heating up.

Yahoo’s economics editor, Daniel Gross, believes that by taking the austerity approach that the conservatives in the UK and United States have suggested, they took the foot of the economic gas pedal and slammed the vehicle into park.  Is this what may happen in the coming months here in the United States?  Let’s hope not.

There are ways to reduce costs and streamline services and in times like these I don’t blame them for digging deep.  But when you are laying off teachers to cover for corporate tax breaks that seems a little absurd.  When states are reducing help for poor children and reducing corporate taxes that is borderline psychotic.

With corporate profits at an all time high, it seems the only people hurting in this recession are the very people who didn’t cause it and that is a shame.

 

 

 

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